Wealth International, Limited

Offshore News Digest for Week of May 29, 2006

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

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



In the mid-90s, when Slovakia’s development was still stalled under the authoritarian regime of Vladimir Meciar – a time when the Czechs were already celebrating their first post-Soviet economic miracle – Martin Bruncko sent an unsolicited application to the ministry. Given his degrees from elite American universities and his work experience at the Washington office of management consulting firm McKinsey, he could easily have graduated to a job on Wall Street. But he returned to the Danube instead. “My friends thought I was nuts,” he recalls.

Bruncko wanted to be there for Europe’s greatest neoliberal experiment. Meciar had already been voted out of power, and Slovakia was getting ready to catch up with other countries under Prime Minister Mikulas Dzurinda. On the staff of Ivan Miklos, the finance minister, in 2004, Bruncko helped introduce the famous 19% flat tax. He was there when the country’s major industries were privatized, when the health and pension systems were reformed. Job protection measures – laws making it difficult for employers to sack their employees at short notice – were eliminated overnight by Miklos and his staff.

Bratislava has transformed since then. Only 10 years ago, the capital city was as gray as socialism itself. Now boutiques, pizzerias, sushi parlors and cocktail bars crowd the renovated city center. There is full employment here. The country may have come to capitalism late, but it has become a model country in. Unemployment has fallen from 18% to 11% during the past three years. Foreign corporations, especially those in the automobile industry, are waiting in line to invest. Kia, Volkswagen and Peugeot Citroen are all profiting from low wages and taxes and rejoicing over investment assistance. People are already talking of a “Detroit of Europe”.

The Merkels, Blairs and Villepins on the western part of the continent could sit back and wait calmly for their re-election if they had such figures to show for their policies. But not Dzurinda. The 52-year-old marathon runner is stumbling. He is tripped up over regional elections and his poll ratings are plummeting. At this point, he should be glad if he gets even 15% of the vote in the parliamentary elections on June 17. Dzurinda can only save his program of reforms by finding a strong coalition partner. There is one obvious choice – the man who has already repeatedly prevented the minority government from being voted out of power, but who also has a terrible reputation in Europe … Vladimir Meciar.

Of course, one of the achievements that will always be attributed to Dzurina and his reformers is the fact that they drove Meciar out of power in 1998 before he could turn Slovakia into a second Belarus. But come June, Dzurinda may need the votes of the would-be dictator. It is one of those peculiar historical turns that Eastern Europe is experiencing especially frequently these days. Martin Bruncko wants to stay in Slovakia if Meciar and those associated with him return to power. He thinks they are more civilized than they used to be – and that the old prize fighter will be given an honorary position where he will not be able to do any more harm.

Link here.


I get a lot of email asking me, “What’s it really like in Mexico, Fred?” A book would be needed to give a good answer. Since people seem interested, will take a few random shots at the topic. The quick answer is that it is not nearly as bad as many Americans think. Not even close. Sure, it is a screwed up country. (Name one that is not. Switzerland, maybe?) It has all manner of problems and defects – jobs going to China, corruption, poverty in places, crumbling sidewalks, loud music, poor services, pollution, etc. No paradise here. But… but….

Mexico is a democracy, as much as the U.S. The government is not repressive. Mexico is not a police state. It is not particularly criminal. Guadalajara is certainly less dangerous than Washington. It is not disease-ridden. I eat in all sorts of restaurants here with no problem. It is not over-regulated and controlled. It is not primitive. It is not a backwater. Mexican big-box stores are indistinguishable from Wal-Mart. The telephones work, cell phones work, broadband is widely available (in my town of 18,000, for example). Guadalajara abounds in book stores and music stores.

I think that the Mexico of today is confused with the Mexico of 50 years ago. For example, a clear gradient exists in health between the old and the young. Men of 50 or more often look as if they had spent their lives carrying anvils across the desert with nothing to eat. They are arthritic. They walk painfully. They are just plain wore out, as we say in Alabama. They make for picturesque postcards, but bear little resemblance to today’s Mexicans. The young appear as lithe and healthy as those of their age anywhere, and show no signs of wearing out beyond the normal effects of age. They seem to have their teeth, which appear healthy. (When all visible teeth are white and where they ought to be, things cannot be too bad.)

In my experience Mexicans are both hard-working and competent. Now, you ask with good reason, if this is so, why is Mexico a comparatively poor country? The usual answers are corruption, lack of ambition, and poor schooling. The corruption is there, and may indeed be the cause. The difference in degree of corruption between Mexico and the U.S. may be somewhat less than is usually thought. American corruption is to an extent institutionalized in such forms as campaign contributions, positions on boards of directors, and affirmative action, all of which are payoffs. But it is a way of life here. Lack of ambition … perhaps. The focus is on family, friends, and a quiet life. Americans are much more driven, and much more materialistic. These qualities pay off economically. I am not sure about lack of schooling. It is not a nation pathologically addicted to study. They do not seem much to care about books. However, I cannot see that they are baffled by technology. TelMex knows perfectly well how to install a line. Somehow it just does not get done.

Medical care is interesting. If you can pay for good care, you can get it. But most Mexicans cannot afford $400 for a crown. They tend not to see doctors until they have to, and then to use the (free) public health hospitals. These are not as bad as you might think. But these places do not have the best equipment, nor expensive medicines, nor pricey specialists, and they are badly overworked. How things are in the remote countryside, I do not know, but I can guess. Not great.

Other topic: Mexicans tend to be self-reliant in the sense that Americans were 50 years ago, assuredly including the women. An American friend told me of watching his wife go out to drive somewhere. The car did not start. She opened the hood and investigated. Then she pulled the stereo out of the dashboard, removed a length of wire, dived back under the hood, put it where she thought it belonged, started the car, and drove away. This is not unusual. Them who cannot pay plumbers become plumbers. And electricians. And….

Again, I do not mean to idealize the place. It ain’t idealizable. Too many things wrong with it. But it is not as bad as gringos think, and it has many compensating advantages that other places do not.

Link here.


The U.S. and tiny Antigua and Barbuda have asked the World Trade Organization’s Dispute Settlement Body to establish a compliance panel to determine whether the U.S. remains out of compliance with the WTO’s ruling on Internet gambling laws issued more than a year ago. Antigua’s Minister of Finance and the Economy, Dr. Errol Cort, said last week that if the WTO finds that the U.S. is failing to comply with last year’s ruling (and it has pointedly refused to do anything to change its laws or practices in response) then his government reserves the right to request authorization to suspend concessions or other obligations under the relevant WTO provisions. This could, for instance, include the suspension of intellectual property conventions, allowing Antigua and Barbuda to manufacture and distribute pirate goods and services with impunity.

Antigua is also up in arms about a bill sponsored by Rep. Bob Goodlatte (R-Virginia), chairman of the House Judiciary subcommittee on crime, which is currently moving forward in Congress, and which would add an “enforcement mechanism” to the existing Wire Act to address the situation where a gambling business is located offshore but the gambling business uses bank accounts in the U.S. The U.S. has successfully used the Wire Act, which prohibits the use of telecommunications to make wagers across state lines or internationally, to attack the U.S. operators of offshore casinos. Last week, an indictment under the Wire Act was unsealed against the operators of two Internet gambling firms based in Antigua and Barbuda for offenses related to an estimated $250 million worth of Internet gambling wagers. U.S. punters are estimated to be behind up to half of the $12 billion a year wagered in cyber casinos. Antigua-based operators are thought to account for 25% of this turnover.

Link here.


It has been reported that China will start to enforce a capital gains tax on property profits in order to help cool the booming market and avert a dangerous real estate bubble. According to a report in the Hong Kong newspaper Wen Wei Po, China would apply the previously unenforced 20% tax on capital gains from property transactions on houses sold within two years of purchase. Previously the law, which came into force in 1994, applied to sales within five years. The law would also apply a tax of between 2% and 5% on the full transaction value if the capital gain could not be established.

Initially, the law would be enforced in about 10 major cities, including Beijing and Shenzhen, according to the report. These cities have seen dramatic increases in property prices recently. In Beijing, prices rose 14.8% in the first three months of this year compared to a year earlier. Prices in the southern city of Shenzhen have risen by 25%, and prices in the north-eastern city of Dalian have jumped by more than 10%, government data showed. Earlier in the month, Chinese Premier Wen Jiabao stated that the government will continue to adjust tax, credit and land policies to curb speculation and ensure an adequate supply of affordable housing for low and middle income citizens, despite his assertion that China’s property market is “under control”.

Link here.


The Caribbean Development Bank has calculated that economic growth remained at a healthy level in St. Kitts and Nevis in 2005 as several sectors of the economy contributed to growth. “Economic performance in St. Kitts and Nevis in 2005 improved relative to the previous year, with continued economic growth; a smaller current account balance on the external accounts; and moderate improvement in the fiscal accounts. Real economic growth is estimated at 4.8 percent in 2005 compared to 6.4 percent in 2004,” the CDB stated in its annual report.

The CDB institution reported that tourism and related services and construction contributed most to economic growth last year, while banking and insurance services also expanded. However, agriculture continued to decline. The CDB noted that the sugar industry, once the lifeblood of the twin island economy, ceased at the end of July. The loss of the sugar industry will present a challenge to the jurisdiction’s government as it attempts to diversify its economy, the CDB noted. However, the report also noted that the country sustained economic growth even during a climate of historically high oil prices, maintaining relatively low inflation at 3.6% in 2005. The bank also noted that the government’s fiscal position strengthened last year in spite of a rise in expenditure.

Link here.
Caribbean Development Bank warns of effects of growing St. Kitts and Nevis debt – link.


Regulation and red tape is the most significant constraint to business expansion globally so far in 2006 according to the latest findings from the Grant Thornton International Business Owners Survey (IBOS). The survey of more than 7,000 business owners worldwide in 30 countries found that red tape is hindering more businesses in Europe than the rest of the world. Poland (56%), Russia (54%), Greece (53%), Germany (52%), and The Netherlands (50%) occupying the top five places in the survey. Bureaucracy appears to be decreasing in Russia despite the fact that it occupies second position in the survey, with 4% fewer businesses claiming it as a business constraint than in the previous year. In contrast, both Italy and Turkey have moved sharply up the table in 2006. Red tape is less of an issue in East Asia and North America according to the survey.

Lack of a skilled workforce is now the second most significant constraint to business after red tape, according to the survey. The main exceptions are Botswana, Australia and Thailand where more than half the respondents cite lack of a skilled workforce as the main constraint on business expansion. Further findings from IBOS 2006 show that payment periods vary significantly among the 30 countries in the survey, with Russia being the fastest payer of invoices at 26 days, followed by Mainland China, Germany and Poland. The slowest payers are Greece, Italy and Spain, with Greece experiencing a steady lengthening in average payment periods in recent years from 68 days in 2003 to 84 days in 2006.

The 2006 survey also found that there has been a substantial increase in profit margin pressure experienced by a balance of 47% of respondents, with pressure the greatest in Taiwan (81%), Germany (74%), the UK (64%) and Thailand (60%). The main driver on profit margin was from customers to keep prices down.

Link here.



In an effort to raise revenues, tax writers in Congress added a last-minute provision that retroactively increased taxes for Americans living abroad. But the sudden imposition of new taxes has surprised overseas taxpayers, and it has employers concerned about the added cost. The increase for Americans abroad was added at the last minute to the $69 billion tax cut legislation that was signed last week. Americans living overseas paid almost $3.5 billion in U.S. income taxes in 2001, the latest year for which data is available, according to the I.R.S. The change, which is retroactive to the beginning of 2006, is expected to raise taxes on Americans abroad by $2.1 billion over the next 10 years.

The suddenness of the move meant that American Chambers of Commerce in Asia did not have a chance to mobilize against the idea as they had in previous sessions of Congress. “We were held back by the U.S. Chamber because they didn’t think it would be popped in this time,” said Richard R. Vuylsteke, the executive director of the American Chamber of Commerce in Taipei. Senator Charles E. Grassley, R-Iowa, the chairman of the Finance Committee, who has long been a proponent of higher taxes on overseas Americans, has said that the tax policy had been overly generous. Americans living overseas say the provision wrongly focuses on allowances that their employers pay to cover higher costs – like housing, schools and trips home – that they incur by taking a job abroad. The law changes the way taxes are calculated on subsidies like housing allowances, which should push many of those Americans into higher tax brackets, analysts say.

While the move will have limited effect on Americans living in countries with high tax rates – European countries, for example – those living in low tax jurisdictions with high housing costs – like Bermuda, the Middle East, Singapore and Hong Kong – will be hit hardest, partners at two major accounting firms said. Over all, the bill raises taxes on overseas Americans by about 6%, but most individuals will pay nothing more, while others will see their taxes quadruple. For Kristine Kraabel, a gift shop owner in Singapore, and her husband, who is now the regional human resources director there for an American company, the new legislation will more than triple their American tax bill. Their tax adviser calculates that they will owe $20,000 to $25,000 more in U.S. taxes, up from $5,000 last year, even as they pay $20,000 in Singapore taxes.

Americans working overseas get a dollar-for-dollar credit for income taxes paid to foreign countries to offset their American income taxes. They also get to exclude $80,000 from the income they report to the I.R.S. The new law increased the exclusion to $82,400 this year. But analyses show that by adding provisions to how the exclusion is calculated, it raises the overall tax bill and marginal tax rates as well for some overseas Americans. Senator Grassley’s staff, in a memo, said that the I.R.S. counted 306,393 tax returns claiming the exclusion in 2003, of which only 125,894 paid any American income taxes. When no tax is due it means that foreign income taxes paid by overseas Americans, together with the benefit from excluding $80,000, were higher than those that would be owed to the U.S. alone.

The Kraabels are especially upset because they used to live in Decorah, Iowa – Senator Grassley’s home state – and still own a house there.

Link here.


Guernsey’s senior politicians officially proposed a set of economic and taxation changes that include a zero rate of corporate tax and the capping of personal tax at £250,000. The measures contained in the newly confirmed package include:

(1) A zero rate of income tax on company profits, except for specific banking activities which will be taxed at 10%. (2) Guernsey residents continue to pay tax at 20% on assessable income. (3) Personal tax capped at £250,000 on non-Guernsey income and investment income. (4) Wealth taxes such as inheritance tax and capital gains tax will not be introduced. (5) No goods and services tax in the short term. (6) Increase in indirect taxes such alcohol, tobacco and petrol. (7) Running a budget deficit to be funded over 3-5 year by up to £100 million from the contingency reserve plus 5% annual economic growth.

Although many of the measures had already been flagged up by Guernsey’s authorities, no official proposals had been made until the release of the package last week.

Link here.


A European Parliamentary working group is considering a proposal by Alain Lamassoure, member of the center-right European People’s Party, to introduce a tax on SMS text messages and emails as an alternative source of revenue for the EU’s budget. Under Lamassoure’s proposal, a tax of about 1.5 cents would be levied on text messages, and a 0.00001 cent levy on every e-mail sent. According to Lamassoure, such taxes have the potential to raise huge sums in revenue but would hardly be noticed by phone and computer users. “This is peanuts, but given the billions of transactions every day, this could still raise an immense income,” he stated.

Earlier in the month, the working group on the “future financial resources of the Union” 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. Parliamentarians have been suggesting a variety of sources from which the EU budget could be funded, including corporate profits and flight levies. The current EU budget is financed by a mixture of customs duties, VAT receipts and direct contributions from the 25 states.

Links here and here.


The IRS announced that it will stop collecting the federal excise tax on long-distance telephone services. The tax on telephone services was first imposed in 1898 to help pay for the Spanish-American War. The current rate is 3% of the charges billed for these services. The IRS announcement followed decisions in five federal appeals courts holding that the tax does not apply to long-distance service as it is currently billed.

Taxpayers will be eligible to file for refunds of all excise tax they have paid on long-distance service billed to them after February 28, 2003. Interest will be paid on these refunds. Taxpayers can claim this refund on their 2006 tax returns, and in order to minimize the administrative burden, the IRS revealed that it will soon announce a simplified method that individuals may use. “So taxpayers won’t have to spend time digging through old telephone bills, we’re designing a straightforward process that taxpayers may use when they file their tax returns next year,” confirmed IRS Commissioner Mark W. Everson, adding, “Claiming a refund will be simple and fair.” The IRS announcement does not affect the federal excise tax on local telephone service, which remains in effect. Likewise, various state and local taxes and fees paid by telephone customers are also unaffected.

Link here.
IRS eases reporting burden on corporations and shareholders – link.


Chancellor Gordon Brown’s 2006 Budget has moved Tax Freedom Day for the British taxpayer back a further three days, according to the Adam Smith Institute, a free market think tank. The ASI says that the average income earner in the UK will work until June 3 this year in order to pay all direct and indirect taxes in 2006. This is three days later than in 2005 and seven days later than 2004. This means that Tax Freedom Day in 2006 is the latest that it has been since 1988. Remarked Eammon Butler, director of the Adam Smith Institute, “Thanks to Brown, this event is getting later and later in the year.”

The ASI has calculated Tax Freedom Day for every year since 1963, when it fell on 24 April. Ever since, the day has generally fallen later and later in the year, apart from a dip in the mid-1970s, reaching a peak of June 15 in 1982.

Link here.


International cooperation is helping governments around the world to combat tax cheating through improved transparency and exchange of information in tax matters but there are still gaps that need to be plugged, a new report by the OECD’s Global Forum on Taxation has concluded. According to the OECD, the survey shows that countries continue to improve their international cooperation to combat tax abuse by putting in place mechanisms which enhance transparency and exchange of information for tax purposes.

Many of the economies reviewed have enhanced transparency by introducing rules on customer due diligence, information gathering powers and the immobilization of bearer shares. Most have entered into double taxation conventions and/or tax information exchange agreements, and many are engaged in negotiations for such agreements. The OECD also noted that none of its member countries, and very few non-members, now make domestic tax interests a condition for responding to a treaty partner’s request for information on a specific taxpayer.

However, the OECD argues that more progress can be made to improve global tax transparency, and stated that some countries still place constraints on international cooperation to counter criminal tax matters and a number continue to impose strict limits on access to bank information in civil tax matters. “The direction of change is clear,” Paolo Ciocca, Chair of the OECD’s Committee of Fiscal Affairs and Co-Chair of the Global Forum stated. “Onshore and offshore financial centers are prepared to work towards the implementation of mutually agreed standards. I look forward to the day when the centers that have met these standards are joined by other jurisdictions that have not yet achieved them.”

Link here.



If you have wealth, you need wealth protection. Just a few simple steps-plus some offshore advantages-can ensure your hard-earned assets remain yours and can be passed on to your family and loved ones.

  1. Keep a low profile. Owning assets in your own name is like chum in the water for the circling schools of lawsuit-happy lawyers and litigants. One way to lower your profile is to not title your assets directly in your own name.
  2. Shrink the target. Segregate risks, e.g., consider creating a separate legal entity for distinct liability-generating assets. Especially, never mix large liability-generating assets. For example, an apartment house should not be owned by the same company that owns a trucking company.
  3. Going offshore adds another layer of protection. Whether it is in a life insurance wrapper, retirement annuity, or asset protection trust, placing your assets offshore puts them out of reach of most frivolous lawsuits.
  4. Avoid general partnerships. You are personally liable for all debts or other business liabilities the partnership incurs. It is a high-risk way of doing business.
  5. Get Good Advice. Avoid hucksters claiming falsely that you can lower your tax bill to zero if you just put all your money in their “pure trust”, “constitutional trust”, or “corporation sole”.
  6. Pass on your legacy with an offshore trust. In most cases, while an offshore trust will protect your assets, it will not reduce your tax bill. However, an offshore trust can incorporate provisions that can reduce future estate tax liability. Note that offshore trusts are effective only if the creator relinquishes all control over the trust, its assets and the trustee. Otherwise the APT may be declared to be a sham by a court or by the IRS or both.
  7. File those returns and reports. A certain path to asset loss is ignoring U.S. tax filing and reporting requirements or giving inaccurate or partial information.
Link here.


Since trusts governed by the laws of the British Virgin Islands usually have significant legal links with the laws of one or more other jurisdictions, it is essential for the BVI to have adequate rules for resolving “choice of law” questions relating to trusts. Although the majority of the provisions of the English Recognition of Trusts Act 1987 (incorporating as it does most of the provisions of the Hague Trusts Convention) have been extended to the Territory, so ensuring a certain amount of certainty in relation to many of the relevant conflict of law rules relating to trusts, specified matters are expressly excluded from that Act, meaning that it is vital for these rules to be reinforced by additional statutory provisions.

In 1993 the BVI introduced legislation which was intended to deal with various issues which were expressly excluded from the Hague Trusts Convention, article 4 of which stated that the Convention “does not apply to preliminary issues relating to the validity of wills or other acts by virtue of which assets are transferred to a trustee.” Section 83 of the Trustee Act was designed to plug this gap in the Convention by providing that “if a person transfers or disposes of personal property to a trustee of a trust he shall be deemed to have capacity to do so if he is at the time of such transfer or disposition of full age and sound mind under the law of his domicile.”

Certain countries have laws under which surviving relatives of a deceased (e.g., his children) can claim a fixed share of his estate. In common with the laws of most other offshore centres, the BVI has also passed legislation expressly preventing such claims from being made against lifetime trusts.

The provisions of section 83 of the Act were recently analyzed in conjunction with the corresponding provisions of other offshore jurisdictions’ legislation with a view to replacing this section by a new section containing a much more comprehensive set of statutory conflict of laws rules for trusts. Since certain commentators had pointed out that the corresponding laws of many offshore trust jurisdictions were deficient in that they did not deal with preliminary issues relating to the validity of all trusts, a further objective of the review was to establish conflict of laws rules which apply to trusts generally, rather than merely to those which are governed by BVI law.

Section 82 of the Trustee Act provides that the BVI court has jurisdiction inter alia where the proper law of the trust is that of the Territory, where the trustee is resident or incorporated in the Territory, where the administration of the trust is carried out in the BVI and in respect of trust property situated in the Territory. Three subsections give the Territory’s courts jurisdiction to resolve trust disputes where they are the natural forum for the litigation, where the parties submit to the court’s jurisdiction and where the trust instrument contains a provision referring all disputes to the Territory’s courts.

In the words of Professor Jonathan Harris of Birmingham University “The [Trustee (Amendment) Act … strikes] a balance between respect for standard conflict of laws principles wherever possible, and the demands of a pragmatic set of rules which embrace settlor autonomy and insulate BVI trusts from attack by foreign laws. The combination of such rules with wide bases of jurisdiction for the BVI courts should make the conflict of laws rules applicable to trusts in the BVI an attractive package.”

Link here.


Bermuda, the world’s largest captive domicile, is also the best one to do business in, according to the findings of a new survey. The Island was voted tops for tailored regulation, accessibility, cost efficiency, and for protected cell legislation, in the survey published in the May issue of Reactions magazine. The plaudit affirms the Island’s leading place, as it comes under increasing competition from a growing number of rival domiciles – particularly in the U.S.

The world’s top captive domiciles – Bermuda, Cayman Islands, Vermont, the British Virgin Islands, Guernsey, Barbados, Luxembourg, Dublin, Turks and Caicos and Isle of Man – grew by less than 4% in 2005, according to a survey by Advisen, cited in the Reactions report. And a growing number of U.S. states catering to captive insurers, led by Vermont, is proving strong competition for offshore domiciles, now that tax advantages for offshore captives have more or less faded.

Philip Barnes, president of the Bermuda Insurance Management Association, cautioned that data, taken at face value, does not tell the whole story. Bermuda lost ground in 2005, according to the Reactions survey, and numbers compiled initially by trade publication Business Insurance. Last year, the Island’s captives fell to 987 from 1,000 in 2004. The numbers take into account new captive formations, as well as ones crossed off the list of insurers holding licences. Bermuda’s 2005 numbers still put it more than 250 captives ahead of number two rival, the Cayman Islands. However, once the captives formed by various U.S. states are added together, the total outstrips Bermuda, at 1,098 captives.

“The outlook is still very buoyant, we are putting on a sizeable number of captives each year,” said Mr. Barnes. And he said interest was strong amongst both existing and new clients. He said that Bermuda, which has long catered to Fortune 1000 companies, is also seeing more interest from smaller corporations.

Link here.


A growing number of investors are discovering the appeal of investment bonds as a means of deferring tax and reducing their tax bills. Sales of offshore bonds, issued from centers such as the Isle of Man, Dublin, and Guernsey rose by 60% to about £5 billion last year while sales of onshore bonds rose by 18.5% to £24 billion, according to Defaqto, a financial research consultancy. Demand for offshore bonds has been driven in part by a Europe-wide clampdown on other forms of offshore investment and by a growth in the number of people moving or retiring abroad.

Both on- and offshore bonds, issued by investment companies based in the UK, have proved popular as a way for individuals to defer tax liabilities to a time when they may come into a lower tax band. Investors normally make a lump sum payment into this type of bond which is issued by a range of insurance and investment companies. The terminology can be confusing, Defaqto says, with issuers referring to these products as single premium bonds, investment bonds or unit-linked bonds. They have nothing to do with the sovereign or corporate bonds issued by governments and companies. The money put into these bonds is frequently invested across a range of underlying investment funds to spread the risk and boost returns. The average minimum investment is £40,000 compared with £7,800 for onshore bonds, according to Defaqto.

The appeal of the bonds lies in the fact that they fall under the favorable tax rules governing life insurance. Onshore bonds are subject to 20% corporation tax but individuals are not personally liable for either basic rate income tax or capital gains tax while the funds remain invested. Investors can withdraw up to 5% of value from the bonds a year without an immediate tax liability. This means bondholders can defer tax until they are cashed. This is useful if they retire and no longer pay higher rate income tax or if they emigrate to a country with lower taxes.

As tax authorities become more vigilant, the advantages of these bonds have become more valuable. Offshore bonds are exempt from the EU’s tax savings directive, because the assets in the bond are held by the life company running it rather than by the individual. Set against these advantages are the high commissions on these bonds – 7% or more compared with 3% to 4% for unit trusts. But pressure could come on investment bonds from recent changes in the government’s tax treatment of trusts. The exact implications of the clampdown are still not clear but it could reduce the bonds’ appeal as an estate planning tool.

Link here.


Samoa’s Minister of Finance Niko Lee Hang is traveling to Singapore and Hong Kong to promote Samoa’s Offshore Finance Center. He is accompanied by the Governor of the Central Bank, Attorney General, Member of the SIFA Board of Directors from the Private Sector, and the Chief Executive Officer for the Samoa International Finance Authority (SIFA). The reasons for the proposed promotional efforts are to assure the investors of Samoa’s commitment in continuing to operate its Offshore Finance Centre despite pressures from various multinational organizations. Another goal is to entice foreign investors to Samoa and to assure them of the safety of their investment in a credible and legitimate jurisdiction.

Link here.


Fed up with reading about hedge fund managers’ astronomical earnings and second yachts while you struggle along on €5,000 a month? Well, you can indulge in a little schadenfreude – May has been a miserable month for hedge funds and their managers according to market gossip, and the tax authorities are in hot pursuit of those Cayman Island properties. The unexpected collapse in commodity prices in May and the resulting falls in emerging market stocks are said to have cost many hedge funds up to 5% of their value during the month. Most commodities funds seem to have stayed in their holdings far too long. Some of them may have lost up to 25% or even more.

Meanwhile, in London, hedge fund managers who have been using offshore destinations to park their giant bonuses are facing an attack from the Inland Revenue. UK-based hedge funds are not taxed on gains on their holdings under an investment management exemption which applies to all UK-managed funds, providing that management fees, which are taxable, are reasonable. It is usual for UK-managed funds to have themselves administered in offshore jurisdictions – Ireland, the Cayman Islands and Luxembourg are the favorites – and for management fees to be split between the London and offshore offices. This split should be made according to the best transfer-pricing arm’s length principles, and it is this split that the Revenue is said to be examining.

New York hedge fund managers were similarly targeted by the IRS in 2003. One of the techniques used in New York was to exchange fee entitlements for shares in offshore subsidiaries. This is not illegal as long as the funds use “cash” rather than “accrual” accounting for their income, but the IRS accused many firms of being erratic in their accounting techniques.

Also keeping London hedge-fund managers awake at nights is the growing risk they are facing of legislative attack from the U.S. Foreign hedge fund managers have to register with the SEC if they have U.S. clients under new and highly controversial hedge-fund registration rules introduced earlier this year. More than 150 London-based funds are said to have registered – and their managers are highly vulnerable to transatlantic attack.

Link here.



There is a little known Internet service called Hushmail. Hushmail’s corporate offices are located in Vancouver and in Eire. Their mail servers are physically located in Canada, Eire, and in the Dutch Antilles. For those of you who do not know this, the Dutch Antilles do not even have a treaty with the U.S. concerning the War on Terror. Furthermore, Hushmail uses GPG encryption between Hush users (and also between Hush and GPG users), which is the free and open source version of the original PGP code written by Phil Zimmermann – for which “crime” the Clinton administration tried for seven long and expensive years to put Zimmermann in prison. OpenPGP, or GPG, has never been broken. Zimmermann himself, the encryption genius who remained true to his belief in personal privacy under the most terrible of pressure, has been the very executive in charge of Hushmail’s encryption program since 2001. Yessir, he is alive, well and free, and still working for you.

To add icing to the cake, Hushmail does not demand to know who you are. Period. You may choose any email address, and they do not even ask for your name, let alone log it. When you send email out, your IP address is only shown as the IP of the Hushmail SMTP server, and no logs of any kind are kept as to your real IP address. Hushmail itself does not have your passphrase, meaning they cannot decrypt your messages. And if you use their Java system (and I recommend strongly that you do), you can encrypt your mail locally using your remote keys, and nothing is ever transmitted from your computer in the clear. Nothing.

What this means is that if the U.S. should manage to seize the Antilles servers – unlikely in the extreme – all they will get is encrypted email with no way to even track the originator of that mail. Hushmail could not decrypt your email even if they wanted to, and they certainly do not want to – and neither can the NSA. This is just about as safe as email is going to get, folks. The weakest link is your passphrase – so pick a long and complex one, with more than just letters – but heaven help you if you forget it. Hushmail also has a Messenger that uses the same type of encryption. It is painfully basic right now, but they are constantly working on more services.

Hushmail is free. You do have the option to pay for a commercial account – you can get more mail and encrypted file storage, the ability to retrieve your email locally using an IMAP email client (like Thunderbird), and a few other nice perks, but the basic webmail and Messenger service is completely free and will remain so. They will deactivate your account if you do not log into it for three weeks (only true of a free account). When you choose your email address, you can choose the @hush.ai domain to locate your mail on the Antilles servers. The encryption is completely transparent to the user – it is utterly and absolutely simple to use – which solves the worst problem with email encryption to date. If you can use Yahoo or GMail, you can use Hushmail just as easily – and you can reclaim a little piece of your privacy.

You are also helping to build a network of patriots that can still share information long after our press has vanished as anything even approaching free and honest journalism. Besides, if you are anything like me, the thought of the NSA spending an astronomical number of hours trying to crack the encryption on ordinary chatty email just does it for you. Now, multiply that by millions of folks, and enjoy the feeling! If you want to support Hushmail, consider buying a premium subscription, but by all means try a free one first and see how you like the taste of liberty! It is the patriotic thing to do.

Link here (scroll down).


Rep. Diana DeGette, D-Colorado, said at a House of Representatives hearing that new laws were necessary to thwart child pornographers and other Internet predators. Investigations into illicit behavior have been hampered because data may be routinely deleted in the normal course of business, DeGette and other data retention proponents claim. “I am horrified that the provider community is not working with us on this, because it seems to me to be a very simple piece of legislation, and I’m going to continue to fight for it,” she said, adding that the committee plans to grill ISP representatives at another hearing that may occur as soon as next week.

That happens to be a bipartisan view. Last June the U.S. Justice Department was quietly shopping around the idea of mandatory data retention. In a move that may have led to broader interest among U.S. politicians, the European Parliament in December approved such a requirement for Internet, telephone and Voice-over-Internet-Protocol (VoIP) providers. Then, two weeks ago, Attorney General Alberto Gonzales gave a speech saying that data retention by Internet service providers is an “issue that must be addressed.” Child pornography investigations have been “hampered” because data may be routinely deleted, Gonzales warned.

DeGette’s proposal says that any Internet service that “enables users to access content” must permanently retain records that would permit police to identify each user. The records could only be discarded at least one year after the user’s account was closed. “We’re not saying that Internet service providers should keep all of the communications,” DeGette said. “That would be burdensome. All we’re saying is that they should have to keep the (Internet) addresses of their subscribers.” That requirement is “simple legislation,” DeGette said. “We’re also not saying we want anyone to violate folks’ privacy rights.”

It is not clear whether the DeGette language would be limited only to commercial e-mail providers and ISPs and places like coffeehouses, bookstores, or home users that provide Wi-Fi access at no charge. Also, an expansive reading of DeGette’s measure would require every Web site to retain those records. (Details would be left to the Federal Communications Commission.) For their part, ISPs say they have a long history of helping law enforcement in child porn cases and point out that two federal laws already require them to cooperate. It is also unclear that investigations are really being hindered, said Kate Dean, director of the U.S. Internet Service Provider Association.

Link here.


A legislative tug-of-war over strict new federal standards for issuing driver’s licenses ended when senators beat down a House-led rebellion against the idea. By a 14-7 vote, senators refused to form a committee to work out differences with House lawmakers, who strongly opposed enforcing the federal Real ID Act. The vote means New Hampshire moves ahead with the federal drivers license program, which grew from recommendations by the Sept. 11 Commission. New Hampshire is one of two states picked to pilot the program and is due to receive $3 million to implement the new requirements. It requires that by 2008, states verify birth certificates, Social Security numbers, passports, and immigration status when people get driver’s licenses.

Critics said Real ID was flawed and posed serious threats to privacy. Under Real ID, licenses would be machine-readable, and states’ driver information would be linked, sparking fear over creation of a national identity database. “We need to be true to our ‘Live Free or Die’ motto, be true to our citizens, be true to ourselves,” said Sen. Peter Burling, D-Cornish, speaking against the program.

Link here.


A mystery detainee who allegedly created a bogus identity as an English nobleman by assuming the name of a dead baby is actually an American who went missing from Florida more than 20 years ago, his relatives say. The man being held in a jail in Kent, England, goes by the title of the Earl of Buckingham but he is really an Orlando native named Charles Stopford, his father, Charles, and sister Rebecca Davis say in a documentary. The relatives said they saw photos of the fake lord on the Internet along with a story in The Times this week and concluded he is Stopford.

One of the man’s brothers told The Times that the detainee had been convicted that same year of possessing explosives after he tried to blow up the car of his boss at a fast-food restaurant in Orlando. He was put on probation but spent 60 days in jail after he violated the terms. Shortly after that, he disappeared. British media have dubbed the man “The Real Jackal” – an allusion to Frederick Forsyth’s novel The Day of the Jackal, which made famous the trick of using information from a baby’s tombstone to create an identity.

In this case, the detainee was arrested in January 2005 as he tried to enter Dover, England, from Calais, France, across the English Channel. Police ran a passport check and saw that the person with his name was supposed to be dead. He is alleged to have taken the name of Christopher Buckingham, who died in 1963 at the age of 8 months, and used it to obtain documents to live as a British subject. For the past decade he has been calling himself the Earl of Buckingham, a title that has been extinct for more than 300 years. The man served nine months in prison over the false passport incident. But after completing the sentence, he has remained in jail because he refuses to reveal his true identity. The Times said police in Kent have sent fingerprint and DNA samples to the U.S. to try to determine the man’s identity.

Link here.


Last night I saw a program on National Socialist Television about the trafficking in women for sex. The production crew met with several women who had been sold as slaves into this sex-trade underground and who had finally escaped to tell their tales. As a result of their stories the film producers decided to try to document this business. They found one man who had sold his friend’s wife into slavery and who, for reasons of guilt, apparently, was willing to publicly describe his part in the process. They also found a woman who was (or professed to be) in the business of procuring women for sale into this international pimp network.

I found this to be so bizarre, so completely outside of the realm of my reality that it is hard to actually mentally grasp. I assume that others might look at this the same as I did. This may be one reason why these sex-traffickers/slave-traders are able to get away with their business. It is so out of our perception of reality that it does not even qualify as bad fiction to most of us. Yet … there it is. People treating other people like sacks of potatoes, to be sold and mashed, and eaten up.

The woman procurer explained to a potential buyer of her enslaved women, that in order to maintain control over the women so as to keep them from simply running away, it is necessary that they be taken to a foreign country and that their passports are taken away from them, ostensibly for “safe-keeping”. This is so effective because “undocumented” “sex workers” are treated as criminals by most police and immigration officials. Therefore going to the police for protection is not an option for them. They are trapped and pretty much at the mercy of their “owners” to do whatever is required of them, however appalling. They have no money, no papers – they do not exist as units in our modern certified world. It suddenly struck me that it is the fact that humans are considered property almost universally which makes this all possible. The concept of “undocumented” pertaining to a human being is one that I find profoundly disturbing.

If these women are without “papers” they are treated with contempt. We must always be able to show the officials who our owners are so that they will treat us with whatever level of respect those “owners” are able to command. It is not we, as individuals, who are treated with respect – it is our owners. It appears that superficially things have changed, but on a deeper level the reality of “divine right of kings” and such nonsense still rules the day, just below the false facade of freedom and individual rights. The horrors of this story were huge, but upon reflection they are small potatoes compared to what it really exposes. A human being must show credentials almost everywhere and to almost everyone to be accorded simple human dignity, or what we describe as simple human dignity. Those who are the most willing to be pawns of tribal rituals will accrue the best sets of papers. Those with the character to be individuals will suffer the the invisibility of shunning.

The next time you are asked for identification, consider the ramifications of participating in this system. Who owns you? The choice is yours. No one will stand up for you. You and you alone will make the choice. I am not saying that I have any magic answers, I am only trying to point out that it is only through our use and acquiescence that this system has been able to turn us from people to property. You become the property of the fiction that controls your paperwork. You become a unit of inventory. It is time to stop acting like a number, and the first step is to understand how important it is to see others as individual human beings. We are not numbers. Only we as individuals can make this real. If we walk like numbers, quack like numbers, chances are we ARE numbers.

Link here.


Military investigators piecing together what happened in the Iraqi town of Haditha on November 19 – when Marines allegedly killed two dozen civilians – have access to video shot by an unmanned drone aircraft that was circling overhead for at least part of that day, military defense lawyers familiar with the case said in interviews. It is unclear whether the video obtained from that day’s flight captured the violence, said the lawyers, who have consulted with Marines who were there. One lawyer said investigators have reviewed surveillance footage taken hours after the shootings, which showed the Marines returning to the town to remove the bodies of the Iraqis.

Link here.


The ECJ annulled an agreement between the EU and the U.S. government regarding the handover of air passenger data to U.S. security agencies. In the face of grave concerns, the EC had issued assurances that the U.S. authorities would provide the necessary privacy protections for such data. However, the ECJ disputed that decision this week, arguing that, “Neither the Commission decision finding that the data are adequately protected by the United States nor the Council decision approving the conclusion of an agreement on their transfer to that country are founded on an appropriate legal basis.” Giving his opinion in November 2005 on the transfer of air passenger data between the EU and the U.S., ECJ Advocate General Philippe Léger proposed that decisions issued by the EC and the European Council with regard to the matter be revoked.

Link here.


Now that he is officially sworn in as the new head of the CIA, Gen. Michael Hayden plans to build a vast domestic spying network that will pry into the lives of most Americans around the clock. President George W. Bush told Hayden to “take whatever steps necessary” to monitor Americans 24/7 by listening in on their phone calls, bugging their homes and offices, probing their private lives, snooping into their financial records and watching their travel habits.

Can I prove this in a court of law? No. Do I know it is happening? Yes, without a doubt. Enough sources within the CIA, FBI, NSA and Pentagon have come forward in recent days to warn about Hayden’s plans for an expanded, consolidated spy network aimed at Americans, not terrorists, and violating numerous laws that prohibit such activities against citizens of this country. “What Hayden plans to do is not only illegal, it is immoral,” says a longtime CIA operative who may retire early rather than participate in what he sees as an illegal extension of the spy agency’s activities.

Hayden, who oversaw the NSA’s questionable monitoring of phone calls and emails of Americas, plans to consolidate much of the country’s domestic spying into a new desk at the CIA, calling it a “domestic terrorism prevention” operation. The desk will oversee not only NSA’s increased monitoring of electronic communications by Americans but also the “terrorist information awareness” program that monitors travel and financial activities by Americans by gathering real-time data from banks, airlines, travel agencies and credit card companies. The CIA operation will also coordinate with the Pentagon’s domestic spying program that monitors activities of anti-war groups, organizations critical of the Bush administrations and others tagged as enemies of the state.

FBI agents will step up monitoring of journalists to identify leaks of stories embarrassing to the government. The bureau is already monitoring phone calls and emails by reporters on a routine basis and has increased surveillance of writers for major news organizations and monitoring of travel and financial records. “This is not ‘total information awarenes’q but ‘total information control’ aimed at watching Americans fulltime and ignoring the protections that are supposed to be guaranteed by the Constitution,” says an FBI agent familiar with the programs. “I didn’t sign on for this and I’m getting the hell out.” In fact, resignations at major U.S. spy agencies are at an all-time high. Exact numbers are classified but sources say field agents, data analysts and others are leaving in droves rather than join the frenzy to spy on Americans.

Hayden will have little problem concealing the operation from the public and Congress. Many of the CIA’s programs are classified and the agency has, in the past, concealed programs even from the intelligence committees in both the House and Senate. Likewise, many of the details of the NSA domestic spying program were withheld from Congress and escaped public notice until media reports unearthed them and the Bush administration now threatens to jail the reporters who broke the story. I wish I could prove this. I wish one, just one, source on the inside was willing to come forward and allow his or her name to be used. But I know it is happening. People I have known for years and trust tell me it is happening and the past record of spying, lies and deceit by the Bush administration point to just such an operation.

Link here.

The politics of paranoia and intimidation.

The Bush administration and the NSA have been secretly monitoring the email messages and phone calls of all Americans. They are doing this, they say, for our own good. To find terrorists. Many people have criticized NSA’s domestic spying as unlawful invasion of privacy, as search without search warrant, as abuse of power, as misuse of the NSA’s resources, as unConstitutional, as something the communists would do, something very unAmerican. In addition, however, mass surveillance of an entire population cannot find terrorists. It is a probabilistic impossibility. It cannot work.

What is the probability that people are terrorists given that NSA’s mass surveillance identifies them as terrorists? If the probability is zero (P=0.00), then they certainly are not terrorists, and NSA was wasting resources and damaging the lives of innocent citizens. If the probability is one (P=1.00), then they definitely are terrorists, and NSA has saved the day. If the probability is fifty-fifty (P=0.50), that is the same as guessing the flip of a coin. The conditional probability that people are terrorists given that the NSA surveillance system says they are, that had better be very near to one and very far from zero. The mathematics of conditional probability were figured out by the Scottish logician Thomas Bayes. If you Google “Bayes’ Theorem”, you will get more than a million hits. Bayes’ Theorem is taught in all elementary statistics classes. Everyone at NSA certainly knows Bayes’ Theorem.

To know if mass surveillance will work, Bayes’ theorem requires three estimations: (1) The base-rate for terrorists, i.e., what proportion of the population are terrorists. (2) The accuracy rate, i.e., the probability that real terrorists will be identified by NSA. And (3) The misidentification rate, i.e., the probability that innocent citizens will be misidentified by NSA as terrorists. No matter how sophisticated and super-duper are NSA’s methods for identifying terrorists, no matter how big and fast are NSA’s computers, NSA’s accuracy rate will never be 100% and their misidentification rate will never be 0%. That fact, plus the extremely low base-rate for terrorists, means it is logically impossible for mass surveillance to be an effective way to find terrorists. I will compute some conditional probabilities that people are terrorists given that NSA’s system of mass surveillance identifies them to be terrorists.

The U.S. Census shows that there are about 300 million people living in the USA. Suppose that there are 1,000 terrorists there as well, which is probably a high estimate – thus the base-rate would be 1 terrorist per 300,000 people, or 0.00033%. Suppose that NSA surveillance has an accuracy rate of 0.40, which means that 40% of real terrorists in the USA will be identified by NSA’s monitoring of everyone’s email and phone calls. This is probably a high estimate, considering that terrorists are doing their best to avoid detection. There is no evidence thus far that NSA has been so successful at finding terrorists. And suppose NSA’s misidentification rate is such that 0.01% of innocent people will be misidentified as terrorists, at least until they are investigated, detained and interrogated. Note that 0.01% of the U.S. population is 30,000 people. With these suppositions, then the probability that people are terrorists given that NSA’s system of surveillance identifies them as terrorists is only P=0.0132 … near zero, and very far from one. Ergo, NSA’s surveillance system is useless for finding terrorists.

Suppose that NSA’s system is more accurate. Say that 70% of terrorists in the USA will be found by mass monitoring of phone calls and email messages. Then, by Bayes’ Theorem, the probability that a person is a terrorist if identified as such by the NSA is still only P=0.0228. Near zero, far from one, and useless. Suppose that NSA’s system is really, really, really good, really, really good, with an accuracy rate of 0.90, and a misidentification rate of only 0.00001, which means that only 3,000 innocent people are misidentified as terrorists. With these suppositions, then the probability that people are terrorists given that NSA’s system of surveillance identifies them as terrorists is only 23.08%, which is far from one and well below flipping a coin. NSA’s domestic monitoring of everyone’s email and phone calls is useless for finding terrorists.

NSA knows this, so why does NSA spy on Americans knowing it is not possible to find terrorists that way? Mass surveillance of the entire population is logically sensible only if there is a higher base-rate. Imagining a million terrorists in America, and now the probability that a person is a terrorist given that NSA’s system identifies them as such is 99%, which is near certainty. But only if you are paranoid. If NSA’s surveillance requires a presumption of a million terrorists, and if in fact there are only 100 or only 10, then a lot of innocent people are going to be misidentified and confidently mislabeled as terrorists. The ratio of real terrorists to innocent people in the prison camps of Guantanamo, Abu Ghraib, and Kandahar shows that the U.S. is paranoid and is not bothered by mistaken identifications of innocent people. The ratio of real terrorists to innocent people on Bush’s no-fly lists shows that the Bush administration is not bothered by mistaken identifications of innocent Americans.

Also, mass surveillance of the entire population is logically plausible if one is not looking for terrorists, but for something else, something that is not so rare as terrorists. For example, the May 19 Fox News opinion poll of 900 registered voters found that 30% dislike the Bush administration so much they want him impeached. If NSA were monitoring email and phone calls to identify pro-impeachment people, and if the accuracy rate were 0.90 and the error rate were 0.01, then the probability that people are pro-impeachment given that NSA surveillance system identified them as such, would be 98%, which is coming close to certainty. Mass surveillance by NSA of all Americans’ phone calls and emails would be very effective for domestic political intelligence.

But finding a few terrorists by mass surveillance of the phone calls and email messages of 300 million Americans is mathematically impossible, and NSA certainly knows that.

Link here.



It has been amusing to watch Congress fret over the FBI’s decision to raid the office of their colleague, Rep. William Jefferson. Current Speaker Dennis Hastert called it “the wrong path”, and has demanded a return of the documents seized. An unnamed member told the Washington Post that the tactics was “unduly aggressive”. Rep. John Conyers called the raid “an act of tremendous violence.” Rep. James Sensenbrenner held hearings titled, “Reckless Justice: Did the Saturday Night Raid of Congress Trample the Constitution?” At those hearings, Sensenbrenner announced his intention to introduce legislation protecting Congress from future, similar police searches.

Funny. Congress – especially GOP leaders like Hastert and Sensenbrenner – do not seem nearly as concerned when much more violent, confrontational raids happen to their own constituents. In fact, last week, just as Rep. Sensenbrenner was scheduling this week’s hearings, a SWAT team in Dodgeville, Wisconsin broke open a window, rolled in a diversionary grenade, and raided an innocent couple’s home in full battle gear. The terrified occupants were handcuffed at gunpoint before police realized they had struck the wrong apartment. Last December, a Pewaukee, Wisconsin SWAT team made a similar mistake, violently breaking into the home of retired lawyer H. Victor Buerosse. That is Sensenbrenner’s home district. Bueorosse grew understandably furious when he learned that the real target of the raid, his neighbor, was suspected of no more than the recreational use of marijuana.

In October 2000, a black-clad SWAT team mistakenly raided the home of Wendy and Jesus Olveda and their 3-year-old daughter Zena. Agents forced their way into the family’s home, and pushed the couple down to the floor at gunpoint with boots to their necks while the terrified little girl looked on. When police realized they had the wrong address, they left without explanation. That raid came five years after another botched raid in which police shot and killed Wisconsin resident Scott Bryant in front of his 8-year-old son. In Speaker Hastert’s home state of Illinois, a SWAT team forcibly entered the Chicago home of 73-year-old widow Earline Jackson early in the morning of September 2003. They too were on a no-knock drug raid. Unfortunately, they had mistaken the woman’s apartment for an apartment one block to the south.

These are merely a handful of examples from Hastert and Sensenbrenner’s home states. In the course of researching a forthcoming paper for the Cato Institute on the overuse of SWAT teams, I have found hundreds of similar examples of botched, paramilitary-style drug raids. It is difficult to estimate just how often it happens – many times, victims are too frightened or intimidated to alert the media when they have been wrongly targeted. But it is easily dozens of times per year, perhaps hundreds.

Is it fair to blame Congress for these types of mistakes? I think so. Both Hastert and Sensenbrenner are staunch supporters of not only the drug war, but of the increasingly militaristic way the government has gone about fighting it. Sensenbrenner, for example, recently introduced a bill that would have sent parents to jail for two years or more for not reporting drug activity involving their own children within 24 hours of learning of it. Given these two political leaders continued support for overly aggressive drug policing, it is hard to take them all that seriously when they get up in arms about FBI agents dressed in suits raiding a colleague’s office.

Link here.


A California state appeals court rejected Apple Computer’s bid to identify the sources of leaked product information that appeared on Web sites, ruling that online reporters and bloggers are entitled to the same protections as traditional journalists. “In no relevant respect do they appear to differ from a reporter or editor for a traditional business-oriented periodical who solicits or otherwise comes into possession of confidential internal information about a company,” Justice Conrad Rushing of the 6th District Court of Appeal wrote in a unanimous 69-page ruling. “We decline the implicit invitation to embroil ourselves in questions of what constitutes ‘legitimate journalism.’ The shield law is intended to protect the gathering and dissemination of news, and that is what petitioners did here.” The online journalists are thus entitled to the protections provided under California’s shield law as well as the privacy protections for e-mails allowed under federal law, the court ruled.

Two years ago, Apple went to court seeking to identify the culprits behind the leak of confidential information about an unreleased product code-named as “Asteroid” to online media outlets. Apple contended it was entitled to identify the sources – presumed in this case to be company employees – because the leak constituted a violation of trade secrets. Apple subpoenaed the Internet service providers of three online journalists to turn over e-mail records aiming to uncover the possible sources. A lower court last year ruled in Apple’s favor, but the Electronic Frontier Foundation, whose attorneys represent the online journalists of AppleInsider.com, PowerPage.org and MacNN.com appealed.

Link here.


Switzerland and Liechtenstein told the U.N. Security Council it urgently needs to improve procedures for adding and removing names on a sanctions list related to al Qaeda and the Taliban. Several European nations, including Germany and Sweden, have objected in the past to the council’s confusing procedures should anyone challenge a name on the list. The roster of people and groups is set up by the council’s so-called “1267 committee” and most entries from governments go unchallenged. “The 1267 committee has been dealing with this issue for quite some time now, said Lichtenstein’s U.N. ambassador, Christian Wenaweser. In the meantime several studies have been produced on this question, which underline the need for urgent action by the Security Council.”

Wenaweser said U.N. bodies had to “respect international standards of human rights in a similar manner as states would have to.” The 15-nation Security Council imposed sanctions against the Taliban in November 1999 for harboring Osama bin Laden after the 1998 bombings of U.S. Embassies in Kenya and Tanzania. The sanctions were then broadened to include al Qaeda. Currently on the Security Council list are 142 individuals associated with the Taliban and 212 people and 122 businesses or groups linked to al Qaeda. A total of eight individuals and 11 groups have been removed form the list since its inception.

All 191 U.N. member nations are required to impose the sanctions, including a travel ban, an arms embargo and a financial freeze, against those on the list. The roster also includes some misspellings and possible mistaken identities, according to a U.N. monitoring group. Swiss Ambassador Peter Maurer said the council should begin with a clear definition of what being associated with al Qaeda or the Taliban means, find ways to notify the suspects, review the lists at least every two years and develop a system for targeted individuals and organizations to ask for a review.

Link here.


The New York Times reported that, “Some are calling [the] Enron verdicts the end of the corporate scandal era,” but an Associated Press report suggests that The Elliott Wave Financial Forecast was in line with a far different reality when it anticiated an even more serious scandal phase in February. Fannie Mae, rogue mortgage brokers, hedge funds and various commodity market participants have all been fingered as likely candidates for prosecutorial emphasis in issues of EWFF. Since they were in the thick of things through the last phase of the great peak, they should be the focus in the months ahead.

Of course, it is all just an extension of the first, so Enron remains the trail blazer. We pointed out several holes in the defense’s case in our entry of May 17. The biggest one was the timing. Lay and Skilling appear to have missed the optimum window of opportunity (the Dow’s May 10 peak) for acquital by about two weeks.

As one article put it, Enron “raised the curtain on an era of corporate scandal.” The trial and conviction of Lay and Skilling opens Act II of the drama. The Times notes that, at this point, white-collar cases are no longer “delicate affairs, where prosecutors worked hard not to treat wealthy and powerful defendants as anything as distasteful as, well, criminals.” Due to a “transformation that has occurred in recent years,” techniques used against the mob and in the war on drugs are being applied by prosecutions in “the once-genteel legal world of corporate wrongdoers.” These tactics include “perp walks” where the handcuffed defendant is brought in by law enforcement for booking, the squeezing of witnesses “with threats against family members and stints in solitary confinement,” and the indictment of those who fail to cooperate. Legal experts said the aggressive approach was “crucial to the government’s securing convictions” of Lay and Skilling. The Times concludes that the case against Lay and Skilling shows “the laws for corporate conduct are being interpreted strictly” and that their “convictions could set a precedent that haunts other executives. In the past, some of the charges, particularly those against Mr. Lay, might not have survived in a civil trial. Today, subtle dishonesties can be part of a broader effort to construct a huge – and successful – criminal case.” As the next leg of decline begins, a whole prosecutorial infrastructure is in place.

The defense team tried to get Lay and Skilling off by saying, “They are not mobsters. They are upstanding members of the community.” But the strategy played right into the retribuitive force of a bear market, which always directs itself at the key beneficiaries of the preceding bull market. Another problem was the defense’s approach. One tact was to blame “market forces”, to say, in essence, that Enron was a victim of a fall that swallowed everthing in its path. But it probably was not lost on the jury that these were the same guys who took every advantage of the trend when it was rising. When Skilling and Lay later turned around and claimed to be blindsided by market forces, it just was not plausible. They were way too smart for that, decided the jury. When the defense pointed to the mob-style prosecutorial tactic and said, in essence, “Heh, they are playing hardball,” the jib was up. It is hardball season and participants have to live the consequences just as they lived with the positve effects of the rise.

Link here.

The bell rings for Round II of Martha v. The Bear Market.

According to the New York Times, Martha Stewart’s “status as America’s most popular taste maker” has reached “new heights” since she got out of the Big House in 2005. But the Times notes that the stakes are high because Stewart’s decision to fight the charges rather than settle the SEC’s civil suit “could rattle investors and encourage lawsuits.” Stewart probably figures things cannot get any worse than her initial indictment in October 2002 and five months served at Alderson Prison in West Virginia. Apparently, any publicity is good publicity. But, here again, Martha’s great weakness is on display. She has absolutely no feel for the one true source of her public stature, a bull market in social mood.

Just as she failed to see attitudes toward insider trading shift toward punitive with the onset of the bear market in social mood, she is now totally unaware of the storm brewing beneath her restored public persona. If she was at all cognizant of the potential for decline and her vulnerability to it, she would surely settle. Stewart is sticking her neck out at the worst possible moment. Given her experience in the first half of the decade, she ought to know better. Her company’s failure to confirm the Dow Industrial’s high earlier this month, is exactly what happened in 2000.

Link here.



On Memorial Day, we should honor those who are buried after dying in the country’s wars, but be a little more skeptical of the U.S. government actions that put them there. It is often said that they died for “freedom” or their “country”, but more often they were needlessly put at risk by their government.

I learned on a trip to France that countries distort their history. The French had an official exhibit on World War II in the Arc of Triumph in Paris that did not mention the American, British, and Canadian liberation of France after D-Day. The display had only a big arrow ending at the beaches of Normandy and much information about the French resistance. An uninformed visitor might have mistakenly concluded that the French had liberated their own country from the Nazis. I was shocked at the French misrepresentation of their history.

A few years later, I learned on a trip to Canada that the U.S. is no exception to the distortion of history. I visited a fort in Toronto, Canada and learned from the guide that the fort had been used in one of the several U.S. invasions of Canada. U.S. tourists visiting the fort gave the guide quizzical looks because U.S. history textbooks do not dwell on the repeatedly unsuccessful U.S. attempts to grab Canada. U.S. history books focus on British impressments of U.S. sailors as the cause of the unnecessary War of 1812, but leave out that the U.S. hawks’ desire to snatch Canada was also a major cause. Our history of that war also focuses on the burning of Washington by the British, but neglects to mention that the British torching of official buildings in Washington was in retaliation for a similar U.S. burning of Toronto.

Even Americans are a little nervous about the history of their Mexican, Indian, and Spanish-American Wars – and they should be. In the Indian Wars, brutal ethnic cleansing was conducted to grab land. The villages of the weak were burned and the tribes slaughtered. The Spanish-American War was ostensibly fought to liberate Cubans from Spanish rule, but instead resulted in the first U.S. colonial possessions and 200,000 Philippine deaths, some by very brutal U.S. military tactics.

The U.S. Civil War and World War II, however, have Holy Grail status in the American history books. Every school child learns that the Civil War was fought to liberate the slaves, even though President Abraham Lincoln cared more about quashing the Southern rebellion than freeing slaves. In fact, the war, still the most bloody in U.S. history, caused nearly a million casualties (3% of the U.S. population), but only nominally freed the slaves, leaving most of them working under the same squalid conditions for the same masters. Even in the wake of this cataclysmic war, blacks did not escape Jim Crow laws, an extension of slavery, until the 1960s. Yet such a bloody war for so little gain goes unquestioned.

Although more justified, even some aspects of World War II are questionable. Americans revel in the defeat of the diabolical Hitler, but do not realize that the U.S. helped contribute both to Hitler’s rise (and World War II) and the Bolshevik revolution (and thus the later Cold War) by providing the military forces to tip World War I to the allies. Even before World War II officially started, the U.S. cut off Japanese oil and critical metal supplies, which precipitated their desperate attack on Pearl Harbor. In the Korean and Vietnam Wars, tens of thousands of Americans were needlessly killed to prevent Communist control of strategically unimportant backwater nations.

America is a great nation, but most Americans do not realize that the country has maintained a free political system and has grown into an economic powerhouse principally because the country was far away from most of the world’s conflicts. Unfortunately, after World War II, the United States regularly began to look for monsters to destroy overseas. The dangerous expansion of executive authority under the present Bush administration and prior recent presidents is a direct consequence of this near perpetual state of war. On Memorial Day, Americans should revere the war dead but also ask hard questions of an assertive U.S. government that keeps running ill-advised wars, only creating more casualties to honor.

Link here.

A Day for Remembering

Today we celebrate Memorial Day – a day when Americans pause and focus on the ultimate price so many have paid over the centuries to win and preserve our freedom. This day also reminds us that each generation must take up and continue the unending struggle to protect liberty. How many Americans today would be willing to die for, as more than a million have done, the freedoms and liberties we are said to enjoy? And ask yourself – do we really still have those liberties. Or have they been slowly taken from us, devaluing the sacrifice of all those who died. Did they die in vain? In his eloquent Gettysburg Address, President Abraham Lincoln suggested that what we do will determine the answer to that question.

Americans live in an era of overwhelming numbers; the bloated national debt, the huge budget and trade deficits, opinion polls, holiday weekend highway fatalities, hurricane and tsunami deaths. But many seem more concerned about the latest American Idol winner or the stock market than they do about the very real loss of freedom.

The cruelest numbers of all are those some say are senseless. Nearly 3,000 Americans have died in the Iraq war, as well as untold thousands of Iraqis. Aside from the merits of this war, each of these Americans, many of them very young, were unique individuals. Each with his or her own life, loves and each with great potential in the eyes of God. Was this really necessary?

To observe that so many have died in the American cause over so many centuries only accentuates the meaning and importance of the cause for which they died. They died before their time, much of their promise unrealized, and in the service of their country. Their very real sacrifice for our liberties makes it all the more important that we guard against diminution of those liberties in our own time – whether the threat is from abroad, or from within our own government. The call to duty and service to country remains distant and unreal to far too many Americans. As a nation we need always to be certain that in any war, including the so-called “war on terror”, our cause is defensible and just. And we should never forget and always pray that those departed may rest in God's eternal peace.

Link here.


The selection of issues that should rank high on the agenda of concern for human welfare and rights is, naturally, a subjective matter. But there are a few choices that seem unavoidable, because they bear so directly on the prospects for decent survival. Among them are at least these three – nuclear war, environmental disaster, and the fact that the government of the world’s leading power is acting in ways that increase the likelihood of these catastrophes. It is important to stress the government, because the population, not surprisingly, does not agree. That brings up a fourth issue that should deeply concern Americans, and the world. There is a sharp divide between public opinion and public policy, one of the reasons for the fear, which cannot casually be put aside, that, as Gar Alperowitz puts it in America Beyond Capitalism, “the American ‘system’ as a whole is in real trouble – that it is heading in a direction that spells the end of its historic values [of] equality, liberty, and meaningful democracy.”

The “system” is coming to have some of the features of failed states, to adopt a currently fashionable notion that is conventionally applied to states regarded as potential threats to our security (like Iraq) or as needing our intervention to rescue the population from severe internal threats (like Haiti). Though the concept is recognized to be, according to the journal Foreign Affairs, “frustratingly imprecise”, some of the primary characteristics of failed states can be identified. One is their inability or unwillingness to protect their citizens from violence and perhaps even destruction. Another is their tendency to regard themselves as beyond the reach of domestic or international law, and hence free to carry out aggression and violence. And if they have democratic forms, they suffer from a serious “democratic deficit” that deprives their formal democratic institutions of real substance.

Among the hardest tasks that anyone can undertake, and one of the most important, is to look honestly in the mirror. If we allow ourselves to do so, we should have little difficulty in finding the characteristics of “failed states” right at home.

Link here.


CNN recently reported the results of a poll indicating that Americans have low tolerance for waiting. Although many admit they can be temporarily sedated with music and periodic updates of estimated wait time, their patience wears thin the longer they are dragged out on hold or standing in lines. We could surmise that Americans tend to expect quick action and are quick to pull their loyalty from those who demonstrate a propensity for incompetence, poor service, and poor results. However, something about Americans’ supposed low tolerance for incompetence and poor performance seems inconsistent. The tolerance associated with waiting on the phone or waiting in line seem trivial when juxtaposed with the amount of tolerance Americans have given to their government’s infinitely expensive, destructive, and illegal behavior.

Perhaps it can be attributed to the level of competition that exists for goods and services, such as internet providers and cell phones, in the private sector. If one drops the ball, the average consumer, knowing nothing about markets and economics, can easily find another company to satisfy their wants and needs. Quick reaction seems to be inherent, genetic. Americans might piss and moan about poor products and services, but they will not tolerate such a disagreeable situation for long. There is only one government. No matter how much it screws up, and that is always – except when it is stealing from the masses, killing innocent people, and causing destruction from one end of the earth to the other – Americans just seem to go about their daily routines, shrugging their shoulders and even laughing about the mass screw-up that government is.

If a department store put cameras in the dressing rooms to protect itself and its customers against the costs associated with shoplifting, Americans would be outraged. Would management get a free pass if it just said, “Well, if you are not a shoplifter, don’t worry about it. Go about your business and shut your face! After all, we watch all customers to protect you from the dishonest ones”? Whenever this happens, it always makes national news because most sane Americans would find this practice not only objectionable, but also criminal. Regardless of the seemingly endless apologies for a bad management decision and promises to right the wrong, many loyal customers would vote with their feet and go somewhere else. When the government does essentially the same thing with the phone calls of millions of Americans, it is no big deal. President Bush assured us that the government would not listen in on the phone conversations of the “innocent”. Government said it is for your own good and Americans, evidently more confident of a guarantee coming from government than one coming from a good or service provider in the private sector, agreed. Bush must have some character traits or way about him that Bill Gates and Dave Thomas do not.

When corporate “crooks” get sentenced to long prison terms for screwing the little guy out of what the general public thinks is his right as a consumer and a worker, the masses cheer, even though they only know as much as what government-controlled media outlets have been drumming into their heads week after week, month after month. When government crooks run up deficits and the national debt, destroying the standard of living for everyone and those yet to be born, most Americans are incapable of figuring out who is to blame because they are being greased by the media and politicians to receive the Caligula Tax Increase Fist as the only solution to our pending economic calamity.

Maybe it is something simple, like a gimmick, that allows government to get away with criminal and murderous behavior, like the War in Iraq, and still continue to get enough public support to plow forward with more criminal and murderous behavior. It must be those “Support Our Troops” magnets, and empty slogans to “stay the course” that get thrown around periodically by the president, that sedates people and keeps them coming back for more incompetence and poor results, conditions that would never be tolerated in the private sector for goods and services. That, or the American people are just plain stupid.

Link here.


“Nearly four decades later, the notorious name of that hamlet – My Lai – has been summoned from memory again. While the numbers differ, some of the circumstances are eerily similar,” says the Montreal Gazette. On May 31, a Vanderbilt professor put out a press release that says, “In another odd similarity, there is already discussion of whether there was a deliberate cover-up of the incident. Did commanding officers seek to downplay or suppress public knowledge of the crime?” Who knew, what and when? These are the questions that always ultimately follow in the wake of a downturn in social mood because they are invariably created by the unanticipated swing from unscrupulous to scrupulous, from the high spirits, abandon and capriciousness of a peaking social mood to the control, blame finding and soul searching of a bear market.

Just a few days ago, on May 31, a German paper, Deutsche Welle, asked, “Why the alleged massacre of Iraqis by US soldiers in Haditha – unlike the torture scandal at Abu Ghraib prison – has not caused worldwide public outrage?” The answer, according to a media expert was that “the horrible pictures are missing.” But even though no new graphic evidence has appeared, the media is swarming to the Haditha story. Given the explosive growth in Haditha coverege it will surely “supplant the Abu Ghraib prisoner abuse scandal as the single most damaging event of the occupation,” as a Guardian story suggests.

Like Abu Graib and the My Lai massacre in 1968, Haditha happened when the Dow Jones Industrial Average was rising strongly. All three incidents only become a media sensations when the DJIA was in the midst of a decline. It must be the downturn in social mood rather than any set of facts on the ground because in Iraq, where the massacre took place, the event is more or less forgotten. Knight Ridder reports that even as it explodes in the U.S. media, the response in Iraq is “Surprisingly quiet. It hasn’t gained a sort of energy or anger that you’re hearing in the U.S.” Abu Graib slipped out of headlines because the market rallied it away. If the market stays down, as we suspect it will, it will join with Haditha and be remembered for touching off a whole new era of U.S. introspection and self-criticism.

Link here.


A point I have made repeatedly is that Fourth Generation war includes far more than America’s current battle with Islamic “terrorists”." Events in Brazil offered us a timely reminder of that fact. A gang, the PCC or First Command of the Capital, launched a full-scale military attack on the Brazilian state.

The PCC’s actions illustrated a number of ways in which non-state forces deal with opposing states. The first is penetration. When a top-level meeting of Brazilian officials decided to act against the gang by transferring some of its leaders to a high-security prison, the gang immediately knew of the decision. How? It had a mole in the meeting, a contractor employed as a court reporter.

Then, the gang showed that flat, networked organizations can move far faster than a state, with its bureaucratic hierarchy. As a story in the May 21 Washington Post reported, “Within hours of that meeting, news of the transfer plan had spread through the gang’s prison-based network …” How? “After word of the planned transfer was passed to the gang’s leaders, coordinating the uprisings was easy. They simply called each other on their cellphones.” Their cellphone security is simple but effective. “According to police, the gang often clones legitimate cellphone numbers for illegal use.”

While prison riots are common in Brazil, the PCC demonstrated an ability to reach far beyond the prisons. In the city of Sao Paulo, they launched military-style attacks on police and civilian infrastructure targets. Riots broke out in more than 70 state penitentiaries. Gang members outside prisons attacked police stations, burned more than 60 public buses and whipped up a general state of terror that paralized Sao Paulo. As of Saturday (May 20), the death count totaled 41 police officers, 18 inmates, 107 suspected PCC members outside prisons, and four civilians. Demonstrating the often-excellent intelligence capabilities of non-state organizations, “The gang members also know where the police live … Some of the officers who died during the outbreaks were killed near their homes while off duty.”

The PCC does what gangs do, namely use violence and make money off crime, especially the drug trade. But its origins illustrate the role non-state entities have in providing services states fail to offer. The Post story notes that, “(The PCC’s) strength had been feeding on the weakness of government for years. The PCC was founded in 1993 as a response to the abysmal conditions in Sao Paulo’s prisons, where inmates lived in fear of each other, sleeping in overcrowded cells with no beds, no blankets, no soap, no toothbrushes.

“By offering protection and basic necessities to new inmates, the gang won the loyalty of most prisoners in a population that now numbers 124,400 … the PCC has repeatedly won minor improvements in conditions in some facilities. That has earned them favor not only with the inmates, but with the family members who provide the basic goods that PCC members distribute inside the prison blocs.” Nor does the PCC work only in ways that are illegal. “The gang also employs a network of attorneys …”

The PCC emerges from the Post account and from its uprising in Sao Paulo as almost a model Fourth Generation organization, operating a network of structures parallel to those of the state that work more effectively than the state’s institutions. As the state retreats into ever-greater corruption and incapacity, the PCC has advanced by filling in the widening gaps. It has now reached the point where it can confront the state directly, while I think it is safe to say that the state cannot defeat much less destroy the PCC. Not only does this offer us a Fourth Generation model very different from what we confront in al Qaeda (it is more like Hamas and Hezbollah), it may also present a picture of what America will face coming out of its own prisons.

Link here.
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