Wealth International, Limited

May 2006 Selected Offshore News Clips

(Especially noteworthy articles’ headings highlighted in gold.)


Around this time of year, you might be a little depressed when you think about the big check you just sent to the IRS. So, do something about it! And while you are at it, why not add an offshore flavor to your tax savings? Consider the following ideas, which can help you cut next year’s tax bill a minimum of 10% and, if you are willing to live outside the U.S., by 90% or more.

Begin by doing all those things you know you “should” do, like loading up your IRA, pension plan or 401(k) to whatever contribution limits apply. (Incidentally, your IRA is a great way to fund foreign investments, and is one of the only ways U.S. taxpayers can safely invest in offshore mutual funds.) Or, consider buying life insurance, variable annuities and other tax-deferred investments from a foreign insurance company. You will not get a tax deduction when you buy them, but the income from them grows free of U.S. tax. These are the easy savings.

Next, think about starting an offshore business. Let us say you form a U.S. company that owns and operates a Web site that sells handmade rugs in Guatemala. The most tax-efficient way to operate a small business like this in the U.S. is probably with an LLC or an S-corporation where all income is attributed to the business owners, and none to the business itself. Instead of forming this business in the U.S., you might form it in low-tax Panama and operate it through a Panama IBC. To save taxes in the U.S., it must be a genuine Panamanian business. So, you pay someone in Panama – perhaps a secretary or accountant – an annual salary to operate the business. You pay yourself a dividend (upon which you will pay tax). You keep the remaining profits offshore as retained earnings. If the business meets some stringent requirements, the most important of which is that you do not manage the enterprise yourself, all the retained earnings can be tax-deferred.

Of course, most start-up businesses need hands-on management. So if you really want to make this strategy pay off, you will need to move offshore to a country like Panama that does not impose income tax on foreign income. In that case, you can manage the business and legally defer U.S. taxation on the profits, provided that your company: (1) Is engaged in an active trade or business, (2) operates entirely outside the U.S., (3) does not buy products or services from U.S. persons or companies related to you, and (4) does not generate U.S. source income, or, if it does, that income is not “effectively connected” to a U.S. trade or business. These requirements are not difficult to meet if you are living offshore and the business income is mostly from non-U.S. sources. The tax picture gets even more favorable when you consider U.S. citizens living offshore can receive a salary of up to $80,000 free of U.S. tax, plus an additional $80,000 for their spouse.

Naturally, the IRS knows these strategies, both for tax savings in offshore investments and offshore businesses. To begin with, there are complex reporting requirements with which you must comply, and hiring offshore tax experts to do the required accounting can be expensive. And over the years, the IRS has persuaded Congress to erect a series of roadblocks to these offshore tax savings. So go offshore, but get professional advice before you do.

Link here.


Introducing PGP & GPG: Email for the Practical Paranoid by Michael W. Lucas.

Encryption is an old science, and as computers became more and more powerful, the number of people working with encryption grew and grew. Phil Zimmermann combined some common encryption methods to produce the software he dubbed Pretty Good Privacy, or PGP. The ideas behind PGP had been known and understood by computer scientists and mathematicians for years. Zimmermann’s real innovation was in making these tools usable by anyone with a home computer. A friend of Zimmermann’s distributed PGP as widely as possible in an effort to make military-grade encryption widely available before a proposed restictive law could take effect. Their activism contributed to the demise of anti-encryption legislation.

Zimmermann, a long-time antinuclear activist, believed that PGP would be of most use to dissidents, rebels, and others who faced serious risks as a consequence of their beliefs – in other words, to many people outside as well as inside the U.S. Zimmermann originally wrote PGP in boring old everyday text (or “source code”) and and had the text published in book form. Although many books on cryptography did have export restrictions, Zimmermann could get an export permit for his book of source code. Thus, people all over the world were able to get the instructions to build their own PGP software. They promptly built the software from those instructions, and PGP quickly became a worldwide de facto standard for data encryption. As you might guess, the U.S. government considered this tactic merely a way to get around munitions export restrictions. Zimmermann and his supporters considered the book speech, as in “free speech” and “First Amendment”. The government sued, and over the next three years Zimmermann and the administration went a few rounds in the courts.

This lawsuit turned Zimmermann into something of a hero in the computer community. Many people downloaded PGP just to see what all the fuss was about, and quite a few of them wound up using it. Zimmermann’s legal defense fund spread news of the PGP lawsuit even further. In congressional hearings about encryption, Zimmermann read letters he had received from people in oppressive regimes and war-torn areas whose lives had been saved by PGP, contributing greatly to the public awareness of how valuable his work had been. Ultimately it became obvious that the courts firmly believed that the First Amendment trumped State Department regulations, and the State Department and subsequently the government dropped the suit. This not only saved them some time, money, effort, and humiliation at that moment but also prevented a legal precedent deeming encryption generally exportable.

Today, PGP Corporation is a major player in the world of cryptography and information security, providing PGP software for many different platforms, from PCs to handhelds and even Blackberry phones. PGP Corporation software secures everything from email to instant messages to medical records. PGP is a commercial product, and PGP Corporation provides a whole range of related support services. We are going to cover the basic version, the PGP Desktop. Because PGP is a typical commercial product, you are expected to pay for it.

GnuPG – referred to simply as GPG by many people – is a freely available implementation of the OpenPGP standard that was released to the public in 1999. It is available for both Windows and Unix-like computers (including Mac OS X). Because GnuPG conforms to the OpenPGP standard, it can be used to communicate with people using any other OpenPGP-compliant software. “Freely available” means that you can get for free. You also get access to all the source code used to create the program, which is not directly useful to many readers but is vital to those who can do something with it. There are several reasons why a person or organization might choose to purchase PGP rather than use the free GnuPG, or vice versa, including ease of use, support, transparency, and supported algorithms. All these reasons make the choice of encryption software very situation-dependent. Take a look at your options and pick the right tool for you.

Link here.


Andy Garcia blew it big-time with his movie The Lost City. He blew it with the mainstream critics that is. Almost unanimously, they are ripping a movie 16 years in the making. In this engaging drama of a middle-class Cuban family crumbling during free Havana’s last days, in which he both directs and stars, Garcia insisted on depicting some historical truth about Cuba – a grotesque and unforgivable blunder in his industry. Now he is paying the price. Earlier, many film festivals refused to screen it. Now many Latin American countries refuse to show it. The film’s offenses are many and varied. Most unforgivable of all, Che Guevara is shown killing people in cold blood. Who ever heard of such nonsense? And just where does this uppity Andy Garcia get the effrontery to portray such things? The man obviously does not know his place.

And just where did Garcia get this preposterous notion of pre-Castro Cuba as a relatively prosperous but politically troubled place, they ask? All the Cubans he portrays seem middle class? Where in his movie is the tsunami of stooped and starving peasants that carried Fidel and Che into Havana on its crest, they ask? Where are all those diseased and illiterate laborers and peasants my professors, Dan Rather, CNN and Oliver Stone told me about, ask the critics? Garcia – that cinematic bomb-thrower – has seriously jolted the Mainstream Media’s fantasies and hallucinations of pre-Castro Cuba, of Che, of Fidel, and of Cubans in general. In consequence, the critics are unnerved and disoriented. Their annoyance and scorn is spewing forth in review after review.

You are better off attempting rational discourse with the Flat-Earth Society but nonetheless I will try to dispel the fantasies of pre-Castro Cuba still cherished by America’s most prestigious academics and its most learned film critics. I will even stay away from those “crackpots” and “hotheads” in Miami. In place of those insufferable “revanchists” and “hard-liners” I will use a source generally esteemed by liberal highbrow types, the United Nations. Here is a UNESCO report on Cuba circa 1957: “One feature of the Cuban social structure is a large middle class,” it starts. “Cuban workers are more unionized (proportional to the population) than U.S. workers. The average wage for an 8 hour day in Cuba in 1957 is higher than for workers in Belgium, Denmark, France and Germany. Cuban labor receives 66.6 per cent of gross national income. In the U.S. the figure is 70 per cent, in Switzerland 64 per cent. 44 per cent of Cubans are covered by Social legislation, a higher percentage then in the U.S.”

In 1958 Cuba had a higher per-capita income than Austria and Japan. Cuban industrial workers had the 8th highest wages in the world. In the 1950’s Cuban stevedores earned more per hour than their counterparts in New Orleans and San Francisco. Cuba had established an 8 hour work-day in 1933 – five years before FDR’s New Dealers got around to it. Add to this one month’s paid vacation. The much-lauded (by liberals) Social-Democracies of Western Europe did not manage this until 30 years later. And get this Maxine Waters, Barbara Walters, Andrea Mitchel, Diane Sawyer and the rest of you feminist Castro groupies – Cuban women got three months paid maternity leave. I repeat, this was in the 1930’s. Cuba, a country 71% white in 1957, was completely desegregated 30 years before Rosa Parks was dragged off that Birmingham bus and handcuffed. In 1958 Cuba had more female college graduates per capita than the U.S.

The Anti-Batista rebellion was staffed and led overwhelmingly by college students and professionals. By 1961 however, workers and campesinos (country folk)-made up the overwhelming bulk of the anti-Castroite rebels, especially the guerrillas in the Escambray mountains. Who ever heard of poor country-folk fighting against their benefactors Fidel and Che?

Before Castro, Cuba took in more immigrants (primarily from Europe) as a percentage of population than the U.S. And more Americans lived in Cuba than Cubans in the U.S. Furthermore, inner tubes were used in truck tires, oil drums for oil, and styrofoam for insulation. None were cherished black market items for use as flotation devices to flee the glorious liberation while fighting off Hammerheads and Tiger Sharks. The Communist apparatchiks Garcia depicts in his movie incarcerated and executed a higher percentage of their countrymen in their first three months in power than Hitler and his apparatchiks jailed and executed in their first three years.

Andy Garcia shows it precisely right. In 1958 Cuba was undergoing a rebellion not a revolution. Cubans expected political change, not a socio-economic cataclysm and catastrophe. But I fully realize such distinctions are much too “complex” for a film critic to grasp. They prefer boneheaded clichés. In their reviews we see – in all its classic splendor – the Mainstream Media’s thundering and apparently incurable stupidity on matters Cuban.

Link here.


Database was a dirty word at a rally to oppose New Hampshire’s participation in a national identification card system that would digitally catalog personal information. More than 100 people – some dressed as Nazis, others wearing three-cornered hats – gathered on the State House lawn. Though the group’political leanings spanned the spectrum, they agreed that the system is a bad idea, citing identity theft, Big Brother and the violation of the U.S. Constitution. “We have to decide … if we’re going to stand by like sheep as they brand us,” said Carol Shea-Porter, a Rochester Democrat (who was not in costume) running for Congress against Republican Jeb Bradley.

Known as Real ID, the card system would require motor vehicle officials to more thoroughly screen people applying for driver’s licenses, issue licenses that contain anti-fraud precautions such as computer chips, and create a database with digital copies of drivers’ birth certificates and other identifying documents. Anyone flying on an airplane, opening a bank account or entering a federal building would need to have the national ID card or a passport. Congress passed the Real ID Act last year, and New Hampshire and Kentucky were offered grants to test the program. All states must comply by 2008. But the New Hampshire House voted last month to refuse to do so, calling the program “contrary and repugnant” to the Constitution. Now it is up to the Senate to decide whether to take the federal grant money and overhaul the state’s licensing system or not.

At the rally, speakers urged the Senate to buck the new law, comparing the U.S. to Nazi Germany and warning against everything from a police state to the start of the apocalypse. The Rev. Garrett Lear, known as “the Patriot Pastor” for his knowledge of the Constitution and colonial dress, told the crowd the Real ID system is contrary to the liberty-for-all wishes of the founding fathers, many of whom were Christian. Katherine Albrecht, a consumer advocate and leader of the anti-Real ID movement, read a chapter from her book, Spychips, about how the government plans to track people through product ID tags. She said that in the wrong hands, a national identification system could have disastrous effects. It is like “putting a noose around your neck and hoping the government doesn’t pull the rope,” she said. “You could think you’re giving the rope to Mother Theresa but find yourself looking into the eyes of Adolf Hitler.”

To illustrate that point, Lauren Canario and Jim Johnson of Winchester, members of the Free State Project, dressed in Nazi beige and stood watch over a mock guard shack at the edge of the lawn. To pass through the fake gate to the free popcorn stand and rally ahead, passersby had to say “F U”. “You can’t get by without cursing the Nazis,” said Canario, who was holding a sign that read “Say Yahvol to Real ID”.

Link here.


A landmark ruling by an Advocate General of the European Court of Justice in the “Cadbury Schweppes case” appears to have dealt another blow to the tax raising powers of the UK government, although accountants believe that the ruling could represent a rare “win win” situation for companies and the tax authorities. Advocate General M. Leger stated that UK legislation on Controlled Foreign Corporations (CFCs) goes beyond what is necessary to counteract wholly artificial tax avoidance. According to Leger, a low tax rate is as legitimate a factor in a company’s decision as to where to establish a subsidiary as other business considerations such as cost of labor, and infrastructure.

Cadbury Schweppes is arguing that the UK’s CFC legislation infringes European law by penalizing companies that take advantage of low tax rates in other EU countries. Specifically, Cadbury is challenging the UK government’s decision to tax profits earned by its Cadbury Schweppes Treasury Services (CSTS) and Cadbury Schweppes Treasury International (CSTI) subsidiaries based in Ireland, which levies one of the lowest rates of corporate tax in Europe at 12.5%.

While Leger’s opinion appears to support the company’s position, he also acknowledged that it was reasonable for EU member states to introduce a presumption of tax avoidance in certain circumstances given widely differing tax rates across the EU, and the ease with which companies can relocate across national boundaries. Leger believes that the burden of proof must fall on the parent company to show that it has legitimate operations when establishing in a low tax jurisdiction, as opposed to merely setting up what he termed “letter-box” companies.

“[Leger’s] Opinion is hugely significant for the way business operates in the EU,” Chris Morgan, Head of the EU Law Group at KPMG, observed. “Assuming that the ECJ follows this Opinion, companies will be able to enjoy far more freedom in establishing commercial operations in low tax jurisdictions.”

Link here.


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

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

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

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

Link here.


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

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

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

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

Links here and here.


Warren Buffett said that he wants Berkshire Hathaway to make more investments overseas, as he pinpointed areas such as Europe and Japan as having potential. The billionaire investment legend is trying to put Berkshire’s cash pile to more profitable use, and said he would ideally like to shrink the company’s cash to about $10 billion, from about $40 billion currently. Buffett, Berkshire’s chairman and chief executive, said he has concerns about the dollar, which he sees weakening further, and he also said he does not find “screaming bargains” in the U.S. in big companies at present.

Berkshire made its first acquisition of a non-U.S. based company last week, with a deal to buy 80% of Israel’s Iscar Metalworking Cos. in a transaction valuing the closely held tool firm at $5 billion. Buffett said that while Berkshire had always been willing to do things outside the U.S., it was not offered many opportunities in the past, though more might now come after the Iscar buy. He told Berkshire’s annual meeting on Saturday he was eyeing a possible $15 billion acquisition, but said there was only a small chance of that happening, and gave no further details.

Some 24,000 shareholders packed Omaha’s Qwest center to hear Buffet speak. Many have made healthy gains from Berkshire stock, which has far outperformed benchmark indexes since Buffett took over the company in 1965. Buffet, speaking at a news conference held on Sunday, said he sees opportunity for investments in Europe and Britain, which looked a “fertile field”, and sees potential for buying whole companies in Japan, partly because of a rise in shareholder activism that could encourage firms to find a home at Berkshire.

Link here.


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

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

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

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

Link here and here.


On our way to a post-collapse, post-dollar world, Asia will likely transition from a de jure dollar standard to a de facto gold standard. This will happen in stages as the dollar crumbles. Asian countries and consumers will accumulate gold reserves surreptitiously at first, and may eventually formalize the transition through some sort of pan-Asian IMF-type arrangement. Asia has the “second mover advantage” of being privy to all the Western World’s mistakes. They are able to see where profligacy and runaway entitlement programs have led. Their top-down orientation will enable them to rein in expensive entitlement programs or, better yet, curtail young ones before they grow bigger. Not being as mentally and emotionally tied to the workings of empire and the capitalist welfare mentality, Asia will successfully cut the cord faster.

In doing so, Asia will also rely on its citizens’ natural propensity to trust precious metals and hoard them as a store of value in the first place. Last but not least, Asia’s relative lack of capital market structure – its underdeveloped backbone of lending networks – will make a de facto gold standard that much more attractive. By going straight to gold, Asians get the “trust” that is already built into the metal. They can skip all the financial engineering, or get to working it in later.

While Keynesians see the rise of gold as temporary – and will continue to assert their naysayer views as gold rises further – it will soon come to light that the “world reserve currency” idea was the temporary thing, an anachronism of the industrial age. The world reserve currency concept is tied to the notion of a single all-powerful superpower. That is a 20th-century idea that is going away. It is also tied to the idea of a single economic powerhouse striding atop the rest of the world. That idea is going away too. Even if China becomes the new manufacturing Boss Hoss of the 21st century, it will not wield the same economic heft as America did in the 20th or Britain did in the 19th. There are too many competitors for that now. The agglomeration of industrial and political power seen in the 20th century will likely vanish into the pages of history. The concept of “world reserve currency” may well vanish with it.

Gold is also a contender because the alternatives for replacing the dollar look so weak. The euro has its own set of long-term problems, in some ways more severe than those of the dollar. Nor is the yen ready for prime time, with Japan’s economic behavior erratic and the Bank of Japan viewed as incompetent. China’s yuan is not yet supported by a fully functional financial infrastructure and has too long been pegged to the dollar to suddenly go it alone. Gold, on the other hand, steps up with a number of advantages. It can function without the need for a complex financial system to guide and regulate transactions. Asia could well be the vanguard for a new gold standard because of internal dynamics. China is exemplary in this regard in that Chinese citizens regularly save as much as 40% of their personal income. Many of China’s less-connected citizens seem as likely to bury their wealth in a shoebox as put it in a bank. This mindset strongly favors a physical, storable asset, like gold.

In today’s world, the edge is in getting smaller and leaner, outsourcing nonessential tasks and jettisoning excess baggage entirely. This will apply to governments as much as companies in the long run. In the new post-collapse environment, the number of competitive jurisdictions will thus multiply as large governments lose their capital accumulation edge to smaller ones. Successful governments in this hyper-competitive environment will be customer service providers rather than shakedown operations. They will have to provide more value for money as capital flows become all the more mobile and hard to pin down. This shift will naturally favor sound money.

Sound money naysayers argue that a gold standard cannot work in today’s modern global economy. They declare the gold straitjacket too fiscally restrictive. They warn that there is not enough gold in the world to properly grease the wheels of commerce. But the naysayers wrongly assume that a gold-based system cannot contain leverage. The use of leverage itself is not a bad thing except when abused. Governments cannot be trusted to apply leverage responsibly, but private entities could – under the watchful eye of investors and deposit holders. A sound money system policed by private creditors – without the moral hazard of government influence – could make use of leverage responsibly and well, without undue political pressures.

Link here (scroll down to piece by Justice Litle).


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

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

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

As more industries point out the advantages of implanting microchips under individuals’ skin, you have to wonder if the day will come when resistance to this new “safer, easier” method of identification really will be futile. Banks are already excited about the prospects of implantable microchips. A world with most humans living with implantable microchips could evolve into the ultimate police state. Microchips would replace all of current forms of ID. You might not be able to withdraw money from the bank, or buy or sell anything, without it. At the touch of a button, your assets could be frozen, medical treatment denied, etc. The ultimate punishment would be to have your chip deactivated. In that case, you could no longer exist, since all personal and financial interactions would require verification of identity and confirmation of sufficient assets to complete a transaction. Proponents of implantable microchips deny such such nightmare scenarios could come to pass, because their use is “voluntary”. But “voluntary” is not an appropriate word to describe something that might one day be required to merely exist as a human being.

Links here and here.


Buying a second home is increasingly a matter of adopting a second country. About 4.1 million Americans reside in other countries, according to the Association of Americans Resident Overseas, with about 1 million living in Mexico and 688,000 living in Canada. If all of these residents living abroad were placed in one U.S. state, it would be the 25th most populous state in the country, the association reported. The statistics do not include travelers who are visiting briefly and who do not secure visas, and also do not include members of the U.S. military.

“What we’ve noticed over the past five years – the trend is definitely accelerating. Americans are buying second homes in droves internationally,” said Jeff Hornberger, international market development manager for the National Association of Realtors trade group. Latin American countries, and particularly those in Mexico, Central America, and the Caribbean, are hot destinations for U.S. buyers, Hornberger said. There is more political and economic stability in the region than in years past, the dollar goes a long way, global travel to these destinations is quick and affordable, and baby boomers are looking for more than just homes on golf courses in typical U.S. retirement markets, he added. Also, in countries such as Panama and Nicaragua that are seeking to lure foreign buyers. “They are really rolling out the red carpet for Americans in terms of tax incentives.”

The International Consortium of Real Estate Associations, a group that includes participation from the National Association of Realtors, boasts “over 3 million properties around the world” at its Web site, WorldProperties.com. Hornberger said that the interest in international real estate is skyrocketing, although it is difficult to statistically track the actual number of U.S. residents who own property abroad. He has seen a growing interest in international real estate conferences and events. During a trip to Panama last month to discuss real estate opportunities in that nation, there were about 140 U.S. real estate agents who participated. “The first year 30 came, the second year 60 came. A lot of Realtors have themselves bought property. … The amount of construction happening in Panama – there are a lot of new developments going up. The boom is happening right now. There are so many construction cranes right now that it’s amazing. It’s just a country that’s very comfortable for U.S. [residents]. The U.S. dollar is their currency.” While Europe has also been a popular destination for U.S. residents to purchase property, the dollar has been weak against the euro for several years and air travel tends to be more costly and lengthy to European destinations.

Real estate practices can vary dramatically from country to country, Hornberger said, and ICREA has worked to provide information to consumers and agents alike about the peculiarities of home sales in many countries. In addition to its participation in the international real estate group, the National Association of Realtors offers a certification program for Realtors who work with international properties, called Certified International Property Specialist. There are about 1,500 Realtors who hold this certification. Tom Kelly, a real estate author and columnist who co-authored Cashing in on a Second Home in Mexico, said Panama is definitely a hot international real estate market. “Costa Rica continues to be hot but it’s kind of been found. Mexico is jumping up and down.” Belize, Panama and the Yucatan Peninsula region are becoming very popular, he said.

Link here.


Americans living in Bermuda will see their tax costs rise dramatically as a result of tax legislation U.S. president George W. Bush is expected to sign this week. The election year tax measure aims to cut U.S. taxes by $70 billion over the next decade by extending low tax rates on dividends and most capital gains until 2010 and preventing 15 million households from being hit by the alternative minimum tax (AMT). However the 4.1 million Americans – excluding military personnel and foreign service officers – living outside the U.S. will bear a portion of those cuts via complicated tax rules which will result in them paying $2.1 billion more in taxes over the next decade.

Currently, U.S. expatriates are exempted from paying U.S.US taxes on the first $80,000 of foreign earned income. The new legislation would increase the exemption by $2,400 to $82,400 as of tax year 2006. However, U.S. citizens will see the tax exemption on foreign housing expenses significantly reduced. Currently, American expatriates can deduct virtually all of their housing expenses which is a benefit that has helped attract Americans to live in high priced locations such as Bermuda. The new rules however cap the housing deduction at $11,536 although Treasury has the ability to adjust the housing deduction when countries have abnormally high costs of living relative to the U.S.

Expatriates will also be subject to higher tax brackets so a single taxpayer or married filing jointly taxpayers who maximize the combined foreign earned income exclusion and housing deduction – approximately $94,000 – would see additional tax costs of $20,806 and $16,811 respectively, said PricewaterhouseCoopers Bermuda tax advisor Rick Irvine. Republican Senator Charles Grassley, chairman of the Senate Finance Committee, who was a key player in an unsuccessful bid to eliminate the foreign income and housing deduction for expatriates in 2003, helped move the last minute modifications to the 2006 tax legislation through Congress.

In 2003, U.S. business groups successfully lobbied against the plan to eliminate the deductions on the grounds it would make it prohibitively expensive to promote American products and ideas. This time around however the provision related to US workers abroad was added late last week with no warning and therefore little time for opposition.

Link here.


Does gasoline at 10 cents a gallon and falling sound impossible in today’s world? Well, if you think it is impossible, you are wrong. Because that is where gasoline actually is, and it looks like it is going even lower. Of course, it is not 10 cents a gallon in today’s paper money. But it is 10 cents a gallon in the Constitutional money of the United States, which is gold coin and bullion. Gold is now at $700 per ounce, and rising. To the right is a picture of a $20 U.S. gold coin known as a Double Eagle. If you look carefully, at the bottom of the coin, you can actually see where it says “Twenty Dollars”.

This coin contains approximately one ounce of actual gold, which means that at today’s market price of gold, it is worth $700. And this means that one gold dollar is worth $35 of today’s paper dollars. And that means that one gold dime is worth $3.50 in today’s paper money. This last, of course, is roughly what a gallon of gasoline costs in today’s paper money. Which means that a gallon of gasoline costs just 10 gold cents.

The key point here is that our money is getting cheaper and that is why prices are rising. Do not be surprised if in the future, gasoline is a lot more expensive in paper money than it is today and, at the same time, cheaper than it is today in our Constitutional gold money. Look for $5 per gallon gasoline in paper and seven cents per gallon gasoline in gold. That is a real possibility.

Link here.


There are places widely called “offshore tax havens”, such as the British Virgin Islands and the Cayman Islands, where certain taxes are imposed at low rates or not at all to attract foreign companies or individuals. Now, some label Belgium a “tax haven” when they complain that Lone Star Funds is conducting the sale of Korea Exchange Bank through its Belgian unit in order to avoid taxes here. They say that the tax haven list, which will be made by the Finance Ministry next month, should also include the Netherlands, paying attention to the fact that a Dutch unit of the French retailer Carrefour has an 80% stake in Carrefour Korea, whose sale to Korea’s Eland was agreed at the end of last month.

But it is difficult to find Belgium or the Netherlands on globally adopted tax haven lists made by the OECD and well-known business magazines such as Forbes. In fact, the corporate income tax rates in Belgium and the Netherlands are 33.99% and 31.5% respectively, much higher than Koreaqfs rates of 13 to 25%. Under the bilateral double taxation treaties between Korea and those countries, if Lone Star or Carrefour does not pay tax on their capital gains here, it will have to pay tax in Belgium or the Netherlands. Then why are Korea’s tax authorities concerned about “tax avoidance”" by Lone Star and Carrefour? And why has Lone Star chosen Belgium, with a higher corporate tax, and not Korea as the country to which it will pay tax on more than 4 trillion won ($4.4 billion) of profits from the sale of Korea Exchange Bank? The U.S. private equity fund said that the profit was not taxable in Korea because the sale is being conducted by LSF-KEB Holdings, a unit that the fund set up in Belgium as a holding company for the Korean lender.

Here is an answer. Capital gains realized by a company based in Belgium on shares in a domestic or foreign company are fully exempt from corporate income tax, according to the Belgian Ministry of the Economy. The Netherlands also exempt companies from capital gains tax and there are several more such countries, including Hong Kong and Singapore, according to the American Council for Capital Formation. “Although the Netherlands has a sophisticated tax system with high tax rates, some aspects of its fiscal system are extremely attractive,” Lowtax.net, a tax saving information agency, said on its Web site. “Attractive fiscal incentives are further enhanced by a complex network of double taxation treaties, few of which contain any anti-avoidance provisions.” And Belgium is a similar case, said the online information provider, which itself is based in a tax haven, the British Virgin Islands.

As more and more multinational companies are making use of differences in tax benefits between countries and loopholes in tax treaties, tax authorities of some countries are making moves to counter the practice. Japan and the UK kept Labuan, where offshore companies are exempt from income tax on their offshore activities, as an exception from their bilateral double taxation treaties with Malaysia. Seoul has also asked Malaysia to remove Labuan from the benefits of the double-tax arrangement between the countries but Kuala Lumpur has not yet responded to the substance of that request. The Korean government is also making other moves. But any changes will take time, and will probably not apply to the cases Koreans now rail at. The tax authorities are likely to focus their efforts on proving that those foreign investors’ business activities related to the profits Seoul wants to tax are actually based in Korea.

Link here.


I know you are shocked – SHOCKED! – that George Bush is listening in on all your phone calls. Without a warrant. That is nothing. And it is not news. But this is: The snooping into your phone bill is just the snout of the pig of a strange, lucrative link-up between the Administration’s Homeland Security spy network and private companies operating beyond the reach of the laws meant to protect us from our government. You can call it the privatization of the FBI – though it is better described as the creation of a private KGB.

The leader in the field of what is called “data mining”, is a company, formed in 1997, called, “ChoicePoint, Inc,” which has sucked up over $1 billion in national security contracts. Worried about Dick Cheney listening in Sunday on your call to Mom? That ain’t nothing. You should be more concerned that they are linking this info to your medical records, your bill purchases and your entire personal profile including, not incidentally, your voting registration. Five years ago, I discovered that ChoicePoint had already gathered 16 billion data files on Americans – and I know they have expanded their ops at an explosive rate.

They are paid to keep an eye on you – because the FBI cannot. For the government to collect this stuff is against the law unless you are suspected of a crime. (The law in question is the Constitution.) But ChoicePoint can collect if for “commercial” purchases – and under the Bush Administration’s suspect reading of the Patriot Act – our domestic spying apparatchiks can then BUY the info from ChoicePoint.

Who ARE these guys selling George Bush a piece of you? ChoicePoint’s board has more Republicans than a Palm Beach country club. It was funded, and its board stocked, by such Republican sugar daddies as billionaires Bernie Marcus and Ken Langone – even after Langone was charged by the SEC with abuse of inside information. I first ran across these guys in 2000 in Florida when our Guardian/BBC team discovered the list of 94,000 “felons” that Katherine Harris had ordered removed from Florida’s voter rolls before the election. Virtually every voter purged was innocent of any crime except, in most cases, Voting While Black. Who came up with this electoral hit list that gave Bush the White House? ChoicePoint, Inc. And worse, they KNEW the racially-tainted list of felons was bogus. And when we caught them, they lied about it. While they have since apologized to the NAACP, ChoicePoint’s ethnic cleansing of voter rolls has been amply assuaged by the man the company elected.

And now ChoicePoint and George Bush want your blood. Forget your phone bill. ChoicePoint, a sickened executive of the company told us in confidence, “hope[s] to build a database of DNA samples from every person in the United States … linked to all the other information held by CP [ChoicePoint]” from medical to voting records. And ChoicePoint lied about that too. The company publicly denied they gave DNA to the Feds – but then told our investigator, pretending to seek work, that ChoicePoint was “the number one” provider of DNA info to the FBI. “And that scares the hell out of me,” said the executive (who has since left the company), because ChoicePoint gets it WRONG so often. We are not contracting out our Homeland Security to James Bond here. It is more like Austin Powers, Inc. Besides the 97% error rate in finding Florida “felons”, Illinois State Police fired the company after discovering ChoicePoint had produced test “results” on rape case evidence … that did not exist. And ChoicePoint just got hit with the largest fine in Federal Trade Commission history for letting identity thieves purchase 145,000 credit card records.

But how can they get Americans to give up our personal files, our phone logs, our DNA and our rights? Easy. Fear sells better than sex – and they want you to be afraid. Consider a story about a weird new law passed by the state of Georgia to fight illegal immigration. Every single employer and government agency will be required to match citizen or worker data against national databases to affirm citizenship. It will not stop illegal border crossing, but hey, someone is going to make big bucks on selling data. And guess what local boy owns the data mine? ChoicePoint, of Alpharetta, Georgia.

That is the Fear Industry for you. You are not safer from terrorists or criminals or “felon” voters. But the national wallet is several billion dollars lighter and the Bill of Rights is a couple amendments shorter. And that is their program. They get the data mine – and we get the shaft.

Link here.
The eternal value of privacy – link.


When it comes to estate planning – especially offshore estate planning – there are things you should do, things you should not do, and there are downright stupid things no one should ever do. Plato said that nothing in the affairs of men is worthy of great anxiety. Perhaps not, but flawed estate planning can cause a great deal of worry and frustration for your heirs. One of the fundamental mistakes I have come across in the offshore financial services industry is the failure of those with assets held offshore to adequately deal with succession before the (usually) unexpected event of death occurs. It does not matter in what offshore jurisdiction those assets are controlled, the potential dangers, delays and, often, distress remain.

If a will exists, control of the deceased’s offshore assets passes to his executor. If there is no special foreign will covering the offshore assets, however, there will be a delay before the domestic will is recognized by the foreign court that has jurisdiction over the assets. Meanwhile, management of those assets might be affected while transfer of control to the executor takes place. Intestacy – dying with no legal will – is the worst-case scenario. Even before representation by an executor is approved, one has to be found. Often, there will be a delay while family members decide who to appoint, especially if rivalries exist or some members live in different countries. As an executor, I have looked across my desk and seen the disappointed faces of those who, except for the prevailing intestacy laws, would-and should-have received some benefit.

Failing to have your offshore estate in proper order when you die leaves a debt unpaid to your heirs. In so many instances, a simple trust will suffice – and I mean “simple”. I have found in my career that too often people are offered complex solutions to their offshore affairs when a very direct path can be traveled. If, for example, all a person is concerned about on his death is that the assets of his offshore company will be enjoyed by his heirs, then why should a deed of more than two pages be required? Skilled draftsmen can be concise and you just have to choose professionals of the right caliber.

Now, let me hammer home my point. Mr. O (an associate of the late Red Adair, famous for putting out oil fires) ran a very successful business, which provided specialized equipment to international oil companies worldwide. The administration and accounting for the worldwide lease agreements and supporting services were all managed offshore and the company through which the operations flowed was owned by an offshore trust. The important point here is that the success of the entire offshore structure hinged on the validity of the trust underpinning it. If the trust was void, the entire edifice would crumble and any tax advantages would be lost. The resulting financial conflagration on Mr. O’s death would have been impossible for even Red Adair to tackle.

I was asked to review the trust deed and I found that it had a fatal flaw. Fortunately, the situation could be salvaged but what had happened in this case has an all-too-familiar ring. The trust deed had been prepared by amateurs who had done with scissors and paste (we are talking 25 years ago) what today, using a computer, would be called “a copy and paste job”. Parts of several precedents had been combined to create the deed. What had originally been intended to be a Liechtenstein trust had become, through their doctoring, a Frankenstein trust. The lesson here is that, whether the trust deed is two or, as in the case of Mr. O, nearly 30 pages long, it needs to be right.

Link here.


As we ponder our lot today, it cannot be over-stressed that the system under which we labor is as inherently inflationary as any of which even the wildest monetary crank could dare to dream. Though things were bad enough when commercial banks held only fractional reserves of something as inflexible as bullion, they are now no longer constrained by any effective reserve system whatsoever. Rather they must only comply with the protocols of the Basel capital standard and, in truth, this is no standard at all.

Banks were supposed to be able to lend only a multiple of their capital. What this neglects to add is that, as liquidity swells and credit abounds, the banks who give rise to this can effortlessly create their own capital from thin air simply by borrowing it from one another and from selling bonds or stock to those whose loan accounts they themselves have just credited! Add in the fact that our twisted ingenuity has employed our globe-encircling computer networks to construct an ever more extended fantasy of asset speculation on the foundations of ever thinner slivers of “capital” – and the capital markets operate not so much on an equity base as on the thinnest of junior-lien varnishes!

This is a world, then, in which an asset such as gold may justifiably rise to match the increase in the quantity of paper money – but it is also one in which such an asset can itself become the medium within which easy money incubates yet one more bubble, as may have happened sometime in the past nine months. In such a world, it is vitally important that we do not confuse money – especially today’s money, near limitless in its supply – with wealth, whose own supply is, by its very essence, severely limited. Nor must we ever forget that “capital” is not simply a digital entry, tapped effortlessly into the computer of some financial clearing house, but that it is a useful, productive resource that needs to be hewn from the earth, processed, and assembled – not in the hushed, marble halls of banking, but in the harsh and unforgiving environment of mines and quarries, fields and forests.

Financial history provides copious illustrations of the essential truth that, at root, all inflations are matters of financial excess and it is hard to escape the conclusion that we are currently in the process of adding yet another chapter to this hefty tome. Indeed, we would forcibly argue that, for its scale, spread, speed, and sheer ferocity, the present inflation – not just of money, but of all forms of credit and of the manifold derivatives constructed thereon – is beyond all parallel. To support this contention, we can draw attention to the exuberance in the financial markets – not least the record-setting flood of debt-financed takeovers and buyouts – but also to the rise in the prices of houses, office blocks, objets d’art, diamonds, autographs, metals, soft commodities, energy products, formerly exotic stocks, and – until very recently – just about every variety of bond. Ask yourself whether the prices of all these disparate entities are rising, or whether the price of money is falling?

It would be an act of folly to bet on an imminent end to this present feverish rally, just as it would be an equal and opposite act of misjudgment to get carried away and start Googling targets higher and higher into the stratosphere every time the ticker grinds northwards. Estimations of present worth are difficult enough without introducing the uncertainties of the future. To say, as has been said here today, that gold is bound to appreciate against one paper currency or another (without specifying which or when) is not to say much at all. Nor is this sufficient to demonstrate that gold represents the best medium by which to preserve one’s capital under all circumstances.

Forecasts, I believe, can only be made on two time scales and even then, never more than qualitatively. On the short (and inherently sharp) end, there are those who have developed a feel for market positioning and who can scent its tactical vulnerabilities. There are those who are attuned to the changing state of the herd’s delusional mindset and can decipher how it is being guided by its own continually revised body of post-hoc myth. These, the people who used to be called “tape-readers”, have the knack of making just enough sense out of the surrounding cacophony to trade profitably and with sufficient regularity for this to be beyond the confines of blind chance. Unfortunately, I am not one of them.

Conversely, over a long haul the basic economic verities are undeniable and ineluctable. Eventually, the chickens do come home to roost. Reluctantly, I cannot fail to conclude that we are on a path toward ever less personal liberty and to ever greater violations of the sacred rights of private property. It is, by necessity, a path to monetary adulteration and to a creeping corruption of body and soul. It is a path beside which Atlas may, indeed, be seen to shrug. In such a world, it is likely to be the case that people will, from time to time, seek to acquire holdings of a relatively scarce, high value-by-weight, easily fungible, liquid, storable, real asset as an alternative to their holdings of a much less scarce, eroding value paper asset, such as comprises today’s money. In such a world, gold may therefore command a higher price than it did in more innocent times when the side effects of our ongoing decline were less severe and when the prospect of our fall was much easier to ignore.

If you hold that this kind of dread and defensiveness explains at least part of the metal’s rising price, it is hardly a cause for universal rejoicing. For, though it is understandable that gold’s long-suffering believers now feel gloriously vindicated, we must temper our present glee with the thought that the rally being enjoyed may be no more than a waypoint on our road to a self-imposed and wholly unnecessary ruin.

Link here.


Search “millionaire” on Amazon.com and you will come up with scores of books on how to make yourself into one. Somebody is getting rich off this phenomenon, but we suspect it is not the purchasers. Click here to start the slideshow.

Link here.


U.S. Senators Charles Grassley (R-Iowa) and Max Baucus (D-Montana), Chairman and Ranking Member of the Senate Finance Committee, requested more information on IRS handling of foreign-source income information documents received from foreign countries. American taxpayers generally are taxed on their worldwide income and these reports are a good way for the IRS to find out if they are paying everything they owe. However, a Treasury Inspector General for Tax Administration (TIGTA) report recently found that the IRS fails to make good use of these reports to identify income earned overseas by American taxpayers.

In a letter dated May 17, the Senators asked IRS Commissioner Mark W. Everson to explain why the agency is letting this valuable information go to waste. Congress urged the IRS to begin a systemic use of foreign source information documents as far back as 1976, but the IRS has done little to tackle the issue. Until recently, most of these information documents were received in paper format at the IRS Philadelphia Service Center. TIGTA found that these forms were stored in boxes, but the IRS never did anything with them. These documents have subsequently been destroyed.

While almost all of this data is now collected and stored in electronic form, Grassley and Baucus noted that the IRS has no specific process to use this data to detect unreported foreign income, meaning the IRS Criminal Investigation Division has been unable to access the data for use in connection with its investigations. Between 1999 and 2003, foreign investments by U.S. residents nearly tripled, from $2.6 trillion to $7.2 trillion.

Link here.


More than 565 people in North and South America and Europe have been arrested as part of “Operation Global Con” – the largest and most far-reaching multinational enforcement operation ever directed at mass-marketing fraud schemes, the U.S. Department of Justice announced. The ongoing action began on March 1, 2005, and involved unprecedented coordination by law enforcement agencies at the national and international levels. “Operation Global Con” targeted mass-marketing schemes that were international in scope and impact, were conducted by criminal groups, and generated significant proceeds. The schemes were carried out through various methods, such as telemarketing, the Internet and mass mailings.

The wide variety of schemes uncovered during the operation included so-called “419" advance-fee schemes; foreign currency trading; bogus lottery, prize and sweepstakes schemes; offers of nonexistent investments; bogus offers of “pre-approved” credit cards or credit-card protection; and tax fraud schemes. The 96 separate U.S. investigations in this operation led to the discovery of more than 2.8 million victims, who suffered losses totaling more than $1 billion. “Mass-marketing fraudsters think they can use modern technology to operate from anywhere in the world with impunity,” said Attorney General Alberto R. Gonzales. “The virtual task forces that we have built with Canada, Costa Rica and the Netherlands provide a new model for us to bring these international con artists to justice.”

As part of Operation Global Con, Costa Rican agents, acting in cooperation with the U.S. government, just last week conducted a series of arrests and searches in Costa Rica that targeted significant mass-marketing fraud “boiler room” operations. These operations used Internet-based telephony and mobile phones to contact prospective victims in the U.S., purporting to be from nonexistent organizations such as the “Sweepstakes Security Commission”, to offer nonexistent sweepstakes winnings of as much as $4.5 million. Victims were expected, in return, to pay “insurance fees” for the alleged “benefit” of Lloyds of London. Some victims who made the payments would then be recontacted by participants in the schemes, who pretended to be Costa Rican or U.S. customs authorities demanding payment of additional “customs fees” or taxes.

Link here.


Casino gambling. A fairy tale palace. Yachts in the harbor. The Monaco Grand Prix auto race through Monte Carlo’s streets and past its jet-set beaches. Of all of the images that the tiny principality on France’s Riviera coast evoke, there is one that its ruling monarch, Prince Albert II wants to erase. That is British writer Somerset Maugham’s description of Monaco as “a sunny place for shady people.” Or, more to the point, the image that Monaco’s penthouses offer refuge to scoundrels, and its confidential bank accounts provide a haven for laundered money. “I don’t want Monaco to be perceived that way,” says Albert, 48, who, when he took Monaco’s throne last July 12 after the death of Prince Rainier III in April 2005, declared that “money and virtue must go together.” Since then, Monaco has cracked down on what Albert calls “people who have had doings with illicit activities” and has declared persona non grata anyone with a reputation that the prince does not care for. Monaco has also worked to comply with EU banking regulations and to get itself off a list of allegedly “uncooperative tax havens,” posted by the OECD.

To enforce Albert’s wish that Monaco shed its shady image, his government has beefed up its intelligence operation to monitor people’s comings and goings and its accounting staff to scan the source of funds coming in to the principality. “We have access, with certain intelligence, to where people come from and what their activities are,” says Jean-Luc Allavena, director of Albert’s Cabinet in this constitutional monarchy. Allavena says that the principality responds quickly to every request from any nation about the source of money in Monaco bank accounts. In addition, he says, the 50 banks and 20 other financial firms here have been “sensitized” to the prince’s desires. Bankers know that “you cannot just close your eyes and get money when it arrives,” he says. “There are a lot of good reasons for people to come here. But we want people that are actively involved in life here. It’s important that they know what the rules are.”

The principality is a little more than half the size of New York’s Central Park. Monaco is attractive to the British because Monaco’s residents pay no tax on personal income, capital gains or inheritance on personal trusts unless they are French nationals. French citizens in Monaco, a protectorate of France, must pay income and wealth taxes, as do all French. About 6,000 British can be counted among Monaco’s 32,000 residents, compared with about 300 citizens of the USA, whose tax laws do not make residency there that advantageous.

Monaco keeps tabs on who comes in by having guests surrender their passports at hotels, which send the information to a central registry to be checked. It also keeps track of anyone who might abuse its residency requirements – six months and a day in the principality each year – by checking utility bills and even telephone records. There are other reasons Monaco is attractive to people who can afford the one-bedroom condos that can sell for an average of $1.3 million or three-bedroom condos that go for $2.9 million. The principality, which has one police officer for every 100 residents, is considered safe. Uniformed police officers are in evidence, as are security cameras. “For every policeman you see in uniform, there are two in plain clothes,” says pub owner Haly. All of this adds up to a desirable place to live, says real estate broker Pierre Mare.

Link here.


You have met the phenomenon of an Inner Ring. You discovered one in your house at school before the end of the first term. And when you had climbed up to somewhere near it by the end of your second year, perhaps you discovered that within the Ring there was a Ring yet more inner, which in its turn was the fringe of the great school Ring to which the house Rings were only satellites. It is even possible that the School Ring was almost in touch with a Masters’ Ring. You were beginning, in fact, to pierce through the skins of the onion. And I can assure you that in whatever hospital, inn of court, diocese, school, business, or college you arrive after going down, you will find the Rings – what Tolstoy calls the second or unwritten systems.

All this is rather obvious. I wonder whether you will say the same of my next step, which is this. I believe that in all men’s lives at certain periods, and in many men’s lives at all periods between infancy and extreme old age, one of the most dominant elements is the desire to be inside the local Ring and the terror of being left outside. This desire, in one of its forms, has indeed had ample justice done to it in literature. Victorian fiction is full of characters who are hag-ridden by the desire to get inside that particular Ring which is, or was, called Society. But it must be clearly understood that “Society”, in that sense of the word, is merely one of a hundred Rings and snobbery therefore only one form of the longing to be inside. People who believe themselves to be free, and indeed are free, from snobbery, and who read satires on snobbery with tranquil superiority, may be devoured by the desire in another form.

Freud would say, no doubt, that the whole thing is a subterfuge of the sexual impulse. I wonder whether the shoe is not sometimes on the Other foot, I wonder whether, in ages of promiscuity, many a virginity has not been lost less in obedience to Venus than in obedience to the lure of the caucus. I am not going to say that the existence of Inner Rings is an evil. It is certainly unavoidable. There must be confidential discussions. And it is not only not a bad thing, it is (in itself) a good thing, that personal friendship should grow up between those who work together. But the desire which draws us into Inner Rings is another matter. A thing may be morally neutral and yet the desire for that thing may be dangerous. Let Inner Rings be an unavoidable and even an innocent feature of life, though certainly not a beautiful one. But what of our longing to enter them, our anguish when we are excluded, and the kind of pleasure we feel when we get in?

I do not believe that the economic motive and the erotic motive account for everything that goes on in what we moralists call the World. Even if you add Ambition I think the picture is still incomplete. The lust for the esoteric, the longing to be inside, take many forms which are not easily recognizable as Ambition. We hope, no doubt, for tangible profits from every Inner Ring we penetrate – power, money, liberty to break rules, avoidance of routine duties, evasion of discipline. But all these would not satisfy us if we did not get in addition the delicious sense of secret intimacy. It is no doubt a great convenience to know that we need fear no official reprimands from our official senior because he is old Percy, a fellow-member of our ring. But we do not value the intimacy only for the sake of convenience. Quite equally we value the convenience as a proof of the intimacy.

My main purpose in this address is simply to convince you that this desire is one of the great permanent mainsprings of human action. It is one of the factors which go to make up the world as we know it – this whole pell-mell of struggle, competition, confusion, graft, disappointment, and advertisement, and if it is one of the permanent mainsprings then you may be quite sure of this. Unless you take measures to prevent it, this desire is going to be one of the chief motives of your life, from the first day on which you enter your profession until the day when you are too old to care. That will be the natural thing – the life that will come to you of its own accord. Any other kind of life, if you lead it, will be the result of conscious and continuous effort. If you do nothing about it, if you drift with the stream, you will in fact be an “inner ringer” – although not necessarily a successful one. But whether by pining and moping outside Rings that you can never enter, or by passing triumphantly further and further in – one way or the other you will be that kind of man. I have already made it fairly clear that I think it better for you not to be that kind of man.

But you may have an open mind on the question. I will therefore suggest two reasons for thinking as I do. My first reason is that of all the passions the passion for the Inner Ring is most skilful in making a man who is not yet a very bad man do very bad things. My second reason is this. The torture allotted to the Danaids in the classical underworld, that of attempting to fill sieves with water, is the symbol not of one vice but of all vices. It is the very mark of a perverse desire that it seeks what is not to be had. The desire to be inside the invisible line illustrates this rule. As long as you are governed by that desire you will never get what you want. You are trying to peel an onion. If you succeed there will be nothing left. Until you conquer the fear of being an outsider, an outsider you will remain.

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.


There can be no mistaking the power of the risk reduction trade that has just occurred. It is on a par with the big reversals of the past. What is particularly interesting is that this outbreak of risk aversion has occurred in the absence of a financial crisis and in the absence of a major shift in the underlying fundamentals of the global economy. The tentative conclusion is that this episode is more about the markets than anything else – and the fear that the liquidity goose that hatched the golden egg is about to take flight.

A couple of years ago, our foreign exchange strategy group constructed a proprietary measure of the appetite for risk embedded in world financial markets. The GRDI is both cross-border and multi-asset in scope. It is designed to measure the movements in a variety of risky assets relative to their riskless counterparts. It includes comparisons between emerging-market and developed-market bonds, base metals versus precious metals, cyclical versus non-cyclical equities, equities versus bonds, volatility in equities, bonds, and FX markets, and credit market and swap spreads. The index has been back-tested to 1995 and has a good record in capturing the big moves in risk appetite clustered around the major financial crises of the past decade – including the Asian crisis of 1997, the Russian debt crisis of 1998, the bursting of the Nasdaq bubble in 2000, the 9/11 terrorist attacks of 2001, and the deflation scare of 2003. It is more descriptive than predictive, but can certainly signal important flash points at either end of the risk spectrum.

Recent trends in the GRDI underscore the significance of the latest risk-reduction trade. In late May, the risk-appetite metric moved to extremes last seen during the deflation scare of 2003. At work was a widening of spreads in a number of segments of the risk universe – especially, emerging-market debt and base metals – together with a long-overdue rebound in market-based measures of volatility. A widening of credit and swap spreads also contributed to this move. For those who claim that asset bubbles cannot be identified until after the fact, this dramatic move in the GRDI provides compelling ex post confirmation of a bursting of a bubble in risky assets. The GRDI hit a low on Monday 22 May, and has since retraced more than half its plunge into negative territory. It is hard to know from the empirical history of the GRDI if this latest move signals an end to the risk reduction trade.

The current risk-reduction episode is quite different from those of the recent past in one very important respect. It was not sparked by a discrete, event-driven crisis. Sure, there has been an inflation scare, but it is hardly a serious one. At the same time, there has also been a growth scare – prompted by fears of a Fed overshoot. This presumes that the Fed might fall victim to its seemingly classic tendency to overdo monetary tightening and push the U.S. economy into recession. Here, as well, the fears are hardly extreme – especially with Ben Bernanke going out of his way to telegraph the likelihood of a pause in the Fed’s tightening campaign. Finally, fears of a dollar crisis were evident briefly in the immediate aftermath of the 22 April G-7 meeting. However, while the yen and the euro have both moved up in response, the post-G-7 increases have been measured – about 3% for both currencies versus the dollar.

By process of elimination, that points the finger at the markets themselves. In my view, this is all traceable to the excesses of a super-liquidity cycle – aided and abetted by inflation-targeting central banks that have paid minimal attention to pressures building in asset markets. Ironically, the road to price stability has been more perilous than the authorities envisioned. By ushering in an era of single-digit returns on financial assets at precisely the point when the demographic imperatives of retirement planning require higher returns, the resulting asset-liability mismatch has forced investors much further out on the risk curve than might otherwise have been the case. That tendency was exacerbated by an unusually cheap cost of “carry” (i.e., short-term funding costs) set by overly-accommodative central banks and a growing tendency toward herding by momentum-driven investors. This has resulted in the now-infamous multi-bubble syndrome, as yield-hungry investors have swarmed into one high-yielding asset after another. First equities, then bonds, then spread products (emerging market and credit instruments), then property, and most recently commodities – the excesses of the super-liquidity cycle have created bubble after bubble. The tight correlation of bubble-like blow-offs in a broad array of risky assets may well be the ultimate manifestation of this liquidity-driven mania.

By its very nature, the concept of the bubble lulls investors into a false sense of security. Absent the “pin” – normally thought to be an interest rate spike – investors have no fear of bubbles. Yet, this imagery is actually quite misleading. Yale Professor Robert Shiller has long stressed the tendency of asset bubbles to implode under their own weight (see Irrational Exuberance, second edition, 2005). In 2000, dotcoms were the weak link in that chain – not the overall equity market. Yet when the dotcom bubble burst in March of that year, the resulting carnage was sufficient to take the entire S&P 500 down by 49% over the next 2 1/2 years. Contagion within an asset class – and across asset classes – is a classic symptom of a liquidity-induced multi-bubble climate. That, in my view, is precisely the risk today.

Our internal debate over this possibility has been quite intense. By Joachim Fels’s reckoning, the global liquidity cycle has already turned. He reaches this conclusion based on his analysis of both the quantity and the price of liquidity. While I can hardly fault his logic, I am less convinced that our metrics are robust enough to render a precise verdict on the timing of any shifts in global liquidity. In particular, while I believe central banks are headed in that direction, I am reluctant to conclude that they have done enough to stem the torrent. It is in the world’s best interest to manage the endgame of the risk reduction trade very carefully. But there are no guarantees the authorities can pull it off without a hitch. In the end, the only way to change that course is to break the liquidity-induced addiction that has fed an increasingly dangerous profusion of asset bubbles. That will take nothing short of determined and courageous efforts on the part of politically independent central banks. And there is still likely to be considerable breakage on the road to global rebalancing – irrespective of determined efforts on the part of the authorities to avoid that outcome.

The risk reduction trade may well be capturing the downside of the benign strain of global rebalancing. Just as there are perfectly plausible stories that explain the willingness of investors to abandon historical risk parameters, there are equally plausible stories as to why the dismissal of that risk makes little sense. For emerging markets, a likely reduction of excess consumption in the U.S. spells potentially tough adjustments for these still externally-dependent economies. Commodity markets appear to have been pricing in open-ended support from China at just the time when the Chinese are signaling the move to more of a “commodity-light” growth dynamic – less exports and investment and more consumption.

The power of the recent risk reduction trade, as validated by our proprietary GRDI metric, is a strong reaction to bubble-like excesses in the prices of these highly correlated risky assets. Global rebalancing tells me that these trades probably have a good deal further to go.

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.


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 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.


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.

Links here and here.
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