Wealth International, Limited

Offshore News Digest for Week of June 5, 2006

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

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



Whenever I saw people wearing t-shirts with “St. Maarten” written across the front, I thought it was just a snooty way of spelling St. Martin. Such was the amount of knowledge I had about this tiny island paradise when I eagerly accepted a job offer in St. Maarten. All ready to board the next plane out, I was quickly brought back down to earth with a list of “documents” I needed prior to departing. I needed a birth certificate, marriage certificate (or non-marriage certificate, whatever that is), divorce decree (if applicable – as it was for me), police report, and a letter from a physician stating that I was in good health. Seemed like a time consuming task, yet doable. But wait. The first three of these documents also needed something called the Apostil Seal. For me this meant two states, seven government agencies and 500 miles. But none of this ordeal dampened my spirits, especially when I announced loudly enough for the waiting line behind me to hear, that the purpose for my request was a JOB in the Caribbean!

Fast forward through selling 80% of my possessions, home, business, car, etc., and assuring my kids (grown and on their own) that they could always get me through email. As fate would have it there was a firm blanket of snow on Boston, Massachusetts, when I boarded the plane for my journey. Arriving in St. Maarten on the 1st of February (I had by then learned there is BOTH a French St. Martin and a Dutch St. Maarten on this island) I was greeted with a bone thawing 84F degrees. The sea was turquoise, the sunshine yellow and I was in paradise. I knew no one. I had never been here before. But I was home.

The biggest industry on this island, not surprisingly, is tourism, and the resort I was employed by was to provide me with my first months lodging until I got settled into a place of my own. After seeing the resort itself, and staying there the first night of my arrival, I was feeling on top of the world. The next day I was more on the top of a hill, and my expectations had a rude awakening. Through no fault of my employing company, I found myself in a 300 sq. ft. studio apartment with no hot water, a door that did not lock and screens that did not begin to keep out dive bombing mosquitoes! All of this was remedied within the next couple of weeks when I found a beautiful one bedroom condo on the east side of the island complete with fuschia, bougainvillea and a patio that faced the sea and St. Barts.

I have been calling St. Maarten home for over a year now. Since St. Maarten (the Dutch part of the island) is a duty free port, and since so many U.S. tourists flock to the island, I am spoilt and can buy basically anything I could in the states. My rent is on par with living on Cape Cod, only I would not have an ocean view there. Water and electricity are not included in the rents, but by taking Caribbean showers (do not let the water keep running – wet, soap, rinse) and by not using air conditioning (I found a place with wonderful breezes) my monthly living expense comes to around $880.

Besides the beautiful beaches and tropical weather, I have found St. Maarten’s greatest resource to be its people. The cultural diversity on this tiny spot of land is huge. The predominate languages are English, Dutch, French, Spanish and Papiamento. These are people who love life. Most have come to St. Maarten for reasons they do not even remember and have just ended up staying. And everyone accepts each other’s remarkable differences. I feel both at home and in a whole new adventure every day.

Link here.


A new report from London’s Economist Intelligence Unit says that the future of offshoring is not the destructive race to the bottom lamented by so many commentators, but a search for the right skills at the right price. “The new face of offshoring: closer to home?” is a newly released report from the EIU sponsored by Hewlett-Packard. It says that locations closer to home – “nearshoring” operations in Central and Eastern Europe and North Africa – will be a key focus of expansion, especially for companies based in Europe. The report asserts that the most important development in offshoring is not the drive for ever-lower costs, but the emergence of diverse new locations that support more sophisticated offshoring requirements.

“As costs rise in nearshoring locations like the Czech Republic and Hungary, some expect them to become just a footnote in the broader history of offshoring,” says Delia Meth-Cohn, Senior Consultant, Economist Intelligence Unit. “But demand is increasing for more complex capabilities and a closer linguistic and cultural fit with customers-that makes lower-cost European locations very competitive alongside global centers in India and China.” The conclusions of the report are based on in-depth interviews conducted by the Economist Intelligence Unit with senior executives, responsible for managing shared-service and outsourcing centers in the EMEA region and beyond.

Link here.


Here is a proposal that would allow the U.S. to solve its immigration crisis, control sky-high healthcare costs and rebuild ties with Latin America in one stroke: Make it easier for millions of Americans to retire in style and pay lower medical bills south of the border. Over the next 30 years, more than 100 million U.S. citizens will reach retirement age, and very few of them will be able to afford good housing, top-of-the-line medical services or – much less – personal care. Mexico, Central and South America could offer all of that and much more. Doing so would catapult their economies and reduce their people’s need to emigrate.

Before we get into why this – or other plans to reduce the U.S.-Latin America income gap – is much more likely to solve the immigration crisis than the $1.9 billion President Bush wants to spend on a 370-mile fence along the border and to deploy 6,000 National Guard troops, let us take a closer look at the alternative retirement option. The upcoming retirement of about 100 million U.S. baby boomers will result in increased demand and ever-growing prices of retirement housing, nursing and healthcare bills for millions of Americans. Many of them are already seeking retirement alternatives overseas. As Walter Russell Mead suggests in his recent book, Power, Terror, Peace & War, the U.S. should negotiate agreements with willing partners in the region to provide favorable deals to U.S. citizens willing to retire south of the border. It could, among other things, offer reimbursement under Medicare for Americans seeking medical care in qualified and licensed healthcare facilities in Latin America, he writes. Since these reimbursements would be much lower than those Americans would get in the U.S., the U.S. government would save billions of dollars.

By creating hundreds of thousands of jobs for doctors, nurses, hospital technicians, restaurateurs and construction workers, Latin American economies would get a big boost. Florida, Arizona and Spain were sleepy economies before millions of retirees arrived and turned them into prosperous states or nations. Some of this is already happening. More than one million Americans are already living in Mexico, many of them retirees seeking warm weather, lower property taxes and more affordable healthcare. With the proper legal framework, this could be expanded to benefit both countries.

The current border enforcement plans are nothing but feel-good measures. As long as the U.S.-Latin American income gap remains at its current levels – the U.S. per capita income is $42,000 a year, compared with $10,100 in Mexico and $2,800 in Honduras – you will have migrants coming to the U.S. If you build a 370-mile fence extension along the 2,000-mile border, immigrants will simply make a detour through other border crossings in the desert, dig tunnels or come through Canada. The result will be to make it more dangerous, human smugglers will charge more and migrants who make it across the border will never go back for fear of not being able to return. And sending 6,000 additional troops to the border will be just as futile. The U.S. Border Patrol was expanded from 3,700 to 12,000 agents over the past 15 years, yet illegal border crossings doubled anyway.

Link here.


Politically and economically stable, its turbulent history all but forgotten by visitors, Panama is luring U.S. and European retiree baby-boomers dreaming of a millionaire lifestyle on the cheap. Eager to follow neighboring Costa Rica as a magnet for wealthy U.S. and European pensioners fleeing high real estate prices at home, Panama, which uses the U.S. dollar as its currency, is offering perks to retirees ranging from tax breaks to discounts on travel, cinema tickets and fast food.

Much of rural Panama is still dirt-poor with a very basic infrastructure, and while the gleaming skyscrapers of the cosmopolitan capital Panama City are only a short flight from Miami, the city is too hot for most newcomers. Retirees are instead flocking to the area around Boquete, a cool mountain town famous for growing coffee and oranges, where small wooden houses are decked with tropical fruit and flowers year-round and old men play dominoes in the shade. U.S. and European retirees are transforming it into a chic enclave with bistros, a 24-hour supermarket and delicatessens.

Boquete is a world away from the image of a typical “banana republic” that stuck in the minds of many baby-boomer Americans who watched television images of the 1989 U.S. invasion to remove dictator Manuel Noriega and the rioting that followed. Gleaming SUVs jostle for parking space in Boquete’s narrow streets. Foreign pensioners scour bistro menus for low-cholesterol dinners while pouring over maps in search of land to buy. With prices rocketing from $10 to $300 per square meter, there is a gold-rush whiff in the air.

Perched on a volcanic plain in the highlands of western Panama, Casey Koehler’s luxury mansion looks like a slice of prime Florida real-estate beamed down to Central America. Koehler, a former CIA worker, said cheaper living partly drew him to Panama. He said that while he spent $5,000 a month in the U.S. to live in none-too-opulent style, he now spent only $1,200 a month and wanted for nothing. Others, like Ramona and Charles Holmes, who moved to Boquete from California last year, dote on its slower, peaceful pace and its unspoiled beauty. “People thought we were crazy,” says Ramona, a 50-year-old former legal clerk. “They thought we’d be kidnapped. That’s just silly. OK, sometimes we find snakes and tarantulas on our property, but it’s so beautiful here you could cry.”

Not everyone is thrilled with the new influx. Some Boquete locals say the boom, which has pushed up demand, is creating imbalances in its economy which are hitting the Ngobe Bugle indigenous group hardest, such as localized inflation that is putting products like meat out of their reach. Teacher Johnny Zapata said the new arrivals should adapt to their new natural and social environment rather than trying to change it. “They want to stop our festivals. They say we are too scandalous,” he said. “Also, the climate is changing as they cut down trees.”

Francisco Serracin of Panama’s Specialty Coffee Association, says some gourmet plantations are being cleared for new homes. “It could become a threat to the industry. There will be very few of us left who believe in coffee,” he says. Nearby, the church in this devout town has placed a sign in the street bearing a caveat, “Boquetean, if you sell your land, it will die. If you don’t, it will live. Think about yourself and your country.”

Link here.


Of the many foreign-policy decisions for which former U.S. president Jimmy Carter has been vilified over the years, one of the most heinous in the eyes of his critics is the 1977 treaty under which the U.S. surrendered sovereignty over the Panama Canal. Even as the protracted transfer was concluded at midnight on 31 December 1999 – 19 years after Carter left office – there were dark mutterings that a terrible mistake was being committed. Much of this concern reflected little more than a chauvinistic belief that a bunch of corrupt, work-shy Latinos were not up to the task of running one of the great monuments of American engineering genius. Even among supporters of the transfer, however, there was widespread acknowledgment that Panama still had much to prove. A fledgling democracy, with no armed forces of its own, a history of dependence on the U.S. and a GDP smaller than that of Kenya was now assuming full administrative responsibility for one of the world’s most important trade routes.

Six and a half years later the canal is booming. Proposals have been released for a major expansion project, aimed at increasing both the size and number of ships able to transit the canal. The proposals will be put to a national referendum on 21 November 2006. The Panamanian press daily carries fierce debates on expansion-related issues, ranging from the arcane details of dam construction to possible uses for the excavated soil. Nobody any longer questions whether the Panamanians are capable of managing such a project without American supervision. Panama seems at last to have convinced itself, as well as its former guardians in Washington, that it is worthy of its inheritance.

But the canal transfer is not an unqualified cause for Panamanian celebration. Its smooth administration since January 2000 has been primarily a commercial achievement, owing more to the autonomous Panama Canal Authority (PCA) than to the Panamanian government. The majority of the Panamanian people have accrued few benefits. Yet the planned expansion will burden them with a disproportionately high level of financial risk. The total cost of the project is estimated at $5.25 billion, equivalent to around 35% of Panama’s GDP, towards the conservative end of the speculative figures bandied around in recent years. The PCA is desperately keen to assure potential investors that this is not a grand public works adventure on the Victorian scale.

As a financially and administratively autonomous government agency, the PCA is not able to approach the capital markets armed with a sovereign credit rating. It must therefore make its estimates of costs and construction schedules sufficiently watertight to attract favourable financing, whilst meeting the ambitious target of completing the new locks before the canal reaches full capacity in 2012. If it overspends, the PCA will be forced to introduce steep toll increases in the future, undermining the canal’s competitiveness relative to other trade routes and driving away the increased demand on which the expansion was justified in the first place.

Although the PCA has autonomous day-to-day control over the canal, the national constitution stipulates that any decision to enlarge the waterway must be approved by a popular referendum. This has given the president, Martin Torrijos, an opportunity to inject some of the old romance back into the debate. The PCA and the Torrijos administration may enjoy a strained relationship, but they will be united in trying to play down the scale of this vulnerability ahead of November’s referendum.

Link here.


The IMF warned that the Dubai Ports row may have had an impact on investment flows to the U.S. from Arab countries, an increasingly important source of financing for the U.S. trade deficit. Dubai Ports World, a state-owned company in the United Arab Emirates, agreed to relinquish control of facilities at six major U.S. ports earlier this year after American politicians viewed it as a threat to U.S. national security. Since the 9-11 attacks, Arab investors have feared that their assets in the West could be targeted for security reasons. The row sparked by Dubai Ports takeover of British firm P&O, which operated the ports in the U.S., reinforced those fears.

“Clearly that was a very political issue,” said Mohsin Khan, director of the IMF’s Middle East and Central Asia department. “It may well have had some impact on investment in the U.S. but hasn’t had an impact on Arab investment in Europe,” he told a news conference in Abu Dhabi. Khan said Arab investment in the West began declining after September 11, 2001 and may have accelerated after the ports row. “The one factor that we have noticed is that there are less funds going into the U.S and Western markets from the Middle East and Arab countries,” Khan said. “We don’t have information on withdrawals but we know there is less (investment) going directly. But indirectly it may be going,” he said.

Link here.


Jersey’s fund sector grew by a stunning 50% in the last year and now services more than 1,000 funds with net asset value of £156 billion, reports Jersey Finance. Bank deposits increased 1.8% to £188 billion over the first quarter of 2006. The Net Asset Value of Funds under administration in Jersey grew by £18.5 billion (13.5%) to reach a new record high of £156 billion. The number of Expert Funds established in the Island increased from 134 to 169. The total value of funds under investment management increased by £9.1 billion (18.5%) to reach £58.3 billion. The number of new Jersey company incorporations during the first quarter of 2006 was 921, an increase of 313 (51.5%) over the same period in 2005.

Beverley Le Cuirot, Director of Marketing and Communications, Jersey Finance Limited, commented, “During the first quarter of 2006 the Financial Services Industry in Jersey has continued to build upon the successes of 2005, with the funds sector in particular continuing to report strong growth. Not only has this sector enjoyed another buoyant quarter, reporting double-digit growth for the second consecutive period, but year on year, the Net Asset Value of funds in Jersey has risen by almost 50% to reach a new record high of £156 billion. The more detailed analyses confirm that this growth is largely being driven by the alternative investment classes, including property, private equity and hedge funds, many of which have been established under the Jersey Expert Fund Regime.”

Link here.



Negotiation of agreements between countries that provide for the exchange of tax information need to proportionately benefit nations of all sizes, argues the International Trade and Investment Organization (ITIO), a group which represents the interests of offshore financial jurisdictions. “Small nations are still disadvantaged when it comes to negotiating tax related treaties and agreements,” said Brenda Heather Latu, representing Samoa, the current Chair of the ITIO, in response to a report published by the OECD Global Forum on Taxation.

The report stated that important progress has been made towards a global level playing field, although it argued that more progress can be made to improve global tax transparency, and stated that some countries still place constraints on international co-operation to counter criminal tax matters and a number continue to impose strict limits on access to bank information in civil tax matters. Ms. Latu noted that many ITIO members actively participated in the OECD’s review of legal and administrative frameworks providing for transparency and exchange of tax information in more than 80 countries. She also explained that the exchange of tax information between countries has traditionally been covered in what are known as double taxation agreements (DTAs). There are more than 2,000 DTAs in existence.

“Small and developing countries are frequently excluded from or not given the opportunity to participate in such treaty networks because they do not have the economic influence of larger nations – specifically in such areas as trade and export of commodities or resources,” noted Ms. Latu. “This becomes a ‘vicious circle’ in which the economic influence of small and developing countries is held back by being excluded from treaty networks.” Ms. Latu stated that what has emerged is a “two tiered system” in which larger and more developed countries offer DTAs to each other and certain other nations – like those which have sought-after natural resources such as oil – while smaller and developing countries are subject to a, “second-class arrangement in the form of stand-alone tax information exchange agreements, which do not provide the types of benefits found in DTAs.”

Formed in 2001, the ITIO works for a level playing field in the trade in services, particularly in the development and implementation of new regulatory standards. This includes, but extends beyond, taxation issues and entails dealing with a wide range of international bodies. The body is funded entirely by its members. The ITIO members are Anguilla, Bahamas, Barbados, Belize, British Virgin Islands, Cayman Islands, Cook Islands, Isle of Man, Panama, St Kitts & Nevis, Samoa, St. Lucia, St. Vincent & the Grenadines, Turks & Caicos, and Vanuatu. The Commonwealth Secretariat, CARICOM, Pacific Islands Forum, Caribbean Development Bank, and Eastern Caribbean Central Bank have Observer status.

Link here.

OECD report anoints Bahamas tax cooperation system as adequate.

In its report, “Towards A Level Playing Field”, which assessed the extent to which 80 jurisdictions have been exchanging information for tax purposes and improving transparency, the OECD recognized the tax information exchange agreement [TIEA] that The Bahamas signed with the U.S. that took effect on January 1, 2006, acknowledged the mechanisms in place to identify owners of bearer debt and cited the measures in place to establish ownership, identity and accounting information. Of note was the mention that under the TIEA signed with the U.S., Bahamian authorities can obtain bank information without the requirement for the presence of a domestic tax interest as a precondition to dealing with the request.

Of the 82 countries included in the review, 70 have entered into exchange of information arrangement for tax purposes either in the form of double taxation conventions or TIEAs. As it relates to the Bahamas tax regime, the OCED report referred in particular to the fact that all financial institutions and banks are required under applicable anti-money laundering legislation to “know your customer” verifications on customers and clients and maintain records to such information. The measure became necessary in the aftermath of the Financial Action Task Force labeling The Bahamas as uncooperative in the global fight against money laundering. Since then, the regime has been tightened with a compendium of financial services laws.

Additionally, the OECD noted the institutionalization of the anti-money laundering legislation which requires designated financial institutions to conduct customer due diligence including identification of beneficial owners. Addressing a prime OECD concern, The Bahamas has already abolished bearer shares for IBCs. Authorities now require that the records of beneficial ownership of all shares of IBCs established in The Bahamas be maintained by a licensee. Relevant company records are also required to be maintained by the trustees.

Despite the progress that the OECD acknowledged has been made it urged even more progress. A few economies still place constraints on international co-operation to counter criminal tax matters and a number continue to impose strict limits on access to bank information in civil tax matters. Paolo Ciocca, chair of the OECD’s Committee of Fiscal Affairs and Co-Chair of the Global Forum - comprised of OECD and non-OCED countries – vowed that the Global Forum’s efforts to improve transparency and exchange of information will continue towards a level playing field.

Link here.


Lawmakers in Beijing will review a draft law equalizing the rate of corporate tax paid by domestic and foreign firms later in the summer. Wang Jianfan, vice director of the Ministry of Finance’s tax policy department, said that the law is expected to come into force in January 2008. The official was also quoted as saying that the new legislation will provide tax breaks for firms in certain industries. The introduction of a unified corporate tax rate has been discussed in China for some years, but it has only been in recent months that the government has began setting the wheels in motion towards a change in the law.

Local firms have been pressing for a change, arguing that foreign-backed entities unfairly enjoy more favorable tax treatment. Currently, the official rate of corporate tax in China is 33%. However, in an attempt to attract higher levels of foreign investment as the authorities sought to develop a market-based economy, various deductions and waivers have allowed foreign-funded firms to pay tax at an effective rate of 14%, while domestic firms effectively pay corporate tax at about 24%. It is thought that the new unified corporate tax rate will be set at or near 25%.

Link here.


The Irish Revenue Commission has announced that 2005 was a “very strong” year for tax collection, as the department’s ongoing special investigations into tax evasion helped push the year’s final figure close to €40 billion ($52 billion). Chairman Frank Daly said that net receipts amounted to €39.5 billion in 2005 as €3.7 billion more in tax was collected compared with 2004. Daly stated that there was a substantial decrease in the overall debt figure between 2004, when outstanding tax stood at €1,217 million, and 2005, by which time it had fallen to €1,085 million. Arrears of tax and duty as a percentage of total gross receipts now stand at an all time low of 2%, and the Revenue is confident of collecting 90% of the outstanding debt.

Special investigations yielded a total of €536.8 million in 2005. The cumulative total from special investigations currently stands at €2.2 billion. 24 convictions for serious tax and duty offences were secured in 2005, of which twelve were for tax offences. A further 1,683 convictions were obtained for summary offences. Over 1,000 of these were for the non-filing of tax returns. Total audit and assurance check activity yielded €575.37 million. Revenue investigators are also preparing to prosecute a further 61 companies and individuals in the near future, mostly for serious tax evasion.

Link here.


Taxpayers in the state of New York shoulder the heaviest local and state tax burden in the country, according to a business group. The Public Policy Institute of The Business Council of New York State has revealed that New York’s combined local and state tax burden was 53% above the national average. The study, based on 2004 census data, concluded that New York state had collected $5,260 per person per year, up from $4,684 in 2002. This is more than double the amount collected by the state with the lowest local and state tax burden, Alabama, which received $2,328 per person.

In 2004, New York collected more than $100 billion in taxes for the first time and was surpassed in this respect only by California, which received a total of $133.9 billion. However, with a population of 36.1 million (compared to New York’s 19.2 million), California’s tax burden per head is $1,524 lower. Even New York state’s Commissioner of Taxation and Finance, Andrew Eristoff, has acknowledged that the state’s taxes are “ridiculously complicated” and rates “ridiculously high”. Eristoff warned that New York’s corporate tax is a “Potemkin village” of high rates and complicated exemptions, and suggested that “the rational thing to do is to get rid of it. … At $2.1 billion, today’s Article 9-A tax contributes just 5 percent of our state revenue, yet it generates a disproportionate amount of tax-related heat and light. And its administration consumes a vast amount of public and private resources.”

Link here.


Lone Star Funds has announced that it intends to appeal 25.3 billion won ($26.6 million) of registration taxes and penalties recently assessed by the City of Seoul, relating to its acquisition of the Star Tower office block in southern Seoul in 2001. According to the U.S. fund, which has been under the spotlight of the country’s tax authorities for a number of months, the acquisition was conducted “in full compliance with the local tax law” and all applicable taxes were duly paid. Lone Star added that this transaction had already been audited by the City of Seoul in 2003, and stated that in that audit, the Ministry of Government and Home Affairs had issued a written ruling confirming that these additional taxes were not due.

Under the Local Tax Law, the real estate registration tax of 3.6% in force at the time of the acquisition would have been trebled (to 10.8%) if the property was located in the Seoul Metropolitan Area, unless the property was acquired by a corporation incorporated more than five years before acquiring the property. Since Star Tower Corporation, an affiliate of Lone Star, was incorporated more than five years before it purchased the Star Tower office block, Lone Star argues that it was obliged to pay only the basic registration tax. This was confirmed by the ruling from The Ministry of Government Administration and Home Affairs in 2003. The Seoul tax authorities however, claim that Star Tower Corporation was inactive before it acquired the Star Tower, and therefore it should be treated as newly incorporated for purposes of the Local Tax Law.

Link here.


Dozens of major British companies are working on plans to move their headquarters overseas in an effort to escape Chancellor Gordon Brown’s war on tax avoidance. Senior partners from all the “big four” accountancy firms have said that they are working with large corporations to shift their base offshore if Revenue & Customs does not slow the pace of change to current tax rules. One said those considering the move included a number of FTSE 100 groups. Companies fear they are becoming the target for the Chancellor to make good a yawning gap in public finances and complain that what until recently was regarded as “sensible” tax planning is now being targeted as unacceptable tax avoidance.

Hiscox, one of the biggest insurers at Lloyd’s of London, has struck a deal with the Revenue to transfer its base to Bermuda, a move that could mean a substantial boost to profits. It will announce the proposed shift in the autumn and will seek shareholder approval at an extraordinary general meeting. Already, rival Catlin has moved to the offshore tax haven and pays only 11% of profits in tax compared with nearly 30% for Hiscox – though a “lighter touch” regulatory regime is believed to have played a key part in the decision to move abroad.

Ireland and the Netherlands, which has introduced tax incentives to lure big business, are other destinations attracting the attention of British company bosses. Anneli Collins, senior tax specialist at KPMG, said many major companies were undergoing a “sense check” to gauge where they might relocate, how much they would save and what would be the costs. “A lot of UK tax is paid by relatively few companies and many of those have a choice about where they site their operations,” Richard Collier-Keywood, head of tax at accountant PricewaterhouseCoopers, said. “Lines between illegal tax evasion and legitimate tax avoidance have become muddy.”

Link here.

Small Firms In England missing out on £400 million in tax breaks.

Half of the small businesses across England are missing out on tax breaks that could make the difference between staying afloat and going bankrupt, a new survey by the Local Government Association has concluded. A snapshot survey of local councils has revealed that under half of all businesses that could qualify for Small Business Rate Relief, and cut their bills by up to £2,500, have failed to apply for it. Small Business Rate Relief came into effect on April 1, 2005. Eligible businesses with rateable values of below £5,000 will get 50% rate relief on their liability. This relief will decrease on a sliding scale by an estimated 1% for every £100 of rateable value over £5,000, up to £10,000.

Link here.


Sen. Chuck Grassley, chairman of the Committee on Finance, has urged the IRS to step up enforcement in the tax-exempt arena, arguing that many non-profit entities are exploiting the vagueness of current rules to “enrich themselves” rather than serve the public. Specifically, Grassley wants the IRS to police more proactively non-profit hospitals, non-profits that may be used for political purposes such as those tied to ex-lobbyist Jack Abramoff, generous non-profit board member compensation and trustee fees, and non-profits that appear to function like for-profit businesses and undercut their business competitors.

“I’m seeing dozens of separate problems united by a theme,” Grassley stated. “The theme is some individuals are exploiting vagueness or silence in or a lack of enforcement of the laws governing tax-exempt groups to enrich themselves rather than serve the public.” In a letter to Donald L. Korb, IRS Chief Counsel, Grassley urged the agency to apply the broad authority granted to it under existing regulations to retroactively punish the worst offenders. Grassley has also developed a package of charitable giving incentives and improvements to nonprofit practices to help protect charities from individuals who abuse them for personal gain. He is working to get the package enacted quickly, with the strong support of charities nationwide.

Link here.


An amendment put forward by Rep. Steve Rothman (D-New Jersey) designed to prevent the IRS from putting in place measures to outsource tax collection garnered bipartisan support. Voting on the federal spending bill containing the proposals, the House Appropriations Committee supported the Rothman Amendment by a 29-27 margin. “With personal identity theft on the rise, it makes no sense to hand over 2.65 million taxpayer files to private debt collection companies. I am proud that my colleagues joined me in saying ‘no’ to President Bush’s harebrained idea to create a new, privatized tax collection system. It would cost taxpayers more while protecting their personal financial information less,” Rothman announced following the vote.

The IRS was authorized to hire private firms to collect federal tax debts to assist the agency in its collection of back taxes by the 2004 American Jobs Creation Act. President Bush had requested $54 million to allow the IRS to set up a system from scratch to subcontract private collection companies to do the job for up to 25 cents per taxpayer dollar collected. The Rothman Amendment blocks the IRS from spending that $54 million to outsource tax collection. “Currently, a system of checks and balances that has been refined over the years ensures that IRS employees protect taxpayers’ private information. If we allow that information to be handed over to private collection agencies, we put taxpayers the mercy of these private, for-profit companies,” said Rothman. The full House of Representatives is expected to vote on the spending bill with the Rothman Amendment next week, at which point some observers are predicting that the provision will be removed.

Link here.



Anson and Quigley were close friends. They were joint owners in a small company that ran a sight seeing boat doing harbor tours in a city popular with tourists. The business had been growing nicely from its fitful start some six years ago. In fact they had sold the initial boat and upgraded to a character wood vessel that was much admired by their many clients as it plied the waters of this lovely harbour city, stopping here and there to point out and admire the local architecture or attraction. The boat was very expensive and they and their wives had gone on the hook to the bank to finance it but they were confident it would pay off very well.

Even though Anson and Quigley were close friends, they did not share common views on personal finances. Anson was by far the more cautious but when he broached the subject of protection from any potential catastrophic event, Quigley would shrug off any of Anson’s suggestions and say that he was quite content with the coverage of their insurance package and change the subject. Anson would drop the subject but set his own plans in motion.

Murphy was aboard their boat one day about a year ago. An elderly passenger had come aboard and was enjoying the day when, on disembarking, he caught his shoe on a gangway cleat and pitched himself clean over the side guard chain and into the water between the boat and the dock. On the way down he hit his head on a piling. They rescued the passenger promptly but sadly the hit on the head proved damaging to the extent that the poor old gentlemen suffered brain damage and was confined to a wheel chair. You would be right in expecting that the gentleman and his goading and expectant relatives would drop the writ promptly and they did. The long and the short of it was that the settlement exceeded their insurance by a very large amount.

When the attorneys did their examination for discovery to expose the partners assets outside the business they found that Quigley had a fully paid for house, a sizeable investment portfolio, a piece of investment property, a large motor home, an antique car and a stamp collection which over the years had become Quigley’s pride and joy and was now worth a tidy sum. They took it all. Even the stamp collection. When they looked into Anson’s affairs they found that his house was worthless because it was mortgaged to the hilt. The mortgage was held by a company domiciled in Panama and duly registered in all the right places. Anson had been making payment as required. He had a few thousand in his checking account, a used car and that was pretty well it. There was nothing more to see or attach – so they gave up on trying getting anything more out of Anson.

The old gentleman’s fall had cost both partners equally in business assets but when it came to the private stuff, Quigley was wiped out and Anson survived almost unscathed. They are still friends but probably will not go into business together again and every now and then they meet at the pub and hoist one together and Quigley looks at his friend – and wonders.

Which one are you? Anson or Quigley?

Link here.


A survey published by the UK’s Financial Services Authority has found that investors who fall victim to “boiler room” scams by purchasing virtually worthless shares lose an average of £20,000. The FSA surveyed callers to its consumer contact center who had reported being targeted by boiler rooms – overseas operations that use high-pressure selling techniques to persuade UK investors to purchase shares. In the majority of cases, the shares are worthless and the boiler room vanishes, leaving the investor out of pocket. Because boiler rooms are based outside the UK, the FSA is usually unable to take direct action to shut them down. More than half (58%) of respondents to the survey had fallen victim to the scam by purchasing worthless shares.

The survey found that boiler rooms tend to prey on older people. Of those who had fallen victim to boiler rooms, 38% were aged over 60 while 26% of victims were 51-60 years. The majority of victims were male (81%) and most were experienced investors with 41% of victims saying they had been investing for over 11 years. any respondents reported that the boiler room repeatedly called them to encourage them to invest. While 15% of victims were persuaded to purchase shares during their first call, nearly half (49%) of victims were called four or more times before they succumbed. Regardless of whether they purchased shares or not, 63% of respondents reported that they were pursued by the boiler room for at least one month and nearly a quarter (23%) said they were receiving calls from the same boiler room for more than six months. “Boiler room salesmen won’t take ‘no’ for an answer. They will constantly call a target, trying to build a relationship and get their confidence. They will appear knowledgeable and highly professional but they are only interested in taking your money.” said Jonathan Phelan, Head of Retail Enforcement at the FSA.

Although boiler rooms do not necessarily operate from where they say, the most common countries that boiler rooms claimed to operate from were Spain (29%), the U.S. (20%) and Switzerland (20%). Anecdotal evidence also suggested that Eastern European countries were popular locations for boiler rooms.

Link here.


Strong interest in both offshore and onshore bonds from UK investors is likely to continue in the foreseeable future as rising house prices, the EU Savings Tax Directive and emigration fuel a greater need for tax planning. The bond industry is at the forefront of providing trust solutions for estate planning and is now more important than ever following the Treasury’s proposal to extend the Inheritance Tax net to cover certain types of trusts, the company says. This potentially retrospective change combined with the rapid acceleration of house prices over the last 10 years means more people are in need of financial advice in the area of estate and inheritance planning. The international portability of Offshore Bonds makes them an investment vehicle of choice for a rapidly growing band of soon-to-be expats, says Defaqto.

Fraser Donaldson, Head of Investment at Defaqto, observed that rising property values mean that estate planning is no longer a problem just for the very wealthy. “While onshore bonds are the bulk of the market, offshore bonds sales are growing faster as they overcome customer and adviser perceptions of high price. Rather ironically, given that they are aimed mainly at wealthier individuals, Offshore Bonds are at their most tax efficient for nil and lower rate tax payers,” he noted. “They are a particularly useful vehicle to help mitigate tax for those planning to spend some or all of their time living outside the UK," Mr. Donaldson explained.

Another important factor driving interest in offshore bonds is the European Savings Tax Directive, under which signatory countries (EU member states and a number of offshore dependant territories) share information on the savings income in their country earned by investors living elsewhere. Instead of sharing this information, some territories have opted to apply a withholding tax in this income, including Jersey, Guernsey, the Isle of Man, and three EU member states, Austria, Belgium and Luxembourg. However, there are many types of investment vehicle that are not included in the legislation, one of them being bonds. While investors in bonds must still pay tax on the proceeds when a bond is cashed in, income does not usually have to be declared to the tax man on an annual basis, meaning that offshore bondholders are earning money that would otherwise have gone to the Revenue.

Link here.


The BVI Financial Services Commission has published an expanded list of countries and jurisdictions recognized for the purposes of the BVI’s Mutual Funds Act, 1996. In evaluating countries and jurisdictions for inclusion, the FSC considers whether the country’s regulatory environment is regarded as reputable, and whether recognition of the jurisdiction for the purposes of the Act would enhance the development of the BVI’s mutual fund industry.

The new countries included on the expanded list were Australia, Canada, Germany, Italy, Japan, Sweden, the Bahamas and the Cayman Islands. This adds to a list of countries and territories which already includes Bermuda, Gibraltar, Hong Kong, France, Luxembourg, the Isle of Man, Belgium, Spain, Ireland, Malta, Singapore, Guernsey, Jersey, Switzerland, the U.K. and the U.S. These jurisdictions are deemed by the BVI FSC to have sufficiently prudent systems of regulation and supervision of mutual fund business in place, to allow the approval by the Registrar of Mutual Funds of applications for recognition and registration by BVI mutual funds which list a functionary (e.g. a manager) from the recognised jurisdiction. More than 3,000 mutual funds are registered in the BVI, with more than $100 billion under management.

Link here.


Can you afford a bear market? Millions of investors wish they would have asked themselves that question seven years ago, before 2000-02 brought the worst decline in share prices since the 1930s. Given the speed with which some stocks and mutual funds have dropped in recent weeks amid worries over interest rates and the economy, the market is forcing the issue again. How much pain can you endure? Would your retirement or other life plans be threatened if your nest egg temporarily lost, say, 40% of its value? What about 20%?

With portfolio losses, the math can be killer. A drop of 30% requires a rebound of 43% on your principal just to get back to even. Give up 50% and you would need a 100% gain to restore what you had before. The problem with even starting this discussion is that it may be perceived as panic-mongering. It could be way premature to suggest that the current bull run is out of gas.

Nonetheless, for people who cannot bear the thought of losing a large chunk of the savings they have accumulated, the markets’ May turmoil should spur some introspection. That will require work … reviewing your entire portfolio and your asset allocation, that eye-glazing term that refers to how much money is in each different investment you own. It has been easy for investors to simply stay on autopilot for the last three years. One reason why the latest stock sell-off may have seemed shocking is that broad market pullbacks have been so rare in this bull run, which began in October 2002. A normal “correction” in an ongoing bull market can shave 10% to 15% off major stock indexes before they stabilize and resume climbing. Yet the Standard & Poor’s 500 index has not suffered a decline of 10% since early in 2003. What is different about the recent slide is its velocity. The stock sectors that fell the most – small-company issues and foreign shares – in many cases declined much faster than they have in pullbacks of the last few years.

Link here.



The dingy hotel corridor was populated with suits, milling about and radiating airs of defensive hostility. They moved in close-knit groups, rounding a stranger or a rival group conspicuously, the way cats do. They spoke in whispers. They glanced nervously over their shoulders as they took calls on their cell phones, then darted swiftly into alcoves. They were government officials, telephone company honchos, military officers, three-letter-agency spooks and cops, all brought together by salesmen dealing in the modern equipment of surveillance. It was my job to learn what they were up to.

They had gathered for the ISS World Conference, a trade show featuring the latest in mass communications intercept gear, held in the Washington, D.C., suburb of Crystal City, Virginia. Situated conveniently between Reagan National Airport and the Pentagon, Crystal City is an artificial place dominated by conference centers and hotels, set up to accommodate the endless, and often secret, intercourse between the U.S. military and its myriad itinerant contractors, lobbyists, consultants and trainers. Back in the narrow hotel corridor, vendors manned their booths, exhibiting the latest gadgets for mass electronic surveillance: machines capable of scouring the data streams of millions of subscribers – industrial-strength kits for packet interception and analysis, RF interception, and voice and keyword recognition.

These devices are a bonanza for the communications hardware industry, vouchsafed by the U.S. Communications Assistance to Law Enforcement Act of 1994, or CALEA, which mandates that all new telephone company gear must be wiretap-friendly, or “CALEA compliant”. This has led to a seller’s market with equipment makers pushing their dual-use kits with exceptional confidence. The sales pitch has evolved beyond the traditional points of reliability, scalability, total cost of ownership and ease of deployment to exploit the hard-sell undercurrents of mass-scale commerce that is mandated by law and funded by taxpayers who are powerless to review the deals and evaluate their various costs and benefits to society. Despite uncertainty, pending court rules, over CALEA’s applicability to them, ISPs (and universities) have become new sales targets for the surveillance equipment industry – fresh leads, so to speak – and the hustle is uniform and loud. “CALEA is coming, and you’d better be ready.”

In the conference rooms, salesmen pitched their solutions for “lawful interception”. In attendance were the generally responsible representatives of North American and Western European government and law enforcement, but also numerous representatives of naked state control in the Middle East, Asia and Africa. Certain conference sessions, according to the schedule, were “open to sworn law enforcement agents only.” But there was no discrimination between the more punctilious law enforcement agencies of democratic nations and those hailing from quarters where darker practices are commonplace.

The last thing anyone involved wanted was publicity. The press had been strenuously dis-invited, and Wired News’s efforts to get credentialed for the event were firmly rebuffed. I spent my first day lurking in public areas of the hotel. On day two, it was time to make a move. I went to the registration booth and requested a pass and a press fee waiver. “The conference isn’t open to the press,” a receptionist explained with a fluty tone of voice and an android smile. A uniformed security guard took a step closer, for emphasis. I withdrew. On day three I had nothing left to gain from working the periphery, hence nothing to lose from being tossed out, so I strolled past the android and the uniformed guard. No one challenged me. I chatted with vendors. I grabbed brochures from their tables and handouts in the conference rooms. I hung out on the veranda and smoked with fellow tobacco addicts. By noon on day three, the conference had wound down. The final thing I needed was the forbidden packet, with its CD of the slides from the presentations. I would have it in spite of the android. Indeed, because of the android. Naturally, this forbidden object contained nothing that could justify keeping it from a journalist. There were no stunning revelations about new intercept equipment designs, capabilities or techniques.

In the end, all this surveillance gear and attendant hype becomes meaningless with simple precautions like encrypted VoIP, a good implementation of virtual private networks, and proxies and SSH for web surfing, IM, internet relay chat, webmail and the like. Skype’s VoIP service is encrypted but closed-source. Still, there is SpeakFreely, a peer-to-peer, open-source VoIP app; Zfone, an open-source VoIP crypto plug-in from PGP honcho Phil Zimmermann; Invisible IRC, an open-source IRC proxy implementation that includes anonymization and encryption features, plus other dodges too numerous to mention. The popular law enforcement myth is that crooks are getting ever more sophisticated in their use of modern technology, so the police have got to acquire more “sophisticated” point-and-drool equipment to catch them. But these tools – especially in the IP realm – are not so much sophisticated as complicated and very expensive. They are a bad alternative to old-fashioned detective work.

The windup is that garden-variety crooks will remain those most susceptible to remote, electronic surveillance, while sophisticated, tech-savvy bad guys will continue operating below the radar. CALEA and its most potent technological offspring are inadequate to catch the people who most need catching. The project of “lawful interception” is huge, grotesquely expensive, controversial, infused with unnecessary secrecy and often useless against the most important suspects it purports to target. It poses a tremendous threat to human rights and dignity in countries without adequate legal safeguards, and still invites occasional abuses in countries with them. Its costs are paid by citizens who are deliberately kept in the dark about how much they are paying for it, how effective it is in fighting crime and how susceptible it is to abuse. And that is the way the entire cast of characters involved wants to keep it. Which, of course, is exactly why the public needs to know much more about it, even if it requires rude tactics like crashing the spooks’ soiré.

Link here.


A firm that produces surveillance software used by numerous British police forces is looking for one of them to test its latest wheez, a program that automatically scans CCTV footage for suspicious behavior and matches it with other intelligence such as mugshots. The new software, by Nice Systems, can alert police when it detects loitering, crowd gathering, people running when they should be walking, tail-gating, parking in the wrong place, unauthorized entry, or any sort of behaviour the police want to track.

Nice software can also be used to spy on telephone conversations and internet traffic. Prisons, casinos, airports, banks, call centers, transport networks and 75% of the Fortune 100 companies use the system for these purposes, as well as analyzing CCTV footage for suspicious behavior. Police forces are busy establishing control room links with town center and other public CCTV networks.

The software is used to scrutinize conversations, email communications and CCTV footage using different software programs. The new system, called Nice Inform, gives the user the power to do all these things from one desk in a control room. It can apparently automatically identify someone on a telephone using voice biometrics and detect what they say, alerting the authorities when people say keywords. It can also detect the emotion in a human voice. Nice says total surveillance allows companies to “improve quality, productivity and profitability.” It is the ultimate Fordist stopwatch and clipboard.

Intelligence agencies use Nice software to analyze vast amounts of data gleaned from direct “trunk” links into public telephone and internet communications network, “without the need to rely on network operators,” according to Nice. This is the sort of dragnet intelligence gathering that has caused recent uproar across the Atlantic, with the U.S. secret police, the NSA, facing a court hearing this month over allegedly spying indiscriminately and without a warrant on all civilian telephone and internet communications using a trunk link into the public network and software like that developed by Nice. The Nice system analyses intelligence data, making comparisons from different sources and derived from the activity of different people, to detect certain behavioral patterns it thinks might be a sign of illegal activity.

Nice’s annual report said the company would have to spend a “significant” amount of money on marketing to persuade security agencies to change their modus operandi to “proactive security management”. It spent 23% of revenues, on sales and marketing in 2005. The rate of error in the older, less sophisticated Nice software is thought to be about 5%. An application that Nice is fond of promoting is analyzing CCTV footage in airport terminals to detect when someone leaves a bag unattended. It is use by international airports to reduce the cost of evacuation when a “suspect” package is spotted.

Link here.


The head of the FBI says internet companies should retain customer records for two years to help the federal government investigate not only child porn but also terrorism. Top U.S. law enforcement officials have told internet companies they must retain customer records longer to help in child pornography and terrorism investigations, and they are considering asking Congress to require preservation of records. “We are looking at whether requiring longer data retention or asking ISPs to do it informally is something we want to pursue,” Assistant Attorney General Rachel Brand said.

The subject has prompted alarm from some executives and privacy advocates, especially after Gonzales’s Justice Department took Google to court earlier this year to force it to turn over information on customer searches. Civil liberties groups also have sued Verizon and other telephone companies, alleging they are working with the government to provide information without search warrants on subscriber calling records. Brand said some executives have raised privacy concerns. But she said Gonzales has not made any decisions about how to proceed and that the department would be mindful of privacy.

Mueller suggested a period of two years and said terrorism investigations also would be helped by such a rule, several people who attended the earlier meeting said. Gonzales was focused on child pornography cases, they said. Any proposal would not call for the content of communications to be preserved, would keep the information in the companies’ hands and could be obtained by the government through a subpoena or other lawful process, Brand said. Several companies said they work hard to protect children online and often cooperate with law enforcement.

Link here.


Late last week, MEPs in the EP’s Civil Liberties Committee put forward a 3-point plan to ensure that the EU is able to quickly reach a new agreement with the U.S. on the transfer of personal data by airlines flying to America which respects proper standards of data protection, and gives the EP a real say on the content. The meeting came two days after the European Court of Justice’s decision to annul the EU’s current agreement with the U.S.

Following the 9-11 terrorist attacks, the U.S. adopted legislation to the effect that airlines carrying passengers to, from or across U.S. territory are required to give the American authorities electronic access to the data contained in their system for controlling and monitoring departures (Passenger Name Records, or PNRs). Taking the view that those provisions might conflict with legislation on the protection of personal data, the EC began negotiations with the American authorities. In 2004, the Commission adopted decisions (1) holding that the U.S. offered a sufficient level of protection for personal data transferred from the Community, and (2) approving the conclusion of an agreement between the European Community and the U.S. on the transfer of data from PNRs by airlines established in the territory of Member States to the U.S. However, the EP asked the ECJ to annul both agreements.

Link here.


A few weeks ago, a young woman, we will call her “Jane”, was traveling from Vancouver to meet with us in Baltimore to discuss our upcoming documentary. Flying from Vancouver to Baltimore is pretty pricey and Jane had been traveling a good bit in recent weeks. So, to save some money, she opted to cross the U.S. border via a shuttle bus to take a flight from Seattle to Baltimore, a much cheaper option. While this seemed like a no-brainer at the time, Jane soon came to regret this decision. Being the only Canadian on a bus packed with American tourists, the U.S. border patrol asked to look through her bag. Jane complied. Then they informed her that they needed to go through her day-planner and her laptop. Confused, but knowing she had nothing to hide, Jane agreed.

The U.S. border patrol then held her in their custody and interrogated her for hours. Apparently they had found some suspicious items in her carry-on. No, not a gun … or scissors … or even a lighter. What they found was – gasp! – three hotel keys in the pockets of her bag. To make a long story short, the geniuses working the border patrol decided, based on their “evidence”, (the hotel keys, various names of hotels that she could stay at in Baltimore, and names and phone numbers of male contacts in her day planner) they could only come to one conclusion. She was obviously a prostitute. They eventually Googled her and found that Jane had been telling the truth – that she is a film producer that travels a lot and does not always remember to return hotel keys. Two hours later, Jane was free, armed with a tale of American bureaucracy at its finest.

While it is a sadly amusing story, it is one that touches on a bigger problem that we are facing in America right now: We are slowly losing our civil liberties to things like the Patriot Act and more recently, the “Real ID Act of 2005”. Last week, the House approved this set of rules that will force states to issue every adult American citizen an electronic ID card. The bill was approved by a 261-161 vote. Reports Detroit’s Metro Times, “… the act seeks to have states drastically overhaul procedures for issuing drivers’ licenses by increasing the amount of documentation required to prove citizenship or legal residency and boosting the personal information contained on each card, including the addition of biometric identifiers such as fingerprints or retinal scans.”

As if that was not creepy enough, law professor and columnist Anita Ramasastry reported, such tags emit radio frequency signals that would “allow the government to track the movement of our cards and us. … unlike with a grocery store checkout, we may have no idea the scan is even occurring; no telltale beep will alert us.” What is next? Microchips implanted in our brains so that Big Brother read our minds along with the ability to listen to our phone calls, read our emails, and know where we are at all times.

Link here.



There are two kinds of government investigations: investigations into ordinary citizens and investigations into the government itself. In the former case, the government piles charge upon charge on the accused, hoping for either a conviction on at least one of these charges or a capitulation by the accused owing to the extraordinary expenses he is incurring in fighting off the government and its virtually unlimited pocketbook. Such is the determination of government prosecutors that they seldom fail to obtain a conviction or a plea bargain when going after a civilian, regardless of the defendant’s actual guilt or innocence (see Stewart, Martha). It never hurts that they have usually prepared the ground well by planting negative stories about their targets in the news media for months or years prior to bringing them before the courts.

When it comes to government investigations of government, on the other hand, the situation is much different. Few significant crimes are ever uncovered, even fewer significant government figures are charged with any crimes – although lower-level, disposable types like Spc. Charles Graner frequently serve as scapegoats – and everything is kept as hush-hush as possible, with prosecutors deflecting any questions with the standard “I cannot comment on an ongoing investigation” boilerplate. Frequently such investigations end up ignoring the major crimes and bringing to light only small, relatively inconsequential misdeeds (such as Kenneth Starr’s investigation of Whitewater, which only got us a stained dress and a public discussion of the meaning of “is”), or they just peter out after the public has long since lost interest in the original allegations. Then, on those rare occasions when a major player is on the losing end of an investigation, there is always the presidential pardon to rescue him (see Nixon, Richard and Weinberger, Caspar).

The purpose of both types of investigations is to make the government look good. When going after civilians, it shows that the government is tough on crime and working hard to protect the little guy. When investigating itself, it ostensibly shows that the people in charge care about honesty and integrity in government. The real purpose, however, is to make sure that no real crimes are uncovered. When real crimes do surface, they are seen to be the work of, as was said in the Abu Ghraib case, “a few bad apples”, not the system as a whole. And that the people’s misplaced faith in government is restored.

When the Justice Department opened up two investigations related to the NSA spy program – one to get those dirty leakers who had dared violate the government’s privacy while it was violating ours, and another to “determine whether the department lawyers complied with their professional obligations in connection with that program,” as department spokeswoman Tasia Scolinos described it – it must have been getting a little too close to the truth of the NSA program for the comfort of the administration. The Justice Department ended its investigation into its own role in the program without discovering a thing. Why did the government end its own investigation of itself? Because the NSA refused to grant security clearances to Justice Department lawyers! Without the security clearances, the lawyers cannot look at any of the NSA’s documents or policies, and so they cannot investigate to see if anything untoward is taking place. Got that? The government tries to investigate itself, but then it will not give its own investigators clearance to do any actual investigation. This is right out of Duck Soup. Where are the Marx Brothers when you need them?

Contrast this with the lengths to which the government will go to investigate and bring down people it does not like, even to the point of killing them, as the incidents at Ruby Ridge and Waco demonstrate. They would never close an investigation into a private citizen simply because that citizen told them to mind their own business. In fact, they would only work that much harder to nab their quarry if they met resistance. Let one government department tell another department to take a hike, though, and it is bye-bye, investigation.

No one with an ounce of sense ever expected much to come of this investigation, or of any government self-investigation. The way in which it came to an abrupt end, however, is beyond ridicule. Then again, as the president has just assured us once more, the whole NSA program, even to the point of keeping track of every single call we make, is there to protect us from terrorism, and we have nothing to fear from it. Why would we even want to investigate, let alone put an end to, such a benevolent, harmless program? Like Winston Smith, we should all just learn to love Big Brother.

Link here.


I have been living in Europe now for going on seven months, and I am beginning to notice something strange, very strange indeed. It started about three months ago during a visit to the city of Basle, Switzerland, for a carnival celebration. I was lost and wanted to ask directions. It was then that I noticed it. It happened by accident, really. I was looking for a particular landmark and thought I would ask someone who was not a tourist and could actually answer my question-like a policeman. But there were none to be found. Nada. Not anywhere. Hmmm, strange, I thought-no police during a major celebration with hundreds of thousands of tourists in the city. Were they on strike? I finally had to ask a salesperson at a news kiosk.

“So, ahem, I, ah, noticed there are not any police around,” I managed in my most affected nonchalant way.


“Well, I mean, aren’t you concerned with all these tourists?” She looked at me as blankly as the Swiss sheep on the mountainside. “You know,” I continued, “There could be more crime with all these transient people coming into the city-like pickpockets, muggings, maybe, heaven forbid, a terrorist incident.”

She shrugged. “We do not have those kinds of problems here. Besides, if people are having fun and are well-behaved, then why bother?” Hmmm, a pre-9/11 attitude if I ever heard one. But apparently she was not the only one who thought that way because for the three days I was at the festival, I counted exactly four policemen. My security sense began to tingle.

In New York I had been used to seeing a phalanx of heavily armed policemen, soldiers and bomb-sniffing dogs greet me every day as I commuted into Penn Station. These people were all needed for security – or so I was told. Did Europe not have the same terrorist threat? What about the bombings in Madrid and London? And there in Basle, I had to admit the people were relatively well behaved even if it was a Carnival celebration, but then again they were Swiss – not exactly known for being the party animals of Europe. Maybe it was different in other parts of Europe.

But evidently not. Last month, while I was in the south of France for a week, I drove for hundreds of kilometers throughout the countryside and never once encountered police. Apparently, there was no French equivalent of the Smokey Bears that grace the highways and byways of America with their radar guns and friendly demeanor. A French friend explained to me that their roads have an occasional speed camera to catch people driving too fast, and if something bad like an accident happened, they have emergency numbers to call for help. But, he merrily chirped, the French love life and see no need to have a lot of police around when people are just out enjoying the countryside and fresh air.

The final straw came when I toured the Binnenhof in The Hague, Netherlands – the location of the Dutch Parliament and the most historic, scenic place in The Hague. Tourists are allowed to ride their bicycles through the Binnenhof and walk alongside members of parliament as they go to and from their offices. I was only about a stone’s throw away from the heart of the Netherlands’ government. Indeed, for all the tour guide knew, I might just have a stone or even something worse in my pocket.

I looked around for some evidence of security in the area and counted exactly two guards in a cubicle that was located politely out of the way of pedestrian traffic. The guards were laughing and sharing a cup of coffee. I had to ask the obvious. The guide paused for a moment with a bemused smirk. “Well, I suppose a terrorist attack could happen,” he replied. “We are, of course, living in difficult times. But the Dutch think it is more important that their elected representatives be seen as part of the people. The Dutch prime minister has been known to ride his bike to work the same as everyone else. It’s part of our sense of democracy.”

OK. In the USA, three strikes and you’re out. Were Americans the only people in the world taking terrorism seriously? In the U.S., security experts are hard at work wiretapping telephones, posting a strong police presence in public locations and constantly reminding people to be afraid of terrorists. Here, the Europeans were apparently having a picnic. There can be only one explanation. Europe must be crazy.

Link here.


A landmark receivership case has been heard by the Royal Court of Guernsey, regarding a $121 million international securities fraud scheme. According to Ogier, the offshore law firm which acted on behalf of U.S. attorneys DurretteBradshaw, the case represents the first time that an U.S. receivership of a foreign company has been recognized in Guernsey, setting a precedent for all common law jurisdictions.

Simon Davies, partner and head of litigation at Guernsey’s Ogier office acted for DurretteBradshaw, and its receiver Roy Terry, along with Paul Clements, partner and head of the dispute resolution department at English solicitors Rooks Rider, to recover the assets of Vavasseur Corp, a company it said had been incorporated in the Bahamas to hide money swindled from investors throughout the world. Vavasseur was controlled by Terry Dowdell, who is said to have managed an international fraud scheme which raised as much as $121 million from investors in the U.S. and Europe through the sale of fictitious securities. Funds obtained from investors were traced to a number of jurisdictions including the U.S., the Channel Islands, the British Virgin Islands and Ireland.

As receiver of the assets, Roy Terry of DurretteBradshaw is acting to recover funds owing to investors defrauded in the scheme. He instructed solicitors to seek recognition in Guernsey of the U.S. receivership order, in order to be able to seek recovery of monies lodged in certain bank accounts in Guernsey in the name of Vavasseur.

Link here.



“Beware of false prophets, who come to you in sheep’s clothing but inwardly are ravenous wolves.” The administration of George W. Bush is purportedly based on Christian principles. It would seem logical then to assume that were Christ actually alive today, he would likely advance successfully in this administration, would it not?

Jesus did not have tremendous career potential from the beginning. Jesus only survived into adulthood because his parents subverted the state. So, the worst youthful offense of the Christ child was being alive. This sounds insane. Is it possible that anything like that could happen again? Indeed, it has happened throughout history. Children have been slaughtered at the behest of politicos in countless regimes one way or another, even today in Iraq . The current Christian administration dubs the death of innocents “collateral damage”. If Jesus were born in the Middle East today, it is questionable as to whether his parents could have kept him alive.

From he beginning Jesus defied established religion and the state by virtue of his existence, and it just got worse from there. He was no Yale man of the “Skull and Crossbones”. Jesus compromised his beliefs for no one. He could not lie, he could not even keep his mouth shut when people around him were judged and condemned. He aligned himself with the downtrodden and stood against tyranny – religious and political. Even under intense pressure from both, he refused to condemn people who harmed no one but them selves. He was a model of individualism and self-sovereignty. His dying breath was an expression of love, not allegiance to the state.

Would Jesus even have made a good citizen? Hardly. He would not even be an acceptable, Republican-approved audience member. Can you see him keeping good tax records or sweating a filing deadline? Waiting in line at the DMV with proof of insurance? I do not think he would have a Social Security number, an interest-only mortgage or a stellar credit rating. Can you see Jesus applying for a voter registration, the hallmark of a good citizen? A registered Republican voting for his new master?

Jesus once stood mute before Pontius Pilate. Would he have anything to say for himself when inevitably picked up by law enforcement today? But what on earth could the Prince of Peace be arrested for in the most enlightened, tolerant, advanced, Christian culture on Earth? Changing water into wine? Got a license for that, buddy? What about a food-handlers permit and a fishing license, hmmm? Healing the blind and the sick? That would be practicing medicine with out a license, a very grave crime, indeed. Jesus would no doubt have come under surveillance by the current Christian administration for associating with prostitutes and drug users, because he was the kind of man who would not judge them or turn them in to authorities like a good citizen. Jesus would be lucky to only be picked up for vagrancy and driven out of town, rather than prosecuted repeatedly and locked up permanently under the three strikes law if he were an American today.

There is no proof or inference, even, that Jesus came here to start a new religion called “Christianity”. He showed no desire to organize or control others. No desire to incorporate. No desire to rub elbows with important people or amass wealth (he stored for himself treasures in heaven, not on earth where moth and dust corrupts). No desire to dominate the world through a quasi-religious political party, crushing innocents in its cogs. Jesus displayed no capacity for sending other mother’s sons to die for a power lust. He blessed the meek and the peacemakers. He supported only that which had vitality, not expediency. Jesus’ worst crime was and would still be that he taught his followers to listen to the love in their own hearts rather than follow the law – utterly unacceptable behavior in our advancing police state. I believe Jesus came here to show people how to love, not dominate. There would still be no room for Jesus at the “inn” crowd. He did not find favor with powerful men 2,000 years ago. I do not think he would have fared any better today because he was a troublemaker.

They could take his life and liberty, but they could not own his soul. He was not afraid of powerful men. This made them afraid of him. He frightened the self-righteous because he knew the truth about the deceitfulness of power, religious and political (if there is any difference) and he refused to kowtow to it. How odd that today he is heralded as the icon of the religious right, in name only, of course, because his manner of living was diametrically opposed to everything the Bush Administration espouses.

Link here.


One of the more troublesome causes of the decline of American culture and civilization is the steady deterioration of the English language. This is not a reference to the proliferation of slang and vulgarity among younger generations or to the lack of eloquence among the general populace. These are merely symptoms of more fundamental problems. Neither is this difficulty confined to America or to the English language alone. It is a problem inherent in the nature of language itself and in the way we learn to use it. It is not an issue of poor grammar or mispronunciation, but rather of imprecision, misapplication and deliberate manipulation.

Children learn to speak by observation to use a common medium that is already understood by others. The symbols we learn have established definitions and patterns of use. Because our language learning is dependent on other people’s use of pre-existing symbols, the associations we make as children between our ideas and words are inherently biased by the context in which this observation takes place. Language is an extremely powerful tool, not only of communication but also of self-awareness and understanding. But there seems to be no doubt that language affects the way we think and shapes our world in ways we are not conscious of. To counteract these effects, our language learning must be conscious and deliberate rather than passive and unintentional. This is essential in avoiding needless confusion and in preventing us from being deceived by those who would use words to “predispose certain choices of interpretation” in our minds.

Even as adolescents and adults too much of our language learning is implicit and comes, not through deliberate searching of established sources for concise definitions and methods of use, but through the vague and casual lens of context. Context alone can be dangerous in that it rarely provides us with concrete, precise meaning. Unless our contextual observation is followed by a formal effort to understand a term correctly, we may end up with a mere foggy, associative notion of what it means. Since this process often occurs subconsciously, we may not realize the extent of our ignorance and can be left with a false sense of comprehension. While this may seem like an insignificant problem that the average person need not worry about, the exact opposite is true. In a highly political world where a few men make decisions which affect the rest and which are enforced by violence, a population without a correct understanding of political and economic terms and the phenomenon they represent, cannot long remain free.

That most Americans do not have such an understanding should be clearly evident to those who do. When it comes to history, politics and economics, our educational system is geared towards confusion. Students are taught specifics without first building the foundation needed to analyze, interpret and apply such knowledge. Middle school students learn about vetoes, term limits, Paul Revere and women’s suffrage, but try asking your average college grad to define the word government without being contradictory or inconclusive. The same goes for words like freedom, liberty, rights and equality, which are commonplace in history and political science textbooks, but of which most people have only nebulous conceptions.

High school students may play stock market simulations and learn the words supply and demand, but receive nothing that comes close to any real instruction in economics. The situation is not much better at the university level. The inevitable result of all this is that young people come out of school with myopic world-views and anemic vocabularies leaving them vulnerable to political manipulation. Democratic political systems assume that the average person understands these issues enough to make decisions regarding them that will affect the lives of millions of other people. This is a naïve assumption to say the least, and politicians know it. They are counting on it.

For over a century, Americans have been saddled with wars, taxes, regulations, and restrictions, all sold to them by fast-talking politicians under the guise of safety, security and freedom. They have been blind to the danger partly because of the deliberate usurpation of words, which previously stood for concepts that had served to protect them, but which gradually have been made tools of their destruction. The feelings and emotions traditionally attached to the words that describe the noble ideas our forefathers fought for have been passed on, but the meanings have been blurred and altered. We can witness the wholesale subversion of the English language in real time by tuning in to C-SPAN, CNN or FOX News at practically any time of day. Firebrands like Bill O’Reily, Sean Hannity and Michael Moore spout nonsense and poisonous drivel yet enjoy enormous popularity and influence.

Much noise is made by libertarians about the state’s domination of money, the school system, the media, etc., but state control over these and other institutions is (at least partly) dependent on their control over and manipulation of language. It is an indispensable means for disguising the nature of their crimes and the contradictions inherent in the world they are building. The ongoing debates over the Iraq war, illegal immigration, saving the Internet, wiretapping and surveillance, etc. are rife with disinformation and doublespeak. The remedy for solving these problems lies in first understanding them correctly, and that requires a proper grasp of the words and concepts involved. Hijacked words and phrases are some of the state’s most powerful weapons of deception and pacification.

Advocates of peace and individual liberty should be lovers and learners of the words and phrases that represent these ideas. Most people do not want war. They do not enjoy the slavery of high taxes, endless debt and relentless inflation. They just do not recognize the true nature of what the state is selling them. It is the responsibility of those who see through the charade to help others do the same. Our beliefs can grow or change, but the symbols we use to define them are securely rooted and constant. Our communication should be clear and direct, and we should require the same of others.

Link here.


Anatole France once observed, “The majestic equality of the law forbids the rich as well as the poor to sleep under bridges, to beg in the streets, and to steal bread.” I read that as a youth and have never forgotten it. France’s aphorism should be pondered with another – Bismarck’s, I think, though I cannot find it – to the effect that you should no more watch how laws are made than how sausages are made. Legislating is a revolting business. Crooked politicians (if the term is not redundant) cut deals. Then they pass laws. And the rest of us are supposed to obey.

We have to obey not because those laws are wise, or good, or necessary, but because, however arbitrary they may be, they have the power of the state behind them. Unless we obey thousands of laws, far more than we can keep track of, we may be punished. Thus every law is an “or else,” a threat. Keeping the Ten Commandments, or even all 613 commandments of the Torah (or Pentateuch), is not enough to protect you from the wrath of the state, which is constantly adding thousands of new commandments of its own – “incessantly engaged in legislation,” as C.S. Lewis once put it. That is a lot of threats. At what point will we have enough of them? This question is seldom asked, since all parties agree that we need more threats (alias “laws”) and the idea that we already have enough, or too many, and that some should be repealed, is inadmissible.

Though the state is the fox, and the rest of us are rabbits, this cunning fox has convinced most of the rabbits that they need him to protect them. Without him, as Thomas Hobbes might say, there would be a war of every rabbit against every rabbit. Thus most of us believe that the state that threatens us simultaneously guarantees our safety. No wonder many Russians yearn for another Stalin. To most people in our devoutly political age, disbelief in the state is political atheism. We need government, do we not, even if politicians are crooked? Even if government is organized force and its laws are, at bottom, extortionate threats of violence? Even if government is what makes huge wars possible?

Some Christians see obedience to the state as a religious duty. Odd that Jesus said nothing about it. He did call the Pharisees “blind guides”, who had obfuscated the commandments of God by multiplying the commandments of men, which sounds like a prophecy of the modern state. No wonder he was crucified. How can there be a duty to obey countless fickle commandments negotiated by conspiring politicians meeting in what they themselves call “closed session”? Land of the Free? I would call it the Land of the Licensed. We are “free” to do only what our rulers choose to permit. That is hardly what our ancestors meant by freedom.

If the words tyranny and servitude now sound rather antique to us, I think it is because we no longer recognize them when we see them, even if they apply to us. George III was called a tyrant for far less than the U.S. Government does every day. Now the bar for despotism has been raised. We are content with anything less onerous than Hitler and Stalin, and our discontents are assuaged by assurances that, after all, we enjoy the privilege of living in a democracy. Maybe democracy really is, as Churchill said, the worst form of government except for all the others that have been tried. You can see his point. I hope you can also see the point he did not realize he was making.

Link here.


Every era has its clowns, its heroes, its fools … and its winners and its losers. Often, the honorable among them are sent to the scaffold. The dishonorable go to Congress. The burden of today’s essay is to try to tell them apart. And here, it is only fair to give warning: Karl Marx would be pleased with us. For we will argue that today’s big winners make their gains in a new and perverse way. Unlike the winners of the past, they get rich at the expense of the poor.

At the very top of the hero category, now wiggling a bit, is our recent Fed chief, Alan Greenspan. Featured on the cover of Time magazine, along with two other men, he is thought to have “Saved the World”. He did this, and indeed all his acts of monetary heroism, at someone else’s expense. He flooded the world with cash that did not belong to him and with credit he did not have. The result of this was that the world was spared the correction it desperately needed at the opening of the 21st century and awaits the more severe correction now. We wonder how the maestro’s reputation will survive? For this wave of liquidity led to what Kevin Phillips calls the “financialization” of the U.S. economy. It was as if Mr. Greenspan had blown up the Grand Cooley dam. A wall of cash and credit flood around the world like a rogue wave. One after another, markets were lifted up.

But Alan Greenspan is not our target this morning. All he got from the bubbles he created was an undeserved reputation. It will pop, too, we predict, along with the bubbles themselves. Our target instead is the new aristocracy brought forth by all the bubbling. When the going is good, as always, it is much better for some than for others. “Them that has gits,” is the general drift of things. In countries like France, where the gittin’ of those who have is more obviously done at the expense of those who have not got, the latter naturally detest the former. “Behind great fortune lies a crime,” observed the great French novelist Balzac. A sensible man in France tries to look poorer than he actually is.

But in the Anglo-Saxon countries, it is different. A man tries to appear richer than he actually is, because there is a shared assumption that wealth was honestly got. The lower classes tend to envy and even admire the rich. They have no desire to cut their heads off. In America, a man who wants others to think highly of him has an easy time of it. He just has to appear wealthy. If he appears wealthy enough, people will even begin to care what he thinks. They will ask his opinion on politics or even wine. That is why he is willing to risk everything to buy a big house and a fancy car on credit. In fact, the poor man genuinely believes the rich are better than he is. They are smarter. They have more information and better contacts. He even supports low tax rates for the rich, as long as he preserves a lurking chance of joining them.

Thanks to the current issue of Vanity Fair, we are able to press our noses to the glass and look in on the lives – or at least the architectural follies – of the super-rich. Backed by speculators from Goldman Sachs, builders are putting up a mammoth 19,000-square-foot spec house on Zaccheus Meade Lane in Greenwich, Connecticut. They will spend $5 million to build the house. Who will buy it? “Hedge fund guys,” guess the builders. They expect to sell it for $12 million. There are already plenty of hedge fund guys in Greenwich. Known as the “richest town per capita in the world,” they swarm toward the place like hooligans to a soccer match. The average house sold in the city last year brought $2.5 million, up 40% in the last two years. Five times as many sold for $10 million or more than two years ago.

Greenwich was a haven for the rich in the 1920s, too. Phelps Stokes, heir to the Phelps Dodge fortune, had a 16th-century Tudor house taken apart in England so that it could be reassembled in Greenwich. There was also Jeremiah Milbank of Borden Condensed Milk, the widow of “Sugar King” Henry O. Havemeyer, the Rockefellers, Carnegies and even Prescott Bush, father of one president, grandfather of another. These men and women were the winners of their time. They made themselves rich, but they made the nation rich, too. For while the machinery of the industrial age thumped and humped, wages rose steadily. Families that lived in stinking tenements with hardly enough to eat at the beginning of the 20th Century, ended it in air-conditioned houses with wall-to-wall carpeting and too much on their plates.

But what about the new winners? What have they brought? What have they wrought? They are winners and titans, too, but of what? Have they given the nation steel? Coal? Soft mattresses to rest its weary bones? What advances have they brought the common folk who admire them so? These are not giants of industry or commerce. They are titans of speculation. They are the Bubble Kings. No one likes the highwayman who robs the poor of their last pennies. But what these super-rich hedge fund managers do is almost respectable. They separate the rich from their money! You can verify this for yourself. Just read from the Forbes list of rich people, where you will find hedge fund managers in droves, but we can guarantee you, not one hedge fund investor.

But let us back track. While them that had were gittin’ more, the poor wretches at the bottom of the income ranks were not. General wage levels in America stopped rising in the 1970s. Since then, it has been hit or miss, with little to no real gains in purchasing power per hour worked by those in the lower-paid positions. Even college graduates have found money hard to come by. Now, we turn back to the super rich. The 26 top hedge fund managers – many of them with houses in Greenwich – earned an average of $363 million last year, up 45% from the year before. Where did all this money come from? A quick answer is easy. They took it from people with too much money and too little sense. Celebrity fund managers are able to put together big piles of money and take a big cut, 2%, before any performance fees.

More interesting is that in this new “financial economy”, more profits are made from lending money – that is from “finance” – than from manufacturing. No wonder the financiers have gotten rich. They mongered debt when people wanted a lot of it. While most of the financier’s paid cash for their own palaces in Greenwich, they managed to lure the middle classes into more than $11.8 trillion in outstanding mortgages. And when the bubbles finally pop, it will not be the hedge fund managers who lose their houses, it will be the lower classes … the lumpen with no savings and no way of earning more money to pay their debts.

We do not know what will happen next, but here we offer some unsolicited advice to Greenwich’s super rich. Do not show off too much. When the lumps figure out what has happened to them, they are likely to have revenge on their minds … and a rope in their hands.

Link here (scroll down to piece by Bill Bonner).
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