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LATIN AMERICA’S REAL ESTATE SECTOR IS BOOMING, THANKS TO U.S. RETIREES
Donald Trump is busy these days. Apart from running his real estate empire and planning another reality TV show, he is preparing to develop a 62-story hotel and apartment tower in Panama City, Panama. The planned Trump Ocean Club International Hotel and Tower will feature more than 300 hotel rooms and 500 luxury apartments as well as a casino, yacht club and its own private beach. But Trump is not the only one developing highrise towers in Panama. “In Panama City there are new skyscrapers going up all over,” says Robert Baker, president of the American Chamber of Commerce in Panama. Panama is seeing unprecedent interest from U.S. retirees, partly as a result of positive media coverage in Conde Nast Traveler and magazines published by the American Association Retired Persons (AARP). And CBS filmed three Surivivor series in Panama, more than any other country, Baker points out. Panama City has also seen a race between two rival projects aimed at becoming the tallest building in Latin America.
Panama is one of three real estate markets in Latin America seeing heightened interest, according to Rogerio Basso, Latin America real estate specialist at U.S.-based consultancy Ernst & Young. “In general, markets that provide a good combination of air lift from major destinations, proximity to key source markets and coastal locations are experiencing explosive growth,” he says. “In discussions with our clients and the investment community, we are observing that there is heightened interest in Mexico, Costa Rica and Panama.”
The real estate boom is not only limited to the capital in Panama. The K Group, Trump’s local partner on the new tower, is also developing Emerald Bay on Isla Contadora and Coronado Country Club Resort, a major development consisting of 300 apartments and houses, near the main tourist areas of Panama. A new project similar to the Miami Seaquarium is going up in San Carlos and even the Wal-Mart heiress is looking for land in Panama, Baker says. European real estate investors are also developing luxury beach front villas in the Azuero Peninsula, Isla Viveros in the Pearl Islands and Montañas de Caldera near Boquete, according to the International Herald Tribune. “You have a real boom going on here,” Baker says. “Land prices are going up fast and some of the big condos in the city are increasing in price by $25,000 per month.” He expects the boom to last at least five more years, if not another decade.
All across Latin America, there is increased investment from U.S. and European buyers. “Real estate in Latin America is attracting significant interest amongst U.S. buyers searching for second- and third-vacation homes,” Basso says. “The baby-boomer generation is fueling a majority of real estate purchases in Latin America.” And the trend is expected to continue as individuals continue to retire and the U.S. real estate market is seen as less favorable, he says. The U.S. market has been appreciating significantly in recent years, leading many Americans to look for affordable alternatives. More recently, rising speculation about the bubble has had a similar effect. “Concerns about a possible real estate bubble in the [U.S.] is leading investors to assess other markets where fundamentals, and the possibility of appreciation, are still present,” Basso says. The exceptions to the boom are countries like Colombia, Ecuador and Venezuela, which are hurt by iamge problems relating to security or political stability or both, experts say.
Also Argentina is seeing a boom. The country’s economic crisis in 2001-02 led to a strong decline in real estate prices. At the same time, the euro has appreciated against the Argentina peso, leading to bargain conditions for European investors. The result? A boom in residential real estate, especially from Spanish buyers.
In the short- to mid-term, real estate in Latin America is anticipated to continue to experience high levels of interest from both U.S. and European buyers, Basso predicts. “Affordable destinations, phenomenal natural beauty, ease of access, but most importantly, significantly wealth stemming from a retiring baby-boom generation should continue to provide sound demand-side fundamentals to fuel this growth,” he says. “However, it remains to be seen whether these Latin American nations will be able to properly respond with supply-side offering to continue to attract foreign buyers.”Link here.
ON MARGARITA ISLAND FOOD LOOKS PRETTY CHEAP
Cooking for me is an adventure. Eating my cooking even more so. Tony and I stopped at the little store on the way out of Playa El Agua on 31. We were following the normal list – snacks, meats, veggies, the whole thing. We had not spent a lot of time in the meat markets and departments. I came to the section with cuts of meat that I actually recognized and saw these beautiful filet mignons. I saw the price and needed verification – yes, they were filet mignons. The butcher weighed it and wrapped it up for me. I also got two packages of premium ground beef and a flank steak. The bacon I had already purchased from another section.
Here is the run down of the pricing. You be the judge and tell me if I am missing something. Based on a 2400 B’s per dollar exchange rate (which you can get almost everywhere and higher in other places).
|Platano 3lbs (plantain-like veg)||$1.20 (0.40/lb)|
|Pepsi 2 liters||$1.08|
|Splenda 3.8 oz (spread)||$6.70|
|Bacon 1.12 lbs||$5.16 (4.61/lb)|
|Filet Mignon 0.86 lbs||$1.88 (2.19/lb)|
|Premium Ground Beef 1.36 lbs||$2.81 ($2.07/lb)|
|Flank Steak 0.72 lbs||$1.49 ($2.06/lb)|
The bacon was really expensive but the filets were soooo cheap. This ground beef was so lean that I had to add butter to the pan to keep it from sticking. It had a wonderful full, rich flavor. Needless to say I was floored by the quality of this food and the prices. I really had not noticed until now. Until you get the old calculator down and really crunch the numbers it does not hit home. The other thing I have found is that as long as you shop where the locals shop … not Sigo (the big, beautiful store that is so spotless it should be featured in Good Housekeeping Magazine) you can really save major bucks and get top quality goods.
Did anything seem odd to you, or am I just crazy? Don’t answer that. Let me rephrase that. Did the prices fit?
DOES COMMUNAL LIVING MAKE SENSE FOR YOU?
You might think that communes are something that became extinct back in the ‘60s and ‘70s. Actually, many people live communally today, in intentional communities, Eco-villages, group marriages, co-ops, ashrams, co-housing groups, even in survivalist and radical religious colonies. Communal living is an excellent choice for people who enjoy deep, intimate companionship with more than one person. It is often very difficult to form and maintain a healthy, mutually satisfying and beneficial relationship with the random assortment of personalities that comprise a typical family. An intentional community can be looked at as a “chosen family”, in the respect that it is made up of people who came together intentionally based on commonalties other than biological (or adoptive) accident. An intentional community differs from a family in the important respect that no one in an intentional community will ever legitimately feel “stuck” with it. Thus, communal living can supply people whose conventional family relationships are dysfunctional or nonexistent with the best a family has to offer, a circle of connected, loving co-experiences with whom to share life.
There can be practical advantages to communal living. Often, a member of an expense-sharing group can live more cheaply than a single person can. People who live in group housing are freer to travel, as there are always going to be others about to water plants, take in the mail, pay the bills, keep company to those who stay behind, and so on. Most important, an intentional community is a social network. The chances are good that someone will usually be available to go out for lunch. To look over a final draft. To try the lunch seasoning. To listen to a cool idea. To take a walk in the sunset. To fall in love with. To learn and to teach something to.
Obviously, communal living can never be as private as a person’s own home. However, parameters can be set to maximize the possibility that adequate privacy will be available for those who sometimes require it. People who need a lot of privacy probably do not belong in a communal setting. People who thrive on human interaction probably do. Communal living is a remarkably viable means for enriching our lives with interpersonal adventure and fun. As a group we have the resources, practical and personal, to actualize the very best of what we can imagine. After all as a group we will know more than individually we could. The sharing and maximizing of resources will improve greatly our quality of life as well as healing our planet.Link here.
CHINA MAY BE AFRICA’S SAVIOR OR ITS CURSE
More than being scooped on a story, journalists hate being wrong. Examining where we erred and why can be an invaluable learning experience. My reports from Africa six years ago are a case in point. After spending some time in Cape Verde, Mozambique, Nigeria, South Africa and Tanzania in 2000, I wrote that Africa was about to boom. Leaders seemed to be getting serious about reducing debt and corruption and increased trade with the U.S. promised to boost living standards. For the most part, I was wrong. After decades of false starts and shattered promises, African economies being left behind may have finally found a way out of despair. It is not international aid or debt relief. It is China.
India, too, holds the potential to boost Africa “China and India shouldn’t be viewed as competitors or clients, but as contributors to Africa’s development,” Jakaya Kikwete, president of Tanzania, said earlier this month. China and India offer models for globalizing economies as a means of reducing poverty. While both still have far to go, their journeys could offer a roadmap for African nations struggling to get on investors’ radar screens. More importantly, demand for resources from Asia’s No. 2 and No. 4 economies could be quite a boon for Africa. “The hunger of China and India for commodities is an opportunity for Africa to create significant wealth and global champions in that sector,” said James Goodnight, chief executive officer of U.S. software company SAS Institute and co-chairman of the World Economic Forum African Summit.
Of course, a sudden windfall could do the opposite, and make Africa even more complacent. The global commodity boom could lead to a dynamic akin to the “oil curse” that lulls nations rich in energy, gold, diamonds or other underground treasures. With so much money rushing in, there is little incentive to create industries to employ the masses. Once the resources are depleted, Africans could be worse off. Cheap Chinese goods may hurt some African companies, too. Another risk is that Africa becomes vulnerable – if not addicted – to Asian business cycles. Even so, rising commodities demand offers Africa a rare opportunity to repair government coffers, reduce debt and improve education, health care, roads, bridges and power systems.
Africa, it is important to note, has its success stories, including Botswana and Ghana. Looking ahead, economies with rich oil reserves – including Angola, Sudan and the Republic of Congo – have a great advantage. Cameroon, Chad, Equatorial Guinea, Gabon and Nigeria also are increasing energy exports to Asia. Africa has had way too many false dawns. Yet Asia is offering the continent a rare opportunity to add steam to its economies. It is a chance for Africa to get things right this time.Link here.
CHINA SUPPORTS HONG KONG’S ROLE AS INTERNATIONAL FINANCIAL CENTER
Jia Qinglin, visiting chairman of the National Committee of the Chinese People’s Political Consultative Conference (CPPCC), said that the Chinese central government will continue to support the consolidation of Hong Kong’s status as an international financial center. Jia said the central government has been attaching great importance to and supporting the financial development of the Hong Kong Special Administrative Region (HKSAR) as well as strengthening Hong Kong’s position as an international financial center, adding the central government has been taking a series of measures in this regard.
Jia pledged that the central government will actively take measures that would be favorable for the development of Hong Kong’s financial industry, the consolidation of Hong Kong’s status as an international financial center and the cooperation between the financial circles of the Chinese mainland and Hong Kong. He said after years of efforts, Hong Kong’s financial sector has possessed many unique advantages that could not be replaced by other places. Hong Kong could achieve better development and play a more important role in the national development, so long as Hong Kong cashes in on the opportunities and creates more advantages in the backdrop of the mainland’s rapid economic growth.Link here.
DELAY TO COSTA RICA’S IMMIGRATION BILL A BONUS FOR EXPATS
A new immigration law that could increase the income requirements for expats living in Costa Rica may now not take effect until the end of next year, as the government of President Oscar Arias seeks to study the impact of the proposals. The General Law of Immigration, first proposed in February 2001, attempts to modernize Costa Rica’s immigration codes. It would impose tough new provisions in an attempt to stamp out illegal immigration and allow the police greater freedom in their attempts to discover and remove illegal immigrants, such as new powers to enter any business at any time and demand to see employees’ documentation. Employees and employers who fail to provide the appropriate legal documentation would face steep fines.
The new law also seeks to raise the minimum income levels enabling foreigners to settle in Costa Rica. Currently, those applying for residency, or “rentista” status, must show a monthly income of at least $1,000. The new law would retain this minimum threshold, but would require rentistas to show an additional $1,000 monthly income for a spouse, plus additional income for each dependent. Security Minister Fernando Berrocal has stated that the executive branch will seek to delay the effective date of the law until sometime in December 2007. This would allow President Arias to establish a commission to study the human rights implications of the legislation. The government has also reportedly expressed reservations at the cost of enforcing the new legislation after it goes into force.Link here.
Moody’s revises Costa Rica outlook to stable.
Moody’s Investors Service revised Costa Rica’s debt ratings to stable from negative mentioning an improvement in the country’s debt dynamics. The ratings agency said in a statement its decision was based on the country’s “declining debt ratios and diminishing concerns about financial dollarization.” Moody’s rates Costa Rica’s foreign- and local-currency government bonds at “Ba1”.Link here.
BAHAMAS SURVEY CONFIRMS LEADING POSITION IN KEY FINANCIAL SERVICES AREAS
A survey conducted for the Bahamas’ has confirmed Bahamas’ position as a leader in the three core areas of private banking, trusts and corporate services, says the Government. More than 220 organizations responded to the extensive survey, mainly from the private banking sector. As perceived by survey participants, the Bahamas has a number of strengths, in particular, language, location and time zone, the country’s political stability and sovereignty and banking confidentiality. This unique combination of strengths along with The Bahamas’ capabilities in wealth management were key reasons that The Banker magazine named The Bahamas the “leading financial center in the Hemisphere”, says the Government.
The survey confirmed that The Bahamas’ significant position in the private and investment banking services, trust and fiduciary services and corporate services has led to a buoyant sector. The majority of institutions surveyed will focus on growing their Bahamian businesses over the next three years while the remainder expect to maintain the status quo. It appears that the market is not as aware of The Bahamas’ strength in other areas. Opportunities for growth appear to exist through the provision of a wide range of facilities including business continuity, custody facilities and structured products, the establishment of a commercial court, intellectual property, back office and call centers, funds, insurance and the establishment of an international arbitration centre.Link here.
SEALAND “MICROSTATE” HIT BY A BLAZE
A blaze has badly damaged Sealand, an inhabited former military platform, about eight miles east off the coast of Essex and Suffolk. A coastguard spokesman said it was believed a generator caught fire. The one person on board was airlifted to Ipswich Hospital. The so-called “independent state” of Sealand is home to an internet firm.
Britain built the anti-aircraft platform during World War II. It remained derelict until the 1960s when a retired Army major, Paddy Roy Bates, took over the 10,000 square foot platform and declared it the independent nation of Sealand. At the time, the platform was beyond the then 3-mile limit of British territorial waters. All this changed in 1987, when the UK extended its territorial waters from three to 12 miles. The British Government does not recognize the sovereignty of Sealand.Link here.
EU COMMISSION OKAYS €139 MILLION AID FOR TURKISH CYPRUS
The European Commission, the executive body of the EU, has approved the financial aid package of €139 million allocated for the Turkish Cypriots. According to the decision taken by the Commission, Technical Assistance and Information Exchange Instrument (TAIEX) experts will visit Turkish Cyprus and examine how compatible the legal system of Turkish Cyprus is in the areas of agriculture, veterinary medicine and architecture with EU legislation. The EC had approved the opening of an EU Office in Turkish Cyprus. The office, which will coordinate the disbursement of EU aid to Turkish Cyprus, is expected to be opened in the first week of July. The €139 million in EU aid is to be used mainly in infrastructural works in addition to NGO projects that will bring the two parts of the island closer.
The EU countries had pledged in April 2004 to end the isolation of the Turkish Cypriot community in North Cyprus and to help its economic development – through delivering €259 million in aid following a “YES” vote to the international Annan peace plan on the Turkish side of the island. Due to persistent resistance from the Greek Cypriot administration, the EU countries failed to deliver the aid last year. As a result, €120 million of the €259 million package, which was to be allotted in 2005, was canceled. The EU countries also decided to sever the promise of direct trade from the promise of financial aid.Link here.
THE UN WANTS TO BE A GLOBAL IRS
Over 60 years since its founding, the United Nations may have, on balance, done some good. But objective observers would be hard pressed to create a short list of major UN accomplishments. Most recently the UN has been mired in the Iraq oil-for-food corruption scandals, with millions of dollars stolen reaching to the highest levels of the UN. Instead of cleaning up, the UN has tried to cover up.
Too often the UN, spending millions on its own bureaucracy and its endless meetings and reports, has been a waste of time and money. And most of that cash comes from American taxpayers. So you should not be surprised that the UN wants to become an international tax collection agency – a global IRS. Those worthies at Babel on the Hudson want to impose on the already burdened taxpayers of the world, a new round of direct “global taxes” to finance the UN and its pet programs. This tax would supplement annual assessments of dues from each nation. In 2002, we reported about a UN conference held in Monterey, Mexico, that we called “the tax collectors meeting from Hell” where the UN made plans for a UN “international tax organization.”
U.S. Rep. Ron Paul (R-Texas) has renewed our warning about this dangerous UN plan. He advises us to “hold on to your wallets, because the UN now wants to impose a whole new level of global taxes on us. UN bureaucrats think rich nations like America ought to give more money to poor nations – a lot more – simply because we’re rich. The UN mindset blames the western world for poverty everywhere, assuming that our relative wealth must have come at the expense of the Third World.”
Kofi Annan, UN Secretary General, is the cheerleader for this biggest power grab yet – independent tax raising powers. The UN is deeply committed to establishing this “sovereign” power for itself, without scrutiny and direction of its large aid donors (namely the U.S.). The UN wants to tax everything from airline tickets to aviation fuel and carbon emissions. Not to mention each and every international currency transaction. The last time this came up for debate in the UN, the U.S. objected strongly to the proposal. The U.S. House of Representatives last week adopted Rep. Paul’s amendment that prohibits the U.S. Treasury from paying UN dues if the UN attempts to implement or impose any kind of tax on U.S. citizens. As Ron Paul says, “Given the stated goals of the UN, it would be foolish to believe the idea of a global tax will go away.”
The UN is just one of the global bureaucracies undermining fiscal sovereignty. The Paris based OECD targets tax havens and so-called “harmful tax competition” and the EU enthusiastically backs “tax harmonization”. In both cases they want more and higher taxes. As Heritage Foundation tax expert Dan Mitchell says, “There is an understandable temptation to dismiss these UN proposals as silly. After all, the U.S. can veto any bad initiatives. But this passive approach is a mistake.” We agree. You should educate yourself thoroughly about these dangerous proposals and let your elected representatives know your strong opposition.Link here.
U.S. Congress legislates against UN tax power.
The House of Representatives passed an appropriations bill which included wording prohibiting the Treasury from paying UN dues if the organization attempts to implement or impose any kind of tax on U.S. citizens. The bill is one of a number of appropriations (spending) bills making their way through the Congress as implementation of next year’s budget continues, and may not survive in its present form. The bill also applies only for the budget year in question. Says Congressman Ron Paul (R-Texas), whose wording found its way into the bill, “Fortunately, the House of Representatives last week passed my language in the 2007 Foreign Operations bill. But that only protects us for another year. Given the stated goals of the UN, it would be foolish to believe the idea of a global tax will go away.”
The UN is not the only “multilateral” that would love to get its hands on a global taxing power. Interference in the USA’s internal fiscal policies by the OECD, the IMF and the UN has caused serious annoyance among policy-makers at home, and Congress included wording in a previous appropriations report in January which moves towards restricting funding for anti-competitive international organizations. Last November, U.S. members of the Coalition for Tax Competition slammed the OECD for the conclusions drawn in its recently published Country Survey of the U.S., where the OECD observed that “some increase in revenues will be necessary” and that “a federal VAT should be considered,” and further suggested that “retaining a personal income tax would allow the desired degree of progressivity of the overall tax system to be achieved.”Link here.
A MICRO-TAX PLAN
What do you think about this: The first $100,000 of income sans tax. The catch? That rebarbative hook. Surely there must be one. There is. The catch is that the government will actually have an extra $700 million to spend, plus a good portion of Americans will have an extra 22% of his or her income to spend. The plan that follows, I first heard at the University of Baltimore on a recent sojourn from happy hour. This micro-tax plan is an amalgamation of research from various pundits, but the first passionate presentation I heard came from a candidate for the U.S. Senate. Kevin Zeese is an Independent, running for one of Maryland’s seats. Here, now, a tax plan for your consideration.
The discrepancy in wealth between working Americans and the wealthiest is growing ever more extreme. The number of millionaires and billionaires is increasing while the median family income is decreasing and poverty is increasing. The wealthiest are not getting richer because they are smarter or work harder, they are getting wealthier because of a rigged system of finance that protects their wealth. Corporate welfare transfers hundreds of billions of dollars annually from working Americans to the wealthiest Americans. Hundreds of trillions of dollars are traded on stock, bond, and derivative markets which do not create wealth, only gamble on the future performance of the economy. Currency traders have become rich by bidding down the value of different currencies doing serious damage to their economies in the process. This speculative activity is so huge that only a tiny tax on transactions in these markets – a tax of 0.1% – would raise enough money to eliminate all federal income taxes on the first $100,000 in income – and still create a giant surplus in revenue.
The income and wealth distribution in the U.S. is not a bell curve, it is an L Curve. If the population of the U.S. were represented along the length of the football field, arranged in order of income the median U.S. family income (the family at the 50 yard line) has an income of $40,000 (visualize this as a stack of $100 bills 1.6 inches high.) A family on the 95 yard line earns about $100,000 per year – this stack of $100 bills would be about 4 inches high. At the 99 yard line the income is about $300,000 – $100 bill stack is now about a foot high. One foot from the 100 yard line the curve reaches $1 million (a 40 inch high stack of $100 bills). From there it keeps going dramatically up with the stack of $100 bills reaching 30 miles for the 370 billionaires in the U.S.
The essence of the Zeese Tax Plan is for income taxes on the first $100,000 in income to be replaced by a tiny tax, 0.1%, on the sale of stocks, bonds, currency and derivatives. This tax reform will actually produce greater revenue while at the same time facing up to the undemocratic rich-poor divide created by an economic system rigged for the wealthiest.Link here.
U.S. HOUSE COMMITTEE APPROVES INTERSTATE BUSINESS TAX BILL
The U.S. House Judiciary Committee has approved legislation which aims to simplify the application of business taxes across state lines. The Business Activity Tax Simplification Act resolves the issue of states seeking to collect business activity taxes from businesses headquartered in other states by setting out specific guidelines for when an out-of-state business may be charged a tax for doing business in a state. Over the past several years, a growing number of states have sought to collect business activity taxes from businesses in other states. The problem is that different states use different standards for determining what constitutes sufficient contacts with a state to justify taxation.
According to the bill’s sponsor Rep. Bob Goodlatte (R-Virginia), this has resulted in businesses being deterred from expanding their presence in other states for fear of exposure to further taxation, and it is becoming a growing concern for internet-based companies in particular. The bill would create a “bright line” test to determine when an out-of-state business would be obliged to pay taxes to a jurisdiction, and would establish a physical presence test, such that a state could only tax an out-of-state business if the out-of-state business has a physical presence in the taxing state – defined as leasing or owning real or tangible property in the state or assigning one or more employees in the state for more than 21 days. It is thought that the bill will be voted upon by the full House by the end of the summer.Link here.
CANADIAN JURY SAYS TAX PROTEST NOT TAX EVASION
Jack Klundert of Windsor, Ontario, has won a court case in which he was charged with refusing to pay about $350,000 in taxes. Klundert, who says he does not believe the federal government has the constitutional right to collect income tax, was found not guilty of tax evasion. Klundert accumulated a $350,000 tax bill between 1993 and 1998. When it came time to file his taxes he wrote “zero income” on his tax forms, when he in fact he earned about $1.5 million. Klundert argued that disclosing his earnings to the government would be like “sitting down with thieves” and telling them where his valuables were. Klundert said his actions did not constitute tax evasion, but were instead an honest protest. His lawyer said the jury apparently agreed there was no criminal intent.Link here.
CANADA’S CORPORATE TAXES HINDERING INVESTMENT, SAYS OECD
Canada’s complex system of federal and provincial corporate taxation acts as a disincentive to investment and distorts business and investment decisions, according to a report by the OECD. In its survey of the Canadian economy, the OECD said that firms in Canada faced one of the highest average marginal effective tax rates (METRs) on investment in the OECD in 2005, meaning that an investment project that appears worthwhile before tax is less likely to be profitable after tax in Canada than elsewhere.
Noting that both federal and provincial/territorial governments tax businesses in a range of ways, the report stated that firms face considerable variations in the METRs, although the OECD highlighted two elements of provincial taxation that have “an especially pernicious effect”. First, provincial capital taxes are levied on debt and shareholders’ equity beyond a threshold in six provinces, including Ontario and Quebec. These taxes directly raise the cost of financing business investment for larger firms. “Abolishing capital taxes as rapidly as possible would significantly improve the business environment in those provinces,” the report noted. Second, provincial sales taxes are not generally refunded on capital goods purchased by firms. This directly raises the cost of purchased machinery and equipment, discouraging investment. A shift by the five provinces that still have retail sales tax regimes to provincial value added taxes would create a more favorable investment climate, the OECD said.Link here.
EU COURT SEEN RULING AGAINST UK TAX ON INTRA-COMPANY LOANS
Europe’s highest court likely will rule in favor of four companies challenging a U.K. law that limits tax exemptions for lending between business subsidiaries, according to two tax lawyers. The U.K. allows tax exemptions on loans between corporate branches, but only if they are both within the U.K. Volvo, PepsiCo, Caterpillar and Lafarge SA have argued that the law violates EU rules protecting the freedom of establishment and movement of capital. An advisor to the European Court of Justice in Luxembourg will deliver his opinion on the case on this week. The court’s judges will rule on the case several months later. Tax lawyer Dennis Weber, a professor at the University of Amsterdam, said the ECJ has historically protected companies against national laws that create different standards for domestic and cross-border financial transactions.Link here.
HOUSE OF LORDS SLAM LACK OF CONSULTATION ON TRUST TAX CHANGES
In a report on this year’s Finance Bill, which is currently before the Commons, a House of Lords select committee criticized the Government for its lack of consultation on changes to the way that family trusts are subjected to inheritance tax, and for not making its objectives sufficiently clear. The House of Lords Economic Affairs Committee examined in depth three aspects of this year’s Finance Bill – further measures to counter avoidance of direct tax, new measures to deal with Missing Trader Intra-Community VAT fraud, and changes to the way that family trusts are subjected to inheritance tax.
In its report the committee expressed general support for the Government’s actions to counter direct tax avoidance and VAT fraud, but was critical of the way in which the new inheritance tax measures have been handled. It did not accept the Government’s argument that consultation on these measures could not have taken place without inviting forestalling. The Committee also drew attention to the impact which the new measures, designed to close tax loopholes through the use of trusts, could have on trusts which are used for ordinary family purposes with no tax avoidance motive. It additionally criticized the Government’s lack of transparency in making clear the intentions behind the new rules.Link here.
SOUTH KOREA SEEKS TO TAX LABUAN-BASED FUNDS
South Korea will target Malaysia’s offshore Labuan financial center in its efforts to tax foreign funds generating profits in the country. South Korea in May passed a revision to its international tax law aimed at closing loopholes that critics say have allowed foreign funds to make tax-free profits by trading domestic assets from overseas tax havens. The government is set to publish the list of regions it would apply the new tax rules, which allows taxation of companies based in tax havens. “The government decided to apply the revised tax law only to Labuan,” an unnamed source at the finance ministry was quoted as saying. The decision will be announced around June 29, the source added.
The decision would leave out Belgium, which would allow U.S. equity fund Lone Star to make tax-free profits from the prospective sale of its 50.5% stake in Korea Exchange Bank (KEB), the newspaper said. A Lone Star unit which owns the KEB stake is based in Belgium. The move comes amid a nationalist backlash against tax-free profits made by foreign investment funds that snapped up distressed South Korean assets at fire-sale prices in the aftermath of the 1997-98 Asian financial crisis.Link here.
South Korea’s National Tax Service Commissioner resigns. Was he pushed?
Confusion reigned after South Korea’s National Tax Service Commissioner, Lee Ju-sung, handed in his resignation, leaving the media to speculate as to the real reasons behind his sudden departure. If, as is seemingly expected, the government accepts Lee’s resignation, then he is unlikely to be fondly remembered by foreign investors in South Korea, many of whom became the subject of the NTS’s unprecedented and increasingly aggressive policy against tax avoidance, particularly foreign buyout funds. As head of the tax service, Lee oversaw the first ever tax probe into foreign investment funds, most notably the Dallas-based Lone Star which was ordered to pay 140 billion won ($145 million) in taxes and fines after an investigation last year concerning the disposal of real estate in Seoul. Whether this unpopular policy played a part in Lee’s departure from the NTS is at the moment unclear. Certainly it led to the increasingly held view that South Korea was becoming hostile towards the activities of foreign investors, a perception that the government repeatedly tried to dispell.Link here.
IRELAND PUBLISHES DETAILS OF LARGEST TAX SETTLEMENT TO DATE
The Irish Revenue Commission’s latest quarterly tax defaulters list included the largest ever tax settlement reached by the Irish state. The Revenue named and shamed 150 tax defaulters who made settlements in the period between January 1 and March 31, 2006 for a total amount of €55.5 million ($69.7 million). One settlement alone, from property developer Bovale Developments, was worth almost €22 million, and was the largest announced so far. This included a €12.5 million tax bill and almost €9.7 million in interest and penalties. Other tax defaulters named by the Revenue included a musician, former Irish sports stars and even a member of the clergy. Of the 150 published settlements, 54 were for amounts exceeding €100,000, a further 8 exceeded €500,000, and a further 8 exceeded €1 million.
The majority of the settlements (59) related to bogus non-resident account holders, which totaled €12.73. 30 settlements related to Revenue investigations into Offshore Funds and totaled €11.39 million.Link here.
U.K. STUDYING GENERAL ANTI-TAX AVOIDANCE RULE
HM Revenue and Customs is reportedly studying the idea of introducing a broad anti-avoidance mechanism to combat the continually evolving world of tax avoidance. Presently, HMRC deals with anti-avoidance schemes on a case-by-case basis, and disclosure rules introduced following the 2004 Budget require accountants and tax planners to disclose the details of new schemes that they intend to market to clients within five days of their implementation. This gives the tax man the opportunity to kill off any scheme deemed abusive or unacceptable at an early stage, without resorting to complex and lengthy legislative procedures.
However, GAAR would go one step further by introducing a catch-all law that the government hopes would outlaw abusive avoidance schemes in one fell swoop. Such a blanket approach is controversial, and can often lead to more litigation rather than less. A proposal to introduce GAAR in the UK was studied in a consultation paper published in 1988, but the government backed off because it was thought that the rules would increase uncertainty for businesses rather than clarify what is acceptable tax avoidance.Link here.
RUSSIA TO KEEP FLAT TAX … FOR NOW
Russian Finance Minister Alexei Kudrin has dismissed a suggestion by the country’s audit chief that Russia would benefit from a return to a tiered system of income tax whereby higher incomes would be taxed at a higher rate – at least in the short term. Kudrin stated that a progressive tax scheme in Russia “would not work for long”, and would be a retrograde step that inhibits economic growth.
Such a step would also run counter to the trend in Central and Eastern Europe, which has led the way in sweeping away complex tax systems in favor of simpler flat taxes to attract investment. Russia was one of the early flat tax pioneers, putting in place its 13% flat income tax in 2001, but many other countries in the region have since gone further than Russia by pegging both personal and corporate income taxes together at one level. In Russia, corporate tax is set at 24%. Nonetheless, Kudrin did not seem to rule out a switch to progressive income taxation in the long term, saying that the current system was satisfactory “for the time being”, and that the reintroduction of a tiered system was not on the agenda “for the foreseeable future”.Link here.
U.S. IS NOT TAX COMPETITIVE, SAYS INTEL BOSS
To be competitive in the global marketplace, U.S. tax policy needs to focus on offering tax treatment that is comparable, if not more favorable, than that which is offered by other nations competing for investments, according to Craig Barrett, Chairman of Intel, the semiconductor manufacturer. Testifying at a House Ways and Means Committee hearing on international tax policy, Barrett observed that the U.S. tax system has become uncompetitive in comparison to the many countries which offer “very significant incentive packages and have highly favorable tax systems,” particularly in Asia.
Barrett pointed out that Malaysia provides a 10-year tax holiday, and tax depreciation for capital building and equipment costs equal to 160% of their cost. He also noted other countries with considerable tax advantages, including Ireland, with its 12.5% corporate tax rate and a 20% research tax credit; Israel, with a capital grant of up to 20%, a 10% tax rate and a two-year tax holiday; and China, which grants a 5-year tax holiday, followed by 50% of the normal tax rate for 5 more years. By comparison, the U.S. has a 35% corporate tax rate, few investment incentives, and relatively uneconomic and uncompetitive depreciation treatment, the Intel chief told lawmakers.
According to Barrett, a critical issue that Intel considers when deciding where to locate a new wafer fabrication plant is that it costs $1 billion more to build, equip, and operate a factory in the U.S. than it does outside the U.S. – the largest portion of which is attributable to taxes.Link here.
FAVOR OFFSHORE JURISDICTIONS WITHOUT TAX INFORMATION EXCHANGE AGREEMENTS
Imagine that you were the finance minister of a small Caribbean island in the early 1980s. Call the island “Amstrandia”. It does not really exist, but it is representative of more than a dozen Caribbean islands and Central American countries. It is a U.K. colony (now called an “overseas territory”), which is almost completely dependent on outside financial aid. To cut support costs, the U.K. convinced Amstrandia to become a tax haven in the 1970s. But the 900-pound gorilla next door, the U.S., did not like that idea. Uncle Sam thought that the U.S. investors who flocked to Amstrandia to take advantage of its zero tax status and strict bank secrecy laws were not paying their fair share of U.S. taxes.
You soon learned that the U.K. Foreign Office, despite having encouraged Amstrandia to become a tax haven, had no intention of defending its haven status. The U.S. Treasury Department decided to force – by various means – Amstrandia and more than a dozen other jurisdictions into ratifying treaties that required them to disclose U.S. interests in banks, mutual funds, IBCs, and asset protection trusts.
If you read the press releases from the offshore jurisdictions that signed TIEAs, you will come away believing that they may be invoked only in the event of probable cause of tax fraud by a particular taxpayer. But that is not what most of the treaties actually say. Instead, most TIEAs state that any information “foreseeably relevant or material to United States federal tax administration and enforcement with respect to the person identified” for investigation must be turned over to the IRS. Not “probable cause” of a criminal or even civil tax offense. Not even “reasonable suspicion”. Merely “foreseeably relevant”. U.S. courts have interpreted this authority as permitting TIEA information requests “even if the United States has no tax interest and no claim for U.S. taxes are potentially due and owing.” In other words, fishing expeditions into offshore accounts are explicitly permitted. The potential for abuse is obvious.
TIEAs are now in effect with Antigua & Barbuda, Aruba, the Bahamas, Barbados, Bermuda, the British Virgin Islands, the Cayman Islands, Costa Rica, Dominica, Dominican Republic, Grenada, Guernsey, Guyana, Honduras, the Isle of Man, Jersey, the Marshall Islands, Mexico, Peru, St. Lucia, and Trinidad & Tobago. In a handful of these countries, including Mexico and Barbados, ordinary tax treaties are in effect, but in most jurisdictions “encouraged” to sign TIEAs, information flows only one way – to the U.S. TIEAs have had, from the Treasury Department’s perspective, their desired effect. U.S. investment in Caribbean havens has decreased substantially. The U.S. policy of deliberately stifling investment has led several Caribbean governments to the brink of financial collapse.
Jurisdictions that have not signed such agreements include Austria, Liechtenstein and Panama. (Switzerland has consented to a TIEA-like addition to the U.S.-Swiss tax treaty, but its terms are far more restrictive than typical TIEAs.) While pressure continues on these countries, and others, such as the United Arab Emirates, to ratify TIEAs, these jurisdictions have the diplomatic and financial clout to avoid being intimidated by the U.S. Let us hope their determination continues.Link here.
INHERITANCES WILL BE A BUST FOR BOOMERS EXPECTING HELP FOR RETIREMENT
Despite forecasts of inheritance windfalls for Boomers, a new AARP study shows that, as of 2004, an overwhelming majority (80.8%) of those born between 1946 and 1964 had yet to receive an inheritance. The AARP study also found that only a small percentage of Boomers – 14.9% – said they expected to receive an inheritance in the future, suggesting that for most, inheritances will not represent a boon for their retirement security. Furthermore, for the fortunate Boomers who had received inheritances by 2004, the median amount received was only $49,000 (adjusted to 2005 dollars). “Many of us dream of an inheritance in the same way we think about winning the lottery,” said John Gist, associate director of AARP’s Public Policy Institute (PPI). “The harsh reality is that for all but the lucky few, an inheritance is a pipedream. This sobering report makes it clear that in the absence of such a windfall, Boomers need to look toward Social Security – combined with savings and, in some cases, pensions – as the true keystones for peace of mind in their retirement years.”
AARP’s study – titled “In Their Dreams: What Will Boomers Inherit” – is a follow-up to an earlier study. The latest AARP research findings come amidst continuing projections by some of huge dollar transfers through inheritances to Boomers and the other cohorts. Some estimates have been as high as $41 trillion. A projection of $7 trillion for Boomers alone has not been uncommon. However, AARP has found that the value of inheritances held by Boomers thus far has totaled only $2.l trillion in 2005 dollars. In contrast with the median inheritance of $49,000 for Boomers, pre-Boomers had median inheritances of $70,000 and post-Boomers, $24,000. Concluded the study, “In general, inheritances are not likely to rescue most Boomers if they have failed to prepare for retirement on their own.”Links here and here.
WHY PHISHING WORKS
SecurityFocus writer Federico Biancuzzi interviews Rachna Dhamija, coauthor of the paper “Why Phishing Works” and creator of Dynamic Security Skins. They discuss the human factor, how easy it is to recreate a credible browser window made with images, some new anti-phishing features included in the upcoming version of some popular browsers, and the power of letting a user personalize his interface.
Mr. Dhamija explains, “We wanted to understand why phishing attacks work. We conducted a usability study where we showed 22 participants 20 websites and asked them to determine which ones were fraudulent, and why. We found that the best phishing website fooled 90 per cent of participants.
“We discovered that existing security cues are ineffective, for three reasons. (1) The indicators are ignored (23 per cent of participants in our study did not look at the address bar, status bar, or any SSL indicators). (2) The indicators are misunderstood. For example, one regular Firefox user told me that he thought the yellow background in the address bar was an aesthetic design choice of the website designer (he did not realize that it was a security signal presented by the browser). Other users thought the SSL lock icon indicated whether a website could set cookies. (3) The security indicators are trivial to spoof. Many users cannot distinguish between an actual SSL indicator in the browser frame and a spoofed image of that indicator that appears in the content of a webpage. For example, if you display a popup window with no address bar, and then add an image of an address bar at the top with the correct URL and SSL indicators and an image of the status bar at the bottom with all the right indicators, most users will think it is legitimate. This attack fooled more than 80% of participants.
“We also found that popup warnings are ineffective. When presented with a browser warning of a self-signed certificate, 15 out of 22 participants proceeded to click OK (to accept the certificate) without reading the warning. Finally, participants were vulnerable across the board – in our study, neither education, age, sex, previous experience, nor hours of computer use showed a statistically significant correlation with vulnerability to phishing.”
How important are default settings for complex topics such as crypto configuration? “Choosing the appropriate default settings is a critical aspect of privacy and security design, whether it is for cookie policies or crypto configuration. Most users do not change the default settings. In our usability study, we used the default browser settings in Firefox, and we took advantage of some of those defaults in crafting attacks. For example, Firefox forces all popup windows to display only a small portion of the chrome (the status bar) by default. This allowed us to insert a false address bar and false status bar with security indicators, and the majority of participants in our study were fooled into thinking that this was a legitimate webpage, rather than a fraudulent pop-up. The next version of Firefox may force the address bar to also be displayed by default, which should help more users notice this type of spoofing attack.”Link here.
Blitzkrieg! Real life spyware horror story.
“Day 1 (the war begins): Windows, being the operating system that it is, takes its time to load, bit by bit. I come closer to the virtual war of my life. Upon initial start-up, a series of things go wrong, which isn’t necessarily unusual for those of us who run Windows. To my surprise, however, I notice something new – a bundle of alleged spyware – and adware-removal programs running in my taskbar, none of which I installed. Harsh reality strikes. The ‘machines’ are drilling closer to my hard drive, and I am the only one who can stop them.”Link here.
ST. KITTS TO INTRODUCE CAPTIVE INSURANCE LEGISLATION
St. Kitts is soon to introduce captive insurance legislation. Prime Minister and Minister of Finance Dr. Denzil L. Douglas told service providers including lawyers, accountants and representatives of the financial services sector in Zurich, Switzerland, that the new captive insurance legislation will provide “extremely competitive licensing fees for small captives that do not have premiums over US$1.5 million. The basket of services being offered by St. Kitts is slowly growing and the development of new products is being done with as much risk management and quality assurance as the industry demands internationally.”Link here.
FASTTRACK COMPANY FORMATION “COULD HARM” GUERNSEY’S REPUTATION
At a meeting of the professional associations, Peter Neville, director-general of the Guernsey Financial Services Commission, voiced his concerns over plans that could lead to Guernsey companies being formed in 24 hours. While welcoming any suggestions for reforms to the current system, Mr. Neville warned that moves leading to a drop in regulatory standards could harm the island’s international standing. “If there is no vetting of the beneficial owner, how does one maintain Guernsey’s image as a regulated jurisdiction?” he asked. “It is very difficult to turn a company around in 24 hours, given the checks that need to be performed.”Link here.
SHORTAGE OF PRIVATE BANKERS IN SINGAPORE
Singapore faces a shortage of private bankers and is relying on two government-backed training programs to fill the gap. Ng Nam Sin, head of financial-center development at the Monetary Authority, said at a banking conference here that it was “important that we ensure that there is a good supply of talent” in the banking industry. “The environment is no doubt challenging,” he said. “It is not just a problem in Singapore. It’s a problem in the entire region.”
Singapore’s private banking industry should expand 25% in the coming year, the most in the world, said Didier von Daeniken, a co-head of private banking for Asia and the Pacific at Credit Suisse Group, Switzerland’s second-biggest lender. Private banks are adding employees in the city-state to win business away from India and China, which have had the fastest growth among the world’s 20 largest economies. Clients usually need $1 million to open an account, for which they get banking services, money management, estate and trust planning, philanthropy advice and the promise of secrecy. The local government has used laws on taxes, residency and privacy to foster the industry. Private assets under management in Singapore total $200 billion, which is about 3% to 5% of total wealth worldwide, Ng said. The city-state’s asset-management industry is growing at about 15% to 20% a year.Link here.
HOW ACCURATE ARE LIE DETECTOR TESTS, REALLY?
A lie-detector test or machine is a popular, but inaccurate term for the instrument that records various bodily changes that may provide the basis for a reliable diagnosis of truth or falsehood. The correct term for the instrument is a polygraph. There is no such thing as a lie-detector, lie-detector test, or lie-detector machine if the terms are taken to mean a mechanical test or device that will produce a clear indication of lying when verbal statements are made.
The polygraph technique, as it is more properly called, measures respiration, blood pressure, and pulse. A supplemental unit that records the galvanic skin response (GSR) is also part of the procedure. The most valuable indicators are respiration and blood pressure and not, as is commonly believed, the sweating palms measured by the GSR. The polygraph technique is actually more of a diagnostic procedure than a mechanical operation. The competence of the examiner and skillfully controlled questions produce the most meaningful data. Polygraphs do not simply indicate whether a specific statement is true or false. A pattern of response compared to various control questions is evaluated by the examiner to determine the truthfulness of the answers.
Results of the polygraph technique are almost never admissible in court as evidence unless both sides agree in advance to its use. However, it is still used in other places, such as in the workplace, to assess the honesty of employees. Whether the employees can make the boss take one is another matter.Link here.
THIS LINE IS INSECURED
I quit my editing job at the Oil Daily, one of a series of oil and gas-related newsletters published by Energy Intelligence, at the end of April to sort through and pack our belongings and get ready for a move to Chicago this summer. Because I am starting a Masters of Divinity program this fall at the Lutheran School of Theology in Chicago with an eye toward eventual ordination as a minister in the Evangelical Lutheran Church in America. A couple of years ago, I was an editor at the Saudi Gazette, the English-language newspaper published by Okaz, possibly Saudi Arabia’s largest circulation newspaper and the kingdom’s scandal-sheet of choice. The Gazette was relaunched as a slightly titillating tabloid, and I was one of several American editors brought in to oversee and supervise that change. Mostly, I worked with reporters and rewrote copy, and after about six months of that, decided to come back home.
As Jennifer and I were wondering exactly how we would provide for ourselves during the MDiv program, out of blue, the Jeddah bureau chief – a fearless and talented young woman who had been one of the reporters I had coached while I was there – contacted me and asked if I would be willing to join the paper again as a part-time editor, working a couple of hours every morning rewriting local copy, six days a week for about $1,000 per month. It was a no-brainer. I told her yes. So, for the last two months, I have been reworking local Gazette copy, everything from interviews with jailed Moroccan prostitutes to government executioners to the daily police blotter to angry municipal council meetings.
Jennifer wondered if there were going to be any problems with getting paid. Specifically, she wondered if getting wire transfers from Saudi Arabia – even a paltry $1,000 – would suddenly put me (okay, us) on some kind of watch list. I think I dismissed her concern at the time, saying the greater concern would simply be getting paid at all, and not the response of the U.S. federal government. Turns out, however, Jen and I were both right. It took a long time – about 10 days, longer than I would have liked – for that slightly less-than $1,000 wire transfer to wander from Riyadh Bank to our bank in San Antonio, Texas.
The progress of an international wire is interesting. I discovered when I was in Saudi Arabia that most U.S. banks (or at least the one I had an account at) participate in the Belgium-based SWIFT system, used by much of the world to send money hither and yon and apparently tapped by the Bush administration in the days following the September 11 terrorist attacks. Anyone sending 100 Saudi Riyals from Jeddah to Dakha, Bangladesh, via Western Union needs to know that money first flows through New York – virtually the entire world banking system does – making it possible for the U.S. government to watch just about every electronic financial transaction in the world. That is what makes U.S. sanctions so effective. While my cash did not show in my account until Wednesday morning, the folks I had working on the trace said it arrived at in the U.S. – specifically, at a Federal Reserve Bank – on Sunday morning.
And by Sunday afternoon, noticed a regular beeping-clicking sound on my mobile phone every two or three minutes – a sound I had never heard before and one that whoever I am talking with cannot hear. It could be a problem with the phone, which I bought in Saudi Arabia more than two years ago, but the other SIM I have (and do not use very often) does not have the same problem. (Oops, sorry, it does now.) I suspect my mobile phone has been tapped. The timing, starting the same day as my first payment from the Saudi Gazette arrived in the U.S., is just a little too “coincidental”.
Aside from making light of the whole thing – “Hello, this is Charles, and this line is unsecured” – I am not entirely sure what to do about this. Since I started sending e-mail and doing on-line stuff, long ago in 1989, I have always just assumed that someone, somewhere, with a badge and maybe a warrant (but most likely not) was reading or watching or monitoring. Or could whenever they wanted to. Certainly it should not be that way, but it is. And there is not a thing any of us can do to change this any time soon. (Unless you are putting your faith in Hillary Clinton’s or John McCain’s future Justice Departments?) This is the unfortunate reality of the world in which we live right now, of governments staffed by those wishing to know and control everything.
That said, we should not let surveillance, or the possibility of surveillance, silence us or shut us down. At least half of being free is thinking and acting like a free human being, whatever the consequences might be. The possibility that all my phone calls are being monitored (I suspect they are being recorded, and then filtered through software for various phrases and subjects) does not keep me from expressing my views on George W. Bush (idiot), the wars in both Iraq and Afghanistan (disasters), and that the political and social changes in Saudi Arabia since King Fahd died (nothing short of amazing). Besides, I am rather intrigued at the prospect of boring the heck out of whichever FBI or NSA flunky gets to read my conversations.Link here.
What is the real purpose of Bush’s NSA surveillance?
The Baltimore Sun reported that Bush rejected President Clinton’s effective, legal surveillance program that did not invade privacy to adopt the current NSA spying program, which is ineffective, illegal and invasive of citizens’ privacy rights. So, the question jumping off the page may be, why would Bush use a program that does not actually assist the finding of terrorists, yet also has the disadvantage of invading Americans’ privacy rights? The Clinton surveillance program, called ThinThread, was created during the late 1990s to “gather and analyze massive amounts of communications data without running afoul of privacy laws.” Several bloggers provide excellent posts on the components and nature of the program. The former head of NSA operations division told the 9/11 Commission that “ThinThread could have identified the hijackers had it been in place before the attacks.”
Given that a perfectly legal program which could actually accomplish the stated objective of capturing terrorists before attacking Americans exists, but was rejected by Bush, would could be the real underlying purpose for Bush’s NSA surveillance program that has a minor, if any, impact on anti-terror objectives? Perhaps the answer lies in the fact that if Bush is to actually succeed in finding terrorists with the program he is using, this program requires more data about Americans. That is, phone records are not sufficient for this objective, so more data would be required. Like the camel who first sticks its head in the tent, Bush may have wanted pretextual grounds to keep expanding the nature and amount of information about Americans that he collected and deposited in databases.Link here.
U.S. HAS ACCESSED FINANCIAL TRANSACTION DATA IN ANTI-TERROR OPERATION
The U.S. Treasury Department has attempted to assuage fears that it is snooping on innocent financial transactions as part of an ongoing – and until recently largely unknown – operation to track terrorist financing since 9-11. News that the Treasury Department has been overseeing a CIA program to monitor financial transaction data passed between banks over a system known as SWIFT (Society for Worldwide Interbank Financial Telecommunication), hit the headlines in America and beyond last week, following a report in the New York Times. At a hastily-convened press conference, Stuart Levey, Under Secretary for the Office of Terrorism and Financial Intelligence, defended the program and condemned those who leaked its existence to the media. Levey claimed that the program, known unofficially as “following the money”, is one of the most effective tools at the disposal of the U.S. government to identify and find terrorists.
SWIFT is a financial industry-owned cooperative supplying secure, standardized messaging services and interface software to 7,800 financial institutions in more than 200 countries. SWIFT’s worldwide community includes banks, broker/dealers and investment managers, as well as their market infrastructures in payments, securities, treasury and trade. About $6 trillion in financial transactions is routed through Belgium-based SWIFT everyday, according to the NY Times. As SWIFT is predominantly used for overseas transfers, Levey said that the data does not contain information on ordinary transactions that would be made by individuals in the U.S., such as deposits, withdrawals, checks, or electronic bill payments. However, one former counterterrorism official who spoke to the NY Times on condition of anonymity described the capability of the program as “awesome” and, depending on one’s viewpoint, “troubling”.
Levey revealed that the U.S. government has used the International Emergency Economic Powers Act, a statute passed in 1977, to subpoena records on terrorist-related transactions from SWIFT, although much of the government’s authority for the program stems from the emergency powers granted to President Bush in the aftermath of 9-11. However, according to Levey, the SWIFT subpoena is “powerful but narrow”, as it allows us to access only information that is related to terrorism investigations. The Treasury said that SWIFT was exempt from U.S. laws restricting government access to private financial records because the cooperative was considered a messaging service, not a bank or financial institution.Link here.
U.S. bank surveillance program hardly a secret, some say.
News reports disclosing the Bush administration’s use of a special bank surveillance program to track terrorist financing spurred outrage in the White House and on Capitol Hill, but some specialists pointed out that the government itself has publicly discussed its stepped-up efforts to monitor terrorist finances since the 9-11 attacks. President Bush said it was “disgraceful” that The New York Times and other media outlets reported last week that the U.S. government was quietly monitoring international financial transactions handled by an industry-owned cooperative in Belgium called the Society for Worldwide Interbank Financial Communication, or SWIFT, which is controlled by nearly 8,000 institutions in 20 countries. The Washington Post, The Los Angeles Times, and The Wall Street Journal also reported about the program.
The controversy continued to simmer when Senator Jim Bunning, a Republican of Kentucky, accused the Times of “treason”, telling reporters in a conference call that it “scares the devil out of me” that the media would reveal such sensitive information. Senator Pat Roberts, a Kansas Republican, requested U.S. intelligence agencies to assess whether the reports have damaged anti terrorism operations. And Representative Peter King, the chairman of the House Homeland Security Committee, has urged Attorney General Alberto Gonzalez to pursue “possible criminal prosecution” of the Times, which has reported on other secret government surveillance programs.
But a search of public records – government documents posted on the Internet, congressional testimony, guidelines for bank examiners, and even an executive order President Bush signed in September 2001 – describe how U.S. authorities have openly sought new tools to track terrorist financing since 2001. That includes getting access to information about terrorist-linked wire transfers and other transactions, including those that travel through SWIFT. “There have been public references to SWIFT before,” said Roger Cressey, a senior White House counterterrorism official until 2003. “The White House is overreaching when they say [The New York Times committed] a crime against the war on terror. It has been in the public domain before.”
Victor D. Comras , a former U.S. diplomat who oversaw efforts at the UN to improve international measures to combat terror financing, said it was common knowledge that worldwide financial transactions were being closely monitored for links to terrorists. “Unless they were pretty dumb, they had to assume” their transactions were being monitored, Comras said of terrorist groups. “We have spent the last four years bragging how effective we have been in tracking terrorist financing.”Link here.
DUKE UNIVERSITY CASE HIGHLIGHTS HOW FAR DESTRUCTION OF INDIVIDUAL RIGHTS HAS GONE
The Seattle Public Schools recently decided to define “racism” in all its forms, including the denunciation of those who held to the importance of “future orientation” and “individual rights” (both under the “cultural racism” category). However, after being hit with a barrage of emails (including a couple from me, one of which said that according to their standards, having pensions for Seattle teachers was an act of “cultural racism”, since it involved “future orientation”), the board took down the site and claims to be re-working it. Seattle might be a long way from Durham, North Carolina, but the same disease seems to have hit both cities, and that is the denial of individual rights. I say this because in my previous articles which have strongly criticized Michael Nifong, the district attorney who is pushing these bogus rape charges, I receive a number of emails that say something to the effect that the accused lacrosse players are little more than “pampered jocks”, or that the real issue is race and that there can be no functioning multi-racial society.
Whatever one wishes to make of those claims, I believe they miss the point entirely. The Duke case presents, in a microcosm, a clear picture of life in a future U.S. in which the Politically Correct world of the college campus becomes the legal standard for everyone. That is a world in which all events are viewed through an extremely abstract prism in which there are only “group” or “collective” rights, and where all individual rights are destroyed. Ultimately, it is the world of the Soviet Union and Josef Stalin’s “Show Trials” of the 1930s, in which we saw this whole thing in full flower.
What is happening in Durham is what would happen everywhere if the vision of the Seattle Public Schools becomes the basis of all law and social organization. It is not simply a story about a rogue prosecutor, although Nifong clearly fits that description. We may well be on our way, and may have passed, a “tipping point” in which it is all downhill to the abyss. Even so, I also believe that it is my duty to fight against such barbarism while I still have the tools by which to fight. Maybe in this case I am standing up for “pampered jocks” (although the situation and the people involved are much more complex than to be described with a slur) who are part of a “hook-up” college scene that is little more than state-sponsored debauchery (given that even at places like Duke, government money pays much of the tuition). But when it comes to issues of law, I will stand up for the rights of people, even those people who are scorned by all the “respectable types.”
The Duke case is an outrage on many fronts, but I argue here that the real battleground is abstract, but also very real, and that is where individual rights go against the zeitgeist of “collective rights” that are all the rage among our intellectual and political classes. The response of some black students at nearby North Carolina Central University put the whole thing into a very sad perspective. Chan Hall, 22, said he wanted to see the Duke students prosecuted “whether it happened or not. It would be justice for things that happened in the past.” I doubt that Hall has heard of Nikolai Bukharin or even the Seattle Public Schools website, but his words clearly reflect support of the collectivist thought that permeated Bukharin’s work and the nihilism that comes with it. In Hall’s world, there is no guilt or innocence apart from the collective. The Duke athletes are white, the accuser is black, black men wrongly were convicted of rape on false accusations during the Jim Crow era, therefore, the athletes are guilty. (Paul Craig Roberts has an excellent chapter on the nihilistic trial and execution of Bukharin in his book, The Tyranny of Good Intentions. Like so many intellectuals today, Bukharin derided individual rights as “bourgeoisie” nonsense, not knowing that he himself would be murdered by those simply following his own instruction book.)
This seems to be the attitude of a number of people, including members of the black media, such as Cash Michaels of the Wilmington (North Carolina) Journal. Michaels has been unwavering in his support of Nifong and the prosecutions from the first day, and the blizzard of facts contradicting the prosecution’s tale has not deterred him at all from demanding charges and convictions. I cannot imagine that Michaels would overlook an alibi that Seligmann has given (which is backed up by electronic photographs and eyewitness testimony) if it were a black man in the dock. This tells me that influential blacks like Michaels are not interested in any other explanation, truth or otherwise.
Of course, this precisely is what happened to black males falsely accused during the Progressive Era, when the lynch law prevailed and all it took was an accusation from a white person to send a black to a horrible death at the end of a rope, or to be tortured to death in some other way by an angry mob. Whites justified these actions – which clearly eviscerated any trace of individual rights, rights of the accused, due process, and more – on collectivist grounds. No doubt, there were grievances that went back to the Reconstruction Era and before, or a thousand other grounds on which people believed they could justify their actions. Evidence did not matter, as it does not matter now in the Duke case, at least to some people who want convictions and life imprisonment for people they admit might not even have committed any crimes.
Thus, if Chan Hall and Cash Michaels see this as simple “payback”, then they are – grotesquely, to be sure – endorsing what was done to blacks in the 19th and 20th centuries. Nor is this attitude limited to these two men. It is the dominant way of thinking among faculty members (or at least arts and sciences faculty) at most U.S. colleges and universities. These academics long ago embraced collectivism not only in the economic sense (as long as it does not involve their own property), but also in the broader viewpoint of law and social action. Despite the dearth of evidence in the case, there remain True Believers among the feminists at Duke and, no doubt, at other institutions of higher learning as well.
Right now, most of us regard Political Correctness as something that is confined to the college campus, some government offices, and the mainstream media, as well as the mainline U.S. Protestant churches. Right now, the Duke athletes still are permitted to carry on a vigorous defense, although the Durham NAACP has tried to squash that right as well. This is more than plain hypocrisy. It is “collective rights” at work. The legal theorist of the old “civil rights” movement long ago abandoned the pursuit of individual rights for the more politically promising "collective" or “group” rights. That is the driving force in feminist law, as well as the gay rights movement and, of course, “civil rights” law as well. “Collective rights” cannot coexist with “individual rights”. It is one or the other, and there can be no middle ground. Either Catherine MacKinnon or William Blackstone can prevail, but not both.
If Nifong is able to prevail in this case, given the evidence that has been made public so far (and I believe that the exculpatory evidence in favor of the three athletes is strong enough to stand on its own), then he will prevail only because the courts ignore individual rights. Nifong wants to win his case, and his supporters want revenge for the wrongs committed against black men in an earlier era. None of these people are wearing white sheets and carrying torches and ropes, but, intellectually speaking, there really is no difference between the Duke case and the infamous Scottsboro Boys trials of the 1930s. One would have hoped that the various “rights” movements of the 20th Century would not have led to a collectivist viewpoint that eviscerates individual rights, but that is what happened. If Nifong and his allies prevail, then there is nothing from stopping the courts from destroying the few rights individual have left. That is what ultimately is at stake here. Period.Link here.
U.S. SUPREME COURT RULES THAT RECORDS OF OFFSHORE ACCOUNTS MUST BE DISCLOSED
Rejects Fifth Amendment defense against self-incrimination.
The Supreme Court denied the petition for a Writ of Certiorari by Jerome Gippetti affirming the Third Circuit Court of Appeals’ conclusion that an individual’s Fifth Amendment right against self-incrimination is not violated by requiring a taxpayer, in response to a summons seeking production by the IRS, to produce evidence supporting claims made on a federal tax return pertaining to offshore accounts.
In an opinion filed November 8, 2005, the Third Circuit Court of Appeals determined that the production of the Cayman National Bank (CNB) records by Gippetti would have no testimonial significance and therefore the Fifth Amendment claim is without merit. The production of the records are not testimonial because the taxpayer did not prepare the papers and was not competent to authenticate them even if he is required “to locate, retrieve and collect” them from CNB. The opinion did, however, state that the District Court where the case was originally heard needed to rule explicitly on the possession or control of the records in order to enforce the IRS summons or court order to produce the records.
The IRS summons to produce records pertaining to his CNB bank and credit card accounts was issued in February 2003 as part of a civil investigation by the IRS into the 1999 and 2000 federal income tax liabilities of Gippetti and his late wife. Gippetti reported interest income from the CNB bank account on the 1999 and 2000 federal income tax returns and disclosed the existence of the account on forms for reporting foreign bank and financial accounts filed to the IRS. The existence of the CNB credit card accounts came to light as a result of the IRS Offshore Credit Card Project (OCCP), and Gippetti did not dispute their existence. The court case was initiated by the IRS after Gippetti failed to comply with the summons. The OCCP is an IRS initiative aimed at bringing into compliance with U.S. tax laws those taxpayers and other participants using “offshore” payment cards or other offshore financial arrangements to mask or shelter their income.Link here.
FEAR IS THE COIN OF THE REALM
Uh, oh! A new study reveals that “fears that the deadly strain of bird flu would move through Africa and Europe in flocks of wild birds have so far proven unfounded. …” That means one less fear that the feds can use to frighten grown-up American men and women as an excuse for more federal power-grabbing. Fear, of course, has been the coin of the realm for oppressive and dictatorial governments throughout history. Frighten the citizenry and they will practically beg you to take away their freedom. That is how Hitler convinced the German parliament to give him temporary dictatorial powers after terrorists firebombed the German parliament building.
When Soviet communism, which had been used for decades to justify ever-increasing budgets for the Pentagon, the CIA, and the State Department, expired with the fall of the Berlin Wall, new official fears had to be found. And fast! Federal power and federal budgets depended on it. There were, for example, the drug lords, who were coming to get us and put us on drugs. My favorite though was – “an unsafe world,” which was enough to scare anyone to death. Along came Saddam, who had been a good friend and ally of U.S. officials. His invasion of Kuwait provided them with more than a decade of fear-mongering (and ever-growing budgets), ultimately culminating in the deep (and baseless) fear that this “new Hitler” was about to unleash an imminent WMD attack on the U.S.
No one can deny that 9-11 has been the biggest power-grabbing bonanza for power-loving federal politicians and bureaucrats since the Civil War. The terrorists, who are reacting to the power-grabbers’ own foreign policies, are coming to get us! Do not even read the USA PATRIOT Act – just enact it! Turn those airports over to the feds – fast! There was also an endless array of other new Hitlers and dangerous regimes for Americans to be scared of – Osama (another former friend and ally of U.S. officials), Chavez, Zarqawi, Muqtada al-Sadr, Iran, North Korea, Syria, Russia, and China. Fear. Fear. Fear.
Isn’t it ironic that we have the most powerful empire in history, whose very own policies have often produced the things we are supposed be afraid of, and yet, at the same time, the most frightened grownups in the world? 63% of Americans support the government’s illegal and unconstitutional monitoring of people’s telephone records? The sheeplings are bleating to the power-grabbing wolves, “Please, do whatever is necessary to protect me from the big bad terrorists. Take away my freedoms if you have to because I am so scared. I love you and I trust you.”
The libertarian battle to restore liberty to our country lies not only in opposing the big-government conservatives and liberals who infect our land. It lies also in stiffening the spines of millions of Americans.Link here.
IMMIGRATION, DEMOGRAPHICS, AND YOUR LIVELIHOOD
While we write this, the National Guard is busily building sections of a wall to separate the U.S. and Mexico. This comes as a relief to many Americans for whom the steady traffic of undocumented immigrants and the perceived sense of lawlessness and security risk in the region had become a major irritant. Naturally, security (or lack thereof) is a legitimate concern, though we do not have much to add on the matter that has not already been said. Our beat is demographics and its effects on the economy. Immigration is an emotional subject that touches on a number of topics we would prefer to avoid. Instead, we would like to strip the subject down to its bare economic fundamentals and their implications for your livelihood.
Immigration, along with domestic migration, is highly age driven, just like almost every trend in economics such as inflation, innovation, spending, borrowing, investment and so on. Economically, immigration is a winning proposition for the U.S. While immigration does create social costs such as education, law enforcement and medical care, immigrants on average add a net $80,000 more in taxes over their lifetimes above these social costs, according to a recent paper by the National Research Council. Even more significantly, it takes an investment of nearly $300,000 to raise the average American kid these days before they work and become productive – not counting government schooling costs – whereas immigrants come in raised and ready to work, albeit typically with lower educations. Essentially, we bypass the unproductive years of their lives and get them in their primes.
Furthermore, immigrants are an immediate boon to the areas to which they move because many of the things they consume, such as food, clothing, and shelter are purchased locally. As a result, immigrants instantly add consumer demand just by moving to town. Immigrants tend to be drawn to areas that are already booming, because it is in such boomtowns that the best opportunities exist for high paying jobs. This creates a self-reinforcing cycle in which new immigrants are attracted to areas by the growth that has already been partially fed by immigration.
Right now there are estimated to be between ten and twenty million illegal immigrants in the economy. The number of service workers we have that are in this group is obviously in the millions. The unemployment rate of the United States is currently 4.7%, which is a very low number, historically – and we project that it will reach as low as 3.0% to 3.5% by 2010. If we removed millions of service workers from the economy today, some jobs would simply go unfilled, and those services would die out. In parts of Europe, dry cleaners are almost non-existent, and those that do operate are extremely expensive. The second eventuality would be higher wages for these jobs, and therefore higher prices for consumers.
As with domestic migration, immigration is driven by the 20-29 year-old age group with the peak age of immigrants being 26. The same forces that encourage new American households to move to a new state also motivate foreigners to move to a new country. With immigration rates stabilizing at lower, but still robust levels, vs. a 1991 peak we are proposing to further restrict it and to make the present illegals here earn their way to proper documentation. This means that the bust years in our economy will be all the more severe when immigration comes to a halt, just as it did in the 1930s, due to rising unemployment rates after 2010.
In the economic slowdown that we forecast from about 2010 into 2023 based on our demographic analysis there should be a significant rise in unemployment, most likely to as high as 15%. Even now, even in the midst of an economic boom as measured by expansion in GDP and consumer expenditures, our government has already initiated several new policies that make immigration, both legal and illegal, much more difficult. Some of these policies were security-related, though nearly all reflect a general feeling of unease among Americans about the high levels of immigration in recent decades. When our economy stalls after 2010 and unemployment rises, anti-immigrant sentiment will get much stronger. We would expect the newly elected president out of the crash of 2011 to 2012 to usher in the strongest anti-immigration reforms since the early 1930s.
Partially as a result of the drop in immigration, real estate and growth prospects in high-price, high-immigration coastal cities like New York, Boston, D.C., Miami, L.A., San Francisco, San Diego and Seattle will be the hardest hit after 2010. Again, from our work in demographics, we have found that, on average, younger people move the most. After the echo boom generation (as the children of the baby boomers are called) peaks in its moving cycle between 2015 and 2020 and then plateaus into around 2035, our country will become more sedentary, aging more rapidly, becoming less innovative and less mobile – like Europe and Japan today.
So, in regard to immigration, we have bad news and good news. The bad news is that we are not going to have enough immigrants to boost consumer demand by a meaningful amount once the downturn begins, and this will make the downturn worse. The good news is, at least relative to the other developed countries, we will be far more likely to assimilate our existing immigrants into our system. With few exceptions, immigrant families leave the ethnic ghettos and join the cultural mainstream within a generation or two, speaking English, swiping credit cards, and generally joining the cultural and financial mainstream. In fact, financial mainstreaming may be the single biggest force for assimilation and national bonding. Waves of immigrants have made their respective impacts on American culture, but the changes have been largely in form rather than substance.
This question of non-assimilation is, however, quite real in Europe. Within the immigrant and ethnic minority communities, large blocks remain unassimilated. Worse, it is the second and third generations that have drifted the furthest from the mainstream, rejecting the culture, economics, and even the rule of law of their hosts. The virtuous cycle of growth has been turned on its head and replaced with a vicious cycle of stagnation, unemployment, despair, and violence. The terrorist attacks in the summer of 2005 on London, which were carried out by second-generation immigrants who had grown violently discontent with a system at odds with their beliefs, are a horrifying example of this cycle.
What is striking about European immigration is that while the various countries have tried different approaches to assimilating their own immigrants, the results have been the same: balkanization and alienation from the mainstream. The British are famous for their liberal, laissez-faire approach to social policy. For centuries, London has been a haven for exiles and émigrés that no one else would take. So long as they did not make too much trouble, they were welcome to stay and do whatever they pleased. The French took a different approach, creating a French national identity based on language and shared political values. Being French meant speaking French, pledging allegiance to the Republic, and maintaining a rigid separation between religion and state. The government has even taken the step in recent years of forbidding the wearing of Muslim headscarves and Jewish skullcaps in public schools. To be French, you must “act French.”
Both approaches have failed. London is derisively called “Londinistan” for its large number of extremist mosques and radical groups, primarily Pakistani in origin. And despite the restrictions in schools, Paris is ringed with Algerian suburbs in which it is rare to find a woman without a veil, as many women are afraid of harassment should they leave the house with their heads uncovered. Across Europe the story is the same. The seemingly harmless publication of political cartoons in Denmark that satirized Islam set off a riot that left a trail of death and destruction across the globe, and the tolerant Danes have witnessed their national flag being burned in their own streets. These immigrant groups come from different home countries and espouse differing views of Islam, yet the problem is the same across Europe: a rejection of the mainstream. Why?
The answer to the question has two parts, an economic component and a cultural one. We have made the case again and again that demographics drive the modern consumer economy. Family formation is expensive, and parents spend a small fortune on every child they raise. This family spending, which peaks in the U.S. as the breadwinner approaches age 50, keeps wages rising and increases the need for labor. In the U.S., this has meant low unemployment and high immigration. Europe has lower birthrates than the U.S., and already demographic forces are starting to sap Europe’s economic vitality.
As in America, immigrant families in Europe tend to have higher birthrates, but the overall demographic mix is not conducive to creating the jobs to employ the children of immigrants once they reach working age. Furthermore, decades of well-intentioned labor laws have had the perverse effect of making it almost cost-prohibitive to hire anyone on the Continent, particularly in Germany and France, and the generous social safety nets in place give the unemployed little incentive to hustle for jobs. It is not surprising that Germany and France have unemployment rates of 11.6% and 9.9%, respectively. Even within the U.S., there is a difference in the assimilation of immigrants between the high-regulation, high-social-benefits states and the low-regulation, low-social-benefits states. Radical Hispanic activist groups such as MEChA and the Aztlan movement have their greatest strength in liberal California, while in conservative Texas, which has a comparable Latino population, these groups have little following. When the ethnic minority groups of Western Europe are separated from the mainstream by religion, language, and income level, as well as in some cases collecting a monthly welfare check that makes it possible to never leave the neighborhood, what incentive do they have to assimilate?
Economics cannot fully explain the extent of the rejection of mainstream European culture. Most of the bombers in the July attacks in London were from successful, middle class families. Clearly, some other factor is at work here. What is it about European culture that so many newcomers find so unappealing? Some of it could be a hangover effect from the shared histories of Western European powers and their former colonial subjects. It was only 60 years ago that most of the globe was under colonial control of the major European powers. Immigration to Britain and France is dominated by nationals of these former colonies. Lands are conquered for economic reasons, not cultural. Accordingly, the cultures of the colonizer and the colonized often have little in common. Sadly, cultural and historical differences contribute to a vicious cycle of economic disappointment and cultural alienation that not even the relatively healthy British economy can break. French immigration likewise reflects the days of empire and its aftermath. The weeklong rioting that France witnessed in 2005 from its young, unassimilated Muslim population is likely to be only the beginning.
Immigration to the U.S. is, of course, dominated by Latin America. Many of the first generation do not immediately assimilate into mainstream American society, instead they work primarily among their countrymen and speak Spanish at home. While this is true, it is also true that there is not a foreign-funded grassroots movement to “Mexicanize” American law in the way that many Islamic groups in Europe advocate Koranic Sharia to replace Western European constitutions. Given time and the right economic incentives, these newcomers to the U.S. will blend into the American cultural landscape like the Italians and Irish before them. In the meantime, they provide affordable labor that keeps our economy humming.
There are several crucial points to understand concerning immigration that tie in to this forecast. First, though the U.S. has had some ethnic tensions due to the high immigration rates of recent decades, our problems are minor compared to those of our contemporaries in Europe. The problems we do have in assimilating immigrants are due primarily to language and education levels, which are largely remedied within a generation.
Secondly, though there are costs such as education and healthcare for immigrants and their children that must be paid for by taxpayers, these expenses can be thought of as investments in future taxpaying consumers, and they are much more affordable than the costs of raising kids and educating them here. When we start to suffer the long-term economic slowdown after 2010 due to demographics, we will wish we had more such taxpaying consumers.
Finally, high immigration levels have had the effect of amplifying the already existing boom in housing and consumption. When immigration levels fall – as we predict they will after 2010 – the cities and regions that have benefited from immigration, such as California, south Florida, and parts of Texas, will suffer steeper declines in housing prices, consumer activity and municipal tax revenues.Links here and here (scroll down to pieces by Harry Dent and Rodney Johnson).
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