Wealth International, Limited

Offshore News Digest for Week of July 3, 2006

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

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



The beautiful Province of Nova Scotia spilled from the mouth of a glacier thousands of years ago, a huge gem deposited just far enough away from the other Provinces on the “mainland” to say we are “unique” in our own right, but not so far as to be inaccessible, by land, sea or air. We are surrounded by the great Atlantic Ocean, caressed by the Southern Gulf Stream and soothed by prevailing Westerly winds during the summer months. It seems we are hidden from dangerous tornadoes and hurricanes, no excessive weather of any sort, even the winters are becoming milder. Our air remains fresh and clear without the pall of pollution. Our spring fed groundwater comes up delicious from ordinary dug wells.

There are no dangerous animals. And no dangerous bugs. We have harmless wood ticks and so far, no lime disease-carrying deer ticks, but certainly we cannot avoid the pesky mosquitoes, black flies and no-see-ems, although I must tell you, my friends are using the new mosquito magnet machines and absolutely swear by them - the newest contest up at the lake is who has the most bugs at the annual weigh-in at the end of summer.

The County of Shelburne on the South East coast (where I live), is actually shaped like a wedge of cake, frosted on the edges with powder white sand beaches, sprinkled with boulders and ledges, some the size of small homes , and garnished with beautiful greenery from the various trees that grow abundantly throughout the area. We have acres of protected lands for all to see. From these areas come the six major rivers of Shelburne County, spilling into 32 fresh water lakes and numerous brooks, where lurk, some say, the granddaddy of all trout. There are eskers (ridges formed out of ancient stream beds) all over Nova Scotia. And then we have our coastline here in Shelburne Coounty … breathtaking beauty, the fresh cool feel of sweet salt air on your skin that is absolutely invigorating, surf sounds that sooth, long walks on pristine white sand beaches. The locals are friendly and helpful – proud Atlantic Canadians, most of whose ancestors were as they are today – commercial fisherman, boat builders, woodsman, a kind and gentle people who go down to the sea and into the forests to retrieve and bring back the most delectable goodies.

Can you buy property here? Of course. Can you live here? Yes you can, non-resident Canadians, 6 months of the year, and immigration to qualified persons. Sadly however there is only on thing you cannot do here in Nova Scotia. You cannot leave with your heart intact.

Link here.


Many fancy the thought of venturing out to live in a foreign country. Yet, shortly after arrival they are often faced with some of the cold realities of living abroad. The fantasies of spending every day discovering exotic foods and hidden treasures are replaced with discoveries such as no hot water or electricity shortages. In fact, daily life abroad can be both physically and emotionally draining. This may sound depressing, but don’t let it get you down. A living abroad experience, as a whole, can be greatly enjoyed and valued. The key to this result is handling day-to-day life.

Learning how to keep your head above water, or as I prefer to say to, how to stay AFLOAT, will enable you to make the most of your abroad experience. Staying AFLOAT refers to five essential principles for foreign living: Learn to Adapt, be FLexible, Observe, have a can-do Attitude, and be a Team player. We will take a closer look at each one of these in the following sections. The next time that the going gets tough, think about these five principles. Ride out the waves, and you will be able to stay AFLOAT and make the most of your experience.

Link here.


It seems that much of the news coming out of Latin America these days is about leftward lurches and the latest respective government action to undermine the market economy. But, the desirability for democracy and economic growth are not the issues up for a referendum in this year of elections, rather citizens are trying to find future leaders that will build consensus to address one of the most pressing problems that continues to plague the region – poverty. And, according to surveys, most of Latin America’s poor believe that starting a business, not receiving government handouts, offers their best hope to lift the curtain of this socio-economic disease. For these aspiring risk-takers, the future depends on gaining access to the market, not rolling it back.

Entrepreneurs create businesses large and small. They create jobs, enable social mobility, innovate, and serve as an inspiration to others. Underpinning these achievements is the drive to construct something lasting, withstand risk and persevere. The creation of businesses and jobs not only supports economic growth but provides hope that each person can have a job and ensure a better future for their children. All this seems so straightforward, and yet more often than not governments have choked off these engines of progress. Governments have the responsibility to create an environment in which entrepreneurship can flourish, where small and medium sizedbusinesses can grow. Accomplishing this requires a massive reduction of red tape, greater labor flexibility, and more predictable enforcement of laws.

Entrepreneurs’ first challenge is opening a business. In Latin America, on average, an entrepreneur must tackle 11 separate legal procedures averaging 63 days per procedure. Compare that to the U.S., where on average the same entrepreneur only needs to confront five different procedures. Even when compared with other countries, aspiring entrepreneurs in Latin America face a more daunting task than their counterparts. According to the World Bank’s Doing Business in 2006, it was significantly more difficult to establish a formal business in Brazil (17 bureaucratic steps), Argentina (15), and Chile (9) than in Australia and New Zealand (2 each), or Malaysia (9).

Predictable rules of the game are also critical. They create the confidence for both foreign and domestic investment. Businesses flourish in predictable environments, the result being more employment, more growth and more investment.

Link here.

It’s the corruption, stupid!

When you talk to people on the streets of Latin America and ask them the cause of the relative backwardness of our economies – relative, because Latin America countries have per capita incomes six times those of Africa, but a tenth that of Luxembourg’s – the answer is always “corruption”. When asked to define corruption, they point out that State officers constantly pocket money that would otherwise be used to enhance their own welfare.

Is that the only – or even the main – form of corruption to identify? Certainly not. Corruption begins in our values, including our political values. Corruption means not respecting other people’s property (mostly via the State, nowadays). Although the State creates a class of people working as bureaucrats, contractors and court intellectuals (and journalists), it does far greater damage by shifting and corrupting our values through mass education and the media. When the State teaches us how to interpret reality, it corrupts the youth with socialist ideas and weakens our societal bonds, creating unnecessary violence, poverty, and backwardness.

Link here.


Add Panama to the list of nearby nations seeking buyers in South Florida for its real estate. Some half-dozen Panamanian exhibitors attended the recent International Real Estate Congress and Expo in Coral Gables, offering luxury condominiums in high-rise towers and other properties to buyers seeking lower-cost alternatives to South Florida. High on their target list: U.S. retirees and Baby Boomers soon to retire, who might enjoy a home 2 1/2 hours by jet from Miami in a country that uses the U.S. dollar and where English is widely spoken.

The pitch comes amid a boom in construction and real estate in Panama, spurred partly by tax incentives the Central American nation now offers to foreign investors. For example, overseas buyers of new properties for $200,000 and up can obtain resident visas and tax exemptions, Panamanian executives said at the expo. Panama City now plans at least nine high-rise towers, each with at least 56 floors. Plus construction is to start soon on a 101-story tower billed as the tallest in Latin America, said Aracelli de Jaen, vice president of sales for Panama’s Tribaldos Real Estate Corp.

Prices pale next to South Florida – with a three-bedroom, waterfront apartment in a top Panama City neighborhood available for less than $160,000, Jaen said. Panama’s outreach comes as more Americans choose to retire in nearby nations where their dollars can stretch farther, including Mexico and Costa Rica. It also coincides with a push by fellow Florida neighbors, including the Dominican Republic and the Bahamas, to sell vacation homes to U.S. Hispanics and boat owners.

Link here.


We are all becoming increasingly aware of escalating Chinese and regional powers’ growing interest in securing commodity access and influence. Most discussed are oil and gas ventures followed by metals, minerals and bilateral trade deals. These developments well deserve the effort, ink and chatter they receive. Supplies are essential to production, distribution and realization of revenues. The political implications are well explored as well.

There remains a very interesting other prospect that has languished in the darker recesses of public awareness. The spreading of wings, diplomatic visits and signing of agreements are about emerging states and regional players securing demand for their products. This is equally urgent and represents a race against today’s imbalances and an inevitable eventual rebalancing. In light of a 14% increase in the size of America’s negative net international investment position (NIIP) to negative $2.7 trillion, this seems particularly true. The NIIP measures the net difference between U.S. ownership of foreign assets and foreign ownership of U.S. assets.

China needs contacts, agreements and trade relations to facilitate a reduction in her dependence on U.S. consumer demand. India, Russia and Brazil need to secure supplies and effective demand for exports. Diversifying the consumer portfolio is a pressing and central need for all exporters of raw, intermediate and final goods. The U.S. has been consuming well beyond its sustainable capacity for years. Thus, massive foreign capital is required and massive influence achieved with these borrowed monies. Those with regional or greater aspirations must find a way to mitigate U.S. influence and risk exposure to America’s overdue correction. This can come in any number of forms.

Link here.


The governments of the UK and Gibraltar have published the texts of draft documents in relation to the proposed new Constitution for Gibraltar which could pave the way for a referendum in the jurisdiction in September. The two texts include an Order In Council which contains the preamble to the draft constitution. In a statement to the House of Commons, Geoff Hoon, the UK’s Minister for Europe, said that the new Constitution provides for a “modern and mature relationship” between the UK and Gibraltar. “I do not think that this description would apply to any relationship based on colonialism.”

Hoon stated that the Constitution confirms the right of self-determination of the Gibraltarian people, adding that the UK government recognises that the act of deciding on acceptance of the new Constitution in the forthcoming referendum will be “an exercise of the right of self-determination by the Gibraltarian people in that context.” According to Hoon, the new Constitution “does not in any way diminish British sovereignty and gives Gibraltar much greater control over its internal affairs.”

Link here.



Europe’s 14-year struggle to tax its citizens’ offshore savings has flopped, after investors in countries such as Switzerland and Luxembourg exploited loopholes in a controversial savings law. In the first six months of the law’s operation, Switzerland – the world’s leading offshore financial center – raised only €100 million in withholding taxes on the vast savings held there by EU citizens. Others quickly spotted the gaps in the EU savings directive. Luxembourg collected just €48 million in the second half of 2005, Jersey €13 million, Belgium €9.7 million, Guernsey €4.5 million and Liechtenstein €2.5 million.

The news will be disappointing to countries such as Germany, which had hoped the directive would catch tax avoiders and yield hundreds of millions of euros for EU finance ministries. German citizens alone are thought to have more than €300 billion stashed away in tax-friendly countries. Laszlo Kovacs, the EU tax commissioner, has ordered a review of the operation of the savings directive – which came into force on July 1 last year – but says it is too early to assess its effectiveness fully. “The Commission is aware of causes for concern relating to the interpretation of the directive, mainly on defining what is an investment fund and on the treatment of interest payments made to trusts,” a spokeswoman for Mr. Kovacs said.

Under the directive, countries levy either a withholding tax rising to 35% on the offshore savings of EU residents, returning most of the revenue raised to national exchequers, or exchange information on savings with national authorities. The law was only agreed after 14 years of haggling among EU member states and after fraught negotiations with third countries such as Switzerland, which fought a successful battle to defend its banking secrecy laws. But the directive is riddled with loopholes, some inserted by EU members to maintain their appeal to offshore investors. Others were created by loose legal definitions, while ambiguity was added with the translation of the original draft law from English to French and back to English.

Officials in Switzerland said they were not surprised by the figures considering the range of investments excluded. Swiss officials stress it is unprecedented for a country to collect tax in such a way on behalf of others. Dieter Leutwyler of the Swiss Federal Department of Finance said any consultations with the EU over “substantive changes” to the directive could only happen after July 2011 or when both sides agreed to such talks

Links here and here.

EU Savings Tax Directive is one year old. Impact appears limited.

The European Savings Tax Directive was introduced a year ago, with the aim of clarifying the position of the taxation of offshore deposit accounts for EU residents. For offshore financial centers such as the Isle of Man, a withholding tax option was introduced for those customers who wanted to preserve the confidentiality of their banking affairs. The impact of the Directive to date for offshore banks and building societies in the Channel Islands and Isle of Man has been limited, suggesting that the vast majority of clients were already passing information on interest earned to their professional advisers or the taxation authorities. The Directive has undoubtedly added a significant layer of bureaucracy to offshore investing, but the core benefit in holding an offshore account, namely the ability to use gross payment of interest for tax planning, still remains.

Fiona Passey, Director of Offshore Banking at IoM-based Derbyshire Offshore, says, “From our ongoing research with customers, it is clear that the longer term impact of the EU Savings Tax Directive will be upon people’s choice of retirement destination. Whilst cheap air fares to the UK have made France, Italy and Spain highly popular destinations for UK retirees, the taxation regime may become a decisive factor for those looking to make their savings last long into retirement.” With the numbers of UK citizens expecting to emigrate abroad for work or retirement continuing to rise, the variable rate Interest Accumulator savings account from Derbyshire Offshore offers those planning to leave the UK with another financial option.

Link here.


The Advocate General’s report on a case involving the UK’s thin capitalization rules has been hailed by accountants as a victory for common sense which takes into account the commercial perspective while providing measures to counter abuse. The disputes in question center on UK anti-avoidance rules which seek to limit the extent to which a UK member of a group of companies can be debt-financed by a fellow group company. The term “thin capitalisation” is used to indicate that a company has excess debt as opposed to equity funding. Multinationals often load up their subsidiaries with debt in order to offset the interest costs against their tax bills.

The rules, which were changed by the UK government in 2004, are being challenged by a number of multinationals including Caterpillar, Pepsi and Volvo in a group litigation order (“GLO”). They argue that the pre-2004 rules discriminated against UK companies with subsidiaryies in other member states. In an opinion published last week, Advocate General Leendert Geelhoed agreed that the UK thin capitalization rules were discriminatory until 2004, when they were only applied to borrowing from overseas companies. However, the opinion stated that on the other hand, the rules could, in certain circumstances, be justified on anti-abuse grounds.

Chris Morgan, Head of the EU Law Group at KPMG, explained that while the UK thin cap rules employ an arm’s length test, in practice, HMRC often applies and sticks rigidly to “rule of thumb” tests of a 1-to-1 de–to-equity ratio and 3–to-1 interest cover. “If the ECJ follows the AG’s opinion, it will strengthen the taxpayer’s hand. This will be particularly welcomed by industries such as private equity where high gearing is normal,” he observed.

The Court of Justice follows the opinions of Advocates General in about 80% of cases. The companies involved in the litigation are hoping to recoup some €300 million (£200 million) from the UK government in tax refunds, but Geelhoed predicted that his opinion will mean they will recover “considerably less” than this amount.

Link here.


Despite Japan’s National Tax Administration denying that there has been any change in policy towards multinational companies, several have been stung with demands for extra taxation in the past week, mostly relating to transactions conducted with foreign subsidiaries. Four of Japan’s largest companies – Mazda, Mitsui, Mitsubishi and Sony – all received amended tax reassessments for past tax years leaving them with tax bills running into the hundreds of millions of dollars. These came just days after regional tax authorities served similar notices on Sharp and Takeda Pharmaceutical. All companies plan to contest the claims.

Mazda Motor Corporation confirmed that it had received notification from the Hiroshima Regional Taxation Bureau of a reassessment for product-related transactions between Mazda and its overseas subsidiary for the year ended March 31, 2004. Taxable income was reassessed for approximately ¥18.1 billion ($158 million), and the additional taxes, including local taxes, are estimated to be approximately ¥7.6 billion. The Taxation Bureau claims that the payments made by Mazda to the overseas subsidiary related to the transactions constitute taxable donations from Mazda to the overseas subsidiary. “Payments related to such transactions should be examined from the standpoint of transfer pricing; however, it has been judged to constitute taxable donations,” Mazda stated.

Mitsubishi Corporation (MC) announced that it had received an assessment from the Tokyo Regional Taxation Bureau for the fiscal year ended 2000 related to transactions between the company and its Australian energy subsidiary. MC previously recorded provisions for a tax assessment of ¥23.4 billion for the period of 6 years that ended in March 2005 in expectation of receiving an amended assessment for these transactions based on transfer pricing regulations. MC said that it estimates the income taxes based on the amended assessment at approximately ¥2.2 billion.

Sony’s notice for additional tax was also a transfer pricing issue related to profits reported from transactions Sony Computer Entertainment and its subsidiary Sony Computer Entertainment America Inc. (SCEI). According to the Tokyo Tax Bureau, these transactions resulted in additional Japanese income of ¥74.4 billion, on which is owed approximately ¥28 billion in tax. Sony and SCEI said that they believe the allocation of income for the periods in question was “appropriate” and they intend to “promptly lodge an objection” with the Tokyo Tax Bureau, as well as formally requesting bilateral consultations to obtain relief from double taxation under the applicable tax treaties of various countries.

An official from the National Tax Administration Agency said there is no reason for the apparent upsurge in activity by the country’s tax inspectors and that there has been no change in the way that tax departments are interpreting a tax agreement signed with the U.S. in 2003, which aims aims to prevent parent companies from avoiding income taxes in one country by booking profits through a subsidiary in another. The official noted that companies now have to disclose more tax information in response to demands from investors.

Links here and here.


The U.S. Treasury has confirmed that the publication of new regulatory guidance concerning the taxation of executive deferred compensation plans has been accelerated to allow incoming Treasury Secretary Henry Paulson to sell his Goldman Sachs stock without suffering an additional tax penalty. The new guidance clarifies that business executives taking up positions within the government will not be required to pay a 20% tax penalty on the proceeds of deferred compensation plans which need to be cashed in early, as long as they meet certain government conflict of interest rules.

The tax penalty was introduced under the American Jobs Creation Act of 2004 as part of a general crackdown on deferred compensation schemes which are used by companies to help their executives avoid taxation. Paulson, the former Chairman and CEO of Goldman Sachs, holds 3.23 million shares in the company, worth some $480 million. While the new guidance, which has been advanced specifically to deal with Paulson’s case, will mean that he will escape the 20% penalty, Paulson must still pay regular income tax on the accelerated deferred compensation – as will any other executive in the same position. However, capital gains taxes can be deferred on these types of divestitures if proceeds of the sale are reinvested in government securities or other government-approved investment instruments.

Link here.


Guernsey’s tax reforms have been attacked by a pressure group for providing the banking industry with an unjustified subsidy. Richard Murphy, of the Tax Justice Network, a pressure group of tax specialists and economists which opposes tax avoidance and tax havens, was reported by the BBC as stating that Guernsey’s “zero/ten” tax proposals are “probably the largest state subsidy that has been created by any territory in the world for a particular industry.”

After many years of discussion, Guernsey’s senior politicians in May officially proposed a set of economic and taxation changes that include a zero rate of corporate tax on the profits of a company’s income, and a 10% tax for specific banking activities. This is being justified by the government on the grounds that such reforms are essential to ensure Guernsey can compete effectively as an offshore financial services center given that the industry is such a large component of the island’s economy. Jersey and the Isle of Man are making similar moves.

However, according to Murphy, “To spend £50 million to basically subsidize the banking industry and its already very rich clients – let’s be candid, that’s what they are – is a very strange economic policy.” Treasury and Resources Minister Lyndon Trott argued that the reforms will give the island its “very best chance” of maintaining its overall prosperity and that they will benefit taxpayers at all levels. If approved, the main strands of the package will come into effect from 1 January 2008.

Link here.


The long-running battle between the Indian Government and the country’s tax authorities over the India/Mauritius tax treaty took a new turn last week when unnamed officials said that a fresh attempt would be made to tighten the treaty to prevent evasion of Indian capital gains tax. “We are proposing to bring the DTAA with Mauritius on a par with the DTAA with Singapore. The DTAA with Singapore had included additional clauses to check round tripping of investments,” a government official was reported to have said.

Yet just six weeks ago, Indian Finance Minister Palaniappan Chidambaram said that he will not bow to demands from opposition groups to both reintroduce long term capital gains tax and tighten the tax treaty with Mauritius to make foreign institutional investors pay more tax in India. Pressure on India to renegotiate the Mauritius tax treaty has increased after stiffer residence qualifications were included in a similar treaty signed recently with Singapore.

The Indian tax authorities have believed for years that Indian investors “round-trip” through Mauritius in order to escape capital gains tax on stock market investments. But their attempts to reinterpret the treaty through the courts have largely failed. The new proposals are said to include a rule that only companies listed on a recognized stock exchange be eligible for capital gains tax exemption under the treaty, and that a company should have a total expenditure of $200,000 or more on operations in the residence state (i.e., Mauritius) for at least two years prior to the date on which a capital gain arises. Under the treaty as it stands, there is a very basic residence requirement.

Link here.


South Korea will impose income taxes on foreign investors based in Malaysia’s offshore Labuan financial center starting in July, the finance ministry said, in its latest effort to close tax loopholes. South Korea in May passed a revision to its international tax law so that it could tax foreign investors based in certain overseas havens. Critics had said loopholes allowed some foreign funds who bought and sold distressed local assets to walk away with tax-free profits. The finance ministry said the revised tax law will be initially apply to foreign investors based in Labuan who generated profits from interest, dividends or sale of equities in South Korea. The government may designate more target regions after reviewing the list of tax-haven countries, the ministry said in a statement.

Link here.


The U.S. Senate is nearing a vote on changes to the tax code that are supposed to enhance the way the IRS uses the Internet. But critics are wondering if the legislation will adequately protect Americans’ security and privacy, and whether it is necessary for the IRS to regulate software developers. At issue are a handful of sections of a massive tax bill – the summary alone is 151 pages – that the Senate Finance Committee approved last week. One section lets the IRS use the Internet to let Americans know that they are owed tax refunds. Another directs the IRS to regulate any programmer who “develops software that is used to prepare or file a tax return.” The third eliminates privacy safeguards when the IRS opens confidential tax records to the FBI and other police agencies.

If the IRS chooses to use e-mail to alert taxpayers to potential refunds, that could cause problems, technologists warn. “The preponderance of phishing attempts that involve the IRS is so high that it would be shortsighted for them to think that they could overcome what has obviously been something that has built up over time,” said Ron O’Brien, a senior security consultant with the computer security firm Sophos. “People will have to unlearn that which they have already learned.” Scam artists last year began sending phishing e-mails (messages that try to trick the recipient into typing in personal information) purporting to be from the IRS and offering tax refunds. This phishing trick resurfaced during the Independence Day weekend, Sophos says. At the moment, the IRS rarely uses e-mail to contact individual taxpayers.

Another concern is that legitimate e-mail from the IRS would be flagged as junk e-mail and never delivered. “E-mail is not an authoritative protocol and should never be used to deliver information of importance by itself,” said Lance James, chief scientist for Secure Science Corp. and author of a book called Phishing Exposed. “I hope that if it’s caught in spam filters, the IRS would send a letter to back it up.” If the IRS chose to set up a Web site instead of relying on e-mail, other problems could arise. “If the site has vulnerabilities, such as cross-site scripting, or in general just some way that a hacker can get in, then he can use that list to phish,” James said. (The bill’s summary says that the IRS may use the Internet to disclose a taxpayer’s name, and the city state, and ZIP code of the taxpayer’s mailing address.)

What is also unclear are the additional powers the IRS would receive to regulate computer programmers who write tax-related software. Because the actual bill has not been written yet, details remain fuzzy. At the very least, though, federal law would probably be amended to treat such programmers as “tax return preparers”, who face criminal penalties for disclosing or making use of confidential information. Intuit company spokeswoman Julie Miller said, “Intuit has always placed the privacy and security of our customers’ data as a top priority, and we would certainly welcome and comply with anything that even made privacy protection for taxpayers stronger and more clear.” Tom Ochsenschlager, vice president of taxation for the American Institute of Certified Public Accountants, said that programmers and technologists should be regulated.

A third section of the tax bill would weaken the privacy protections that currently guard Americans’ tax returns. 26 USC §6103(i)(3)(B) permits the IRS to open its records to federal police in an emergency – but says law enforcement must abide by certain privacy safeguards. Those include maintaining a “permanent system” of records showing who perused the data, creating a “secure area” to view the information, restricting access to people whose duties “require” it, and returning or destroying tax return data when done. Those privacy protections would be eliminated. In addition, state and local law enforcement would be granted emergency access to tax returns as well (and would not be subject to the current oversight rules either). James Maule, a professor at Villanova University who teaches tax law and writes a blog on the topic, says the elimination of the privacy and security safeguards is worrisome. “Why would (keeping the safeguards) be a challenge?” Maule said. “What is the difficulty of the recipient keeping logs?”

Link here.



Five people have been sentenced to lengthy prison terms for promoting a tax evasion scheme using so-called “pure trust organizations”, the Justice Department and IRS announced. On September 8, 2005, after a 6-week trial, a jury convicted the defendants of tax crimes in connection with their promotion of a tax evasion scheme through Innovative Financial Consultants (IFC), a consulting company based in Tempe, Arizona. The defendants advanced their scheme through several avenues, including domestic and offshore seminars, a promotional website, and an interactive telephone conference line.

According to evidence the government presented at trial, from 1996 through early 2003, the defendants received $4.7 million in fees from their sale of 2,000 “pure trusts”, falsely claiming that their customers could lawfully avoid income taxes by placing their income and assets into a trust. Evidence introduced at trial showed that IFC’s trusts enabled customers to retain the use and control of any income and assets they placed into their respective trusts, while making it difficult for the IRS to track the true ownership of assets or income assigned to the “trusts”. Trial evidence also showed that IFC was a prominent vendor with the “Institute of Global Prosperity” (IGP). According to the Department of Justice, at offshore seminars hosted by IGP, defendant Dennis Poseley promoted IFC’s trust schemes to “thousands of people”.

U.S. District Judge Mary Murguia found the tax fraud scheme caused, at a minimum, a loss to the federal Treasury of between $3 million and $7 million. Nancy Jardini, Chief of IRS Criminal Investigations, commented that, “Promoting abusive trusts and tax schemes for the purpose of committing tax evasion isn’t tax planning. It’s criminal activity.” Poseley, a co-founder of IFC, was given the harshest sentence, and will serve an 84 month jail term for conspiracy to defraud the government and willful failure to file tax returns. He was also fined $175,000. David Trepas, a consultant for IFC, was given a 60 month sentence after being found guilty of the same charges. Keith Priest, described as an IFC “trustee” and Patricia Ensign, a co-founder of IFC, were each given 18 month sentences, while Rachel McElhinney, another consultant at the firm, was given a 16 month jail term.

Link here.


A news dispatch last week got a lot of coverage in Switzerland, but was generally ignored elsewhere. Datelined from Zurich, it stated that, “the United States has confirmed it has been monitoring international financial transactions, including those in and out of Switzerland, for almost five years. The Swiss government has remained quiet on the issue, but data protection experts and lawyers are concerned by revelations that the U.S. that the U.S. Treasury had been tapping into records of the Belgium-based Society for Worldwide Interbank Financial Telecommunication (SWIFT), looking for evidence of potential activity by terror groups.”

SWIFT is a privately run cooperative founded in 1973 and headquartered in Brussels that electronically transmits millions of cash transfers every day to more than 200 countries. The network handles some 9 million transfer instructions and confirmations a day with a value of about $6 trillion. Now, you better believe that the U.S. money snoops who say they are looking for terrorist cash are also looking for tax evasion, money laundering of all kinds and any other indictable offenses. Naturally enough, the question arose as to whether the U.S. government having wholesale SWIFT access to hundreds of millions of wire transfers since September 11, 2001 has compromised the Swiss banking secrecy mandated by law since 1934. In Switzerland 99 banks and 254 institutions are connected to SWIFT, with a daily transaction value of some SFr200 billion ($160 billion).

Although the Swiss Bankers Association says that Swiss banking secrecy had not been endangered or violated, the Swiss Federal Data Protection Commissioner, said he was alarmed. Well he might be. Switzerland cooperates in foreign criminal investigations. It is no longer possible to have a truly anonymous Swiss bank account, and Switzerland now participates in the EU savings tax directive that withholds taxes from most interest bearing investments of EU residents. But Switzerland still is home to fully one-third of all private wealth in the world. It has a centuries old tradition of confidentiality that will only be breached if someone is suspected of committing an action that the Swiss consider a crime. Tax evasion is not considered a crime in Switzerland, though tax fraud (falsifying documentation, for example) is.

Despite the privacy setbacks, the Swiss financial system still has plenty going for it. Unless there is a strong suspicion of criminal wrongdoing, under Swiss law it is still a crime for bankers to violate the secrecy of their clients. Swiss banks are prohibited from responding to inquiries about an individual account, whether from attorneys, credit rating services, or foreign governments. To obtain an order, investigators must demonstrate the probable violation of Swiss law and that there is reason to believe the particular account at issue is involved in that violation (vs. the U.S., where the FBI and other police agencies have direct and secret access to all financial information and where bankers are forced to act as government spies).

So what if the U.S. money cops have spied Swift cash going in and out of Switzerland? Under Swiss law the U.S. will have to show clearly that specific cash is criminally tainted before the tight-lipped Swiss will budge, and then only after being served with a court order which can be contested. There are still a few places in the world where sanity and financial privacy remains.

Link here.


Google’s upcoming rollout of Gbuy, their answer to Paypal, could be very interesting on a big picture scale. A private digital currency sounds elegant, but the logistics are incredibly hairy. The scope and scale of technological requirements, in terms of safety, verification, widespread acceptance, etc., is pretty daunting. Just think of how Byzantine our trial-and-error global payments system is, and how long it has taken the U.S. banking system to evolve. It was only relatively recently, I think, that banks moved from physical transport of paper checks to instant digital transmission (They did this grudgingly, of course, because instant transmission meant giving up the float).

But now things are speeding up. Paypal has been the only real digital payments option up until now, and as such, it has been a fat and lethargic cash cow for ebay, providing almost a quarter of eBay’s revenues with questionable customer service (see http://www.paypalsucks.com). With the introduction of Gbuy, we suddenly have competition in the digital payments space, which means the innovation efforts speed up. Google has the brains and the clout to make headway on promising business models with extremely thorny technical issues, like micropayments. Imagine if independent musicians could sell songs on their own Web site for $1.99, or news agencies could sell stories for $0.50. Up until now, only big businesses like The Wall Street Journal or Apple could handle the back-end for this, let alone true micropayments of, say, $0.25 or below. But Google could roll out a plug and play micropayments system for everyone.

The more comfortable people get with micropayments, and the more innovative and trustworthy digital payment systems become, the easier it becomes to make the psychological and logistical transition toward digitized/privatized currency. At some point, an enterprising small country will switch to fully digital payments for all its government business. From there, it may be just a matter of time before private parties start doing transactions in “stuff”. I will pay for your shipment of bananas in crudebucks, with each crudebuck worth 0.0142 barrels at current prices. Private enterprise developments – first Paypal, now Gbuy, not to mention Everbank and e-gold, – are sowing the logistical seeds for the next evolutionary step in the global financial system.

Link here.

With Checkout, Google is ready to take your order.

In 1999, Microsoft caused a tech industry ruckus when it introduced Passport, an online wallet and payment system that would allow shoppers to use one sign-in username and password to buy things from multiple retailers. Privacy advocates fretted, a group of companies banded together to form a rival effort, and Microsoft Passport was scaled back after merchants failed to sign up.

Last week, Google introduced Google Checkout, an online checkout system that lets people make purchases from participating merchants using a single sign-in system. Google gives its AdWords paid search customers a discount to use the service. An icon on their ads tells shoppers they can make a fast purchase from that store. It is a similar idea, but a different company, different time and no privacy hubbub. At least not yet. Does the world really trust Google – the company with the “Do no evil” motto – that much more than Microsoft?

To answer the question, experts point to both the contentious period in which Microsoft launched Passport and noticeable differences in the companies’ technology implementations. When it came down to it, consumers did not want to be forced to use Passport and companies did not want Microsoft to be in control of the customer information, analysts said. Compare that with Google Checkout’s reception so far. Privacy groups, who were quick to assail Google’s contextual-based targeted ads in Gmail two years ago, have been silent. And Google already boasts a roster of affiliate merchants, including Levi Strauss, Buy.com, Ace Hardware and Starbucks.

So what is the difference? “People are not required to use Google Checkout, whereas Passport was the primary payment system” for Microsoft affiliates, said Charlene Li, an analyst at Forrester Research. “It was clear that Microsoft wanted to be the only registration and shopping wallet on the merchant sites.” Google Checkout merchants, meanwhile, can offer other checkout systems if they choose. “There is a greater level of trust with Google,” Li said.

But Google Checkout is not in the clear just yet, said a Liberty Alliance representative. “Some sophisticated technologists are concerned about the volume of information that could be aggregated here (in Google Checkout),” said Roger Sullivan, vice president of the Liberty Alliance Management Board and vice president of business development for Oracle’s identity management solutions. “But that is mitigated by the fact that users are becoming more savvy about the level of information they will disclose.” The Liberty Alliance would welcome Google’s participation in the group, he said. “Anything that advances the idea of authenticated and secure users … and advances the visibility and recognition in the industry is a good thing.”

Do people really trust Google that much?

Link here.


The cutting-edge architecture of a string of brand-new banks might seem incongruous in a village topped off with a medieval royal castle. But Liechtenstein, with 34,600 residents in an area a little over double the size of Manhattan, is no ordinary corner of Europe. The nation sandwiched between Austria and Switzerland gained what fame it has as a banking and financial services center, a place where ill-gotten assets could be safely stashed away and no one would ask questions. Now the regulations have changed, and it is time the rest of the world took notice of the country’s efforts, said the ruling Prince Alois von und zu Liechtenstein. “I think it was rightly a major problem that the outside world found with Liechtenstein,” said Alois, who has sweeping powers, including the right to dismiss governments, veto new laws and cast the deciding vote on the appointment of new judges. But now, Liechtenstein has strong regulations to effectively fight money laundering and terrorism funding, he said.

Europe’s fourth-smallest sovereign state got rich on its status as an offshore tax haven, with strict rules on banking secrecy. Almost a third of its GDP of SFr4.2 billion ($3.4 billion) comes from financial services, including banking. But come the end of the 20th century, the rest of the world was getting annoyed with its role in international crime and, potentially, terrorism financing. In 2000, both the G-8 group of leading industrialized nations and the 26-nation Financial Action Task Force put Liechtenstein on their blacklist of nations deemed uncooperative in fighting money laundering. The principality scrambled to revise its laws, and a year later was relieved to be removed from the blacklist.

Almost simultaneously, the OECD included Liechtenstein on a separate blacklist of “uncooperative tax havens”. Being on the blacklists spurred the Liechtenstein authorities into action. Since then, laws have been passed to tighten regulations, more judges and lawyers have been brought in to supervise and regulate the financial institutions and a financial intelligence unit set up to watch for wrongdoers. In 2001, the country was removed from the money-laundering list. Liechtenstein is still on the tax-haven blacklist but is lobbying to have its name removed. “This is based on old info,” Lauber said.

Link here.


Would you like to know where Dick Cheney puts his money? Then you would know whether his “deficits don’t matter” claim is just baloney or not. Well, Kiplinger Magazine ran an article based on Cheney’s financial disclosure statement and, sure enough, found out that the VP is lying to the American people for the umpteenth time. Deficits do matter and Cheney has invested his money accordingly. The article is called “Cheney’s betting on bad news” and provides an account of where Cheney has socked away more than $25 million. While the figures may be estimates, the investments are not. According to Tom Blackburn of the Palm Beach Post, Cheney has invested heavily in “a fund that specializes in short-term municipal bonds, a tax-exempt money market fund and an inflation protected securities fund. The first two hold up if interest rates rise with inflation. The third is protected against inflation.”

Cheney has dumped another (estimated) $10 to $25 million in a European bond fund which tells us that he is counting on a steadily weakening dollar. So, while working class Americans are loosing ground to inflation and rising energy costs, Darth Cheney will be enhancing his wealth in “Old Europe”. As Blackburn sagely notes, “Not all ‘bad news’ is bad for everybody.” This should put to rest once and for all the foolish notion that the “Bush Economic Plan” is anything more than a scam aimed at looting the public till. The whole deal is intended to shift the nation’s wealth from one class to another. It is also clear that Bush-Cheney could not have carried this off without the tacit approval of the thieves at the Federal Reserve who engineered the low-interest rate boondoggle to put the American people to sleep while they picked their pockets.

Reasonable people can dispute that Bush is “intentionally” skewering the dollar with his lavish tax cuts, but how does that explain Cheney’s portfolio? It does not. And, one thing we can say with metaphysical certainty is that the miserly Cheney would never plunk his money into an investment that was not a sure thing. If Cheney is counting on the dollar tanking and interest rates going up, then, by Gawd, that is what will happen.

Take another look at Cheney’s investment strategy. It tells the whole ugly story. Interest rates are going up, the middle class is going down, and the poor dollar is headed for the dumpster. The country is not simply teetering on the brink of financial collapse. It is being thrust headfirst by the blackguards in office and their satrapies at Federal Reserve.

Link here.



AT&T has issued an updated privacy policy. The changes are significant because they appear to give the telecom giant more latitude when it comes to sharing customers’ personal data with government officials. The new policy says that AT&T – not customers – owns customers’ confidential information and can use it “to protect its legitimate business interests, safeguard others, or respond to legal process.” The policy also indicates that AT&T will track the viewing habits of customers of its new video service – something that cable and satellite providers are prohibited from doing.

Moreover, AT&T (formerly known as SBC) is requiring customers to agree to its updated privacy policy as a condition for service – a new move that legal experts say will reduce customers' recourse for any future data sharing with government authorities or others. The company’s policy overhaul follows recent reports that AT&T was one of several leading telecom providers that allowed the National Security Agency warrantless access to its voice and data networks as part of the Bush administration’s war on terror. “They’re obviously trying to avoid a hornet’s nest of consumer-protection lawsuits,” said Chris Hoofnagle, a San Francisco privacy consultant and former senior counsel at the Electronic Privacy Information Center. “They’ve written this new policy so broadly that they’ve given themselves maximum flexibility when it comes to disclosing customers’ records.”

AT&T is being sued by San Francisco’s Electronic Frontier Foundation for allegedly allowing the NSA to tap into the company’s data network, providing warrantless access to customers’ e-mails and Web browsing. AT&T is also believed to have participated in President Bush’s acknowledged domestic spying program, in which the NSA was given warrantless access to U.S. citizens’ phone calls. AT&T said in a statement last month that it “has a long history of vigorously protecting customer privacy” and that “our customers expect, deserve and receive nothing less than our fullest commitment to their privacy.” But ... the company has “an obligation to assist law enforcement and other government agencies responsible for protecting the public welfare, whether it be an individual or the security interests of the entire nation.”

Link here.


The Bush administration admitted that it was conducting warrantless surveillance of the financial transactions of Americans and others only after newspapers exposed the program. According to some Republicans, the solution is to imprison journalists who blow the whistle on government wrongdoing. Shortly after 9-11, President Bush invoked the International Economic Emergency Act to authorize the U.S. Treasury and the CIA to snare vast amounts of international banking data passing through a hub in Brussels, Belgium. The administration issued general subpoenas that vacuumed up the personal financial data of vast numbers of people. The agents were looking for leads on terrorist financing. Treasury Secretary John W. Snow hailed the warrantless surveillance as “government at its best.” But the Los Angeles Times reported that government officials said, “The effort has been only marginally successful against al-Qaida, which long ago began transferring money through other means, including the highly informal banking system common in Islamic countries.”

The searches almost certainly violate a 1978 federal law, the Right to Financial Privacy Act. Using a vague administrative subpoena to impound hundreds of thousands of people’s financial records is probably also a violation of the Fourth Amendment to the Constitution, which states that search warrants require “probable cause” of criminal conduct and must specify what is to be seized. Treasury Undersecretary Stuart Levey said, “We’ve done a large number of searches. … I don’t know the exact number but it’s … at least tens of thousands, maybe hundreds of thousands of searches.” If the person running the program is not sure whether it is tens of thousands or hundreds of thousands of searches, this is a clue that the federal government is grabbing far too much.

Another massive roundup of financial records will not keep Americans safe. Federal money cops have long been overwhelmed by too many reports from banks. The 9-11 hijackings were preceded by the biggest failure ever by U.S. financial authorities. A U.N. report on terrorist financing released in May 2002 noted that a “suspicious transaction report” had been filed with the U.S. government over a $69,985 wire transfer that Mohamed Atta, leader of the hijackers, received from the United Arab Emirates. The report noted that “this particular transaction was not noticed quickly enough because the report was just one of a very large number and was not distinguishable from those related to other financial crimes.”

One of the key federal agencies vacuuming the financial information long has snubbed the terrorist threat. As of 2004, the Treasury Department’s Office of Foreign Assets Control had 10 times as many agents assigned to track violators of the U.S. embargo on Cuba as it had tracking Osama bin Laden’s money. From 1994 to 2004, this office collected nearly 1,000 times as much in fines for trading with Cuba as for terrorism financing.

The issue is not whether the federal government should detect and block terrorist financing – almost everyone favors such efforts. Instead, the issue is whether the government can invoke the terrorist threat to exempt itself from all statutory restraints. Keeping Americans in the dark is not the same as keeping them safe.

Link here.

Privacy International files complaint filed against U.S. mining of banking data.

A civil liberties group last week asked governments around the world to block the release of confidential financial records to U.S. authorities as part of American anti-terrorist inquiry. London-based watchdog Privacy International said it had filed complaints with data protection and privacy regulators in 32 countries and four territories, arguing that disclosures of financial transactions “were made without any legal basis or authority whatsoever.”

The complaint, sent to regulators in all 25 EU nations as well as Canada, Australia, Iceland, New Zealand, Liechtenstein, Switzerland, Norway and the semi-autonomous Chinese territory of Hong Kong, asks authorities to “intervene to seek the immediate suspension of the disclosure programme pending legal review.”

“All of these countries have the potential to suspend, disrupt, paralyze the system,” said the group’s director, Simon Davies. He said complaints also had been sent to the British territories of Guernsey, Jersey and the Isle of Man.

Link here.



If there is anyone alive in this country today that cherishes liberty and believes the U.S. Supreme Court has the faintest concept of why our Constitution was written and what it actually means, he/she must have been sequestered away in a cave for the past few decades. For those who also believe the Supremes always rule in the favor of liberty and justice, I have two words for you: Dred Scott. On June 15th, the black robed bandits, ruling from the lofty perch of infallibility, issued an edict that prohibits the exclusion of evidence gained from illegal searches by law enforcement entities. In doing so, they also brought the aura of near infallibility to those in law enforcement.

The very idea that the Supremes justify their insanity on the belief that “increasing professionalism of police forces, including a new emphasis on internal police discipline” justifies no-knock dynamic entries is truly alarming. The law enforcement travesties known as Ruby Ridge and Waco, and the total ineptitude and chaos that was Columbine have obviously been forgotten. The no-knock warrant is most often used in routine searches for illegal drugs. What should be of great concern, not only to the Supreme Court, but also to American citizens, is the increasing dependability on notoriously unreliable “confidential informants” by law enforcement agencies in obtaining such warrants. This reliability, as a premise for the issuance of a search warrant, has led to a plethora of “wrong address” warrants over the past decade. The number of innocent “suspects” actually killed in this type of raid is, in itself, a crime of major concern.

Nothing in this realm could be considered fair and balanced. What are the chances of some “confidential informant” giving the police or the FBI the address of any of the Supreme Court Justices, or even your local mayor, and a follow-up raid actually taking place? You can “bet the farm” that you or I would not be afforded the same exclusion. The standing rule should be, if law enforcement would not risk their careers by raiding the sacrosanct Chief of Police’s home on the word of their informant, they damn well better not risk their life raiding mine.

It will not be long before home invasion criminals will be dressing as Ninja police and yelling “police, police,” as they burst into the homes they terrorize to give them the advantage of surprise. I am sure the charge of impersonating a police officer will cause them no concern. The increase in wrong door warrants, which will be the natural result of this new Supreme Court ruling will lead to the deaths of many more innocents and, I am sure, more police. The Supreme Court will be acting as accomplices in the crimes their insanity visits on the people of this country.

Link here.


On June 29 the U.S. Supreme Court in a 5-3 decision ruled that President Bush’s effort to railroad tortured Guantanamo Bay detainees in kangaroo courts violates both U.S. law and the Geneva Conventions. Better late than never, but it sure took a long time for the checks and balances to call a halt to the illegal and unconstitutional behavior of the executive. Perhaps the Court’s ruling has more far reaching implications. In finding Bush in violation of the Geneva Conventions, the ruling may have created a prima facie case for charges to be filed against Bush as a war criminal.

Many readers have concluded that Bush assumed the war criminal’s mantle when he illegally invaded Iraq under false pretenses. The U.S. itself established the Nuremberg standard that it is a war crime to launch a war of aggression. This was the charge that the chief U.S. prosecutor brought against German leaders at the Nuremberg trials. The importance of the Supreme Court’s decision, however, is that a legal decision by America’s highest court has ruled Bush to be in violation of the Geneva Conventions.

There are many reasons to impeach Bush. His flagrant disregard for international law, U.S. civil liberties, the separation of powers, public opinion and human rights associate Bush with the worst tyrants of the 20th century. It is true that Bush has not yet been able to subvert all the institutions that constrain his executive power, but he and his band of Federalist Society lawyers have been working around the clock to eliminate the constraints that the U.S. Constitution and international law place on executive power.

Republicans are “outraged” that “liberal judges” have prevented Bush from “protecting us from terrorists.” U.S. Senate Majority Leader Bill Frist said that Republicans will propose legislation to enable Bush to get around the Supreme Court’s decision. Senator Arlen Spector (R-Pennsylvania) already had a bill ready. What sense does it make to talk about “liberal opposition” when liberal Republicans like Spector are falling all over themselves to kow-tow to Bush. Americans are going to have to decide which is the greater threat – terrorists or the Republican Party’s determination to shred American civil liberties and the separation of powers in the name of executive power and the “war on terror”. The rest of the world has already reached a decision. A Harris Poll recently conducted for the Financial Times found that the populations of our European allies – Britain, France, Italy and Spain – view the U.S. as the greatest threat to global stability.

Republicans and conservatives equate civil liberties with homosexual marriage, abortion, racial quotas, flag burning, banning of school prayer, and crime resulting from a lax punishment of criminals. This is partly the fault of the ACLU and left-wingers, who go to extremes to make a point. But it is also the fault of conservatives, who believe that their government is incapable of evil deeds. In their dangerous and ill-founded belief, conservatives are in total opposition to the Founding Fathers, who went to the trouble of writing the Constitution and the Bill of Rights in order to protect us from our government. Most conservatives believe that they do not need constitutional protections, because they “are not doing anything wrong”.

Bush has done what he can to turn the Supreme Court into a rubber stamp of his unaccountable power by placing John Roberts and Samuel Alito on the bench. Though much diminished by these appointments, the Court found the strength to rise up in opposition to Bush’s budding tyranny. Amazingly, on the very same day in England, where our individual rights originated, the High Court struck down Tony Blair’s “anti-terrorism” laws as illegal breaches of the human rights of suspects. As with the Bush regime, the Blair regime tried to justify its illegality on the grounds of “protecting the public”, but a far larger percentage of the British population than the American understands that the erosion of civil liberty is a greater threat to their safety than terrorists. Perhaps the fact that courts have reaffirmed the rule of law will give hope and renewed strength to the friends of liberty to withstand the assaults on freedom that are the hallmarks of the Bush and Blair regimes. On the other hand the two tyrants might ignore the courts as they have statutory law.

What is to stop them?

Link here.


Last December 18th, Colin Powell, the former Secretary of State, joined other prominent Washington figures at FedEx Field, the Redskins’ stadium, in a skybox belonging to the team’s owner. During the game, between the Redskins and the Dallas Cowboys, Powell spoke of a recent report in the New York Times which revealed that President Bush, in his pursuit of terrorists, had secretly authorized the National Security Agency to eavesdrop on American citizens without first obtaining a warrant from the Foreign Intelligence Surveillance Court, as required by federal law. This requirement, which was instituted by Congress in 1978, after the Watergate scandal, was designed to protect civil liberties and curb abuses of executive power, such as Nixon’s secret monitoring of political opponents and the FBI’s eavesdropping on Martin Luther King, Jr. Nixon had claimed that as President he had the “inherent authority” to spy on people his Administration deemed enemies, such as the anti-Vietnam War activist Daniel Ellsberg. Both Nixon and the institution of the Presidency had paid a high price for this assumption. But, according to the Times, since 2002 the legal checks that Congress constructed to insure that no President would repeat Nixon’s actions had been secretly ignored.

According to someone who knows Powell, his comment about the article was terse. “It’s Addington,” he said. “He doesn’t care about the Constitution.” Powell was referring to David S. Addington, Cheney’s chief of staff and his longtime principal legal adviser. Powell’s office says that he does not recall making the statement. But his former top aide, Lawrence Wilkerson, confirms that he and Powell shared this opinion of Addington.

Link here.


Kenneth Lay, who built Enron Corp. into the world’s largest energy trader and was convicted of the fraud that led to its collapse, died today near Aspen, Colorado. He was 64. Lay and his successor as Enron’s CEO, Jeffrey Skilling, 52, were convicted May 25 of spearheading the fraud that plunged Enron into bankruptcy in December 2001. His death will complicate the government’s bid to recover any ill-gotten gains from the fraud, said David Irwin, a former federal prosecutor who is now a white-collar defense attorney in Towson, Maryland.

Federal courts have held that a defendant’s death erases a conviction, the triggering event for the government to demand criminal forfeiture of illegal profits. The government could still sue Lay’s estate in a new civil proceeding. Lay testified at trial he had no money left to return. The government said last week that it wanted Lay to hand over more than $40 million. “Prior to his death, the government could just say, ‘Hand over $40 million,’” Irwin said. “Prosecutors are now going to have to show that individual assets they want to seize were bought with funds illegally received from Enron. It’s going to be a lot more work for them now.”

Prosecutors said June 30 that they had identified $1.5 million in available value in Lay’s penthouse condominium in Houston and $6.3 million in proceeds from an executive pooling account. Prosecutors said Skilling should surrender $139.3 million and Lay should hand over $43.5 million for their crimes. Lay and Skilling should be responsible for each other’s forfeitures, the government said. Shareholders with lawsuits against Lay face the same challenge as prosecutors, Irwin said. “The shareholders will still try to get a judgment against Mr. Lay’s estate and then track down assets to enforce the judgment,” he said.

Enron’s implosion from accounting fraud wiped out more than 5,000 jobs and $1 billion in employee pensions virtually overnight. Shareholders claimed more than $25 billion in losses as a result of the crime. Lay and Skilling were convicted of lying to investors about Enron’s debt and losses, much of which were hidden in off-the-books partnerships. Lowell Peterson, a lawyer who secured severance payments for former Enron employees, said Lay’s estate would not be responsible for his criminal fines. But, “The estate would probably be responsible for restitution and for damages in civil actions, such as those that may be pursued by former workers and retirees.”

Lay’s death robs his family of any chance to proceed with his appeal to attempt to clear his name by reversing the conviction, said Houston defense attorney Joel Androphy, who followed the trial. “Legally, he may have gotten his good name back, but publicly he did not,” he said. “People will view this as the ultimate sentence.” Lay reacted to the jury’s decision “like someone hit him on the head with a two-by-four,” recalled Pat Lopez, a courtroom sketch artist who was standing behind Lay when the verdict was read. “He died right then. I didn’t expect him to survive to go to prison.”

Link here.


Nigeria got a clean bill on money laundering issues last weekend as Finance Action Task Force (FATF), a Paris-based international agency expunged her name from the list of those countries with high rate of money laundering image. FATF added that the agency had declared that “Nigeria is now free of drug-related encumbrances that can impede inflow of foreign investment and economic growth.”

President Olusegun Obasanjo, in a swift reaction to the development was said that Nigeria’s delisting, together with the ending of her indebtedness to the Paris Club, means that the nation now has a high credit status which would enable her to attract greater foreign investment into the country. He further stated that Nigerian international financial standing would make it possible for Nigerians to transact businesses with foreign partners as existing restrictions on their ability to engage in financial transactions outside the country will be removed.

Link here.



I do not know how true the stories are about what Fourth of July celebrations were like in the earlier days of the Republic. My memory stretches farther back than that of most people who will read this, and my family never went to the city park to listen to a city councilman, mayor, legislator or noted orator read the Declaration of Independence in full and then hold forth for 20 minutes or so on the profound meaning of the founding document. I am sure I read the Declaration during a high school history class, but it was not emphasized, and nobody even hinted to me that it just might have been the most profoundly revolutionary document in human history. I did not start thinking about it seriously until I was finished with college and trying to figure out whether I wanted to be a politician or a writer.

I have, of course, come to appreciate what the Declaration of Independence means. It provided a philosophical foundation for the country in which I was fortunate enough to have been born – a country in which individual choice was not only respected, it was valued as the key to living a fully human, independent and dignified life. It was not always thus. Most of the English and the smattering of other Europeans who settled this country during the colonial era had grown up in rigid and stratified societies. Most people were landless peasants, dependent on wealthy landowners, and those who were craftsmen of various kinds generally adopted the same trade as their fathers before them, or joined guilds that required long apprenticeships and held down competition.

Underpinning this static, hierarchical way of life was a philosophy developed by medieval court philosophers touting the “divine right of kings”. The king was said to hold his position as the result of God’s will, and rebellion against the king was rebellion against God Himself. And with or without God’s blessing, most societies through history, with a few fleeting exceptions, had adhered to this hierarchical form of governance. By the time of the American Revolution, the intellectual landscape had changed somewhat in Great Britain and to some extent in the rest of Europe as well.

Oliver Cromwell overthrew the British monarch Charles I in 1653 and established a theocratic dictatorship. The Cromwell episode, which ended in 1659, weakened the authority of the king and increased the effective power of Parliament. When James II seemed on the verge of establishing Catholicism as the state religion, he was overthrown by popular uprising and a conspiracy to put the Protestant Dutchman William of Orange on the throne. The “glorious revolution” of 1688 made William king, but with limited powers. The era of constitutional monarchy began.

The philosopher of the new order was John Locke, who posited a regime of natural rights to life, liberty and property, of government designed to protect those rights by consent of the governed, with the people empowered to overthrow a monarch legitimately and with God’s approval if he became tyrannical. Locke was well-known and highly respected in the colonies, as were the philosophers of the Scottish Enlightenment, who criticized the statist economics of mercantilism and laid the philosophical foundations of modern capitalism. When events created tension between the Colonies and Great Britain it was to these thinkers – and to some extent the classical philosophers of ancient Greece and Rome – that the colonists turned to justify their rebellion.

Although the Colonies were in open rebellion and had deposed most British governors by early 1776, many Americans were still ready to be loyal subjects of King George if the king would only treat them right. But sentiment for independence was growing (helped along by Thomas Paine’s anti-monarchical pamphlet “Common Sense”), and by mid-1776 the Second Continental Congress was ready to declare independence. It was important to these colonists that they not see themselves as simply disgruntled rebels but as people in service of a noble cause. Virginian Thomas Jefferson, probably helped by Ben Franklin and perhaps (a few historians believe) by Tom Paine, was deputed to write the declaration. Drawing on beliefs influenced by Locke and to a great extent put in writing by George Mason in Virginia’s Bill of Rights, Jefferson came up with a masterful summation of the cause to which most Americans could give assent. In so doing he crystalized a new way of thinking about the relationship between citizens and government that, as we have seen, had been stirring for awhile but came to full flower with the Declaration.

America thus became the first country founded not on race, language, heredity or long occupation of a section of the Earth, but on a set of political principles. The Declaration opens with a statement of personal dignity, an acknowledgment that “a decent respect to the opinions of mankind requires that they should declare the causes which impel them to separation.” Then comes some of the most revolutionary language in history: “We hold these truths to be self-evident, that all men are created equal, that they are endowed by their Creator with certain unalienable Rights, that among these are Life, Liberty and the pursuit of happiness.”

This reverses the usual order of things. It starts with all people being equal – not in intelligence, wisdom, wealth or other endowments, of course, but of equal dignity in the eyes of God and therefore before government. This natural equality denies the legitimacy of special privileges granted by government. An “unalienable” right is one that cannot be taken away legitimately, and then not without doing damage to the very humanity of the person. That’s radical.

Jefferson departs from the Lockean formula of “life, liberty and property” to say much the same thing but with a broader approach to the meaning of life. Jefferson understands that property is part of pursuing happiness. He also understands that the only thing that can be guaranteed is the right to pursue happiness. Achieving it is contingent on any number of circumstances, including a person’s individual psychology. Here comes more revolutionary meat: “That to secure these rights, Governments are instituted among Men, deriving their just powers from the consent of the governed.” Government’s job is to secure – to safeguard, to nail down, to make safe – the rights we already possess as creatures of God, not to feed us, clothe us, coddle us or make us moral. Just secure our rights, thank you very much. The idea of deriving power from the consent of the governed was in the philosophical air, but this nails it down.

Finally, “whenever any Form of Government becomes destructive of those ends, it is the Right of the People to alter or abolish it, and to institute new Government, laying its foundation on such principles and organizing its powers in such form, as to them shall seem most likely to effect their Safety and Happiness.” This is the right of revolution, which becomes legitimate whenever any government fails “to secure these rights.” The person, the individual person, is supreme. Government is the servant, not the master.

The success of a revolution against the mightiest military power on Earth was by no means assured. But once it succeeded and a new government established that was designed to be limited in scope and respectful of not only the rights specified in the Bill of Rights but of “others retained by the people,” the freest society yet known to history was poised to become the richest and eventually the most powerful country the world has known. These great founding principles are utterly foreign to most current politicians of both parties. No wonder they are not stressed in government schools, for they are profoundly subversive of any and every established order. But they retain the power to inspire, as a future president would put it, a new birth of freedom.

Link here.

Happy Secession Day

Perhaps the best evidence of how American history was rewritten, Soviet style, in the post-1865 era is the fact that most Americans seem to be unaware that “Independence Day” was originally intended to be a celebration of the colonists’ secession from the British empire. Indeed, the word secession is not even a part of the vocabulary of most Americans, who more often than not confuse it with “succession”. The Revolutionary War was America’s first war of secession.

America’s most prominent secessionist, Thomas Jefferson, the author of the Declaration, was very clear about what he was saying: Governments derive their just powers from the consent of the governed, and whenever that consent is withdrawn, it is the right of the people to “alter or abolish” that government and “to institute a new government.” The word “secession” was not a part of the American language at that time, so Jefferson used the word “separation” instead to describe the intentions of the American colonial secessionists. The Declaration is also a states’ rights document (not surprisingly, since Jefferson was the intellectual inspiration for the American states’ rights political tradition). This, too, is foreign to most Americans.

Jefferson defended the right of secession in his first inaugural address by declaring, “If there be any among us who would wish to dissolve this Union or to change its republican form, let them stand undisturbed as monuments of the safety with which error of opinion may be tolerated where reason is left to combat it.” (In sharp contrast, in his first inaugural address, Lincoln promised an “invasion” with massive “bloodshed” of any state that failed to collect the newly-doubled federal tariff rate by seceding from the union.) In an August 12, 1803 letter to John C. Breckinridge Jefferson addressed the, in light of the New England Federalists’ secession movement in response to his Louisiana Purchase. If there were a “separation” into two confederacies, he wrote, “God bless them both, & keep them in the union if it be for their good, but separate them, if it be better.”

So on July 4 stoke up the grill, enjoy your barbecue, and drink a toast to Mr. Jefferson and his fellow secessionists. (And beware of any Straussian nonsense about how it was really Lincoln, the greatest enemy of states’ rights, including the right of secession, who taught us to “revere” the Declaration of Independence. Nothing could be further from the truth.)

Link here.

The pursuit of happiness.

The phrase, “life, liberty, and property,” does not appear in the Declaration of Independence. The phrase is incorrectly attributed to John Locke. Protection for all three – life, liberty, property – does appear in writing by the United States Constitution. This guarantee appears in Article 6 of the Bill of Rights, which was ratified in 1791. It has proven as reliable as other government guarantees of its own performance. But there is no question that Jefferson substituted “the pursuit of happiness” for the more common term, “property”. Was there something ideological in this substitution? Was Jefferson a proto-socialist, as numerous contemporary historians argue?

Had he inserted “property”, this would have saved defenders of private property a lot of time and trouble when dealing with statist scholars, who are always searching for support for their position in the writings of famous defenders of democracy. The pursuit of happiness is for modern academic man what the pursuit of truth is – a way to avoid the responsibility for discovering anything final. There is no objective truth for modern academic man, other than the truth against objective truth. Similarly, there is no objective happiness. There is only the subjective pursuit of such lofty goals by individuals. In this, as in virtually everything else, academics substitute process for objectivity. Participating in the process is the equivalent of holy communion for modern academics. There is officially no holy grail, which would be much too objective. In contrast, “property” implies enforceable titles to identifiable units of ownership. This is altogether too objective for modern defenders of the political defense of the pursuit of happiness. They defend the democratic process, which affirms, “Thou shalt not steal, except by majority vote.”

The pursuit of happiness is open-ended and non-specific. Liberty is just too vague to be defended systematically. What was needed in 1776 was the insight made by Frédéric Bastiat in 1850, in the midst of a European revolution that had begun in early 1848, a few weeks before Marx and Engels’ anonymous tract appeared, Manifesto of the Communist Party. Bastiat wrote in The Law, “Life, liberty, and property do not exist because men have made laws. On the contrary, it was the fact that life, liberty, and property existed beforehand that caused men to make laws in the first place.”

Jefferson wrote a classic essay in 1776. It is no longer read in its entirety. Its economic complaint is no longer taken seriously by those who claim to be his political heirs. “He has erected a multitude of new offices, and sent hither swarms of officers to harass our people, and eat out their substance.” In fact, his self-proclaimed heirs seem to believe that our pursuit of happiness is dependent on ever-more numbers of office-holders and their ever-more-rapid depletion of our substance. It is the office-holders’ pursuit of their happiness that presently reduces the ability of the rest of us to pursue our happiness.

When it comes to the pursuit of my happiness, I am willing to settle for an all-around agreement to defend life, liberty, and property. This can and should begin by the widespread purchase of sufficient Second Amendment hardware to defend the other nine.

Link here.

Which America do you celebrate?

Conservatives particularly love those holidays that they view as the best opportunities to display their patriotism. On the Fourth of July, they will predictably be among the loudest to cheer on the symbols of the day – the waving flags, the fireworks, the parades – as a show of their devotion to America. But what is it that they are cheering on this year? Which America is the subject of their admiration, the inspiration for their barbecues and red-white-and-blue–decorated homes? As many of them would describe it, they are celebrating the America that freed itself from British rule in the late 18th century, the America whose birth as a nation was the origin of Independence Day observances ever since, the America that has fought wars for freedom all over the world for the last century and is currently entrenched in a war on terror in the Middle East.

There is a contradiction here, however. If we are going to look at the meaning of the American Revolution in its purest, most admirable sense, what we are considering is a group of colonies that fought a war against empire and for local governance, a group of colonies seceding from a central state and its oppressive taxing, spying, regulating and attacks on due process. The America that was embodied in the struggle for independence against Great Britain, while imperfect, was fighting for self-determination and independence from the grand empire of the world. The America that exists today, on the other hand, is the grand empire of the world – in fact, the most powerful and expansive empire in world history.

The Bush administration has continued all the tyrannical policies of the Clinton administration and so many of those before it – socialist health care policies, nationalist education policies, Social Security, income taxation, the War on Drugs, gun control, maintaining military bases and foreign aid throughout the world, and central banking. Any one of these represents an attack on liberty that matches or far exceeds the typical egregious measure of which King George was guilty. In addition, the Bush administration has propelled America into a nightmarish foreign and domestic war on terror. Outside the war on terror, the administration has accelerated the nationalization and corporatization of the American economy, launched the largest expansion of the welfare state since Lyndon Johnson, exploded federal spending, and sent its officers into New Orleans after Hurricane Katrina to enforce martial law and confiscate weapons from peaceful Americans.

And yet this is the America that so many Americans will celebrate on the Fourth of July. Not only has it become a parody of what the American Revolution promised it could become – that is, a nation born in a struggle against empire that widened the sphere of liberty continuously until it became a free country for all. Not only has the America of the Founding Fathers been abandoned. What we see today is a terrifying empire at times much more oppressive and belligerent than that regime against which the colonies rebelled. At least compared to what average Americans have to endure under George Bush II, what they had to suffer under King George III now seems trivial.

The American nationalists will have their fireworks and sing songs about conquering other peoples. They will pray for the success of the newest imperial project even as they give lip service to the concepts of independence and freedom. But the American empire will not always have the credit and global power it now has. It is losing them with each day. It is thus much better on the Fourth to celebrate liberty, the idea of independence from the state, and hope and work for its rebirth, rather than be among those celebrating such a transient cause as the American nation-state with its current surplus of power and deficits in liberty and reason.

Link here.

A New Declaration

On the fourth day of July, in 1776, a small group of men, representing 13 colonies in the far-off Americas, boldly told the most powerful nation on earth that they were free. They declared, in terms that still are radical today, that all men are created equal, and endowed with certain inalienable rights that government neither grants nor can take away. In the Declaration of Independence, the founding fathers sought to demonstrate to the world that they were rejecting a tyrannical king. They listed the “injuries and usurpations” that contain the philosophical basis for our Constitution and Bill of Rights. One point of consternation to our founding fathers was that the king had been “imposing Taxes on us without our Consent.” But 230 years later, taxation with representation has not worked out much better.

Indeed, one has to wonder how Thomas Jefferson and Benjamin Franklin would react to the current state of affairs. After all, they were outraged by mere import tariffs of a few pennies on the dollar. Today, the average American pays roughly 50 percent of their income in direct and indirect taxes. It is easy to simply blame faceless bureaucrats and politicians for our current state of affairs, and they do bear much of the blame. But blame also rests with those who expect Washington DC to solve every problem under the sun. If the public demanded that Congress abide by the Constitution and pass only constitutional spending bills, politicians would have no choice but to respond.

Everybody seems to agree that government waste is rampant and spending should but cut – but not when it comes to their communities or pet projects. When we cut the size of government, our taxes will fall. When we reduce the power of the federal bureaucracy, the cost of government will plummet. And when we firmly fix our eyes, undistracted, on the principles of liberty, Americans truly will be free. That should be our new declaration.

Link here.

What would have history been like without American independence?

“We hold these truths to be self-evident …” Thomas Jefferson wrote in 1776. Jefferson had few doubts that he was doing the right thing. His Declaration of Independence set off America’s revolt against the Crown and Parliament. But history has a way of taking off in her own direction. As Americans were busy celebrating our independence from Britain, we were not entirely sure why they should make so much of it. It seems to us that life turned out tolerably good here in London – probably no worse than in New York or Los Angeles. As near as we can tell, the food, drink, lodgings, and amusements are about the same. And if the Yank is freer, nobler or more enlightened, we have seen no evidence for it.

Our speculations extend themselves. If there had been no Revolution, there might also have been no War Between the States … partly because there would have been no states, certainly none which thought they could decide for themselves whether to remain part of the empire or not, and partly because the British banned slavery throughout the empire years earlier. Nor might there have been a World War I. The Germans might never have challenged the English empire if they knew they had to face America as well as Britain.

By 1914, England was in decline, but America was already the world’s largest economy and still growing fast. Likewise, there might not have been a World War II either. No first world war, no war debt, no reparations, no hyperinflation, no opening for the fascists, no Reichstag fire, no putsch, no Fuhrer, no concentration camps, no Blitz, and no war with the Soviet Union on the Eastern Front. But had there been no WWI, there probably would not have been a Soviet Union anyway. Russia might have modernized and industrialized along European lines. So, no WWI, no Soviet Union, no WWII, no Cold War, no Long March, no Korea, no Vietnam, and who knows what else?

Would we have been better off? We do not know for sure. But we could hardly have been worse off for missing any of them. As for the main truth that Jefferson thought self-evident, that “all men are created equal,” we are even less certain. What made him think it was self-evident, we do not know. All the evidence we have seen tells us just the opposite – men are not born equal. Maybe twins are born equal, but the rest of us are as variable as snowflakes. No two are alike. When Americans celebrated the birth of their nation on Tuesday, it bothered no one that the founders’ most important insights were palpably untrue. People are born different. It is only before the law that they are equal, and then, only if they have enough money for a good lawyer.

As things now stand, through no virtue or effort on his part, the average American baby can expect to earn 10 times as much per hour as the baby born in other places. It is not equal, but it is not bad. Nor is it necessarily permanent. Foreigners still use the U.S. dollar as the world’s reserve currency. And you can still usually sell a house for more than you paid for it. When those conditions end, the levelers should be happy. The advantage American babies have enjoyed for nearly a century will begin to disappear.

Link here.


Dear Lew, the Honorable Ron Paul’s piece on why Americans are angry really stirred me to respond. Mr. Paul’s piece speaks about many issues facing Americans today.

I am a 51-year-old woman. I have been married to the same man since 1976. I am the secretary/office manager for a small legal firm in the D.C. suburbs. My husband manages a wine and spirits store. I have two sons, aged 26 and 22. After realizing it wasn’t possible to support themselves and the government at the same time, both returned to the nuclear nest. Along with most people in my economic situation, I believe I am living what is supposed to be the American dream. I know why I am an angry American. I am frightened because America isn’t the same country it was when I was my children’s age. Allow me to share with you some of the reasons why I am an angry American.

I am angry because my government has been taken over by liars, thieves, thugs, deviants, and micromanagers. The propaganda it produces rivals that of the most fascist dictatorship. …

I am angry that I am called a conspiracy theorist because I dare to think on my own and question authority and its lies.

I am angry that the more I read about 9-11 the more it looks like an inside job that was allowed to happen, enabling the Patriot Act to be conveniently enacted into law with the ensuing “war on terrah” following closely on its heels. …

I am angry that my life doesn’t belong to me anymore.

I am angry that I am required to obtain permission, fill out mandated paperwork in quadruplicate, and obtain the correct license or permit for just about everything imaginable. The tentacles of government are strangling my freedom, choice, and privacy at an alarming rate. The wrath of the machine is a constant threat should I dare do anything without leaving a neon paper trail and of course ignorance of the law is never an excuse.

I am angry that property rights are a thing of the past thanks to court-approved eminent domain theft. …

I am angry that the symbols, customs, and roots of my Judeo-Christian country are being systematically outlawed because my culture offends newcomers. When we freely choose to go somewhere, are we not accepting the customs and cultures of that place? I am weary of being made to feel guilty for being an American.

And finally, I am angry that after working my entire adult life, I don’t see retirement in my life’s picture. My husband and I earn over a hundred thousand dollars a year, but by the time we pay federal taxes, state taxes, social security taxes, property taxes, sales taxes, excise taxes, energy taxes, telecommunication taxes, savings taxes, fees, permits, etc., there isn’t much left. But please do’qt think that I mind supporting every deadbeat and down-and-outer with his hand out for a piece of my pie that I worked so hard for. I love supporting the world. After all, it’s the American way, isn’t it?

Link here.
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