Wealth International, Limited

Offshore News Digest for Week of July 17, 2006

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

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



Sunrise and the Arabian Sea shimmers silver. Waves break gently onto golden sands that seem to stretch into infinity. Although India is not generally synonymous with cleanliness, Goan beaches are pristine. Certainly on Candolim’s wide beach there is no cause to worry about stepping in something nasty that has been left behind by a fortune-telling cow. It is swept clean by women in emerald green and cerise saris, who are employed by the beach shacks fronting the dunes. Along the shoreline, one young woman lays out a mat – not to sunbathe, but to practice yoga. Further along the beach, under the instruction of their guru, another couple of vacationers enacts what appears to be a sun-worshipping ritual.

It is hard to think of any expat hideaway that is quite as exotic as Goa. Baking below a tropical canopy of banana, coconut, and mango trees, this drowsy world of beaches, backwaters, and spice-laden breezes is stamped with more than a few reminders of Old Portugal. Most people associate colonialism in India with the British. However, Goa’s 450 years of European settlement followed a different pattern. This was Portugal’s first colony in Asia, and the state only gained its independence in 1961. According to one taxi driver, many Goans still consider themselves as “separate” from the rest of India.

One comes across balconied mansions with red-tiled roofs and small garden shrines to the Virgin, some decaying, others restored to colonial magnificence. The hinterland abounds with simple whitewashed chapels – around 40% of Goa’s population is Christian. In Old Goa, the state’s former capital, a collection of gloomily baroque churches indicates why the city was once known as Asia’s Rome. Looking at the gold-leaf altars, azulejo tiles, and saintly Catholic bones and body parts encased in silver caskets, you have to keep reminding yourself that this is India, not Portugal. Goa is also a world of spice plantations, rice paddies, and water buffalo … of ancient Hindu temples and Ayurvedic massages … of spiced pomfret fish, sear-the-throat pork vindaloo, and milder, coconut-laced chicken xacuti. And if you need more assurances that you are many miles from home, numerous cows wander the resort-town sidewalks.

Despite India’s stringent property laws, foreigners do buy here. At least 800 British expats have been enticed by Goa’s laid-back lifestyle. English is widely spoken, the political climate is peaceful, and crime rates are fairly low. Resale studio units can be as little as $14,000. Of course, as with everywhere else, you get what you pay for – some cheaper properties have leakage problems during the monsoon. However, with prices starting at around $31,000, better-quality apartments (590 square feet) are still reasonable. Bought off-plan, two-bedroom villas (2,075 square feet) in well-landscaped developments are available from $117,000. Rentals are ridiculously cheap. Simple village houses (with no air-conditioning) and one-bedroom apartments can be found for less than $100 a month. Even in touristy Calangute, you can rent a beach house with air-conditioning for $560 monthly.

The other big attraction is the cost of living. Having bought a property, a couple can live comfortably in Goa for less than $800 per month. Including four beers, two people can eat in a beach shack for less than $10. Health insurance costs are also inexpensive. An annual premium of around $150 covers tests and hospitalization for most illnesses. Goa has a number of private hospitals and clinics. All the expats I spoke to were satisfied with the quality of medical care. Another factor is the desire to escape the cold. Goa is hot – and I mean frying pan hot – year round. The optimum time to visit is between December and March, when daytime summer temperatures may cool from a torrid 100° F to a more manageable 85° F. However, you can expect rain at any time during June to September’s monsoon season.

Link here.


The inhabitants of the Pacific islands making up Vanuatu are apparently the happiest in the world, according to a new study by the New Economics Foundation. The NEF’s “Happy Planet Index”, which was launched for the first time last week, seeks to move beyond the usual country ratings based on national income, measured by GDP, to produce a picture of the progress of nations based on the amount of resources they use, and the length and happiness of people’s lives. The Happy Planet Index covers 178 countries by multiplying life expectancy by life satisfaction, and dividing it by environmental impact in each country, including carbon emissions. The index “addresses the relative success or failure of countries in giving their citizens a good life,” commented Andrew Simms, NEF’s Policy Director.

The results are surprising. While the countries of Central America dominate the top positions in the index – nations which are perhaps most commonly associated with war and political instability – the rich nations of the G8 are placed well down the rankings. However, it is Vanuatu which takes top spot in the index. According to the NEF, the 200,000 residents of the 80 or so islands that make up Vanuatu are the happiest in the world because they “can live long, happy lives without using more than their fair share of the earth’s resources.” This despite the fact that the average GDP per head is just $2,900 – far below that of the wealthiest countries.

The country can also be considered as something of a tax paradise. Vanuatu does not levy tax on personal incomes, corporate profits, dividends or capital gains. There are also no withholding taxes or sales taxes. Following Vanuatu in the top five were Colombia, Costa Rica, Dominica and Panama. By contrast, the highest ranked G8 country is Italy at 66th in the index. Germany is 81st, Japan 95th, the United Kingdom 108th, Canada 111th, France 129th, the U.S. 150th, and Russia 172nd. Switzerland, with its small ecological “footprint”, was the happiest European country. In Asia, Vietnam scored highest and was placed at number 12 in the index. Singapore was ranked lowest at 131. Perhaps unsurprisingly, seven of the 10 countries at the bottom of the index are located in Africa, with Zimbabwe placed at the foot of the ranking.

Link here.


The word is is out. “Nicaragua is the new Costa Rica” but with prices 35-55% lower than its southern neighbor. Nicaragua is well and truly bouncing back from its troubled and often misunderstood past and beginning to transform into a sought after investment and tourism destination. Misconceptions still persist, but in many ways that only increases the opportunity that Nicaragua offers. Nicaragua’s democratically elected government is showing a great capacity to reform in line with its commitment to a free-market economy. The country is booming and tourism is now the #1 industry, increasing by over 19% in 2005 after a record-breaking year in 2004. There is a real buzz in the air for this land of opportunity. Whether you are looking for a retirement or vacation destination, a place to start a business or a place to invest for the future, Nicaragua is definitely worth considering.

How much is good real estate information worth? Market knowledge based on fact and base trends, rather than exaggeration and hype (in both directions) can make the difference between a good investment and a great one. The aim of this article is to capture the essence of the successful real estate investor in Nicaragua. We have consolidated the experience of hundreds of investors and identified seven success strategies for successful real estate investing in Nicaragua. Many of the principles and steps highlighted in this article will also hold true in other investment destinations and contexts.

  1. Understand the link between tourism and real estate. There is strong relationship between leisure and vocational markets and the market for second homes and retirement homes. The areas attracting the most tourism are also generating the greatest levels of real estate activity.
  2. Know where you are in a property cycle. Nicaragua has seen significant price rises in the past few years. These price rises indicate that Nicaragua is now on the map as an investment destination, the positive price trend has started, but we are only just seeing the beginnings of a “second wave” of investors – the pre-retirement and retirement market.
  3. Follow trends not events. The bulk of foreign investment into the real estate and tourism sectors in Nicaragua is focused on the south-western part of the country. Prices may be lower in the northern part of the coastline – but for a reason – and it is important for investors to take this into account before they make a property purchase.
  4. Build a good network. A solid piece of advice is to buy only what you see. Make up your mind on what you think the inherent value is of the property that you are looking at is. Do not factor in the “new coastal road” the “new airport” the “new Marriott” into the price. Certainly not if you are investing for the short term.
  5. Do due diligence on everything. More specifically, retain competent legal representation and take out title insurance.
  6. Invest with a confidence, develop with a conscience. When you arrive in Nicaragua the impression that you get is of a warm hearted nation that is welcoming to international visitors. In order for this positive feeling to endure into the future, local Nicaraguan also need to benefit from the real estate and tourism activity that is taking place in the country.
  7. Become and expert in investing in real estate in Nicaragua … before you invest.
Link here.


The Panamanian legislature has approved the government’s plan to widen the Panama Canal, but has made it subject to a binding nationwide referendum which is set to take place later this year. The cabinet approved the plan two weeks ago. Under the expansion plans, two 3-chamber locks will be constructed at both ends of the canal. This will create a third lane of traffic wide enough to handle the largest of modern container ships and tankers. New approach channels will also be prepared, while existing channels will be dredged to ensure large craft can enter the system.

The $7.5 billion project will take about seven years and employ up to 8,000 people. Nearly 5% of total world trade transits the Panama Canal. Of this trade, 88% flows between the U.S. and Asia. The canal is already operating near full capacity and forecasts are for increased demand from ever-larger vessels. Captain Wei Jiafu, President and CEO of China Ocean Shipping Company (COSCO), has endorsed the plan, saying that the move will benefit the global economy and world trade. In a speech given in Panama last month, Captain Wei stated that with the rapid development of China’s economy, the Panama Canal becomes more important as a vital link for China to import and export goods to and from the East Coast of the U.S., the Caribbean and the East Coast of South America.

Link here.

Panama retires Brady Bonds.

Continuing the restructuring of its sovereign debt, Panama exercised a call option over its remaining $351 million of Brady bonds, using a bank loan to raise most of the cash. The government has been carrying out a program to reduce its debt service costs, and the Bradys (named after U.S. Treasury Secretary James Brady, who played a major role in resolving a Latin American debt crisis) are more expensive than current loans availalable to Panama.

Fiscal austerity measures agreed last year are being implemented by the government, with the IMF’s strong approval, and are expected to impact the economy this year. The package seeks to raise revenues from new business taxes, in a bid to reduce the country’s level of debt. The legislature voted 46 to 28 in favour of the measures, which include a new 1.4% tax on companies’ gross revenues, and a levy on firms operating in the Colon Free Trade Zone – the largest free port in the Americas. Finance Minister Ricaurte Vasquez said that the fiscal reform package will “stabilize Panama’s public finances and establish conditions for the economic and social growth of the country.”

Link here.


U.S. employers are facing a considerable shortage of skilled workers and have started to go after students as young as middle schoolers to build the kind of labor force they will need in the future. The issue has become a boardroom concern, with gaps already seen in high-demand areas like engineering, health care and accounting, executives and analysts said last week. “What will inevitably happen (is) big employers are not just going to be in the business of finding labor, they’ll be in the business of making labor,” said Marcel Legrand, Monster Worldwide’s senior VP of strategy and corporate development.

So far, companies spend about $100 million a year on “making labor” efforts, a small piece of total recruitment spending of about $7 billion a year. But that figure will grow in coming years if the efforts show results, Legrand said. “There’s just not enough people coming out of the system,” Legrand said, adding the shortage will eventually affect earnings at companies unable to meet demand for their products and services.

Rick Stephens, who heads the human resources team at Boeing, said there is a looming shortage of skilled workers, but that he is less concerned with narrow technical competency than with other abilities. “When I think about the skills that we need, whether it’s Boeing or any other industry, it’s people who are able to think, able to solve problems, who are able to communicate and work well with others, that they understand what goes on in the marketplace,” Stephens said. “These are basic skills that everyone needs to have.”

Link here.


The world’s largest economies aim to grow by 3 or 4%. 5% is impressive, 7% remarkable. 10%? Usually unthinkable. But this week, China said that its economy grew 11.3% last quarter, the fastest pace of growth in about a dozen years, raising fears of a runaway economy that ends in a hard landing and making the strongest case yet for lifting the value of its currency. Fueled by soaring exports, robust consumer spending and huge investments in factories, malls, expressways and real estate, China’s economy is growing almost as fast as it did in its peak years of growth, in the early 1990’s, when the economy was much smaller. And that is worrying government bureaucrats, economists and analysts who see inherent risks of inflation and overheating when an economy blows off this much steam. “This is out of control,” said Andy Xie, an analyst at Morgan Stanley in Hong Kong. “The bottom line is lending is crazy even after repeated warnings from the government.”

The aggressive growth is likely to put more pressure on the Chinese government to rein in overzealous investment. Analysts say the gains could also prompt stronger calls for China to allow its currency, the yuan, to further appreciate against other currencies to reflect more fully the country’s growing economic power and perhaps help tame its growing trade surplus. But few analysts seem to be betting against a bull run in the world’s most dynamic economy. Indeed, economists were divided on the figures, with some arguing that there were troubling signs below the surface, suggesting that growth may actually have been even stronger and others saying that there were few signs of inflationary pressure.

Mindful of the dangers of a sizzling economy, officials in Beijing have regularly tried to talk down the markets and warn of punitive action to rein in irrational investments. Indeed, they announced administrative measures recently that limit foreign ownership in property. The growth spurts here are all the more remarkable, coming after two decades of huge economic gains. No major economy has grown much faster than 5% in the last 30 years. Even in the bubble era of the late 1980’s, Japan’s growth rate was closer to 4%.

Last week China said that its monthly trade surplus reached a record $14.5 billion in June, putting the country on track to surpass last year’s record $100 billion annual trade surplus. That announcement came just weeks after China said that in February its foreign exchange reserves reached $853.7 billion, overtaking Japan as the world’s largest holder of such reserves. Analysts then started projecting that China was on track to reach the $1 trillion mark by the end of the year. The figures are significant, economists say, because China is now a large holder of American dollars, and its central bank can potentially exert some influence on the direction of U.S. interest rates and the ability of Americans to continue borrowing cheaply.

Last year, China’s became the world’s fourth-largest economy with $2.3 trillion, trailing only Germany, Japan and the U.S. Part of that sudden leap came after China reported a new economic census that led to a decade’s worth of economic revisions because of growth figures hidden from or overlooked by government bureaucrats. Economists say they now expect the government to take new steps to rein in the economy, like raising interest rates and putting new controls on lending and investment. Still, many say they expect moderation, rather than a hard landing.

Link here.

Shanghai luxury flats empty.

Nine months after opening in Shanghai, China’s most expensive luxury apartment complex has yet to attract a single buyer, but developer Tomson Group Ltd. is not about to slash prices to get people in. Sales may prove difficult in the near term at Tomson Riviera, located on the banks of Shanghai’s Huangpu river, as Beijing’s efforts to cool an overheated property sector may keep buyers away from a complex where units can cost $20 million or more.

As the development’s four towers sit idle, the company is still determined to hold the line on prices, Tomson Group general manager Hsu Bin told Reuters. The development’s 220 luxury apartments now carry price tags averaging 110,000 yuan per square meter ($13,750), but Hsu insisted his company would not consider major price cuts. “As of today, we haven’t sold a single apartment,” he said. “But there are foreign investors or funds preparing to come here to look. We have already sent out tender documents.” To bring in some income as it looks for buyers, Tomson has decided to start renting out flats by early next year in one of the complex’s buildings.

Link here.


There was an increase in the number of Bahamians who were employed in the financial services sector last year over 2004 levels while the number of expatriates employed in the industry declined, a new survey conducted by the Central Bank of The Bahamas found. There was also a confident projection about the sector’s continued impact on the level of economic activity in The Bahamas. Bahamians accounted for 94.8% of the total employment in the sector which is responsible for between 15 and 20% of The Bahamas’ GDP, according to the newly released report. There was a marginal increase in employment levels in the banking sector to 4,405 persons in 2005, reflecting what was called a soft upturn from the decreases recorded in 2002 and 2003, it was reported.

Last year, positions held by Bahamian increased by 2.1% to 4,176, compared to the rise of 2.6% recorded in 2004. Jobs held by non-Bahamians dropped by 16.4% to 229, reversing the previous year’s increase of 3.4%. The report, Gross Economic Contribution of the Financial Sector in The Bahamas 2005, provided a comprehensive analysis of the sector. A substantial portion of the sector’s revenue is derived from the marketing of international products and services. Officials found it necessary, because of the operational differences, to analyze separately the effects on the economy of domestic and international banking. The former comprises a small number of retail banks requiring labor intensive operations while international banking institutions demand more skilled employees, offer private portfolio and wealth management services and have high net worth clients. Employment levels in domestic banks and trust companies increased by just under 50 to 3,300 during 2005 contrasting with 9 fewer positions in the offshore sector at 1,105.

Link here.

Bahamas laws to go online.

Government officials hope the recently launched Bahamas Government Online Initiative will clear the way for the country’s laws to be online within days. Rowena Bethel, legal advisor in the Ministry of Finance, said that having access to Bahamian laws online is very important to many people, and she noted it is a citizen’s “God given right” to have updated access to the laws of their homeland. Ms. Bethel noted that countries like Belize, Jamaica and Bermuda have made their laws available via the Internet for sometime, and she said she continues to receive inquiries about access to Bahamian laws online.

Link here.



U.S. Senators James Inhofe (R-Oklahama) and Ben Nelson (D-Nebraska) have introduced a bipartisan bill to stop the United Nations, the OECD and other international organizations from taxing U.S. citizens and corporations or otherwise interfering with American tax policy. The bill, entitled the Protection Against United Nations Taxation Act of 2006 (S. 3633) has 32 original cosponsors and would withhold 20% of the U.S. subsidy to the UN, the OECD and other international organizations if they develop, advocate, endorse, promote, or publicize any proposal “concerning the imposition of a tax or fee on any United States national or any income earned in the United States in order to raise revenue for the United Nations, any foreign government, or any international organization.”

At the end of June, the House of Representatives passed an appropriations bill which included similar wording. The “Fiscal Year 2007 Foreign Operations, Export Financing And Related Programs Appropriations Bill”, HR 5522, is one of a number of appropriations (spending) bills making their way through the Congress as implementation of next year’s budget continues, and may not survive in its present form. The bill also applies only for the budget year in question. Says Congressman Ron Paul, (R-Texas), whose wording found its way into the bill, “Fortunately, the House of Representatives last week passed my language in the 2007 Foreign Operations bill. But that only protects us for another year. Given the stated goals of the UN, it would be foolish to believe the idea of a global tax will go away.”

Andrew Moylan, Government Affairs Manager, National Taxpayers Union, said, “Americans should not be forced to pay a global tax to a non-sovereign entity. With the federal government set to take $2.4 trillion in taxes out of the economy next year, American families can ill afford to pay an additional tax to an international organization that has proven itself a poor steward of their tax dollars in the past.”

Link here.

Republican Senators support push against new global taxes.

Republican leaders in the U.S. Senate have written to President George W. Bush in support of legislation which would withhold funding from multilateral organizations such as the UN and the OECD if they attempt to impose taxes at an international level. Majority Leader Bill Frist, Majority Whip Mitch McConnell, Republican Policy Chair Jon Kyl, Republican Conference Chair Rick Santorum, Republican Conference Vice-Chair Kay Bailey Hutchison, National Republican Senatorial Committee Chair Elizabeth Dole, and U.S. Senator James Inhofe sent a letter that said, in part, “While global taxes are being sold as a way to generate revenue to fight diseases and for other good purposes, the United States can more effectively deal with these problems through existing agencies and in concert with other countries. The world will not be served by creating new international bureaucracies and financing them through global taxes and other co-called ‘innovative sources’ of funding.”

The letter continued, “While it has been the stated position of various US officials that the U.S. Government is opposed to global taxes, we believe a presidential statement on this matter is urgently needed and should be made now. The US should make it clear to the G8 and the world that the US will actively resist and oppose this ominous trend in international affairs and foreign relations.”

Link here.


In response to strong criticism from senators last week, IRS Commissioner Mark Everson has admitted that the agency’s efforts to combat tax refund fraud have been “insufficient and unacceptable”. An estimated $320 million in tax refunds were paid out to fraudsters in 2006 because an IRS contractor failed to complete a computerized tax return fraud detection system on time. The IRS chief was responding to criticism from Senate Finance Committee members. According to the Senators, “the IRS’s poor oversight” of the contractor, and “its own poor judgment” led to the agency losing as much as $320 million over the “botched project”.

The contractor, Computer Sciences Corp. (CSC), failed to complete the new system in time for the 2005 tax-filing season. An extended deadline of January 2006 was also missed, meaning that there was no electronic fraud detection system in place for the 2006 filing season either. Everson stated that $227.5 billion in tax refunds were issued in 2005. The agency reportedly kept the problems with the system under wraps so as not to alert potential fraudsters.

Link here.


Hungary has put the seal on a package of tax hikes designed to ensure that the country meets its fiscal targets allowing it to adopt the euro. The legislation will raise the middle tier of VAT from 15% to 20% and introduce a 4% “solidarity tax” on business profits and personal incomes above HUF6 million ($27,500). In addition, a 20% tax will be introduced on interest rate and foreign exchange gains, banks will face a 5% tax on interest revenue from state-financed loans, and a simplified entrepreneurial tax will be raised from 15% to 25%.

Business groups, such as the Hungarian Chamber of Commerce and Industry, had hoped that the President would use his powers to question the legality of the new laws by sending them to the Constitutional Court for review. However, President Laszlo Solyom decided to approve the legislation because of the deteriorating state of the government’s finances. The government intends under its fiscal stabilization plan – which also includes cuts in expenditure – to reduce its budget deficit to 3% of GDP by 2008 from this year’s estimated 8% of GDP – one of the highest in the European Union. Hungary then hopes to be in a position to adopt the euro by 2010 – two years later than initially planned.

Link here.


The Hong Kong government has stated that it may be prepared to slash the territory’s rate of profit tax as part of plans to introduce a GST. In a paper issued to the Legislative Council, the government suggested that a 5% Goods and Services tax would raise sufficient revenue to allow a cut in profits tax from the current level of 17.5% down to 12.5%.

Although Hong Kong already has one of the lowest corporate tax rates in the world, such a cut in profits tax would make Hong Kong very attractive to companies compared with its regional rivals such as Singapore, where corporate tax is 20%, and South Korea, where corporate tax is 27.5%. One of the principal aims of the GST would be to widen Hong Kong’s notoriously narrow tax base rather than to raise additional sums in tax revenues. The Hong Kong government presently relies on volatile sources of income such as land sales and investments for much of its revenues. The government also indicated that the GST could allow it to reduce salaries tax to 11%. Currently, Hong Kong employs a graduated scale of salaries tax, but the system is designed so that nobody pays more than 15% of their assessable income.

Link here.


Guernsey parliament has passed a set of economic and taxation changes that includes a zero rate of corporate tax and capping personal tax at £250,000. The States of Guernsey has agreed to a package of measures which includes: (1) A zero rate of income tax on company profits, except for specific banking activities, which will be taxed at 10%. (2) Guernsey residents continue to pay tax at 20% on assessable income. (3) Personal tax capped at £250,000 on non-Guernsey income and investment income. (4) Taxation of Guernsey-resident shareholders on distributed company profits only. (5) Wealth taxes such as inheritance tax and capital gains tax will NOT be introduced.

Said Peter Niven, the Chief Executive of GuernseyFinance, the island’s promotional agency for the finance industry, “Importantly this package has the support of not just the finance industry but also the much wider business community. The measures reinforce the message that Guernsey is very much open for business and welcomes high net worth individuals. They also clearly promote enterprise within the economy as a whole, in particular high-earning, low footprint activities and the feeling within the finance industry is that they will help attract new business to the island, especially activities such as hedge fund management.”

The move has been made against the background of the EU developing a Code of Conduct on Business Taxation. The EU’s code deems a tax regime harmful if preferential rates are made available to non-residents but not to a jurisdiction’s own residents. Although Guernsey is not within the EU’s fiscal territory and is not within the EU single market for financial services, the countries of the EU (including the UK) are its major economic trading partners. Of the 30,000 individuals employed in Guernsey, more than 7,000 are employed in the finance sector itself, which directly contributes 35% of the island’s GDP and 65% of the export economy.

Link here.


The EC has ordered the government of Luxembourg to dismantle its system of tax breaks for financial holding companies. In a statement, the EC announced that after an investigation and a preliminary four-year review, it had concluded that the preferential tax regime in favor of Luxembourg’s Exempt, Milliardaire and 1929 Financial Holding companies violates EC Treaty state aid rules. According to the EC, the scheme grants “unjustified tax advantages” to providers of certain financial services who set up holding structures in Luxembourg. “It distorts competition and trade by altering the level playing field between financial undertakings and induces them to create dedicated structures in Luxembourg to reduce their current tax liabilities,” the EC stated.

In June 2005, Luxembourg amended the 1929 law by abolishing the exempt status for holdings receiving more than 5% of their yearly dividend income from participating companies which have not been subject to a tax comparable to the one applied in Luxembourg. While this narrowed the scope of the law, the EC argued that the regime still constitutes state aid, as the tax advantages remain unchanged. The Commission decision requires the scheme to be repealed by the end of 2006, while its effects for the existing holdings must be definitively eliminated by the end of 2010. This will allow the existing beneficiaries to exit from the holding structures without incurring tax penalties. As the scheme is existing aid, the Commission’s decision is forward looking, and beneficiaries need not repay aid received until its final elimination. Competition Commissioner Neelie Kroes commented that the decision “will help to restore a level playing field in the EU’s financial services industry.”

Link here.


The government of Costa Rican President, Oscar Arias, is working on new taxation proposals affecting corporations, financial institutions and individuals, and is soon expected to submit new plans to the national assembly. While details of the new plans are at present vague, it is thought that the proposals include some elements of the fiscal reform bill which was killed off by the constitutional court earlier this year after languishing in the Legislative Assembly for four years. Arias, who was elected earlier this year by a slender majority, is known to be a supporter of the tax reforms, although he is likely to introduce a slimmed down version of the original bill.

One of the aspects of the plan which is expected to survive is the introduction of value added tax in place of the current sales tax. It is thought that VAT will be charged at the same 13% rate as the current sales tax. A report by Costa Rican online daily AM Costa Rica suggests that the government is also considering a financial transactions tax of 0.5%. The government is also expected to revamp the country’s corporate tax system. However, it is unclear whether the Arias administration will proceed with a plan to introduce global taxation, a major element of the old fiscal reform bill.

Link here.


The UK’s HMRC has announced changes to VAT “reverse charge” accounting rules, in expectation that the EU will allow an aggressive response to “missing trader” or “carousel” fraud. The changes will affect businesses buying and selling any of a variety of electronics products or components. Missing trader intra-community (MTIC) fraud is a sophisticated attack on the UK VAT system, which in 2004/05 is estimated to have cost between £1.12 and £1.9 billion. It involves goods imported VAT-free from other EU Member States being sold through contrived business-to-business transaction chains in the UK, and subsequently exported. The tax loss occurs when the VAT charged on the initial sale of the goods in the UK is not paid to HMRC because the seller disappears. The purchaser can still reclaim the VAT, so the loss manifests when the trader who exports the goods from the UK makes a repayment claim.

Under the reverse charge procedure, the purchaser of the goods, rather than the seller, will be liable to account for the VAT on the sale. The supplier will not charge VAT, but will have to specify on the invoice that the reverse charge applies. Provided that the purchaser has correctly accounted for the VAT under the reverse charge procedure, he will retain the right to input tax recovery, subject to the normal rules. In order to minimize the impact of VAT-registered customers on retailers, there will be a de minimis limit of £1,000, exclusive of VAT, below which the reverse charge will not apply. Normal VAT accounting rules will apply to transactions below this limit. There will be measures to prevent manipulation of this de minimis limit. HMRC expects to be implementing the new rules as early as October 2006, but this is dependent on progress within the EU.

Link here.

EC denies Austrian and German request to change VAT rules.

The European Commission has refused to let the governments of Austria and Germany change their value added tax rules to help them fight widespread and growing VAT fraud. Austria and Germany had asked to be allowed to apply a reverse charge mechanism to tackle the phenomenon of businesses disappearing without paying their VAT liabilities, a scam commonly known as “carousel” or “missing trader” fraud which, according to estimates, deprives European governments of some €50 billion annually in revenues. According to the EC, in the case of Austria and Germany the requests are too broad in scope. “[I]t is important that any measure taken by Member States to combat fraud is proportionate and does not impose new obligations on honest businesses,” commented Taxation Commissioner Laszlo Kovacs.

Link here.



Denis Payre, a self-described French jet-setter, built a successful high-tech company from scratch, then decided to quit at age 34 to spend more time in France with his wife and young children. Instead, Payre said, he was pushed into exile by the French government, which sent him a tax bill of nearly $2.5 million on paper assets he could not cash in. “They were asking me to pay taxes on money I didn’t have,” Payre said. “I had no choice but to leave the country.”

Payre, who moved his family to neighboring Belgium eight years ago, is today part of a sizable community of rich expatriate French driven out by the world’s highest tax bills on wealthy citizens. The exodus continues. On average, at least one millionaire leaves France every day to take up residence in more wealth-friendly nations, according to a government study. At a time when France is struggling to stay competitive in an increasingly integrated world, business leaders say the country cannot afford to make refugees of some of its most established business families. They include members of the Taittinger champagne empire, the Peugeot auto magnates and leading shareholders of dominant retailers Carrefour and Darty. Also going are members of a new generation of high-tech entrepreneurs. Socialist leaders and some government officials argue that the rich are merely trying to shirk their social responsibilities by fleeing the country with their millions.

“France is penalizing success in a big way,” argued Payre, who is now 43 and has started a new company in Brussels that he said did nearly $32 million in business this year. “The loss in income for the government is the smallest part. The big issue is the loss of all that creative energy this country is dying for.” Payre said that when he decided to leave his high-tech company, Business Objects, in 1997, he owned shares that were worth $110 million – on paper. French tax authorities required Payre to pay a wealth tax of 2.2% on the shares, based on what the shares would have been worth had he sold them at the market’s highest point. But Payre said that he did not have access to them because of stock market regulations that limited his ability to sell and that, in any case, a market dip had devalued the shares below that peak.

The wealth tax – officially called the solidarity tax – is collected on top of income, capital gains, inheritance and social security taxes. It is part of the reason France consistently ranks at the top of Forbes magazine’s annual Tax Misery Index – a global listing of the most heavily taxed nations. Wealthy citizens’ tax bills can be higher than their incomes, according to tax analysts. President Jacques Chirac’s government attempted to rectify that disparity last year with changes intended to guarantee that no one would pay more than 60% of income in taxes. But many businesspeople say actual maximum tax rates still hover at around 72%.

France’s tax structure is more than a means of supporting the nation’s expensive cradle-to-grave social services. It is deeply rooted in the nation’s history and psyche, dating to the French Revolution of 1789, when impoverished peasants overthrew an obscenely wealthy aristocracy and sent many of its members to the guillotine. “The French Revolution was not about ‘equality and fraternity’, as people like saying,” said Pierre-Francois Taittinger, the 80-year-old former chief of Champagne Taittinger, one of France’s most renowned family businesses, which sold its controlling shares to an American company last year for a reported $1.5 billion. “It was about getting rid of the ruling class. French people don’t like the rich – unless they are soccer players.” Taittinger, who helped create the champagne label that is synonymous with luxury worldwide, said the French tax system not only helped force the sale of his family company but scattered the 38 family members involved in the corporation.

France’s opposition Socialist Party leader Francois Hollande said recently that his party’s – and country’s – opposition to proposals to lower high-income taxes has nothing to do with disdain for the wealthy. “I don’t have anything against rich people, as such,” Hollande said in a recent political debate. “They have the right to be rich. But I can’t accept that the richest can have their taxes lowered.”

“This tendency to take from the rich and give to the poor which is supposed to solve all the problems in France is ruining the country,”" said Alain Marchand, who left France six years ago and now has a London-based consulting business that helps relocate French business leaders and entrepreneurs in England and other countries. “That’s an incredibly stupid and narrow-minded vision of economic life.” Eric Pinchet, author of a French tax guide, estimates the wealth tax earns the government about $2.6 billion a year but has cost the country more than $125 billion in capital flight since 1998.

Link here.


Urge to cash in on the housing bubble has spawned an industry of schemers.

Every boom has a dark side. The merger mania of the 1980s produced insider trading scandals. The ‘90s stock bubble was busted for biased investment research. And so it is with real estate, the hottest market of the past eight years. The urge to cash in on rising home values has spawned a growing share of hucksters, schemers and rip-off artists. So far, it is tough to know exactly how widespread the problem is. Only now, as the market starts to turn, are complaints over shady real estate practices pouring in.

IRS figures show that the agency initiated 235 real estate fraud cases against individuals in 2005, more than double the number it brought in 2001. The IRS expects that figure to remain steady this year. The Feds have stepped up penalties to fight mortgage fraud, doubling average jail terms to four years for those convicted, says Andre Martin, a director in the Criminal Investigations Division of the IRS. “The market was so hot that everyone was looking to jump in and make a fast buck,” says Martin. “You have a lot of property flipping and false appraisals.”

Moderate-income home owners tempted to extract cash from the equity in their homes have been hard hit by scamsters. In one of the most common rip-offs, according to the Federal Trade Commission, customers would sign away the deeds to their homes as “collateral” or take on loans they could not afford, leading to foreclosure. Another method unscrupulous lenders use is to convince desperate borrowers to fudge annual income claims on applications to qualify for a bigger loan than they can afford. An applicant who cannot make the payments can lose his property and end up in bankruptcy. Stripping people of their home equity has become rampant in the subprime lending market. Credit-challenged home owners who often do not know exactly how much home equity they are sitting on are easy targets, says Allen Fishbein, director of housing and credit policy for the Consumer Federation of America.

Another common victim is a renter with steady income who lacks the down payment and qualification for a mortgage. Landlords sign them up with an option to buy the property – at a cost of as much as $10,000 up front, plus $300 more than fair market value each month. That extra money is supposed to go toward a down payment, should they exercise their option to buy. The deal makes a family feel like they are practically buying the house, so it can be very tempting. The problem? In nearly all cases, the family’s financial situation does not change much after a year or two, so they are just as unlikely to qualify for a mortgage. What is more, savvy landlords have a feel for what the house will be worth in a year or two, and they price the optional purchase at a level likely to exceed that worth, making the option to buy a bad decision anyway.

Not all real estate rip-offs are illegal. Laws on lending vary from state to state. And while the Truth in Lending Act, enacted by Congress in 1968, requires disclosure of all key features and costs associated with a real estate loan, sneaky practices can often skirt the law as long as terms are technically disclosed. Make sure you read the fine print, ask a lot of questions and call your state attorney general’s office or real estate commission if something does not seem right or seems too good to be true.

Link here.


London-based STEP (The Society of Trust and Estate Practitioners) has announced a practice rule for its members which will ensure transparency by requiring the disclosure of clauses in trusts or wills exempting trustees or executors from liability. “One of STEP’s primary objectives is to maintain requisite standards for practitioners,” said working party chairman Charles Gothard, “the Practice Rule published by STEP today, following discussions with the Law Commission, protects the public by formalising what is accepted best practice among STEP’s members.”

Executors and trustees seek exemptions from some of the more onerous liabilities that may result from their responsibilities. For instance a trustee of land may be completely unaware of ground pollution but as trustee (whether or not a professional) may be fully personally liable for resulting damage caused to others. Equally, individuals creating trusts or making wills need to protect their interests (and those of the beneficiaries) by being fully aware of any trustee exemptions and their implications. STEP chief executive David Harvey commented, “Disputes between advisers and clients often focus on liability. The best way of avoiding problems is full transparency, which this Practice Rule achieves.”

Link here.


A list of almost 2,000 individuals accused of using offshore accounts to dodge Australian taxes has reportedly been submitted to the ATO. According to a report by the Sydney Morning Herald, the names of 1,800 potential tax evaders have been handed to the Australian authorities by a foreign government as part of a multilateral crackdown on the use of offshore credit cards and accounts. The list was provided by a member of the 7-country Working Group on Tax Havens during a bank and broker investigation, the paper reported.

Last year, it was reported that the secret investigation targeting both promoters and participants had uncovered A$10 million (US$7.5 million) a day which is destined for offshore jurisdictions from Australian accounts. Some 15,230 credit and debit cards were then found by the ATO to have been issued by offshore providers, although the majority of these, 11,548, were being used legitimately by tourists, students and businesses. The ATO is concentrating its investigative efforts on a list of about 3,600 offshore credit cards.

Link here.


The administration of President Oscar Arias has confirmed that a controversial immigration bill has been put onto the back-burner until December 2007 because the legislation is currently too expensive to implement. As part of the law the minimum income levels enabling foreigners to qualify for Costa Rican residency are being increased. Currently, those applying for residency, or “rentista” status, must show a monthly income of at least $1,000. The new law would retain this minimum threshold, but would require rentistas to show an additional $1,000 monthly income for a spouse, plus additional income for each dependent. However, in a cover note to lawmakers, Arias explained that the effective date of the new immigration legislation is being delayed until 2007 because the government does not have the resources to fund the extra man-power needed to police the new laws.

Link here.



A Dutch appeals court has thwarted attempts by the Dutch anti-piracy organisation BREIN to get the identities of file-sharers from five ISPs. The court found that the manner in which IP addresses were collected and processed by U.S. company MediaSentry had no lawful basis under European privacy laws. A lower court in Utrecht had reached a similar conclusion last year. The court also argued that the software MediaSentry uses cannot properly identify users or provide evidence of infringement.

Last year, expert witnesses criticized MediaSentry’s software for being too limited and simplistic. For instance, MediaSentry took filenames in Kazaa at face value. More importantly, the software scans all the content of the shared folder on the suspect’s hard disk. In that process, it breached privacy laws. The Dutch Protection Rights Entertainment Industry Netherlands (BREIN) represented 52 media and entertainment companies and has been investigating 42 people suspected of swapping song files. BREIN says it will go to a higher court, but the lawyer who represented the ISPs sees the decision as an important victory.

Link here.


Human rights group accuses Net titans of censorship in China.

Microsoft, Google and Yahoo have breached the Universal Declaration on Human Rights in colluding with China to censor the Internet, Amnesty International said. The three publicly traded companies are ignoring their own stated commitments – which in Google’s case includes corporate motto “Don’t be evil” – and are in denial over the human rights implications of their actions, the group said.

“All three companies have, in one way or another, facilitated or concluded in the practice of censorship in China,” London-based Amnesty said in a report. “All three companies have demonstrated a disregard for their own internally driven and proclaimed policies. They have made promises … which they failed to uphold in the face of business opportunities and pressure from the Chinese government. This raises doubts about which statements made by these organizations can be trusted and which ones are public relations gestures.”

AI said the three companies were in violation of Article 19 of the Universal Declaration of Human Rights, which says everyone should be guaranteed freedom of expression. AI said it was calling on the three companies and other Internet firms to lobby Beijing to release all “cyber dissidents”, be open about what filtering policies they operate and promote human rights in China. Amnesty said some actions the firms had taken, like Google’s refusal to offer an e-mail service in China due to privacy-invasion worries, were good, but more action was needed. Google has come under fire for saying it would block politically sensitive terms on its new China site, bowing to conditions set by Beijing.

Link here.


The U.S. government unveiled a communications system that in case of emergency should soon allow it to send SMS alerts to Americans’ mobile phones and computers. “We have the ability to do this. It’s a major step,” said Federal Emergency Management Agency (FEMA) Director David Paulson. The Digital Emergency Alert System (DEAS) will include the participation of television networks and public radio stations and be based on an existing alert system built in the Cold War era for use in the event of a nuclear attack.

The new system will initially allow the government to quickly alert public organizations and first-aid groups in case of an emergency. It is planned to become operational in southern and eastern states by the end of the year, and nationally at the end of 2007. At the same time, the government said it will build a system that can also send alerts to mobile phone users and computers linked to the Internet. The SMS messages will be sent out in case “something unfortunate has happened,” said John Lawson, president and CEO of the Association of Public Television Stations. Internet-linked computers will automatically switch on to a video message from the U.S. Department of Homeland Security while downloading instructions prepared specifically from natural disasters, chemical and nuclear attacks, and other calamities.

Link here.



June 23 was the one-year anniversary of the now-infamous U.S. Supreme Court Kelo v. New London decision that stripped Americans of any meaningful federal constitutional protection for their private property. Wonder whether the threat of eminent domain abuse has grown worse since that ruling? In just the past year, more than 5,700 properties nationwide have been threatened by or taken with eminent domain for private development – a figure that compares with more than 10,000 examples over a 5-year period preceding the Kelo argument. Coupled with this increase in eminent domain abuse, however, has been a virtually unprecedented grassroots and legislative response to the most universally despised Supreme Court ruling in recent memory.

Before the Kelo decision, cities abused the power of eminent domain. But Kelo became the green light that Justice O’Connor and Justice Thomas warned of in their dissents. The Court ruled that the U.S. Constitution allows government to use eminent domain to take and bulldoze existing homes and businesses for new private commercial development, holding that the mere possibility that a different private use could produce more taxes or jobs is enough reason for condemnation. Justice O’Connor predicted that in the wake of the decision, any Motel 6 could be taken for a Ritz-Carlton, any home for a shopping mall, and any farm for a factory. Her predictions are coming true – cities are pushing out motels for commercial development and replacing small businesses with upscale hotels. Homes are being replaced by shopping malls, but the stronger trend has been the replacement of middle-class residences for other, more upscale ones. Agricultural land has been taken for still more retail development. The Kelo decision emboldened officials and developers, who started new projects, moved existing ones forward, and, especially, threatened and filed condemnation actions. The threat of condemnation for private development is just as much an abuse of eminent domain as the actual filing of condemnation proceedings.

At the same time Kelo encouraged the use of eminent domain for private development, it has become a catalyst for national reform. One year after what appeared to be a total victory for local governments allied with private developers, 25 states (out of the 45 that had legislative sessions this year) enacted legislation aimed at curbing the abuse of eminent domain. If governors sign additional bills that have already been passed by their state legislatures, that number will grow to 28. Legislation preventing the use of federal economic development funds to those state and local agencies that use eminent domain for private commercial development passed the House by a vote of 376-38 last November. It is stalled in the Senate.

Do private redevelopment projects that use government force live up to their billing? Hardly. Many are outright failures. The Castle Coalition report, “Redevelopment Wrecks: 20 Failed Projects Involving Eminent Domain Abuse”, details 20 prominent examples of those failures that fall into two categories. The first kind occurs when, after cities and developers condemn homes and businesses to make way for private redevelopment projects, the promised projects never materialize. The second kind of failure involves projects that, although completed, simply do not live up to the grandiose promises and lofty projections that were used to justify the abuse of eminent domain. Bert Gall, an Institute for Justice attorney, said, “The argument is always the same. Bureaucrats and developers with big visions of how other people should live claim that the use of eminent domain is necessary for economic development. They promise glitzy development in the name of more taxes and jobs. There is a strong incentive for cities and developers to over-hype the benefits of private development projects involving eminent domain in order to garner political and public support. But it turns out that many of these projects are failures.”

Link here.
Susette Kelo lost her rights and property, but she has saved her home – link.


The U.S. Department of Justice exploited the September 11 attacks to expand its prosecutorial power in areas completely unrelated to terrorism. Indeed, the U.S. has created perhaps the largest class of unaccountable prosecutors in history – people who seek retribution for the slightest challenge to the state’s authority. Among the targets of the post-September 11 prosecutorial rampage is Ian Norris, a retired British executive sought for trial on antitrust charges. Norris formerly headed Morgan Crucible, a manufacturer of electrical carbon products. In November 2002, Morgan and its U.S. subsidiary pleaded guilty to criminal “price fixing” and paid fines totaling $11 million. In 2003, the DoJ’s Antitrust Division indicted Norris for his alleged role in the “price fixing” – or more accurately, having meetings and conversations with other businesses without the U.S. government’s permission.

Criminal antitrust probes are a staple of the Bush Justice Department. The Wall Street Journal reported during former Attorney General John Ashcroft’s tenure that more than 60 grand juries were convened just to investigate “price fixing”. After a Philadelphia grand jury indicted Norris, the DoJ demanded his extradition from the UK. The 1972 U.S.-Britain extradition treaty requires the U.S. to present prima facie evidence that a crime has been committed, and defendants have a right to challenge that evidence pre-extradition. But in 2003, Tony Blair’s Labour government agreed to a new extradition treaty that, in effect, authorizes the unrestricted kidnapping of British citizens by U.S. prosecutors. Now, simply making an accusation is sufficient to remove a British citizen and imprison him indefinitely in the U.S. while awaiting trial. (Foreign citizens are often denied bail as “flight risks”.)

It is worth mentioning that the actual crime Norris is charged with – price fixing – was not illegal in Britain at the time the alleged activities took place. Normally, one cannot extradite someone for acts that are not illegal in both countries. But DoJ prosecutors argued that price fixing was the equivalent of the English common law crime of “conspiracy to defraud”. The British government has never made such an argument, however, and even in the U.S., the elements of fraud and “price fixing” are disparate. Furthermore, the DoJ’s case against Norris is based principally on hearsay, and Norris himself was never interviewed by U.S. prosecutors, nor has he been allowed to see the evidence against him, most of which was obtained by pleas coerced from Morgan employees in the U.S.

Under the 1972 treaty, a crime had to appear on a list of major offenses to be extraditable. But under the 2003 treaty, any crime common to both countries and punishable by at least one year in prison is extraditable. This means many non-terrorism, business-related offenses are now extraditable. To that end, more than half of the U.S. extradition requests to Britain post-2003 have been for non-violent business offenses. This directly contradicts both governments’ position that the primary purpose of the new treaty was to deal with terrorism cases. Despite all this, a British court ordered Norris’s extradition under the 2003 rules. Norris’s lawyers have appealed this decision, but the prospects are not good. The Blair government has come under intense criticism from the British press and business community over the new extradition rules. Nonetheless, Prime Minister Blair has refused to block any pending extraditions and insists, falsely, that the new rules are equitable and afford accused persons due process.

There are three possible objectives of a judicial system: restitution, retaliation, and retribution. Restitution is the ideal – compensate the actual victims whose rights have been violated by another’s conduct. Retaliation involves the broader goal of protecting society at-large from a violator, particularly in the case of physical violence. Retribution is simply vengeance, unconcerned with making the victims whole. Indeed, it is unconcerned with the victims at all. Retribution is now the primary objective of a U.S. government that, regardless of political party, is run by prosecutors and their adjuncts in the courts and the legislatures. Prosecutors seek to maximize their conviction rates and total sentences without regard for the justice of such actions or the effect on society. When challenged, prosecutors hide behind the “rule of law” to justify their aggression while denouncing any attempt to curtail their immense, arbitrary power.

Frankly, we have to consider the possibility that hastening Norris’s death is a motive of the DoJ’s Antitrust Division, particularly Assistant Attorney General Thomas Barnett and his top criminal prosecutor, Scott Hammond. They know Norris’s case contributes nothing to their overall antitrust enforcement regime – Morgan’s guilty plea and fine was the primary objective. They know Norris is in poor health. And they also know that imprisoning Norris would be an act of torture, an act of violence designed to degrade and humiliate a fellow human being. If Norris dies in prison – or even awaiting trial – the Antitrust Division will have sent a powerful message to future targets: Challenge our authority, and you will end up dead. If you think this is melodramatic, consider the behavior of U.S. officials in other policy areas. In drug policy, for example, it is a crime for a person to use marijuana to relieve chronic pain. This is a form of torture – deliberately forcing pain upon a person to enforce compliance with a political agenda. Governments are ultimately nothing more than the exercise of force, and force generally leads to pain, suffering, and ultimately death.

Link here.

UK couple fight extradition move, claiming abuse of process.

A couple asked the High Court to agree that fast-track extradition laws do not apply to them because the U.S. first sought their extradition before the measures came into force. The U.S. withdrew its initial request to extradite Stanley and Beatrice Tollman under the old system, under which UK courts had to be persuaded that there was a case to answer. U.S. prosecutors quickly reapplied under the Extradition Act 2003. The couple claim this was an abuse of process. The U.S. is seeking a High Court ruling that the 2003 Act applies in the Tollmans’ case. The hearing continues.

Link here (scroll down).


The U.S. House of Representatives has approved Rep. Bob Goodlatte’s (R-Virginia) proposals to restrict access by Americans punters to online gambling websites. The House passed the Internet Gambling Prohibition and Enforcement Act by a bipartisan vote of 317-93 last week. The legislation was merged with a bill introduced by Congressman Jim Leach (R-Iowa) to crack down on gambling website-based offshore gambling, as well as gambling that crosses state lines over Internet connections.

According to Goodlatte, online gambling sucks billions of dollars per year out of the U.S. economy and serves as a vehicle for money laundering. “Gambling on the Internet has become an extremely lucrative business. Numerous studies have charted the explosive growth of this industry, both by the increases in gambling websites available, and via industry revenues. Internet gambling is now estimated to be a $12 billion industry, with approximately $6 billion coming from bettors based in the U.S.,” Goodlatte commented following the vote. However, it is doubtful whether the measures will clear the Senate and be reconciled before November’s mid-term elections.

Link here.

U.S. authorities move against online gambling firms.

Judicial authorities in the U.S. have sent a strong signal of their intention to crack down on illegal online gambling, after several executives of the company BetonSports were arrested on a number of fraud-related charges. The U.S. Department of Justice announced that a federal grand jury in the Eastern District of Missouri had returned a 22-count indictment charging 11 individuals and four corporations with various charges of racketeering, conspiracy and fraud.

Gary Stephen Kaplan, 47, the founder of BetonSports, a publicly-traded holding company that owns a number of Internet sportsbooks and casinos, was charged with 20 felony violations of federal laws including the Wire Act, Racketeer Influenced and Corrupt Organizations (RICO) Conspiracy, interstate transportation of gambling paraphernalia, interference with the administration of Internal Revenue laws and tax evasion. Other defendants in the racketeering conspiracy included Kaplan’s siblings Neil Scott Kaplan and Lori Kaplan Multz, Norman Steinberg, BetonSports.com CEO David Carruthers, BetonSports.com media director Peter Wilson, and Tim Brown, Steinberg’s son-in-law. Carruthers was arrested at Dallas Forth Worth airport while en route from the UK to Costa Rica [see story immediately below]. A bail hearing has been set for Friday.

The indictment alleges that Gary Kaplan started his gambling enterprise via the operation of a sportsbook in New York City in the early 1990s. After Kaplan was arrested on New York state gambling charges in May 1993, he moved his betting operation to Florida and eventually offshore to Costa Rica. According to the indictment, BetonSports.com, the most visible outgrowth of Kaplan’s sports bookmaking enterprise, misleadingly advertised itself as the “World’s Largest Legal and Licensed Sportsbook”. Kaplan is also accused of failing to pay federal wagering excise taxes on more than $3.3 billion in wagers taken from the U.S. and forfeiture of $4.5 billion is sought by the U.S. authorities from Kaplan and his co-defendants, as well as various properties.

The indictment also alleges that Gary Kaplan and Norman Steinberg, as the owners and operators of Millennium Sportsbook, Gibraltar Sportsbook, and North American Sports Association, took or caused their employees to take bets from undercover federal agents in St. Louis who used undercover identities to open wagering accounts. In conjunction with the indictment, the US authorities have filed a civil complaint in federal court to obtain an order requiring BetonSports PLC to stop taking sports bets from the U.S., and to return money held in wagering accounts to account holders in the U.S. The company has been forced to suspend access to its Web site as a result of the indictment. A statement on the site read, “In the light of court papers filed in the United States, the company has temporarily suspended this facility pending its ability to assess its full position. During this period no financial or wagering transactions transactions can be executed.”

Unsurprisingly, investors in online gaming companies have reacted badly to the news, especially those thought to be highly reliant on the U.S. market. Online betting and gambling has been something of a growth industry in Europe recent years, as the proliferation of the internet allowed companies to reach an ever-expanding audience. Most of these companies are listed in London but based in offshore centres such as Gibraltar, Antigua & Barbuda and Costa Rica. Until now, many of these companies had largely ignored the thorny question of the legality of their operations in the U.S., despite numerous attempts by lawmakers to tighten legislation. However, the writing was on the wall that the U.S. was becoming more intolerant of offshore-based online gambling firms when the House of Representatives passed the Internet Gambling Prohibition and Enforcement Act by a substantial majority last week.

Link here.

CEO of BetOnSports arrested in U.S. while in transit from London to Costa Rica.

When the U.S. House of Representatives overwhelmingly passed a bill cracking down on Internet gambling last week, David Carruthers, CEO of online gaming company BetOnSports, was one of the most outspoken critics of the proposed law. The 49-year-old British executive has more immediate problems to worry about. Federal agents arrested Carruthers at Dallas-Fort Worth International Airport as he made his way from the company’s offices in London to Costa Rica.

As part of a wide-ranging probe of what the American Gaming Association says is a $12 billion online gambling industry, U.S. Attorney Catherine Hanaway unsealed a 22-count indictment charging racketeering, conspiracy and fraud against Carruthers, 10 others and four companies. A warrant was sworn out for the arrest of 47-year-old company founder Gary Kaplan. U.S. District Judge Catherine Perry also approved the government’s request to bar BetOnSports from accepting bets from this country and forcing it to refund money to U.S. account holders. The FBI has ordered four phone companies to shut off service to the company.

The arrest of Carruthers, a longtime British racing industry executive who joined BetOnSports in 2000, is setting off alarm bells in Europe and the Caribbean, where the offshore casino industry is based. BetOnSports asked for its stock to be suspended on the London Stock Exchange. Shares of British gaming stocks, such as industry leader Party Gaming, fell Tuesday in heavy trading, wiping out more than $1 billion in value. “The No. 1 topic at every board meeting today is ‘Am I next?’” says Internet gambling attorney Lawrence Walters. “There’s a high degree of concern now that the government has made it clear they think they can prosecute foreign citizens at foreign corporations.”

The House bill is the first shot in an attack by the federal government on a foreign industry that considers itself beyond the reach of U.S. law. An estimated 23 million Americans play casino games such as poker and blackjack online, according to the Poker Players Alliance. The Justice Department says online gambling is illegal under the Federal Wire Act of 1961. While authorities have not pursued individual bettors playing poker on their home or office PC, they have gone after some gaming executives. Despite generating half or more of their revenue from U.S. customers, online gaming companies maintain that U.S. laws do not apply to them because they are located in places where online gaming is legal, such as England, Costa Rica and Gibraltar.

U.S. Attorney Hanaway promised the indictments are “but one step in a series of actions designed to punish and seize the profits of individuals who disregard federal and state laws” during a news conference. That means top casino executives will have to worry about personal exposure if they try to catch a connecting flight in the USA, as did Carruthers, says Walters.

A broad coalition of sports leagues, including the NFL and NCAA, and family rights groups supports the bill. Supporters add the proposed law would stop Internet gambling from spreading to cellphones and other new mediums. But critics charge the government would be better off regulating and taxing the online gambling industry. Their biggest complaint: The current bill provides exceptions for state-regulated lotteries such as Powerball and horse racing while cracking down on casino games. “This bill’s advocates proclaim the immorality of online gaming and shout it will destroy our society – unless you’re betting on horse races,” declared U.S. Rep. Shelley Berkley, D-Nevada, on the floor of the House during the bill debate.

Link here.

Gambling companies fear widening of U.S. investigators’ net.

British-based internet gambling companies were urgently consulting their lawyers about the risk of being targeted by U.S. prosecutors in the wake of the arrest in America of the chief executive of BetOnSports. The mounting concern comes as the indictment raises the possibility that U.S. investigators may spread their net wider than those already named. The document says that the defendants “and others, known and unknown” constituted a gambling enterprise that conducted unlawful computer and telephone-based betting. Another British company, Sports on the Internet Ltd, is described in the indictment as a “front for or supporter of the [illegal gambling] enterprise … whose funding and services benefited the enterprise”.

Julian Knowles, an extradition expert at Matrix Chambers, told The Times that Britain would refuse to send suspects to America for breaking anti-gambling laws, but might extradite them if accused of other illegal activities emerging from investigations. Evading taxes, for example, might result in extradition. A spokeswoman for the Home Office said that Britain would consider requests for extradition based on crimes arising from U.S. investigations into illegal gambling.

Link here.

Their majesties in Congress will never learn.

It has been said of the stubborn Bourbon kings of France that, “They learned nothing, and they forgot nothing.” As a result of their obtuse blindness to reality, France no longer has kings. This week their majesties in the U.S. House of Representatives, by a wide margin, seemed to have forgotten something important when they voted to ban Internet gambling by Americans [see article summaries below]. This moralistic action has about the same force as spitting into a hurricane. It also ignores the ugly lessons produced by the disastrous national prohibition of alcoholic beverages in the U.S. (1920-1933).

The so-called “noble experiment” was touted by its backers as the solution to reduce crime and corruption, solve social problems, lower the tax burden created by prisons and poorhouses, and improve health and hygiene in America. This ambitiously wrongheaded experiment clearly failed miserably on all counts. Alcohol became more dangerous to consume. Organized crime was born. The court and prison systems were overloaded. And corruption of police and public officials was rampant. (Sound familiar?)

Oblivious of history, the technical power and reach of the Internet – and of human nature – our brilliant lawmakers took it upon themselves to make it illegal for any credit card company, or other financial institution, to allow payment to any Internet betting site. There are exceptions – betting on horse races is allowed. Net betting on 28 state lotteries is also allowed. Apparently, in the view of Congress, some gambling is okay, but personal Internet gambling is not. (Apparently their motto is “Keep American gambling American!”)

Most of the best betting web sites are based in European or Caribbean tax havens such as the Isle of Man and Gibraltar. U.S. government pressure already has blocked credit card use for some gambling sites. In Belize 80 people lost their Net gambling jobs when the IRS attempted to freeze the U.S. owners’ funds. The Belize Court refused the freeze and the owners took their cash and ran. The U.S. anti-Net gambling push has had even greater impact in tiny (pop 68,000) Antigua & Barbuda. Once 3000 people worked for the island’s offshore Net gambling industry, and now less than 1000 still have jobs. So Antigua sued the U.S. and won an interim ruling from the World Trade Organization that the U.S. law criminalizing online gambling must be struck down as counter to international treaties.

Link here.


Many big banks now refuse accounts of money businesses serving poor areas. Alleged check-kiting scheme also blamed.

Some national and regional banks are dropping as customers check-cashing operations and other money-service businesses over concerns the firms are not following federal guidelines meant to thwart money laundering and terrorist financing. Without banking services, a handful of money services businesses have closed in Maryland. Those businesses often operate in low-income neighborhoods where residents rely on them to cash paychecks and transfer money to families in other countries. Regulators fear those residents might be forced to turn to loan sharks and other illegal means for their banking needs, should more financial institutions follow suit. “From our perspective, you’re shutting out a large portion of our population when you shut down check-cashers,” said Joseph E. Rooney, state deputy commissioner of financial regulation. “If you close these accounts and they can’t operate, you’re driving the money underground.”

Bank of America, Provident Bankshares and SunTrust Banks are among banks in the Baltimore region that have severed ties with money-service businesses. Check-cashers typically depend on banks to clear checks and provide cash by allowing them to draw against checks that have been deposited but not yet cleared. The local money-service industry was dealt another blow last month when check-kiting allegations surfaced against A&B Check Cashing, which had a string of stores in Baltimore. All of A&B’s operations have been closed, and A&B parent Colleen Inc. has filed for bankruptcy protection.

Baltimore County Savings Bank started shutting down accounts held by money-service businesses last month after the bank discovered that it lost $6.9 million in the alleged kiting scheme, according to David Meadows, the bank’s general counsel. The bank had already stepped up monitoring of the accounts, and fewer than six customers were affected by the account closures, he said. “Based on what happened with the Colleen company, management made the decision just to get out of that business,” Meadows said.

An estimated 12 million people are classified as “unbanked” in the U.S. Without access to traditional banking such as checking accounts, many use money-service businesses to cash checks or obtain money orders to pay bills. The business cashes more than 180 million checks a year with a total value of more than $60 billion, generating almost $1.5 billion in fee revenues, according to the Financial Service Centers of America, a trade group. About 500 check-cashers and 80 money transmitters operate in Maryland, Rooney said.“ We serve this whole segment of the population that either banks don’t want to deal with or that find it’s easier and more efficient to deal with us,” said Neil Goldstein, owner of Gold’s Check Cashing, which has two offices in the Baltimore area. Goldstein acknowledged that federal rules have added more paperwork to check-cashers’ duties but said business owners are following the law.

Some banks say it takes too much time and money to monitor accounts held by money-service businesses, and they worry they would be held liable if something went wrong. Under the Bank Secrecy Act and the Patriot Act, enacted after the Sept. 11 terrorist attacks, money-service businesses are required to follow a web of regulations, including a requirement that they file reports about suspected illegal activity. “We thought it was pretty clear that we are liable if we’re providing that banking relationship and they’re not following procedures,” said John King, Provident Bank’s regional president in Baltimore. He said the bank decided last year to shut down accounts held by about 70 money-service providers. “It was a tough decision for us because we also know that these are good companies and it’s a needed service,” King said. Shirley Norton, a spokeswoman for Bank of America, said the banking giant has dropped accounts with some money-service clients in the past year. She also noted regulatory concerns as a reason for the move.

Federal regulators have said they are concerned about the account closures. FinCen recently sought input from the industry on how to ensure those banking relationships are maintained. The issue made its way to Capitol Hill last month. At a hearing of the House Financial Services Committee, Ann F. Jaedicke of the Office of the Comptroller of the Currency said that her agency is concerned that money-service businesses are having trouble obtaining banking services. She also told lawmakers that while most of those businesses have never been associated with money laundering, some do present a “heightened risk” of enabling the crime.

Link here.


Americans have long maintained that a man’s home is his castle and that he has the right to defend it from unlawful intruders. Unfortunately, that right may be disappearing. Over the last 25 years, America has seen a disturbing militarization of its civilian law enforcement, along with a dramatic and unsettling rise in the use of paramilitary police units (most commonly called Special Weapons and Tactics, or SWAT) for routine police work. The most common use of SWAT teams today is to serve narcotics warrants, usually with forced, unannounced entry into the home.

These increasingly frequent raids, 40,000 per year by one estimate, are needlessly subjecting nonviolent drug offenders, bystanders, and wrongly targeted civilians to the terror of having their homes invaded while they are sleeping, usually by teams of heavily armed paramilitary units dressed not as police officers but as soldiers. These raids bring unnecessary violence and provocation to nonviolent drug offenders, many of whom were guilty of only misdemeanors. The raids terrorize innocents when police mistakenly target the wrong residence. And they have resulted in dozens of needless deaths and injuries, not only of drug offenders, but also of police officers, children, bystanders, and innocent suspects.

This paper presents a history and overview of the issue of paramilitary drug raids, provides an extensive catalogue of abuses and mistaken raids, and offers recommendations for reform.

Link here. Full paper text here (PDF file).
Botched paramilitary police raids: An interactive map – link.



“FOUR STARS (Highest Rating). The scariest damn film you’ll see this year. It will leave you staggering out of the theatre, slack-jawed and trembling. Makes ‘Fahrenheit 9/11’ look like ‘Bambi’. After watching this movie, your comfy, secure notions about America – and about what it means to be an American – will be forever shattered. Producer/director Aaron Russo and the folks at Cinema Libre Studio deserve to be heralded as heroes of a post-modern New American Revolution. This is shocking stuff. You’ll be angry, you’ll be disgusted, but you may actually break out in a cold sweat and feel a sickness deep in your gut; I would advise movie theatre managers to hand out vomit bags. You may end up needing one.” ~~ Todd David Schwartz, CBS

Determined to find the law that requires American citizens to pay income tax, producer Aaron Russo (The Rose, Trading Places) set out on a journey to find the evidence. This film – neither left, nor right-wing – is a startling examination of government. It exposes the systematic erosion of civil liberties in America since 1913 when the Federal Reserve system was fraudulently created. Through interviews with U.S. Congressmen, a former IRS Commissioner, former IRS and FBI agents and tax attorneys and authors, Russo connects the dots between money creation, federal income tax, and the national identity card which becomes law in May 2008. This ID card will use Radio Frequency Identification (RFID) chips which are essentially homing devices used to track people. This film shows in great detail and undeniable facts that America is moving headlong into a fascist police state.

Aaron Russo’s incendiary political documentary which exposes many of the governmental organizations and entities that have abridged the freedoms of U.S. citizens had its international premiere at the and won a standing ovation. The event, which was held on the beach and filled to capacity, was open to the public and drew a crowd of people who stood along the boardwalk to watch the film. The Cannes audience as well as the European media has been fascinated by Russo’s fiery diatribe against the direction America is heading. The discussion that followed the preview lasted for 30 minutes. Actor Nick Nolte, in Cannes for the premiere of Over The Hedge, joined Russo during the event. “The information in this film is something everybody has to know”, said Nolte.

Link here.


Although George W. Bush is probably not the worst president in U.S. history (Woodrow Wilson may have that dubious honor), the president may be in contention for that title in the post-World War II era. Although he still has two and a half years to go in his term and could conceivably orchestrate a late-inning rally, the way he has run his administration to date makes that doubtful. But President Bush does have some stiff competition from other postwar administrations that failed – those of John F. Kennedy, Lyndon B. Johnson, and Richard M. Nixon.

But George W. Bush can compete with each one of these lesser lights of the presidency. Instead of using all the U.S. government’s national security resources to capture or kill Osama bin Laden, the perpetrator of the 9-11 attacks, Bush invaded an unrelated country, has become bogged down in a quagmire and civil war, and has unintentionally provided a training ground for and fueled the hatred of a jihadist terrorist movement that will probably attack U.S. targets for decades. If he had been president at the beginning of World War II, Bush would have responded to the Japanese attack on Pearl Harbor and the Nazi declaration of war on the United States by invading Romania.

But surprisingly, this Iraq fiasco is not the most dangerous thing the president has done. He has used the never-ending war on terror to claim unlimited power for the president during wartime. For example, he has flouted the Constitution by detaining prisoners without trial, spied on Americans without the constitutionally required warrants, and blatantly said that he will follow a congressionally passed law against torture when he feels like it. None of the other postwar presidents have claimed unlimited power during wartime or crises. This is a truly dangerous claim, especially when the war is perpetual. The individual liberties guaranteed to citizens – unique to the American system – could be threatened by even greater future executive authoritarianism. Bush’s arrogant power grab, which attempts to eviscerate the checks and balances that are at the heart of the U.S. Constitution, probably makes him the most dangerous – and therefore the worst – president in the post-World War II era.

Link here.


Is the USA, asks Laurence J. Kotlikoff, professor of economics at Boston University, “at the end of its resources, exhausted, stripped bare, destitute, bereft, wanting in property, or wrecked in consequence of failure to pay its creditors?” Or, abandoning the Oxford English Dictionary for Ray Charles, are Americans “busted, broke … no bread … I mean like nuthin’?” Answering his own question in the affirmative, Professor Kotlikoff explains, “This partial equilibrium analysis strongly suggests that the U.S. government is, indeed, bankrupt, insofar as it will be unable to pay its creditors, who, in this context, are current and future generations to whom it has explicitly or implicitly promised future net payments of various kinds.”

We do not know what a partial equilibrium analysis is. But since it supports our general view, we ask no questions. Instead, we merely probe more deeply into the report for elaboration and amusement. “Unless the United State moves quickly to fundamentally change and restrain its fiscal behavior, bankruptcy will become a foregone conclusion.” This does not particularly help us. We have no doubt that the nation will be bankrupt. What caught our eye was the assertion that it is already broke. But that, it turns out, depends on what you mean by the word “broke”.

“The proper way to consider a country’s solvency,” goes on the professor, “is to examine the life-time fiscal burdens facing current and future generations. If these burdens exceed the resources of those generations, get close to doing so, or simply get so high as to preclude their full collection, the country’s policy will be unsustainable and can constitute or lead to national bankruptcy. Does the United States fit this bill? No one knows for sure, but there are strong reasons to believe the United States may be going broke.”

Among the strongest reasons is a study of the total net “fiscal gap” that the country faces. This is the present value of the difference between the government’s future income and expenses – calculated using optimistic assumptions and not including any contingent liabilities. These are the basics – interest payments, government operations, social security, and drug money. The figure is $65.9 trillion – or about 500% of the nation’s GDP. There is no chance that the gap will be closed. Kotlikoff has a sense of humor on this point. He notes that the government would have to cut discretionary expenses by 143%. Or, personal and corporate income taxes could be doubled. Just in case the reader missed the joke, he includes a chart that tells us that people at the upper end of the income scale already pay more than 50% of their incomes in taxes.

With a problem this big staring them in the face, you might think the custodians of the nation’s financial health would be staying up late at night trying to come up with solutions. If you thought that, you would be an idiot. It is late in the cycle, dear reader. Patriots can no longer save the republic. It no longer exists. Instead, they spend their time trying to get what they can out of a decaying empire. Paul O’Neill was the first U.S. Treasury secretary to bother to calculate the “fiscal gap”. George W. Bush fired him for it and proceeded to sign every spending bill – no matter how preposterous – to come his way. For its part, Congress continues to add to the fiscal gap every day it is in session, which leads Kotlikoff to conclude: “The most likely scenario is that the government will start printing money to pay its bills. This could lead to spiraling expectations of higher inflation, with the process eventuating in hyperinflation.”

This is not the only reason to buy gold, but it is one of them.

Link here.


With Hezbollah’s entry into the war between Israel and Hamas, Fourth Generation war has taken another developmental step forward. For the first time, a non-state entity has gone to war with a state not by waging an insurgency against a state invader, but across an international boundary. Again we see how those who define 4GW simply as insurgency are looking at only a small part of the picture. I think the stakes in the Israel-Hezbollah-Hamas war are significantly higher than most observers understand. If Hezbollah and Hamas win – and winning just means surviving, given that Israel’s objective is to destroy both entities – a powerful state will have suffered a new kind of defeat, again, a defeat across at least one international boundary and maybe two, depending on how one defines Gaza’s border. The balance between states and 4GW forces will be altered world-wide, and not to a trivial degree.

So far, Hezbollah is winning. As Arab states stood silent and helpless before Israel’s assault on Hamas, another non-state entity, Hezbollah, intervened to relieve the siege of Gaza by opening a second front. Its initial move, a brilliantly conducted raid that killed eight Israeli soldiers and captured two for the loss of one Hezbollah fighter, showed once again that Hezbollah can take on state armed forces on even terms (the Chechens are the only other 4GW force to demonstrate that capability). In both respects, the contrast with Arab states will be clear on the street, pushing the Arab and larger Islamic worlds further away from the state.

Hezbollah then pulled off two more firsts. It responded effectively to terror bombing from the air, which states think is their monopoly, with rocket barrages that reached deep into Israel. Once can only imagine how this resonated world-wide with people who are often bombed but can never bomb back. And, it attacked another state monopoly, navies, by hitting and disabling a blockading Israeli warship with something (I question Israel’s claim that the weapon was a C-801 anti-ship missile, which should have sunk a small missile corvette). Hezbollah’s leadership has promised more such surprises.

In response, Israel has had to hit not Hezbollah but the state of Lebanon. Israel’s Prime Minister, Ehud Olmert, referring to the initial Hezbollah raid, said, “I want to make clear that the event this morning is not a terror act but the act of a sovereign state that attacked Israel without reason.” This is an obvious fiction, as the state of Lebanon had nothing to do with the raid and cannot control Hezbollah. But it is a necessary fiction for Israel, because otherwise who can it respond against? Again we see the power 4GW entities obtain by hiding within states but not being a state. What comes next? In the short run, the question may be which runs out first, Hezbollah’s supply of rockets or the world’s patience with Israel bombing the helpless state of Lebanon.

The critical question is whether the current fighting spreads region-wide. It is possible that Hezbollah attacked Israel not only to relieve the siege of Hamas in Gaza but also to pre-empt an Israeli strike on Iran. If Israel does attack Iran, the “summer of 1914” analogy may play itself out, catastrophically for the U.S. As I have warned many times, war with Iran (Iran has publicly stated it would regard an Israeli attack as an attack by the U.S. also) could easily cost America the army it now has deployed in Iraq. It would almost certainly send shock waves through an already fragile world economy, potentially bringing that house of cards down. A Bush administration that has sneered at “stability” could find out just how high the price of instability can be.

Link here.
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