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THE CROATIAN ADVANTAGE
When I decided to move to Croatia early in 2005, my friends and business associates were shocked. “Where is it?” … “Isn’t there a war going on there?” … “Why would you start a business there?” At the time, my short answer was that the war had been over for 10 years and the Croatian coast where I was going was a beautiful place with a mild, Mediterranean climate that was located in the heart of Europe. After living here a year, registering a company, obtaining a business visa and operating my consulting and real estate firm, I am able to provide a much more complete response. Croatia is an emerging economy with tremendous prospects for growth because of its location, its anticipated accession to the EU by the end of the decade and its stable government that is working hard to encourage foreign investment.
The Austrian Foreign Trade Office recently surveyed foreign investors in Croatia and found that 61% of them listed the little republic’s location in the center of Europe as the primary motivation for their investing here. My business is located in Istria, a heart-shaped peninsula smaller than the state of Rhode Island. The local airport in Pula has non-stop flights to London’s Gatwick, Amsterdam, Munich, Edinburgh and Glasgow, many of them on low-cost carriers. The seaport of Rijeka at the northeast corner of Istria is undergoing a $266 million makeover financed by the World Bank that will turn it into a world class port of the caliber of Baltimore or Barcelona and the Adriatic’s “Gateway” to Europe. Istria is also a top tourist destination. Visitors from around the world are drawn by the azure blue Adriatic that is clearer than the water around the Bahamas, and unique towns like Pula with its Roman ampitheatre, the Venetian-flavored seaside village of Rovinj, and medieval Motovun surrounded by ancient walls and perched atop a cone-shaped hill.
Natural beauty and central location are also driving the real estate market. London’s Telegraph reported in March that Istria is the “regional hotspot, the fastest growing part of Croatia in both property and tourism.” These location-driven advantages are propelling economic growth that is in turn producing more optimism and investment. The Croatian economy grew at a solid 4.3% in 2005 and spurted to 6% in the first quarter of this year. Foreign investment increased by 36% in 2005 compared to 2004, and the Austrian survey of foreign investors would predict even greater growth in the future. More than 70% expect business to improve in the coming year.Link here.
TIRADENTES, BRAZIL: A COLONIAL GEM
Don’t think Brazil is only good for beaches and the Amazon. Nestled in the rural foothills of the Serra do São José is Tiradentes, a sophisticated, rustic, original gold rush town in the countryside of Minas Gerais. Relaxation comes over me as we descend by bus into Tiradentes, a well-preserved market town frozen in the 1800’s.
The buildings are no more than two stories high and still hold to their original colonial dimensions. With weathered terracotta roofs on top of whitewashed walls of adobe brick, they are trimmed in colours ranging from blue and yellow to maroon. These handsome, stately buildings extend up a hillside and cluster around the gracefully decorated baroque church of Matriz de Santo. The narrow, uneven cobbled roads, lined with craftwork shops, stores, restaurants and pousadas (a Brazilian Inn), are paved in stones, the clay crusted in the cracks giving the streets a dirty rust hue. Scattered about everywhere are horses and carriages.
Situated next to the magnificent Serra do São José, a thin, ridge of a mountain range that stretches out behind the town, Tiradentes is surrounded by abundant, lush vegetation. There are trees with long, over-hanging branches filled with yellow, red, magenta, purple, and peach coloured flowers. The lively vegetation has a vibrant presence that gives off a slight tropical feel. The town astounds me – they do not come more charming, elegant, or cozy than this. A colonial gem. After having lived in Rio de Janeiro for more than three years, I did not know that a place like this existed in Brazil. Or, should I say, I never believed the things so many Brazilians have told me about this lovely town.Link here.
IS THE BEACH PARTY OVER FOR THE “FLORIDA OF EUROPE”?
The signs at the Málaga, Spain airport say it all. “England is closer than you think,” reads an airline banner advertising one-way air fares of €55. “Come and see us, we speak YOUR language,” urges the billboard on a real estate agency kiosk planted in front of the baggage carrousel. While passengers in shorts and flip-flops wheel away their suitcases, a smiling woman hands out glossy brochures of white villas overlooking the ninth hole. Outside, rental cars speed toward beaches lined with white condo towers, British-style pubs and spas specializing in plastic surgery. Or they head for the arid mountains, where ubiquitous red cranes announce the coming of thousands of vacation homes.
About two million residents of the EU are expected to retire to Southern Europe in the next 10 years, said Gilberto Jordan, a Portuguese developer and member of the Resort Development committee of the Urban Land Institute, a nonprofit research organization. If past patterns are any guide, many of them will be retiring to Spain. With its seductive combination of warm climate, good hospitals for hip replacements, an abundance of housing and clever promotion, the country is leading other sunny European destinations, like Portugal, Italy and Greece, in the race to capture Europe’s aging baby boomers, who are traveling more – and spending more on themselves – than their parents did.
About 600,000 EU citizens are officially listed as permanent Spanish residents – one of the largest intra-EU migrations on record. Roughly 1.7 million – mostly Germans and British – own a second home in Spain, according to Live in Spain, an association of Spanish residential developers. Many of them are not seeking return on investment, but a gentler life once they retire. As they warm up, the Spanish coastline is looking increasingly like Miami and other seaside boom towns, the result of a construction frenzy over the past few years. An average of 600,000 new homes have been built each year since 2003 – triple the rate for the rest of Europe. Most of the new properties sit along tourist-packed regions such as Valencia, Cádiz, the Costa Brava and the Costa del Sol. These leisure idylls are aggressively marketed to Northern Europeans. Prices match both fixed-income and jet-set budgets. The northern influx has been so great that many coastal towns have more foreigners than Spaniards.
But after building at fever pitch over the past 10 years, the beach party seems to be winding down. Property prices on the Spanish coast are losing momentum, growing now by only 5% to 10% a year, compared with 17% from 2002 to 2004, said Muriel Muirden, an analyst for Economic Research Associates in London. Interest rates are higher now, and banks – which helped fuel the housing boom by granting mortgages up to 100 percent – are growing worried about defaults. Property resales are slower as short-term investors turn to emerging destinations like Morocco, Turkey or Croatia, she said.
In what could be described as a better-late-than-never move, environmental groups are putting pressure on the government to limit construction in the arid Spanish south, where water is scarce. Spaniards themselves have developed a love-hate relationship with the frenzied development. In March, crime in the glitzy resort town of Marbella reached Miami Vice proportions when the police arrested the mayor, the urban planning adviser and other city officials in connection with an elaborate scheme for generating millions of euros in kickbacks in exchange for building permits or rezoning decisions. But the scandal will probably not alter the long-term pattern of migration from north to south – or the appeal of Spain, Muirden said.
Developers have driven the market to some extent, but low-cost airlines have helped, blanketing the country and spurring property values wherever they land. Spain’s popularity as a tourist destination - it ranks second in the world, after France – has meant a steady stream of potential buyers already familiar with the territory. And unlike emerging, and cheaper, resort destinations in Turkey or Morocco, Spain is anchored within what Muirden calls the “comfort zone” of the EU, with its shared legal and economic framework.Link here.
FORMER MICHIGAN RESIDENT MURDERED IN COSTA RICA
Milan, Michigan resident Carl Brainard, 66, lived his last year on Earth along the Pacific Ocean shore in Costa Rica, where July 12 he was discovered brutally murdered. The victim’s son, Jeff Brainard of Ann Arbor, said Costa Rican authorities believe his father interrupted a robbery in progress when he returned to his home in Nosara July 10. At this time, the Costa Rican authorities have not shared the cause of death, although from the crime scene, it was obvious there had been an altercation between Brainard and the intruders, Jeff Brainard said. “That’s what we’ve been told by the Costa Rica’s version of the FBI,” he said. “From what we’ve been told, they have no suspects, and the American authorities don’t appear to have a lot of confidence in the Costa Rican authorities.”
Carl Brainard worked as a real estate agent by day and also operated a local juice bar in the evenings. Well liked by the locals, more than 100 Nosara residents held a candlelight memorial service for Brainard. His girlfriend, Saline resident Gail Feuhrer, also was living in Costa Rica and went to Brainard’s home to check on him where she discovering his body. “He loved the ocean and he loved the outdoors,” said Jeff Brainard, who recalled traveling to Costa Rica with his father several times on surfing vacations. “He wound up liking it a lot. He really liked the people there too.”
According to Costa Rican news reports, the village of Nosara is home to many affluent Americans who attract the attention of the criminal element. Several of Brainard’s friends and family, aware of the remoteness of his home, had advised him to get bars for his windows, his son said. “What we’ve been told by the U.S. Embassy is that it’s common for Americans in that area to fall victim to robberies because it’s generally assumed that Americans are rich,” he said. “They don’t believe that whoever did this was local because he was so well liked by the community. He had many, many friends.”Link here.
Limited-access neighborhoods appeal to buyers of all means.
With the proliferation of gated communities in Panama it would be wise to look at how successful they have been in the U.S. both as a deterrent to crime and as an attraction to home buyers. Our 9 man security detail [in Panama] provides 24/7 security with always two men on duty and costs about $50,000 a year with vehicles, arms and uniforms, etc. A gate without guards would soon be nothing but a nuisance to homeowners, and with the increase in crime that always comes with the increase of wealth into an area, I believe more and more people will be wanting them here to.
These days, it seems everyone wants to live like David Robinson. The retired San Antonio Spurs star lives in the Dominion behind not one, but two gates. After the guarded gate at the neighborhood’s entrance, an electronic access gate on Robinson’s prevents even his Dominion neighbors from approaching.
And that is the point. Gated communities, with their aura of security and country-club feel, are booming in San Antonio. More home buyers are choosing to live behind stone and iron walls with electronic, camera-monitored or guarded gates. “Almost all new communities are gated today,” said Rick Montelongo, president of the Greater San Antonio Builders Association. “Gates really sell the houses.”Links here and here.
RISK OF BUST GROWING FOR CHINESE ECONOMY
China’s leaders are finding that the world’s largest command economy no longer responds to their commands. Growth is hurtling along at the fastest pace in a decade, defying official efforts to curb investment in unneeded factories and real-estate projects. The government’s immediate concerns are that overheated growth will saddle China with excess capacity, create more asset bubbles and increase friction with the U.S. and other trading partners. “China’s unbalanced growth model has now gone to excess and seems in danger of veering out of control,” said Stephen Roach, the chief global economist at Morgan Stanley in New York. “The longer China’s economic boom runs, the tougher it will be to avoid a more treacherous endgame.”
That might include defaults on bank loans, and eventually deflation and a collapse of asset values. Such a hard landing would risk breeding social unrest within China while drying up export markets for neighbors like South Korea and Taiwan. Risks of a bust are increasing, said Robert Subbaraman, senior economist for Asia at Lehman Brothers in Hong Kong. “We have raised our likelihood on the Chinese economy slowing sharply to a one-in-three chance.”
China’s banks carry more than 1.3 trillion yuan of nonperforming loans, which exceeds the 8% carried on their books, according to Moody’s Investors Service. Chinese banks are “backward in terms of their risk management and pricing of loans,” said May Yan, vice president at Moody’s in Hong Kong. “It’s going to take years for these banks to learn how to price risk, and they’re going to get burned along the way.”Link here.
China imposes yet more taxes on real estate.
China’s State Administration of Taxation has announced that starting August 1, it will begin imposing a tax of between 1% and 3% on the proceeds of certain property sales in the secondary market if it cannot be established how much the seller originally paid for the property. The tax will only apply if the seller has held the property for less than five years. China imposes a 20% capital gains tax on property sales, but since the law was introduced in 1994 it has rarely been enforced. However, the tax authority announced that it will begin to enforce this tax, also starting August 1. In addition, tax will be collected before the completion of property sales, rather than after the sale as is the case at present.Link here.
DOW JONES LAUNCHES ISLAMIC INDEX
Dow Jones Indexes has launched a new index which focuses on companies in certain emerging markets that comply with criteria laid down for Islamic investment. The Dow Jones Islamic Market BRIC Equal Weighted Index measures the performance of companies in the Brazilian, Russian, Indian and offshore Chinese markets that pass screens for compliance with Shari’ah law. Investment in companies deemed unethical is forbidden under Islamic finance law. Excluded from the Dow Jones Islamic Index series are stocks of companies that deal with alcohol, tobacco, pork-related products, financial services, defence/weapons, and entertainment.
Also excluded are companies that fail any of three financial ratios: 1.) Total debt divided by trailing 12-month average market capitalization is greater than or equal to 33% or more. 2.) Cash plus interest-bearing securities divided by trailing 12-month average market capitalization is greater than or equal to 33%. And 3.) accounts receivables divided by total assets is greater than or equal to 33% or more. The index is designed to serve as underlying for investment products such as mutual funds, exchange-traded funds (ETFs) and other investable products.Link here.
END OF THE ROAD FOR YUKOS
The Yukos saga looks to have finally drawn to a conclusion after a Moscow court decalred the company bankrupt and ordered that its remaining assets be sold off. A panel of three judges at the Moscow Court of Arbitration assigned Yukos assets in Russia to a court-appointed manager who has a year to auction them to pay creditors, which include the tax service and state-owned rival, Rosneft. Once Russia’s largest private company, Yukos was seemingly doomed as soon as its former chief executive, Mikhail Khodorkovsky, provoked the ire of President Vladimir Puitn by criticizing his energy polices and donating money to opposition political groups.
Khodorkovsky was arrested in 2003 on charges of fraud, tax evasion and embezzlement. He now languishes in a Siberian jail serving a 9-year prison sentence. Subsequently, Yukos was served with a series of multi-billion dollar claims for back taxes that in the final reckoning totaled some $28 billion. To pay its crippling debts, the company was forced to auction off its main production unit, Yuganskneftegaz, at a knock down price to state-owned rival Rosneft. Some say that this was engineered by the Kremlin to bring more of the country’s key energy production infrastructure under state control.
Yukos had argued it could restructure itself and pay off its debts without going into receivership by benefiting from the current high energy price, but the rescue plan was rejected by creditors after a court-appointed administrator warned them that the company was insolvent. The company’s debts were estimated at $18.3 billion, while its assets stood at $17.7 billion. However, Yukos’s overseas operations and assets, which are run from offices in London and elsewhere in Europe, could continue to function as a result of a seperate ruling in a U.S. federal court in July. Meanwhile, the company intends to prolong its slow death by planning to appeal against the Russian bankruptcy ruling.Link here.
AUSTRALIA IS FLOATING ON A WINE LAKE THANKS TO VINEYARDS TAX BREAK
These should be the best of times for Australia’s wine industry. The country’s finest wines are snatching trophies away from the French in international competitions. Wine exports have swelled from $305 million in 1995 to $2.1 billion last year, the fourth highest in the world.
Sorry, mate, but many of Australia’s 2,000 wineries and 8,000 grape growers are facing a French-like crisis. There are too many grapes chasing too few palates. In fact, the surplus – estimated as high as 900 million liters – is large enough to serve every man, woman and child in the world a glass on the house. This is drowning profits. Growers in the main wine regions – the Riverina in New South Wales, and Riverland – are being offered as little as $75 a ton, well below the $225 it costs them to produce the fruit. Wineries are not cheering, because the huge surplus is shredding prices for bulk and other low-end wine. Some wine outfits are taking big writedowns on their inventories. The publicly traded Evans & Tate is valued at a paltry $4.5 million, down from $53 million five years ago.
The lesson from Down Under is universal: Be careful what you wish for. In 1993 the wine industry got Canberra to rewrite depreciation rules so growers could write off the cost of buying and planting vines over just four years, rather than over the lifetime of the vines as with other agricultural assets. In only three years, 1997 to 1999, growers planted 100,000 additional acres, a 40% increase. Voilà, a grape glut. Now growers are pleading again for government aid. Not a chance, Aussie officials have said, adamant that market forces should decide which vineyards survive.Link here.
WHEN WORK DOES NOT PAY
With life expectancies rising, people can work longer – and ought to, to save themselves and Social Security from financial ruin. Yet federal tax, Social Security, Medicare, pension and antidiscriminiation laws “discourage work at older ages and discourage employers from hiring older workers,” says Richard W. Johnson of Urban Institute.
Johnson and other researchers calculated the difference between what an older worker costs an employer and what gets into the worker’s pocket in extra pay and benefits. They refer to this as the “implicit” tax rate on work. At age 65 the rate soars because workers who would otherwise get Medicare are required by law to stay on their company’s health plans. At age 70 the implicit tax rate on most workers (including the single male workers depicted in this chart) jumps again, to 50% – for every $10,000 the worker costs, he only gets $5,000 in benefits. The reason? Work past age 70 incurs full Social Security taxes but usually does not add to the worker’s Social Security benefits.Link here.
HARRY POTTER TRANSLATOR CLAIMS SWISS RESIDENCY IN TAX ROW WITH JAPAN
The Swiss-based Japanese translator of the global best-selling Harry Potter book series is reportedly facing a multi-million dollar claim for unpaid taxes by Japan’s tax authorities. Although Yuko Matsuoka claims to spend most of her time living in Switzerland, the Japanese tax authorities are of the view that she remains a Japanese resident for tax purposes, and have issued her with a bill for back taxes of about ¥700 million ($6 million) on ¥3.5 billion of undeclared income in the three years to 2004, according to reports in the Japanese media.
Yuko Matsuoka won the rights to translate the Harry Potter novels into Japanese in 1999, but she has been registered as a Swiss resident since 2001. She argues that it is to the Swiss government, not the Japanese, that she pays tax. A person is deemed resident in Switzerland if they live in Switzerland for not less 180 days in any one year. If, however, they remain in the same abode, the time required to be a resident for tax purposes drops to 90 days. Residence for tax purposes is also granted if a person carries on a business in Switzerland.
In Switzerland, tax is levied at federal, cantonal and communal level, but the total rate does not usually exceed 30%. However, there is considerable variation in tax rates between the Swiss cantons, and wealthy non-nationals are able to cut fiscal deals with cantonal authorities if they are not engaged in any substantial economic activity in the country. By contrast, in Japan, Matsuoka faces paying about 50% of her income in tax.
Matsuoka is said to be appealing the tax claim, and is urging the Swiss and Japanese tax authorities to hold discussions to prevent the double taxation of income. There is already a double taxation avoidance agreement in force between Switzerland and Japan.Link here.
U.S. CONGRESS TRIES TO REDUCE TAXATION FOR EXPATS
Before the U.S. House of Representatives recessed for its summer break, Chris Chocola of Indiana, along with 16 colleagues, introduced the Working American Competitiveness Act (HR 5986), which would eliminate the double taxation of U.S. citizens who are resident abroad. Unlike most other countries, the U.S. taxes the world-wide income of its citizens under Section 911 of the Tax Code even if an American is tax-resident in a foreign country and pays local taxes there. Although double tax treaties can sometimes be used to reduce the incidence of such taxation, and there are deductions which apply to some of an expatriate American’s earned income, the effect of Section 911 is to deter Americans from working abroad, say many commentators.
“Overseas Americans greatly benefit the United States by earning market share for goods and services,” commented Andrew Quinlan, president of the Center for Freedom and Prosperity. “It is good economics and common sense to remove the punitive double taxation on these productive citizens. The Center for Freedom and Prosperity applauds Congressman Chocola’s leadership and looks forward to working with him to enact this important piece of legislation” added Quinlan. Rep. Chocola was joined by 16 House colleagues as original co-sponsors. Senator Jim DeMint (R-South Carolina) introduced a Senate version of the bill on June 13, 2006.Link here.
IRS CHIEF TO CHAIR INTERNATIONAL TAX FORUM
IRS Commissioner Mark W. Everson has been elected chairman of the Forum on Tax Administration, a panel of national tax administrators that is part of the CECD. As chairman of FTA, Everson will preside over the group’s annual meeting in Seoul, South Korea in September. The Seoul meeting will be attended by representatives of the 30 OECD countries as well as about a dozen observer nations, including China and India. A significant portion of the meeting will be devoted to international enforcement. “Many of my counterparts in the international tax community have expressed the need for greater cooperation to fight the proliferation of abusive tax practices,” Everson commented. “Tax administration is being increasingly challenged by globalization, the mobility of capital, the immediacy and fluidity of information and knowledge transfer, and the access individuals and businesses have to sophisticated tax planning and, in some cases, tax avoidance advice and products. These developments pose a direct challenge to national tax administrations that act in isolation.”
The IRS has taken a number of steps in recent years to increase international cooperation and improve treaty relationships and the administration of the provisions of these tax treaties. Earlier this year, the IRS and the tax authorities of nine other countries agreed to the establishment of the so-called “Leeds Castle” Group. Under this new arrangement, the commissioners of the revenue bodies of Australia, Canada, China, France, Germany, India, Japan, South Korea, the U.K. and the U.S. agreed to meet regularly to consider and discuss issues of global and national tax administration in their respective countries, particularly mutual compliance challenges. This is the first time China, India and South Korea have been included in such discussions.
In addition, the IRS and the national tax agencies of the U.K., Canada and Australia established the Joint International Tax Shelter Information Center (JITSIC), a joint effort to identify, develop and share information about abusive tax avoidance transactions on a real-time basis. Work at JITSIC has identified abusive transactions that otherwise would not have been known to the U.S. and other countries.Link here.
IRS ISSUES PROPOSALS ON TAXATION OF SERVICES UNDER TRANSFER-PRICING RULES
The U.S. Treasury Department and the IRS issued proposed and temporary regulations on the tax treatment of services transactions, including services transactions related to intangible property, under the related party transfer pricing rules. The regulations update the existing rules regarding related party services transactions (which have not been revised since their issuance in 1968) to reflect an increasingly global economy, as well as the significance of cross-border services.
Key highlights of the Proposed and Temporary Regulations are:
Treasury International Tax Counsel Hal Hicks commented, “The new guidance takes low-margin services off the table and makes administration of the rules more productive for both taxpayers and the IRS. The regulations are issued in proposed and temporary form with a delayed effective date in order to allow taxpayers sufficient time to implement any necessary internal procedural changes and to provide further comments before finalization.
“Along with the proposed cost sharing regulations issued last year and forthcoming re-proposed global dealing regulations, the proposed and temporary services regulations modernize our transfer pricing rules to keep them current with changing business practices.”Link here.
IRS LAUNCHING ONLINE PAYMENT AGREEMENT SYSTEM
Tax professionals are helping launch a new system that will allow many individuals who owe federal taxes to apply online for a payment agreement, the IRS has announced. The agency is implementing the new Online Payment Agreement (OPA) application through national partnerships with the tax professional community. This application will eliminate the need to write or call the IRS toll-free number for assistance. When fully implemented, OPA will provide an easier way for taxpayers on their own, or with the help of tax professionals, to voluntarily resolve tax liabilities. The IRS estimates that 90% of taxpayers who qualify for a payment agreement will be able to obtain one through OPA once the application is available to the general public later this year.Link here.
U.S. SENATORS SEEK END TO TAX DEDUCTIBLE CIVIL SETTLEMENTS
Senate Republicans have expressed support for new legislation to prevent companies deducting settlements imposed in civil law suits against their taxable income. Senators John McCain (R-Arizona) and John Warner (R-Virinia), who serve on the Armed Services Committee, were highly critical of the fact that Boeing could have deducted $565 million of a $615 million civil and criminal settlement with the Justice Department from its taxes. However, it was the Justice Department, rather than Boeing, that was singled out for the harshest grilling by the Senators for its ducking of the tax deductibility issue. “How in the world do you duck the obligation to determine” if the settlement payments “can be laid off to the taxpayer?” McCain asked Deputy Attorney General Paul McNulty. “The taxpayers shouldn’t be picking up the bill,” he argued.
A number of Senators, including Sen. Jeff Sessions (R-Alabama) have expressed support for a change in the law with regards the deductibility of civil settlements. “Maybe it’s time for us to confront that,” Sessions stated. Sen. Chuck Grassley, chairman of the Senate Finance Committee, which has jurisdiction over taxation, has pledged legislation clarifying what is and is not deductible in settlements.
Meanwhile, Boeing, which was found to have improperly procured contracts for launch services worth billions of dollars from the U.S. Air Force and NASA, seems to have come out of the debacle with the most credit. After deciding to ignore the advice of its lawyers and not deduct the civil penalty, Boeing chief executive, Jim McNerney, told the committee that the company was keen to be seen “doing the right thing. We didn’t think the taxpayers should bear the brunt of our wrongdoing.”Link here.
JAPANESE FINANCE MINISTER SUGGESTS PHASED CONSUMPTION TAX INCREASE
Japanese Finance Minister Sadakazu Tanigaki has proposed an initial 3% hike in the country’s consumption tax before the levy is doubled to 10% over the coming decade. Tanigaki, who last week announced his candidature for the ruling Liberal Democratic Party’s presidential election next month, suggested that the 5% levy should increase by 3% from the fiscal year beginning April 2011 before being raised again to 10% midway through the next decade. Without this, Japan will struggle to meet its future social security and pension commitments, Tanigaki argued.
However, his statement has highlighted the divisions within the LDP leadership on the controversial consumption tax issue, as Internal Affairs and Communications Minister Heizo Takenaka criticized Tanigaki’s remarks. According to Takenaka, future economic growth will raise enough revenues to render a hike in consumption tax unnecessary.Link here.
THE ISLE OF MAN’S INNOVATIVE TAX REGIME FEATURES 0% CORPORATE INCOME TAX
The Isle of Man is now in its 21st year of unbroken economic growth and has been able to maintain its coveted AAA credit rating from both Standard and Poor’s and Moody’s credit rating agencies since the year 2000 which strengthens the Isle of Man’s reputation as a well regulated jurisdiction for international business. In response to recent OECD and EU initiatives, the 2006 Isle of Man budget saw the implementation of the Isle of Man tax strategy which has been the subject of much planning, fine tuning and consultation over the past 5 years. The result is an innovative and proactive corporate income tax strategy which will strengthen the Island’s competitive position internationally. As of 6th April 2006, the general rate of corporate income tax in the Isle of Man is 0%.
A higher 10% rate of corporate income tax will apply to the following sources of income only: 1.) Income arising from banking business carried on by banks licensed under the Isle of Man Banking Act 1998. Income arising from sources which do not constitute banking business will be chargeable at the general 0% rate. 2.) Income derived from land and property in the Isle of Man – including both rental income and profits derived from dealing in or developing land in the Isle of Man. The Isle of Man Treasury Minister has also confirmed that the Isle of Man Government has no intention of introducing capital gains tax in the Isle of Man and there will continue to be no stamp duty or taxes on wealth. To address the international concerns regarding all offshore “exempt” regimes, Isle of Man income tax exempt companies and companies with non-resident tax status will now be migrated into the new domestic tax system. This migration will be effected over a transitional period.
In light of the implementation of the new Isle of Man tax strategy, the introduction of the zero rate of corporate income tax and the forthcoming repeal of special income tax exempt regimes, the Isle of Man has amended and widened the audit exemption thresholds. As a result a company will now fall within the definition of an “audit exempt company” in any financial year if at least two of the following three conditions are met: 1.) Its turnover in that year does not exceed £5.6 million. 2.) Its balance sheet total does not exceed £2.8 million at any time during that year. 3.) It employs no more than 50 persons at any time during that year, and it is not regulated. A private company will also continue to fall within the definition of an “audit exempt company” in any financial year if all its members are directors and it exists wholly for the purpose of holding shares, securities, other investments or land and is not regulated.
Notwithstanding the removal of the income tax exempt status regime, the position will remain unchanged in respect of interest paid by Isle of Man companies to companies not resident in the Isle of Man. The Isle of Man will not charge withholding taxes on interest payments made by Isle of Man companies to non-resident companies and it is proposed that starting 6th April 2007 the Isle of Man will not charge withholding taxes on dividend payments made by Isle of Man companies to non-resident companies or individuals.
The new Distributable Profits Charge (the DPC) will be introduced with effect from 6th April 2006 for all companies for the year of assessment 2006-07 onwards. The rationale behind the DPC is to discourage companies from rolling up profits in the 0% tax regime. The DPC is payable by the company only in respect of profits that are attributable (but not distributed) to owners of the company resident in the Isle of Man. Accordingly, the DPC will not be payable where all owners of the company are resident outside the Isle of Man or in respect of the proportion of any distributable profit that is attributed to nonresident owners. The DPC will also not apply to certain listed companies.
The 2006 Budget has also introduced the “corporate charge”. This is a new concept and has been set at £250 and will be payable annually by each corporate taxpayer (except those that have been specifically exempted and those that currently pay a fee). It is envisaged that the corporate charge will be creditable against any liability to income tax that a company may have if, for example, it derives any income from banking business or from land and property in the Isle of Man. The rationale behind the corporate charge is to offset the loss of fee revenue to the Isle of Man Government from the elimination of the income tax exempt status regime and other exempt regimes whereby exempt companies paid £475 each year, and companies with non-resident tax status paid £1,000 each year, to the Isle of Man Government.
Another new concept introduced by the 2006 Budget is the cap of £100,000 on an individual’s income tax liability, commencing on 6th April 2006. This cap will be available, on application to the Assessor, for all individual taxpayers, both current residents and new residents. A consultation exercise has now been commenced by the Isle of Man Income Tax Division with a view to introducing a cap on corporate tax liabilities – primarily aimed at banks – which could form part of the Island’s future taxation strategy.Link here.
A ROLLING STONE GATHERS NO TAX COLLECTORS
It has emerged that the members of long-running rock group, the Rolling Stones have, for nearly the past quarter century, been paying just a fraction of the tax that they would have done if they were resident for tax purposes in the U.K. Germany’s Die Welt newspaper revealed that the ageing rockers are now making their wills in order to avoid disputes among their beneficiaries, and said that due to a decision in the 1970s to structure their tax affairs in the Netherlands, the Stones have paid just 1.6% in tax on £242 million in royalties earned over the past 20 years.
The band’s assets are reported to be managed by Promogroup, a Dutch financial umbrella organization with its roots in the 17th century. This Is London further suggested that in addition to taking advantage of the fact that the Dutch authorities do not levy a direct tax on royalties, companies in the Netherland Antilles are used by Promogroup to increase tax savings.Link here.
U.S. SENATORS SET SIGHTS ON “OFFSHORE TAX ABUSE”
IRS chief Mark W. Everson was called to testify before a Senate committee which is studying the issue of offshore tax havens and their impact on the U.S. federal tax system. The Permanent Subcommittee on Investigations hearing, entitled “Tax Haven Abuses: The Enablers, The Tools & Secrecy”, is the latest in a line of hearings by the committee on the subject of corporate and individual tax evasion through offshore-based entities and tax planning schemes. The hearing will present case histories on the use of offshore trusts and corporations to circumvent U.S. tax, securities and anti-money laundering laws. In addition to Everson, witnesses will include securities firms, banks, law firms, U.S. taxpayers, a trust protector, and tax and securities experts.
The committee believes that such “offshore abuses” drain billions of dollars every year from the U.S. Treasury and undermine the tax system and law enforcement efforts. Sen. Norm Coleman (R-Minnesota) and Sen. Carl Levin (D-Michigan), the chairman and ranking member of the committee respectively, have tried repeatedly to get an anti-offshore bill through the Senate to combat what they term “abusive tax shelters and uncooperative offshore tax havens used by businesses and individuals to dodge payment of their U.S. taxes.”
Although a 2004 bill was unsuccessful, some of its provisions made it into law by being attached to other pieces of legislation, including stronger penalties for failing to report interests in foreign financial accounts, civil fines for tax practitioners such as accountants and attorneys who violate specified standards of practice, stronger penalties for failing to register or provide to the IRS required information regarding a potentially abusive tax shelter, and stronger penalties for failing to maintain a list of participants in potentially abusive tax shelters.
The latest hearing has been welcomed by the U.S. branch of the Tax Justice Network, a pressure group established in 2003 which campaigns against corporate and individual offshore tax avoidance. “We think that the U.S. Congress and the President should take steps to stop the use by Americans of secret companies and bank accounts set up in tax havens to facilitate evasion of U.S. taxes,” the group has argued.Link here.
Offshore tax cheats called out of control.
So many superrich Americans evade taxes using offshore accounts that law enforcement cannot control the growing misconduct, according to a Senate report that provides the most detailed look ever at high-level tax schemes. Among the billionaires cited in the report are the owner of the New York Jets football team – Robert Wood Johnson IV, the producer of the “Mighty Morphin Power Rangers” children’s show – Haim Saban, and two Texas businessmen, Charles and Sam Wyly, who the Center for Public Integrity found in 2000 were the ninth-largest contributors to President Bush.
Mr. Johnson and Mr. Saban, who are portrayed as victims in the report, are scheduled to testify before the Senate Permanent Investigations subcommittee. They are expected to say that professional advisers assured them their deals to avoid taxes were more likely lawful than not. They are now settling with the IRS. The Wyly brothers told the committee that they would invoke their Fifth Amendment right against self-incrimination and thus were not called to testify. The report characterizes them as active participants in tax schemes. Cheating now equals about 7 cents out of each dollar paid by honest taxpayers, as much as $70 billion a year, the report estimated. “The universe of offshore tax cheating has become so large that no one, not even the United States government, could go after all of it,” said Senator Carl Levin, the Michigan Democrat whose staff ran the investigation.
The report details how the Quellos Group, a tax shelter boutique based in Seattle, “concocted a tax shelter” using $9.6 billion “worth of fake securities transactions that were used to generate billions of dollars of fake capital losses.” The investigation, which took 18 months, involved 74 subpoenas, 80 interviews and the collection of more than two million documents, and yet Senator Levin said “the six cases we present are just examples, just a pinhole look.”
The 400-page report recommends eight changes, some of them aimed at going after the law and accounting firms, banks and investment advisers that the report says enable tax schemes that rely on complexity, secrecy and compartmentalizing information so that advisers can claim they had no idea that the overall transaction was a fraud. “We need to significantly strengthen the aiding and abetting statutes to get at the lawyers and accountants and other advisers who enable this cheating,” Senator Levin said, adding that “we need major changes in law to stop the use of tax havens” by tax cheats.
It also recommends new rules that strip away the underlying legal presumptions that make offshore tax havens like the Cayman Islands, Nevis, the Isle of Man and Panama attractive places for Americans to hide assets and income from the IRS. Senator Levin said the law “should assume that any transaction in a tax haven is a sham.” He said that during the investigation he grew angry as he learned how common cheating had become and how existing government rules aided tax cheats. “I get incensed by people who use tax havens to not pay their taxes while the average guy has to pay his taxes because they are taken out of his pay before he gets it,” he said.Link here.
Senate “offshore” hearing called “one-sided”.
The U.S. Senate pursued its crusade against “offshore” at a hearing this week, threatening savage reprisals against people who use low-tax jurisdictions for tax-planning purposes. But the Center for Freedom and Prosperity called the hearing “entirely one-sided”. Permanent Subcommittee on Investigations of the Committee on Homeland Security and Governmental Affairs billed its hearing “Tax Haven Abuses: The Enablers, the Tools, and Secrecy”. The Sub-Committee heard from IRS Commissioner Mark Everson along with a range of promoters and clients of tax-planning schemes that had been judged to be abusive. Senators Coleman and Levin presented a 400-page report that they said would “expose how offshore and U.S. professionals are helping U.S. citizens move assets offshore and dodge US taxes, adding to tax haven abuses that cost U.S. taxpayers an estimated $40 to $70 billion dollars each year.”
The Sub-Committee’s recommendations include:
Andrew F. Quinlan of the Center for Freedom and Prosperity commented, “Companies have a fiduciary obligation to shareholders to minimize their tax burdens. Because of the punitive tax rates and pervasive double-taxation of capital in the U.S. tax code, low-tax jurisdictions often are excellent platforms for economic activity. So-called tax havens also play a valuable role by encouraging better tax policy in the rest of the world. Policies designed to penalize low-tax jurisdictions would primarily benefit Europe’s uncompetitive, high-tax welfare states.”
Veronique de Rugy of the American Enterprise Institute said, “In part because of the liberalizing impact of tax havens and tax competition, personal income tax rates have dropped by 23 percentage points since 1980 and corporate tax rates have dropped by about 19 percentage points. These pro-growth reforms will be jeopardized if profligate politicians undermine low-tax jurisdictions and succeed in creating a tax cartel. An ‘OPEC for politicians’ will lead to bigger and more wasteful government.”Link here.
HOUDINI ESTATE PLANNING
Here is a joke only an accountant could love: A woman puts her assets in a trust and gives her husband the legal right to decide what to do with those assets – but only after he is dead! Except this is no joke. It is the latest legal contortion designed to circumvent one of the silliest – and family-unfriendly – features of the current estate tax law. Each spouse can leave a certain amount ($2 million for those dying this year) to the kids free of federal estate tax, but a couple cannot pool their exemptions and pass on $4 million tax free after the second spouse dies.
That creates a dilemma for couples who are affluent but not superrich. If the first spouse to die leaves $2 million directly to the kids, the survivor might end up short of funds. If the first spouse leaves everything to the surviving spouse, the family could end up paying hundreds of thousands in unnecessary estate taxes after the death of the second spouse. In June the House of Representatives passed an estate tax overhaul that would sensibly allow spouses to pool their exemptions. But the bill’s future in the Senate is iffy, since it otherwise slashes the estate tax, not a popular idea with Democrats.
So lawyers scheme on. That is where the trust from the grave comes in. So far, in four private-letter rulings issued to individual taxpayers, the IRS has okayed the graveyard trust gambit. That gives taxpayers a partially opened escape hatch. And keeps lawyers busy.Link here.
MIAMI BANKS FEAR LOSS OF INTERNATIONAL CLIENTS
The sparkling glass towers rising above the Atlantic along Brickell Avenue have long been the place where Latin America’s wealthy parked their money during political crises and invested it when times were good. These days, economies across Latin America are rebounding, but many in Miami’s financial hub are not seeing the expected boom. International banking leaders say that post-September 11 security regulations have scared off some clients with clean money who, despite their proximity and attraction to the U.S., are increasingly making deposits in Panama or even Luxembourg. And they say the cost of following the regulations is too great for many smaller banks.
Guillermo Rossel, a senior vice- president with International Bank of Miami, said that before 2001, the bank’s international clients came from across Latin America. Now they come only from Central America and the Caribbean. “We are losing international business, both private wealth management and correspondent – bank-to-bank business,” said Rossel, whose institution is one of a number of banks with charters in Florida that hold less than $1 billion in assets. “The regulations have to do with not only knowing our customers but knowing our customers’ customers,” he said of the bank-to-bank side. “It’s become too risky and too costly for us.”
The total amount of money flowing to and from Latin America into banks and related agencies in the U.S. is difficult to decipher as state and federal regulators do not break out those numbers, but a few statistics suggest the industry is indeed changing. Between 2000 and 2005, jobs in international banking in Florida dropped from nearly 5,000 to about 3,000. During the same time, the industry saw a $2.1 billion loss in business revenue, according to a recent study by Florida International Bankers Association. Meanwhile, the amount of money held by foreign banks with agencies licensed by the state held steady at about $19.5 billion, reversing a growth trend, according to the Florida Office of Financial Regulation. The number of Edge Act banks – banks allowed only to deal with foreign commerce – dropped from 10 in 2000 to seven in 2005.
Some analysts say the issue is more complicated. The number of banks with foreign offices was already on the decline from its height in the mid-1990s. They ascribe the loss to improved technology that allows companies to provide more services from a central hub such as New York. And they say banking is hardly the only industry where smaller businesses are struggling against global consolidation. Yet, Seno Bril, CEO of BNP Paribas in Miami, maintains the post-September 11 Patriot Act regulations have played a significant role, especially when it comes to Latin America’s wealthy.
Banks must verify the identification of potential clients depositing $1 million or more, as well as determine the source of funds and purpose of the account. Special diligence must be conducted to identify and monitor accounts opened by foreign government officials, their family members, associates and corporations formed to benefit them. “These are the people who like to do their shopping in Miami and in the United States. They send their kids to school in the U.S. They come for medical check-ups in the U.S,” said Bril, a former head of the Florida International Bankers Association. Yet they are not banking as frequently here because of concerns about confidentiality and the “perception that their money is not welcome.”
Florida International University Professor Jerry Harr acknowledged that the Sept. 11 regulations have had a chilling effect, but he said new-found political and economic stability are also affecting the amount of capital flowing in from Latin America. “I have no patience for depositors who complain the Patriot Act is the number one reason for the decline. It’s one of the reasons,” Harr said.Link here.
CONFESSIONS OF A CYBERMULE IDENTITY THIEF
John Dillinger was a bank robber whose tool of trade was a machine gun. But in today’s cybercrime era, the weapon of choice for “John Dillinger” is an MSR206, a card-writing machine used for encoding bank account numbers and other data onto the magnetic stripe of bank credit and debit cards. John Dillinger is the online nick of a 44-year-old bank card thief who says he has stolen about $150,000 in the last two years using debit-account and PIN numbers obtained through hacking and phishing scams. In March, he was one of many thieves who struck Bank of America, Citibank, Wells Fargo and other banks and credit unions in a cash-out operation that made national headlines and involved stolen debit-account and PIN numbers taken from a hacked database.
According to Dillinger, he obtained at least 450 numbers from a Russian hacker he met online, then used them to withdraw thousands of dollars from ATM machines before banks canceled the cards and issued new ones to customers. Dillinger, a drug addict and former prostitute in Southern California, was arrested last month on charges unrelated to the cash-out operation. It is unclear whether he will be charged for the cashing, although he has spoken openly about his activities with many people.
Authorities arrested Dillinger while he was driving with a friend who had an outstanding warrant. Police were after the friend but found a briefcase in the car containing a stash of credit cards and driver’s licenses with Dillinger’s photo and various names. He has been charged with 10 counts of identity theft and nine counts of possession of a forged driver’s license. He is being held on $1 million bail.
Dillinger typifies the thieves who are carving out a living on the bottom rung of the growing international cybercrime industry. Congregating on members-only web forums, where they take assignments from more technically sophisticated criminals, many have only moderate computer skills. They are the mules of electronic fraud, filling a vital role at the intersection of the virtual and the real: converting stolen account information into cold, hard cash.
Most are young males in their teens and early 20s who are lured by the prospect of making big bucks in an environment that offers them relative anonymity. Others are longtime bank and identity thieves in the offline world who have become acquainted with the riches that carding sites promise to even unsophisticated scammers like Dillinger. At the top of the pyramid are sophisticated hackers – many of them East Europeans – with the technical skills to hack databases and online bank accounts. It is the latter who have helped turn carding into a multibillion-dollar worldwide crime.Link here.
E-HEALTH GAFFE EXPOSES HOSPITAL DATA PROTECTION DEFECTS
Georgetown University Hospital suspended a trial program with an electronic prescription-writing firm last week after a computer consultant stumbled upon an online cache of data belonging to thousands of patients. The leaked information included patients’ names, addresses, Social Security numbers and dates of birth, but not medical data or the drugs the patients were prescribed, says Marianne Worley, a spokeswoman for the Washington, D.C.-based hospital known for providing emergency care to the nation’s most powerful political figures.
The hospital had securely transmitted the patient data to e-prescription provider InstantDx. But an Indiana-based consultant accidentally discovered the data on InstantDx’s computers while working to install medical software for a client. “The initial investigation has found that no patient demographic data was inappropriately used,” says Worley, who says between 5,600 and 23,000 patients were affected.
E-prescribing allows doctors to write and renew drug prescriptions electronically and transmit them to participating pharmacists for fulfillment. The Georgetown trial had been under way for less than eight months, and involved fewer than 10 doctors. The breach highlights the liabilities of sharing private medical records with third parties as the industry crawls toward electronic record keeping. A survey by the Centers for Disease Control and Prevention released last week found only about 24% of doctors used some electronic health records in 2005, and only 11% had gone entirely digital.
The incident also underscores increasing exposure for security professionals who discover and report flaws. Bug-finders have recently lost jobs or faced criminal prosecution for going public with their discoveries, and the incident, with certain details obscured, was the topic of a brief but lively debate on the risks and rewards of disclosure in the computer security community.Link here.
NEW BILL WOULD EXPAND GOVERNMENT’S POWER TO SEARCH AND SPY ON AMERICANS
A deal cut by Dick Cheney and Senator Arlen Specter is moving through the Senate Judiciary Committee toward the Senate floor. The bill would make presidential compliance with federal procedures that help protect Fourth Amendment rights optional. The bill would also vastly expand the government’s power to search and spy on American homes and businesses without any judicial checks. It would allow the government to listen to American’q international calls, and to read any domestic or international email message of Americans – if they do not know that every sender and recipient is in the U.S. – without any warrant or evidence an American is conspiring with al Qaeda.
“President Nixon had ordered warrantless wiretapping of Americans and claimed that he was above the law,” said Lisa Graves, ACLU Senior Counsel for Legislative Strategy. “History – and current events – show us that FISA, although not perfect, is still needed to help protect our Fourth Amendment rights. Congress should not weaken those protections. These proposed changes ignore the very reasons FISA was enacted in the first place.
“The White House has stonewalled congressional attempts to investigate the administration’s circumvention of FISA. And two weeks ago, President Bush personally blocked an investigation by the Justice Department regarding the NSA’s warrantless wiretapping program. The ACLU will be pulling out all of the stops to prevent this ‘Patriot Act on steroids’ legislation from passing …”Link here.
IRS LENDS A HAND TO FINCEN’S TRACKING EFFORTS
The IRS is rescuing a fellow Treasury Department bureau after a major data-sharing project fell prey to management problems. The tax agency has opened its modernized Currency and Banking Retrieval System – where it stores Bank Secrecy Act data – to the Financial Crimes Enforcement Network. FinCEN will use the system’s data query and analysis functions, rather than continue work on its floundering BSA Direct Retrieval and Sharing system. FinCEN anticipates that WeBCBRS will provide users with about 90% of the capability that it envisioned with BSA Direct R&S, a FinCEN spokesman said. FinCEN requires banks, money transmitters and other institutions to report suspicious and large cash transactions. Following trends in these transactions could reveal money laundering or terrorist financing.
FinCen officials hoped the new system would sharpen sharing and analysis of data from suspicious and large banking transactions. But continuing management problems, including missed program milestones, caused FinCEN officials to cancel its contract with EDS Corp. The project also was fraught with missed performance objectives, as well as skyrocketing costs, FinCEN officials said. EDS spokesman Brad Bass said, “The requirements changed over the time we worked on it. That affected cost and schedule, and as a result, it became a high-risk project.” The Government Accountability Office found that FinCEN’s lack of consistent and effective management also contributed to the system’s mounting problems.
The WeBCBRS system, a relational database, integrates all BSA data, including suspicious and large currency transaction reports. The IRS collects transaction data, converts paper and magnetic-tape submissions into electronic media and stores all the BSA data in the system located at its Detroit Computing Center. The FBI and other federal law enforcement agencies require their own copies of the BSA data so they can integrate it with other data sources for cases under investigation, said a report by FinCEN. “The value of BSA data is disproportionate to its volume,” the report said. For example, the FBI maintains a copy of the BSA data in its Investigative Data Warehouse and integrates it with 50 different data sources. Although BSA data comprises only 15% of the documents, it represents 40% of the queries - and usage is increasing, the report said.Link here.
HEZBOLLAH’S PRIMARY BACKER IS IRAN. BUT A LOT OF MONEY COMES FROM THE AMERICAS
Iran is the biggest patron of Hezbollah, delivering $100 million or so a year to the terrorists, according to Senate testimony from Matthew Levitt, now a Treasury Department official. But like any enterprising criminal organization, the Party of God has worked hard to diversify its cash sources. The feds have long suspected it has profited from blood diamonds out of Africa, operating through expatriate Lebanese. It also turns out there are important financial channels right here in the States.
The money comes from, among other sources, illicit trade in tobacco and controlled substances. Last month Imad Hamadeh of Dearborn Heights, Michigan and Theodore Schenk of Miami Beach pleaded guilty to federal racketeering charges over their involvement in a cigarette-smuggling gang that avoided $20 million in sales taxes. According to federal prosecutors, the ring was also engaged in diverting funds to Hezbollah.
Hamadeh and Schenk were part of a much larger group. A federal indictment of 18 men unsealed in March charged that the gang spent eight years moving smokes from low-tax and untaxed jurisdictions, like North Carolina and Indian reservations, into high-tax Michigan and New York. Prosecutors say the smugglers had ties “with upper echelon Hezbollah officials” and often charged customers a “resistance tax”, in effect, a terrorist fee levied on top of the black-market price. The indictment says that the group also traded in counterfeit Viagra and stolen infant formula and that “portions of the profits made from the illegal enterprise were given to Hezbollah.” One leader of the ring, Hassan Makki, made calls to Lebanon and Iran to clear his activities with higher-ups. Federal prosecutors in Michigan say Hezbollah gets more support in their area than any other Mideast terrorist group.
Like the Mafia of old, Hezbollah also gets its hands dirty with drug trafficking, some of it here in the U.S. The Drug Enforcement Administration busted a pseudoephedrine ring in 2002, claiming that it funneled cash to Hezbollah. South America is a viper’s nest of terrorist financing. The Party of God gets $10 million a year from the area where Paraguay, Brazil and Argentina meet, says a U.S. Naval War College report. Paraguay arrested Ali Mehri in 2001 for peddling pirated CDs and for being linked to Hezbollah, but he escaped.Link here.
BAHAMAS CODES REVISED TO COMBAT MONEY LAUNDERING AND TERRORIST FINANCING
The Compliance Commission has crafted a revised set of guidelines designed to strengthen the regulatory regime for anti-money laundering and combat the financing of terrorism. The guidelines have been specifically tweaked for various industries and professionals from lawyers, accountants and real estate brokers to corporate service providers.
In revised codes issued for lawyers, the commission gave specific cautions to members of the legal fraternity. A lawyer practicing in The Bahamas is designated as a financial institution for anti-money laundering purposes in any case where he receives funds during the course of business for services which range from investing or making a deposit on a client’s behalf to settling real estate transactions. Additionally, the commission implored these law firms to separate their financial intermediary services activities from those of the general law practice and to maintain separate and distinct records pertaining to the financial intermediary activities including separate financial records.
The tightening of anti money laundering and counter terrorist financing controls became especially important following the Financial Action Task Force [FATF] labeling The Bahamas as being non-cooperative in the global fight against dirty money. Following the action taken by the FATF, the Government of The Bahamas legislated a package of financial services laws which was passed in December 2000.Link here.
A TERRIFYING DISTRACTION
The arrest of seven men in Miami last month on specious terrorism charges smells strongly like a case of governmental entrapment. The men, six of whom are of Haitian descent, allegedly planned to blow up various targets – including government buildings and the Sears Tower in Chicago – but officials found no plans, explosives or any equipment whatsoever that could be used to effect the plot. In fact, the FBI informant who infiltrated the group posing as an al-Qaeda representative is the one who initiated the idea of blowing up government buildings. The seven men are charged with two counts of conspiring to support a foreign terrorist organization, one count of conspiring to destroy buildings by use of explosives and one count of conspiring to wage war against the government.
The indictment contains no indication of an overt criminal act, except swearing an “oath of loyalty to al-Qaeda,” and taking pictures of FBI headquarters in Miami. The plot “was more aspirational than operational,” said FBI Deputy Director John Pistole at a news conference announcing the men’s arrest. In other words, the men committed a “thought crime”, the infamous offense lampooned in George Orwell’s novel 1984. Even worse, an agent provocateur implanted the thought.
Family members and friends say the men were part of a group seeking to better conditions in their impoverished Liberty City neighborhood and had no connection to al-Qaeda. By making the connection, the Bush administration is conflating the activities of those fighting the legacy of slavery with those struggling in colonialism’s wake. This is not a random linkage. Mike Brooks, a law enforcement analyst for CNN, revealed on the June 22 edition of Anderson Cooper 360 that, “on June 13, the FBI, Department of Homeland Security, put out a call, an information bulletin, ‘Black Separatism a Volatile Movement of Node – Node of Domestic Radicalization’.” The focus on black nationalists is a reprise of the FBI’s infamous COINTELPRO program that ran from 1956 to 1971 and was designed to “neutralize” black nationalists and other domestic dissidents. The program was discontinued in 1971, after a Senate committee found that “many of the techniques used would be intolerable in a democratic society even if all the targets had been involved in violent activity, but COINTELPRO went far beyond that.”
The al-Qaeda impersonator, who, according to the CBS-affiliated television station in Miami, was a Middle Eastern native seeking U.S. residential status by aiding the FBI, wrote the “oath”. He also suggested exploding the FBI buildings, supplied the camera and rented the vehicle to take surveillance photos of the Miami office. This is a case of governmental entrapment, even more threatening than the NSA spying program. Predictably, the American people, even progressives, seem oblivious to this threat. African-Americans should be particularly vigilant about this COINTELPRO rerun in the name of the war on terrorism.Link here.
FORMER ONLINE GAMBLING BOSS ENTERS NOT GUILTY PLEA IN U.S.
David Carruthers, the former CEO of online gambling firm BetonSports, has pleaded not guilty to charges of fraud and racketeering at a U.S. federal court in St Louis. Handcuffed and clad in prison issued clothes, Carruthers appeared in court along with seven other defendants associated with BetonSports who are accused of breaking U.S. laws which prohibit the taking of bets over the telephone wires. All pleaded not guilty.
Under the terms of a bail agreement negotiated between defense lawyers and prosecutors, Carruthers, a 48-year-old Briton, would be required to post a $1 million bond and remain in the vicinity of St. Louis, possibly wearing an electronic tag to track his whereabouts. Carruthers has been detained since his arrest at Dallas airport en route from the UK to Costa Rica last month. In all, 11 people and four companies, including BetonSports, have been named in a 22-count indictment alleging racketeering, fraud, tax evasion and several other offences. According to U.S. Attorney Catherine L. Hanaway, the indictment was “one step in a series of actions designed to punish and seize the profits of individuals who disregard federal and state laws,” suggesting that other online gambling operators may be in the sights of the U.S. authorities.
U.S. Magistrate Judge Mary Ann Medler set a hearing date of August 21 for the defendants who appeared, although this is likely to be postponed. Separately, U.S. District Judge Carol Jackson extended until August 14 a temporary civil order that prohibits BetonSports from taking bets from the U.S. to allow prosecutors extra time to establish whether the charges were served legally at the company’s offices in London and Costa Rica.
BetonSports declined to be represented in the St. Louis courts by a lawyer, suggesting that the company is taking the stance that the U.S. authorities have no jurisdiction over its non-U.S. operations. “By not coming to court, you can make the assumption that since we weren’t served, we can carry on our business in a normal capacity,” Kevin Smith, a BetonSports spokesman said. Meanwhile, an arrest warrant has been issued for the company’s founder, Gary Kaplan, who is said to currently reside in Costa Rica. He has been charged with 20 felony violations of federal laws ranging from racketeering to tax evasion.Link here.
COURT FEES JEOPARDIZE JUSTICE AND FREE SOCIETY
Anyone can end up in jail tomorrow. One only needs to be in the wrong place at the wrong time, to be mistaken for someone else, to be accused of something he or she did not do. The rights of a prisoner – a person accused of a crime but not convicted – far outweigh the rights of an inmate – a person convicted of a crime and sentenced by a judge. Among the rights of the accused is access to a fair trial. A fair trial, of course, is a transparent trial. Fair and transparent trials occur in open courtrooms, not ones where the government is collecting a door charge.
Contra Costa County, California Superior Court is charging news organizations $125 for a guaranteed courtroom seat for the murder trial of Scott Dyleski, the teenager accused of murdering Pamela Vitale of Lafayette. The money is being used to set up a room for the expected overflow of journalists covering the proceedings, where they will listen to an audio feed from the courtroom. There will be no video. The question is, what happens if and when courts start charging fees to attend more than only the most sensational of trials. What happens when someone in judicial administration decides fees to attend trials are needed to fund security costs?
As painful as it is for people charged with crimes – especially those wrongly accused – to see their names in a newspaper or to hear it on television, an accused person should want a courtroom full of witnesses to the proceedings that may land him in prison. He should want reporters scribbling in pads. He should want newspapers with his story in it landing on front porches and TV stations broadcasting coverage of criminal proceedings. Exposure remains the only way to ensure fairness and honesty. Likewise, victims and their families should want open proceedings where justice is meted out in their behalf for the same reasons.
But fees have started popping up at big trials in California. Santa Barbara County at first imposed a “media impact fee” of $7,500 per day during the Michael Jackson child molestation trial to be split by news organizations. Media attorney Theodore Boutrous, who fought the charges, said that “charging the press for access amounts to a tax, and that’s a violation of the First Amendment.” He could not be more right. The fees were reduced to $45 a day for television and $14 a day for newspapers, but they are still wrong.
There is little doubt that some of this is the media’s own doing as it sensationally covers trials that have little but emotional appeal. State secrets and the U.S. Constitution were not at stake in those trials. Television and newspapers just acted like they were. What happens when news organizations do not cover a trial because an editor or news director flinches at paying a fee? If the government begins to more regularly charge fees to attend trials, then the result is going to be that fewer journalists will attend trials. Fewer journalists attending trials limits the rights of the accused and can effectively make trials secret proceedings.
A free society is really only as transparent as its court system. Especially for the accused.Link here.
BUSH HIT MEN RUNNING SCARED
Like a gang of twitchy hit men afraid they have botched the job, the Bush Regime is creeping back to the scene of the crime – the Congressional backrooms where they thought they had put the kibosh on the American Republic once and for all. But it seems there is still a flicker of life in the victim – and thus a threat that the gangsters might have to face the music somewhere down the line. So they went back to the bagmen on Capitol Hill this week, ordering their minions to provide retroactive legal cover for the rank offenses committed by the big boys at the top when they devised their torture regimen – in knowing, deliberate violation of the U.S. War Crimes Act, which was passed by acclamation in the Republican-led Congress in 1996, and toughened up the following year with the support of the Pentagon, the Washington Post reports.
The moribund Republic, which the Bush gangsters had slowly tortured for years, was thought to have been finally bludgeoned to death when the Bushists brought out the blunt instrument of the “unitary executive” earlier this year. After the Regime’s patently illegal domestic spying programs were revealed, the Regime at last dropped all pretense and openly declared a presidential dictatorship, insisting that any action ordered by the “Commander-in-Chief” is beyond the reach of law. When this extraordinary usurpation of the Constitution did not produce angry crowds in the street demanding the return of their liberties – and nothing more than a prissy “Well, I never!” from the oozing invertebrates in the Democratic opposition – it seemed that the Republic was well and truly dead. But then last month, the Supreme Court’s decision in the Hamdan v. Rumsfeld case effectively overturned the Bushists’ “unitary executive” fantasies by ruling that the Geneva Conventions – which have been incorporated into U.S. law and are the basis of the War Crimes Act – applied to Bush’s Terror War.
This was the nightmare scenario that Attorney General Alberto “The Fixer” Gonzales and Dick Cheney’s capo, David “The Enforcer” Addington laid out in legal memos for George W. Bush in early 2002, when Bush, Cheney and Pentagon warlord Don Rumsfeld were signing off on the various tortures they would inflict on their captives. The legal minions told Bush that they could all be prosecuted, even executed, under the War Crimes Act for what they were doing – if the Geneva Conventions were upheld. Gonzales thus advised Bush to issue a presidential order stripping Terror War captives of the Geneva protections, the Post reports. Only this bit of weasel-wording could provide a “defense against future prosecution,” Gonzales wrote.
What he forgot to say was that this defense would only work in a presidential dictatorship under the legally baseless “unitary executive”. Otherwise, the president would still be bound by America’s strict laws against torture. Thus any president who ordered interrogation techniques that violated those laws could be prosecuted. And if those techniques resulted in the murder of prisoners, then that president, and his minions, could be executed. So far, at least 35 Terror War captives have been killed in military or CIA custody, Human Rights Watch reports. But Bush duly wrote the unconstitutional presidential order anyway, thereby committing himself to full, personal responsibility for the criminal system that followed. The Pentagon and the CIA have openly instigated interrogation techniques centered around outrages upon personal dignity and humiliating, degrading treatment. Indeed, they are proud of it. They brag about it. And yet these techniques – planned, approved and celebrated at the highest levels of government – are patently illegal.
The military’s own lawyers know this – and have long known it. That is why the Bushists are now roaming the back alleys of Congress again, looking to fire a few more slugs into their victim. Bush wants the “unitary executive” autocracy he created in secret to be restored – in public – by Congress. To save their hides, the Republic must die, for good this time, forever.Link here.
GUERNSEY COURT FREEZES TYCOON’S ASSETS IN SOUTH AFRICAN TAX EVASION CASE
Prosecutors in South Africa have secured a court order from the Royal Court of Guernsey to freeze the assets of a multi-millionaire who is accused of evading South African taxes, among several other charges. Around 1 billion rand ($146 million) in assets belonging to the Scottish-born tycoon Dave King were frozen by the Guernsey court following a request to the UK’s law enforcement authorities from South Africa’s Asset Forfeiture Unit.
King, the founder of IT company Specialised Outsourcing and a director and benefactor of Glasgow Rangers football club, has been charged with 322 counts of tax fraud, racketeering and foreign exchange contraventions in an indictment which stretches to a massive 200,000 pages. According to Prosecutor John Myburgh, King has not submitted a single tax return for the last five years and has paid “practically no income tax” during that period. Investigators also claim that King transferred R1 billion in proceeds from share sales out of South Africa in 1998 and 1999.
King appeared before a court in Pretoria, South Africa, where, claiming that he cannot afford to hire legal representation because his assets in UK trusts have been frozen, he represented himself. He has reportedly launched a counter legal action in Guernsey to have some of these assets unfrozen for living expenses. King claims that the courts have deliberately frozen his assets in order to pressure him into making a settlement, an accusation vehemently denied by the prosecution. The trial is expected to last six weeks.Link here.
CHARITY? NO, HUMBUG, SAYS DOUG CASEY
Simply put, I do not believe in philanthropy or charitable giving – at least not the ordinary kind. Charitable giving and the concept of charity itself are among the stupidest and most destructive humbugs stalking Americans of good will today. Warren Buffett’s bequest of $31 billion to the Bill and Melinda Gates Foundation provides an excellent opportunity to discuss the harm done in the name of charity and the confusion that surrounds the topic. Better yet, it falls within the purview of this letter, in that if you have the money to invest, you will almost certainly die with some assets. Maybe a lot. But how should you dispose of them? This is definitely a “hot button” subject, combining aberrations from the very topics that are most susceptible to irrational thought – money, family, politics, and religion.
I was not surprised to hear of Buffett’s bequest. He has said for years that he would only leave a comparatively token sum to his family. But, in my view, this cements him in the “Idiot Savant” roll call of rich guys, although not as solidly as the intellectually brain dead, ethically vacant and unintentionally comical Ted Turner, he of the billion dollar bequest to the UN. And Bill Gates definitely belongs there too, for his huge bequest to his own foundation. I would also like to give him an honorable mention for the spineless way he responded to the U.S. Government’s anti-trust suit against Microsoft back in 1998. If it had been my company, I promise I would have transplanted it to a friendlier clime – and paid for the move with just a couple of years tax savings.
My guess is that despite his intelligence, expertise, and generally affable, self-deprecating manner, Buffett is profoundly misanthropic. Like Gates, Buffett has a classic anti-capitalistic, limousine-liberal mentality towards money, saying imbecilic things like “The market system has not worked in terms of poor people” on a recent Charlie Rose show. Many people of great wealth seem uncomfortable with money, which perhaps underlies their pathological urge to hand it over to the undeserving. Discomfort with wealth is among the many reasons the Orient will overwhelm the West in the next few generations. A rich Chinese would not dream of leaving his money to a charity, to be dissipated by the do-gooders, world-improvers, socialites and socialists who almost invariably infest their boards. A Chinese billionaire in Hong Kong will leave his entire fortune, tax free, to his kids. Unless he plans early and well, an American billionaire will leave his children only half, after taxes. Or much less after our sick giving ethos draws off a large portion to politically correct charity.
Accumulation itself is benefaction. The accumulation of capital, no matter who owns it, adds to the demand for everyone’s labor, and so enriches everyone who can get out of bed. Giving, on the other hand, is a tricky business. It can easily result in waste or in actual harm. Buffett says he does not want to reinforce the power of those who are simply “members of the lucky sperm club.” But the solution is not to exclude people from the lucky sperm club by perversely disinheriting them, but to help enrich society by making ever more people members of it.
I deplore Buffett’s intellectual dishonesty. While tax avoidance is one reason he likes to hold investments “forever”, he is philosophically a great believer in taxes. It is hard to respect his hypocrisy. But I do respect his ability to recognize his own mortality, that he is obviously not attached to his wealth, and that he has actively chosen its recipient. He sees that Bill and Melinda will likely outlive him by 20 years or more, and knows that, at least while they are alive, his money probably will not be frittered on the embarrassing and dishonest hornswoggles initiated mainly for the aggrandizement of foundation trustees, the fate of almost all left-to-charity fortunes great and small. Instead, his money will be blown on nonproductive band-aids applied to people who will just get used to having band-aids provided for them.
That is partly because the Gates Foundation seems to have a concentration in health programs for the Third World. On the face of it, who can argue with alleviating disability and disease? But building clinics, training doctors and passing out antibiotics will not alleviate disability and disease. Spending money that way treats the symptom and neglects the cause. That may relieve the pain of some people, but, laudable as that might be, it does nothing towards solving the problem. The reason these people and millions of others live in chronic misery is solely and exclusively government. In fact, the band-aid money-just like the trillions squandered in “aid” by the West over the last 60 years – serves mostly to sustain the criminal governments ruling the places where most people are poor. And, despite whatever measures Gates may take, his band-aid gifts will hugely fatten the rulers’ offshore bank accounts and add to the army of impoverished mouths to feed. And it may come as a surprise to these misanthropic philanthropists, but people actually do not like being the object of someone else’s charity. It is degrading, and they resent it.
Aspen, a town where I spend some time in the Northern Hemisphere’s summer, offers an excellent microcosm of what 98.44% of charity is really about – rich people feeling self-righteous and showing off their wealth with large donations. Does anybody care a wit about where their money is going? Not really. Charity is done for the psychological and social benefit of the giver far more than the welfare of the recipient. Will I pony up a few grand for one of these things, feeling as I do? Sure. I view it as a ticket to a spectacle. But there is a big difference between paying for a party and giving billions to create a bureaucracy that can corrupt society for generations. I really do not care if it is for an efficiently run good cause, either.
If you really want to make a kind gesture to someone, for some category of people or for mankind in general, charity, even under the best of circumstances, is the least effective approach. Under the worst circumstances, like government welfare programs, it destroys both the giver (through taxation) and especially the recipient (by habituating him to receive stolen goods and lodging him psychologically and economically at the bottom of society). It is perverse and shameful. The whole idea of helping the poor – supposedly a major focus of philanthropy – is a slippery slope, usually bottoming in a dismal ethical swamp.
Sometimes, of course, a person may sincerely wish to improve the world because of a generous if unfocused impulse, rather than because it improves his standing with witless people who care about such things. My first suggestion for him would be to make sure he is not just a busybody. Do the people of Iraq really need democracy? Do the folks in Afghanistan really need to learn about Jesus? Do the natives in the Brazilian jungle really need Western medicine? I do not know. Frankly, sticking your nose into somebody else’s business, even if you think it is for his own good – something charities and governments specialize in – is generally a very bad idea. And, I would say, usually unethical.
What should you do with your money if you really want to improve the world? Earn more of it. Money (unless it is gained through force or fraud) is evidence that its owner has created wealth – and that is only done by providing other people with things they want. And there is no altruism required. The modern zeitgeist is perverted on the topic of altruism. It sees gifts to the natural objects of affection-family, friends, purposes that excite the giver-as hardly gifts at all. True gifts, in the modern view, are gifts to strangers. Make a gift to a family member and you are subject to gift tax. Make a gift to a 401(c)3 organization that plans to feed Martians if any hungry ones show up and you get a tax deduction.
This brings us to the problem of whom, exactly, you should leave your money to. And it should be a specific person, not a foundation, committee, or charity of any type. Most people think of their children as the first candidates, which is reasonable and proper. Not leaving your money to your children is tantamount to admitting you either brought them up badly, or else that they were just bad raw material. Marcus Aurelius, the most philosophically inclined of Roman emperors, left the empire to his son Commodus – a man who should make Americans see a distant mirror when they watch Baby Bush. Both Marcus and the elder Bush could have done much better had they adopted someone with character and intelligence.
The Romans had a big advantage, in that they typically did not put the kind of store we do in genetically related children. Caesar, for instance, adopted Augustus. Adoption for the purpose of inheritance was quite common, and it makes a lot of sense. Why not choose the best person to benefit from your wealth and power, to make them grow, instead of leaving your estate to someone who might have no merit except, as Buffett observed, membership in the lucky sperm club? Leaving a million (or ten, or a hundred) to the right young person or persons might give them a huge head start on turning it into a billion. Which would benefit all mankind, because that billion represents real wealth that, unless it is frittered away by a charity, a government, or a wastrel – the three enemies of prosperity – will continue to exist even after the heir dies.
That being the case, let me re-emphasize that what the good Buffett and Gates have done for humanity lies in creating the capital in question, not in giving it away. Of course, they have a perfect right to convert their assets to $100 bills, throw them in a huge pile, and put a match to their fortune. But that would be stupid, in that since the currency is a liability of the U.S. Government, the government would be the only beneficiary.
I am sure you are thinking of lots of objections to what I have been saying. Philanthropy is accepted as automatically as – shudder – democracy in today’s world for being an unalloyed good thing. The usual straw men beg to be set up. “What about the blind baby that is thrown into a trash can?” and such. My answer is that most people would want to see the baby rescued. And the richer the world is, the more likely it is that people will try to do so. In poor countries babies in trashcans are hardly noted, while they make headlines here simply because they are so exceptional. Are we more moral than poor Third Worlders? No. We are just richer.
What would I do with Buffett’s billions? With that kind of money one could literally buy a country. The place could be made devoid of taxes, regulations, and legislatures. It could make the progress of places like Hong Kong and Dubai seem retarded by comparison. And it would actually, and sustainably, accomplish what the lame-brained Gates Foundation says it hopes to do. What will I do with my money at some point in the future? One thing I can promise is that a charity will not see any of it. Nor, hopefully, any wastrels. Nor, absolutely, any government.Link here.
THE TIPPING POINT DOWNWARD OF WESTERN CIVILIZATION
To most non-historians, World War I is a vague and distant memory, faded photographs of guys in tin hats standing around in mud-filled trenches. In fact, it was one of two cataclysmic disasters of Western civilization in the Modern period (the other was the French Revolution). In 1914, the West put a gun to its collective head and blew its brains out. No, it was not the fault of Kaiser Wilhelm II, whom history has treated most unfairly. As Colonel House wrote to President Woodrow Wilson after meeting with the Kaiser in 1915, it is clear he neither expected not wanted war. A World War became inevitable when Tsar Nicholas II, not Kaiser Wilhelm, very reluctantly yielded to the demands of his War and Foreign Ministers and declared general mobilization instead of mobilization against Austria alone.
Once war occurred, and the failure of the Schlieffen Plan guaranteed it would be a long war, a disaster for Western civilization was inevitable. Still, had the Central Powers won in the end, the civilization destruction might not have been so complete. There would have been no Communism, nor a republic in Russia. A victorious Germany would have never tolerated it, and unlike the Western Allies, Germany was positioned geographically to do something about it. Hitler would have remained a non-entity. Prior to World War I, the best major European countries in which to be Jewish were Germany and Austria. Kaiser Wilhelm would never have allowed a Dreyfus Affair in Germany. The vast Jewish communities of Central and Eastern Europe would have held their traditional places in multi-nation-empires, instead of becoming aliens in new nation-states. It should not surprise us that in World War I, American Jews attempted to raise a regiment to fight for Germany.
Even more importantly, the traditionalism represented by the Central Powers would have been greatly strengthened by their victory. Instead, the fall of the German, Austro-Hungarian and Russian monarchies let the poisons of the French Revolution loose unchecked upon the West, and upon the world. The Marxist historian Arno Mayer is correct in arguing that in 1914, the U.S. represented (as a republic, with France) the international left, while by 1919 it was organizing the international right. America had not changed. Rather the spectrum had shifted around it.
Thus, when Americans and Europeans wonder today how and why the West lost its historic culture, morals and religion, the ultimate answer is the Allied victory in 1918. Nor is this all quite history. Just as the defeat of the Central Powers in 1918 marked the tipping point downward of Western civilization and the real beginning of the murderous 20th Century, so events in the Middle East today may mark the beginnings of the 21st Century and, not so much the death of the West, which has already occurred, but its burial. The shadows of 1914, and of 1918, are long indeed, and they end in Old Night.Link here.
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