Wealth International, Limited

August 2006 Selected Offshore News Clips

(Especially noteworthy articles’ headings highlighted in gold.)


All of Eastern Europe, both EU and non-EU members alike, continue to attract real estate investors from all over the world. But the real value lies in those Eastern European countries which are not part of EU yet, countries like Bulgaria, Romania and – in particular – Croatia. The Republic of Croatia is located in the heart of Europe, where it is easily accessible by air, road and sea. The country occupies an area only slightly larger than Switzerland, but it has a spectacular 6000 km (3728 mile) coastline on the Adriatic Sea with almost 1200 islands, including 1134 which remain untouched and uninhabited. The coast is known as “Europe’s Secret Coast”, with its crystal blue, 77 degree waters. The ocean’s ideal temperatures echo its sunny climate – with the majority of the islands receive more than 2600 hours of sunshine a year.

Croatia’s tax climate rivals its weather. Croatian tax laws allow foreign investors to live tax-free as long as they collect their income, pensions or capital interest from outside Croatia. These tax advantages are relatively unknown, which means you can establish a tax-free residence in a high-tax country while keeping a low profile. Furthermore, the Croatian cost of living is still low and the Croatian people are friendly and open-minded, making this an intriguing nation to retire.

Croatia was one of the two largest states in the former Yugoslavia. When Croatia declared independence in 1991, a 4-year war followed. Although most of Croatia remained untouched by the war, the nation still has somewhat a stigma as a “former war zone”. This poor reputation is completely unjustified, but it may work in your favor. This stigma still chases other investors away, while you can profit the unique real estate investment opportunities in Croatia and particularly the Dalmatian coast. For example, you can buy prime land for less than 2 Euros ($2.50) per square meter in certain sections, and take advantage of the excellent real estate deals in the tourism sector. Before separating from Yugoslavia, Croatia had a well-developed tourist industry attracting about 10 million visitors annually. War devastated Croatia’s tourism, but as the industry continues to recover, you can take advantage of the real estate bargains.

Croatia is now a sovereign state and a member of the U.N. The political, social and economic situation is rapidly improving. Neighboring Slovenia, also a former state of the now defunct Yugoslavia, already joined the EU in 2004. In the past few years, Slovenia has seen a spectacular rise in real-estate prices, implying that Croatia’s real estate prices will spike once they join the EU. Slovenia also boasts extremely beautiful properties, but Slovenia simply does not compare to the overwhelming beauty and the enormous tourism potential of the Dalmatian coast and Croatian islands.

World Wildlife Fund (WWF) marine biologist Paolo Guglielmi said that some parts of the Mediterranean, such as the Middle East, Spanish or Italian coastal areas, “are already lost forever. … But we have identified 10 last paradises that are still remarkable for their biodiversity and are worth huge efforts to save.” Among them are Vis and two other southern Croatian islands, Lastovo and Mljet, where so far tourism has not disrupted the environment. Besides the clean sea and beautiful coast, there is also a rich culture, and there are many historic places.

The political atmosphere is also attractive for real estate investors. The Constitution of Croatia provides for a solid parliamentary democracy and guarantees the right and inviolability of private property. Also, the constitution guarantees the rights acquired through capital investment. Thus free transfer and repatriation of profits and capital are guaranteed to foreign investors. Foreign persons can purchase Croatian real estate providing they get an approval by the Ministry of Foreign Affairs. Such approval may take up to nine months. However, you can easily and legally avoid the restrictions if you buy the property with a Croatian company, which can be entirely owned and controlled by a foreign person. Using a company for this purpose also avoids capital gains tax and the 5% transfer tax on the subsequent sale of the property. With a view towards future EU-membership, the current restrictions on foreign real estate ownership will be abolished in less than two years. Without a doubt, this like all other convergence measures will make Croatia increasingly accessible, and this will accordingly have an inevitable positive effect on the real estate market.

Overall, real estate in Croatia is very attractive as prices are still cheap compared to sky-high real estate in Spain, France and Italy. With Croatia on the road to becoming an EU member, you can expect Croatian real estate prices to jump 100 to 150% in the next 3 to 5 years and more in some key locations.

Link here.


There is an old saying aimed at obviously insane conduct - “The inmates have taken over the asylum.” Nut house occupants were on dramatic display recently when the U.S. Senate Permanent Subcommittee on Investigations held another of its orchestrated anti-offshore hearings. This time the already-presumed-guilty indictment was billed as “Tax Havens and Offshore Abuses”.

The Senate circus with 14 witnesses capped off a yearlong investigation that cost millions of taxpayer dollars, claims to have served 70 subpoenas, reviewed more than 2 million pages of documents and produced a 401 page report written by the left-wing Democrat committee staff of Sen. Carl Levin (D-Michigan), the fanatic leader of the anti-offshore band. (Levin was responsible for some of the worst parts of the PATRIOT Act that destroyed Americans’ privacy and gave government police virtually unchecked power over U.S. financial and banking activity.) This grotesque report even goes so far as to advocate curtailing century old legal rights to create trusts, corporations and other entities to protect assets.

But with all that bogus activity, the mighty Senate subcommittee mountain labored and brought forth only a few mice. Investigators could find only six “case studies” of tax haven “abuses” – and some of those were debatably not abuse, but legal activities. Based on only six cases, the subcommittee chairman, freshman Sen. Norm Coleman (R-Minnesota), and his cohort, Levin made the startling, illogical charge that an alleged $40 to $70 billion in U.S. taxes illegally is being evaded each year by Americans’ use of offshore financial activity. The Senators offered zero proof of such wild numbers, and even IRS Commissioner Mark Everson did not endorse these senatorial fantasies.

Take all this Capitol Hill bilge for what it really is – another calculated attack on middle class and wealthy taxpayers who honestly are trying to reduce their liability and protect their wealth by using legal offshore means. But the politicians’ watchword, especially in an election year, always seems to be, pander to prejudice and attack the rich. Let us suppose for a moment that those fantastic numbers the anti-offshore twins, Coleman and Levin, threw around are accurate. Compare an alleged $40-$70 billion in lost revenues to the U.S. underground economy as a whole. Experts say that now at least 10% the U.S. GDP of $11 trillion is underground and evading nearly $500 billion in taxes each year.

But you will not see Coleman-Levin and co. holding hearings about Joe’s Pizza Joint in Detroit evading taxes. Instead these grandstanding senators smear, for the most part, unseen, law abiding Americans who go offshore for greater asset protection, more financial privacy and more profitable investments. People who are rebelling against police state financial tactics, secret wiretapping and illegal surveillance. They are not drug king pins, money launderers or terrorists – they are good old fashioned Americans trying to survive the destruction of freedom in their cherished homeland.

Coleman-Levin and their IRS buddies want to scare all Americans into believing that going offshore is illegal – when it is fully legal, so long as you report your activities and pay your taxes on all worldwide income. It is legal to create and donate assets to an offshore asset protection trust or family foundation. It is legal to form and operate an international business corporation (IBC). It is legal to invest in offshore mutual and hedge funds, precious metals and real estate. And it is still legal to transfer your cash and assets out of the U.S. into safer havens. And with all that is going wrong in the U.S., you can and should do all, or some, of these things – legally and properly.

Link here.


Think globalization means little more than call centers in New Delhi? Then you have not seen what happens when seriously large numbers of Americans, who spend more than $570 billion at U.S. hospitals annually, start taking health-care holidays in far cheaper climes. Nor have you seen how much money there is to be made by helping them get there. The overseas stampede for medical services has spawned medical tourism agencies.

We are about to find out. This year alone, upwards of 500,000 Americans are expected to travel overseas to get their bodies fixed, at prices 30% to 80% less than at home. Medical tourism, as the practice is known, is rapidly becoming the top choice for consumers who grapple with hefty medical bills. Adult Americans who are either uninsured or considered “underinsured” number more than 61 million – a figure that is likely to soar in coming years. With places like Costa Rica, the Dominican Republic, India, the Philippines, and Thailand pitching their low-cost care, Americans are expected to help turn global medical tourism into a $40 billion-a-year industry by 2010, according to David Hancock, author of The Complete Medical Tourist.

While disruptive to U.S.-based hospitals and HMOs, the overseas stampede is already spawning a brand-new business opportunity: medical tourism agencies. Not only do these companies act as middlemen between patients and foreign physicians, but they also find hospitals, schedule surgeries, buy airline tickets, reserve hotel rooms, and, yes, even plan sightseeing tours for recovering patients. Most important, they aim to reassure customers that cheap does not equal poor quality. There are no licensing requirements, either in the U.S. or overseas. And thanks to free Internet phone services and online advertising, operating costs are relatively low. “I see the market exploding,” says Ted Mohr, an American who runs the Adventist Hospital in Penang, Malaysia, whose non-national customers now make up more than 30% of the institution’s $32 million annual business (up from less than 5% a decade ago). “American health care is getting too expensive for too many people.”

Link here.

Free Market Medicine

The problem of health care for the uninsured has been solved. The solution, as usual, lies in free markets. We have not had a free market in health care for many decades. I am actually a part of a small, but growing, movement of doctors who have “opted out” of the third-party payment system and simply charge patients directly. No insurance contracts, no medicare, no medicaid, just direct payment at the time of service, from the person who receives the service.

The results? Throughout June and July of this year, my average charge was $37 per patient. Sounds affordable? Well, get this – that fee includes housecalls, some antibiotics and other medications dispensed, and lab fees. Wait a minute, did that guy just say housecalls? Nobody does housecalls any more! Well, a doctor who employs free market principles can provide the kind of care that a patient wants, including housecalls. The patient is the customer, not the insurance company or the taxpayer.

By not contracting with third parties for payment, I do not have the kind of overhead that is needed to contend with those bureaucrats. Medical Economics magazine pegged the annual overhead for a family physician without obstetrics at roughly $272,000 per year in 2003. Mine is less than 10% of that. A typical FP collects about 60% of his charges. I have collected 101%, due to tips. Yes, patients frequently tip me. I calculated that if I charge $30 for something now, in order to come out the same, I would need to charge $107 if I had the same financial constraints as most doctors. I would have an extra $34 in overhead per patient, raising the fee to $64. Then to collect that $64, I would have to charge $107. I can also offer generally same-day service, flexible hours, and adequate time with patients. I charge by time, so I am not financially pressured to gloss over issues or reschedule for later.

I am not really the first to be doing this. It was the typical practice model decades ago. As far as morality is concerned, the free market approach is supremely ethical. Nobody has money confiscated from them, under threat of deadly force, to pay my fees for somebody else’s health care. That is the way Medicaid and Medicare work. My patients willingly pay me, and for the most part, they seem very grateful for the service they get.

Link here.


A German computer security consultant has shown that he can clone the electronic passports that the U.S. and other countries are beginning to distribute this year. The controversial e-passports contain radio frequency ID, or RFID, chips that the U.S. State Department and others say will help thwart document forgery. But Lukas Grunwald, a security consultant with DN-Systems in Germany and an RFID expert, says the data in the chips is easy to copy. “The whole passport design is totally brain damaged,” Grunwald says. “From my point of view all of these RFID passports are a huge waste of money. They’re not increasing security at all.”

The United States has led the charge for global e-passports because authorities say the chip, which is digitally signed by the issuing country, will help them distinguish between official documents and forged ones. The U.S. plans to begin issuing e-passports to U.S. citizens beginning in October. Germany has already started issuing the documents. Although countries have talked about encrypting data that is stored on passport chips, this would require that a complicated infrastructure be built first, so currently the data is not encrypted. “And of course if you can read the data, you can clone the data and put it in a new tag,” Grunwald says. The cloning news is confirmation for many e-passport critics that RFID chips will not make the documents more secure.

“Either this guy is incredible or this technology is unbelievably stupid,” says Gus Hosein, a visiting fellow in information systems at the London School of Economics and Political Science and senior fellow at Privacy International, a U.K.-based group that opposes the use of RFID chips in passports. “I think it’s a combination of the two. Is this what the best and the brightest of the world could come up with? Or is this what happens when you do policy laundering and you get a bunch of bureaucrats making decisions about technologies they don’t understand?”

Grunwald says it took him only two weeks to figure out how to clone the passport chip. Most of that time he spent reading the standards for e-passports that are posted on a website for the International Civil Aviation Organization, a UN body that developed the standard. He tested the attack on a new EU German passport, but the method would work on any country’s e-passport, since all of them will be adhering to the same ICAO standard.

In a demonstration for Wired News, Grunwald created a blank document that looks, to electronic passport readers, like the original passport. The demonstration means a terrorist whose name is on a watch list could carry a passport with his real name and photo printed on the pages, but with an RFID chip that contains different information cloned from someone else’s passport. Any border-screening computers that rely on the electronic information – instead of what is printed on the passport – would wind up checking the wrong name. Grunwald acknowledges, however, that such a plot could be easily thwarted by a screener who physically examines the passport to make sure the name and picture printed on it match the data read from the chip. Machine-readable OCR text printed at the bottom of the passport would also fail to match the RFID data. There are other countries, however, that are considering taking human inspectors out of the loop. Australia, for one, has talked about using automated passport inspection for selected groups of travelers.

In addition to the danger of counterfeiting, Grunwald says that the ability to tamper with e-passports opens up the possibility that someone could write corrupt data to the passport RFID tag that would crash an unprepared inspection system, or even introduce malicious code into the backend border-screening computers. This would work, however, only if the backend system suffers from the kind of built-in software vulnerabilities that have made other systems so receptive to viruses and Trojan-horse attacks. “I want to say to people that if you’re using RFID passports, then please make it secure,” Grunwald says. “This is in your own interest and it’s also in my interest. If you think about cyberterrorists and nasty, black-hat type of guys, it’s a high risk.” Hosein agrees. “Is this going to be the massive flaw that makes the whole house of cards fall apart? Probably not. But I’m not entirely sure how confident we should feel about these new passports.”

Link here.


In 1994, Estonia became the first country to institute the flat tax, charging 26% on all personal and corporate income with no deductions allowed. “The economy flourished” as a result, declared The Economist. The Estonian example was followed by the other two Baltic states, Latvia and Lithuania, but remained largely irrelevant and unknown to the world at large, as few people were aware of what was taking place in the region. But on January 1, 2001, Russia joined the Baltic states with an even lower tax rate of only 13% (however, the country’s corporate tax is still very high). This led the world to notice. The tax reform jumpstarted Russia’s economy and tax revenue skyrocketed, doubling within three years.

In 2003, Serbia passed flat tax reform with a new rate of 14%. The next year, Ukraine and Slovakia imposed a flat tax of 13% and 19%, respectively, and Romania’s flat tax – instituted just this January – is 16%. The lowest tax of all, at only 12%, is in Georgia, which was passed by an overwhelming vote of 107 to 11 parliamentarians on December 22, 2004. Several other countries may join the above 9 nations if the next elections lead the opposition to take power. Poland, the most powerful East European country in the EU, is likely to be one. The main opposition, Polish Civic Platform Party, wants a 15% flat tax. Likewise, the Civic Democratic Party, the primary opposition in the Czech Republic, is proposing a 15% flat tax, and even the governing Social Democrats are likely to simplify the tax system (without making it flat).

Former Hungarian Prime Minister Viktor Orban, the leader of the main opposition party FIDESZ-MPP, said Budapest will have “no choice” but to jump on the “flat tax bandwagon” to retain the country’s share of foreign investments that will otherwise flow to flat tax nations. The statement was echoed by Hungary’s finance minister, Tibor Draskovics, a member of the Socialist Party, who is now prepared to examine the possibility of a flat-rate income tax. The governing coalition’s junior partner, the Free Democrats, had already issued which proposed a 30% optional flat tax on income in place of the current system, which has a top marginal rate of 38%. Croatia, Slovenia and even Belorus, which otherwise is very resistant to economic reform, are strongly considering the flat tax, and are likely to adopt it in the coming years. Bulgaria is an especially likely candidate and will probably be the next to adopt the single-rate tax system.

Flat tax proposals have recently spread beyond Eastern Europe, although none of these countries have adopted it. China is known to be examining a tax reform featuring a uniform, single tax rate for all. In Barbados, the President of the Barbados International Business Association, George Gleadall, called for a 12.5% flat rate on both personal and corporate income, indicating that it may even be as low as 7.5%. In past years, the Canadian Alliance, then the largest opposition party in Canada, called for a flat tax (CA merged with the Progressive Conservative Party, and is now known as the Conservative Party). In the U.S., of course, progress has been very slow and nothing is likely to happen in the coming years.

The Flat Tax Revolution in Eastern Europe presents a challenge to Western Europe, as companies are bound to move to neighboring states to avoid paying the near-confiscatory taxation (especially when you combine the income tax with corporate, capital gains and dividend taxes) levied in the “Old Europe” to support the Welfare State system. Furthermore, whereas hiring an employee in the Old Europe more closely resembles a Catholic wedding, where no divorce is possible except in the most extreme cases (and even then, companies face union strikes and negative media attention), in the formerly Communist states, one can hire an employee without the fear of being stuck with someone who’s incompetent, lazy, unqualified or simply obsolete.

Faced with a stark choice of fighting their electorate to force through unpopular reforms or stagnating economy with a constantly outflow of job-creating companies, Western Europe hopes it has found the third way – attacking Eastern Europe and threatening it into raising taxes in line with Old Europe. At other times, Western Europe threatened newly admitted EU nations to end subsidies if taxes will be lowered or flattened.

Few took seriously a UK Conservative Party study on the Flat Tax, but within months, several governments joined the Tories in considering it. Prime Minister of Spain José Luis Rodríguez Zapatero, elected on the Socialist Party ticket, is now considering this system and his director of the Economic Office, Miguel Sebastián, openly favors a flat tax system. Even the ultra-liberal Sweden is considering the flat tax, with the country’s largest newspaper, Dagens Nyheter, calling for the government to scrap the progressive tax in favor of a single rate for all tax payers. Greece has already adopted the flat tax system and it remains only a matter of time before other nations of the Old Europe adopt the system.

Link here.


Do you freely give out your Social Security number? Have you ever been involved in a lawsuit? Has anyone ever committed a crime on property you own? If you answered “yes” to any of these questions, you could be a sitting duck. Here are a few all-too-common, real-life examples of what could happen to you.

That is just the tip of the iceberg. The fact is, virtually every aspect of your life is under surveillance. And you risk identity theft, lawsuits, forfeitures, tax audits or even arrest if you are careless. What can you do to protect yourself? Here are four suggestions.

Your life is an open book, and the attacks on your privacy and wealth just keep on coming. For instance, on July 24, a federal court ruled that customs officials have virtually unlimited authority to search the contents of your laptop computer when you cross the U.S. border. Whatever information is on the laptop, customs officials can copy and later analyze for possible violations of U.S. law. There is no reason to believe that big business or big brother has any interest in protecting your wealth or privacy.

Link here.


On April 19, 2001, a man named Alyn Waage was arrested at the airport in Puerto Vallarta, Mexico, with $4.5 million in his briefcase. Waage had boarded the Learjet intending to fly to Belize to pick up an employee who worked at the mail forwarding office there, then fly on to Vallarta where his company, the Tri-West Investment Club, was based, and then to Latvia where he intended to buy a bank he dealt with. The first two steps of this schedule he completed, but he wanted to deposit some of the money in the bank himself so he took a few million and stuffed it in his luggage. When the jet landed and the customs officials asked to look through his bags, the jig was up.

Within two weeks the FBI, the Mexican federal police, Interpol, the Costa Rican justice department, the Canadian RCMP and several other commercial crime divisions had all come to the same conclusion – that Tri-West, of which I was an employee, was in reality nothing but a pyramid scheme.

Tri-West offered what we called “prime bank debentures” on our website. In addition to the 120% return on investors’ money which we offered, paid monthly, we also gave each investor 15% of whatever their referrals invested, plus 15% of their referrals’ dividends as well. With incentives like that we did not need to sell a thing ourselves, as people were out spreading the word to their friends and neighbors from Australia to Zimbabwe in order to help them out and get a piece of the action at the same time. Some members had only put in $1000 or so of their own money but had brought in hundreds of thousands of dollars in referrals. That got them into trouble when the club was shut down after Waage’s arrest and the authorities checked into exactly who was selling these imaginary securities. While some people made a killing with us, others lost their life’s savings.

I was at Waage’s estate in Costa Rica on the day he was arrested, having spent that morning with him and another man counting the day’s take. It amounted to around $1.2 million. The amount of money that we made as posted on the U.S. Department of Justice website was $60 million, but that seems pretty low to me. If anybody were to ask me how much I think we really made – and by the way nobody ever has – I would put it much higher than that … more than $100 million at least. Some people I worked with estimated it to be double that. Either way, we made a lot of money. And it showed.

The events that happened after the April arrests are worthy of another book in themselves. I touch on these events on my website, but they really deserve deep investigation by a good journalist to make them come to life. And even though this all happened a few years ago, as of March of this year the Mexican police were still arresting people who had no real culpability in the scam at all. My suspicion is that their intentions are somewhat different than simply bringing alleged criminals to justice, but I suppose time will tell.

This tale has all the makings of a hit movie – palm trees, mansions by the sea, underground millions, even a haunting love story. Living an adventure is something you will never forget, and it can happen totally unexpectedly. It creeps up and envelopes you and tentatively helps itself to the air around you, and before you know it you are somewhere else, someone else, and the life you have left behind seems so far away that to return to it feels as though you would somehow upset the delicate balance of the universe and yet to stay seems a bit too much of a stretch of who you are. So you find yourself in limbo, living in a strange land, grasping onto what you can with both hands, easing yourself in but knowing there is no such thing as easing yourself into a life you have already agreed to jump into with both feet. When your overseas employment offer comes in, maybe it will turn out to be even more exciting than you thought.

Link here.


There is nothing like the seduction of a boom. The recent vigor of global economic growth is a siren song. By IMF metrics, world GDP growth probably averaged 4.8% over 2003-06, the strongest four years since the early 1970s. As tempting as it is to extrapolate this into the future, that may be a serious mistake. There is a much better chance that global growth has peaked and the boom is about to fizzle. The world’s main growth engine, the U.S., is slowing. That is the verdict from the labor market, the housing market, and the consumer – whose inflation-adjusted spending growth fell to 2.5% in the spring period, one percentage point below the heady trend of the past decade.

America’s slowdown represents an important transition in the sources of economic growth, away from the vigorous wealth creation of asset bubbles – first equities, then housing – and back towards more subdued labor income generation. The delayed impact of higher interest rates is also taking a toll. The confluence of higher energy prices, rising debt-servicing burdens, and negative personal saving rates reinforces the possibility of a pullback in discretionary U.S. consumption and GDP growth.

This is an equally critical transition for the global economy. The world is about to lose significant support from the key driving force on the demand side of the equation – the American consumer. In a post-bubble climate, U.S. households will be unable to save through asset appreciation, prompting America to increase income-based saving and reduce its claim on the pool of global saving. That points to a long-awaited reduction in the big U.S. current account deficit – initially painful for export-dependent economies elsewhere in the world but ultimately a welcome resolution for global imbalances.

But who ill fill the void as the U.S. consumer pulls back? The simple answer is … maybe no one. Europe, the world’s second largest consumer, is an unlikely candidate. Do not count on a rejuvenated Japanese economy to fill the gap either. In dollar terms, Japanese personal consumption is only 30% of that in America. As a weak second quarter GDP report indicates, a surge is unlikely, especially as Japan copes with a stronger yen and higher energy prices. Nor are the two dynamos of developing Asia, China and India, likely to counter the slowing trend in the developed world. China has a seriously overheated economy and has little choice but to introduce tightening initiatives. China must shift its economy towards private consumption, a sector that sagged to just 38% of GDP in 2005. (A healthy rate would be at least 50%.)

All this points to a moderation of China’s growth beginning in 2007, with attendant reductions in its voracious appetite for commodities. That should spawn additional ripple effects in commodity producers such as Australia, Canada, Brazil and Africa. The world’s big oil producers would also feel repercussions from a Chinese slowdown. As would China’s Asian suppliers, such as Japan, Korea and Taiwan. India is far too small to pick up the slack, at less than half the size of China on a purchasing power parity basis. Imperatives of fiscal consolidation, with the delayed effects of recent monetary tightening, could also tip growth risks to the downside.

There is a deeper meaning to the coming slowdown. The global boom of the past four years was never sustainable. It was supported by the excesses of the liquidity cycle, which arose from emergency anti-deflationary actions of the world’s big central banks. The ensuing vigor of global growth was dominated by the U.S. consumer, but America’s binge came at the cost of a record drawdown of domestic saving funded by the capital inflows of a record U.S. current account deficit. The boom was balanced precariously on unprecedented global imbalances. Excess liquidity bought time for a precarious world. As central banks move to normalize monetary policy, that time has run out. Without the unsustainable support of asset bubbles, it is back to basics – with aggregate demand supported by more modest labor income generation rather than the excesses of wealth creation.

So much for the artificial boom of an unbalanced world. It could be about to fizzle out.

Link here.


The U.S. DoJ announced last week that a preliminary injunction ordered by a federal judge in Michigan is the 200th injunction the Department has obtained since it launched its 5-year initiative to crack down on the promotion of tax fraud schemes and the preparation of false or fraudulent tax returns. The case that resulted in the 200th injunction bars Joyce M. Stone, her son Charles J. Freed and their company, Stone and Associates, all of Hillsdale, Michigan, from preparing any income tax returns for another person or entity.

According to the government’s complaint in the case, Stone and Freed prepared customers’ income tax returns claiming improper deductions. Government filings and an IRS audit of returns prepared by Stone, Freed and another defendant, showed that the defendants understated their customers’ tax liability by an average of nearly $6,300 per return. The court noted that the defendants have prepared more than 3,000 returns for customers since the start of 2005, including 1,786 in 2006.

Assistant Attorney General Eileen J. O’Connor, who has spearheaded the Department’s crackdown since 2001, commented, “With each passing day, tax fraud promotions – including fraudulent return preparation – can ensnare more customers and cost the federal Treasury and honest taxpayers more and more in unpaid taxes and fraudulently obtained refunds. It makes sense to shut down these activities as quickly as possible.” The Department has used both criminal and civil procedures to apprehend those suspected of promoting dubious tax avoidance schemes. In the latest case, the DoJ used a civil injunction, a court order prohibiting a party from a specific course of action.

During the past five years, the DoJ Tax Division has obtained injunctions barring the promotion and use of tax fraud schemes that include falsely reporting “zero income” on tax returns; failing to withhold, report and pay payroll and income taxes; and using trusts to conceal ownership or control of assets. Additionally, injunctions were obtained for falsely claiming that Native American casino gaming proceeds are tax exempt, falsely claiming that only income from foreign sources is taxable, using a “corporation sole” to avoid tax, and purporting to pay employees in commodities such as milk.

Link here.


U.S. software firm Cadence Design Systems has become the latest American company to be pursued by the IRS for outstanding taxes related to transfer pricing arrangements with a foreign subsidiary, believed to be located in Ireland. In a notice filed with the U.S. S.E.C., Cadence revealed that it has been locked in a dispute with the IRS since 2003 concerning an alleged $143 million in unpaid tax relating to the three tax years between 1997 and 1999. According to Cadence, the “most significant” of the disputed adjustments relates to transfer pricing arrangements that the company has with a foreign subsidiary.

Cadence, a multinational which designs software and hardware tools for the semi-conductor industry, has offices at a business park in Dublin. Ireland has become an increasingly popular investment location for U.S. hi-tech companies, thanks to its low 12.5% corporate tax rate and skilled workforce.

Cadence is not the only software company in dispute with the U.S. tax authorities over transfer-pricing arrangements. Synopsys, another leading semiconductor design software firm, announced in an S.E.C. filing that it is fighting a $476.8 million claim relating to transactions with a wholly-owned foreign subsidiary, which in this case is Synopsys International Ltd. (Dublin). Symantec, the maker of the popular anti-virus software Norton, is locked in an ongoing dispute with the IRS concerning a $900 million claim for unpaid taxes in connection with a technology license agreement between Veritas, which the company acquired in July 2005, and a foreign subsidiary. This subsidiary is also believed to be located in Ireland. Symantec has only recently settled a separate $100 million transfer-pricing tax claim relating to the 2003 and 2004 tax years by agreeing to pay the IRS $36 million excluding interest.

Link here.


Predicting depression is one of the hardest chores a financial analyst can ever undertake. People have an obvious economic incentive to avoid getting into a state of general impoverishment, and governments have an equally obvious incentive not to be tarred and feathered in the history books for allowing it. This incentive is so powerful that any popular book explaining the cause of a future depression, no matter how tightly reasoned and realistic it is, often deals itself out as a predicative tool. Forewarnings are always forearmings, at least to some. Thus, a successful prediction of a depression is, to the financial analyst, as much a feather in the cap as an undefeated record is to a chess champion. People who achieve either are not just kudoed, but practically worshipped for doing so.

It is true that the much-forecasted Greater Depression in the 1990s never took place. What should be examined is why. To put it bluntly, the American economy was saved from depression in the 1990s by its permanent trade deficit. This deficit, and the consequent accumulation of capital in foreign hands, has been diverted largely to increases in foreign holdings of U.S. securities, primarily the debt obligations of the U.S. government. This agreeableness of creditor nations, held in place by the underlying fear that refraining from this helpful rollover will trigger a trade war, is the patch job that has kept the debt-ridden U.S. economy from imploding into a deflationary depression.

This stopgap is the current reason why the forecast of depression made in an otherwise erudite and insightful book, The Great Reckoning by James Dale Davidson and William Lord Rees-Mogg, was one of the two main predictions in it that have not stood the test of subsequent events. The second was a forecast of the U.S. declining in power and influence. (The other predictions have fared better.) Both the continuance of U.S. prosperity and the emergence of a full-blown U.S. empire do feed off one another.

If this was all there was to the case for permanent U.S. ascension, then it would be time to roll out the predictions of depression again. There is, however, a new fallback this time, one that will keep feeding the aggrandizement of the State. The crucial difference between the past hegemony of the U.K. and the present hegemony of the U.S. is that the British Empire’s was creditors’ hegemony, while the U.S.’s is debtors’ hegemony. The debtor nation is the one who’s doing the fighting for the creditors. This position, geopolitically, is much more advantageous than it seems. One of the insights in The Great Reckoning worth remembering is that debtor nations suffer less from global depression than creditor ones do. The consequent implosion of financial assets all but ensures it. If a deflationary depression should visit the world as of soon, then America’s creditor nations will suffer more than America itself. It is plausible to assume that the creditor nations are so agreeable because they know it, or have been made aware of it.

U.S. militarism fits neatly into this precipice if it is added to the U.S. government “doing its part.” The bargain cut seems to be this: the U.S. citizenry does the bulk of the fighting, the killing, the dying, and the consuming. The others supply the preponderance of goods and credit, in part as matériel. This kind of reciprocity keeps an increasingly unstable global economy going. Economically, the cobbling together of this international credit tie implies that there will be no depression soon, despite the increasing debt overhang that will trigger one eventually. The U.S. Keynesian system has kept itself running through putting pennies in the fuse box, and through shifting appliances from one circuit to another. There may very well be more fuses that can be replaced in an emergency.

Link here.


A “darknet” service that allows users to share music files anonymously on the Web has been launched in Sweden. Relakks, as the service is known, allows users to send and receive files through a heavily-encrypted connection. It is the first commercial example of a darknet, a virtual network set up to share files between trusted users. The service is endorsed by political group the Pirate Party which is running for election in Sweden under a banner to reform the country’s copyright laws. “There are many legitimate reasons to want to be completely anonymous on the internet,” said Rickard Falkvinge, chairman of the Pirate Party. “The right to exchange information in private is fundamental to the democratic society. Without a safe and convenient way of accessing the internet anonymously, this right is rendered null and void.”

A darknet is a cordoned-off, anonymized section of the net where users can meet, chat and swap data. Usually darknets are confined to small tight-knit groups such as hackers who use the secure connections to distribute information and hacking tools. They have also been used by paedophiles to distribute images of child abuse. Many are invitation-only services where potential members have to upload material to prove themselves to the group before they are granted full access. Similar identity-hiding tools such as Tor are used by net dissidents in countries like China to avoid persecution for their activities on the web. Previous attempts to launch large scale anonymous networks, such as AOL subsidiary Nullsoft’s Waste program have been unsuccessful.

The new system claims to be the world’s first commercial darknet. It works by giving a user’s computer a new IP address (IPA), the unique number the machine uses to identify itself and communicate with other machines over the net. IPAs allocated by your internet service provider (ISP) can be used to trace and identify a specific computer on a network. Computers using the Relakks system look like they have a Swedish IPA, no matter where they are in the world. Users can then share files, such as music or films, with any other users. In theory anyone monitoring user’s online activities will not be able to trace their geographical location.

The Pirate Party acknowledge that the service could be used to distribute copyright material or other content such as images of child abuse. “We hear the argument a lot,” said Mr. Falkvinge. “No, we don’t have any control over what is being sent over the network but that’s the point. People who want to hide their activities online already have the means to do so. We’re just giving those tools to the general public.” The Pirate Party was launched in part to temper what they say are “aggressive” tactics by the entertainment industry to enforce copyright infringement.

The Relakks service costs €5 (apx. $6.50) per month with some of the funds going towards supporting the Pirate Party. Not everyone is convinced that it is what it claims to be. In a forum on the U.S. website of the Pirate Party, a post by a user questioned whether the service is really anonymous. “You can’t connect to Relakks anonymously, because then they’d have no way of verifying you are a paying customer – so Relakks knows who you really are when all your traffic goes through them. What is the difference between trusting them and trusting my own ISP not to give me away?”

Link here.


For lack of a better term I am dubbing it Woods’s Law: Whenever the private sector introduces an innovation that makes the poor better off than they would have been without it, or that offers benefits or terms that no one else is prepared to offer them, someone – in the name of helping the poor – will call for curbing or abolishing it. Previously I have noted the crusade against rent-to-own stores. This time it is something you may not have heard of, the tax refund anticipation loan (RAL). What is the problem? Well, plenty, according to the poor-people-are-idiots-who-cannot-read-a-simple-form school of thought. But there is always that radical possibility that the poor are capable of judging their best interests for themselves. The RAL is another example of an option from which the poor obviously benefit, but from which the activist community wants to rescue them.

But there is a much more important point to all this. Not a single critic of RALs I have come across has bothered to point out that the poor would not be in this unfortunate situation at all if the government had not taken their money from them in the first place. Here we have private firms whose programs alleviate at least a portion of the suffering and deprivation caused by government policy, and it is these private firms, rather than government itself, that attracts all the condemnation! So closed are the alleged researchers to predatory public-sector behavior that it does not occur to them even to mention it, much less criticize it.

To review, the government loots a lower-class household to the tune of, say, $10,000 in a given year, deigns to return perhaps $2,000 of that money to its owner, and then, aided by the hopeless activist community, tries to paint private firms as wicked and dastardly for charging a $100 fee to accelerate the return of the slice of money the government has chosen to give back. That government has managed to corrupt our sense of justice to the point that it can perpetrate such a transparent fraud upon any fully conscious human being is yet another argument in favor of the free society and against the state.

Link here.


“Suban las manos, por favor.” Obediently, we raise our hands as the guard at the door frisks us. Once again, we stand out as visitors, as we have no pistol to hand over. “Pasen,” he says, and we proceed to our table, admiring the pleasant ambiance of this open-air, seaside restaurant. As we place our orders, we watch while many of the customers turn in their sidearms, which are neatly stored in a set of lockers by the door, to be returned upon leaving. (I think I ruined our image by not having a .44 magnum, like a “real” American would.) Was this unsettling? Frankly, no. To the locals, it was no more remarkable than having to turn off your cell phone at a concert. The people in the restaurant were courteous and friendly, and everyone was having a good time on this Friday night.

This is La Ceiba, a Caribbean port city on the northern coast of Honduras. Home to more than 100,000 people, it is a town that has everything – a pleasant central square, a large, modern mall, new supermarkets, food markets, a cinema, fast food restaurants, and waterside dining. They even have a North American-run real estate office right on the town square. The lush cloud forest is just a few miles to the south, with an awesome peak known as Pico Bonito overlooking the region. The Caribbean beaches stretch from La Ceiba for more than 100 miles to the west and almost 300 miles to the east. This is why so many expats come to the Honduran mainland, for the beach properties that you can still find for less than in the rest of the Caribbean, including nearby Roatan.

In the coastal region, the real estate market is a mixed bag. Buyers here are Hondurans, North Americans, and Europeans. There is a variety of properties on offer. A little more than a mile east of the harbor in La Ceiba, there is a three-bedroom, two-bathroom, octagonal concrete house for sale at $149,000. It has great sea and mountains views, and comes with deeded access to the beach out front. On the road between El Progresso and Tela, there is a 90-acre mountain property with a solar-energy system, valley view, African palms, and coffee priced at $150,000.

One of the finest attractions for those buying on the north shore are the cays (pronounced “keys”) and islands within easy boating distance of the coast. Nine miles offshore from Nueva Armenia, the two islands of Cayos Cochinos sit like jewels in the turquoise waters, surrounded by a small group of cays. Here you will find some of the world’s best fishing, snorkeling, and diving so good that dive trips even come here from Roatan. Just a few miles away from Cayos Cochinos, we explored a cay called Chachauati, and not far from Chachauati sits Upper Long Cay, an island of about 4 acres ringed with sparkling narrow white-sand beaches and clear turquoise waters. There are five, ¼-acre lots available here (of an original 10 lots) for an asking price of $94,000 each. Except for working cell phones this island is “off the grid”, as evidenced by the solar panels and water collection systems on the two homes already built here.

There is more to mainland Honduras than the Caribbean coast, and this country of almost 7 million people is one of the most diverse you will find anywhere. Honduras – not Costa Rica – is the most forested country in the region, with 47% of its land still a wooded area. Its rushing rivers draw whitewater rafters from around the world, and the cloud forests host a staggering array of flora and fauna. The climate is temperate in the mountains, and subtropical in the coastal areas. A well-maintained highway takes you from the lowlands into the sierra. Tegucigalpa (the capital) has some exclusive and stately neighborhoods – comparable with any you would see in the world – as well as areas of poverty, crime, and ramshackle buildings. But the city has everything you could want, from exciting nightlife to fine restaurants, culture, malls, and an international airport. The food in Tegucigalpa – and throughout mainland Honduras – is great. Would I live in there? Honestly, no. There are other Third World cities that would be higher on my list. But there were some surrounding areas where I would be glad to settle.

Not far from Tegucigalpa in the Valle de Angeles (Valley of Angels) is the small town that bears the valley’s name. This artisan village – with its souvenir shops, coffee houses, and stately colonial church overlooking the town square – is surrounded by 100-mile views of the most dramatic mountain scenery. Like much of the mountainous areas around Tegucigalpa, the tall pines and hills are reminiscent of the Rockies or the Sierra Nevadas around Lake Tahoe. The altitude of about 5,000 feet provides for moderate weather year-round. At first, I assumed that property prices would be high, given the beauty of the valley and its proximity to the nation’s capital. But, I found them to be reasonable. For example, a large, 2,400-square-foot home in El Chimbo, with three bedrooms and two bathrooms, a high front porch, as well as mango, banana, coffee and lemon trees, was listed for $70,000.

Link here.


The UK’s tax authority, HM Revenue and Customs, should not be given powers that exceed those of the police when investigating tax crime, says PKF Accountants & business advisers. PKF’s warning follows the publication by HMRC of a shopping list of new criminal investigation powers it would like to have, highlighting how the use of police powers would boost its fight against tax evasion and organized crime.

HMRC is currently seeking views on applying the relevant provisions in the Police and Criminal Evidence Act (PACE) across all its activities. Currently, those powers and their associated safeguards are only available for specific taxes and duties. According to the agency, having the same law apply across the board will be clearer for those under investigation and will increase the effectiveness of HMRC’s investigations.

However, according to PKF Tax Investigations partner, John Cassidy, HMRC is hoping to pick and choose which parts of the PACE laws it can use, and in certain circumstances wants to exceed the reach of these laws, for example, by retaining its existing power to search any person on the premises it is raiding without having an arrest warrant for that person. “I have repeatedly called for HMRC’s powers to be in proportion to the seriousness of the offence. This proportionate approach should be enshrined in law, not left to the discretion of overstretched and, possibly, overzealous tax investigators seeking a quick win against suspected tax fraudsters,” Cassidy stated. “As originally suspected, HMRC is trying to take this opportunity to ‘level up’ the powers of its officers so these proposals would see a substantial increase in HMRC’s powers in dealing with the individual taxpayer.”

Cassidy said that giving the HMRC such “draconian” new powers carries with it “significant risks,” and he warned that these powers could be used against relatively minor offenses, such as sole trader under-reporting income, as well as against the organized criminal gangs and serious tax evaders for which these powers are primarily intended. “HMRC claims it will use the new powers proportionately but our experience suggests its officers often take an unnecessarily heavy-handed approach with some taxpayers who are eventually proven to be innocent.”

Link here.


Earlier this month AOL publicly released a data trove – 500,000 search queries culled from three months of user traffic on its search engine. The company claimed it was trying to help researchers by providing “anonymized” search information, but experts and the public were shocked at how easy it was to figure out who had been searching on what. Apparently, AOL’s “anonymizing process” did not include removing names, addresses and Social Security numbers. Although the company has since apologized and taken the data down, there are at least half-a-dozen mirrors still out there for all to browse.

This may have been one of the dumbest privacy debacles of all time, but it certainly was not the first. Here are 10 other privacy snafus that made the world an unsafer place. Despite the obvious flaws of rankings, we have attempted one as follows, in descending order.

  1. 10.) ChoicePoint data spill. ChoicePoint, one of the largest data brokers in the world, in early 2005 admitted that it had released sensitive data on roughly 163,000 people to fraudsters who signed up as ChoicePoint customers starting in 2001. At least 800 cases of identity theft resulted.
  2. 9.) VA laptop theft. In May, two teenagers stole a laptop from the Veterans Association that contained financial information on more than 25 million veterans, as well as people on active duty. Electronic Frontier Foundation staff attorney Kurt Opsahl said this is one of the worst data breaches in recent memory because of its sheer scale. The case also raised awareness about how many unprotected, private databases are floating around on easily–stolen, mobile devices. When the laptop was recovered, it appeared that none of the data had been disturbed – but only time will tell.
  3. 8.) CardSystems hacked. In 2005 MasterCard revealed that one of its third-party processing partners, CardSystems, had lost data on over 40 million customers to online data thieves. Many of those customers were MasterCard holders.
  4. 7.) Discovery of data on used hard drives for sale. In 2003, security geek and MIT grad student Simson Garfinkel bought a batch of 20 used hard drives to test out some forensic data recovery techniques. He was dismayed to learn that many of these drives had not had their memories properly wiped. One still contained data from its days in an ATM machine, and two were packed with credit card numbers. He bought several dozen more used hard drives, and found that overall only about 10% had had their memories adequately wiped.
  5. 6.) Philip Agee’s revenge. After turning his back on a government agency he considered evil and corrupt, Agee fled to England and in 1975 published a book called Inside the Company which revealed the identities of nearly 250 CIA agents. In 1978 and 1979, Agee published two volumes called Dirty Work, which contained details on over 2000 CIA agents.
  6. 5.) Amy Boyer’s murder. In 1999, a stalker named Liam Youens paid New Hampshire-based internet investigation firm Docusearch roughly $150 to get the Social Security number and workplace address of Amy Boyer. With the data provided, Youens was able to hide outside Boyer’s office and shoot her to death before killing himself.
  7. 4.) Testing CAPPS II. In late 2003, JetBlue and Northwest Airlines confessed that for the past two years they had been giving personal data from millions of airline passengers to NASA and the TSA. The agencies were data mining the information as part of their research on a new passenger threat-assessment program called Computer Assisted Passenger Prescreening System, or CAPPS II. CAPPS II testing was terminated in 2004. It has been replaced by a similar program called Secure Flight.
  8. 3.) COINTELPRO. From 1956 to 1971, the FBI’s secret counterintelligence program COINTELPRO worked to undermine what the agency deemed “politically radical” groups, usually by infiltrating those groups and gathering sensitive information about their members. Among COINTELPRO’s targets was Martin Luther King, who was placed under illegal surveillance and harassed.
  9. 2.) AT&T lets the NSA listen to all phone calls. Earlier this year, a whistle-blower at AT&T revealed that the telco giant had been routing all U.S. phone calls and internet traffic to the NSA as an antiterrorism measure. The agency had gotten similar data from other major telcos in the country – only Qwest had refused. Investigations, mostly conducted by journalists, revealed that every single phone call made in the U.S. over the five years of the NSA domestic spying program had essentially been tapped. Internet traffic suffered the same fate.
  10. 1.) The creation of the Social Security Number. Although security blogger Adam Shostack is known for his expertise on information-age data leaks, he considers the creation of the Social Security Number in 1936 to be the “largest privacy disaster in the history of the U.S. … Ironically, privacy advocates warned that the number would become a de facto national ID, and their concerns were belittled, then proven right, setting a pattern that still goes on today.”
Link here.


You board your flight to Chicago, $600 ticket in hand, and do a quick survey of the people sitting around you. Turns out 13D paid only $300 for her flight, while 14E shelled out nearly $1,000 for his. It is a reality of air travel that infuriates passengers, but now several new travel websites are promising to demystify the seemingly nonsensical world of airline ticket pricing.

It was exasperation with existing online travel tools that led Robert Metcalf to develop Flyspy, a site currently in alpha mode using fare data from Northwest Airlines. Flyspy asks passengers for their departure and arrival cities, and then presents 30 days’ worth of fare information in a stock-market style graph. The easy-to-read Flyspy chart is key to its appeal. Passengers can comparison shop based on length of stay (“Will the price change if I stay two extra days?”), or different city pairs (“Is it cheaper to fly into Baltimore or Dulles?”). Flyspy also offers cool extras. Travelers looking to boost their frequent flyer balance can generate a list of flights offering the lowest cost per mile – a few of them to cities you might actually want to visit.

Farecast is raising the stakes even higher. Currently offering data from Boston and Seattle to 120 U.S. markets, with plans to roll out others by year’s end, Farecast not only displays the lowest current fares, but uses predictive technology to determine what direction those fares will move in over the next seven days. “We’re the first and only travel site that answers the question ‘do I buy or do I wait?’” says CEO Hugh Crean. A recent search for flights from Boston to Denver, for example, predicted with 80% confidence that the lowest fare between the two markets would jump by at least $50 within a week, and recommended buying at the current price (four days later, fares had indeed jumped, by $42). Customers who buy through Farecast are redirected to the appropriate airline website, and the site also allows shoppers to compare prices by departure time, or view a map that displays cheap flights across the country.

Airlines use revenue management systems to constantly analyze and adjust inventory in each bucket. When full-fare seats are selling well on a particular flight, inventory might be pulled from a discount bucket to make more high-priced tickets available, while seats might be shifted into lower-priced buckets on flights where sales are sluggish. Revenue management is the reason bargain-basement prices sometimes appear and disappear from reservation systems overnight, and why on a typical flight, passengers pay wildly divergent prices for the exact same product. Online travel agencies like Expedia and Travelocity allow passengers to examine prices on a particular route, but cannot predict whether they will rise or fall, and comparing fares using more complex criteria such as length of stay or time/day of departure requires time-consuming multiple searches. That leaves the market wide open for sites like Farecast and Flyspy.

Link here.


The U.S. Treasury program of snooping on international banking transactions to track terrorist funding had unfettered access to the world’s private financial details as much as five years. A spokesman for Society for Worldwide Interbank Financial Telecommunication (SWIFT) said it had won restrictions on the Treasury’s power to see its data, which consists of records of financial transactions between 7,800 of the world’s financial institutions, starting 120 days ago.

But the Treasury’s snooping on international financial records, begun by subpoena in the wake of the September 11 terrorist attacks, was being done without oversight while SWIFT negotiated to protect the privacy of the international data it held. “Over time we’ve narrowed down the scope of those subpoenas … the whole process has been refined,” said the spokesman. But he could not say how long it had taken to put the checks in place, nor how many records the Treasury had seen before its dogs were put back on the leash. SWIFT was keen to keep the Treasury’s nose out of its records because its clients would not take kindly to having their transactions scrutinized by a foreign government.

It managed to persuade the U.S. authorities to have their investigators restrained. They agreed they could only take limited batches of data, rather than scan the whole lot freely. These batches could then be searched only for specific transactions that could be demonstrated to have links to terrorism. These searches were to be audited by both SWIFT and an external auditor, Booz Allen. However, Privacy International said these were not enough, and has filed a complaint to the British data protection body, the Information Commissioner. PI is worried that the Treasury was fishing through international financial records in the hope of turning up terrorist finance records. It also feared the data could be used for other purposes, including espionage. SWIFT’s CEO, Leonard Schrank, flew to London to meet PI last week. Simon Davies, a PI director, said he had told Schrank he wanted to see proof that the Treasury was only able to see records that it knew contained details of terrorist financial transactions.

The way in which international business operates its IT infrastructure has given the U.S. government unprecedented power to view international financial records. SWIFT has an unspecified number of data centers around the world, each one storing every one of the 11 million daily transactions it handles, being mirrors of one another as backup in the event of one of them failing. This means that a U.S. subpoena of records kept in SWIFT’s U.S. data center will gain access to financial transactions made in over 200 countries.

Stuart Levey, under secretary for terrorism and financial intelligence at the U.S. Treasury said no-one would have known about this program if details had not been leaked to the U.S. papers. He said secrecy was one of the program’s strengths. But Republicans have complained that even Congress was not aware of what was going on. Levey also said SWIFT did not supply it with individual bank account information. This is not strictly true. Each of the “messages” on SWIFT’s database is a record of a financial transaction. When the Treasury investigators get inside the encrypted electronic envelopes they get to see the individual bank account details of the payer and the beneficiary, including the amount being transferred.

Link here.


Retire in paradise for pennies a day! Could there be any sweeter-sounding words to a baby boomer pondering an exit from the fast lane? The first wave of 79 million U.S. boomers is turning 60 this year. Boomers are retiring earlier than did previous generations. They have unparalleled spending power. They are looking for the Next Great Place. And some tour operators are happy to show them the way. Which is what has brought 50-odd kindred souls to a tract of red-tile-roof model homes in a treeless gated community on the outskirts of Panama City.

Indeed, there is a sense of urgency among many of the 160 or so mostly North Americans attending a three-day “Live & Prosper in Panama” seminar. This trip is not about visiting the Panama Canal, hiking the jungle or lazing on the beach. Instead, they will be riding up construction elevators for a peek at condominium units still in a mostly skeletal state, surveying yet-to-be-constructed golf course communities, and hearing sales agents telling them Phase I is already sold out … but they are taking names for Phase II at 5% off until Friday for conference attendees!!! International Living, the seminar/tour’s sponsor, is not the only company delivering potential investors to foreign developers. But it is arguably the largest, with 70,000 subscribers to its monthly newsletter, and offices in five countries. International Living earns “referral fees” when attendees purchase real estate. The “Live & Prosper …” events are offered about 30 times a year in 12 countries.

And one of the hottest spots now is Panama. The promise? Live better for less. The country is supplanting Costa Rica as the Central American country where retired North Americans are seeking their place in the sun. An attorney seminar speaker explains the ease of getting a “pensioner’s” visa and the tax advantages to be had here. A physician announces that medical care is good and drugs cost about 50% less than in the USA. An American expat real estate agent says he lives like a local (albeit in a 4,000-square-foot house) on about $500 a month. Attendees learn that Panama is fairly safe. Panamanians like Americans (never mind that military action in 1989 against former leader Manuel Noriega). You do not have to bother with changing money, because the currency is the U.S. dollar. In short, it is different here, but not too different.

There is no definitive count of Americans who have retired to Panama, but one U.S. Embassy estimate says 25,000 to 30,000 are living there. It is just part of a larger U.S. population shift to Mexico, Central America and the Caribbean, says Bob Adams. His company, New Global Initiatives, sponsor of a recent study by the Migration Policy Institute, estimates that at least 1 million Americans live full- or part-time in the region.

There are visible impediments to living here. Still, to hear it from the sellers, demand is outstripping supply. There is rarely a finished project to look at. Attendees eye blueprints and architectural models and use their imaginations. Idaho real estate developer Joe Russell, 50, has come to the conference to scout investment property that he will eventually live in. “I like the political climate, the lack of hurricanes, the U.S. dollar as currency.”

On the tour there are dreamers and there are planners. And if some are still vague about the shape and price of paradise, others have a clearer vision. After sitting through the three-day seminar, Robert Prager, 54, and Munsell McPhillips, 49, both semi-retired engineers, are taking off on their own for a week to scour the countryside. Hurricane insurance on their home in Florida doubled last year, and not only do they want to live where fixed costs are more predictable, but they also want to do something idealistic. “I could do a lot of good in this country,” McPhillips says. “But I’m not interested in living in a gated community, and I’m not remotely interested in the properties (International Living) is showing. We’re going to shop in the market and speak the language and be part of the country.”

Links here and here.
The Golden Goose – link.
How many Americans will retire in Panama? – link.


With its stunning beauty, warm climate, friendly people, and low prices, it is very tempting to buy real estate in Mexico. We know it is risky, but it is hard to know exactly what the risks are and how to avoid them. I have bought five condos now in Mexico and have learned something new on each deal. Americans are accustomed to a high level of legal protection for transfer of title but this does not exist to such an extent in Mexico. There are number of common risks areas to look out for and the following list is my no means exhaustive.

The agents are not licensed or bonded. Many agents, though members of the local MLS, do not know the market very well. Some do not know or even care if properties they are selling have title problems. If you send a down payment to an agent, the agent could disappear with your money. This has happened before. Even if it is a U.S. name franchise, if there is a problem, they will likely claim it is a different entity in Mexico. Escrow agents are not bonded. It has been known for Escrow agents to empty out their escrow account and flee. You are well advised to use a U.S. escrow.

A large percentage of the properties have title problems. You need to get title insurance. Even if you ask for title insurance and pay for it, you might not ever receive a policy. The closing process is complicated and expensive. Foreigners buying near the coast or border have to obtain a foreign investment permit, and are required to hold title through a bank trust. There is an annual fee for the services of the trustee, about $300-500 per year. The amount of the annual fee is set in your trust documents so make sure your closing agent shops around. There is a big transfer tax. Expect to pay at least $7,000 in closing fees which is nonrecoverable when you sell. If you have any title problems it can take years to get it cleared. Make sure you hire an attorney to help you get clean title.

Do not underreport transfer values. People used to underreport values so the seller could pay less capital gains tax, and buyer could pay less transfer tax. But the government has caught on. If you do this, or allow the seller to do this, you will find yourself liable for the seller’s capital gains. There is a rich history of re-socializing property. Watch out for Ejidos (communal farming land). In case of any dispute, the agrarian judge always rules in favor of the Ejido. The court system is slow, inefficient, and sometimes corrupt. If you get in a dispute do not expect any recourse in the courts without paying and waiting. Be aware that if anyone steals money from you the prosecutors will not do anything unless you pay them to investigate.

It is risky to use developer financing or any Mexican financing. Typical contracts state that the developer keeps title until you pay everything off. If they go bankrupt in the meantime, you can lose everything. With bank financing, it can take years to get liens removed after you have made your last payment. Hire an attorney in advance. Just make sure they are competent. Make sure you have a good escrow agent who verifies that condo association fees are current, utility bills are current, and property taxes are current.

Some people put title in corporations to avoid the bank fee and because they feel more secure. You cannot live in a house that is owned by your Mexican corporation. There is ambiguity in the law as to whether you can own residential rental real estate in a Mexican corporation if you do not live in it. Many people in Mexico view income tax as optional, and nobody likes to give receipts. If you rent your property, you need official receipts “Facturas” if you are going to take itemized deductions (which you have to do if you use a Mexican company to hold title to your property). If you pay tax as an individual, there is a blind deduction option to paying income tax, which is easier. You need to get a Mexican tax ID or the renter is supposed to withhold the tax for you and submit it to the government.

If you stay 183 days, you are a Mexican resident for tax purposes and subject to Mexican income tax on your worldwide income. If you do have income in Mexico, you are supposed to pay estimated taxes every month. You do not get the deductions you get in the U.S. – tax is based on gross rent. Mexican tax laws change all the time. Capital gains taxes are huge. Your capital gains taxes go down the longer you own a place.

Now that you have a foreign trust, you have to file special documents with the IRS that no accountant knows about, forms 3520 and 3520A. If you do not do it in time (and it is not the normal tax deadline), the penalties can be drastic. It is hard to get money out of Mexico. One way I have figured out to do it is via an ATM card. Bank drafts are too expensive. Their mail system is too slow and not trustworthy. But there is no problem getting money from the U.S. to Mexico using Western Union. To open a Mexican bank account, you first need an FM3 (365 day) visa and a Mexican light bill. You have to renew your visa in the exact same town year after year. There is a lot of corruption in the Immigration department. The easiest way to renew a visa is to hire a lawyer and pay them a fee to help you renew the visa.

Link here.


Our last article concerned Chile’s interest in attracting “Smart Capital”. Since that article hit cyber-space, we were again over-run with requests for more detailed how-to information such as finding employment or business investment opportunities here in Chile. Also, in addition to these requests, many readers asked about visa requirements and how to obtain permanent residency in Chile. Unexpectedly, many of the people who contacted us were from within Chile. These were people who actually have business or job opportunities available! We had already known of a few, but WOW! If anyone out there is interested, we just might have THE connection for whatever type of business or occupation you may be seeking or perhaps, at the very least, we might be able to point you in the right direction.

With this in mind, we talked it over and decided to expand on the “Opportunities in Chile” theme a bit in order to more fully support our readers, including the people we had no idea about, those who are already living and working IN Chile. We are also continuing to work on our website, to keep it up-to-date. We have also included several links to employment search tools in Chile. We wish you “Buena Suerte” in your search for your new life.

Link here.


The IRS has released legal guidance outlining the protections in place for the controversial new private debt collection program. According to the IRS, the guidance describes the “limited” role which private collection agencies (PCAs) may play in collecting back taxes and the legal restrictions and procedures in place to safeguard taxpayer privacy and taxpayer rights. The IRS will assign delinquent federal tax accounts to three PCAs beginning September 7. An initial 12,500 taxpayers who owe back taxes will be in this group, with the number reaching approximately 40,000 by year’s end.

To assist the IRS in its collection of back taxes, the 2004 American Jobs Creation Act authorizes the IRS to hire private firms to collect federal tax debts. The IRS says that the provisions were “carefully crafted” by Congress, but the scheme has attracted strong criticism from mainly Democratic lawmakers, who fear that taxpayer privacy could be compromised. However, the IRS says that the legislation includes several limitations to ensure the private firms will be subject to the same stringent taxpayer protection and privacy rules that IRS employees work under. In addition, private firms cannot subcontract the work.

Private firms are not authorized to take enforcement actions such as filing liens, or making levies or property seizures. In addition, private firms are not authorized to work on technical issues such as offers in compromise, bankruptcies, hardship issues or litigation. The IRS will assign to the private firms cases in which the taxpayer has not disputed the liability. “Redirecting relatively simple cases to private firms will permit the IRS to continue to focus its existing collection and enforcement personnel on more complex tax issues,” Everson argued.

Link here.


In his 1850 Disquisition on Government, John C. Calhoun argued that a written constitution would never be sufficient to contain the plundering proclivities of a central government. Some mechanisms for assuring consensus among the citizens of the states regarding “federal” laws would be necessary. Consequently, Calhoun proposed giving citizens of the states veto power over federal laws that they believed were unconstitutional (the “concurrent majority”). He also championed the Jeffersonian idea of nullification. To Calhoun (and Jefferson), states’ rights meant that the citizens of the states were sovereign over the central government that they created as their agent, and could only be so if such mechanisms – including the right of secession – existed. Without these political mechanisms the forces of nationalism, mercantilism, and political plunder would relentlessly reshape the Constitution with their rhetoric, and their efforts would eventually overwhelm the strict constructionists. At that point the Constitution would become a dead letter.

In his new book, The Constitution in Exile, Judge Andrew Napolitano explains in very clear language just how prescient Calhoun was. The biggest special-interest group of all – the federal government itself – has “seized power by rewriting the supreme law of the land,” as Judge Napolitano says in the subtitle to his book – just as Calhoun predicted. The purpose of the book, says the judge, is to tell “the unhappy story of liberty lost, federalism trampled, and Big Government run amok.” How did we get to the point, he asks, of where the “federal” (i.e., central) government defines for us the drinking age for alcohol, how much wheat farmers can grow, the ability of terminally ill cancer patients to medicate themselves with marijuana, the amount of sugar that can be used in ketchup, and even the size of toilets?

Link here.


A federal appeals court has ruled yesterday that if a motorist is carrying large sums of money, it is automatically subject to confiscation. In the case entitled, United States of America v. $124,700 in U.S. Currency, the U.S. Court of Appeals for the Eighth Circuit took that amount of cash away from Emiliano Gomez Gonzolez, a man with a “lack of significant criminal history” neither accused nor convicted of any crime.

On May 28, 2003, a Nebraska state trooper signaled Gonzolez to pull over his rented Ford Taurus on Interstate 80. The trooper intended to issue a speeding ticket, but noticed the Gonzolez’s name was not on the rental contract. The trooper then proceeded to question Gonzolez – who did not speak English well – and search the car. The trooper found a cooler containing $124,700 in cash, which he confiscated. A trained drug sniffing dog barked at the rental car and the cash. For the police, this was all the evidence needed to establish a drug crime that allows the force to keep the seized money. Associates of Gonzolez testified in court that they had pooled their life savings to purchase a refrigerated truck to start a produce business. Gonzolez flew on a one-way ticket to Chicago to buy a truck, but it had sold by the time he had arrived. Without a credit card of his own, he had a third-party rent one for him. Gonzolez hid the money in a cooler to keep it from being noticed and stolen. He was scared when the troopers began questioning him about it. There was no evidence disputing Gonzolez’s story.

The Eighth Circuit summarily dismissed Gonzolez’s story. It overturned a lower court ruling that had found no evidence of drug activity, stating, “We respectfully disagree and reach a different conclusion. … Possession of a large sum of cash is ‘strong evidence’ of a connection to drug activity.” Judge Donald Lay found the majority’s reasoning faulty and issued a strong dissent.

Link here. Full text of ruling here (PDF file).


Albert H. Gordon took over Kidder, Peabody & Co. in 1931, turned it into an underwriting leader on Wall Street, and saw opportunities overseas before many rivals. He is still looking abroad at the age of 105. After eight decades as an executive and investor that spanned from the roaring 1920s to the age of terrorism, Gordon says he is “bearish” on U.S. stocks partly because of the $8.41 trillion national debt. He prefers shares of companies such as Canada’s EnCana Corp., Wal-Mart de Mexico SA de CV and Petroleo Brasileiro SA. “At least three-quarters of whatever I own is foreign stocks,” he says.

Gordon, who has outlasted Kidder as well as Wall Street staples like ticker tape, is a role model even to octogenarian elder statesmen such as former Goldman Sachs co-chairman John Whitehead and ex-President George H.W. Bush. This year, Gordon stopped going to the office at Deltec Asset Management, where his son John is a senior managing director. A marathon runner into his 80s, Gordon now has a hearing aid and walks with a cane and assistance from a nurse. His opinions are still sought because he is one of the few living Wall Street investors who worked in the years leading up to the stock market crash of 1929. While his three current favorite stocks each climbed at least 13% this year through yesterday, almost triple the 4.5% gain in the S&P 500, Gordon built his reputation as a salesman rather than as an investor, says Whitehead, 84.

As a bond salesman at Goldman Sachs in the 1920s, Gordon says he considered stock values excessive and steered clear of the market before it crashed. That helped him a year later in 1930 to capitalize when a Harvard classmate, Edward Webster, approached Gordon to help rescue Kidder, a brokerage based at the time in Gordon’s hometown of Boston. Gordon began turning over chief executive officer duties at Kidder to Ralph DeNunzio in the 1970s, staying on as chairman. In 1986 Gordon helped engineer the firm’s sale to GE and remained at the firm until 1994, when GE agreed to sell the company to PaineWebber Group, now part of Zurich-based UBS AG.

When it comes to investing, Gordon looks for companies that will grow for years, says Arthur Byrnes, who is co-head of Deltec Asset Management with Gordon’s son John. “Despite the fact that he’s an old man, he buys things not for a quick trade,” Byrnes says. “Al is a long-term investor, if you can believe that someone who’s 105 years old can be a long-term investor.” Gordon favors countries with economies that will support growth, and he says the U.S. has too much debt. He says he liked Petroleo Brasileiro partly because South America had been successful for Kidder. Wal-Mart de Mexico and EnCana, Canada’s largest natural-gas producer, may grow, he says. “I read that Wal-Mart was stationary but Wal-Mart’s Mexican subsidiary was on the move so that was enough for me so I bought quite a bit of Wal-Mart Mexico,” he says. “EnCana was owned by the Canadian Pacific Railroad and so you knew that its background was business, not government.”

A non-smoker who says he used to pay people to give up cigarettes, Gordon credits his long life to exercise and at least nine hours of sleep a night. When it comes to investing, at least one of Gordon’s contemporaries agrees that overseas stocks can provide more robust returns than U.S. shares. “Al Gordon is right,” says Irving Kahn, 100, chairman of New York-based investment firm Kahn Brothers & Co. He says global wealth imbalances and the rise of extremists should give investors pause.

Link here.


There is no subtler, no surer means of overturning the existing basis of society than to debauch the currency. The process engages all the hidden forces of economic law on the side of destruction, and does it in a manner which not one man in a million can diagnose.” ~~ John Maynard Keynes

During the final two decades of the 20th century, the U.S. economy was the envy of the world. It created 30 million new jobs while Europe and Japan were creating virtually none. It imposed its technological and ideological will on huge sections of the global marketplace and produced new millionaires the way a Ford plant turns out pickup trucks. U.S. stock prices rose 20-fold during this period, in the process convincing most investors that it would always be so. Toward the end, even the federal government seemed well run, accumulating surpluses big enough to shift the debate from how to allocate scarce resources to how long it would take to eliminate the federal debt.

As the coin of this brave new realm, the dollar became the world’s dominant currency. Foreign central banks accumulated dollars as their main reserve asset. Commodities like oil were denominated in dollars, and emerging countries like Argentina and China linked their currencies to the dollar in the hope of achieving U.S.-like stability. By 2000, there were said to be more $100 bills circulating in Russia than in the U.S.

But as the century ended, so did this extraordinary run. Tech stocks crashed, the Twin Towers fell, and Americans’ sense of omnipotence went the way of their nest eggs. The federal government is borrowing $450 billion each year to finance the war on terror as well as an array of new or expanded social programs. The dollar, meanwhile, has become the world’s problem currency, falling in value versus other major currencies and plunging versus gold. The whole world is watching, scratching its collective head, and wondering what has changed.

The answer is that everything has changed, and nothing has. The spectacular growth of the past two decades, it now turns out, was a mirage generated by the smoke and mirrors of rising debt and the willingness of the rest of the world to accept a flood of new dollars. Like a family that has maintained its lifestyle by maxing out a series of credit cards, America is at the point where new debt goes to pay off the old rather than to create new wealth. Hence the past few years’ slow growth and steady loss of jobs.

So why say that nothing has changed? Because today’s problems are new only in terms of recent U.S. history. A quick scan of world history reveals them to be depressingly familiar. All great societies pass this way eventually, running up unsustainable debts and printing (or minting) currency in an increasingly desperate attempt to maintain the illusion of prosperity. And all, eventually, find themselves between the proverbial devil and deep blue sea. Either they simply collapse under the weight of their accumulated debt, as did the U.S. and Europe in the 1930s, or they keep running the printing presses until their currencies become worthless and their economies fall into chaos. This time around, governments the world over have clearly chosen the second option. They are cutting interest rates, boosting spending, and encouraging the use of modern financial engineering techniques to create a tidal wave of credit.

What does a collapse in the value of the dollar mean for your finances? Bonds, which are basically loans that promise to make fixed monthly payments and then return the principal, will be terrible investments, since they will be repaid in always-depreciating dollars. For stocks and real estate, the picture is mixed, with a weak dollar helping in some ways and hurting in others. The only unambiguous winner is gold. For the first 3,000 or so years of human history, gold was, for a variety of still-valid reasons, humanity’s money of choice. As recently as 1970, it was the anchor of the global financial system. And since the world’s economies severed their links to the metal in 1971, it has acted as a kind of shadow currency, rising when the dollar is weak and falling when the dollar is strong. Gold languished during the 1980s and ‘90s, drifting lower as the dollar soared, and being supplanted by the greenback as the standard against which all things financial are measured. But now those roles are about to reverse once again.

In the coming decade, as the dollar suffers one of the great meltdowns in monetary history, gold will reclaim its place at the center of the global financial system, and its value, relative to most of today’s national currencies, will soar. Gold coins, gold-mining stocks, and gold-based digital currencies will be vastly better ways to preserve and/or grow wealth than dollar-denominated bonds, stocks, or bank accounts. That, in a nutshell, is the story.

Link here (scroll down to piece by James Turk).


One of the biggest threats to happiness at work is having too many fixed expenses at home. When you are completely dependent on bringing home a pay check (or two!) every single month, you are vulnerable. If work turns out to be unbearable you cannot simply up and leave and take three months without income.

I have chosen low-rent living for myself. At first it was through accident rather than planning but now I would never live any other way. Some years ago, my wonderful girlfriend and I were hunting for a new place to live in Copenhagen. We were living in her small, 1-bedroom apartment and we really longed for more space, more rooms and a bigger kitchen. Homes are getting ludicrously expensive in all European capitals including Copenhagen. We actually submitted bids on two different (expensive) homes and narrowly lost out in each case to other bidders. Back then we were devastated – we really had our minds set on those two places. Today we are incredibly relieved that it never came through. We are still living in Patricia’s apartment which costs us next to nothing and looking back I can see how much of an advantage that has been for the both of us. Obviously this applies not only to your mortgage or rent but to all fixed expenses. Rent/mortgage just happens to be the largest fixed expense most of us have. Leaving lots of breathing room in my economy has brought me some huge advantages:

  1. Freedom to leave a bad job.
  2. Freedom to take a chance.
  3. Freedom to do what I enjoy.
  4. Freedom to do what is right.
  5. Freedom to work fewer hours.
  6. Freedom to say no to some customers.
  7. Peace of mind.
  8. Focus on what really matters.
  9. Simple living.
  10. More money for fun stuff.

This is not about being unambitious at work or setting small business goals – my aspirations are as big as the next person’s. It is about realizing that economic flexibility frees you to do things and take chances that lead to more happiness and therefore to great results in your work life and your private life. I am also not knocking anybody else’s lifestyle and financial decisions. This is simply an observation of something that I discovered mostly by accident but which works incredibly well for me. Maybe you would be terribly miserable living in a small appartment instead of a huge house. But I know that many people feel trapped in jobs they do not like because their financial situation is precarious. If that is the case for you maybe you should consider trying the low-rent life and granting yourself some financial freedom. It is a huge step towards more happiness at work and in life.

Link here.
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