Wealth International, Limited

Offshore News Digest for Week of September 18, 2006

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

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



First, a few facts. Uruguay is on the Atlantic Ocean south of Brazil and North of Argentina. Uruguay is about the size of Washington State, and a bit smaller than England and Scotland combined. It has a population of approximatelly 3.5 million, which is a bit smaller than Costa Rica. More than two thirds of the people live in Montevideo and the Atlantic littoral. The rest are thinly scattered through the rest of the country, which is largely agricultural. The language is Spanish, but with Portuguese and Italian influences. One interesting fact is that Uruguay has the second greatest reserves of water, per capita, in the world, after Canada.

After living in the West Indies, former Yugoslavia and Costa Rica, Uruguay seems normal. Montevideo is a city of about 1.5 million people. It is a combination of old and new, rather like Florida’s St. Augustine. It is at the same relative latitude as the North Carolina Capes – the climate is perfect for me. On average it goes below freezing about 2.5 days per year and above 90ºF/32ºC only 6 days per year. The entire city of Montevideo is bordered on the south by beautiful wide white beaches.

The two dogs and I landed at Carrasco International Airport in Montevideo after an 8.5 hour nonstop flight from Miami. The airport was pretty modern, but with few bridges directly to planes. Immigration did not ask me any questions, but did welcome me to Uruguay. The veterinary official looked at the dogs’ health papers and cleared them both in less than a minute. Customs opened one bag – with my desktop computer – and then waved me through. All of that was accomplished within 45 minutes of the plane touching down. Contrary to my impressions from afar, a high percentage of people speak some English. If things get sticky, I break out my PDA with its Spanish-English dictionary and work my way through it.

The trip to the hotel only took 15 minutes, but it gave me my first view of Montevideo’s wide, well-kept and tre–lined streets. The hotel room was $70 a night including breakfast. The room was small, in the European style, but was well appointed and the bathroom was of a goodly size. Buenos Aires in neighboring Argentina is a big city with about 13 million people in the metropolitan area. It is 45 minutes by commuter plane, or 3 hours by fast Ferry, from Montevideo. As far as I can tell, the relationship between Buenos Aires and Montevideo is roughly similar to that of New York City and New Jersey. After 4 nights in the hotel, Copperhead, my business partner, and I moved into the new house only two blocks away and just across the road from the beach.

We had our first real taste of customer service in a semi-emergency. It was pouring rain when the main circuit breaker shut off – and nothing we could do would make it turn back on. So we got out the yellow pages and called the very first electrician listed at 11:00 p.m. on Friday night. Carlos answered. Carlos told Copperhead that undoubtedly there was a major short circuit on one of the three additional circuit boxes that was not letting the main breaker come back on. We found these, turned them off and sure enough the main breaker functioned normally. We followed instructions and found the bad circuit, but still had intermittent problems. The cost, thus far? Nothing. Carlos visited us. It appears that some of the outside wiring is very bad. As we are not seriously disrupted by one circuit being off, Carlos will email us a proposal to fix everything, and will detail the cost, so we can get it approved by the landlord. The cost after his visit? Still nothing. I am impressed. This is the kind of problem that always turned into an expensive nightmare in Costa Rica – I guess they have not figured out how to “sock it to the gringos” yet. Maybe their culture is such that they never will. Too easy – too normal. I am waiting for the other shoe to drop. …

Two weeks ago today I landed in Montevideo. Since that time Copperhead, my business partner, and I have leased a house, installed phone lines, acquired cell phones and had broadband internet installed. Business bank accounts are in the works as well. In sharp contradistinction to Costa Rica, this has all been done without an attorney or notary or the expense connected thereto. Nothing took more than a passport and money. Another difference is the attitude towards time. After living in the West Indies for a while I learned the system there – whatever time frame was promised would really happen in the next higher time unit. 1 minute is really 1 hour, 1 hour is really 1 day, 1 day is really one week, etc. I also figured out the time rules in Costa Rica. There are none! If someone is really considerate, they will ring you 45 minutes after they were supposed to arrive to cancel or postpone. If they are from the government telecoms, they will set an appointment and never show up. Time here seems to be understood in an Italianate mode. They try to be on time, but sometimes things happen, and when things happen they are very, very sorry and will do better next time. And they do. Thus far, nothing has slipped more than a day – which amazes me. I waited weeks for telephones in Costa Rica and months for broadband. …

Living here keeps on being … dare I say it … normal. Yesterday we paid the quarterly property tax bill. Since the landlord lives in Buenos Aires, our agreement is that we pay it and deduct it from the rent. Paying the bill was very simple. In the local business district is a privately operated bill paying shop, hardly more than a kiosk. Copperhead took the tax bill in, they scanned the barcode on it, took his money, gave him a receipt, and thanked him. Three minutes flat in and out the door. (In a certain Central American Republic, which shall remain nameless, but the initials of which are CR, that would have taken half the morning.)

Today, we paid our corporate tax bill for our 1 year old Uruguay company. That set us back a whopping $7.50 - we already had some extra money on deposit with the accountant, so that did not even take any more effort than sending and receiving emails. Lastly, we come to the post office – the bane of most people’s existence in the “development challenged” world. I had ordered 4 books online from Amazon.com. They shipped them by post to me here. It took only 9 days from the U.S. The postman left notices in the mailbox, which I signed. Copperhead took them to the local post office, presented the signed notices, showed them his passport, collected the boxes and came home. No duty, no endless forms, just “gracias señor” and back into the street “immediamente”. (In that previously unnamed Central American Republic it took 4 hours and 4 trips between the customs office and FedEx to collect 2 used golf shirts: total duty – $2.00, total taxi fare – $75,00. In that same country the post office simply refused and returned a package of winter clothes I had left behind in Serbia-Montenegro.)

Let me see, we dealt with property tax, corporate income tax and the post office in two days without even causing me to curse. Gee, I miss America.

Link here.


Prime Minister Roosevelt Skerrit has signaled his Government’s serious intent to create a vibrant international business sector in Dominica with the appointment of a former Finance Minister, Julius Timothy, as a Minister for Economic Development and Planning. The new Minister will be charged with the specific responsibility for the creation and development of the international business sector. In an address to the nation, the Dominican leader also stated, “We are pursuing the offshore sector with renewed vigor and determination. We intend to avoid the mistakes of the past and come up with a sector that is not only clean but one which is also vibrant.”

Link here.


The CIIB has launched the first informational guides to establishing a business in the Cayman Islands. Called “Business Roadmaps”, the guides trace the steps that an investor or entrepreneur must take from concept to the licensing of a business operation. The first set of roadmaps examines the process involved in three central tourism-related businesses, including tourist accommodation, restaurants, and water sports operations.

Noting that a transparent, straightforward licensing process is a significant factor in encouraging entrepreneurship, CIIB Executive Director Dr Dax Basdeo stated that, “It is our goal to encourage economic development through facilitating the entrepreneurial process, and these roadmaps help us do just that.” Minister for Tourism, the Hon. Charles Clifford, said that priority was given to licensing and procedures that specifically relate to the tourism sector. “The underlying analysis will allow government agencies to examine the resources spent on the licensing process by both applicant and by government. Unnecessary administration can then be streamlined,” Clifford said.

Link here.
Cayman’s reinsurance legislation is progressing – link.
Cayman government revises immigration laws. – link.


Barely a week after Lloyds firm Hiscox confirmed that it was setting up in Bermuda, another Lloyds-listed firm, Omega Underwriting, has announced that it will soon follow suit. According to Omega, its new Bermudian company, Omega Insurance Holdings, is being created because the vast majority of its premiums are generated in the nearby U.S. However, the move has once again highlighted the advantages of Bermuda’s 0% corporate tax regime versus the 30% paid by firms paid in London.

Commenting on the company’s first half results last week, Robert Hiscox, chairman of London-listed reinsurer Hiscox Plc, stated that tax and over-regulation in the UK was behind the decision to transfer much of the firm’s operations to Bermuda. It has also been reported that many other Lloyds firms are considering similar moves. While London is unlikely to be able to compete with Bermuda on tax, some analysts nonetheless believe that Lloyds has a number of major advantages over its offshore competitor. Greg Carter, an analyst at Fitch Ratings, observed of Lloyds that, “I would expect it to emphasise the advantages that it does have – such as licensing in 90 to 100 countries and the fact that underwriters can take the [A grade] financial rating of the market as a whole. If a company set up on its own, it would never achieve such a strong rating so quickly.”

Link here.


Sweden has voted for lower taxes and a smaller welfare state as the center-right opposition alliance won a closely contested election last weekend. With the majority of votes having been counted, the four-party alliance led by Fredrik Reinfeldt of the Moderate Party had won 48.1% of the votes, compared with 46.2% for the Social Democrats and their two supporting parties, the Greens and the Left Party. This gives the alliance 178 seats in the 349-seat in the Riksdag assembly, and a slender majority of seven seats.

The election ends the 12-year reign of Prime Minister Goran Persson and the center-left’s long period of domination of government in Sweden, which had campaigned on strengthening the “Swedish model” of high taxation to fund state provision of public services. In contrast, the alliance has promised to cut income, corporate and property taxes by about 60 billion kronor ($8.2 billion), which will be financed in part by cuts in unemployment and sickness benefits. It also wants to make it easier for companies to hire workers and remove certain state benefits which it argues act as a disincentive to work. Reinfeldt has also proposed to sell about SEK200 billion of state-owned shares over four years, including holdings in Nordea bank, telecoms firm TeliaSonera and airline SAS. Shares in these companies gained value on the Swedish stock exchange the OMX after the election result was announced.

Link here.


Agreement over a number of outstanding issues relating to Gibraltar was reached in Cordoba, Spain, earlier this week between the UK’s Minister for Europe, Geoff Hoon, Spanish Foreign Minister Migel Angel Moratinos and Gibraltar’s Chief Minister, Peter Caruana. Areas covered by the agreements include the expanded use of Gibraltar Airport, the full inclusion of Gibraltar in EU air liberalization measures, recognition by Spain of Gibraltar’s “350” international dialing code and unblocking by Spain of Gibraltar mobile telephone roaming in Spain.

Link here.


Hong Kong’s Deposit Protection Scheme will launch September 25, with a coverage limit of $100,000 per depositor per bank, the Deposit Protection Board announced this week. Enacted on May 5, 2004, the Deposit Protection Scheme Ordinance governs the setting up and operation of the scheme. After two years of intensive preparation, the scheme will provide deposit protection and collect contributions from members from the 25th. All licensed banks, unless otherwise exempted by the board, are required to participate as members.

Link here.



The U.S. government and every other tax-and-spend government on earth are using obfuscations, tricks and outright lies to convince their populations that offshore investments are illegal, immoral, unethical or even equal to global terrorism. Last month’s high profile hearings before the U.S. Senate are only the most recent example. After claiming, with zero proof, that Americans illegally evade as much as $70 billion in taxes each year through offshore centers, Senators Norm Coleman (R-Minneosota), and Carl Levin (D-Michigan) suggested that any American with offshore financial activity should be “presumed guilty” of tax evasion.

The congressional jihad against offshore investments coincides with similar efforts in other high-tax countries. In Australia, the Tax Office announced a plan to audit the country’s 1,000 richest residents for evidence of unreported income. In the UK, “hitmen” from the Inland Revenue are fanning out from London to audit investors with unreported dealings in offshore havens. Taxpayers now face tax bills for hundreds of millions of pounds, plus penalties.

But the politicians are just doing what voters demand. The citizenry is too tapped out from rising energy costs and mortgage payments to pay more taxes. Politicians who talk honestly about belt-tightening do not get elected because no one wants to hear bad news. But luckily, there is a brilliant scapegoat. And it involves resurrecting an old misleading tale about those sovereign individuals who have the foresight to invest offshore, relying upon themselves, not their governments, for financial security. A spineless press will bleat approvingly over any anti-offshore initiatives, continuing to endorse the welfare state mentality that put the country into its perilous fiscal condition in the first place.

The preposterous suggestion that offshore investors should be “presumed guilty” masks the fact that every high-tax country extends tax breaks to favored investments and contracts. Life insurance policies, annuity contracts and retirement accounts are familiar examples. Corporate tax breaks are also available for captive insurance companies, export-oriented companies, and for doing business in the country’s overseas territories. But as soon as individual investors begin using these perfectly legal tax breaks to purchase offshore investments, they suddenly become enemies of the state. Poison rhetoric against offshore centers and those who invest there also ignores the enormous resources the world’s tax collectors already expend to track down offshore tax evaders, and dismantle offshore banking secrecy.

Don’t be fooled. Heed the words of Paris lawyer Edouard Chambost, author of Bank Accounts: A World Guide to Confidentiality, who wrote more than 30 years ago, “Avoiding unnecessarily high taxes is like looking for the best bargain. Evasion, by contrast, means that you are walking away without paying your bill.” It might be hard to discern this truth through the wall of misinformation.

Link here.


Hedge funds, already dodging calls for more oversight, now have the British tax cops on their tail. In a clear sign that U.K. tax authorities are keen to crack down on the tax practices of high-rolling hedge funds, GLG Partners Services Ltd., a Cayman Islands entity that distributes hedge funds run by GLG Partners LP, has settled a probe by British tax officials, people familiar with the situation said. At issue was whether GLG Partners had attempted to lower its taxes by improperly shifting some of its income and expenses to the Cayman Islands entity. A popular tax haven, the Cayman Islands is referred to in accounting circles as a “tax-neutral jurisdiction” meaning that it levies no personal or corporate income tax.

Terms of the settlement were unclear. GLG declined to comment. HM Revenue and Customs, Britain’s combined tax and customs agency, said only that its investigations into tax practices are “all risk or intelligence led.” GLG Partners, one of the world’s largest hedge funds, manages more than $16 billion out of offices in London. The GLG settlement is part of a broader effort by British tax authorities to reclaim as much as £1 billion – about $2 billion – in lost taxes from hedge funds, accountants say.

The focus by British tax authorities on hedge funds arose because “the hedge-fund industry had exploded, and a lot of structures were put in place which led (officials) to believe that the fund manager wasn’t being fully taxed with respect to its U.K. activities,” said John Neighbour, who left Britain’s tax authority in March. The broad investigation has been continuing for a couple of years, but had “picked up momentum” recently, said Mr. Neighbour, who now is a partner at KPMG LLP in London.

If a hedge fund has $1 billion in assets sitting offshore and earns 20% in a year, “that’s $200 million of gain potentially not being taxed in the U.K. at rates of 30% to 40%,” says Robert Mirsky, head of Deloitte & Touche LLP’s hedge-fund practice in London. “We are talking big numbers here.” Though the offshore entity is legally separate from the U.K. hedge fund, tax officials are concerned that many of the companies registered offshore, often in tax havens such as the Cayman Islands, are ultimately controlled by the U.K. hedge fund.

Mr. Mirsky said British tax authorities are concerned about two issues. They are examining whether the fees hedge funds charge, often a 2% management fee and a 20% performance fee, are appropriately split between a hedge fund’s U.K. manager and the offshore entity, he said. Even though the source of a hedge fund’s income may be offshore, tax authorities are focused on whether the income was truly generated by activities carried out offshore. More broadly, he said, British tax officials are examining the nature and purpose of a hedge fund’s offshore entity. The questions tax officials are raising are, “Who is controlling the entity, where is it being controlled and is it a sham to have the entity offshore when its operations are onshore?” Mr. Mirsky said.

Link here.


Banks will soon be asked to dob in Australians using offshore tax-haven accounts in the latest Tax Office strategy to control the growing challenge of overseas tax evasion. Australians operating through Vanuatu will be under the greatest scrutiny because it has been identified as the most popular tax evading destination. “We’ve actually profiled a number of tax havens, and Vanuatu has come out as by far the highest risk,” said Michael D’Ascenzo, in his first newspaper interviews since becoming Tax Commissioner in January. He said Vanuatu was popular because of its “opaque” banking system and because it was the closest haven to Australia.

Tax Office monitoring of magazine and newspaper advertising showed the number of promoters selling tax-haven services to Australia had grown to about 100, he said. That figure did not include promoters who advertised over the internet. The plan to require banks to hand over offshore account details is modeled on a successful Irish program that flushed out billions of dollars in evaded taxes from Channel Islands banks. Mr. D’Ascenzo was likely to write to banks when resources were freed from other intensive tax-haven projects, including a credit card trawling program and Project Wickenby.

Mr. D’Ascenzo said he was monitoring the global rise of private equity funds and the potential tax risks they posed. Mr. D’Ascenzo returned from a special OECD tax-haven meeting in Seoul [see summary immediately below], which concluded that “international non-compliance is a significant and growing problem.” The world’s top tax administrators blamed the rise of electronic commerce and the involvement of tax lawyers, accountants and other advisers.

Mr. D’Ascenzo, however, is confident that Australia is better placed than almost any other country to combat the growing global problem. He credits Australia’s pioneering AUSTRAC system for monitoring offshore money flows, as well as catch-all anti-avoidance provisions. More recently, the high-profile Wickenby investigation has deterred Australians who might have considered hiding income offshore.

Link here.


The tax collectors of the 30 members of the OECD said they will unite in a bid to crack down on cross border tax evasion. The “Seoul Declaration”, signed by the heads of national revenue authorities following the OECD’s 3rd Forum on Tax Administration in South Korea last week, calls for increasing cooperation between tax authorities to detect, deter and respond to international tax noncompliance. “We are committed to using national, regional and multilateral initiatives to achieve better compliance with tax laws working within the existing framework of bilateral agreements,” a joint statement issued by the tax agency chiefs said.

The taxmen agreed to conduct a joint study by 2007 into how accountants, lawyers and tax advisors were promoting illegal tax evasion and “unacceptable tax minimization arrangements”. They also agreed to complete “a directory of aggressive tax planning schemes so as to identify trends and measures to counter such schemes.” And they promised cooperation on training tax officials regarding international taxation issues, while expanding OECD corporate governance guidelines to remind companies that paying tax is inevitably linked to good governance, which brings financial and economic benefits.

The declaration also seeks to establish a cross-border taxation cooperation system to crack down on abuse of tax treaties. Meeting chairman, IRS Commissioner Mark Everson, noted that enforcement of tax laws has become more difficult as liberalisation and modern communications have opened financial markets to more taxpayers. In a speech closing the conference, Everson stated that, “The tax forum represents an important milestone in improving practical cooperation between tax authorities around the world.” Nine non-member countries, including China, India, and Malaysia also participated in the meeting.

Links here and here.


The trouble with taxes is those who feed upon them. Taxes are the lifeblood of the vampire-like government bureaucracy at every level. Without the billions in taxes millions of bureaucrats extract from our hard earned paychecks, oppressive government would wither and die like Dracula in the sunlight. Happy thought what?

But if you thought paying taxes to your city, county, state, and the federal government was “enough already”, guess again. For several years now there has been a concerted international effort by dedicated welfare state leftists to impose global taxes on middle class and wealthy people in every nation, but most especially Americans who already pay for the largest slice of groups such as the United Nations.

And it is the money hungry UN bureaucrats who are leading the push for a global tax on you and me and everybody else who works for a living. These worthies want to impose on the already burdened taxpayers of the world, a new round of “global taxes” to finance the UN and its programs. The UN is demanding that the rich nations spend 0.7% of their GDP on “development” aid – more than $300 billion a year. Subsequently, French President Jacques Chirac, who never met a tax he did not like, called for such world taxes, this time cloaked in fighting “world poverty”. And backers of global taxes are still hard at work. The Global Policy Forum, a UN-affiliated leftist talk tank, says the short term goal is to “break down the taboo” of talking about global taxes. This is a stark reminder that the work against global taxes must continue.

As Sven Larson of the Heritage Foundation has written, “Global taxes feed incompetent, corrupt bureaucracies. National governments are good at wasting taxpayers’ money, but at least there is hope they can be held accountable. International bureaucracies, like the UN and the World Bank, however, are above and beyond accountability. Nonetheless, some suggest that they should be given the right to tax American citizens directly. This is a particularly bad idea. The UN has the Iraqi oil-for-food scandal on its resume, and the World Bank is responsible for more failures than successes in global development.”

In 2002, speaking for the Bush administration at the UN, then U.S. Agriculture Secretary Ann Veneman said, “Global taxes are inherently undemocratic. Implementation is impossible.” The U.S. also refused to sign or agree to a UN declaration endorsing Chirac’s global UN taxes. We certainly agree, but we should all be aware of what is going on.

Link here.


The U.S. and Canada share the spotlight with such countries as the Republic of Congo, China, Brazil and Germany in having some of the highest effective tax rates on capital among 81 developed and developing countries, according to a study by the CD Howe Institute, the Canadian conservative think tank. The 2006 Tax Competitiveness Report scores 81 developed and developing countries according to their tax treatment of business investment. According to its conclusions, highly taxed Canada ranks a disappointing 8th, while the “investment-hostile” Republic of Congo ranks first. However, it found that the U.S. ranks among the most heavily burdened, with an effective tax rate on capital of 38%, above its neighbors Canada at 36.6% and low-tax Mexico at 13.8%.

The study also came to the somewhat surprising conclusion that China has the second highest effective tax rate at 47%, largely driven by its non-refundable 17% value-added tax applied to purchases of machinery. This falls to 18% however, when account is taken of VAT refunds on machinery which are offered by some provincial governments to attract investment. Argentina, Brazil and Germany complete the top five in the list of tax-burden “bad boys”. Unsurprisingly, the most tax-favored jurisdictions include Hong Kong at 6.1%, Singapore at 11.5% and Ireland at 14%, reflecting their low corporate income tax rates.

Belgium has the lowest effective tax rate on capital amongst all 81 countries at -4.4%, resulting from the introduction of a notional deduction for equity financing. With both bond and equity financing deductions, Belgian companies are able to claim a higher tax value of deductions compared to the tax levied on income earned from investments, the study noted.

Link here.

U.S. execs: Broken tax system hurts business.

Executives and government officials got a chance to sound off about the federal tax system, and tax reform during a Senate Finance Committee hearing. While witnesses testified that the tax system is complex, inefficient, and costly, they also proposed principles for tax reform and practical ways to accomplish broad tax reform. “The U.S. tax system is astoundingly inefficient because of mind-numbing complexities,” commented Charles Rossetti, senior advisor at The Carlyle Group and a former IRS commissioner. For instance, since the 1986 tax reform, Congress has made on average 2.9 changes to the tax rules for every working day for the past 19 years, said Rossetti. He suggested that the committee clamp down on Congress’s political process and make it more difficult for Congress to legislate changes to the tax system.

All witnesses agreed that a lower corporate tax rate and a broader tax base would be a positive change. One committee member asked the witnesses if Congress would be “on the right track” if it legislated the way it did in 1986 when it pushed through tax reform and focused on lowering rates and eliminating preferences in the tax system. All of them said “yes”.

Another committee member asked brazenly how low the tax rate would need to drop to prevent companies from visiting Washington and demanding preferential tax treatment. Currently, the statutory corporate tax rate in the U.S. is 39%. David Bernard, V.P. of tax and real estate at Kimberly-Clark Corporation – a company that filed a 3,300-page 2005 tax return last week – said a 10% rate reduction “would be perfect.” Thomas Neubig, national director, quantitative economics and statistics at Ernst & Young, said a survey of companies reveals that a corporate tax rate of 25% or below is favored over other tax reforms.

Link here.

Trifecta tax bill stymied by Senate stand-off over estate tax repeal.

Senator Max Baucus Ranking Democrat on the Senate Finance Committee, has slammed the Senate majority – which is continuing to hold out for death tax repeal – for blocking Democratic efforts to pass a separate bill to renew and extend expired tax breaks including the research and development tax credit. Baucus requested unanimous consent to legislation that mirrors language in a bill supported by the majority side to renew the tax provisions, which also include the college tuition deduction, and the state and local sales tax deduction. However, an objection to the Baucus request was lodged for a third time by a Republican senator. The GOP will not allow passage of the bill unless it includes permanent estate duty repeal, something the Democrats will not accept.

According to Baucus, the continuing delay in getting the tax provisions onto the statute book is not only harming taxpayers, but also contributing to the “tax gap”, an issue frequently taken up by the Montana Democrat. “I have repeatedly raised the problem of the ever-growing Federal tax gap. The tax gap is the difference between taxes legally owed and taxes actually paid. That gap is $345 billion a year, and growing. One thing that contributes significantly to the tax gap is confusion. Many taxpayers simply claim credits or deductions by mistake,” Baucus commented. “And that error rate is about to get worse. As IRS Commissioner Everson pointed out at a Finance Committee hearing this month, the IRS and taxpayers will face unnecessary confusion and compliance errors if Congress does not finish its changes to the tax law soon. … Millions of families, businesses, and workers utilize these popular tax incentives. These are not obscure tax benefits claimed on separate forms or schedules.”

Link here.
IRS investigating liberal California church – link.
Hurry up and file (by October 16), IRS warns taxpayers who got extentions – link.


Following criticism from tax and finance industry experts, New Zealand Finance Minister Michael Cullen and Revenue Minister Peter Dunne have unveiled a proposed way forward on offshore investment tax changes. The ministers said they are now proposing to apply a “fair dividend rate” to calculate tax on overseas shares. “This would tax individuals on a maximum of 5% of the value of their offshore shares in a given year. … [W]here their shares have made a return in excess of 5%, there would be no amount to carry forward as an excess gain (to be taxed in a later year). The fair dividend rate approach would not target capital gains, but rather something approximating a reasonable dividend yield,” the ministers explained.

They continued, “Individual investors would be able to pay tax on a fair rate lower than 5% if they can show that their offshore portfolio share investments made a return of less than 5%. Where an individual investor’s shares make a negative return, no tax would be payable. Any dividends derived would be counted for the purposes of calculating the investor’s overall return. However, the maximum amount taxable in a year would be limited to 5% of the opening value of an investor’s shares (including situations where a dividend in excess of 5% has been derived).

Link here.
New Zealand’s finance minister hints at corporate tax cut – link.


The Dutch government has pledged to share the fruits of its anticipated budget surplus next year through further cuts in tax for individuals and businesses. Holland’s long-serving Finance Minister Gerrit Zalm stated that the government will continue to cut the rate of corporate income tax, which will fall to 25.5% in 2007 from 29.1%, putting it below the EU average. This represents a 5% cut in corporate tax since 2005. In addition, small and mid-sized companies whose profits are liable to income tax will receive an exemption of 10%.

There will also be a small income tax cut for individuals, with the lowest tax bracket reduced by 0.50% and the second bracket by 0.05%. Unemployment insurance contributions, which are paid by all working persons, will also be cut by 1.35%. The government has said that tax cuts are possible because it expects a budget surplus equal to 0.2% of GDP next year, and because it is contributing €1 billion less to the EU’s coffers in 2007.

The government is also taking steps to reduce unnecessary business regulation, and in 2007 it will take further measures to root out “superfluous or unnecessarily complicated legislation”. The number of licences will be reduced by one million, and during 2007 the government expects to achieve its target of cutting the administrative burden by 25%.

Link here.


Avoidance transactions will have to have a commercial purpose other than just avoiding tax.

The South African Revenue Service will have more powers to tackle what it considers to be corporate tax evasion under revisions to the General Anti-Avoidance Rule (GAAR), published last weekend. While in some cases, the original proposals have been retained, several new provisions are being introduced, including the introduction of a new economic substance test, under which all avoidance transactions will have to have a commercial purpose other than avoiding tax. SARS says that the revised proposals have made a number of concessions in response to criticism. The revised proposals would reduce the original abnormality factors from eleven to five, refocus the remaining ones on arrangements lacking commercial substance, and provide additional guidance on their scope.

Link here.


Earlier this month the DTA between Botswana and the UK entered into force. The double taxation avoidance agreement is a renegotiation of the 1977 agreement between the two countries. Under the terms of the updated agreement, an enterprise of the contracting state will be taxed in the other state in its business income, only if it carries on business in the other state through permanent establishment. The scope of a permanent establishment has been extended in the new agreement, to cover construction, assembly and/or installations as well as services rendered through employees.

Income derived from, as well as gains from sale of, immovable property will be taxed only in the country where the property is situated. The same principle applies to gains from the sale of shares in a company whose assets consist substantially of immovable property located in one of the countries. Dividends will be subjected to 5% withholding tax, if the company receiving such dividends holds at least 25% of the shareholding of the company paying the dividend, and 12% withholding tax on gross amounts where the shareholding is below 25%.

Link here.



An asset protection trust trainwreck contains several lessons.

A U.S. District Court ordered the repatriation of assets in two Bahamas trusts that had existed for over 20 years in order to satisfy the beneficiaries’ federal income tax liabilities, ruling that the beneficiaries’ ability to replace trustees means that they also have the ability to change the trustees to a U.S. trustee who will then satisfy creditors.

Husband and Wife self-settled and funded two foreign trusts – one in Bermuda and the other in Jersey – in 1983 and 1984. Husband was the settlor of one of the trusts for Wife’s benefit, and Wife was the settlor of the other trust for Husband’s benefit. As settlors of the respective trusts, Husband and Wife were given powers in the trust documents to replace trustees. In the event that one of them died, the other spouse would gain the power to replace trustees “anywhere in the world” for both trusts. The trusts were also drafted so that if one spouse died, the other spouse would become the beneficiary of both trusts.

Two decades later, in 2003, Husband and Wife were hit with a $36 million final judgment for unpaid federal income tax liabilities for tax years 1991 and 1993. As part of its collection efforts, the DoJ moved the court to order the repatriation of the offshore trust assets to satisfy the judgment. Husband died in early 2005, and Wife thus became the beneficiary of both trusts and obtained the ability to replace trustees. Wife argued that the repatriation order violated the laws of the jurisdiction where the trusts were located, and that she did not wish to either repatriate the funds or order the replacement of the foreign trustees. The court then looked to the trust document, which gave Wife the “unreviewable discretion” to replace trustees, and rejected Wife’s contention that because she had the complete discretion to replace trustees, she could simply refuse to replace the trustee. The court also ruled that it was totally irrelevant that the trusts were funded a decade before the tax liability even arose.

The court held that since Wife clearly had the power to replace trustees, the court could order her to replace the foreign trustees with a court-appointed U.S. trustee who could marshal assets to satisfy creditors. The court additionally held that despite the language of the trust documents giving her only discretionary distributions, her requests for distributions had never been denied and so therefore it appeared that she had apparent authority – backed up by her power to replace trustees – to require that distributions be made to her.

In some ways, this decision is just another in what has become a long and relatively consistent line of offshore trust failures – a line that has grown so long that cases such as these have started to become unremarkable. Could the trusts have been better structured? Probably. Would it have made a difference? Who knows? What we do know is that there are some important points that can and should be gleaned from this latest asset protection trust trainwreck. The first point is that the mere fact that a trust is “old and cold” does not mean that it is immune from repatriation orders. In fact, older trusts are possibly more dangerous than recently-funded trusts because they probably have not been updated to reflect changes in creditor-debtor law.

The second point is that one should not start thinking that an asset protection trust is no longer subject to challenge after the limitations period for fraudulent transfers runs after the initial funding. In entering repatriation orders, courts have not given more than passing thoughts to whether the funding was a fraudulent transfer under either U.S. or foreign law. What the court wants to know is whether the creator or beneficiary of the trust has a current ability to bring trust assets back now, not what happened when the trust was formed. This should especially be true with the 10-year clawback provision for self-settled trusts (both foreign and domestic) in the recent bankruptcy act.

The third point is that if somebody wants to have even a chance of an asset protection trust working, they must actually give up all control of the trust and the assets. A common theme in all of the asset protection trust disasters is that of hidden control, meaning that the settlor has attempted to retain some sort of strings over the assets supposedly given away. No matter how creatively planners have tried to paint these strings, when the court finds them the arrangement usually comes to grief.

Finally, we are back to the entire concept of the self-settled spendthrift trusts. There is a long line of cases that demonstrate that self-settled trusts do not work, and very few decisions that even suggest that they might work even in ideal circumstances. Although Husband and Wife attempted to cross-settle trusts for each other, it seems like the court treated Husband and Wife as effectively one unit (certainly this was the case after Husband died) and essentially presumed from the outset that logically the assets should be returned to satisfy the creditor. This does not bode well for the new, and totally untested, domestic asset protection trusts either.

Link here (scroll down to U.S. v. Grant, U.S.Dist.Ct. So.Fla. case description).

Repatriation and Contempt

According to an Associated Press report, H. Beatty Chadwick was jailed in 1995 for refusing to bring back to the U.S. some $2.5 million in assets that he sent overseas so that his ex-wife could not get them in their divorce proceeding. He is still in jail. A three-judge panel in Philadelphia has now refused to let him out of jail, basically holding that the court could hold him indefinitely until the money comes back. The 68-year old Chadwick is believed to hold the record for time served for contempt.


If you are new to offshore investment, you may not know all the advantages of creating an offshore “nest egg”.

  1. Profit opportunities. The U.S. has the world’s largest securities markets, but there are many more investment options internationally. But too often, U.S. investors have missed the action, because a wall of censorship separates the U.S. from the offshore investment world. For instance, out of more than 55,000 mutual funds in the world, only 7,000 are registered to trade in U.S. markets. Yet, it is illegal for a U.S. broker to even tell you these funds exist! You can buy U.S. securities targeting international markets, but you will find a much richer selection offshore. And you do not have to bet on stocks to make money with overseas investments. Simply owning foreign currencies can mean big profits for dollar-based investors, if you buy in at the right time.
  2. Safe financial havens. The U.S. is in a much more precarious situation financially than many investors realize. Consumer, corporate and government debt levels are at record highs, and a recession, when it finally comes, is likely to be severe. Fortunately, in some countries, banks are run much more conservatively, and the risk of failure is lessened. For this reason, there have been very few bank failures in these countries since the Great Depression of the 1930s. By comparison, hundreds of U.S. banks went belly-up in the last big real estate bust in the 1980s. It could be much worse next time around, given the lax lending standards that prevailed in the 2003-2005 real estate bull market.
  3. Protection from a falling U.S. dollar. For the same reasons described above, the U.S. dollar is in trouble-big trouble. Most U.S. banks make it difficult to buy foreign currencies, but in an offshore bank you can invest in any freely traded currency, in many different forms – CDs, stocks, bonds, etc. Even if these currencies do not rise in value vs. the greenback, your portfolio will gain diversification.
  4. Financial privacy. The U.S. has some of the most relaxed privacy laws in the world. Information about you is bought, sold or shared without your knowledge or consent every day. You can slow down this trade in your data, but you cannot stop it, especially if it is the government doing the snooping. And financial accounts are notoriously insecure, contributing to an explosion in identity theft. Most other countries regulate the trade in private information much more strictly than the U.S. And in countries with bank secrecy laws, it means that this kind of financial information can never be shared, except under stringent conditions.
  5. Asset protection. Due to the proliferation of lawsuits in the U.S. – more than 50,000 per week – getting a portion of your wealth outside the U.S. is also important for asset protection. Outside the U.S., you can find “wealth havens” with legal procedures in place that are highly unfavorable to frivolous litigation. In Nevis, for instance, someone who sues an asset protection trust must first post a $25,000 bond with the government to cover court and others costs. And the statute of limitations for filing legal challenges to the trust runs out one year from the date it was created.
  6. Protection from civil forfeiture. The risk of having the government seize your property may seem remote, but it should not, if you own assets in the U.S. Under civil forfeiture laws, you do not have to be convicted or even accused of a crime to lose your property. By contrast, most other countries are skeptical of civil forfeiture laws.
  7. Protection from corruption and crime. In many parts of Asia, South America and Africa, residents must deal with a corrupt legal system. Corruption can easily lead to a situation where criminal gangs infiltrate the banking system and the tax administration. Successful entrepreneurs in such countries maintain the bulk of their assets offshore in a stable country like Switzerland with a trusted legal system.
  8. Business opportunities. Rapidly growing economies in eastern and southern Europe, like Southeast Asia, South America and even Africa present shrewd business opportunities. And even if you are not ready to set up shop in Prague or Kuala Lumpur, you can target these markets in your offshore investment portfolio.
  9. Protection from terrorism and similar financial disruptions. Sept. 11, 2001 demonstrated that U.S. markets are vulnerable to terrorism and other disruptions. All major U.S. stock exchanges remained closed four days after the September 11 attacks. But investors with non-U.S. accounts could trade on foreign markets.

So, what are you waiting for? Right now is a great time to make your first offshore investment, because the U.S. dollar has temporarily strengthened. And you never know when you might be targeted for a lawsuit or civil forfeiture.

Link here.


The Society of Trusts and Estates Practitioners says that small offshore financial centers are suffering financially because of the burden of international rules aimed at combating money laundering, terrorist financing and tax evasion, according to a new study. Taking the case studies of Barbados, Mauritius and Vanuatu, the report reveals that offshore centers have lost business in spite of improving their reputations by complying with standards drawn up by the OECD and the inter-governmental FATF. The costs of compliance substantially outweigh any benefits to their reputation. The financial sector is an important source of government revenue for many small Commonwealth member states, which lack alternative development options.

The report, “Developmental Implications of Anti-Money Laundering and Taxation Regulations”, was commissioned by the Commonwealth Secretariat’s Economic Affairs Division to summarize the findings of a larger project, “Developmental Implications of Recent International Taxation and Anti Money Laundering/Countering the Financing of Terrorism (AML/CFT) Initiatives”. Commonwealth Finance Ministers discussed the study at their meeting in Sri Lanka last week. They accepted that compliance costs could be particularly heavy for small, developing finance centers. They also accepted that small countries needed to be more included in setting international standards and promised to explore the issues further.

Richard Hay, co-chairman of the International Committee of the Society of Trust and Estate Practitioners, commented, “Small countries’ offshore centres are suffering from disproportionate compliance costs and are gaining little advantage from being good global citizens. The OECD has said that, in return for compliance, small countries will be able to participate in global financial services on a ‘level playing field’, yet this is not happening. They are not getting the recognition their compliance merits.

“Indeed, small states are actually losing business to offshore centers in large countries that won’t raise their own standards. For example, as the [FATF] reported this July, virtually every U.S. state still permits tax-free companies with secret ownership. The FATF revealed that U.S. service providers have successfully lobbied against raising standards, while Delaware actively promotes itself as more secretive than so-called offshore centers.

“If the efforts to raise standards are to succeed, these must apply evenly to large and small countries. Dominant countries, including those in the Commonwealth, must also share market access opportunities with those small states that meet higher standards. … Small states will be watching closely to see how Commonwealth ministers turn their words into action.”

Link here.


Investors looking for a new tax haven will now have a second option in the UAE with the launch of new offshore facility by the government of Ras Al Khaimah. The initiative, called “International Companies Registry”, will allow foreign investors to register offshore companies in the Ras Al Khaimah Free Trade Zone (RAK FTZ) without the need to establish a physical presence, said a report in the Gulf News quoting the zone’s chairman Shaikh Faisal Bin Saqr Al Qasimi.

Ras Al Khaimah officials hope foreign companies will find their offshore system more appealing than the Jebel Ali Offshore center, which was established by Dubai in 2003 to position itself as a tax haven like the Cayman Islands, Bahamas and Liechtenstein. “We are expecting to register 5,000 companies within three years,” Al Omari said.

Asked what steps the zone would take to ensure that it is not misused for money laundering, he said, “We are appointing three top international law firms to make sure that all these companies that are registering in this program follow international law and anti-money laundering requirements.” The offshore benefits being offered by Ras Al Khaimah allow a company to operate with a single director. Offshore entities are not required to have their accounts audited.

Ras Al Khaimah allows for the provision of “bearer shares” under which an entity may decide not to disclose the owner’s identity. In such cases, the shareholder’s identity is known only to the appointed agent. However, the government may ask the shareholder’s identity if required in cases such as bad transactions. Ras Al Khaimah also allows operating companies leeway in deciding which country’s laws govern inheritance.

Link here.

Corporate governance undergoing major development in Gulf Co-operation Council region.

Significant declines in GCC stock markets and increased corporate activity by GCC corporations in Western markets are driving improvements in corporate governance standards, according to a report released by Hawkamah, the Institute for Corporate Governance, and the Institute of International Finance (IIF). The report “Corporate Governance in the GCC – An Investor Perspective”, is part of a coordinated strategy toward the harmonization of corporate governance standards in the GCC and their alignment with international best practice, and is the first study to benchmark standards in the region. It is the result of a series of meetings held with senior officials from capital market authorities, central banks and stock exchanges, local fund managers, lawyers, experts, accountants and management consultants involved in corporate governance in the GCC.

Link here.


George Foreman once devastated opponents with brutal staccato punches short on artistry and long on force. He disposed of formidable pile drivers like Joe Frazier, traded blows with dangerous magicians like Muhammad Ali and – in 1994 – dropped Michael Moorer in the 10th round with a right to the jaw. The knockout culminated an unlikely return to the ring that Foreman staged in his later years, well after he had retired. Foreman, who was 45 years old at the time of the bout with Moorer, confided in an interview that something else actually drove him back into boxing in the late 1980s, and it had nothing to do with proving the meaninglessness of retirement. Having blown about $5 million, made mostly, he says, during his days as a young champion, he desperately needed the money he could earn by fighting again.

Unlike many others with lush bankrolls who somehow manage to lose it all, Foreman rebounded handsomely from his flirtation with bankruptcy. He earned multimillion-dollar purses boxing in the 1990s and made tens of millions more by reinventing himself as a gentle entrepreneur, astutely peddling the best-selling hamburger grills that bear his name. Even so, the trajectory of Foreman’s finances once had him headed into a gilded pantheon of big-time earners who have squandered often unimaginable sums of money, come perilously close to personal bankruptcy or completely lost their shirts. The ranks of well-heeled American debtors include Thomas Jefferson, Buffalo Bill Cody, Mark Twain, Ulysses S. Grant, Debbie Reynolds, Michael Jackson, Dorothy Hamill, Robert Maxwell, Mike Tyson, Jack Abramoff and a large and pitiful cast of lottery winners.

Each had distinct encounters with errant money management. Some of them were undone by rampant spending, others by injudicious deal-making, still others by various shades of greed, fraud or spectacularly poor investments. All of which gives rise to the same old set of questions. Why can’t those who are already wealthy restrain themselves from spending more than they have? Why do rich people, those who would seem to have all the financial padding one needs, wind up deeply in debt? Even worse, why do some of them end up broke?

David Latko, a money manager and radio host who recently published “Everybody Wants Your Money”, a personal finance primer, reduces the mechanics of squandered wealth to handy categories. He says there are five basic ways people become rich. They inherit, marry, steal, win, or earn their fortunes. Only those who earn fortunes, Latko says, tend to preserve their wealth. Inhabitants of the other four categories are more prone to be wastrels.

“You have people who are struggling for a long time, and then overnight, boom, they hit it,” said Shelley Finkel, Tyson’s manager. “If they don’t have someone watching out for them, and some emotional stability, it will be very hard for them to be grounded financially.” Finkel, a genial 62-year-old New Yorker who began his own career promoting A-list rock stars like Jimi Hendrix, said he had always advised musicians and athletes to protect their wealth by socking away a chunk of their earnings into annuities or pensions. Few of them have heeded that advice, he said, including Tyson, who Finkel believes earned and lost more than $400 million in his boxing career.

Questioned in 1991 about the reasons rich people hit the skids, the billionaire investor Warren Buffett told an audience that debt and alcohol were ever-present culprits in financial demise. “I’ve never borrowed a significant amount of money in my life. Never. Never will. I’ve got no interest in it. The other reason is I never thought I would be way happier when I had 2X instead of X,” he said.

“The rich are different from you and me: they are more egotistical,” said Theodore Aronson, managing principal of Aronson Johnson Ortiz, an investment firm in Philadelphia. “Psychologically, I think the rich, because of their egos, think they know everything. Well, they don’t, and many of them repeatedly make horrible investments – because they can.”

Financial success can breed its own peculiar set of vulnerabilities. “People who are very successful develop elevated sensibilities about their skills, and when things turn on them they won’t admit they’re wrong because their self-confidence has held them up so long,” said Arnold Wood, chief executive of Martingale Asset Management in Boston.

Dig a little deeper into this psychological terrain, and, alas, the financial deck may be stacked beginning in childhood. The social milieu in which people grew up, the early messages they received about money and their individual emotional makeup all conspire to define how well they handle money as an adult, said Kathleen Gurney, a “financial psychologist” who advises wealthy people trapped in monetary crises. America’s consumer landscape, which prizes spending and encourages people to define themselves by what they own, only makes the financial balancing act trickier for adults, especially if they have fat wallets. “Someone who goes broke, or someone who goes into debt, is really somebody who isn’t comfortable having their money,” Gurney said.

Link here.



A bill radically redefining and expanding the government’s ability to eavesdrop and search the houses of U.S. citizens without court approval passed a key Senate committee last Wednesday, and may be voted on by the full Senate as early as this week. By a 10-8 vote, the Senate Judiciary Committee approved SB2453, the National Security Surveillance Act (PDF file), which was co-written by committee’s chairman Sen. Arlen Specter (R-Pennsylvania) in concert with the White House.

The committee also passed two other surveillance measures, including one from Sen. Dianne Feinstein (D-California), one of the few senators to be briefed on the National Security Agency program. Feinstein’s bill, which Specter co-sponsored before submitting another bill, rebuffs the administration’s legal arguments and all but declares the warrantless wiretapping illegal. In contrast, Specter’s bill concedes the government’s right to wiretap Americans without warrants, and allows the U.S. Attorney General to authorize, on his own, dragnet surveillance of Americans so long as the stated purpose of the surveillance is to monitor suspected terrorists or spies.

Lisa Graves, senior legislative counsel for the American Civil Liberties Union, called the bill “stunning”. “The administration has taken their illegal conduct in wiretapping Americans without court orders, in violation of the Foreign Intelligence Surveillance Act and the Constitution, and used it as springboard to not only get FISA changed to allow the Terrorist Surveillance Program, but to actually, going forward, not give protections to Americans’ privacy rights,” Graves said.

Jim Dempsey, the policy director for the more moderate Center for Democracy and Technology, described the bill’s passage out of committee as “light years or miles beyond the Patriot Act. … What started out as Sen. Specter wanting to rein in the president’s program has turned on its head and is now not just a legislative ratification of the program, but an expansion of warrantless wiretapping of Americans. It would allow the NSA to turn its vacuum cleaners on even domestic phone calls and e-mails of citizens. They do all of this in Alice in Wonderland fashion by defining all kinds of categories of surveillance to be not surveillance.”

Specter has moved to have his bill voted upon next week by voice vote, called a unanimous consent motion, according to the ACLU’s Graves. Such a procedure would leave no record of who voted for or against the bill.

Link here.


Hewlett-Packard Chairman Patricia Dunn had every reason to stuff up leaks from confidential board meetings. She just went about it the wrong way, by hiring investigators who got phone records of directors and reporters by posing as them, or “pretexting”. Here are some perfectly legal ways – in most places, anyhow – to track down insiders with loose lips.

(1) “Ghosting” e-mail. Corporate computers are fair game for snooping in the U.S. So in-house spooks can divert copies of incoming and outgoing e-mail to a separate file for monitoring. (2) Baiting the hook. “You hold a meeting, and you announce something that will isolate the people there,” says Gregory Suhajda, chief operating officer of Veritas Global, a corporate-security firm. “If ten minutes later it comes out on a blog, you know it’s one of those eight to ten people.” Variations include handing out documents with hidden watermarks or versions with subtly different details.

(3) Software snoop. Corporate investigators have programs that can sift through e-mail and other electronic documents looking for distinctive word patterns, even when employees try to speak in code. (4) Metadata. The average e-mail message contains reams of information that can be useful to an in-house spook, from the computer used to create the message to whether it was altered after it was received. (5) Surveillance. There is nothing illegal about following suspects around, says John Carroll, a security consultant. That may include videotaping them as they dial numbers on the phone and observing their lunch partners. “A lot of the time leaking is done casually,” Carroll notes.

Link here.

Deeper spying is seen in Hewlett-Packard leaks review.

A secret investigation of news leaks at Hewlett-Packard was more elaborate than previously reported, and almost from the start involved the illicit gathering of private phone records and direct surveillance of board members and journalists, according to people briefed on the company’s review of the operation. The effort received some degree of supervision from three officials – Patricia C. Dunn, the company’s chairwoman, along with its general counsel and another staff attorney – but was quickly farmed out to a network of private investigative firms early last year, according to descriptions of the findings. It is still unclear how much they knew of the details.

Those briefed on the company’s review of the operation say detectives tried to plant software on at least one journalist’s computer that would enable messages to be traced, and also followed directors and possibly a journalist in an attempt to identify a leaker on the board. The revelations at H-P, the computer and printer maker that helped define Silicon Valley, have provided a rare glimpse of boardroom turmoil. But they have also cast a harsh light on the questionable and possibly illegal techniques used in the episode, raising the possibility of criminal charges.

Link here.

Protect yourself from pretexting.

Pretexting has long been a tactic used by private investigators and others to obtain personal information and records about people. Also known as “social engineering” in the hacker realm, it involves using ploys to obtain data and documents. The ploys range from the creative to the straightforward. In the Hewlett-Packard case, outside investigators hired by the company simply posed as the victims – HP board members and journalists – to obtain their phone records from phone companies.

On the more inventive side, Verizon Wireless last year accused online data brokers of making hundreds of thousands of calls to the company’s customer service lines posing as fellow Verizon employees with the company’s “special needs group”, a nonexistent department. The callers obtained customer account information by claiming to be making the requests on behalf of voice-impaired customers. Against that kind of initiative, it seems like there is little an ordinary consumer, Silicon Valley director or tech journalist can do. But there are some options, from using disposable cell phones and avoiding unnecessary use of your social security number, to obvious actions like shredding sensitive documents and not posting your vital stats online.

Link here.


Say you are a cheating husband wanting to set up a date with your girlfriend. Or a director at a $90 billion computer company looking to leak secrets to reporters. Somebody might have the audacity to pose as you in order to obtain your phone records. How do you cover your tracks? Get help from one of a bevy of companies offering cloaked phone connections.

Last year a Toronto outfit called Discrete Telecom started peddling the Covert Card, a prepaid phone card that runs $20 per hour of call time. Users dial the service’s toll-free number plus their destination number and are routed over a Voice over Internet network to their destination. Phone records show Discrete Telecom’s toll-free number as the destination number, making the user’s call log worthless to a nosy private eye using pretexting. Discrete Telecom refuses to turn over its records, even to its own customers, unless compelled by a court order.

Covert Card users can also send out phony numbers and names to caller-identification devices as well as alter the pitch of their voices. Police and private investigators have been the biggest fans of the service so far – perhaps for doing a little pretexting of their own? “Anonymity is vital in an age when anyone can play Big Brother,” says a Discrete Telecom spokesman who, keeping with the company’s philosophy, refuses to give his name or the location of his office. Tossable Digits of Falls Church, Va. sells a similar service for incoming calls for $5 per hour. In May United Online, owner of NetZero, started offering free anonymous voice mailboxes accessible by both standard phones and through a Web site. It would not be easy for a snoop to find these messages.

Still, there is no such thing as absolute privacy. A federal agent with a subpoena and a lot of computing time can match up records of your phone company and records of the anonymizing firm and thus track your connections.

Link here.



The U.S. Mint announced that, along with clarifications about the private collectible medallions of other private mints not being U.S. Mint issued, that the Justice Department has declared that the National Organization for Repeal of the FEDeral Reserve Act (NORFED), its widely known Liberty Dollars, and anyone who uses Liberty Dollars in commercial transactions, is in violation of federal law. Despite comments over the years from Treasury, Secret Service, and Federal Reserve officials that there was nothing illegal or wrong about the Liberty Dollar, the Mint claimed today that, “Under 18 U.S.C. § 486, it is a Federal crime to pass, or attempt to pass, any coins of gold or silver intended for use as current money except as authorized by law. According to the NORFED website, ‘Liberty merchants’ are encouraged to accept NORFED ‘Liberty Dollar’ medallions and offer them as change in sales transactions of merchandise or services.”

The Mint press release links to a warning of this and other federal laws being violated, which goes on to say that, “Second, the advertisements confusingly refer to NORFED ‘Liberty Dollar’ medallions as ‘legal’ and ‘constitutional.’ However, under the Constitution (Article I, section 8, clause 5), Congress has the exclusive power to coin money of the United States and to regulate its value. By statute (31 U.S.C. § 5112(a)), Congress specifies the coins that the Secretary of the Treasury is authorized to mint and issue and requires the Secretary to carry out these duties at the United States Mint (31 U.S.C. § 5131). Accordingly, the United States Mint is the only entity in the United States with the lawful authority to mint and issue legal tender United States coins.”

Note the reference to the Constitution. What is obvious to scholars is that the Mint incorrectly quotes the Constitution (which does not say “exclusive”), which does NOT give congress any exclusivity in its power to coin money, it only says they are empowered to do so, not that anyone else cannot. Here are the actual words, “The Congress shall have Power To coin Money, regulate the Value thereof, and of foreign Coin, and fix the Standard of Weights and Measures …” (Article I, section 8, clause 5). This open interpretation has been upheld by Treasury and Secret Service officials for many years.

This challenge by the Mint is obviously a threat to private minters. The Mint has recently taken up a campaign to “warn” the public about the fact that many privately minted medallions are not U.S. Mint issue. This is rather obviously a ploy to drive down the collectible value of these private coins and drive up the value of official U.S. Mint specie coins. A possible second consideration may be that the Liberty Dollar is a talisman of the libertarian, anti-tax “Patriots”, anti-Federal Reserve, and other populist movements. That there are other private currencies in wide circulation in four states is not mentioned by the Mint. NORFED shot back with its own press release, taking the chance to correct several errors of the Mint in its own press release, and challenging the Mint to a legal battle. NORFED Executive Director Michael Johnson likened his organizations legal struggle to the epic battle between Federal Express and the United States Postal Service, and predicts similar results – most priority and long distance USPS mail today is shipped by FedEx aircraft.

Link here.


UK-based anti-spam organization, Spamhaus has stated that it intends to ignore an $11 million ruling against it delivered recently in an Illinois court. The case was brought by David Linhardt, chief executive of e360 Insight, who filed the lawsuit after Spamhaus blocked his emails to its users. Because Spamhaus declined to participate in the U.S. proceedings, a default judgement was obtained ordering the company to pay Linhardt damages, to remove Linhardt’s Register Of Known Spam Operations (ROKSO) record and to cease blocking his emails.

In a statement released following delivery of the judgement, Spamhaus announced that, “A lawsuit filed in an Illinois court by David Linhardt (aka e360 Insight LLC) against The Spamhaus Project Ltd., a British-based organization over which the Illinois court had no jurisdiction, went predictably to default judgement when Spamhaus did not accept US jurisdiction.

“To get the bogus … lawsuit case accepted in Illinois, David Linhardt had fabricated that Spamhaus ‘operates business in Illinois’. … Default judgments obtained in U.S. County, State or Federal courts have no validity in the United Kingdom and can not be enforced under the British legal system. A Plaintiff seeking to have such an order enforced must re-file the case in a British court of law and prove jurisdiction, as well as the small matter of proving the rest of the case.

“The invalid default judgement awards compensatory damages totaling $11,715,000.00, orders Spamhaus to permanently remove Linhardt’s ROKSO record, orders Spamhaus to lie by posting a notice stating that Linhardt is ‘not a spammer’ and orders Spamhaus to cease blocking spam sent by Linhardt.”

The statement continued, “[T]the Illinois ruling shows that U.S. courts can be bamboozled by spammers with ease. As spamming is illegal in the United Kingdom, an Illinois court ordering a British organization to stop blocking incoming Illinois spam in Britain goes contrary to UK law which orders all spammers to cease sending spam in the first place.”

Link here.


New anti-money laundering rules came into force on 1 September 2006. The new rules seek to promote the existing risk–based approach to money laundering prevention. Firms operating in the regulated sector must have in place suitable systems and controls to allow the identification, assessment, monitoring and management of money laundering risks. The focus of the rules has shifted, however, now offering firms increased flexibility as to how they manage the risk and the procedures they use to do so. The new rules take an increasingly high-level approach but firms are still required to prioritize procedures. A key change is the requirement for increased input and involvement from senior management. Whether or not firms have followed relevant provisions will be a factor, which the FSA may take into account in considering whether a breach of the FSA rules has occurred.

Link here.


Russian President Vladimir Putin called a meeting of top bankers and regulators to discuss the scale of fraud and money laundering problems involving Russian financial institutions after Andrei Kozlov, deputy chairman of the central bank, was gunned down last week. It is believed that his death was the result of his tough stance against illegal banking activity. “The use of banking institutions for criminal ends is, unfortunately, continuing,” Mr. Putin told bankers, admitting the problem. “We are witnessing the laundering of billions of rubles every month as well as transfers of vast funds abroad,” he said, adding that the laundered funds were being used for “massive bribes, for criminal ends in the wider sense of the word.” He said that a task force made up of prosecutors, the security services and central bankers would be set up in order to combat the growth of illegal activity in this sector.

Link here.


The U.S. ban against UK-listed gaming company Betonsports was extended until October 16th by U.S. District Judge Carol Jackson in St. Louis at a hearing this week to allow the Justice Department and Betonsports lawyers to negotiate a settlement of the charges against the company and its officers. BetOnSports lawyer Jeffrey Demerath told U.S. District Judge Carol Jackson, “What we are interested in doing is resolving this matter.” And Assistant U.S. Attorney Michael Fagan told Judge Jackson, “I think we can resolve matters.” Demerath said that discussions were aimed at resolving both the civil and criminal charges. An evidentiary hearing is scheduled for 22 January, 2007.

At previous hearings, the company declined to be represented in the St. Louis courts by a lawyer, suggesting that the company is taking the stance that the U.S. authorities have no jurisdiction over its non-U.S. operations. “By not coming to court, you can make the assumption that since we weren’t served, we can carry on our business in a normal capacity,” Kevin Smith, a BetonSports spokesman, said in August. Betonsports and 12 individuals were indicted June 1st by a federal grand jury. Charges include racketeering, mail fraud and facilitation of gambling across state and national boundaries. Trading of Betonsports stock in London was suspended on July 18th at the company’s request. The company ran its U.S. Internet business from Costa Rica and Antigua.

Founder Gary Kaplan and British CEO David Carruthers were among those indicted. Carruthers, 48, was arrested in July as he changed planes in a Dallas airport. Previous, similar cases suggest that the Justice Department would probably be successful in its case against Betonsports, which has already ceased to accept bets from US residents, although the company’s lawyers would have fought the indictments on the grounds that the U.S. has no jurisdiction over internet transactions taking place outside its borders. The company announced on 11th August that BetOnSports would no longer accept bets from U.S. customers, and that it would refund customer money when it became available.

Link here.


The trial of all Crimes, except in Cases of Impeachment, shall be by Jury; and such Trial shall be held in the State, where the said Crimes shall have been committed; but when not committed within any State, the Trial shall be at such Place or Places as the Congress may by Law have directed.” ~~ U.S. Constitution Article III, Section 2, Paragraph 3

One of the most important constitutional rights is the right to a fair and open trial. The Sixth Amendment guarantee is apparently a personal right of the defendant, which he may in some circumstances waive in conjunction with the prosecution and the court, but it is the defendant’s decision. Because this right is so fundamental in the U.S., the U.S. Supreme Court in the past has had little occasion to deal with the right. It is a right so fundamental that it is protected against state deprivation by the due process clause, but it is not so absolute that reasonable regulation designed to forestall prejudice from publicity and disorderly trials is foreclosed.

Yet there are those working within our nation’s legal system who wish to change the process by which civil liberties are protected for someone accused of a criminal offense or faced with civil litigation. The most serious but little known trend is the reduction in use of the jury trial. A respected jurist, Hugh Bownes, recently wrote, “There are several good arguments for [eliminating juries]. [In] doing so, it saves time, saves money and a judge is better equipped by training and experience to cope with the nuances and complications of complex issues. Any judge will attest to that. Yet to understand whether trial by jury should be eliminated in complex civil cases, we first have to look at what the purpose of a civil trial is and the function of the jury in it.”

While Bownes advocates elimination of juries in civil cases, it is this tinkering with our judicial process that should disturb all clear-thinking Americans. It is but another first step in the march to creating an imperial judiciary. What may appear expedient in a civil trial may seduce the lawyers in black robes to advocate non-jury trials for criminal cases in the very near future. If Americans accept as the law that which a judge states, then they have accepted the exercise of absolute authority of a government employee and have surrendered a power and right that once was the citizen’s safeguard of liberty.

Also, in most jurisdictions, judgeships are political entities relying on the same political foibles that exist in electing mayors, governors, senators and other federal, state and local officials. Defendants should not have to worry that the man who sits in judgment over them is a “conservative” or “liberal” or “libertarian”. To be sure, jury members have political biases, but they are not professional politicians with their own agendas.

The elimination of jury trials will not be accomplished in one felled-swoop. In several states it is being accomplished piecemeal. Arizona has just joined a small but growing list of states that have taken away the right to jury trial in DUI cases, even though DUI charges may lead to incarceration and other penalties. Legal scholar Lawrence Taylor sees this as a frightening trend. “First, it puts the fate of DUI defendants in the hands of politically elected judges. Given the PR power of groups like MADD, you can bet that will mean the further erosion of the rights of suspected DUI-DWI suspects. Second, it saves the criminal justice system a ton of money, which means virtually every jurisdiction in the state will likely scrap jury trials for drunk driving cases.”

In direct violation of the U.S. Constitution, the Supreme Court recently ruled that you do not have to be given a jury trial if you face less than six months in prison. And if you have a dispute with the IRS, EPA or any of a dozen other regulatory agencies, your case will usually be heard by an administrative law judge employed by the same agency you are disputing. Judges routinely deny the traditional right of jurors to judge the law, as well as the facts of a case, and vote their conscience. Thomas Jefferson considered the jury trial “the only anchor ever yet imagined by man, by which a government can be held to the principles of its constitution.” If Americans allow those in power to bypass trial by jury, that concept – in fact, all of our Bill of Rights – will be in danger of extinction.

Link here.


BUSTED! How to behave when confronted by the police? Most people give up their Constitutional rights without knowing it. How to act, what to do, what to say at your next traffic stop. Preserve your rights! (Part 1 of a series.)

Link here.
Podcast or direct download here (24.6MB MP3 file).


Good for him!, I say, even if he is guilty.

There are technicalities of all sorts in our justice system. Known as “procedural” justice, these technicalities include not just rules governing arrests of crime suspects, and rules of evidence, but also fiddly rules of procedure – how soon you must respond officially when someone initiates a lawsuit against you, what issues you should discuss and when, and even how documents should look. “Substantive” justice and rules, by contrast, refer to the underlying merits of legal actions – the reasons a person pursues legal action, or is charged with a crime, in the first place. Substantive justice is that which examines whether one person wronged another and is liable, or whether it is a crime to steal.

Most cases are won or lost on purely procedural issues – usually, because one attorney or party did not follow the rules carefully enough. Said another way, most cases are decided without regard to their merits, without regard to who done whom wrong. What is good about that? Procedural rules, as arcane, complex, arbitrary, and frustrating as they are, in every case are an attempt to get justice accomplished. Some rules exist to give parties a fair chance to prepare for each others’ arguments. Other rules exist to strike a balance between “perfect”, or error-free, justice and actually getting the work done. (“Perfect” justice for a single complicated case could consume lifetimes.)

Lawyers wrote all these rules, and frankly, lawyers are not all bad people. To keep their licenses, lawyers have to stay out of trouble, avoid personal debt problems of the sort that most Americans have today, avoid bringing frivolous lawsuits. Some even have to do a week or two of work for free every year. Yes, the fact that some civil awards are huge, with lawyers taking a big cut, attracts ambulance chasers to the business. They are not the bulk of the profession, and lawyering is not the only profession with slimy practitioners. And since lawyers on both sides of civil cases developed the rules, it should not be surprising that rules of civil procedure are intended to make the whole process as fair as possible.

“Getting off on a technicality” happens in criminal, as opposed to civil, law. In criminal law the accused is presumed innocent. The standard of proof of guilt is high, and every doubtable fact is assumed in favor of the accused. These things were written into the structure of our criminal justice system by the framers who, though misguided in their assumption that forcible government should resume after the Revolution, were at least well apprised of the dangers of a criminal justice system biased in favor of the all-powerful government. Given their invalid fundamental assumption, the framers did a respectable job.

As we go about finding ways to shrink government, we might as well be informed as to exactly what we need to be rid of. In the complete absence of forcible government, it might be surprising to see which traditions and conventions remain in the free market. Some traditions we have learned to associate with government – such as procedural justice – actually predate our government, and will remain after it has faded away.

Link here.



We sure blew off that question nicely. As with everything else in this country, our response to 9/11 was a heroic compendium of idiocy, cowardice, callow flag-waving, weepy sentimentality (coupled with an apparently bottomless capacity for self-pity), sloth, laziness and partisan ignorance.

We dealt with 9/11 in many ways. We instantly dubbed everyone who died in the accident a hero and commissioned many millions (billions?) in mawkish elegiac art. We created a whole therapy industry to deal with our 9/11-related grief, made a few claustrophobic two-star Hollywood movies about the bombings, read Lisa Beamer’s book and bought that DVD narrated by Rudy, watched Law and Order entertainments about sensational murders committed that morning and left for Jerry Orbach to solve, made bushels of quasi-religious references to “hallowed ground”. We made many careers out of assigning blame for the attacks, with the right blaming Bill Clinton, Michael Moore blaming George Bush and the clinically insane blaming those mysterious demolition experts who allegedly wired the bottoms of the towers with the explosives that “really” caused the tragedy. And we talked about 9/11 – to death. We blathered on so much about the attacks and whined so hard about our “lost innocence” that the rest of the world, initially sympathetic, ended up staring at us in suicidally impatient agony, a can of kerosene overturned above its head, like the old lady sitting next to Robert Hays in Airplane!.

We did just about everything except honestly ask ourselves what the hell really happened, and why. America’s response was basically to blow off the entire question of why 9/11 happened, change the set-design behind the same old us-vs.-evil commies cowboy-movie worldview, and to patch the hole blown in our self-esteem with a crude mix of stage-managed self-congratulation and sentimental claptrap. Our failure to actually win our subsequent self-declared war on the evildoers we explained away by using a modern innovation, i.e. taking a New-Agey approach to our shortcomings and forgiving ourselves for our little imperfections. In the Dr. Phil age, actual achievement is not important, so long as you are comfortable with yourself!

Whatever happened to actually being tough? What happened to speaking softly while we carry that big stick? Of staring problems bravely in the face, of taking the world seriously? History long ago washed that generation of “us” away, along with the world we still think we live in.

Link here.


Five years ago, four planes were hijacked as part of a terrorist operation that handed the U.S. government one of the juiciest Higgs crises it has ever enjoyed. In the years since, the government has exploited this bonanza enthusiastically, launching wars abroad and chopping away at civil liberties at home – all in response to an incident that U.S. government policies led to in the first place.

The fifth anniversary was marked by commemorations amounting to an apotheosis of the American State, with endless images of waving flags, and endless posturing. The 9/11 attacks were repeatedly referred to as “the worst terrorist attack in history” (conveniently forgetting Hiroshima, Nagasaki, Dresden …). The president spoke earnestly about children who “still long for the daddies who will never cradle them in their arms” (as though having one’s father killed was something only suffered, never caused, by Americans) and about “fighting to maintain the way of life enjoyed by free nations” (as though ending lives abroad and destroying freedom here were the natural way to do this). “America did not ask for this war,” he proclaimed innocently, as though the terrorists’ actions were something other than a response to, and in large part a mirror image of, U.S. foreign policy in the years prior to 9/11.

The ever-increasing hassling of airline passengers in the wake of 9/11 is far from being the worst of what the government has been doing. It is probably not even 20th worst, but it is an apt illustration of the dynamic of statism. The 9/11 hijackers used sharp objects, so government security starts confiscating nail clippers. A later would-be airline bomber tries to ignite a bomb in his shoe, so passengers have to start taking off their shoes. Some bozoes in Britain may have talked about using airline bombs involving gels, so passengers are relieved of their hairspray and water bottles. Each time the terrorists use a new tactic, the government imposes a new restriction on the rest of us. By the logic of the situation, government restrictions will always increase.

Besides this institutional perversity, another factor that helps to make the government-ratcheting-to-infinity dynamic possible is ideological is the tendency to imagine that passing a law magically brings about its desired result. This comes across clearly in the interviews that were broadcast with long lines of delayed passengers in the wake of the Gel Terror. “I’m willing to put up with the inconvenience in order to be safe,” they kept saying. When a government policy is advertised as preventing X, it is seen as preventing X. The ideological mystification that sets up the state as external to the social relations it attempts to govern enhances its perceived effectiveness far beyond its actual effectiveness.

The real lesson of 9/11 is, or should be, the ineffectiveness of state action. On 9/11, the danger came not from a well-armed, well-funded state military but from a small group of passengers armed with box-cutters. The most effective defense (on flight 93) was likewise not a well-armed, well-funded state military but another small group of passengers armed with fists and hand luggage. The state is incompetent to protect us. What it is good at is, first, dragging us into crises, and second, using those crises as an excuse to expand its control over our lives, and over the lives of people around the globe – wading through blood in the process. But even this ability depends not on its inherent powers but on our own acquiescence. Withdraw your consent!

Link here.


A document cited by President Bush in his recent speech at the Capital Hilton Hotel on how to “win the war on terror” cites conspiracies as one of the wellsprings of terrorism and threatens to “address” and “diminish” the problems they are causing the government in fulfilling their agenda. Bush referred to the strategy paper as “an unclassified version of the strategy we’ve been pursuing since September the 11th, 2001,” that takes into account, “the changing nature of this enemy.”

The document says that terrorism springs from “subcultures of conspiracy and misinformation,” and that “terrorists recruit more effectively from populations whose information about the world is contaminated by falsehoods and corrupted by conspiracy theories. The distortions keep alive grievances and filter out facts that would challenge popular prejudices and self-serving propaganda.” The terminology echoes President Bush’s speech to the UN General Assembly on November 10, 2001 in which he stated, “Let us never tolerate outrageous conspiracy theories concerning the attacks of September the 11th, malicious lies that attempt to shift the blame away from the terrorists themselves, away from the guilty.”

This is an outright threat to the 9/11 truth movement and is meant to have a chilling effect on freedom of speech. It is also a callous reminder that the administration that has been the progenitor of the most heinous and deliberate campaign to mislead and lie to its own people is so transfixed by its own hubris that it has the temerity to accuse others of propagating deceptive information. This is the same administration that deliberately included the Niger yellow cake fraud in a state of the union speech to sell a war – knowing that the information was completely bogus. Now they threaten us with the very defining characteristic of their black legacy and equate us with terrorists?

This is a direct assault on the alternative media and a continuation of the twilight zone rhetoric that saw the administration attempt to link its critics with Fascists and Hitler appeasers. This is by no means the first time political enemies of the state have been smeared as terrorist sympathizers. During a FEMA symposium it was stated that the founding fathers, Christians and homeschoolers were terrorists and should be treated with the utmost suspicion and brutality in times of national emergency. Shortly after 9/11 a Phoenix FBI manual that was disseminated amongst federal employees at the end of the Clinton term revealed that potential terrorists included, “defenders of the U.S. Constitution against federal government and the UN,” and individuals who “make numerous references to the U.S. Constitution.”

Link here.
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