Wealth International, Limited

Offshore News Digest for Week of October 9, 2006

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

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You smell the perfume of the white ginger and watch the palm fronds sway in the southeastern trade winds … slip into quiet, blue water that feels like velvet on the skin … and walk along the white sand and scoop up shells, adding to a collection already spilling onto the patio table. Experiences like those – a daily pleasure on Roatan, Honduras – are, really, what enticed us to invest here.

We never imagined we would be able to afford an island retreat – let alone one right on a secluded beach. But we are here pretty much full-time these days, enjoying the beautiful, open-air house we had built, and an incredible quality of life, for a fraction of what it would cost us elsewhere in the region. The truth is that we are living a dream retirement we never even dared dream about before we came here.

It feels like we are a long way from the United States. We have traded crowded freeways for two-lane roads that land crabs amble across. But for my husband and me, moving here turned out to be an easy decision. We joined a tour to Roatan back in March 2003. We had traveled widely before that and always asked ourselves, “Would we want to live here?” But until we landed on this island, the answer was always, “No, too far from the children, grandchildren, and friends.” The quick, two-hour direct flight from Houston to Roatan made our decision easy. As did the incredibly well-priced properties. Back then, and still today, there were all variety of properties on offer – excellent-value waterfront, view, and wooded lots at various developments, reasonably priced homes already built and landscaped, and large tracts of acreage. Of course, make sure you have clear title to what you buy. And get title insurance.

Within five days, we had bought a lot and met the Canadian designer who would build us our dream house. Actually, we had never dreamed that we could afford a home right on the water. But the description of our ideal home all but tumbled out of us in short order. We wanted a pod-style Balinese house. One year later, we moved in. The boxes piled high in our container on the ship from Miami, held Pier One furnishings in reds and oranges. We brought everything, from refrigerators to light bulbs. And today we have an inside garden flourishing riotously and tables groaning under vases of newly picked orange birds of paradise, red hibiscus, pinks of the torch ginger, and leaves from the varieties of crotons.

I was interested in learning more about our new home, and so I began writing for the magazine that covers the community and the people who make it work. And within time, I became the editor, in fact. Would it be corny to say it is a joy rounding the bend of the road on the way to do an interview? Would it surprise you to know that we think of Roatan as our home, and our USA townhouse as our jumping-off place? Our gray hairs are showing, yet we feel alive and adventuresome.

Link here.


Rolling down the new coastal highway at 75 mph, I was continually surprised by the breathtaking views of the rocky Pacific shoreline, the majestic cliffs, the wide beaches, and the hidden sandy coves. Reminding me more of California than anywhere else in South America I have travelled, the Chilean coast enjoys much the same climate and geography. But, while the quality of life and the infrastructure are comparable, Chile’s cost of living and property prices are dramatically lower than in southern California.

Viña del Mar is the primary coastal attraction in Chil, with its wide, white-sand beaches, luxury hotels, oceanfront apartment buildings, and excellent restaurants. But the most pleasant surprise for me was the city of Viña del Mar, which sits inland adjacent to the beach resort. Its turn-of-the-century architecture, grand buildings, and busy shopping district are clean and well organized, with a flourishing year-round population of a little more than 350,000. Viña del Mar would stand alone as a great place to live even if the resort were not there. And Viña does not close in the winter, so no matter when you choose to come to the resort, the adjacent city will be open for amenities. The beach is well maintained and lined with some of the country’s best restaurants, bars, and houses.

Things in Viña del Mar are surprisingly cheap – given the quality of everything the city has to offer. In downtown Viña del Mar, we looked at a 2-story house with four bedrooms and a garage, situated on a quiet street, within walking distance of the downtown attractions. The owner is asking $144,000. A few miles up the coast from Viña del Mar proper, you will find the neighboring community of Reñaca, which is more upscale, with gleaming new luxury apartment projects along the shoreline. Prices here were a bit higher.

A little farther on, I found what turned out to be my favorite part of this area, a town called Concón (sometimes written Con Con). It has a more old-fashioned feel, with its waterfront seafood restaurants and lower, slightly older, seaside apartments. To me, Concón represented the best value in the Viña del Mar market and it is only a 5-minute shuttle ride from the action of Viña del Mar. I looked at an apartment here with 3 bedrooms, 2 bathrooms, and a wide terrace overlooking the ocean priced at $93,000. I also saw a house for sale with a quiet street to the rear and the ocean to the front. With 3 bedrooms, 2 bathrooms, and a deck overlooking the sea, its asking price is $136,700.

Rocas de Santo Domingo was a pleasing, small residential community that had little in the way of commercial establishments (two supermarkets and a bakery), but was among the best places I saw for full- or part-time living. Along with the beach, the town has a great 27-hole golf course and country club. Santo Domingo was originally a planned resort community founded in 1942, which explains its well-organized feel. The homes here have well-manicured gardens under the shade of giant eucalyptus trees. For any serious shopping you will need to cross the Maipo River to San Antonio, about 10 minutes away. I saw my favorite condos on the coast here – Paseo del Mar. The 3- and 4-bedroom homes run from 1,300 square feet to 1,500 square feet and are located on the beach with great views. The 2-story condos are circled around a nice pool and a green, well-landscaped lawn. Prices start at around $100,000 and my favorite 4-bedroom model was $137,000.

Nestled in a heavily wooded region of pines, the city of Concepción is reminiscent of the U.S.’s Pacific northwest, right down to the resemblance between its river Bio Bio and the northwest’s Columbia River. Concepción exhibits the life and vibrancy common to many university towns – from the street musicians to the abundant cafés, bookshops, and restaurants. A clean city of 380,000 people, it is home to two orchestras, a music conservatory, and several theaters. The cost of living is lower in Concepción than in most of Chile’s other desirable locations. There are new 2- and 3-bedroom apartments for sale atop a wooded hill in a residential area on the edge of town, about five minutes from downtown and serving as what I would call a bedroom community for the city. The apartments have a view of the river, the city, and the ocean. Prices start at $96,000 for 1,070 square feet. In the rental market, there’s a small furnished apartment centered on the Plaza de Armas, renting for $543 per month. A few blocks further away from the square, a similar apartment is $300 a month.

Concepción is not actually on the coast. It is several miles inland and there are no beaches to speak of unless you drive a few miles either north or south of the city. There are much better places in Chile to go if you are looking for a seaside destination, but I think of it an alternative to Santiago, even though Santiago is more than 10 times its size. It has all the essentials – including a rich cultural life and an airport – along with a more vibrant, young-at-heart feel. It lacks Santiago’s huge variety of amenities. But it also lacks Santiago’s traffic congestion and renowned smog.

Link here.


Buenos Aires, Argentina. Travelers sometimes call it “The Paris of South America”, for good reasons. More importantly for investors, it is also a place where prime waterfront real estate goes for prices only 1/10th of what comparable properties go for in Europe and the U.S. There are reasons for that, too. But I will make the case that they are not good reasons. Argentine real estate may never trade on par with Europe or the U.S. But if it is 2/10ths as valuable, prices will double. Sounds like a fair bet to me. Especially since Argentina’s real estate is practically bubble-proof at this stage.

Investors who think about Argentina in their reflective moments perhaps recall the awful meltdown in 2001. If they had any money in Argentina back then, they probably recall the episode with a shiver and reach for the brandy. The litany of woes was great. Bank accounts are frozen. The peso loses 75% of its value. The government defaults on its debt. The economy falls apart. Unemployment hits 25%. Violent protests in the streets. The stock market collapses. From 1998-2002, the Argentine economy actually shrank by about a fifth. When the Argentines have a crisis, they do not mess around.

Emerging markets generally have a habit of melting down every once in a while. Just look at the roll call over the last dozen years or s the Tequila Crisis (Mexico, 1994), the Asian Crisis in 1997, Turkey in 2000, Argentina in 2001 and Venezuela in 2002. From 1994-2002, the MSCI emerging market index lost 60% of its value. However, these markets also snap back famously. Last year, the MSCI index (a common benchmark for emerging markets) climbed back to its 1994 peak, and made back all those losses. Then, in May-June of this year, emerging markets as a group lost a quarter of their value in stunning fashion. Still, there are times to buy. With that thought in mind, let us take a look at Argentina four years after the crisis.

Argentina has always had a romantic quality to it. The eyes of travelers everywhere widen at the thought of those lush grasslands of the Pampas, the rolling plateaus of Patagonia, the rugged Andes Mountains in the west and Tierra del Fuego (“Land of Fire”) at the southernmost tip. Travelers also probably fondly recall Argentina’s biggest city, Buenos Aires. With more than 11 million people, about one-third of all Argentines live in and around the city. Buenos Aires has its charms. The European-flavored architecture reflects the influences of its early settlers. There are wide avenues and plazas. You can wander down cobbled streets finding old-time cafes and world-class restaurants. It is also easy on the wallet, a fact that has attracted a growing expat community.

Argentina is also the 8th largest country in the world and the 2nd largest in South America. Yet its economy ranks only 38th in size globally – behind countries such as Iran, Portugal and Greece. Somehow, it feels like it should be bigger. It is also one of the world’s fastest growing economies, and Buenos Aires is among the world’s fastest growing cities. “Perhaps the most tangible sign of Argentina’s economic recovery,” The Wall Street Journal reports, “is its booming real estate market, which has transformed Buenos Aires, the capital, into a construction site.” Though gauging economic growth is a tricky business, estimates peg Argentina’s at around 8% annually.

The stock market has come back, and real estate has been a top performer. Those who survived the debacle in 2001-02 looked to real estate as a safe haven against further inflation. Then, too, foreign investors snapped up cheap real estate. According to an Argentine real estate trade group, Camara Inmobiliaria Argentina, housing prices have increased 50% since 2002. Even though real estate prices have soared, they still look surprisingly cheap. Puerto Madero is a prime location. Restaurants and lofts converted from old warehouses now line the old port. This area is among the swankiest and most expensive in town. Prices go for $280 per square foot. For similarly located property in the U.S. or Europe, you could pay 10 times that.

There are inconveniences. For one thing, Argentina’s mortgage market is practically nonexistent. Real estate transactions are mainly in cash. That means meeting someplace secure and counting out piles of notes before pushing them across a table to the seller. Then, the other side recounts the money. Therefore, easy credit and excessive leverage do not make up the foundations of the Argentine real estate boom. In other words, it is almost bubble-proof – although that could change at some point.

Argentina, because it is Argentina, may never command prices on par with Europe or the States, but if the discount goes from 10% of the price to 20% of the price that would be a small step for a market that is only beginning to use mortgages and is only a few years from a major financial crisis.

Link here (scroll down to piece by Chris Mayer).


St. Kitts and Nevis has revamped its Citizenship Investment Programme to reflect its focus on the promotion of investment rather than citizenship. Prime Minister and Minister of Finance, Dr. Denzil Douglas announced a series of measures aimed at strengthening the already tight regulatory mechanisms currently in place in respect of the program.

“The minimum investment in real estate that would make a person eligible to apply for citizenship has been increased to US$350,000 from the current minimum of US$250,000. The current option, whereby the purchase of Government bonds makes a person eligible to apply for citizenship, has been terminated,” said Douglas, who added that the application forms have been updated and revised to ensure that they are comprehensive and consistent with international standards and that it contains all information relevant to the determination of the suitability of the applicants for citizenship.

He said that all applicants are required to make a declaration and provide evidence regarding the source of funds from which the investment is made. He said that each applicant is required to submit a new standard medical form which must be completed by a medical doctor based on medical tests and examination of the applicant for citizenship. The Ministry of Finance will exercise control over the promotion of the citizenship by investment program by requiring all real estate developers or lawyers to submit for approval any of their promotional or informational material (printed or on electronic media including Web pages) that makes reference to the St. Kitts and Nevis Citizenship By Investment Programme.

Douglas said that a new secure Citizenship by Investment Certificate will be introduced to minimize the risk of illegal duplication and falsification. The St. Kitts and Nevis Citizenship by Investment Programme been in place for more than two decades and has distinguished itself from many other similar programmes by rigidly enforced investment requirements and meticulous due diligence procedures that seek to ensure that only persons of good character are attracted to the Federation through this program.

Link here.


Unlike Americans, lucky Canadians can escape most income taxes if they move outside their home country. Unlike the U.S., Canada has territorial tax law with most taxes imposed on residents. This allows many Canadians to retire to sunny climates such as Florida – or Mexico, which is a newly popular destination. By retiring in Mexico Canadians not only live in a warmer climate, they can also reduce their cost of living and taxes.

“Mexico is one destination where this works for many Canadians because Mexico can be called a tax haven,” says a financial planner. “By moving to Mexico you can eliminate or mitigate most taxes while still collecting Canadian social security and other pensions.” While Canada will withhold 15% from government payments as a non-resident tax, Canadians on a long term Mexican resident FM3 visa are not required to fill out tax forms in Mexico.

Link here (scroll down).


The south of France is becoming a haven for over-taxed top earners in the UK, according to latest reports. Living in Monaco has long since been a respite for the rich and famous, and it has become apparent that the demand for property there has increased dramatically of late due to the continuing strength of the UK economy. UK nonresidents are allowed to spend 90 days in the UK, but a legal loophole means that days of travel are not counted. With the help of a laptop, a mobile phone and a private jet, top businessmen can easily work a three or four-day week in their UK offices.

However, the trend of Britainwts richest heading abroad has hit new heights of late with some estate agents in the Alpine principality claiming that 40% of their customers are now from the UK, compared with the historical average of 10%, according to Tribune Properties. It is believed that this growing demand is due as much to the increase in the number of millionaires in the country as to the perception that the UK is over burdened with tax. The increase in stealth taxes under Gordon Brown’s stewardship of the treasury and the well-documented troubles that middle class families are having with inheritance tax (IHT) have caused many to choose to abandon life in the UK in favor of the French Riviera.

Research by the Stroud & Swindon Building Society showed that the average house could be liable for IHT in eight years’ time enforced these concerns over the amount of tax Britons are forced to pay. A spokesperson for information provider YourMonaco.com said, “Despite the top rate of tax coming down to 40%, by the time other direct taxes such as national insurance are taken into account, around half of the top earners’ salaries are – as many of the Monaco property buyers from Britain see it – being lost to the inland revenue. … By moving to Monaco they effectively double their disposable income.”

However, outside of Monaco also offers relief from the overburdened UK. Assetz Property News Service stated, in response to the country's new tax laws in 2004, “The popular perception of France as a high tax country is out of touch with reality. In many cases France is a lower taxing country than the UK and from a tax point of view an attractive place in which to invest in property.”

Link here.


The Inter-American Development Bank (IDB) will support with a $70 million loan the first phase of a program to improve Panama’s road infrastructure and increase its competitiveness. The loan is for a 20-year term, with a 6-year grace period and a variable interest rate. Panama will invest $35 million in the first phase of the program. The IDB may approve loans totaling $100 million for the following two phases, in which Panama would invest an additional $70 million. The program will be carried out within the framework of the Plan Puebla Panama regional integration effort.

The program will finance the rehabilitation of priority highways as well as the introduction of new mechanisms to ensure a constant maintenance of the Panamanian road network. A specific goal of the program is to cut costs and travel time for the transportation of passengers and cargo on highways linking Panama’s production centers with its local and external markets, boosting the competitiveness of a key sector for the country’s economy. “The idea is to establish maintenance as a priority. This would represent a radical change for Panama, since it will preserve the value of their road network and contain the costs of future investments in highways,” said IDB project team leader Jose Agustin Aguerre.

Plan Puebla Panama is sponsored by Belize, Costa Rica, El Salvador, Guatemala, Honduras, Mexico, Nicaragua and Panama. Its projects include the rehabilitation and maintenance of Mesoamerican integration highways based on technical standards agreed on by the participating countries. A long-standing initiative of the Latin American countries, the Inter-American Development Bank was established in 1959 as a development institution with novel mandates and tools. Today, the IDB is the oldest and largest regional development bank. It is the main source of multilateral financing for economic, social and institutional development projects as well as trade and regional integration programs in Latin America and the Caribbean.

Link here.

Polls show Panama likely to approve canal plan.

Panama will vote on October 22nd on its canal expansion plan, and according to recent polls will easily approve the proposals, which will cost $5.25 billion. In one poll, 72% were in favor of the plan and 21% against, while another had 77% in favor with 13% against. The Panamanian legislature approved the plan in July, but made it subject to the binding nationwide referendum.

Under the expansion plans, two 3-chamber locks will be constructed at both ends of the canal. This will create a third lane of traffic wide enough to handle the largest of modern container ships and tankers. New approach channels will also be prepared, while existing channels will be dredged to ensure large craft can enter the system. The project will take about seven years and employ up to 8,000 people. Nearly 5% of total world trade transits the Panama Canal. Of this trade, 88% flows between the U.S. and Asia. The canal is already operating near full capacity and forecasts are for increased demand from ever-larger vessels.

Link here.


The tiny Channel Island of Sark, which used to boast of being the last feudal state in Europe, voted last week to embrace 21st century democracy. In future, the island will no longer be governed by an hereditary seigneur deriving authority directly from the Queen and a group of unelected landholders, but by an elected council. Islanders voted by 234 to 184 to abolish Sark’s 450-year-old system of government.

Since the reign of Elizabeth I, Sark, which is six miles from Guernsey but entirely self-governing, was run by the descendants of 40 “tenants” given the right to settle there in 1533. In a concession to modernity, the island’s parliament Government, the Chief Pleas, was recently expanded to include 12 “people’s deputies” elected by islanders. They were given the choice of an entirely elected body or one that included eight representatives of the 40 tenants.

The biggest change for Sark’s 610 residents is likely to be the abolition of the feudal position of the Seigneur, who was the Sovereign’s sole representative on the island. The most famous of the seigneurs was Sybil Hathaway, known as the Dame of Sark, who refused to leave when the Nazis occupied the island during the Second World War and prevailed upon the other 471 islanders to stay. Michael Beaumont took the title in 1974 and will remain the Seigneur until the new Government is elected. His rights include being the only person on the island allowed to keep pigeons and unspayed female dogs, and ownership of anything washed up between the high and low tide lines. The Seigneur is also entitled to a cut of the sale price of any property changing hands on the island. The new system will create 28 elected deputies to sit in the Chief Pleas.

Paul Armogie, a Deputy, said that the vote was a monumental change for the island, which is three miles long and one and a half miles wide. The move towards greater democracy has been a controversial issue, with many islanders quite happy to continue living in by 16th century rules. The campaign gained additional momentum when the billionaire businessmen Sir David and Sir Frederick Barclay challenged the Government’s legality under the European Convention on Human Rights. The Barclay brothers, who built a castle on the nearby island of Brecqhou, challenged Sark’s traditional right to allow only males to inherit. An electoral reform group from London visited Sark over the summer to initiate reforms. Forms were then distributed to all islanders eligible to vote.

Link here.


Antigua and Barbuda’s Minister of Finance, Dr. Errol Cort, returned from a visit to the U.S. to persuade officials to accept the WTO’s anti-U.S. ruling on Internet gambling, has expressed shock and dismay at the passage by Congress of the Unlawful Internet Gambling Enforcement Act of 2006. Stated Dr. Cort, “It is remarkable that on the heels of our visit, during the course of which we highlighted the desire of Antigua to amicably work together with the United States Government in ensuring the safe delivery of these services to consumers in America, the Congress should choose to further protect their remote domestic industry at the cost of countries such as Antigua and Barbuda, where these services are highly regulated.”

While expanding domestic opportunities for legal gaming, the legislation effectively bans all international and interstate online gaming, by making it illegal for banks and credit card firms to make payments to such internet operations. The provisions were tacked by Senate Majority Leader, Bill Frist (R-Tennessee) onto an unrelated bill on port security and have been sent to President George W. Bush for his signature. Dr. Cort’s delegation held a series of meetings with representatives of the US Department of State, the U.S. Trade Representative, the Department of Justice and with Members of Congress, in an attempt to resolve the impasse over the American government’s refusal to comply with a WTO ruling against U.S. actions preventing banks from processing transactions from online gaming firms based in the islands.

Antigua-based operators are thought to account for 25% of the estimated $12 billion wagered online by American punters every year. Apart from the new legislation, Antigua has been alarmed by other recent developments such as the June 1st indictment against BetonSports, effectively shutting down the company which ran its U.S. internet business from Costa Rica and Antigua, and the attempted extradition leveled at the chairman of Sportingbet, Peter Dicks, by the Louisiana authorities, who accused him of “gambling by computer”, thereby violating the state’s morality laws.

Non-U.S. commentators almost unanimously see the legislation as blatantly protectionist and hypocritical, and note that it should probably be seen as political in nature, given the up-coming mid-term Congressional elections.

Link here.

Antigua-based Internet gaming company suspends trading in its shares.

Antigua-based Internet gambling company World Gaming Plc, whose shares fell almost 90% last week, announced a suspension of trading on London’s AIM earlier this week. The company announcemed, “Following the announcement released by the Company on Tuesday 3 October relating to developments in United States legislation, the Directors of World Gaming announce that, following discussions with all of key parties concerned and having taken legal advice, they have requested the trading of the Company’s shares be suspended with immediate effect due to a fundamental uncertainty over its ability to continue trading.”

After the U.S. Congress passed the Unlawful Internet Gambling Enforcement Act of 2006 last week, effectively closing down inter-state and international betting by US citizens, the company, which had been in talks with Sportingbet PLC about being taken over, said it might be in technical default of its loan conditions. Shares in British online gambling companies, including PartyGaming PLC and Sportingbet, dived after Congress unexpectedly tacked the legislation onto another bill. While expanding domestic opportunities for legal gaming, the legislation prevents international and inter-state online gaming by making it illegal for banks and credit card firms to make payments to such internet operations. Antigua-based operators are thought to account for 25% of the estimated $12 billion wagered online by American punters every year.

Link here.

British online casinos may be headed home.

The British government is considering a new law that would allow London-listed online casino gambling companies to move their operational headquarters back to Britain’s mainland. The goal of the new law, according to sources, would be to provide British gamblers with a safer, more regulated atmosphere. Party Gaming and 888 Holdings, the 2 largest online casino companies on the London stock exchange, are based in Gibraltar. Empire Online is based in the British Virgin Islands. If given permission to operate in London, it would be a huge boost to UK casinos who were devastated last week after the U.S. Congress approved a bill to block financial transactions to offshore casinos.

Link here.


The Governments of the United States and the Republic of Botswana last week signed agreements to reduce Botswana’s debt payments to the U.S. by over $8.3 million. These funds will be used to support grants that will conserve and restore important tropical forests throughout the country, including such world-famous areas as the Okavango Delta and Chobe National Park region. These are the first Tropical Forest Conservation Act agreements concluded in Africa.

The Tropical Forest Conservation Act provides opportunities for eligible developing countries to reduce concessional debts owed the United States while generating funds to conserve their forests. The agreement with Botswana marks the 11th debt-for-nature pact concluded under the Bush Administration, following agreements with Belize, Colombia, El Salvador, Guatemala, Jamaica, Panama (2), Paraguay, Peru, and the Philippines.

Link here.


Reporting on the economic progress of the Kyrgyz Republic since its accession to the WTO in 1998, the organization says that the country has substantially liberalized its formal trade regime by reducing tariff rates and eliminating most non-tariff barriers. “The Kyrgyz Republic … has made impressive progress since its economic and political transition. Some reforms have been implemented speedily, including farm privatization, price deregulation, financial sector liberalization, and significant state privatization. Laws and regulations have been changed to create a legal framework supportive of a market economy.

“Kyrgyz real GDP has grown almost unabated since 1996. It averaged 4% annually during 2000-05, although it contracted by 0.6% in 2005 due mainly to falling gold output and political instability. … External public debt, at US$2.0 billion in 2005, has fallen to 82% of GDP (130% in 2000), but remains a significant burden, with downside risk to economic prosperity. … The Kyrgyz Republic has one of the region’s most open trade and investment regimes. Its main trade policy objectives are achieving a more outward-oriented trade regime, greater market access for exports, and improved integration into the world economy. The Government believes trade and investment liberalization will improve economic efficiency and promote export diversification.”

Link here.


Russian energy giant Gazprom has said it will construct the world’s largest offshore gas field, Shtokman, on its own, thus dealing a huge blow to some of the world’s largest oil and gas companies, who had hoped to be part of a consortium. “Gazprom has decided the project will go ahead without international participation,” said chief executive Alexei Miller, “Gazprom will own 100% of it.”

Through years of negotiations, Gazprom said it would choose only two of the five companies that had been shortlisted as potential members of a Shtokman consortium. Hence, there was never any doubt that there would be losers in this spectacular beauty contest that has taken center stage in the energy industry for years. The rejection of the international partners has hit the Americans particularly hard, as its two contenders, Chevron and ConocoPhillips, will not only be denied a place on board the $20 billion project, but Gazprom has also signaled that the U.S. will be denied much-anticipated gas supplies, which they had hoped would be shipped in liquefied form in super-tankers from Murmansk, Russia’s only western all-year ice-free port.

Yet it will be across the Norwegian border, that Gazprom’s decision will be taken the hardest. Only last month, officials from Norway’s Hydro said that they were confident they would be chosen as one of Gazprom’s partners. They insisted that Russians would want to employ the technology used to construct Langeled, the world’s largest underwater pipeline running 1,200 km. across the North Sea seabed from Norway to the UK. A giant pipeline across the Kola peninsula now seems certain to be constructed. The pipeline plan has the backing of 94% of the people in the Murmansk region. Unusually, even environmentalists approve.

The international reaction has been one of dismay. “This decision is not helping the investment climate in Russia,” says Peter Westin, chief economist, MDM Bank in Moscow. Gazprom’s decision comes after Russia’s recent threat to revoke the licence of the $20 billion Sakhalin project off its Pacific coast, raising concerns about the participation of foreign partners Shell, Mitsubishi and Mitsui. “There is a general perception that increasingly politics are driving these big energy deals,” observes Stephen O’Sullivan, head of research at Deutsche Bank in Russia. Mr. Westin agrees that it will mean “key assets in the oil and gas sectors will be kept Russian.”

To many, it seems President Putin has milked the Shtokman project for what it has been worth, having using the promise of participation in the project as a carrot in negotiations on a broad range of subjects – including slow-moving talks about Russia’s entry into the World Trade Organization (WTO). “Russia has lost patience with the U.S.,” says analyst Chris Weafer of Alfa Bank in Moscow. “That might also suggest that Russia’s ambitions to WTO are also now dead.”

Link here.


Boosting economic development, helping families, and intensified efforts to protect the environment will top the Government’s policy agenda in the next year, Hong Kong’s Chief Executive, Donald Tsang announced in his Policy Address this week. Delivering his second Policy Address, entitled “Proactive Pragmatic Always People First”, Mr. Tsang also promised to lead open and inclusive discussions on a roadmap for the further development of a democratic political system in Hong Kong. On the economic front, Mr. Tsang unveiled initiatives to boost financial services, trade and logistics, information technology, cultural and creative industries, the performing arts and labour rights protection.

The Chief Executive said Hong Kong needed to consolidate its position as an international financial center in Asia, which was in line with the interests of both the country and the region. He said further liberalization was needed to broaden the source of well-qualified foreign enterprises seeking to list in Hong Kong and urged listing rules changes to make this happen. Mr. Tsang added the State Council was actively pursuing the expansion of Renminbi (RMB) business in Hong Kong, including the settlement in RMB of direct imports from the Mainland and the issuance of RMB financial bonds.

On the environment front, Mr. Tsang pledged to provide financial incentives to phase out older diesel vehicles, reduce registration tax for low-emission vehicles, review air quality objectives, and to introduce trial scheme on waste charging. Meanwhile, in response to the convergence of telephony, broadcasting and the Internet, he announced that legislation will be introduced to form a new Communications Authority and to introduce a regulatory framework to promote innovation and competition on a par with advanced international standards.

Link here.



The U.S. Treasury Department and IRS issued Notice 2006-87, which permits individuals who work outside the U.S. and live in foreign countries with high housing costs to deduct or exclude a greater portion of their housing costs. Although U.S. citizens and residents are generally subject to U.S. tax on their worldwide income, section 911 of the Internal Revenue Code permits individuals who live and work outside the U.S. to exclude from U.S. tax portions of their earned income and housing costs.

The Tax Increase Prevention and Reconciliation Act of 2005 (TIPRA) made several changes to section 911, one of which effectively placed a limit on the amount of housing costs that could be taken into account under that section. TIPRA provided the Treasury Department with authority to adjust the new housing cost limitation based on geographic differences in housing costs relative to housing costs in the U.S. In the Notice, using the approach suggested in the legislative history to TIPRA, the Treasury exercised its authority to increase the housing cost limitation for specific locations. The relief provided by the Notice is retroactive to the effective date of TIPRA.

Link here.


report published by the OECD has shown that tax revenues, measured as the ratio of tax to GDP, are rising in many OECD countries despite deep cuts in tax rates. This, according to the OED, reflects both the effects of stronger economic growth, which has led to higher corporate profits, and moves in some countries to offset the effects of cuts in tax rates by broadening the tax base and improving tax compliance.

In 2005, according to the latest edition of the OECD’s annual Revenue Statistics publication, tax burdens as a proportion of GDP rose in 17 out of the 24 countries for which provisional figures are available, and fell in only five countries. The biggest increases were in Iceland, where the tax burden rose by 3.7 percentage points to 42.4% of GDP, followed by the U.S. (up 1.3 points to 26.8% of GDP) and the U.K. (up 1.2 points to 37.2%). The largest reduction in overall tax ratios was in Hungary (down one percentage point to 37.1%).

Based on these figures and those for 2004, OECD analysts have suggested that a trend towards lower tax burdens witnessed from 2000 to 2003 appears to be going into reverse. Between 2000 and 2003, the tax ratio in the OECD area as a whole fell from 36.6% of GDP to 35.8% of GDP, but in 2004 it moved back up slightly to 35.9%.

Link here.


Banking giant HSBC Plc may start looking outside of the UK for a new headquarters because of Britain’s high corporate taxes. A spokeswoman for HSBC/Bank of Bermuda refused to comment on whether Bermuda was being considered as a potential domicile. HSBC, which completed the purchase of Bank of Bermuda last year, is set to review the location of its headquarters in six months’ time, when it will take into account factors including tax, but also regulation, transport and quality of life.

The bank’s head of financial planning and tax, Chris Spooner, said in a speech at the Chartered Institute of Taxation conference last week that the bank was no longer happy with the tax situation in Britain. A number of Lloyd’s of London insurance companies have recently announced that they are moving to Bermuda. And Asian conglomerate Jardine Matheson moved its corporate domicile to Bermuda more than 20 years ago. In all those cases, the companies have continued to have their operating headquarters elsewhere. A move by HSBC out of the UK could cost the Treasury around £371 million in lost corporation tax.

The bank, which reviews the position of it headquarters every three years, said Britain “was no longer an attractive place to be in terms of tax” raising the possibility that it could take its business elsewhere. HSBC, which is Britain’s biggest bank, moved to the UK in 1993 from Hong Kong when the British Government made the move a condition of taking over Midlands Bank. After constructing a new flagship tower in London’s Docklands, it looked like the HSBC was here to stay. Mr. Spooner said, “The UK used to be a good place to be for tax reasons. I am not sure that is the case any more. We take the competitive environment seriously and there are others like us.”

Experts said the tax burden on companies has grown considerably in the past nine years under the Labour’s Party’s rule, and British tax authorities now make £40 billion every year from corporate taxation. They warned that if HSBC becomes the first major company to move its operations abroad, other companies could follow.

Link here.

Or not.

Global banking giant HSBC has sought to address suggestions in the UK media that it is actively considering moving its headquarters and tax domicile from the UK when the matter comes under review in 2008. Speaking to Reuters, an unnamed spokesman sought to dampen the flames of media speculation, announcing that, “It is not true that we might be leaving Britain for tax reasons. It would be possible to go somewhere where there is zero corporation tax which would save us in the region of 400 million pounds a year. But those places tend not to have regulators as complex and aware as the FSA.”

Link here.

U.K. passed over as fund domicile, research reveals.

A report compiled by KPMG has concluded that the UK tax regime for funds has caused the UK to lose out as a fund domicile. According to the research, despite its position as a “vibrant and leading” center for investment management, the UK is failing to attract new investment funds, which are instead being set up in Luxembourg, Ireland and elsewhere. Many investment managers believe this is due to the UK’s unfavorable tax regime. In the last two years, net sales of non-UK funds have grown from 1% to 20% of the UK market, while sales of UK funds abroad remain very low. This trend is set to continue, particularly as funds evolve and become more complex, according to KPMG.

Link here.


Chambers Ireland, the country’s largest business organisation, has called on the Government to cut VAT rather than income tax in its upcoming pre-election budget, in what it suggests is a “less obvious but equally consumer friendly and more equitable” approach to tax reform. The Irish chamber network, which has 60 member chambers representing over 12,000 businesses, additionally called on the Government to take the opportunity to address the structure of property taxation in a way that generates an earmarked revenue stream for local government.

Launching the Chambers Ireland pre-budget submission, John Dunne, the organization’s chief executive, stated that, “In a pre-election budget with healthy public finances it is unrealistic to pretend that there will not or should not be some ‘giveaway’ element. However, this realpolitik does not preclude a genuinely strategic approach to restructuring or rebalancing the public finances.

“By cutting VAT instead of income tax, consumers still benefit in terms of more money in their pockets and reduced prices. But it would also be less inflationary and more equitable – one third of the population doesn’t pay income tax whereas cutting indirect taxations benefits all consumers.”

Link here.


Tighter tax residency norms in Mauritius could make it tougher for shell companies to claim capital gains tax exemption in India. Getting a tax residence certificate from Mauritius may no longer be easy. And even if you do get one, it will have to be renewed every year. That is just one of several changes the Mauritius government has made in its procedure to issue TRCs to offshore companies. The Supreme Court ruled, in 2003, that a Mauritian tax residence certificate was sufficient to claim capital gains tax exemption in India.

Tax experts say the rules may have been framed to appease India’s Finance Ministry, which has been pressuring Mauritius to renegotiate the DTAT. Even so, New Delhi is unlikely to be satisfied. Only a few weeks ago China renegotiated and significantly amended its double tax treaty with Mauritius. This makes it harder for Mauritius based companies investing in China to get capital-gains tax exemption. Partner, BMR and Associates, Mukesh Butani said, “The treaty that has been amended, clearly suggests that the benefits available to Chinese companies have been significantly curtailed. Would it have an impact on India? Possibly yes.”

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

Links here and here.


According to a new survey, mid-market finance executives are looking to improve sales and use tax compliance. The independent survey of more than 500 finance executives at small-to-mid-market companies show that they average more than $327,000 in annual costs to manage sales and use tax compliance.

The survey concludes that changing tax rates and rules and expensive manual processes are key drivers of compliance costs. With more than 11,500 tax jurisdictions in the U.S., companies struggle to remain up to date on the latest tax regulations. In total, there were 478 rate changes to sales and use taxes during the first half of 2006. Mid-sized companies file an average of 86 sales tax returns each month, although numbers can reach into the hundreds as companies grow or expand into new tax jurisdictions. In a typical month, the average mid-market company experiences a change in 16.4% of the jurisdictions in which they file while some companies experience as much as 50% churn.

The survey also reveals that senior finance professionals are not always aware of the total cost of transaction tax compliance and actually underestimate their total cost of compliance by as much as 50%. Costs are typically spread across company personnel, tax research subscriptions, third-party tax return preparation, and tax consulting. Nearly 60% of finance executives participating in the survey indicated a strong interest in outsourcing sales and use tax compliance, citing the need to free themselves from the complexity of sales and use tax management, as well as the desire to lower compliance costs.

Link here.



Many offshore tax havens specialize in the creation and administration of offshore asset protection trusts (APTs). What the corporation-friendly State of Delaware is to U.S. companies, these nations are to asset protection trusts. Many are well developed, globally recognized financial centers. They boast modern, efficient banking, legal and other professional providers who understand and thrive servicing APTs and offshore finance in general.

Among established APT haven nations are Panama, Belize, The Bahamas, Nevis (half of the Federation of St. Kitts and Nevis), and the British overseas territories of the Cayman Islands, the British Virgin Islands, the Turks and Caicos Islands, and Bermuda. In Europe there is Liechtenstein and Gibraltar and in the south Pacific, the Cook Islands. Also noted for favorable trust laws are the UK Crown dependencies in the Channel Islands, Guernsey, Jersey and, in the Irish Sea, the Isle of Man.

Some of these are better than others for trust creation. Some guarantee much more financial privacy than others. And you should know that while trusts are very private and usually do not have to reveal publicly their creators or beneficiaries, there are pressures to end this privacy. High tax nations are pushing to force beneficial owners of all trusts to be revealed, on the dubious theory that many trusts are used by terrorists or money launderers. Such pressures are especially acute in all British controlled areas. Before you choose a place for your trust, make certain of the latest developments in the jurisdiction you are considering.

Link here.


In Zurich I am reminded once again, first hand, that Switzerland gives a genuine welcome to foreigners, their money, and investments. The Swiss manage over $3 trillion dollars of offshore assets for investors from around the globe. They invented and excel at private banking. That is one of the many reasons we have chosen Switzerland as our number one offshore haven nation. Not a tax haven per se, it is the leader in world banking, asset protection, insurance and investments. As an added, and very important guarantee, all this is done within a shield of financial privacy and banking secrecy guaranteed by law.

But Switzerland has sometimes been the butt of unkind comments. In 1922, Ernest Hemingway was quoted as saying, “Switzerland is a small, steep country, much more up and down than sideways, and is all stuck over with large brown hotels built on the cuckoo clock style of architecture.” That is still partially true almost a century later, but today there are many good reasons, beyond cheese and watches, to respect Switzerland. For example, the World Economic Forum has just rated Switzerland as the world’s most competitive economy. And who lost the number one spot to the Swiss? The U.S. slipped to 6th place from last year in the group’s annual rankings.

The World Economic Forum has published respected competitiveness reports since 1979. The rankings include grades for about 90 variables ranging from innovation to education as well as the results of a global poll of 11,000 corporate executives. The choice of Switzerland was thus an international consensus. Switzerland came in first largely because of its reputation for innovation, research and development, and its scientific infrastructure, the forum said. Deficit spending and a continuing huge imbalance in trade hurt U.S. competitiveness, together with increasing doubts about the effectiveness and trustworthiness of the Bush administration. While the U.S. remained the best nation in which to do business, the forum ranked it 69th for its overall economic environment. Not good news by any measure.

We do not cite these conclusions with any great satisfaction, but rather as additional support for what we have repeatedly said about the effectiveness of Switzerland as an offshore asset haven and as a base for banking and global investment. Swiss banking, Swiss annuities, Swiss life insurance, Swiss investment managers, are each important financial factor integrated into a larger national economy that is strong because of its many parts. Switzerland is definitely worth your consideration.

Link here.

European Commission appoints first ambassador to Switzerland.

The EC announced that it has appointed its first ever Ambassador, Dr. Michael Reiterer, to lead the soon-to-be-established Delegation of the EC to Switzerland in Bern. Switzerland has more agreements and common programmes with the EU than any other country and it is the EU’s second biggest export partner. The Delegation will work on all aspects of the EU’s relationship with Switzerland – political, economic and people-to-people – including agreements on research, the EU’s internal market, agriculture, tax, competition, transport and cooperation over UN matters. The Delegation will also cover the EU’s relationship with international organizations outside the UN and the WTO, as well as with Liechtenstein.

Link here.


The “New Manx Vehicle” or “NMV” is due to be introduced into Isle of Man law later this year. The new corporate vehicle will be created and governed by the Isle of Man Companies Act 2006 (the “Act”) which is currently in bill form. The bill has now completed its passage through the Isle of Man legislative process and is awaiting Royal Assent. NMVs incorporated under the Act will coexist with present and future companies incorporated under the existing Isle of Man Companies Acts 1931-2004 (“1931 Act Companies”).

The NMV will be a flexible and modern corporate vehicle which will be attractive to business, especially as a special purpose vehicle. Some of its key features include no requirement for authorized share capital, no capital maintenance requirements (subject to satisfaction of a solvency test), no prohibition of financial assistance, reduced compulsory registry filings, less prescriptive accountancy requirements, no distinction between public and private companies, simplified offering document requirements, ability to have single directors and (within certain limits) corporate directors, no requirement to hold an annual meeting, and availability of transfer of domicile procedures, reregistration procedures, and merger and consolidation procedures.

Every NMV will be required to have a registered agent in the Isle of Man who holds the appropriate licence, and a registered office address in the Isle of Man. If a NMV is formed as a company limited by shares, a company limited by guarantee, or both, it will be able to have Incorporated, Inc, Corporation or Corp as the last word of its name, in addition to the usual Limited, Ltd, Public Limited Company or PLC. In addition, foreign character names will be permitted.

The Act also contains relatively simple procedures to enable (1) a NMV to be reregistered as a different type of company permitted under the Act and to enable 1931 Act Companies to be converted into NMVs, (2) a NMV to be continued in a country or territory outside the Isle of Man and discontinued under the Act and to enable a foreign company to be continued in the Isle of Man as a NMV, (3) NMVs to be merged or consolidated or to be subject to a scheme of arrangement, and (4) a NMV which has been constituted as a company limited by shares to be converted into a protected cell company.

Link here.


The IMF has published an assessment of financial sector supervision and regulation for Cyprus. The assessment includes reports on the observance of standards and codes in banking supervision, insurance supervision, and securities regulation. The report is based primarily on work undertaken during a visit to Cyprus from March 28 through April 8, 2005, but includes updated factual information. According to the IMF assessment, the financial system in Cyprus is in a process of reform generated by the liberalization and regulation brought about by accession to the EU. As a result, restrictions on the scope of domestic operations, as well as fiscal differences between domestic and internationally-oriented institutions were eliminated at the end of 2005.

Link here.

Cyprus banks on course to adopt stricter measures.

New capital as well as other regulatory requirements that are expected to go into effect starting January 2007 are perhaps one of the key challenges facing Cyprus banks, but the Governor of the Central Bank of Cyprus, Christodoulos Christodoulou is confident that Cyprus based banks will rise to the challenge. During a speech at 6th Interbalkan Forum of Banking Associations on the issue of “Contemporary Trends in Regulation and Supervision in the Banking System: the Cypriot experience”, Christodoulou talked about the Cyprus experience and the challenges facing the banks. Herebelow are extracts from his speech.

Link here.


You buy a $119 cordless phone system at Wal-Mart. As you are checking out, the cashier asks if you would like to put another two years on the manufacturer’s warranty, for $29. What do you do? While consumer groups and common sense would urge you to resoundingly reject the offer, an entire industry has been built on the likelihood that you will act on impulse and say yes.

Each year, millions of people gladly pay an additional 10% to 50% of a product’s original price to extend a warranty. These snap purchases help fuel a booming $15 billion-a-year business and feed a lucrative profit stream for retailers that sell the warranties and companies that underwrite them. Many consumers do so because they say the plans provide them with peace of mind.

The decision to buy an extended warranty, however, defies the recommendations of economists, consumer advocates and product quality experts, who all warn that the plans rarely benefit consumers and are nearly always a waste of money. “The things make no rational sense,” Harvard economist David Cutler said. The implied probability that a product will break “has to be substantially greater than the risk that you cannot afford to fix it or replace it. If you are buying a $400 item, for the overwhelming number of consumers that level of spending is not a risk you need to insure under any circumstances.”

The warranties, often marketed as service plans, are technically insurance products on which the premiums are paid in a lump sum at time of purchase. Extended warranties generally lengthen the coverage provided by the manufacturer’s own warranty on a product. In terms of service, most warranty providers use third-party contractors to repair broken items, and consumers do not get to choose who performs a covered repair. Many policies do not cover accidents or normal wear and tear – the most common causes of breakdowns in common household goods.

But most important, consumer advocates say, the vast majority of extended warranties are never used, simply because most products do not need a repair or, worse, the extended-warranty provider refuses to cover the repair or makes it such a hassle that it makes more sense to pay for it on your own. “All you have to do is see how aggressively these things are sold at the point of sale,”" said Jean Ann Fox, director of consumer protection for the Consumer Federation of America, a Washington-based nonprofit association of 300 consumer groups. “It’s not a good buy under most circumstances.”

Extended warranties play upon a basic human trait to avoid loss, even if it means sacrificing a possible future gain. In this case, the gain is all the other things of value that a consumer could buy with the money that was spent on a warranty. The instinct to protect what we have and forgo the obvious benefits of another course is one long studied by behavioral economists. A reliance on gut instinct points to an inherent disadvantage for consumers in the purchase process, economists and consumer advocates say. Buying an extended warranty is vastly different from selecting most other insurance products. When deciding whether to buy an extended warranty, it is nearly impossible to comparison shop from the checkout counter. Then there is the obvious question that may not occur to many buyers. “Why do I need an extended warranty on a phone I’m going to replace in two years anyway? Or one year?” said Greg Brue, a quality consultant and expert on product life cycles who runs Six Sigma Consultants in Albuquerque, New Mexico.

Link here.



Quietly, very quietly, governments throughout the world are constructing a global surveillance infrastructure. Your financial transactions are already available for warrantless inspection by investigators in many countries (especially the U.S. and U.K.). Now world governments want to require Internet service providers (ISPs) and phone companies to keep data on every electronic message sent and phone call made for up to two years.

The justification, as usual, is to more effectively fight the “War on Terrorism”, but the stored data would be open to any type of investigation, including drug crimes, tax fraud, or prosecutions of those deemed “enemies of the state”. And hackers and identity thieves will have a field day once these requirements are in effect.

In the 25 countries of the EU, the Data Retention Directive comes into effect in August 2007. It requires phone companies, ISPs, and firms such as Google, Yahoo and Skype, to store call traffic and location data for fixed and mobile telephones, text messages, Web browsing records and Internet e-mail and telephony records for six months to two years. Some EU governments are already proposing extending the retention time to five years. More recently, U.S. Attorney General Alberto Gonzales has been on the stump to promote the need for similar data retention laws in America. And he will probably get them. Moreover, under existing agreements, it will be possible for investigators in the EU to obtain U.S. records, and vice-versa.

Link here (scroll down).

… and they keep stealing it.

Here are few more ways Big Brother will soon be able to control you … as quietly as possible.

As long as it is legal to do so use telecom services that do not require proof of identity, e-mail services like Yahoo! (although Hushmail is better), pre-paid telephone services, and encryption programs like PGP. Another service that offers significant protection to your online communications is Armorware.

Link here (scroll down).


Recently, I purchased my first laptop computer equipped with a wi-fi card. It is marvelous. I love being able to take my laptop into a coffee shop or other “hot spot” and connect to the Internet or read email, without being tied down to a central location. But wireless Internet connections are incredibly vulnerable to being monitored by hackers. For instance, anyone using the free Netstumbler program, an application that “sniffs” for nearby WiFi wireless signals, can find your connection. Moreover, in the hands of a skilled hacker, someone using a program like Airsnort can see everything on your PC, including the entire contents of your hard disk. If you are connected through a wi-fi to a “secure” network at your office, the hacker has the same access rights to the network as you. Anything you can see, the hacker can see – confidential client data, trade secrets, etc.

To protect yourself, the first step is to only use wi-fi networks that are secured. You can identify them by the “lock” symbol that appears when you log on to them. Access to these networks costs, but if you are doing anything confidential on them, the expense is well worth it. Second, use a good firewall program to prevent hackers skilled enough to penetrate the secured network from gaining access to your PC. Third, if others are using the same network (e.g., the guy at the next chair drinking a Frappuccino), do not access any secure websites such as your office network or your bank account. These rules are easier to state than apply, but if you follow them you will be on the road to much safer wi-fi connections.

Link here (scroll down).


The Guernsey Passport Office started to issue the first batch of new biometric e-passports last week, the jurisdiction’s authorities have announced. The other Crown Dependencies of Jersey and the Isle of Man along with Gibraltar will start issuing the new passports in the near future. Customs and Immigration Service Chief Officer Rob Prow explained the reasoning behind the move, “The new passports are being introduced to help prevent identity and passport fraud.”

Externally, the new biometric passports look similar to the current digital book, but there is a logo on the front cover indicating that the book contains biometric information. Internally there are numerous security features including a chip and antenna, along with pages including complex watermarks. The chip stores the passport holder’s photo and the personal details printed elsewhere in the passport. The International Civil Aviation Organisation, which sets international standards, nominated facial recognition as the primary biometric and this is now being used in the new passports issued in the Bailiwick, along with many other passports issued both in the U.K. and worldwide. In order to take advantage of the U.S. Visa Waiver Program, the U.S. authorities require that any passport issued on or after October 26, 2006, must contain biometric information. The Bailiwick and other Crown Dependencies have met this deadline.

Link here.


To think Hewlett-Packard, the world’s second-largest computer company, is alone in pursuing aggressive internal investigations would be naive, say HP’s former chairman, experts and lawyers. They do it all the time.

But do they routinely turn to such skulduggery as rifling through garbage? Impersonate someone to get their phone records, known as pretexting? Or send fake e-mails embedded with tracing technology? Perhaps not the companies themselves, experts said, but the investigators they hire do use those methods. And, in light of HP’s full-blown scandal into its board leak investigation, that gives big companies plenty of reasons to be skittish. “Corporate America is worried and should be worried,” said Jamie Wareham, global chairman of the litigation department at law firm Paul, Hastings, Janofsky & Walker LLP. “Do you think these guys in the business of pretexting only have one client and that’s HP? I don’t think so.”

HP had turned parts of the leak probe over to Security Outsourcing Solutions, a small Boston private investigations firm, which in turn used subcontractors to investigate. Wareham said he knows of “some large companies that are worried some of their investigative agencies use these sorts of tactics,” though he declined to name them. Some companies he knows are conducting audits of their private investigators in light of HP’s experience, he said. What began as an effort under prior Chief Executive Carly Fiorina in what lawyers say appears to have been an aboveboard effort to find the source of boardroom leaks devolved into a scandal that has claimed former HP Chairman Patricia Dunn, former general counsel Ann Baskins, and several other HP executives.

Link here.



A criminal trial is not an action of just the judicial branch of the government. In fact, in every trial all three branches of government cooperate. There is the judge, obviously representing the judiciary. There is the “executioner”, representing the executive branch. And there is the jury, which is like the legislature. It is the last point that I want to stress. If we take this analogy in the widest possible sense, then the jury is not limited to deciding whether the defendant has broken any laws. It can repeal any laws it likes or pass new ones. Hence the doctrine of jury nullification, a time-honored though neglected nowadays practice in common law.

Yet we can argue, I think, that jury nullification does not go far enough. The jury need not merely have the power to say that a certain law is bad and invalid. It should also be able to set up new laws on the spot and say that the defendant broke them. Just as it can judge a law bad, it can judge the absence of a law bad. If indeed the jury thinks that “there ought to be a law,” then let it pass it in that particular case.

It has been a long-standing argument in legal circles whether a judge is allowed to legislate and if so, then when. One of the candidates for judge-made law is in the cases of the penumbra problem, which means vagueness of ambiguousness of the text of the law. Another situation in which judge-made law seems appropriate is when laws conflict. For example, a statute may conflict with the Constitution. Or a human law may be contrary to morality. The problem goes away if it is not the judge who legislates but the jury. The jury, composed of 12 honest citizens, represents, in a way, the entire community.

Link here.


Let’s not kill all the lawyers just yet. They are the only defense workers have against corporate executives who would rather count their stock options than pay attention to workers’ 401(k) plans. Since those plans are what most workers use for retirement saving, having low plan expenses is important. A difference of 1% in annual expenses can be the difference between a secure retirement and cat food.

A new wave of class-action lawsuits started last month, when Schlichter, Bogard & Denton, a St. Louis law firm, filed a suit against defense contractor Northrop Grumman. A copy of the complaint, which runs 45 pages, accuses the corporation, its savings plan administrative committee, its investment committee and 16 individuals of “breach of fiduciary duty.” The law firm has also filed suit against Bechtel, Caterpillar, Exelon, General Dynamics, International Paper, Lockheed Martin and United Technologies. More suits may follow.

The common thread is that the plan sponsor is accused of failing to fulfill its fiduciary duty to make certain that the 401(k) plan operates with appropriate expenses. “The most certain means of increasing the return on employees’ 401(k) savings is to reduce the fees and expenses employees pay from their 401(k) accounts. Unlike generalized market fluctuations, employers can control these fees and expenses. Federal law requires them to do so,” the suit against Northrop says. The suit also asserts that Northrop should have been aware of and reduced the fees for its plan investment options and for the expenses related to Northrop shares as a plan option. In both cases, the net return to employees was unreasonably reduced, the suit alleges.

This is not about small change. According to its most recent SEC filing, the Northrop plan has more than $11 billion in assets spread over 10 investment options plus company stock. Northrop matches the first 2% of employee contributions 100%, the next 2% is matched at 50%, and the next 2% is matched at 25%. Altogether, the employer match may total 4% of payroll. Northrop’s Form 11-K discloses all the employees investment options, but gives no details about the expenses of the plan options. The filing does say, “In plan management’s opinion, fees paid during the year for services rendered by parties-in-interest were based upon customary and reasonable rates for such services.” The most interesting part of the suit is the accusation that the Northrop plan is filled with “shadow index funds” that are collecting the much higher fees of managed funds. Northrop workers, in other words, are paying for something – active management – but not getting it. And that, the suit asserts, is where the company and its executives have breached their fiduciary duty.

Link here.


The Swiss Federal Council late last month determined a further course of action in implementing the revised recommendations of the Financial Action Task Force on combating money laundering and terrorist financing. The Federal Council instructed the Federal Department of Finance (FDF) to submit a dispatch by mid-2007. In contrast to the draft consultation paper, the Council stated that the dispatch should be limited to addressing certain core points. At the same time, the Federal Council also took the decision to remove the partial revision of insider criminal law provisions from the FATF proposal and deal with it more speedily, and therefore instructed the FDF to present a corresponding dispatch by the end of 2006.

The goal of the FATF proposal is the tailored modification of Switzerland’s money laundering legislation in line with the new challenges posed by international financial crime while keeping the economic impact to a minimum. The proposal is designed to raise the conformity of Switzerland’s legislation in line with the relevant international standards. In a statement, the Finance Department said that, “Today, Swiss legislation already broadly conforms with the majority of the new FATF standards. In certain sectors, however, current Swiss legislation on combating money laundering does diverge from the FATF Recommendations.”

Link here.


The federal government has introduced legislation to toughen laws on money laundering and terror financing, and give more teeth to the agency that monitors suspicious money movements. The bill, if passed, would extend the reach of the Financial Transactions and Reports Analysis Center of Canada, better known as Fintrac. It would strengthen “know your client” standards, extend Fintrac’s reach to money service businesses which wire money or issue travelers cheques, increase requirements for compliance, monitoring and enforcement, and expand Fintrac’s intelligence role. It would also mean that banks, insurance companies, securities dealers and money service businesses would be required to identify and monitor the transactions of foreign nationals and their immediate family who hold prominent public positions. They would also have to report people who even attempt suspicious transactions.

Finance Minister Jim Flaherty said the bill will help in the fight against dirty money. “One of the best ways of putting these criminals out of business is to starve them of the funds they need to finance their activities. Our proposed amendments will improve our ability to act decisively.” The law already requires organizations and people who handle major transactions – from banks and credit unions to securities dealers, foreign exchange dealers, real-estate firms and even casinos – to keep tabs on who is using their services and report questionable transactions. They must also report any electronic international transfer and any cash transactions over $10,000.

The new legislation follows recommendations by several reviews of the five-year-old money-laundering law, including some issued this week by the Senate banking committee. It stopped short, though, of following the Senate’s suggestion that Fintrac’s reach extend to jewelers, cheque-cashing and payroll-loan offices and the so-called white ATMs not attached to a bank or credit unions. The legislation would also remove a clause from the law that tried to force lawyers to blow the whistle on suspicious transactions by their clients. Law groups won a court injunction against that provision, saying it threatened solicitor-client privilege.

Fintrac last year uncovered more than $5 billion in suspicious deals, including $250 million in suspected terrorist financing. The dollar figure was more than twice what was found the year before. Fintrac tipped police and the federal intelligence service to 168 suspicious cases, up from 142 the year before.

Link here.


Two rival leveraged buyout firms make bids for the same company. At the 11th hour, one firm drops out of the auction, unwilling to pay more. The remaining buyout firm is declared the winner. A month later, another company is put up for sale – only this time the two firms that had just been fierce competitors have teamed up to bid together for it. Friendly competition? Or collusion? That question is what the Justice Department appears to be examining as part of a preliminary inquiry into possible anticompetitive behavior in the clubby private equity industry, according to people briefed on the investigation.

Several of the nation’s largest firms, including Kohlberg Kravis Roberts, the Carlyle Group, Clayton Dubilier & Rice, and Silver Lake Partners, have received letters from the DoJ seeking broad information about their business practices and involvements in auctions going back to 2003. The letters, sent within the last 10 days, appear to be the beginning of a wide-ranging inquiry into private equity, an industry that has become an increasingly powerful force on Wall Street in recent years. Of particular concern has been the emergence of consortiums in many big buyouts. When firms get together to form consortiums, or clubs, as they are known in the industry, to bid on a specific company, that could have the effect of limiting competition and thus artificially depressing the price of takeover bids – and hurting corporate shareholders in the process.

And private equity firms have worked together on other fronts. Kohlberg Kravis and the Texas Pacific Group have been forming a trade association to represent the industry’s views in Washington. The inquiry comes at a time when private equity’s grasp has reached into every corner of corporate America. Toys ‘R’ Us, Hertz and Neiman Marcus are among the well-known names owned by private equity. Firms have spent hundreds of billions of dollars so far this year on buyouts. Yet that deal-making may have reached its peak.

The inquiry also comes only a month after a particularly brutal takeover battle, for Freescale Semiconductor, spilled into public view. It was unclear how widespread the inquiry could be. A response to the letters is completely voluntary. Proving a case could be difficult because in most auctions the company being bid for, which is typically sophisticated and well advised, has the option to sell or not.

Link here.


The FBI has identified “an emerging threat” within the borders of the U.S., and has committed an unprecedented level of resources to combat it. As the investigative arm of the Justice Department, the Bureau has seen fit to dedicate 260 agents to meet this threat. The total number of probes opened just this fiscal year exceeds 1,600. Clearly, the FBI knows that it must follow the money. Published reports say it has evidence that as many as 20 of these cases “allegedly involve more than $1 billion.” In turn, the work demands more than a bunch of armed agents who kick down doors. The chief of the crime section in charge of these cases “has created four 10-person regional response teams,” which include “lawyers, accountants, financial analysts and asset forfeiture specialists.”

What Is more, Federal legislation – passed in 2002 – dramatically expanded the powers of the FBI. Indeed, the Bureau has aggressively used those powers in unprecedented ways, despite the howls of protest from several interest groups. So, are we describing what the government is doing to fight “domestic terrorism”? No. We are describing is what the Feds are doing to fight the “emerging threat of hedge funds” – their words, not ours.

Given what we know about hedge funds – their total assets under management have doubled in the past five years, several have recently seen high-profile blowups, including the $6 billion lost in one week by Amaranth – you would have to think that there really is fertile investigative ground for the government to plow. What is clear is that the government’s machinery of prosecution (persecution?) is in place today in a way it was not during the corporate scandals that accompanied the market’s downturn in 2000-2002.

You may not have heard much about this machinery until now. It speaks directly to how “fertile” the “investigative ground” is, and to when the “machinery” of prosecution may become louder.

Elliott Wave International October 11 lead article.



Since Self-Realization as the ultimate goal of man can only be accomplished individually, personal autonomy takes precedence over the State. Self-government is autonomy of the moral self, the moral rule of each man over himself. Duty to one’s own conscience and loyalty to Truth are above one’s loyalty to State. In matters of individual conscience the rule of majority has no place. Blind submission to social will is not a righteous act. No act which is not voluntary can be said to be moral.

Orders from the State notwithstanding, an act performed against the dictates of one’s conscience is not a moral act. If a person feels those orders do not conform to reason and moral sensibility, it is his duty to disobey and take upon himself the consequences. It is right to support the actions of State only so long as they are nonviolent. When actions of State harm living beings, it is one’s duty to withdraw support. It is blindly ignorant and unrighteous to believe that an act of a majority binds a minority. There are many examples of acts of majorities found to have been wrong and those of minorities to have been right. While the blind belief exists that men should obey unjust laws, so long will their slavery persist. Is a pious man to accept an order to kill his fellowman, tantamount to his own family, on the basis of majority rule? It is contrary to humanity to obey laws repugnant to conscience. Such teaching is opposed to religion and means slavery.

If man will realize it is unrighteous to obey unjust laws, no tyranny will enslave him. This is crucial to self-rule. Throughout history, men have recognized their birthright to disobey and to resist government when its tyranny or its inefficiency became great and unendurable. Individual freedom alone can motivate a person to surrender to the service of society. If freedom is wrested from him, he becomes automation and society is ruined. No society can be built on denial of individual liberty. The State does not possess moral sovereignty over the individual and does not inherently possess rights to be granted to individuals. Individuals are endowed with inalienable natural rights and the State derives its authority from consent of the people. The State cannot grant inalienable rights, it can only impede them up to the limit which people are willing to tolerate.

Power is the central concept of politics. Coercion is embedded in the power of the State. The State represents violence in concentrated and organized form. There can be no nonviolent State, because State means force. The coercive nature of State power goes against the moral value of individual action. Politics divides and separates, in opposition to the unity of all life. George Washington said, “Government, like fire, is a useful servant but a dangerous master. It is not eloquence, it is not justice, it is pure force.”

The highest law is the Law of God, the Law of Truth. Love is God. Love does not kill. The high commandment of Christianity is “Thou shall not kill.” The first morality taught by the Buddha is to abstain from killing. The first precept of the Hindu and the Jain is Ahimsa – nonviolence. Nonviolence is the highest morality of man. This morality is of a higher order than any State’s authority. No State has the right to interfere with a person’s sincere efforts to pursue the goal of Self-Realization through Ahimsa.

I will not voluntarily abide by any law of man which violates my understanding of Law of Truth. Nor will I take the law of man into my own hands. I will disobey such laws as are repugnant to my conscience, taking full personal responsibility for acts of civil disobedience. I willingly suffer the full consequences and penalties thereunto appertaining. I declare that obedience to any such repugnant law imposed upon me by force makes of me a slave, and thereby violates my basic human right to life and liberty. No man, no constituted authority, and no State have the right to make me a slave.

Link here.


This is a test. Can you see the relationship between these two news stories? (1) The U.S. Congress has passed a law, the Unlawful Internet Gambling Enforcement Act, banning the use of credit cards, checks, and electronic fund transfers for Internet gaming, and President Bush is expected to sign it. And (2) California Governor Arnold Schwarzenegger called on state legislators to take “swift and dramatic action” to fix what he called a “dangerous situation” in California’s jam-packed prisons. Prison officials warn they will simply run out of prison beds by June. Already inmates are stacked on double- and triple-bunks in gymnasiums and day centers.

Answer? It is cause and effect. Any law that forbids individuals from using their own property as they please is certain to increase the need for prisons. Criminalizing voluntary exchanges between individuals (victimless crimes) increases the profitability of supplying outlawed products, creates a black-market rife with violence, decreases respect for law, fills prisons, and increases the power of the state. It does not matter if it is gambling, drugs, alcohol, sex, or cigarettes. Today in the majority of the U.S. federal prison population, the criminal and the victim are the same person. In 1970, 16.3% of all federal inmates were imprisoned on drug-related charges. In 2002, that percentage had jumped to 54.7%. It is still higher today.

Laws to regulate voluntary exchanges between consenting adults are ubiquitous in history, with prohibition of alcohol being the most prominent. Gambling also has a similar history of nonsense. Politicians that enact these laws are morally disabled. On one hand they pretend to be protecting the poor workers from losing their money, while on the other they create state-run lotteries that offer suckers odds that would make any gambling casino operator salivate.

Why do politicians do it? It is win-win for them. On one side they get the votes of religious moralists who believe it is evil to gamble. On the other side, they get contributions from lobbyists for gambling enterprises (licensed casinos, Indian casinos, race tracks, etc.) that want to block competition, prison-guard associations, companies that sell such things as food and uniforms to prisons, and of course the companies that build and manage prisons. The problem is not that we do not have enough prisons. The problem is that there are laws against consensual behavior.

Link here.


I miss the days of smoke-filled rooms when crooked pols chose corrupt presidential candidates who were approximately sane. Today we have a sort of presidential bus-station lottery. We choose as ruler any beer-hall putz who can shake hands and grin his way successfully through New Hampshire. This, plus the deep rot of the American political framework, is allowing the rapid conversion of the United States into something previous Americans would hardly recognize.

Given a president who seems chiefly concerned to display his indomitable manhood, the question arises: What restraints keep him from absolute control of a formidably armed nation of three hundred million? The Constitution, noblest of fables, was designed to do just this. But absent the will to enforce them, checks and balances do not exist, and laws, principles, and constitutions mean nothing. If no one says “no,” the president simply behaves as he wants. The genius of the strange little man in the White House has been to recognize this, to divine the weakness of the American political order.

When he wanted to attack Iraq, he simply lied, and lied again, and shifted his ground and lied again. It worked. When he did not want to follow the Geneva Conventions in his treatment of captured Iraqis, he just declared his prisoners of war not to be prisoners of war. Torture? He just did it and faced down the country and the world. Disregard of civil rights? Spying? He just did as he chose.

Here is the great discovery of the little man who does not read. America is not the land of the free, nor of the brave, nor of the politically sentient. Nor is it a country of laws or of principles. It is a country of those who just do as they want. A president can do anything he chooses. Who will tell him no? Nobody has. Today there is speculation as to whether he will make war, perhaps nuclear war, on Iran. The universal assumption seems to be that if he wants to, he will just do it. Is it not interesting that one dim, pugnacious, ignorant little man can bring on nuclear war all by himself?

When Mr. Bush gets caught lying or breaking the law, he shows no embarrassment, contrition, or sense of having done anything wrong. He seems to have no conception of right and wrong, of principle. He is not accustomed to being told “no,” and accepts no constraints on his power. All that matters to him is that he get his way. He gets it. Where will this lead? Obviously, to vastly increased police powers. But I wonder. If, down the pike, Bush announced that to protect us from terrorism he would have to postpone the presidential elections and remain in office – what would happen? Suppose he came up with a bit of supportive theater. If just before the elections something blew up, and were attributed not to the CIA but to Terrace, what then? The Reichstag has burned before. The public, the congress, the judiciary are so very, very easily manipulated. All it takes is the will to do it. And that the little man has.

A tribal rite in the column racket is the discovery of darkness in the hearts of presidents, or witlessness, and we discover away industriously. I have done my share. I thought Clinton a bright, libidinous lout, Jimmy Carter a moralizing cipher, Reagan a sort of Grandfather Barbie and, by contrast, Eisenhower a wise man hiding behind remarkable syntax. None was evil, or mad. Bush is something new in presidential politics, genuinely dangerous and genuinely out of control. The time is ripe for him. America no longer has the institutional defenses to say “no.”

What would happen if a president just refused to go? To remove him, someone would have to act. Who? Who in the military would have the courage to do it? Would the public do anything? I doubt it. The Born Agains would support him, the suburban Christians suck their thumbs and wait, blacks ignore the matter, conservatives see it as necessary to stop Tersm, and most people would watch football on television. The necessary strength is not in the country. The timbers are rotten. A popular uprising I cannot imagine. Who would rise? Overweight people with Volvos do not become urban guerrillas. Again, conservatives, who tend to be armed, rank among the most ardent supporters of Mr. Bush. In any event, how does one rise?

The Supreme Court certainly would, and could, do nothing. The court consists of insular antiquities who so far have shown no disposition to stand up to Bush. The termites have hollowed the judicial woodpile. Congress? It does what is paid to do, by anyone. What could it do? Some might say that it could shut off funding. With the threat of imprisonment at its collective head? It would huff, fumble, and hold committee hearings. But a coup would have to be squelched immediately or not at all.

My impression is that much of the public wants authoritarian rule, or would be perfectly content with it if it even noticed its arrival. What do most people care about beyond television on screens that grow ever larger, beyond porn, beer, and the competitive purchase of grander SUVs? I ask this not as a lifelong curmudgeon being tiresome (though doubtless I am both) but seriously. Who in a sprawling TV-besotted country cares about the Constitution? A comfortable police state is after all comfortable.

I do not predict that the reigning curiosity will stage a coup (which should it occur would not be a coup but “an emergency measure,” necessary to protect us from Terrace). I do say that what is happening today is unlike anything that has happened before, and that people do not always see what is coming. If you read books from the Germany of the 1930s, you will find that people were uneasy, divided, unsure of things, but had no idea just what the squatty little man with the voice had in mind for them. He just did it. The unimaginable does sometime occur. We notice only afterward.

Link here.
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