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A NEW HO CHI MINH TRAIL
Vietnam is still plagued with a woeful infrastructure, lots of Communist-inspired red tape and a level of corruption that rivals Zimbabwe’s. So why are multinationals like Intel and Alcoa flocking there? Chalk it up, in part, as a hedge – against China. By tapping the disquiet among Western and Asian businesses about investing too much in that fast-growing but unpredictable superpower, Vietnam has pulled numerous prospects its way. Sesto E. Vecchi, an American lawyer in Ho Chi Minh City, tells how he was recently approached by a U.S. door manufacturer that already has two factories in China and does not want a third there. “Vietnam has been very subtle but very effective in capitalizing on that,” Vecchi says.
After a mid-1990s boom that flattened out, Vietnam is hot once again. The country is expecting $6.5 billion in foreign direct investment this year, up from $5.8 billion last year and only $1.2 billion in 2002. And it is on the verge of far greater growth. Vietnam is close to joining the World Trade Organization, and Congress seems ready to permanently normalize trade relations with the country. In November President Bush heads to Hanoi for the annual summit of Asia-Pacific leaders.
The anti-China lure is just part of its appeal. Vietnam’s population of 83 million is growing by a million people a year, and economic growth that exceeds 8% a year is quickly making them wealthier. The rapid pace of change is grabbing the attention of consumer-products makers eager to reach the masses and the two-thirds of the population under 30. A boom in retail and food outlets is likely next. Vietnam forbids foreign companies from distributing their own products and running their own stores. But after it joins the WTO, Vietnam will be expected to abolish these rules as of January 1, 2009. Hanoi has privatized 2,000 businesses and expects to sell another 2,000 by the end of 2008.Link here.
UNDERVALUED ARGENTINA: FOUR WAYS THIS INVITING NATION MAKES VERY GOOD SENSE TODAY
Perhaps you dream of a high-ceiling pied-a-terre in a cosmopolitan city. Or a swath of land where grape vines grow and you can walk for miles. Or maybe you long for a mountain retreat where snow-capped peaks offer heart-stopping views and world-class skiing. Perhaps you always imagined yourself a land baron – steward of a vast, productive expanse. Whatever your dream, you may be pleasantly surprised to find there is one nation where it is not simply attainable – but remarkably affordable, too. Argentina is varied, beautiful, sophisticated … and undervalued, which means it makes a lot of sense right now, whether you are in the market for a primary residence overseas, a vacation home, or simply a smart investment.
As you probably know, there was an economic crisis in Argentina in 2002. And back then, if you had flown down with greenbacks to spend, you would have found properties selling for next-to-nothing. In Buenos Aires, for example, you could have picked up a 1,550-square-foot loft with a rooftop terrace in one of the city’s chicest neighborhoods for $63,000 – about 1/15th what you would have paid for a comparable place in Paris and about half what it would have cost you the year prior. Today, a steady recovery is underway. Argentina’s economy is among the fastest growing in the world, expanding at a rate of 8.6% over the past 12 months.
But that does not mean you have missed the good deals. Far from it. In fact, compare what you get in Argentina to what you would pay for comparable property in Europe (and Argentina is decidedly European), and you are still looking at an extraordinary value. There are at least four smart ways you can take advantage of your purchasing power in Argentina today and position yourself comfortably for potential appreciation gains as the economic recovery there continues.
The good values you will find today in Argentina will impress you. But what will strike you as just as attractive is how unabashedly beautiful, welcoming, invigorating, and comfortable a place it is to spend time. (After all, cheap real estate alone does not an attractive place make.) Argentina makes smart sense both for your wallet … and your heart.Link here.
HIGH CRIME STIFLES LATIN ECONOMIES
Years of rampant violent crime is not only robbing Latin America of significant private investment, but in some cases is stealing up to 8% from national economic growth, economists and World Bank officials say. Growth rates for the economy, along with those for income and private investment, would be higher, they say, if it were not for widespread insecurity about crime. Instead of simply producing their products, companies feel driven to spend resources on preventing violence and protecting employees and property.
In Brazil, if the country’s homicide rate in the early 1990’s had been as low as Costa Rica’s, which has one of the lowest in the region at 1/6th Brazil’s rate, per capita income would have been about $200 higher and the G.D.P. 3.2 to 8.4% higher in the late 1990’s, according to a World Bank report issued to the Brazilian government in September. Across Latin America, the economic cost of crime is similarly pronounced, equal to 14.2% of the region’s G.D.P., according to a 1999 Inter-American Development Bank report, the most recent study of the region, though some critics suggest that cost estimate is too high. “You have money spent on guarding stuff rather than making stuff,” said Michael Hood, Latin America economist for Barclays Capital. “There’s a large population standing around in blue blazers rather than engaged in more productive activities.”
Crime also hurts growth by lowering productivity, high school graduation rates and labor participation, according to a report released last year by the development bank. Social problems like high youth unemployment and deteriorated urban infrastructure, in turn, encourage more crime, the study said. “Crime scares off domestic and foreign investment,” said Andrew Morrison, World Bank economist and a co-author of the Brazil report. “The evidence is that rising homicide rates lead to considerable costs in growth around in the region.”
To be sure, Latin America is expected to grow nearly 5% this year, according to Barclays, because of a strong global economy, high commodity prices and relatively low interest rates. The region has rebounded solidly from the economic doldrums of the 1980’s, a period economists call “the lost decade” because many countries were mired in debt default and recessions. Argentina grew more than 9% last year, while both Chile and Peru grew more than 6%, according to the U.N.’s Economic Commission for Latin America. The prospect for high payoffs is why foreign companies say they have been more than willing to brave security risks in a region with a homicide rate more than twice the world average.
Colombia is illustrating the economic benefits of tackling crime. Although notorious for violence generated by more than 40 years of guerrilla warfare, the country has cut homicides by 43% and extortive kidnappings by 82% since 2002 under a public policy from President Álvaro Uribe, according to Alfredo Rangel Suárez, director of the Security and Democracy Foundation in Bogotá. “This has brought as a consequence a change in the economic expectations of the country,” Mr. Rangel Suárez said.Link here.
The free Linux operating system set off one of the biggest revolutions in the history of computing when it leapt from the fingertips of a Finnish college kid named Linus Torvalds 15 years ago. Linux now drives $15 billion in annual sales of hardware, software and services, and this wondrous bit of code has been tweaked by thousands of independent programmers to run the world’s most powerful supercomputers, the latest cell phones and TiVo video recorders and other gadgets.
But while Torvalds has been enshrined as the Linux movement’s creator, a lesser-known programmer – infamously more obstinate and far more eccentric than Torvalds – wields a startling amount of control as this revolution’s resident enforcer. Richard M. Stallman is a 53-year-old anticorporate crusader who has argued for 20 years that most software should be free of charge. He and a band of anarchist acolytes long have waged war on the commercial software industry, dubbing tech giants “evil” and “enemies of freedom” because they rake in sales and enforce patents and copyrights – when he argues they should be giving it all away. Despite that utopian anticapitalist bent, Linux and the “open-source” software movement have lured billions of dollars of investment. IBM has spent $1 billion embracing Linux, using it as a counterweight to the Microsoft Windows monopoly and to Sun Microsystems’ Unix-based business.
Now Stallman is waging a new crusade that could end up toppling the revolution he helped create. He aims to impose new restrictions on IBM and any other tech firm that distributes software using even a single line of Linux code. They would be forbidden from using Linux software to block users from infringing on copyright and intellectual-property rights (“digital rights management”). And they would be barred from suing over alleged patent infringements related to Linux. At worst it could split the Linux movement in two – one set of suppliers and customers deploying an older Linux version under the easier rules and a second world using a newer version governed by the new restrictions. That would threaten billions of dollars in Linux investment by customers and vendors alike.Link here.
U.S.-CARICOM TRADE SUMMIT DISTRACTED BY GAMING DISPUTE
The first meeting of the revived U.S.-CARICOM Trade and Investment Council in Washington last week was overshadowed by Caribbean concerns about recent U.S. anti-gaming legislation and Antigua’s pending WTO case against the U.S. Caribbean Net News reports that Assistant Secretary-General Ambassador Irwin La Rocque told a multi-agency U.S. delegation that the region viewed with concern the U.S.’s response to date to the WTO rulings and recommendations in the Internet gaming case involving Antigua and Barbuda, and that the issue should not be regarded as a “bilateral issue”, but as a regional one.
The CARICOM-U.S. Council was established in the early 1990s. “I am pleased at the collective support by our regional representatives on this important issue,” said Antigua and Barbuda’s Ministry of Finance and the Economy, Dr. Errol Cort, who has responsibility for the WTO proceedings. Ambassador Richard Bernal also urged the U.S. to resolve its WTO Internet gaming case with Antigua and Barbuda.
CARICOM Ministers met last month in the U.S. with Secretary of State Condoleeza Rice, and the agenda included a new and improved framework to enhance trade between CARICOM countries and the U.S. The Ministers emphasized their support for a trade agreement with the U.S. and suggested regular meetings between CARICOM and the U.S. Trade Representative (USTR). Trade policy of the CARICOM countries has been moving steadily away this year from the proposed Free Trade Area of the Americas (FTAA) and towards a bilateral deal with the U.S. Recent months have seen a number of South American states, influenced by the outright opposition of Venezuela, begin to waver over the proposed FTAA. Many nations see progress on the FTAA as dependent on a successful outcome to the WTO’s Doha Round, which seems far from certain at this point.
Last June, President George W. Bush said Washington would continue to push for the FTAA, saying that free trade would strengthen democracy in the Americas, and that a pan-American trade pact would unite the region in prosperity and reduce the risk of “false ideologies”. The effort to unite the economies of the Americas into a single free trade area began at the Summit of the Americas, which was held in December 1994 in Miami. The Heads of State and Government of the 34 democracies in the region agreed to construct a Free Trade Area in which barriers to trade and investment will be progressively eliminated.Link here.
Antigua consults with gaming allies at the WTO.
Tiny Caribbean state Antigua and Barbuda, trying to defend Internet gaming – one of its few economic success stories – against the mighty U.S., consulted this week at the WTO in Geneva with the EU, Japan and China, who have joined its WTO dispute as third parties. Although the WTO ruled more or less in favor of Antigua last year, and required the U.S. to amend its legislation to permit Antiguan gaming operations to offer their services to U.S. citizens on a level-playing field, the opposite has happened, with the U.S. not only stubbornly refusing to do any such thing, but now passing legislation to criminalize banks or payment processors who assist in e-gaming across state or international borders.
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. Costa Rica, Alderney, Gibraltar, Malta and the Isle of Man will be among the e-gaming centres anxiously watching the progress of Antigua’s case in Geneva.Link here.
Ukash claims its e-money can help circumvent U.S. online gaming restrictions.
E-money issuer Ukash says that online gaming sites wounded by the recent U.S. legislation need to target non-card gamblers using alternative payment techniques. According to Justin Lunny, Director of Sales at Ukash, alternative payment options offer the most dynamic way forward. “Credit card penetration in continental Europe in particular is far lower than the USA, and if you want to capitalize on the options, you need to harness the potential of the cash player.” Ukash is preparing to steer the growth of cash transactions for online sportsbook and gambling merchants outside the States. Thanks to recent authorization from the FSA, Ukash now has a licence to operate as a regulated e-money issuer in the UK, offering a higher transaction limit of £500 and “passporting” its regulated status to the 27 EEA Member States.
Ukash is currently accepted online by a wide range of gaming and gambling sites. Ukash operates in accordance with local laws in each of the countries in which it trades, and Ukash vouchers are not available for purchase in the USA. Customers exchange cash for a Ukash voucher and then spend the value online at merchants displaying the Ukash payment brand. The Ukash payment is authorized in real-time and if change is required a secure payment code is issued online to the customer.
Distribution agreements have made Ukash available from approaching 120,000 payment terminals located in convenience stores and other retail outlets across Europe. Following the successful launches of Ukash in the UK, Ireland, Germany and Spain, the the remainder of 2006 and early 2007 will see Ukash becoming available in many European countries.Link here.
BRITISH ECONOMY FUELS TAX HAVEN MONACO REAL ESTATE
The number of British people moving to the tax haven of Monaco has increased dramatically in recent years, with some estate agents in the Principality claiming that 40% of their buyers are now from the UK, compared to just 10% a few years ago. And if recent surveys are an accuate indication of the future, then Monaco estate agents might be seeing an even higher percentage of Brits buying with them in the near future. A survey by the Centre For Economics and Business Research suggests that the number of British millionaires will rise dramitacally from 376,000 to 1,700,000.
Commenting on the findings, local travel guide YourMonaco.com say that the number of British people in Monaco has increased noticeably, but that property price inflation will temper any increase in new residents. At the moment the cheapest one bedroom apartments are around €850,000. After taking closing costs into account it is close to €1 million. Given the demand for property in Monaco in five years that figure could rise to between €1.5 and €2 million for a one bedroom apartment, says YourMonaco.com. “Given the cost of property in Monaco, simply being a millionaire won’t cut it for Monaco for much longer.”
Monaco has long been known as Europe’s number one tax haven. Property prices in Monaco are already high due to the lack of land. One of the districts, Fontvieille, had much of its area reclaimed from the sea, but property prices there equal those of the better known Monte Carlo. In recent years the British economy has consistently been one of the strongest in Europe, and with a top rate of income tax cut a decade ago to 40% the wealthy have become wealthier … and want to stay that way. “Despite the top rate of tax coming down to forty per cent,” comments YourMonaco.com. “By the time other direct taxes such as National Insurance are taken into account around half of 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.”Link here.
IRISH BUSINESS ASSOCIATION URGES GOVERNMENT TO BOOST COMPETITIVENESS
At a meeting with the Minister for Finance, Brian Cowen, to discuss its pre-budget submission, ISME, the Irish Small and Medium Enterprises Association, outlined that from an SME perspective this year’s Budget is of crucial importance, and could define the future of enterprises and the attitude towards entrepreneurial endeavours that are so important in helping to drive the economy forward. ISME Chairman Daniel Hickey informed the Minister that for too many years the concerns of small business has been ignored in favor of the multinationals and big business and suggested that it was time that this policy was corrected.Link here.
GE MONEY BUYS LATVIA’S BALTIC TRUST BANK
The American consumer lending company GE Money signed an agreement on October 13 to acquire a 98% stake in the Baltic Trust Bank (BTB). The deal is expected to be completed by November, pending government approval. “The decision to acquire BTB shares was made in order to continue the development and expansion of GE Money in Latvia,” said GE Money Nordic and Baltic region head Niels Aall. In the two years since GE Money launched operations in Latvia, the company has grown and developed rapidly, he said, adding that acquiring a bank would allow the company to offer a wide range of banking services. The terms of the deal have not yet been revealed.
Gunta Linde, board chairman of Finstar Baltic Investments, current owner of BTB, said that she was not authorized to comment on the acquisition. Finstar Baltic Investments, which is co-owned by Russian millionaire Oleg Boiko and the Cyprus-registered Wolff Investments Limited, owns 94.2% of BTB. The bank’s share capital is 15.6 million lats (€22.2 million). In August, BTB was ranked number 13 among Latvia’s 24 banks in terms of assets. The bank has one of the largest branch networks, with 74 branches across Latvia. In the first eight months of this year, the bank registered 3.3 million lats in profit. From January to August of this year, the bank totaled 249.9 million lats (€355.6 million, apx. $448 million) in assets. GE Money is a part of the world’s largest consumer lending corporation, GE Consumer Finance, owned by America’s General Electric.Link here.
SINGAPORE REIT’S OFFER ONE WAY TO PLAY BOOM IN THE FAR EAST
Did you miss the real estate boom? Do you think it will be years before you will find another decent property deal? Well, if you look beyond pricey U.S. and European real estate, you will find a property market that offers excellent value – Singapore. A combination of powerful investment factors, including rising income distributions, currency appreciation, a thriving real estate market, and a favorable tax regime all make Singapore one of the best property values in the world right now.
The city-state sports a booming economy, featuring a strong financial services industry and the world’s third largest oil-trading center (after New York and London). Over the last five years, Singapore has overtaken Hong Kong as Asia’s fastest growing financial center, having introducing new hedge fund and mutual fund laws, REITs, and international private banking. But its stock market sells at its lowest multiple in almost four years. And Singapore’s thriving Real Estate Investment Trust – REIT – industry offers fatter dividends than the U.S. and the most liberal tax environment in the world.
Although Singapore did not escape the Asian economic crisis in 1997-1998 it suffered the least, due to Singapore having historically harbored a low external debt ratio compared to her neighbors’ bulging deficits. Her low external debt ratio has been accompanied by rising trade and budget surpluses and an undervalued currency. GDP grew 7.5% in the second quarter after expanding 6.4% in 2005. Inflation is also low at just 1.1% annualized through May. And the Singapore dollar (S$) ranks as one of Asia’s best-performing currencies over the last 12 months – up 6.5% versus the U.S. dollar. From an investor’s perspective, Singapore is awarded an A+.
REITs remain one of the best-performing investments since the stock market peak in March 2000. REITs typically acquire investment-grade, income-producing properties like office buildings, business parks, shopping malls, hotels, and serviced apartments. Gross income, which usually is rental income, is consolidated at the REIT level and distributed to investors following a 22% corporate tax rate. Effective yields for U.S. REITs have plummeted over the last five years from 10% in 2000 to the current 4.6%. Most of these are expensive following a bull market. With the rising U.S. interest rates and a cooling property market, U.S.-based REITs simply do not offer the best risk-adjusted values today.
In 1999, Singapore enacted its first investment guidelines for establishing Singapore-based REITs. The market, still small by international standards, is nevertheless now larger than Hong Kong’s REIT industry with a combined US$17 billion in assets. According to domestic REIT laws, all net income must be distributed to investors in order to facilitate pass-through tax treatment. No other REIT market in the world currently allows the individual investor to receive 100% of this distribution free of corporate taxes. As Singapore’s economy continues to expand, the real estate market should also strengthen. But the extra kicker for REIT shareholders is a combination of rising distributions over the next 12-24 months and a rising Singapore dollar versus the U.S. dollar.Link here.
HONG KONG, SINGAPORE SNUB EU OVER SAVINGS TAX DIRECTIVE
It is likely that Hong Kong and Singapore will refuse to discuss joining the EU’s tax information-sharing scheme, applied under the Savings Tax Directive. Faced with paltry returns during the first year of operation of the Directive, the European Commission recently said that it wanted to extend the Directive to major Asian banking entrepots. But according to the Financial Times, Singapore told an EU commissioner that extension of the Savings Tax Directive is simply not on the agenda.
The commissioner met with Prime Minister Lee Hsien Loong and Senior Minister Goh Chok Tong for discussions on a wide range of bilateral and regional issues of mutual concern, including strengthening EU-Singapore political and economic relations through the negotiation of a Partnership and Co-operation Agreement. The Agreement offers the possibility of immediate enhanced cooperation with the European Community on a wide range of policy areas. The EU would like to include information-sharing in the Agreement.
Meanwhile, Martin Glass, Hong Kong’s Deputy Secretary for Financial Services & the Treasury in Hong Kong told a Society of Trust and Estate Practitioners conference last week that the SAR did not have the power to share information with other tax authorities. Said Mr. Glass, “The powers of the government and the commissioner of inland revenue are relatively limited and extend only to information which is required for our own tax purposes. There might be huge ramifications that compliance with such a savings directive would have for our future as an international financial center, which is also guaranteed under the Basic Law.”
The Savings Tax Directive, which extends to a number of “third countries” such as Switzerland, the Channel Islands and Caribbean offshore territories, was introduced in July 2005. It facilitates the exchange of information between EU tax authorities on certain types of savings and investments held by EU residents in their territory so that interest earned can be taxed in the resident investor’s home state. The legislation also allows some jurisdictions to apply a withholding tax, currently 15%, instead of exchanging information. However, these jurisdictions have reported relatively paltry withholding tax revenues, prompting the EU to take action to plug the directive’s many loopholes.
Although there are several ways for investors to escape the directive, such as switching assets to vehicles not covered by the legislation, perhaps the most obvious avoidance strategy is for investors to simply shift their money to more tax-friendly jurisdictions. Anecdotal evidence suggests that Dubai, Hong Kong and Singapore have been major beneficiaries.Link here.
U.S. AND U.K. TWEAK DOUBLE TAX AGREEMENT
HM Revenue and Customs and the IRS have signed an agreement as competent authorities under the 2001 UK-US double taxation convention. Both the U.K. and U.S. rules deny relief for losses which have been relieved in another territory. Both countries also deny relief which could have been claimed in an overseas territory but was denied in that territory under a dual consolidated loss rule. The interaction of the U.K. and U.S. rules for loss relief mean that it is possible that the loss of a U.K. permanent establishment cannot be offset either against the taxable income of a U.S. affiliate under the U.S. Code or against the profits of a U.K. affiliate under the U.K. rules for group relief.
Subject to conditions set out in the agreement, the competent authorities have agreed that the relevant taxpayer can make an election to seek relief under one or other of the relevant relief provisions, notwithstanding the existence of the elected countries mirror rule.Link here.
UK BUSINESSES FACING DAMAGING VAT REGISTRATION DELAYS
HM Revenue and Customs says that serious delays to the VAT registration process for new companies are due to the need to guard against “carousel” fraud, and are unavoidable. It is taking from 8 to 12 weeks for new companies to receive their VAT number, which can be very damaging. New companies are often net recipients of VAT from HMRC in the early stages of trading, when costs outweigh revenues, and having to wait for the money may harm their chances of success. VAT partner at accounting firm UHY Hacker Young says, “Not having a VAT number can stop a business from trading – it’s as simple as that.”
Legislation introduced in the 2006 Finance Act entitles HMRC to withhold VAT from innocent businesses in circumstances where it believes they “should have known” customers or suppliers were engaged in fraud. According to Simon Newark, “Businesses are expected to devote time and resources to doing detective work on behalf of HMRC, but without clear guidance as to how much due diligence is expected, there is a tendency for businesses do far more than is strictly necessary just to cover their backs.”
HMRC says, “[We] are working to reduce the time taken to process VAT1’s, but in the current climate of criminal attacks on the VAT system, some extra checking is unavoidable.” The agency is also continuing to plan towards the introduction of a “reverse-charge” VAT regime for firms trading in a wide range of electronic goods and mobile phones, in response to continuing “missing trader” carousel fraud. Implementation of the reverse charge requires fundamental changes to the accounting systems of businesses trading in the relevant goods. Those accounting system changes are in turn dependent upon changes to the software that supports the accounting systems. Some businesses, says HMRC, will have to adopt some interim arrangements – by way, in effect, of a manual workaround.Link here.
IRS UNVEILS ONLINE PAYMENT AGREEMENT APPLICATION
Many individuals who owe delinquent federal income taxes will now be able to apply online for a payment agreement, the IRS announced. The Online Payment Agreement (OPA) application, now available on the IRS website, provides an easy way to voluntarily resolve tax liabilities. “We think some people may feel more comfortable working out their payments on line rather than talking to a person, so we’re making this option available,” explained IRS Commissioner Mark W. Everson.
The new online application allows eligible taxpayers or their authorized representatives to self-qualify, apply for, and receive immediate notification of approval. Taxpayers must have filed all required tax returns in order to use the online application. Three payment options are available when applying online: (1) Pay in full – Taxpayers who pay within 10 days save interest and penalties. (2) Short-term extension – Receive a short-term extension of up to 120 days. No fee is charged, but additional penalties and interest will accrue. (3) Monthly payment plan – A $43 user fee will be added to the amount owed, and interest and penalty will continue to accrue on the unpaid balance.Link here.
Appeals arbitration process formalized By IRS.
The IRS announced that the pilot appeals arbitration process will become a permanent part of its armory. In arbitration, the IRS and the taxpayer agree to have a third party make a decision about a factual issue that will be binding on both of them. IRS Notice 2000-4 previously established a pilot program for cases in appeals in which a taxpayer and IRS could jointly request binding arbitration on certain unresolved factual issues. The taxpayer or the IRS will be able to request arbitration and jointly select an appeals or a non-IRS arbitrator from any local or national organization that provides a roster of neutrals.Link here.
MAURITIUS CLARIFIES NEW TAX RESIDENCE RULES
The Mauritius Financial Services Commission has issued a Circular to clarify its new rules for the issuance of Tax Residence Certificates. In an attempt to head off pressure from India to change the countries’ Double Tax Avoidance Agreement, the government had announced that it will tighten up the rules, and in future will issue them for only one year at a time. The Circular makes it clear that, while TRCs will be issued only after all requisite annual returns have been filed, this will not apply to new Global Business Companies, which would not have reached their first reporting deadline. TRCs will in future be issued in relation to a specified Double Tax Agreement (suggesting that Certificates for some countries may be harder to get – e.g., India?).
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 (i.e., Mauritius) for at least two years prior to the date on which a capital gain arises. Under the treaty as it stands, there is only a very basic residence requirement.Link here.
Beleaguered Republicans should create a badly needed preelection initiative with one of their perennially winning issues, taxes. They should index capital gains to inflation. This was a big issue in the 1980s and early 1990s. Thanks to seemingly endemic inflation, when investors realized gains on the sale of their assets, they paid effective rates that were considerably higher than the statutory rates. Sometimes the real tax bite exceeded 100%. But inflation subsided, and in 1997 the nominal capital gains exaction was cut from 28% to 20%, and cut again in 2003 to 15%. However, that reduction, as well as others in the 2003 tax bill, expires in 2010. And, to make matters worse, inflation has come back.
Republican Representatives Mike Pence (Indiana) and Eric Cantor (Virginia) have introduced legislation that would tie the cost basis of an asset to the GDP deflator. If that index doubled over ten years, so would the tax basis of this asset – a share bought today for $10 would have an adjusted cost of $20. If this feckless Congress does not enact Pence-Cantor soon, the White House should institute indexing by executive order. After all, it was a Treasury ruling, not congressional legislation, that in 1913 decreed the cost basis of an asset would be “historic” rather than “real”. (That was not an unreasonable ruling at the time, given that the dollar was fixed to gold.) Democrats will howl and the issue will go to the courts – but the point will have been manifestly made.Link here.
OFFSHORE VARIABLE ANNUITIES FOR ASSET PROTECTION AND TAX DEFERRAL
Annuities are turning some heads this decade. Annuities, particularly fixed annuities, were once viewed as staid, boring but safe investments for long-term tax planners. Now with global interest rates still at historically low levels and offering negative returns, the focus this decade has shifted to offshore variable annuities. Since 2000, variable annuities have offered investors a host of powerful tax-based incentives and above-average long-term returns versus benchmark indices. And the foreign currency options now available are even more compelling – including euro-denominated portfolios.
Offshore variable annuities are not guaranteed products. Their performance is variable, meaning they are tied to the securities the annuity’s asset manager selects. Most often, these securities include global equities, foreign currencies, bonds, commodities, and sometimes, even alternative investments like hedge funds and managed futures funds. These products are suited for the long-term investor with an investment horizon of at least five years, and preferably longer. Although you should plan on leaving your investment intact throughout its tax-free compounding cycle, variable annuities are usually liquid just in case the investor should require a capital distribution. You can take out partial withdrawals or income payments without paying any penalties even after the first day.
And an offshore variable annuity policy is also a nearly impenetrable asset protection tool. Properly structured and established in the right jurisdiction, these policies cannot be seized or included in any bankruptcy proceeding, 12 months after the setup of the policy. These asset protection vehicles are also easy to establish. And the owner keeps full control. Offshore variable annuities grow tax-free until they are liquidated. The prospect of investing in top-rated offshore mutual fund portfolios combined with the powerful attributes of tax-deferred compounding and asset protection make variable annuities very attractive tax planning tools for U.S. investors.
U.S. investors cannot purchase offshore mutual funds without risking potentially harsh tax consequences. Most offshore funds do not make year-end distributions to shareholders, so any taxes on unrealized gains will have to be paid from a separate source of income. Offshore variable annuities remain one of the last vestiges of tax-deferred compounding for U.S. investors seeking access to top-performing offshore money-managers. Over 50,000 mutual funds are currently domiciled outside of the U.S. Many of these harbour excellent long-term track records and they are denominated in currencies fundamentally stronger than the U.S. dollar. Many of the best performing offshore funds are either closed to new investors because of capacity limits or require high minimum investments in excess of $1 million. Some portfolio managers in Europe have access to special top-flight mutual funds, so investors have exclusive participation in otherwise so-called “forbidden investments”.
In Europe, despite numerous investigations following the Spitzer indictments, only a handful of mutual fund companies were convicted of market-timing. The market-timing fiasco was largely confined to American mutual fund operators. The 2nd- and 3rd-largest mutual fund industries in the world based on assets, Luxembourg and France, escaped without a single indictment. I would argue, overall, EU mutual fund laws are even stricter than the 1940 Investment Company Act in the U.S. For EU companies to market and distribute their mutual fund products throughout the region requires a heavy compliance burden, explaining to a large extent why offshore mutual fund expense ratios are almost double the cost compared to those in the U.S. Offshore mutual funds domiciled outside of the EU are not regulated to the same degree. Many of these tax havens are poorly regulated, offering very little investor protection. In the past, several of these locales have been tied to investor fraud, scandals and ponzi schemes.
While American annuities invest in staid, overbought investments, offshore managers diversify their portfolios across all the major asset classes, except real estate. This means any offshore “all-weather” portfolio may invest in various currencies, bonds, commodities, and offshore mutual funds (including many that are not available to an individual investor). This necessary diversification helps them consistently produce solid returns. For American investors, specifically, this currency diversification, helps hedge against a falling dollar. So for a relatively small investment, the investor truly gets the best of all worlds – including tax-deferred investing, foreign currency diversification, top-rated money-managers, and asset protection.Link here.
U.S. rules on exchange for annuities updated.
The U.S. Department of the Treasury and the IRS issued proposed regulations that would address the tax treatment of an exchange of property for an annuity contract. The proposed regulations would apply the same rule to exchanges for both private annuities and commercial annuities. A decades-old IRS ruling generally postpones tax on the exchange of appreciated property for a private annuity, a result inconsistent with the tax treatment of exchanges for commercial annuities or other kinds of property.
This ruling was originally based in part on the assumption that the value of a private annuity contract could not be determined for federal income tax purposes. This assumption is no longer correct. The ruling has its roots in authorities that applied the “open transaction doctrine”, which has been eroded in recent years. In addition, the Treasury Department and the IRS discovered that the ruling has been relied upon inappropriately in a number of transactions that are designed to avoid U.S. income tax. The guidance issued proposes to declare the ruling obsolete. Charitable gift annuities would not be affected by the proposed guidance.Link here.
GULF CENTERS TUSSLE FOR THE TOP REGIONAL FINANCIAL CENTER CROWN
Dubai and Qatar compete on many fronts. Emirates and Qatar Airways happily slug it out for the title of the world’s fastest growing airline, while Qatar’s reclaimed island project “The Pearl” will go head to head with Dubai’s “Palm Jumeirah” when they come on line later this year. But it is the battle to be crowned the Gulf’s financial hub which is perhaps the most intriguing. With both cities having opened top-notch financial complexes in the last two years, the question is “Who’s winning this fight?”
Dubai’s bid to become the financial capital of the Middle East began in earnest in September 2004 when the Dubai International Financial Centre (DIFC) opened for business. And after a slow start over 200 companies have now been accepted for membership with the majority having already received full regulatory approval. The DIFC has, in recent weeks, consigned its stuttering start firmly to the past by welcoming a range of multinational and regional firms to the center. Saudi telco Oger Telecom, HSBC Bank Middle East, U.S. investment bank JP Morgan and Fortis’s merchant banking arm have all set up their regional bases within the complex.
DIFC increased its scope and ambition last September by launching the Dubai International Financial Exchange (DIFX). Delays have hit some of DIFX’s mooted IPOs, and the market slump in the region has compounded DIFC’s woes. The center’s future success will largely depend on how its independent regulator, the Dubai Financial Services Authority (DFSA), enforces the regulations it has drawn up for the center. Doubts over governance rules have historically made many financial institutions reluctant to set up in the Gulf. The center’s laws were closely modeled on the regulatory systems used in London and New York, but it has also drawn from the EU for laws governing data protection, and from the OECD for money laundering rules.
Before DIFC became operational, it sacked Ian Hay Davison and Phillip Thorpe, two top foreign regulators, as chairman and chief executive of the DFSA. New Zealander Thorpe is now chairman and CEO of the regulatory body of Qatar’s financial center the QFC, which celebrated its first anniversary this summer. No longer considered the region’s also-ran, the country sits on the 3rd largest gas reserves in the world. With a host of gas-related projects under way and 25-year LNG supply deals secured with many developed countries, Qatar’s future looks bright. Add to that an annual GDP growth of around 10% and $130 billion worth of investments lined up for the next decade and it is easy to see why top financial institutions and multinational corporates are making a beeline for the Gulf state.
There is a catch. In order to get a piece of the multi-billion dollar action, interested organizations have to set up shop in Doha. As an inducement, QFC is offering businesses participating in the initiative 100% ownership, full repatriation of profits and a 3-year tax holiday, after which a corporate tax rate of 10% will apply. Thorpe believes QFC will attract businesses because of the large volume of banking and financial business to be transacted in Qatar, and the security of locating in a jurisdiction with a tough independent regulatory authority operating to the highest international standards.
Thorpe claims Qatar’s primary focus is on developing the project infrastructure and energy financing needs of its own economy rather than going head to head with Dubai and Bahrain’s Financial Harbour, which is currently under construction.Link here.
SOME PERILS INVOLVED IN INVESTING IN UNDERDEVELOPED REGIONS OVERSEAS
People expect some level of fair play and predictability when it comes to the investment and business climate in any particular locale. In general, capital migrates to places where it can find a safe harbor. This requires a legal system in which contracts are enforced and property is protected. When disagreements and disputes arise over business or personal issues, which they almost always do, you want to be in a place where the problems can be resolved rapidly and efficiently. You want to be in a place where you can obtain blind justice, and not a place in which justice is blind.
All business ventures entail some measure of risk, but some are riskier than others. What prompts me to think about this is the seemingly unending series of accounts of business risk going bad in the less-developed parts of the world. In Russia, the news from the Far East has to do with the Ministry of Natural Resources revoking the environmental permits of, respectively, ExxonMobil and Shell Oil on their Sakhalin-1 and Sakhalin-2 projects. These are two major oil and gas development projects that have already cost on the order of $20 billion, with much more yet to be spent to bring them online. The original production agreements were inked in the mid-1990s with the then-government of Russia, so the companies are now about 10 years into their efforts. Russian environmental groups and authorities have accused both oil companies of taking inadequate safety measures on the projects, and of releasing large volumes of industrial waste into the waters near Sakhalin Island. The Russian authorities have tossed about damage claims in the order of $50 billion against just Shell. Exxon is also encountering similar threats of sanctions for alleged environmental damage.
In all likelihood, the Russians are attempting to pressure Exxon and Shell to renegotiate their 1990s-era production agreements. This is part and parcel of Russia’s ongoing effort to reassert, if not to recapture, state control over its strategic energy sector. During the years immediately after the collapse of the Soviet Union, much of the natural resource base of Russia fell into the hands of non-state actors. The Russians under Vladimir Putin want to reinvent this past. The Russian government is apparently prepared to weather whatever diplomatic storm ensues. The Russians have the advantage of geography and jurisdiction. They own and control the resources. They have a national energy strategy that places a premium on state control of energy resources. They know that they are in control of events. And they are patient. So having reinvented their past, they are now inventing their own energy future.
But this new sense of elevated business risk is not occurring just in big countries like Russia, asserting state control over big oil and gas projects. The government of the much smaller nation of Guatemala, for example, recently violated the terms of a significant railroad privatization agreement that was enacted by a previous Guatemalan administration. The railroad concession to the U.S.-investor-owned group FVG was not only approved by the government of the previous time, but also ratified in 1998 and 2003 by Guatemala’s congress.
The apparent purpose of the Guatemalan government action is twofold. In the short term, the government is attempting to force FVG to withdraw from a dispute with the government and avoid shining any further spotlight on the government’s improper diversion from a $2 million infrastructure trust fund. Over the longer term, the government is apparently attempting to recover control of certain assets granted under the previous concession, and turn these assets over to other well-connected entities. It is the beginning of a backdoor expropriation of foreign capital.
In both of the examples above, there is an emerging pattern that is not friendly to long-term Western investment. There are several separate elements that define the environment for foreign investment in most non-Western states. These are natural conditions and resources, infrastructure, human resources and expectations, and governmental and legal conditions. It is difficult to control the natural conditions and resources. These are what they are. But each of the other elements presents a mixture of possibilities and impediments, and of opportunities and constraints. Western investors in underdeveloped regions ought to be familiar with these business realities, but sometimes it is a shock to encounter them up close and personally. So here is the short list of the perils to investment, as self-contained as possible.
If one is going to do business in such environments as described above, these are some of the risks. What is your level of risk tolerance? Of course, there is no substitute for being there, becoming involved, learning the language, and immersing oneself into the culture. The difference between success and failure may be in one’s ability to develop the necessary relationships to maintain a long-term focus. Even then, having exercised the best of faith in all of your dealing, the most careful efforts may come to naught.
And when things go wrong, what are your protections? Will your home government assist you? It is easy to mock and speak with disdain toward the “imperial” aspects of North American, European, and even Japanese national relations with nations that form the rest of the world. But when your investment starts to go south, what are you going to do? Will you litigate? Oh really? Against whom, and in what forum? These are questions for which you ought to have thought about the answer long before you ever begin.Link here.
TRUSTEES RUN AMUCK ANNALS: THIS ONE TAKES THE CAKE
The dispute over Brooke Astor’s assets has taken some strange turns, but it probably will not involve Warsaw Pact-era military jets and rocket pod launchers. That distinction belongs to May Smith, the elderly widow of a wealthy Australian mining baron and orchid collector. Mark J. Avery, an Anchorage lawyer and co-trustee of Smith’s multimillion-dollar trust, is accused in a San Francisco lawsuit (brought by his co-trustees) of using $52 million in trust assets to purchase, among other things, a fleet of Czech-made Aero Vodochody L-39 military jets, aircraft made behind the Iron Curtain during the 1970s, with plans to buy more. In a raid on a hangar in Alaska, federal agents also found two rocket pod launchers for the L-39s, each capable of holding 16 rockets. The launchers were bought on Ebay for an estimated $2,890 each.
Avery is not talking, but in an e-mail to his co-trustees filed in court he denied that he did anything wrong. Those trustees have said that they all agreed to buy two or three long-range planes for Smith [!], who was living in the Bahamas, in case of an emergency. But then, they claim, Avery transferred $15 million into his law firm’s account, the first of a total of $52 million he eventually wired into accounts held by companies he controlled. In summer 2005 he purchased air charter company Security Aviation along with at least one Gulfstream jet. That company or Avery-controlled affiliates then bought the vintage planes.
For what purpose? Employees of Security Aviation have testified that the company kicked around plans to use the military planes for training exercises for the Air Force or to secure a contract with the UN to train pilots for regional conflicts. And the rocket launchers? Just an unusable toy and therefore legal, claimed Security Aviation and an Avery consultant, who were acquitted in May of possessing an unregistered destructive device.
A judge in San Francisco has temporarily suspended Avery from his trusteeship and ordered him not to sell any of the assets. May Smith died in July. It is unclear what will become of the trust. Or the planes.Link here.
PRIVACY PERILS PLAGUE NET
If you do not like what your favorite internet search engine or e-commerce site does with information it collects about you, your options are limited to living with it or logging off. Major search engines, for instance, all keep records of your searches for weeks, months or even years, often tied to your computer’s internet address or more. Retailers, meanwhile, generally presume the right to send marketing e-mails.
Although online companies have become better at disclosing data practices, privacy advocates say the services’ stated policies generally do not give consumers real choice. “None of them have gotten to the point of giving a lot of controls in users’ hands,” said Ari Schwartz, deputy director of the technology watchdog group Center for Democracy and Technology. Privacy policies “are about notice … not about control.”
Recent developments from companies losing laptops containing sensitive data to AOL releasing customers’ search terms have again turned the spotlight on internet privacy. But the push for stronger federal protections is countered by Attorney General Alberto Gonzales’s desire to require internet providers to preserve customer records to help prosecutors fight child pornography. Officials have released few details, though they say any proposal would keep the data in company hands until the government seeks a subpoena or other lawful process.
Federal law already limits how personal financial and health-care data may be used, but U.S. privacy laws are generally considered weak compared with Europe and Canada. Industry groups have stepped in with guidelines that go beyond legal requirements. One group, Truste, requires member companies such as AOL and Yahoo to give consumers a way to decline sharing personally identifiable information with outside parties. Companies also must disclose any use of tracking technology and specify personal information collected and how it is used.
Some companies go even further. E-Loan customers worried about safeguards when data get outsourced to India can choose to have loan applications processed domestically, though loans in such cases would take two additional days to close. Mark Lefanowicz, E-Loan’s president, said about 80% of customers have agreed to outsourcing, and he said choice pre-empted any backlash. Comcast, meanwhile, gives customers a range of options on how long its servers keep e-mail, while a small search engine called Ixquick promises to purge data within 48 hours.
In other cases, companies have responded to backlash from customers. When Facebook recently allowed easier tracking of changes their friends make to personal profile pages, users threatened boycotts and forced the company to apologize and offer more privacy controls. But such cases are rare. Consumers generally have not demanded better privacy options the way they shop around for better prices or ease of use, said Carl Malamud, senior fellow at Center for American Progress, a liberal think tank.
So Google remains the leading search engine, even as it will not say how long it keeps data on what people search. Like other companies, Google says such information is helpful in improving services and fighting computer attacks and fraud. Tom Lenard of the Progress and Freedom Foundation, a technology think tank that shuns government regulation, added that data retention lets credit card companies identify unusual activities and gives car dealers the ability to offer instant loans. Limiting what companies can do would hurt consumers, Lenard said.Link here.
IS GOOGLE EVIL?
Google Larry Page and Sergey Brin, the two former Stanford geeks who founded the company that has become synonymous with Internet searching, and you will find more than a million entries each. But amid the inevitable dump of press clippings, corporate bios, and conference appearances, there is very little about Page’s and Brin’s personal lives. It is as if the pair had known all along that Google would change the way we acquire information, and had carefully insulated their lives – putting their homes under other people’s names, choosing unlisted numbers, abstaining from posting anything personal on web pages.
That obsession with privacy may explain Google’s puzzling reaction last year, when Elinor Mills, a reporter with the tech news service CNet, ran a search on Google CEO Eric Schmidt and published the results: Schmidt lived with his wife in Atherton, California, was worth about $1.5 billion, had dumped about $140 million in Google shares that year, was an amateur pilot, and had been to the Burning Man festival. Google threw a fit, claimed that the information was a security threat, and announced it was blacklisting CNet’s reporters for a year. (The company eventually backed down.) It was a peculiar response, especially given that the information Mills published was far less intimate than the details easily found online on every one of us. But then, this is something of a pattern with Google. When it comes to information, it knows what is best.
From the start, Google’s informal motto has been “Don’t Be Evil,” and the company earned cred early on by going toe-to-toe with Microsoft over desktop software and other issues. But make no mistake. Faced with doing the right thing or doing what is in its best interests, Google has almost always chosen expediency. Google’s stated mission may be to provide “unbiased, accurate, and free access to information,” but that did not stop it from censoring its Chinese search engine to gain access to a lucrative market (prompting Bill Gates to crack that perhaps the motto should be “Do Less Evil”). Now that the company is publicly traded, it has a legal responsibility to its shareholders and bottom line that overrides any higher calling.
So the question is not whether Google will always do the right thing. It has not, and it will not. It is whether Google, with its insatiable thirst for your personal data, has become the greatest threat to privacy ever known, a vast informational honey pot that attracts hackers, crackers, online thieves, and – perhaps most worrisome of all – a government intent on finding convenient ways to spy on its own citizenry. It does not take a conspiracy theorist to worry about such a threat. “I always thought it was fertile ground for the government to snoop,” CEO Schmidt told a search engine conference.
Over the years, Google has collected a staggering amount of data, and the company cheerfully admits that in nine years of operation, it has never knowingly erased a single search query. It is the biggest data pack rat west of the NSA, and for good reason – 99% of its revenue comes from selling ads that are specifically targeted to a user’s interests. Every search engine gathers information about its users, primarily by sending us “cookies”, or text files that track our online movements. Google’s cookies expire in 2038. Until then, when you use the company’s search engine or visit any of myriad affiliated sites, it will record what you search for and when, which links you click on, which ads you access. The cookies cannot identify you by name, but they log your computer’s IP address. By way of metaphor, Google does not have your driver’s license number, but it knows the license plate number of the car you are driving. And search queries are windows into our souls. If you have ever been seized by a morbid curiosity after a night of hard drinking, a search engine knows – and chances are it is Google.
And if you are a Gmail user, Google stashes copies of every email you send and receive. If you use any of its other products – Google Maps, Froogle, Google Book Search, Google Earth, Google Scholar, Talk, Images, Video, and News – it will keep track of which directions you seek, which products you shop for, which phrases you research in a book, which satellite photos and news stories you view, and on and on. Served up à la carte, this is probably no big deal. The problem is that Google can combine all of this information to create detailed dossiers on its customers, something the company admits is possible in principle. Google insists that it uses individual data only to provide targeted advertising. But history shows that information seldom remains limited to the purpose for which it was collected.
I asked Nicole Wong, Google’s associate corporate counsel, if the company had ever been subpoenaed for user records, and whether it had complied. She said yes, but would not comment on how many times. So can you trust Google only as far as you can trust the Bush administration? “I don’t know,” Wong replied. “I’ve never been asked that question before.”Link here.
MYSPACE PREDATOR CAUGHT BY CODE
The computer crimes unit of New York’s Suffolk County Police Department sits in a gloomy government office canopied by water-stained ceiling tiles and stuffed with battered Dell desktops. A mix of file folders, notes, mug shots and printouts form a loose topsoil on the desks, which jostle shoulder-to-shoulder for space on the scuffed and dented floor. I have been invited here to witness the end-game of a police investigation that grew from 1,000 lines of computer code I wrote and executed some five months earlier. The automated script searched MySpace’s 1 million-plus profiles for registered sex offenders – and soon found one that was back on the prowl for seriously underage boys. That is something that MySpace has said it cannot do.
MySpace busts are rare in this unit. About half the work done by the eight detectives here is aimed at online predators, but the networking site poses challenges that open chat rooms – a dying social scene among today’s youth – never did. “It’s a dangerous place for kids,” says Frank Giardina, a good-natured, 49-year-old detective. “It’s also difficult for law enforcement.” That is because much of what happens on MySpace unfolds outside public view. The computer crime unit has erected bait profiles registered to fake underage teens, but so far the tactic has netted only one arrest. Proactively scouring MySpace pages is futile. The smarter sexual predators stick to private messages, and diligently prune their public comment boards of any posts from young friends that hint at what is happening behind the scenes. Today’s investigatory target has been less careful, and now he faces his fourth arrest for a sex crime.Link here.
CAYMANS’ PRIVACY AT RISK IN PASSENGER INFORMATION EXCHANGE DEAL BETWEEN U.S. AND EU
Under a new deal between the EU and the U.S., countries from Europe will be handing over financial information on travelers to the U.S., and as an Overseas Territory of the UK, the Cayman Islands could also find itself forced to divulge financial information about travelers from there. Many professionals in the legal fraternity here have raised concerns over this issue and one said that there were questions to be answered. Hon. Charles Clifford, Minister of Tourism, said that just because the EU has signed on for such an arrangement, “doesn’t mean that terms will automatically extend to the Cayman Islands.”
Cayman Islands Attorney General, Hon. Samuel Bulgin, said Cayman had not had any discussions with the UK Government before they signed this deal. Mr. Bulgin underscored that he has, “not been made aware of any discussions or requests” in relation to sharing personal information on airline passengers, even though the U.S. and the EU recently agreed to do so.
On October 6 – following weeks of closed-door sessions – the announcement of the U.S./EU deal was confirmed. Under the deal the EU will push data – 34 pieces of information per passenger – to the U.S. The deal included “new mechanisms” for the distribution of data from airlines and would give passenger data to U.S. authorities while guaranteeing sufficient data protection. Information to be “pushed” includes details on credit cards, passports, telephone numbers and even meal preferences, direct from airline computer systems, to the U.S. EU Justice Commissioner, Franco Frattini, said that the information would be sent to the U.S. Department of Homeland Security – to facilitate any wider distribution among other U.S. counter-terrorism agencies.
Civil liberties campaigners had argued that the amount of information collected is intrusive and that data protection, once the details are in the U.S., is weak. Many questions in relation to how much further on information would be passed, were still unanswered. It was a similarly weak link that had caused the rupture of a previous, parallel deal – when both sides failed to agree on terms for a renewal for the deal.
Mr. Clifford sought to quell concerns about the treaty and pointed out that the primary reason for the deal was to address international anti-terrorism and security issues. However, referring to the possibility of privacy threats, he also said over the years a number of initiatives have threatened and challenged privacy issues in the country’s offshore industry, but they were handled. One senior official in financial circles here said that if investor information is passed on it would be of concern if these treaties were to apply to the Caymans.
Recent undisguised complaints from Cayman Islands Chief Justice, Dr. Anthony Smellie, and, Senior Legal Counsel of the Cayman Islands Monetary Authority (CIMA) and Chairman of Cayman’s Law Reform Commission, Langston Sibbles made earlier this year at the Caribbean Commercial Law conference, however, alluded to the problems of unfair practices from external agencies, on shore agencies and blacklisting jurisdictions in this region. “The fact is that the Cayman Islands, like many other offshore jurisdictions, have undergone more reviews of our financial regulatory regime in the last eight or so years than most onshore jurisdictions,” said Mr. Sibbles.Link here.
UNITED STATES CORPORATE PRIVACY RULES: MOVING TOWARD A GLOBAL SOLUTION
The global economy requires the cross-border transfer of personal information. At the same time, such transfers are becoming more difficult and costly from a business perspective because more countries are adopting privacy laws that regulate, among other things, cross-border data transfers. These laws vary dramatically from country to country but typically either explicitly prohibit transfers to other countries unless certain conditions are met or impose regulatory obligations on the organizations transferring the personal information. These cross-border limitations are affecting both the quality and choice of products and services that can be offered to consumers on a global basis.
As a result, greater attention is being paid to the development and use of global or enterprise-wide privacy rules (“Corporate Privacy Rules”, or CPRs) as a way to correct the problems faced by consumers and organizations under the current international privacy regime. The concept of Corporate Privacy Rules is based on the notion of accountability – that is, the organization as a whole assumes responsibility for protecting the data. CPRs are not a new concept. Rather, they are an extension of an approach that has worked successfully in other areas for many years (e.g., enterprise-wide policies in the field of financial reporting, and conflicts of interest).
Implementing such rules within an organization is relatively easy. The bigger challenge, however, will be to secure the necessary international acceptance and cooperation that will enable organizations to implement CPRs as a global, rather than a national or regional solution for cross-border data transfers. Efforts are currently underway in Europe and Asia to build acceptance for this approach. In the meantime, companies are reassessing their current cross-border data transfer arrangements and are taking the necessary internal steps to develop CPRs so that when there are a sufficient number of countries willing to accept them in lieu of other cross-border mechanisms, they will be well positioned to phase out their existing cross-border arrangements in favor of a global solution.Link here (free signup required).
REAL ID’S REAL PROBLEMS
More than a year has passed since the Real ID Act of 2005 became law. And in a little over 18 months, the first new driver’s licenses mandated by the legislation are supposed to debut. That may seem like a long time, but given the issues that remain unresolved, it is not. Chief among the questions is, which machine-readable technology will the new IDs use? DHS Secretary Michael Chertoff testified before Congress in September that the agency was working on the project, but gave no sense of when the guidelines might be done, or what the standards for the technology will be. Without knowing which technology to use, states cannot even begin soliciting bids from firms to produce the cards, never mind get delivery of product, install the new equipment, train their workers, or debug the system.
A September report by a coalition of state governors and state legislative groups, along with representatives from the American Association of Motor Vehicle Administrators, confirms that states have no firm guidelines as of yet. The report goes on to cover many aspects of implementation that the Real ID Act itself leaves vague. The report’s alarming conclusions include a projected cost for the project of about $11 billion – more than 100 times the $100 million Congress originally envisioned. Even if the new estimate is way off, we are still talking about total costs of an order of magnitude greater than the plan’s backers have claimed. The report makes some recommendations to the federal government, at least one of which seems difficult to contest – states need more time.
Guidelines in the Real ID Act set up requirements for background checks on employees, and the physical security standards at DMV facilities, for example. But the more crucial issue of security standards for the ID cards themselves is left vague and therefore up to the DHS, to DMVs, and to states to figure out. Whichever technology is chosen, however the data gets verified, and no matter which methods are used to safeguard it, two things are sure. You and I will have to wait longer to get our driver’s license, and it will cost us more – whether in federal or state taxes or in fees paid directly to the DMV. You and I will foot that bill, one way or another.Link here.
YOUR CELL PHONE CAN BETRAY YOU
Thanks to the HP scandal, we have all heard about “pretexting” .It happens when a private investigator, identity thief, or government lackey contacts a cell phone operator and pretends to be you, to find out who you are calling, and receiving calls from, and what times you use your cell phone. But pretexting is just the tip of the iceberg when it comes to threats to your privacy from cell phones. Here are some of the most common threats and some common sense ideas to deal with them.
A TERRORIST UNDER EVERY BUSH
I am a law-abiding, middle-class mother and grandmother. But I recently discovered that, according to Bush and the FBI, I may be a “terrorist”. This came as quite a shock. It is true that I often speak out against injustice, because I believe a citizen has a responsibility to try and make the world a better place. But I have never participated in a physical protest of any kind, unless wearing a T-shirt with a slogan counts. When the “Million Woman March” was going on, I was home, watching Martha Stewart bake a pie.
My protests have always been limited to letter-writing campaigns, but in the era of the Patriot Act, domestic spying, and abuse of government power, I wonder how safe that is, even on a major website. In a recently filed lawsuit, the ACLU has documented the way that, for political reasons, the FBI has expanded the definition of domestic terrorism to include mainstream groups who criticize government policy, i.e., groups such as Greenpeace, PETA, the American-Arab Anti-Discrimination Committee, and the ACLU itself. Still, I have decided to come clean and just hope the FBI does not show up on my doorstep.
I confess. I am a vegan. I do not eat meat, eggs, dairy products or fish, nor do I purchase animal products of any kind. I do not own a leather sofa, wool sweater, or use cosmetics tested on animals. And I donate money to animal advocacy groups. There, I have said it! But respecting the innocent creatures we share the planet with is a peacenik, Gandhi-esque thing. How does that make me a terrorist? Well, it takes just four short steps to get there! Pay close attention You, too, may be a terrorist without knowing it. (Do you support somebody who supports somebody … ?)Link here.
“LIBERTY DOLLARS” CAN BUY USERS A PRISON TERM, U.S. MINT WARNS
Once upon a time, a “monetary architect” named Bernard von NotHaus decided to make his own money. He put a beautiful Lady Liberty and a majestic flaming torch on the silver and gold coins, and he named them “Liberty Dollars”. On his Web site he said, “It is fun to use REAL money. Liberty Dollars are a proven and profitable currency that protects and grows the purchasing power of your money!”
True story, phony money. So says the U.S. Mint, which has threatened Liberty Dollar users that since the U.S. already has its own currency, the only thing Liberty Dollars buy in these parts is a jail term.
Liberty Dollars were coined by von NotHaus and an Evansville, Indiana-based group called Norfed, which stands for (sort of) the National Organization for the Repeal of the Federal Reserve Act and the Internal Revenue Code. In the late 1990s, the group began hawking its money as a hedge against inflation, and as a way to compete with the Fed. Von NotHaus makes the pitch online, using a raft of statistics and graphs that he says show the greenback is well nigh worthless. Norfed struck the first gold- and silver-backed coins – which, to avoid charges of making its own money it calls “rounds” – in 1998 at its private mint in Idaho. Today the group claims to have more than $20 million in Liberty coins and notes in circulation, and about 2,500 merchants who accept Liberty Dollars for goods and services from doughnuts to tattoos.
A 1999 report by the Southern Poverty Law Center calls Norfed a far-right anti-government group that has “long claimed that American dollars are … part of a vast conspiracy by international bankers to defraud the rest of the world.” The center links some Norfed devotees to far-right hate groups. Norfed Executive Director Michael Johnson responds that, “That definitely is not the philosophy of the organization. … We are focused on the mainstream. … I guess we are libertarian.”
The U.S. Mint acted after federal prosecutors around the country began forwarding inquiries about the coins. Said spokeswoman Becky Bailey, “Merchants and banks are confronted by confused customers demanding they accept Liberty Dollars. These are not legal coin.” Norfed responded to the Mint on its Web site. “Here it is in plain sight … the Liberty Dollar is not a coin, not legal tender, and backed with inflation proof gold and silver!”
“Goliath just introduced David to millions of Americans as a nationally recognized underdog,” the site continues. “[T]he Liberty Dollar will take it to the people to decide which currency they should use.” Norfed encouraged people to keep doing “the drop,” referring to its advice to drop the coin into merchants’ hands so they can feel its weight. That could land the dropper in prison, Bailey warns, for up to five years.Link here.
SWISS BANKS BROKE LAW WHEN THEY GAVE DATA TO U.S., SAYS PRIVACY OFFICIAL
Swiss banks broke their nation’s laws by providing banking information to U.S. counterterrorism officials, Switzerland’s top official for data protection said. The banks, known for safeguarding privacy, should have informed customers using the SWIFT money-transfer service that their data could be passed on to third parties, said Hanspeter Thuer. Just the possibility of the data being leaked should have been grounds enough to warn customers, he said. His statement was at odds with the views of the Swiss finance minister, Hans-Rudolf Merz, who said last month that giving the CIA such access did not infringe on the country’s banking secrecy rules.
After the Sept. 11 terrorist attacks, SWIFT provided records on millions of international banking transactions to the U.S. government in response to subpoenas from the Treasury Department. SWIFT operates a secure electronic-messaging service used by some 7,800 financial institutions to make international money transfers worth $6 trillion a day. Analysts at the CIA have used the records to conduct tens of thousands of individual examinations of banking records in search of evidence and patterns of possible terrorist financing. A prime focus of the effort has been on international transactions coming into and out of the U.S.
SWIFT and U.S. officials have defended the operation as a vital and lawful effort to cut off money to terrorists, but it has come under sharp international criticism. Thuer said the issue was whether information could be given to countries whose data protection laws are less stringent than Switzerland’s. He urged that a solution be negotiated by which U.S. laws and European data-protection rules are standardized. Some European officials are pushing for the appointment of an independent, European-based auditor to guard against abuses, in place of a Washington consulting firm that now has that role.
Switzerland is not a member of the EU, which separately has lashed out at SWIFT.Links here and here.
HOLLYWOOD’S LUGGAGE KING LOCKS UP WIN OVER EMINENT DOMAIN
Hollywood’s luggage king refused to pack his bags and go when Los Angeles officials tried to seize his 60-year-old family business to make room for a high-end hotel development. Shopkeeper Robert Blue fought back by blasting the city’s use of eminent domain with a mocking billboard atop his Bernard Luggage store near the corner of Hollywood Boulevard and Vine Street. Then he filed a lawsuit alleging a violation of his due-process rights, and in the process became a symbol of what some residents considered Hollywood redevelopment run amok.
And last week, the luggage man bagged a victory. The city and Community Redevelopment Agency leaders announced that Blue’s business will stay – and the largest commercial development in Hollywood history will instead be built around the historic 1928 building containing his valises, suitcases, trunks and travel accessories. Blue credited Hollywood-area Los Angeles City Councilman Eric Garcetti for setting up negotiations with developers and the city’s redevelopment agency that led to the breakthrough. But he still got in a dig at eminent domain. Such government land seizure should be reserved for public projects, not commercial developments like the one that will rise up around his tiny shop, he suggested. “You can’t always count on a good city council president” being there to help the small property owner, Blue said.Link here.
MOSCOW BANK RAIDED IN MONEY LAUNDERING PROBE
The Russian authorities have raided Vek Bank in central Moscow as part of an investigation into suspected money laundering, media reports claim. The bank specializes in financing Russian publishing projects, following claims that it laundered up to $500 million, AFX News reports. Interior ministry officials also confirmed to the news agency that several executives of the bank had been included as suspects in the investigation, along with other high-profile figures from New Economic Position bank also implicated in the money laundering. In a statement, the officials said that several organizations were used by New Economic Position to launder the money, leading to the cooperation of law enforcement agencies across Europe. The raid comes as Russian authorities attempt to crack down on illegal activity within the country's financial sector. Last month, central banker Andrei Kozlov appeared to pay the price for his drive to clean up the sector when he was shot dead by gunmen. Three people have since been arrested for the killing.Link here.
INTERNATIONAL MUSIC INDUSTRY GROUP LAUNCHES NEW WAVE OF FILE-SHARING LEGAL ACTIONS
Legal actions against thousands of music file-sharers across the world were announced by the International Federation for the Phonographic Industry (IFPI) this week. Over 8,000 new cases in 17 countries have been launched by the IFPI, including the first ever cases against illegal file-sharing in the two biggest markets of South America and in Eastern Europe. A total of more than 13,000 legal actions have now been taken outside the U.S.
Legal actions are being extended to Brazil, where more than one billion music tracks were illegally downloaded last year and a country where record company revenues have nearly halved since 2000. Mexico and Poland are also seeing actions for the first time – while a further 14 countries are launching fresh actions against illegal file-sharing. Over 2,300 people have already paid the price for illegally file-sharing copyrighted material, with average legal settlements of €2,420. The recording industry body is targeting uploaders using all the major unauthorized P2P services, including BitTorrent, eDonkey, DirectConnect, Gnutella, Limewire, SoulSeek, and WinMX. The campaign involves file-sharers in Argentina, Austria, Brazil, Denmark, Finland, France, Germany, Hong Kong, Iceland, Ireland, Italy, Mexico, Netherlands, Poland, Portugal, Singapore and Switzerland.Link here.
A CENTURY OF WAR
John Denson, in a book that covers the history of America’s large wars from 1860 through the Cold War, describes the 20th century was the bloodiest in all history – not just coincidentally a century of statism. More than 170 million people were killed by governments with 10 million having been killed in World War I and 50 million killed in World II. Of the 50 million killed in World War II, nearly 70% were innocent civilians, many as a result of the bombing of cities by Great Britain and America.
The horror of the 20th century could hardly have been predicted in the 19th century, which saw the 18th century end with the American Revolution bringing about the creation of the first classical liberal government in the world. What bought it about? How can it be prevented in the future? These are the concerns that animate this work. Denson recounts how the wars that destroyed American liberty came about through a series of deceitful political ploys. He discusses how Lincoln worked to provoke the South into firing the first shot, and how he used that shot as the pretext for total war. Wilson learned from this experience in working to get the U.S. involved in World War I, which established a precedent for the planning state. FDR similarly engaged in political maneuvering to prepare a reluctant public for war.
Denson provides a close examination of the rise of executive dictatorship, and demonstrates how far from the founders’ vision of government we have come. Denson’s book is a wonderful presentation of a position that was more mainstream in the 1930s and the 1990s – the unity of libertarian economics with a pro-peace foreign policy position. This position is far too rare in American life.Link here.
THE EMPIRE IS GOING BROKE
No one entered the temple yesterday and over-turned the tables of the moneychangers at Goldman, the Fed, or the ARMs dealers. The earth did not open and gobble up homeowners. Nor did the Dow collapse, taking speculators and dreamers down with it. No, it was business as usual. And business as usual is confused, uncertain, nuanced, and ambiguous. Economists are beginning to take note of the housing slowdown, says Bloomberg. They now expect a “Slower US Growth Rate” for the year ahead … and maybe a rate cut, if things start to go bad in a major way. Not so, says Investors Business Daily. Falling energy prices and rising stock prices dim prospects for a rate cut.
And who really knows? No one. It is all guesswork. And our guess is that Bloomberg will turn out to be more right than Investors Business Daily. When the housing industry turns down, so do a lot of other things. Economists know this. They are betting – along with Alan Greenspan and real estate agents – that the correction in the housing market will take prices down less than 2%. We have watched the markets, the economy, and our fellow man long enough to know that anything is possible. But a decline of 2% seems like wishful thinking to us.
So, we leave that, and turn our attention to the big, wide world … and the vast panorama of history. What are the serious challenges America faces? “Terrorism!” comes the cry from the lumps. Terrorists are a nuisance, not a menace. We cannot think of a single major power, let alone a single empire, that was undone by terrorism. But right now, the U.S. is spending a fortune on this nuisance. The total bill for the wars and occupations in Iraq and Afghanistan is expected to top $1 trillion. The whole business is no more than an invitation to squander money and lives in a campaign against nobody-who-really-counts – an invitation the Bush administration gladly accepted!
So, we ask again. What are the serious challenges faced by the U.S. Empire? Three stand out. (1) The empire is going broke. (2) The empire is losing market share. (3) The empire is running out of fuel.
Empires usually go broke. And then they collapse – or are destroyed by enemies. Military power follows economic power, at least in the modern world. But why do thriving empires go bust? Why can they not make a profit in the empire business? Well, of course, at first they usually do. That is how they become great empires. Either by force of arms or force of commerce – usually both – they grow and expand. But there must be a flaw in the human character. Once it is set on course for expansion, it does not seem to know when to stop. More and more conquests lead to more and more battles, more territory to administer, and more military expenses. The U.S. now has more than 100 bases all over the world, and a military budget equal to that of all the rest of the world’s nations combined.
Meanwhile, institutions age and wither like old trees. Gradually, they are taken over by parasites, freeloaders, and hustlers. In military matters, the defense establishment shifts from actually defending the nation to expanding the empire, and then to expanding itself. Contractors grow fat and rich. Politics and profits dictate which weapons are put into service, not military necessities. Even wars are chosen for reasons other than their actual military benefits. Politicians need enemies.
In the homeland, the mob of voters clamors for more protection, more benefits, more privileges and more entertainment. Gradually, old virtues of independence and thrift are swept away. Everyone comes to rely on the imperial state not only for handouts, but for emotional gratification. People cheer it on as if it were a sports team. Did the empire crush resistance in Baghdad? Hooray! Did it suffer a setback in Kabul? Well, no joy in Mudville.
George W. Bush is supposed to be a “conservative” president, but he has actually expanded social spending programs more than any president in history. Like everything else, the old “conservative” program has been corrupted by shills who serve the interests of the empire, along with their own interests. Not those of the Old Republic. Now there is no longer any major organized opposition to government spending. As a result, the nation is going broke.Link here.
NOBEL CREDIT WHERE IT IS DUE, MICROCREDIT THAT IS
Rarely has a Nobel Peace Prize been more deserved than in the case of Muhammad Yunus of Bangladesh. The founder of Grameen Bank beat out Irish rock star Bono and a bevy of others for the honor, and rightfully so. Financiers do not often register with the Nobel folks in Oslo. Giving this year’s award to a banker – and the bank he created – caused some head scratching. Why not former Finnish President Martti Ahtisaari or Indonesian President Susilo Bambang Yudhoyono? Or former Czech President Vaclav Havel or Ukrainian President Viktor Yushchenko? Or Bob Geldof?
Yunus, 66, deserved it more. The best part of his strategy of giving loans to the poor, known as microcredit, is not the millions of people Yunus has helped so far. It lies in how the bank he founded in 1976 is inspiring a growing number of copycats. That may help provide credit in Asian economies where more is due. By lending to the poorest of the poor in rural areas without asking for collateral, microcredit seeks to create economic and social development from below. It is called microcredit because the loan amounts are tiny by developed-nation standards, often $20, $50 or $100.
The money can have a powerful multiplier effect. Families can buy a cow to start a dairy farm, or a mobile phone to open a communications business or chickens to launch an egg company. Yunus founded microcredit by lending $27 to a Bangladeshi bamboo stool maker and 41 other villagers. As of May, Grameen had 6.61 million borrowers, 97% of them women. What Grameen proved is that money can be made when lending to the poor, thus giving the world’s biggest banks incentives to focus on society’s weakest links. It is an approach that ensures inclusive growth so that virtually everyone may have access to finance. Microcredit can be more profitable than some people think. Interest rates on Grameen’s loans are about 16%, and 95% of them are repaid. One reason for such low default rates is the shame factor.
Asia needs more Grameen-like operations, and fast. Hidden under all the euphoria about Asia’s booming economies are “vast pockets of paralyzing and persistent poverty.” Take China, where 42% of the population lives on less than $2 a day. In India, 75% of the population survives on less than the cost of a Starbucks latte. Ensuring that growth is more equitable will help morph Asia into a richer consumer market. That is a win-win situation for Asia’s people, and for the executives and investors aiming to profit from their increased prosperity. Hats off to the Nobel Committee for shining a spotlight where it is badly needed.Link here.
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