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SPEAKING SPANISH: AN ESSENTIAL TOOL FOR A SUCCESSFUL ESCAPE TO LATIN AMERICA
What will help me be able to comfortably live in another country? Language, language, language! It is like a code that needs to be broken. If you can break that code, a blank face will often break into a smile. It does not take a lot, but it does take a little work and study.
If you are going to live overseas, you need to be able to communicate. Your language skills do not have to be high-level, but you want to have the ability to really interact with the locals about everyday matters. This is what differentiates you from the average tourist. Sign language does not do the trick, and do not expect that everyone speaks English. On the contrary, most people in the world do not. If you choose an area with a lot of expats, you may find that some limited services are available to you in English. However, if you choose a place that is not infiltrated by expats, you will need to have at least a basic level of language communication to be able to function, and that means more than “una cerveza, por favor.” Learning the language helps you feel both comfortable and confident.
Some research has shown that a motivated adult can learn a language as easily as a young person. If the incentive and desire are there, and you have trained teachers in a small group or private setting, you too can learn. This is true if you are starting from zero, or if you are trying to revive some of that high school Spanish buried deep in your subconscious. How long should one spend studying? Some people want to study intensively and choose to spend weeks or months at a Spanish school in this pursuit. Others choose to study for only a week or two, depending on time, finances, and/or interest.
Studying at a language school is an excellent way to accomplish two goals – learning the language, and getting acquainted with the culture of that particular area. Your best bet is to choose a small language school in an area that does not have a lot of tourists. If you go to a language school in a high-volume tourist area, you will be one of many. Being surrounded by other foreigners does not make for an authentic experience or an ideal learning situation. If you study in an area where there is low tourist volume, you will be someone special. People will be happy when they see you trying to interact in their language and they will enjoy helping you out. That is how you make friends. That is how you integrate.
Be patient. It takes motivation and practice to learn a language. But you do not have to be perfect right away. Your initial goal should be to be able to communicate. Then you refine your ability so that you can communicate in a wide variety of situations. You do this by learning about the region and culture, exploring the area, getting to know people, and relaxing as you expand your ability to speak and understand Spanish.Link here.
THE BEST WAY TO BUY LAND IN THAILAND
It is easy for you to own land in Thailand. All you have to do is invest 40 million Baht (about $1 million) in a project considered “useful for Thailand” (not real estate, mind you). That minor detail out of the way, you then have to select the land you want from a list of approved areas. (You did not think you could buy anywhere you want, did you?) Finally, you can only continue to own property if your original investment is still in Thailand. (If your $1 million investment leaves the country, you have a limited amount of time to sell the land). Piece of cake, right?
If, like me, you do not have a spare $1 million lying around – or the temperament for the above rigmarole – there is a better way to own real estate in Thailand. Although foreigners cannot own land freehold without the above exception, there exist several structures through which foreigners can legally purchase real estate.
A method that has been used by foreigners to get around the LLC ownership restriction is to have nominee share holders who sign over their shares and then the shares are held by the foreigner’s attorney in trust. This effectively gives full control of the corporation and the land to the foreign owner. Recently the Thai government announced that it was going to start investigating the source of the money “used” by these Thai shareholders who presumably put up 51% of the property value when the corporation was set up.
However, the way most attorneys have in the past documented the flow of funds is to show the 51% provided by the Thai shareholder as coming from the foreign partner in the form of a loan. This loan is collateralized by the shares of the company, adding another layer of comfort for the foreigner. My contacts in Thailand say it will be virtually impossible for the Thai government to determine these loans invalid thus this method of ownership by foreigners does not seem in immediate danger by the scrutiny it is receiving. Your attorney must be trustworthy as he will typically provide the nominee shareholder and hold the shares in trust. The set-up cost for such a structure is approximately $1,500. Annual maintenance costs are approximately $1,200.
This country is much improved since my last visit, two years ago. The local economy is doing better, infrastructure is improving, and communications, in some areas, are excellent. Expats, businessmen, and real estate professionals I spoke with are agreed – Thailand is open for business. The area I am most interested in right now is Hua Hin, a growing local beach resort town on the west coast of the Gulf of Thailand, about three hours from Bangkok.Link here.
DUBAI DELAYS NEW LAND OWNERSHIP LAWS AS IT PROCESSES EXTENSIVE INPUT FROM PUBLIC
The Dubai International Financial Centre Authority (DIFCA) has decided to extend the consultation period on the introduction of a new law guaranteeing ownership of freehold land and interest in land within the DIFC, due to “extensive public interest”. As a result, the public will have an additional 30 days to comment on the DIFC Real Property Law 2006 and the Strata Title Law 2006. The previous consultation period ran from 13 August until 13 September, 2006.
The Real Property Law will allow companies and individuals to hold freehold ownership of real estate within the Dubai International Financial Center. It is based on the underlying principles of English common law, but also incorporates the Torrens system of land registration, well known in countries such as Australia, New Zealand, Canada and Singapore. Under the Real Property Law, land transactions are registered in a central register administered in the DIFC. Once registered, the Law certifies them to be fully effective. Unlike some other systems of land registration, title interests registered under the Real Property Law are “indefeasible”. In practical terms, this means that persons buying real estate in the DIFC, or, lending on the security of real estate in the DIFC, or taking a lease of real estate in the DIFC, can be assured that their investment is backed by the full protection of the Law.
The Strata Title Law establishes a system of guaranteed freehold title to units in buildings in the DIFC. The Law combines the benefits of guaranteed title under the Real Property Law with an administrative structure designed to handle the day-to-day management of buildings. It will help overcome the complexities of co-owners association constitutions, master community declarations, and the like, by introducing a simple but comprehensive system of rights and responsibilities. It incorporates many of the key concepts of existing co-owners association arrangements already in use in Dubai, but simplifies them and adds a title guarantee.
The DIFC says that when introduced, the new laws will provide an internationally proven system of and registration and real property ownership, in line with the DIFC’s mission to become one of the world’s leading international financial centers.Link here.
BRITISH VIRGIN ISLANDS CONSTITUTIONAL TALKS NEARING END
BVI leader Dr. Orlando Smith headed up the BVI’s Constitutional Negotiating Team as a third round of negotiations began with the United Kingdom, over recommended changes for a new BVI Constitution last week. Two earlier rounds in March and June resulted in considerable progress on the role of the Governor, introduction of a cabinet system of government, the public service, and the creation of a sixth ministry, but some issues remained. The third round of negotiations is expected to be the last round before the Chief Minister and members of the BVI team meet with Parliamentary Under-Secretary of State in the Foreign and Commonwealth Office (FCO) to consider the proposed amendments.
Negotiation points between the BVI and UK negotiating teams are based on a detailed report that was produced by the Virgin Islands Constitutional Commission. The Report concluded that the establishment of a cabinet would “demonstrate the UK’s commitment to fulfilling the mandate of providing an effective transition to self-determination if and when the people of the Virgin Islands, by referendum, should so decide”.
According to BVI Governor Thomas Macan at the time, the public had expressed overwhelming support for the maintenance of the jurisdiction’s status as an Overseas Territory of the UK. “The preference ... would seem to be for a continuation of a sharing of responsibilities between the government of the Virgin Islands and the government of the United Kingdom,” Mr. Macan stated. “That sharing must be on terms which are agreeable to both parties, where the risks and liabilities which each bears are acceptable to each party.”Link here.
Global offshore law firm Walkers expanding its operations in the BVI.
Walkers is expanding its operations in the British Virgin Islands in response to significant growth in the number of sophisticated, high-value corporate transactions and complex international litigation being carried out in the jurisdiction, the company has announced. “This is an exciting time for the BVI financial community. The jurisdiction is seeing a rise in major institutional work and cases with global impact,” explained Heidi de Vries, Managing Partner of Walkers’s BVI office.Link here.
IMF PRESSURING DOMINICAN REPUBLIC OVER FISCAL REFORMS
After a meeting last week with Dominican Republic President Leonel Fernandez, IMF managing director Rodrigo de Rato, said that additional tax reforms are called for in order to stabilize the Republic’s finances. IMF’s director for the Western Hemisphere, Anoop Singh, said that the short-range outlook is good for the Dominican Republic, but that fiscal adjustments are required to achieve financial sustainability. Fernandez said that his government wants to continue meeting its commitments to the IMF.
The Dominican Republic has a population of 9 million. It lies 1,000 kilometres east of the southern tip of Florida. The capital, Santo Domingo, is the oldest city in the new world, where Christopher Columbus arrived in 1492 and the settlement of the Americas began. The Republic experienced real annual GDP growth of 6.5% between 1992 and 2000, and after a dip, IMF growth estimates are for 5.5% in 2005 and 5% in 2006. Tourism is the country’s primary industry and the major source of hard currency.
The Dominican Republic is a signatory to CAFTA – the Central American Free-Trade Agreement, something which will put pressure on the country’s fiscal structure when CAFTA is implemented later this year. The government is indeed contemplating fiscal reform to widen the tax base, according to the country’s banking superintendent, Rafael Camilo, but business leaders are calling for a cut in public spending instead. A previous government forecast of a zero deficit and a reduction in public debt to 43% of GDP this year (from 56% in 2003) is now seen as unattainable. The government now says it expects to finish the year 2006 with a primary surplus at 0.7%, “which is insufficient to achieve sustainability of the debt.”Link here.
NEVIS ECONOMY ON TRACK, SAYS IMF
Following a review visit to Nevis in October, the IMF has said that the island’s economy is moving in the right direction, with 2006 results set to better those achieved in 2005 according to a preliminary, unofficial report to the government. The IMF team, meeting the new Nevis administration for the first time since it was installed after July elections, said it was concerned about debt reduction and debt control.
Elections on the island of Nevis, part of the twin island federation of St. Kitts and Nevis, saw the Nevis Reformation Party win three of the five seats in the island’s assembly, meaning that the party’s leader, Joseph Parry, will replaced former Nevisian leader, Vance Amory of the Concerned Citizens Movement (CCM). The CCM had been in power in Nevis for the past 14 years and was the party most closely linked with seceding from neighboring St Kitts. Nevis came close to seceding in a 1998 referendum, falling just short of the required two-thirds majority. During the election, Vance Amory said that independence for his island was still a goal of his government. Nevis has created separate “offshore” legislation parallel to Federation legislation, and believes that its economic progress has been due to having greater control over its own affairs.
Caribbean islands St. Kitts and Nevis are located about 1/3 of the way from Puerto Rico to Trinidad and Tobago. The two volcanic islands, renowned for their beautiful mountain scenery, total 261 square kilometers in area and are separated by a 3 km.-wide channel. The Federation of St. Kitts and Nevis finally attained full political independence in 1983 and, in order to relieve the anxiety of Nevisians, Nevis acquired autonomy within the Federation, together with its own Legislature and Cabinet.Link here.
NEW BERMUDA PREMIER PLEDGES SOCIAL CHANGE
After defeating outgoing premier Alexander Scott last week for the leadership of Bermuda in a party election, Dr. Ewart Brown promised at his swearing-in to improve social services. Dr. Brown, who was and remains also Minister of Transport and Tourism, is 60, married with three children. He graduated from Howard University with a B.Sc in Chemistry and an MD. He was first elected to the House of Assembly in 1993.
A new ministry for social rehabilitation is being created, which will be run by former Community Affairs and Sports Minister Dale Butler. “That ministry sends a message that no longer will we shy away from the fact that we have social dysfunction in Bermuda.” Brown said. “We can have a so-called prosperous society but if it is eroded from beneath we have nothing to talk about. And so our plan is to address our challenges in a very assertive manner.”
Paula Cox, 47, remains finance minister and was elected as deputy leader of the Progressive Labour Party, which has been in power since 2003.Link here.
GREEK “ENOSIS” DREAM TO COME TRUE IN FINANCIAL MARKETS
The Greek dream of “enosis” (unification of Cyprus with Greece), which was shattered with the Turkish intervention in 1974, is about to come true in the finance sector. Greek and Greek Cypriot capital markets will be united as of October 30. The Greek Cypriot Stock Exchange (CSE) which has shown the second best performance of the year among emerging markets (after Peru), will have a common trading platform with the Athens Stock Exchange (ATHEX). ATHEX and CSE will make all stocks traded on the two bourses available to investors through one trading platform, under the same regulations. The venture makes it easier for the pool of investors who trade in Greek stocks to own shares in Greek Cypriot companies.
Linking the two exchanges’ trading operations is seen as the first step in a broader strategy by the Athens stock exchange to create a common trading platform for southeastern Europe’s bourses. The link between Athens and Cyprus was originally intended to start in the first half of 2006, but was dogged by technical and other difficulties. The common CSE-ATHEX platform will strengthen the long-term and prosperous cooperation between the two stock exchanges and will open up new prospects for development in the Balkans and southeast Europe beyond.
Since the Greek Cypriot Administration became a member of the EU on May 2004, its bourse has tripled in value. Greek Cypriot stocks also are not cheap. The 16 companies that form the main market in Nicosia trade for 15 times their earnings. The mergers and acquisitions coming one after the other in the banking sector has caused the value of shares traded on the CSE to escalate.Link here.
EU DELIVERS AID TO TURKISH CYPRIOTS
The EC adopted a financing decision for a total of €38.1 million to encourage the economic development of the Turkish Cypriot community. The financial assistance will focus on three objectives: (1) developing physical infrastructure, (2) promoting economic and social development, and (3) bringing the Turkish Cypriot community closer to the EU. The overall objective of the financial assistance provided by the EU is to facilitate the reunification of Cyprus by encouraging the economic development of the Turkish Cypriot community with particular emphasis on the economic integration of the island, on improving contacts between the two communities and with the EU, and on preparation for the gradual adoption of the EU’s legal order.Link here.
ONE WAY TO BET ON A REGIME CHANGE IN NORTH KOREA IS TO BUY STOCKS IN SOUTH KOREA
How long will that petty tyrant hold North Korea in his grip? Well, not forever. If you want to bet on the hasty departure of Kim Jong Il, buy stocks on the South Korean market. If the menace to the north goes away and his poverty-stricken country turns capitalist, there ought to be a surge in the South Korean economy.
Even though stocks in Seoul recovered from a 3.9% dip on the day after North Korea’s bomb test, they remain cheap on the international scale. The South Korean market trades at just 10 times estimated profits for the next fiscal year, versus a multiple of 15 for the U.S. and 17 for Japan – despite the fact that South Korea’s economy is growing at a 5% clip, vs. 2.6% for the U.S. and 1% for Japan. “North Korea has been an issue that has gone on for 20 years,” says Mark Madden, manager of the $9 billion Oppenheimer Developing Markets Fund.
There are, to be sure, economic as well as political issues in this market. “Korea’s big driver is exports, and they are going to slow down because the U.S., Europe and Japan are slowing down,” says Madden. Still, a slowdown in this country would be considered feverish growth anywhere outside Asia.
Another caution: “The government is still intrusive in the economy, and the actions of chaebols [Korean conglomerates] are still not totally fair to minority shareholders,” says Madden, who notes that since the 1997 economic crisis there has been considerable reform in South Korea’s banking system and a big reduction in corporate debt. Eric Poh, comanager of the closed-end $93 million Korea Equity fund, also sees positive changes. “In the past South Korean companies always aimed for sales growth, but after three financial crises over the past ten years, they pay more attention to margins and profits.”Link here.
MALAYSIA’S BANK ISLAM BANKING ON TURNAROUND PLAN
Loss-making Bank Islam Malaysia Bhd is banking on a new turnaround strategy, hefty provisions to cover unpaid loans, and tighter credit controls to return to profitability this financial year ending June 2007. “We have set aside funds to cover unpaid loans, tighten credit controls and fully address the problems associated with the high level of non-performing loans (NPLs) that the bank has had to deal with in the last two financial years,” its managing director Datuk Zukri Samat told a press conference in Kuala Lumpur. The bank’s turnaround strategy includes recapitalization and balance sheet restructuring, an information technology revamp, organizational restructuring, cost rationalization, and human capital development. The bank, which is Malaysia’s oldest and largest Islamic lender, is expected to be in a more comfortable financial position from the first quarter of this financial year.Link here.
U.K. SEEKS TO LEAD WORLD IN ONLINE GAMING REGULATION
Speaking ahead of an international conference to discuss online gaming, the UK’s Culture Secretary, Tessa Jowell argued that the recent U.S. move to ban such activity was not the way forward, and suggested that the UK’s proposed regulatory code could become the gold standard for gaming firms throughout the world. Ms. Jowell explained that, “In relation to gambling, you have three choices. You allow the market to rule, which some jurisdictions do. You prohibit, which some jurisdictions do. Or you regulate. If Internet gambling were to be prohibited, it would drive it underground.”
The Culture Secretary additionally indicated that the government is considering putting in place a regime which would allow online gambling sites to be registered in the UK, which would allow them to present a “hallmark of quality” to their customers. “By being licensed, we have signed up to the very tough regulatory codes to protect the public and that that in time will be very good for their reputation,” she stated. Representatives from the U.S. were conspicuous by their absence from the conference, having reportedly declined an invitation.Link here.
EU MAINTAINS PRESSURE ON HONG KONG OVER SHARING INFORMATION FOR TAX PURPOSES
The EU is persisting in its attempts to convince Asian financial centers to cooperate on the issue of information-sharing for tax purposes, although the EU’s pleas seemingly continue to fall upon deaf ears. According to a report from London’s Financial Times, Thomas Roe, the EC’s envoy to Hong Kong and Macau, approached the two governments only two weeks after Hong Kong and Singapore refused to discuss the possibility of their inclusion in the EU Savings Tax Directive.
While the EU is very keen to tax the savings and investments that European residents have shifted to Asia to escape the clutches of the directive, the Asian financial hubs are unlikely to want to sign up to anything that would compromise their status as low tax and lightly regulated jurisdictions – a fact that Roe conceded. Last month, EU Commissioner for External Relations and European Neighborhood Policy, Benita Ferrero-Waldner, met with a frosty response from the Singapore government after proposing that the information-sharing could be included in a wider economic Partnership and Co-operation Agreement.
The Savings Tax Directive, which extends to a number of “third countries” such as Switzerland, the Channel Islands and Caribbean offshore territories 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.
While opinions in the matter vary, it is generally thought that Hong Kong, Singapore and Dubai have benefited significantly from increased inflows of cash from European investors since the introduction of the directive.Link here.
CONGRESS URGED TO REIN IN OECD’S GLOBAL TAX PROGRAM
Two influential U.S. free-market advocacy groups, the National Taxpayers Union and Americans for Tax Reform, have sent letters to the Congress urging it to retain language inserted in this year’s State Department spending bill impeding efforts by the OECD or the UN to introduce global taxation. At the end of June, the House of Representatives passed the “Fiscal Year 2007 Foreign Operations, Export Financing And Related Programs Appropriations Bill”, HR 5522. It included a provision which would bar the OECD from using the U.S. taxpayer contribution for “activities or projects ... designed to hinder the flow of capital and jobs from high-tax jurisdictions to low-tax jurisdictions or to infringe on the sovereign right of jurisdictions to determine their own domestic policies.” U.S. Senators James Inhofe (R-Oklahoma) and Ben Nelson (D-Nebraska) introduced a bi-partisan bill in the Senate with similar language.
Now Kristina Rasmussen of NTU has written, “There is a clear need for this provision. American taxpayers provide roughly 25 percent of the OECD’s operating budget (around $85 million), and are supposed to receive in return a forum committed to the market economy along with international statistical reports. While NTU questions whether this is worth such a large expense, it is clear that the OECD has repeatedly overstepped its mission by advocating for higher taxes within OECD member countries and against worldwide tax competition. Examples include suggesting the U.S. adopt a value-added tax in October 2006 and endorsing the creation of a global taxation system in May 2005.”
Grover Norquist, Americans for Tax Reform said, “I would highly encourage all senators to support your push for accountability at the OECD. ... American taxpayers provide about one-quarter of the OECD’s budget. Despite this generous support, the Paris-based OECD has labeled the United States and other low-tax nations as rogue regimes. Capital flows have sought to escape the high-tax regions of Western Europe to other, more reasonably-taxing nations like the U.S. ... The OECD has taken it upon itself to move from an international financial think tank to being the world investment police-and all at the expense of the U.S. taxpayer it denigrates. If we are going to pay for one-quarter of the OECD, we should at least require that they not undermine American sovereignty on tax and financial issues.”Links here and here.
U.S. CONGRESSIONAL CANDIDATES ARE IGNORING $1.35 TRILLION AMT “TIME BOMB”
Congressional candidates this fall are furiously debating Iraq, Medicare and extending tax cuts. Most are staying quiet about an imminent legislative challenge – how to stop a tax increase that will hit more than 20 million households next year, some with incomes as low as $50,000. Unless Congress acts, the alternative minimum tax (AMT) will gradually impose $1.35 trillion in additional taxes over the next 10 years. Yet only six candidates in the 28 most-competitive House and Senate races across the country even mention it on their campaign Web sites.
Most candidates are avoiding the subject because the cost of stopping the tax increase would obstruct key elements of their agendas, such as the expansion of prescription-drug benefits for the elderly planned by Democrats, or Republicans’ plan to make permanent President George W. Bush’s 2001 and 2003 tax cuts. “It’s a ticking time bomb,” said former Senator John Breaux, a Louisiana Democrat who was vice chairman last year of a presidential panel that recommended abolishing the minimum tax. “No one wants to recognize it. No one wants to pay for it.”
The minimum tax was created as a parallel tax system in 1969 to prevent 155 wealthy people from reducing their liability through excessive exemptions, credits, and other deductions. Because it was not indexed for inflation, the tax increasingly affects people with modest incomes by denying deductions such as personal exemptions, property taxes, and medical expenses. The tax affected 3.8 million households this year. That number will grow almost 6-fold in 2007. By 2016, about 45 million American households face higher bills if changes are not made, according to an estimate this month by the nonpartisan staff of the congressional Joint Committee on Taxation. “I don’t know why it hasn’t caught fire,” said Phil Singer, a spokesman for the Democratic Senatorial Campaign Committee.
Congress has limited the impact of the minimum tax over the past five years through a series of temporary measures intended to keep the number of affected households under 4 million. Lawmakers passed such temporary “patches” in 2001, 2004 and this year, at a cost to the government of $66.5 billion in tax revenue over the 5-year period. “They’re just pushing the day of reckoning down the road, but the day of reckoning is going to be here one day,” said former Senator John Breaux, a Louisiana Democrat who was vice chairman last year of a presidential panel that recommended abolishing the minimum tax, who is now a senior counsel for Patton Boggs LLP, Washington’s biggest lobbying firm by revenue.
Breaux’s panel, led by former Republican Senator Connie Mack of Florida, recommended abolishing the AMT last year as part of an overhaul of the tax code. To pay for it, the panel recommended repealing or reducing popular tax breaks such as a deduction for mortgage interest and for state and local taxes. Those recommendations are being evaluated by the Treasury Department. Ed Lazear, chairman of the White House Council of Economic advisers, said in an interview last week that Bush may take up tax overhaul next year.
John Buckley, chief tax counsel for the Democratic staff of the House Ways and Means Committee, said the minimum tax reclaims many of the benefits provided by Bush’s tax cuts. That is because the tax cuts lowered rates under the normal system, without altering the alternative minimum tax rates. By law, taxpayers must calculate their liability under both systems and pay whichever is higher. As a result, twice as many households will pay the minimum tax if Bush’s tax cuts are made permanent than if the cuts are allowed to expire.
For now, Congress may continue to postpone confronting a permanent fix for the AMT, though the yearly patches will become an escalating burden on the federal budget starting next year. Limiting the reach of the AMT in 2007 would cost $49.2 billion, a 59% increase from this year, according to the staff of the Joint Committee on Taxation. Extending the patch in 2008 would cost $60.4 billion. “It becomes a catastrophe next year,” Buckley said.Link here.
DODGING TAXES IS A NEW STOCK OPTIONS SCHEME
In the latest twist in the stock options game, some executives may have changed the so-called exercise date – the date options can be converted to stock – to avoid paying hundreds of thousands of dollars in income tax, federal investigators say. That appears to be what happened at Symbol Technologies and Mercury Interactive, and federal securities regulators are now sifting through options data at other companies for evidence of similar tax-avoidance schemes.
The SEC’s stock options inquiry has so far focused on the practice of pushing back the grant date on stock options, which can guarantee profits when the grants are exercised. Its interest in exercise dates may signal an emerging front in its widening investigation into stock option abuses at more than 100 companies, from Silicon Valley start-ups to well-known giants like Apple Computer and UnitedHealth Group. The Justice Department and the I.R.S. are separately examining dozens of companies. As those cases have progressed, at least 46 executives and directors have been ousted from their positions. Securities regulators are now focusing on several cases where it appears the exercise dates of the options were backdated.
By reporting an exercise date with a lower price than the date on which the options were acquired, executives may understate their gains and lower their income tax. It may also cause their companies to take improper tax deductions, leading to reporting problems down the road. In other cases, executives can benefit by reporting an exercise date with a higher price than the one on which the options were acquired. Instead of acquiring their new shares with cash, executives sometimes use stock to pay the cost of converting their options, including the taxes on the profits. A higher market price means that the executive needs fewer shares to pay those costs.
As with the backdating inquiry, it appears that federal investigators are combing through data to identify patterns, where executives consistently exercised their stock options at a favorable price, like a monthly or quarterly low. Because backdating exercise prices involves false financial reporting and improper accounting, the cases fall under the S.E.C.’s oversight. But in similar investigations, S.E.C officials have alerted the I.R.S. of possible tax issues in the securities cases they were examining.Link here.
H&R BLOCK TO SLASH REFUND ANTICIPATION LOAN FEES IN 2007
U.S. tax preparation giant H&R Block has announced changes to its refund anticipation loans (RALs) for the next tax filing season in the wake of severe criticism of the controversial products. The company said that enhancements will provide clients with better information about debts that could affect their tax refund loan and an improved disclosure process to ensure clients can make more informed decisions about how to receive their tax funds. The enhancements follow H&R Block’s September announcement that it will reduce the cost of refund lending and target opening 1 million low-cost bank accounts for free during tax season 2007.
The company has been forced to bring about the changes after a string of lawsuits accused the company of massively overcharging low income clients for this service. RALs are short term advances that tax preparers can extend to their customers, who then sign over their official tax refund checks when they are issued. Interest rates on such loans are high, equating to as much as 100% on an annualized basis, and have attracted strong criticism from governmental organizations and advocacy groups. Under the more favorable terms to be introduced next year, the cost of a $2,800 RAL – the average loan size for an H&R Block customer – would be cut by 40% compared to last year. The finance charge on an 11-day loan of this amount translates to an annual percentage rate of 36%.Link here.
CANADA TO TAX INCOME TRUSTS
The Canadian government has decided to tax income trusts in an attempt to tackle what it considers a “growing trend toward corporate tax avoidance” caused by the vehicle’s more favorable tax treatment compared with the more conventional company structure. Finance Minister Jim Flaherty announced that the “Tax Fairness Plan for Canadians” aims to “restore balance and fairness to the federal tax system” by creating a level playing field between income trusts and corporations.
“The measures I am bringing forward today are necessary to ensure our economy continues to grow and prosper and to bring Canada in line with other jurisdictions,” said Flaherty. “Our plan is the result of months of careful consideration and evaluation. Our actions are clear, decisive and in the best interest of all Canadians.”
The changes have been prompted by a string of income trust conversions by top Canadian companies, such as Telus Corporation, Canada’s second-largest telecommunications company. The government wants to shut off this “growing trend toward corporate tax avoidance” claiming that the short-term tax breaks created are causing “an economic distortion that is threatening Canada’s long-term economic growth and shifting any future tax burden onto hardworking individuals and families. … If left unchecked, these corporate decisions would result in billions of dollars less revenue for the federal government to invest in the priorities of Canadians, including more personal income tax relief. These decisions would also mean less revenue for the provinces and territories.”
Under the plan, a “Distribution Tax” will be applied to distributions from publicly traded income trusts and limited partnerships. This will be partially offset by a 0.5% reduction in the general corporate income tax rate as of January 1, 2011. The changes also increase the Age Credit Amount by C$1,000 from C$4,066 to C$5,066 effective January 1, 2006 in a bid to benefit low and middle-income seniors. For income trusts that begin trading after October 31, these measures will apply beginning with their 2007 taxation year. For existing income trusts and limited partnerships the government is proposing a four-year transition period. They will not be subject to the new measures until their 2011 taxation year.Link here.
BRITONS WASTE ABOUT £1.3 BILLION DUE TO POOR INHERITANCE TAX PLANNING
New research has shown that the standard of inheritance tax planning in the UK has improved compared with last year, although Britons are still expected to waste about £1.3 billion ($2.5 billion) on poor IHT planning in 2006.
According to an annual report by Unbiased.co.uk, a website which promotes the benefits of independent financial advice, this figure represents a drop of almost £300 million compared with 2005, demonstrating that homeowners are becoming more aware of the merits of effective IHT planning. However, the report warns that this trend could be short-lived, as house prices continue to rise at a much faster pace than the IHT threshold.
The most widespread cause of IHT tax wastage is the inclusion of the proceeds of life assurance policies in personal estates. If written in trust these proceeds would not be subject to inheritance tax. However, far more excess tax is paid due a simple lack of inheritance tax planning within personal estates. This waste has been quantified at almost £1.2 billion this year alone. Commenting on the findings, David Elms, Chief Executive of unbiased.co.uk, said, “It’s vital that people seek advice from an independent financial adviser, so they can make informed decisions when it comes to IHT planning.”Link here.
IRISH TAXATION INSTITUTE URGES IRISH GOVERNMENT TO BOOST TAX TREATIES
In its Pre-Budget Submission 2007, published earlier this month, the ITI called on the government to increase the number of tax treaties in place with other countries. Drawing attention to the success of the Republic’s low corporate tax rate in attracting businesses to locate in the country, the ITI nevertheless observed that, “If we wish to maintain our competitive position as an attractive location for foreign investment, we will need to address a number of key tax policy issues.”
It continued, “The overall tax package rather than purely the tax rate will be a critical factor for any business faced with a location or expansion decision. ... Our tax treaty network is a central part of the overall tax package. A comprehensive tax treaty network is critical to enabling global business to do business. … In short, those countries with a comprehensive tax treaty network are best placed to attract inward investment and win the economic and employment benefits that come with such developments.”
The ITI went on to suggest that Ireland’s tax treaty network is lagging behind traditional competitors such as the UK, the Netherlands and Belgium, as well as newer EU member states, such as Malta and Hungary, which are “actively marketing their particular advantages as a location for business and currently have more treaties in place than Ireland. … As a result, expansion and investment decisions are going against Ireland.”Link here.
STUDY LINKS CORPORATE TAX CUTS TO ECONOMIC GROWTH
Low corporate tax rates really do help to give a country a significant competitive advantage over economic rivals, and are connected with higher than average economic growth, according to the results of a long-term study of international tax rates. The study, by KPMG International, analyzes international movements in corporate tax rates in 86 countries for the past 14 years, drawing on the annual surveys the organization has conducted since 1993. The findings point to a link between high economic growth rates in countries such as Ireland, Norway, Sweden and Denmark and favorable corporate tax regimes.
Of these countries, Ireland stands as the strongest evidence that low corporate tax rates spur economic growth. Its headline corporate tax rate has fallen in stages from 40% in 1993 to 12.5% today, giving it the lowest corporate tax rate of any developed country. At its peak, the Irish economy enjoyed annual growth rates of up to 12%. Meanwhile, the Scandinavian countries, Norway, Sweden and Denmark, have also enjoyed high growth rates after cutting corporate tax rates and reorganizing their taxation systems in the late 1980s and early 1990s, actions which have cemented their places in the world’s top 10 economic growth leagues, the report observed.
The U.S. is a significant exception to this trend, having had consistently high rates of growth despite a corporate tax rate that has remained almost static at 40%. This anomaly, according to KPMG’s Tony Swiderski, is a result of the “sheer economic power” of the U.S. which continues to attract multinational companies regardless of the high tax rate. However, even here, the one-year tax cut on repatriated funds to 5.3% from 35% brought about by the American Jobs Creation Act of 2004 sucked in $300 billion, showing the effectiveness of tax cuts, the study noted.
But cuts in single tax rates are no longer a guaranteed way of stimulating growth in a nation’s economy, the report observed. As tax competition has gathered pace in recent years, growth rates have in some countries petered out. For example, Ireland’s growth has recently slowed to around 2.5% due to strong competition on tax rates and incentives for inward investment from Eastern European countries like Poland and Hungary. Governments therefore have been forced to look to other factors in their quest to attract multinational companies, such as economic and legal infrastructure.Link here.
DIVORCE, AMERICAN STYLE
As soon as the divorce papers are served, the asset shuffling begins. It is amazing what angry spouses try to do – and what they can get away with.Link here.
With cash he was king.
“Geraldine Paige” is a marketing executive and the mother of three children. Her husband, call him Alan, owns a cash business in New York. Their marital estate is worth an estimated $5 million. Three years ago Alan served Geraldine with divorce papers. Geraldine’s lawyer and accountant poked through the couple’s tax returns, filings her husband had prepared and she had signed without looking at them very hard. Alan told the tax collector that his business had, at the best of times, produced $180,000 in annual income.
It did not add up. Alan drove a Range Rover, and Geraldine knew he was shelling out $14,000 a month in mortgage payments on two properties they owned. The discrepancy between the mortgage payments he was making and his reported income was never red-flagged by the IRS because her $350,000 salary could have explained it.
Now she is in a bind. If Geraldine proves in family court that her husband is a tax cheat and that he is using the same techniques to hide assets from the court, she could make herself legally liable for tax fraud penalties. If she does not blow the whistle, however, Alan could grab more than his fair share of the couple’s assets.Link here.
For the spouse with assets.
For the spouse without.
She loves you. Yeah, yeah, right.
When Paul McCartney and wife Heather Mills McCartney confirmed they were separating after four years of marriage, they sparked what could be among the most expensive divorces in history. British newspapers estimate the ex-Beatles singer’s wealth to be $1.3 billion and speculate that Mills, a former model, could receive as much as 25% of the fortune. The prospects of a big payday have left Mills, 38, fighting accusations that she is a “gold digger” who married the 63-year-old McCartney for his money. Both McCartneys have denied this. Yet divorce lawyers say their split highlights one of the most vexing issues in matrimonial law – how to split the money.
British courts have historically favored the man. The courts would allocate to women a percentage of household assets based on what they decided she reasonably needed. But all that changed in a landmark 2000 case, known as White vs. White, in which the wife successfully argued that after 30 years of marriage she was entitled to 50% of the family assets. Ever since, assets have typically been split evenly between partners regardless of who brought home the income. “The White case highlighted the need to avoid discrimination against a wife who stayed at home,” says Sandra Davis, a lawyer at Mishcon de Reya, a London firm that represented Princess Diana and Jerry Hall in their divorces.
Alan Kaufman, a lawyer at the London firm of Finers Stephens Innocent, says judges have enormous latitude in their decision making, taking into account factors like the length of the marriage, the number of children and the financial contributions each partner has made. As a result, he says, England has recently become the international jurisdiction of choice for divorce. At risk is anyone living in the United Kingdom, including even the many expat Americans who bring home six- and seven-figure salaries from their work in London.Link here.
To have and to hold on to.
Most divorces these days are nasty, brutish, and all too long. Not to mention damned expensive. Where does all that money go?
The bulk of it, predictably enough, goes straight to the lawyers. Matrimonial law work is currently a staggering $28 billion a year industry. Court fees can also add a hefty sum to your divorce bill. A mere two-day trial can set you back as much as $25,000 (less expensive options, like formal arbitration, still run between $5,000 and $10,000). But if you are looking to reduce those costs or to avoid them altogether, you have got a few alternatives.
The simplest – and the cheapest – way of handling divorce proceedings is to do all the negotiating and paperwork on your own. Web sites like divorce.com, divorceonline.com and completecase.com offer an array of information and services to assist you, from state-specific legal forms to downloadable divorce kits. If your finances are simple, you do not have any shared debt, and you and your spouse can reach an agreement on custody arrangements, this may be an attractive option, and it will generally run you between $50 and $250.
Another inexpensive option for those whose divorces are relatively amicable is mediation. During mediation, the couple hires a mediator trained in conflict resolution and family law (and often, but not always, a lawyer) to oversee their negotiations. A mediator can advise you about potential financial and custodial arrangements, and will help to reopen the discussion if things break down. Mediation reduces your divorce bill because it reduces your billable hours – you and your spouse shoulder the burden of gathering and sharing information yourselves, and while your mediator’s hourly rates may not be any cheaper than those of your attorney, you will spend far less time together. The average mediated divorce should cost less than $5,000.
Collaborative law is a similar, and increasingly popular, approach to divorce. During collaborative law negotiations, both you and your spouse will hire lawyers, but they will be committed to resolving your differences without resorting to any form of litigation or any adjudicatory procedure. Here, too, mutual trust is imperative. Collaborative law is not the cheapest way to go – it might cost an average of $3,000 per spouse – but it still represents significant savings over the traditional adversarial method. Those who favor collaborative law over mediation may worry that the mediator is not truly impartial. But some attorneys are concerned that if the couple lets their lawyers do all the talking, they will never really learn to negotiate on their own. And if you and your spouse do not learn to negotiate, the likelihood that your settlement will last is greatly reduced.
If you are stuck in traditional divorce proceedings – where each party has hired a lawyer to represent them in a court battle – there are still things you can do to reduce your legal bill. By far the most important thing is to communicate. Disclose your assets, answer any questions, and provide all documents that are required. “With that there is not much else for a lawyer to do,” says attorney Violet Woodhouse, author of Divorce and Money: How to Make the Best Financial Decisions During Divorce. You should also make sure you have done your homework before a meeting with your lawyer. Do not make your lawyer wait around racking up billable hours as you scramble to find documents or look up information. If you and your spouse must go to court, try to keep things as neat as possible and avoid getting trapped in an endless cycle of litigation.Link here.
THE WORLD IS YOUR OFFSHORE OYSTER
At first glance, going offshore can seem intimidating even to the best of us. And offshore investing is no different. When you hear about the unreasonable obstacles that the U.S. government puts between its citizens and offshore investments or about the tax consequences of some of these investments, pursuing greater wealth opportunities offshore can seem downright scary. But going offshore really just takes some legwork. But there is plenty of incentive, especially if you are interested in offshore funds:
JERSEY TRUST LAW AMENDMENTS NOW IN FORCE
Proposed amendments to Jersey’s Trusts Law have been approved by the Privy Council and became law on 27th October 2006. This follows a “root and branch” review of the Trusts (Jersey) Law 1984 undertaken last year. The amendments are designed to maintain and enhance Jersey’s position as one of the world’s leading international trust jurisdictions by ensuring that its trusts legislation responds to developments in other jurisdictions and remains internationally competitive.
Among the amendments is the introduction of settlor-reserved powers, which will provide greater statutory certainty regarding the level of control and influence a settlor may exercise, in appropriate circumstances, over the ongoing administration of assets placed into trust. The powers that may be reserved by the settlor will include the power to appoint and remove trustees, to amend or revoke the terms of the trust and to appoint or remove an investment manager or investment adviser. The amendments will also permit a trustee to delegate any of his or her trusts or powers if permitted by the terms of the trust.
Other amendments include conflict of law provisions which will mean that the validity of a trust governed by Jersey law will not be affected by any rights conferred on anyone under a foreign law, and a proposal that will remove the existing automatic “personal guarantor” provisions for directors of corporate trustees, thereby making it more attractive to establish private trust companies in Jersey.Links here and here.
UNPRECEDENTED INCREASE IN THE NUMBER OF COMPANIES BEING FORMED IN GUERNSEY
The first six months of the year saw an average of 156 incorporations a month, which far outstripped anything seen in the last four years. Carey Olsen corporate and finance group partner Andrew Boyce said the island had long been a favored place to establish offshore companies. “This dramatic increase in company incorporations, rather than being a disjunctive statistic, is actually the tip of the iceberg,” he said. Through the end of June there were 1,095 company formations, a 35% increase over the same period last year. “Rather than being an overnight turnaround, the reality is that this drastic increase is due largely to the last 10 years of nurturing [the] Guernsey plc combined with current financial trends.”
Advocate Boyce said the huge growth of the last six months could be attributed to the island’s reputation as a well-regulated jurisdiction, which has given it the edge over its competitors. “Growth in company incorporations linked to Guernsey’s fund industry has been driven by, among other things, favorable market conditions, changes in investor perceptions and the creation of innovative corporate structures.”
The island’s fund regime, its vehicles, advisors and regulators are flexible enough to have adapted to a changing environment, evidenced by the last figures, which reported funds under administration and management at about £100 billion. The finance industry’s concerted effort to market itself, the introduction of the qualifying investor scheme, extension of protected cell company legislation, the introduction of incorporated cell legislation and the proposed reform of fund regulation have played a part. Advocate Boyce said the level of company incorporations was a good indicator of finance industry growth.Link here.
HOW TO AVOID SCAMS
John Niggeling, 56, deletes e-mails from African dictators offering him a share of their fortunes. He ignores print ads promising thousands of dollars a week working from home. But three years ago, John Niggeling’s nephew David told him about Learn Waterhouse, a company that promised investors a 10% monthly return, supposedly earned by trading debt from an elite group of “prime” banks overseas. To Niggeling the returns sounded too good to be true. But for every question he had – how did Learn Waterhouse make money? Was it legal? Who else was investing? – his nephew had an answer. David kept after him. “When he told me that a prominent local attorney was involved, I was hooked,” says Niggeling.
In the summer of 2004, he took $25,000 out of his IRA and put it into Learn Waterhouse. Within weeks he received a check for $2,200. Encouraged, he invested another $83,000. A month later the SEC froze Learn Waterhouse’s assets and alleged that its promoters had defrauded 1,700 investors out of $24.5 million. The investigation is ongoing. According to SEC claims, the Learn Waterhouse deal was structured as a Ponzi scheme – early investors appear to reap promised returns but are only getting money put in by later investors. The early results make the scam look like a genuine bonanza.
But what really sold Niggeling was the hard sell by his nephew. With affinity fraud, as regulators call it, the con artist infiltrates a social group like a church or professional club, then persuades his new friends to enroll in his scheme. According to research, when we go along with peers, activity in a part of the brain that thinks analytically may decrease, presumably reducing our skepticism. And when we go against consensus, a reaction in the part of the brain usually triggered by fear occurs. So we are afraid to go against the crowd, even when confronted with plain evidence.
The best antidote to any financial scam, of course, is to thoroughly check out the offer. That is easier said than done in an affinity fraud with so much pressure to go along with the group. Consequently, it is important to establish your own personal due-diligence procedure now and resolve to follow your checklist to the letter when an “opportunity” appears, however much your friends swear it is legit. You rarely need to be a forensic accountant to find warning signs. In Niggeling’s case, just typing “prime bank” into a search engine would have done it. The scam is so common that the SEC devotes an entire page on its website to it.Link here.
PRIVACY IS STILL IMPORTANT AND AVAILABLE OFFSHORE
There was a time in the U.S. when personal and financial privacy was taken for granted. “Gentlemen do not read one another’s mail,” said U.S. Secretary of State Henry Stimson in 1929 as he shut down the infamous Black Chamber code-breaking operation, the predecessor to today’s National Security Agency. Nor did gentlemen snoop in one another’s bank accounts or delve into other details of one another’s financial affairs, at least not without a court order. At that time, your personal and financial life was your own – nobody else’s. In those long gone days your banker was a professional who was discreet and bound both by professional discretion and a long legal tradition to never discuss your financial affairs with anyone, certainly not with government agents, without a valid search warrant or court order.
Alas, that description of privacy has long departed America, particularly when it comes to financial privacy and banking confidentiality. Laws like the Bank Secrecy Act, the Money Laundering Control Act and the USA PATRIOT Act have converted your trusted banker into a government spy. Your banker’s highest duty is not to you, the paying customer, but to the government. And if your banker fails to spy on you, he or she can be imprisoned. Further, every detail of your financial life, no matter how intimate, is available at the touch of a button for unaccountable government bureaucrats to examine, in complete secrecy, without a warrant or any probable cause.
Fortunately, there are places in the world where the long-lost tradition of financial privacy (at least with respect to the U.S.) still exist. Many foreign nations not only preserve financial privacy because it is a long-standing tradition. They also do as a matter of law. Anyone who violates that privacy is punished with fines and jail terms. In most of these privacy havens, only a court order can pry open your financial records. There are procedures which require financial professionals to give you notice of such inquiries and a chance to be heard in an official proceeding. In most offshore jurisdictions, a U.S. civil judgment will not be honored unless an entire new trial is conducted under local law.
So how can you reestablish real personal and financial privacy? The easy answer is move offshore with your cash and assets. As soon as you do, your privacy picture changes drastically.Link here.
FEDS LEAPFROG RFID PRIVACY STUDY
The story seems simple enough. An outside privacy and security advisory committee to the Department of Homeland Security penned a tough report concluding the government should not use chips that can be read remotely in identification documents. But the report remains stuck in draft mode, even as new identification cards with the chips are being announced. Jim Harper, a Cato Institute fellow who serves on the committee and who recently published a book on identification called Identity Crisis, thinks he knows why the DHS Data Privacy and Integrity Advisory Committee report on the use of Radio Frequency Identification devices for human identification never made it out of the draft stage. “The powers that be took a good run at deep-sixing this report,” Harper said. “There’s such a strongly held consensus among industry and DHS that RFID is the way to go that getting people off of that and getting them to examine the technology is very hard to do.”
RFID chips, which either have a battery or use the radio waves from a reader to send information, are widely used in tracking inventory or for highway toll payment systems. But critics argue that hackers can skim information off the chips and that the chips can be used to track individuals. Hackers have also been able to clone some chips, such as those used for payment cards and building security, as well as passports. The draft report concludes that “RFID appears to offer little benefit when compared to the consequences it brings for privacy and data integrity” – a finding that was widely criticized by RFID industry officials when the committee met in June.
Meanwhile, the RFIDs just keeping coming. Last week, the State Department announced that it would soon be issuing new cards for visitors to Mexico, Canada and the Bermudas containing a chip that could be read from 20 feet away. Changes in federal law will require Americans to have either a passport or the new “PASS card” to re-enter the country by air in 2007. Currently a driver’s license will suffice to get an American back inside the country from these neighboring spots, but starting in 2008 that will not suffice even for quick, cross-border jaunts by car. RFID chips are being used in the nation’s passports, cards used to identify transportation workers and cards for federal employees, and may be features of the Registered Traveler program, the soon-to-be-released standards for all states’ driver’s licenses under the REAL-ID act, as well as proposed medical cards.
DHS spokesman Larry Orluskie says no one is trying to kill the report. “The committee is still soliciting input and the draft report is on its website, so I guess they are proceeding,” Orluskie said. In early October, the Center for Democracy and Technology, a civil liberties group known for partnering with industry groups, submitted comments criticizing the draft report, calling for a deeper factual inquiry and analysis, and a broader focus on identification technologies generally. Jim Dempsey, the policy director for the CDT, says his group does not want the report killed – he just thinks the privacy committee is ignoring the reality that RFID-enabled identification is already here. The report should focus on how secure the cards are, how far they can be read from and the whole backend of how data is stored and shared.Link here.
U.S. passport RFID already hacked.
Well that did not take long. It has been roughly a whole month since the U.S. has been issuing passports with RFID chips in them, and already they have been hacked. In theory, at least. The hack was released late last week and is now making the rounds.
For a first stab at a hack, it is still on the limited side and is nothing to panic too heavily over. The hacker needs certain “seed” information in order to read all the data on the passport, including your passport number, your date of birth, and the date the passport expires. Using that information, anyone can obtain some of the digitally encoded data on the passport, including the digital image of your face and some personal information (it is not clear exactly what).
At first glance this does not sound so bad. However, this is just the first passport crack in what will undoubtedly be a long line of them, culminating with a one-click method to crack any passport there is. For now, there is just the one – RFIDIOt – and the code is online for all to see. Hang in there, folks. Happy Halloween.Link here.
THE GROWING NATIONAL ID TRAP
There is no question that is would be a marvelous use of technology to be able to carry a copy of all your medical records, in case you fall ill or get hurt. Then the hospital will know all about your health condition including allergies, surgeries, dental problems and medications. It would be a matter of comfort for parents to know that, if their child was kidnapped or wandered off, a chip could be activated to pinpoint where they are. The same is true in locating a lost pet. It would be helpful for police and fire departments to have instant access to fingerprints and other personal identifying features of every single American. Then they really could solve cases in about an hour, just like on CSI.
Those are the wonderful visions promoters of the technology are using to sell their wares. The reality may create a world of Big-Brother controls on our ability to move about and live our lives in a free manner. For that reason, today in the age of such marvelous technology, Americans must be more vigilant and protective of their freedom than any time in our history. As technology develops, data banks of personal information are being collected on everything from medical records, to financial and employment histories, to school records, to buying habits at the super market. The government is building data banks on farm animals. Our cars have little black boxes, which record data on our driving habits. In addition, the uses of video cameras, computer chips and biometric screening to monitor our activities are growing rapidly.
Step by step, using a wide variety of good excuses, Americans are allowing themselves to be fingerprinted, their eyes scanned, computer chips inserted under their skin, providing DNA, and more. The most important question one must ask before relying completely on available technology is, “Who’s in control of it?” We can create technology to do literally anything. But should we? The question is important because some of the same technology that will make our lives better can, in the wrong hands, make our lives a living hell.
In 2005, Congress passed the Real ID Act, a “counter-terrorism” measure recommended by the 9/11 commission. The act sets national standards for driver’s licenses. The bill requires states to link databases containing sensitive personal information such as Social Security numbers. State databases must contain a digital image and a paper copy of each birth certificate and other identifying documents. Although issued by the states, through the Department of Motor Vehicles, the Real ID is a national identification card system. States must comply with federal guidelines by May 2008.
As the Real ID Act is fully implemented, the driver’s license will be essential for one to be a full participant in American society. Failure to have it will literally shut one out from opening a bank account, getting a loan, gaining employment, marriage license medical care and purchase of firearms. Yet, the government continues to deny that the Real ID Act is a National ID. Eventually, through the use of smart chips, the driver’s license will be transformed to include not only identification information, but employment, medical, financial and school records. It will serve as an ATM card, credit card, voter ID card, and – in the coming cashless society – access to your bank accounts.
The backers of such a system tell us that it will never be abused. It will exist solely to protect us. It will keep us safe form terrorists. Fingerprints and biometric scans will make it impossible to counterfeit, they assure us. Not so. A National ID will not protect us from anything. It will not prevent future terrorist attacks. The 9-11 terrorists were not using false ID. Osama bin Laden will not be stopped by “paperwork”. American freedom, however, will die.Link here.
INTERNATIONAL CALLS FOR THE COST OF A DOMESTIC CALL
Skype’s telephony software allows broadband users to make free local and long distance domestic computer-to-computer calls. Skype users do pay a generally small amount for international calls. But now Future Phone has introduced a service allowing residents in 54 countries to make free international calls by using the gateway access number listed on the site’s home page - 712-858-8883 (Iowa). You can make these calls from any phone, landline or mobile.
Future Phone “plans” to keep the service free for the next three years. On the site FAQ page, they state, “We do not require any information from you at all. We respect your privacy and want you to utilize our services without concerns about confidentiality. We simply want you to use this services, tell your friends about it and soon we will have some other amazing offers for you on this site.”
THE TREASON OF SEPTEMBER
Below is a poem (loosely based on the Guy Fawkes poem) written the day after Congress sent the Military Commissions Act to President Bush. That bill is but the codification of the treasonous doctrine both the executive branch and the judiciary have been asserting for years – that even U.S. citizens can be declared “enemy combatants” and stripped of their ancient right to jury trial, and of the rest of the protections in our Bill of Rights. Click the hyperlinks for a multi-media experience. Pass it along to others. Then resolve to do your utmost to stop anyone, from any political party, who would destroy our Constitutional Republic.Link here.
PLAINTIFF LAWYERS MAY HAVE FOUND A NEAT WAY AROUND SECURITIES LITIGATION REFORM
Most people attribute the tech-stock boom to the madness of crowds, like the tulipomania of the 1600s and the South Sea Bubble of the early 1700s. But her is a darker explanation for why companies like Fatbrain.com traded at multiples of their losses for a brief time around the turn of the century: It was a conspiracy. Yup, according to a federal lawsuit in New York against ten securities houses (plus several of their institutional customers), these normally cutthroat Wall Street competitors got together to levitate the prices of IPOs, reaping billions of dollars in illegal profits.
Fanciful as the scheme may seem (Why did they stop in mid-2000?), it represents a new and potentially dangerous way for plaintiff lawyers to attack Wall Street. The suit charges antitrust violations rather than garden-variety securities claims. Under antitrust law, any damages can be trebled. It is not just securities houses that are coming under antitrust scrutiny these days. The Justice Department is investigating allegations that private equity firms colluded on buyouts, in essence depriving takeover targets the benefit of an all-out bidding war.
The lawsuit against Credit Suisse and others sketches a similar conspiracy, in which securities firms – with the help of big institutional customers including Fidelity and Janus Capital – are accused of taking advantage of Internet fever to drive up the price of newly issued shares in the aftermarket. Why would they do this, instead of just selling shares at a higher price in the IPO? To please tech executives, who frequently sold their personal shares after the IPO, the lawyers say, and thus reap higher fees from other companies itching to go public.
“They are trying to use antitrust laws to pursue what is in essence a securities case,” says Stephen Shapiro, a lead attorney for the securities firms. By doing that, he argues, plaintiffs avoid roadblocks that Congress enacted under an act designed to limit securities suits, such as limiting pretrial discovery searches. Plaintiff attorney Christopher Lovell is not buying it. “The answer to their concern is, don’t have the biggest investment banks conspire to inflate their fees,” he says. If the Supreme Court agrees with that view, look for the banks to pull out the checkbooks and settle.Link here.
INSIDE AMERICA’S RICHEST INSURANCE RACKET
Title insurance firms rake in $18 billion a year for a product that is outdated, largely unneeded – and protected by law.
Title companies appeared a century ago, helping to protect home buyers from being swindled by crooks who sold properties they did not own. A title insurance policy protects the buyer in case the deed turns out to be defective but the seller cannot be collared to refund the purchase price. It is far less necessary in these days of computerized records, online searches and rare instances of title fraud or hidden liens.
Yet First American, the largest title-insurance company in the nation, and its two main rivals – #2 Fidelity National and 3rd-ranked LandAmerica – are fat and thriving in an $18-billion-a-year business that has quadrupled in 10 years. First American has doubled its prices in a decade, to an average charge of $1,472 per home for a title search and insurance. Meanwhile, thanks to computerized record-keeping, the cost of searching for a home’s ownership records online has fallen to as low as $25. Technology also has helped make mistakes rarer. Now only $74 of each policy goes to pay claims – that is, make home buyers with defective deeds whole. That leaves a $1,373 spread for overhead and for profit.
Fancy a racetrack that keeps 93% of your money and returns only 5% in winning tickets. They would not last long, not unless they could somehow rig the rules to both forbid price competition and make the purchase of race bets mandatory. That is more or less what the title insurance industry has done to American homeowners. The title industry’s halcyon days owe much to antiquated state laws that thwart new competition, allow prices to soar despite declining costs and force almost every home buyer to pay for insurance that most of them will never need.Link here.
ISRAEL DISCOUNT BANK UNIT TO PAY $12 MILLION TO SETTLE MONEY LAUNDERING CASE
Israel Discount Bank of New York agreed to pay $12 million to settle allegations it failed to comply with U.S. anti-money laundering laws. The unit of the third-largest bank in Israel, Israel Discount Bank, settled the allegations without admitting or denying any wrongdoing. In December the bank agreed to pay an additional $8.5 million civil penalty in a settlement with the New York District Attorney’s Office over similar allegations.
The bank processed about 181,000 third-party wire transfers totaling $35.4 billion from March 2004 to March 2005, and a substantial amount of those funds transfers exhibited “characteristics and patterns” commonly associated with money laundering, U.S. regulators said. They said the bank failed to implement adequate internal controls to comply with the Bank Secrecy Act, conduct adequate independent testing and adequately staff for daily monitoring.
The bank has seven offices located in New York, California and Florida and another in the Cayman Islands. It had assets of about $9.7 billion as of June 30, 2006. FDIC Chairman Sheila Bair said the case “emphasizes the importance for banks of having strong internal controls to assure compliance with anti-money laundering regulations and to detect and report potential money laundering or other illicit financial activities.”Link here.
BAHAMAS SECURITIES COMMISSION HAS ESTABLISHED A DISCIPLINARY COMMITTEE
The BSC has established a disciplinary committee to hear and determine charges on local business registrants for acts of misconduct, according to Minister of State for Finance James Smith, who said the committee has the authority to impose sanctions if necessary. Minister Smith said that in strengthening its disciplinary process the BSC has also established a fiat with the Office of the Attorney General, which will give the Commission powers to powers to prosecute matters on an adminstrative level. “This is not as severe as punishment through civil court. It can serve as a deterent to market miscoinduct as it should prove to be a quick and effective way of dealing with smaller breaches of securities legislation,” said Minister Smith, who was speaking at a opening of the Conference of Caribbean Securities Regulators.
Mr. Smith also announced that the BSC has just completed its first draft of corporate governance guidelines for public companies in The Bahamas. He said the guidelines were derived from the Central Bank, the OECD guidelines, The Sarbanes-Oxley Act of 2002, (a U.S. federal law passed in response to a number of major corporate and accounting scandals) and many other national codes. Minister Smith said the guidelines would focus on three areas, including the role of the board of directors, disclosure and transparency, and the rights of shareholders.
The minister also pointed to several issues faced by regulators when dealing with local financial transactions. In particular, Minister Smith pointed to what he said was a rapid growth in the hedge funds industry. He noted that leading offshore hedge fund jurisdiction Cayman Islands has enacted legislation that has struck the approriate balance between effective oversight and operational flexibility for practicitioners. He also pointed to market conduct in terms of fraud, market manipulation and insider trading that place investors’ wealth at risk.
Minister Smith said these unethical trends were aided by telecommunication that made it difficult for regulators around the world to detect, prove and take action. He added that efforts were hampered by regulators’ ability to act only on the basis of jurisdictional law, and cooperation among regulators will continue to improve enforcement efforts of the requesting jurisdiction – especially where the rules are uniformly and evenly adapted. “A level playing field is as important in this area of international co-operation as it is in any other sphere,” he said. “In the absence of a level playing field, jurisdictional arbitrage would take place and frustrate the legitimate objectives of international cooperation.”Link here.
CHINA’S CENTRAL BANK TO ISSUE REGULATIONS TO SUPPORT ANTI-MONEY LAUNDERING LAW
The People’s Bank of China said it would draw up regulations to strictly enforce the country’s anti-money laundering law “as soon as possible”. The bank would soon issue a series of regulations to combat money laundering in securities, futures and insurance sectors, said Chen Xiaoyun, an official with the PBOC. The law would help China’s accession to the world’s money policing agency, the FATF, said Liu Lianke, an official with the PBOC’s anti-money laundering bureau, adding that China is likely to join the inter-governmental organization in June 2007.Link here.
FORMER CANDIAN GOVERNMENT ADVISER JAILED 10 YEARS FOR PYRAMID SCHEME
A con man who once provided legal advice to Alberta lawmakers was sentenced to 10 years in prison for his part in bringing a massive pyramid scam to Canada. Michael Ritter built his life on a web of lies that at one point saw him serve as chief counsel to the Alberta Legislature. Provincial Court Judge Elizabeth Johnson described the fraud as one that involved a “staggering” amount of money.
Mr. Ritter read aloud a brief statement taking full responsibility for his actions and apologizing to his victims. He had struck a deal with Canadian prosecutors to avoid a possible life sentence on charges resulting from the collapse of the US$270-million pyramid scheme. He was also ordered to forfeit $471,000.
Mr. Ritter, 49, was accused of helping former Merrill Lynch trader Daniel Gordon hide $43 million he stole from Merrill. He pleaded guilty October 27 to theft and fraud, admitting he took $10.5 million as part of a money-laundering scheme with Mr. Gordon, and that he took part in an unrelated $250-million investment scam. Mr. Ritter, former CEO of Newport Pacific Financial Group, said he used the company to hide Mr. Gordon’s embezzled funds in offshore accounts. He said he used money left in those accounts by Mr. Gordon to buy an airplane, a skybox at the National Hockey League’s Edmonton Oilers hockey arena and a condominium.
Mr. Gordon pleaded guilty in 2003 to federal charges that he stole the money by creating a phony energy trade with an offshore company that he had set up. He also admitted that he helped falsify records at a Merrill energy-trading unit before its sale. Mr. Ritter said he set up an offshore trust for Mr. Gordon and sent the money to a Swiss bank account, according to a statement given to the court last week approved by Mr. Ritter and prosecutors. The ex-CEO claimed that he did not know the money was embezzled. The sentence will keep Mr. Ritter from having to answer charges in the U.S. connected to another financial scheme.Link here.
NORWEGIAN HACKER UNLOCKS iTUNES TECHNOLOGY
Jon Lech Johansen, the young Norwegian who was acquitted after circumventing protections on commercial DVDs, says he has done the same on Apple’s iTunes software, meaning that iTunes content can be played on other machines. As a teenager, Johansens did not try to commercialize his work, but now, aged 22, with a small office in California, his company DoubleTwist Ventures is offering to license its reverse-engineering of Apple’s FairPlay digital rights management (DRM) system. Johanssen still has an open systems hacker mentality, though. “Today’s reality is that there’s this iTunes-iPod ecosystem that excludes everyone else from the market,” he says. “I don’t like closed systems.”
Apple engineered Fairplay so that its iPod and other makers’ machines are mutually incompatible. Johansen’s new program allows other companies to sell copy-protected songs that play on the iPod, and allows other devices to play iTunes songs. Apple’s attempt to restrict its musical content to its own devices has run into legal trouble in a number of countries. In August, French legislators approved amendments to the country’s copyright law which are likely to force Apple to provide its music download rivals with interoperability information. The new law, in addition to requiring companies to provide information about their music download services and devices to their rivals, provides for the creation of a new regulatory authority to ensure that such an information exchange takes place.
Commenting on the French legislation, U.S. technology industry group Americans for Technology Leadership, argued that, “The final vote today by French lawmakers on legislation that would force Apple to open its iTunes product to competitors’ devices is an attack on intellectual property rights not just of Apple but all companies.” Authorities in Norway, Sweden and Denmark are also said to be investigating Apple over DRM and interoperability issues.
The legality of Apple’s protections are very unclear under existing U.S. law. The legal status of Johansen’s software is even more unclear. He says that his program adds copy protection to content played on iPods, whereas the Digital Millennium Copyright Act prohibits removing it. Opening iTunes content to other players is less clearly within the law, but Johansen quotes DMCA language that supports interoperability. “The law protects copyrights,” he says, “but it doesn’t keep you locked into the iPod.”
Bring on the lawyers!Link here.
THE FAULT LIES IN OURSELVES
During my professional lifetime, liberals and the left wing have focused on failures and misdeeds of the private sector, while libertarians and conservatives have focused on the failures and misdeeds of the public sector or government. It turns out that both sides are right. The Enron case and the other accounting scandals of this new century are testimony to misdeeds driven by private sector greed, just as the unjustifiable war in Iraq is testimony to the abusive behavior of government.
Justice demands that we be always on guard against a prosecutor’s case. However, the devastation wrought by fraud committed by a few at the top of Enron seems real. We now know that fraud on the part of the Bush administration launched the ill-fated Iraqi war. The war’s financial and human cost dwarfs the Enron catastrophe. The most important difference between these two fraud cases, however, is in accountability. The Enron executives have been brought to justice with prison sentences, multimillion-dollar fines and, in one case, death from a heart attack brought on, perhaps, by the stress of prosecution.
Even if the Bush administration and the rubber-stamp Congress are held accountable in next month’s election, the ringleaders of the war are unlikely to be brought to justice. Polls indicate that the November election – if votes are honestly counted – will hold Bush and the Republicans accountable by ending one-party rule. A number of commentators have noted that with the Democrats as complicit in the war as the Republicans, a change in party control over one or both houses of Congress is not exactly accountability.
But the problem is larger than that. When government officials are held accountable, they are merely voted out of office and not generally prosecuted. They do not suffer the same severe punishments as their counterparts in the private sector. Enron destroyed jobs, not people’s lives, and the financial cost was inconsequential compared to Iraq. The disparities in accountability and punishment for misdeeds in government and private sectors are striking.
So far in history no private sector interest has been able to achieve power over a population comparable to the power wielded by Stalin or Hitler, and no private sector power has been able to set aside civil liberties as Bush has done. The liberal-left notion that government is our protector from the private sector is as naive as the libertarian-right view that all wrong resides in the government. The common denominator of wrong is the fallibility of man.Link here.
The third and final act in the national tragedy that is the Bush administration may soon play itself out. The Okhrana reports increasing indications of “something big” happening between the election and Christmas. That could be the long-planned attack on Iran. An attack on Iran will not be an invasion with ground troops. We do not have enough of those left to invade Ruritania. It will be a “package"”of air and missile strikes, by U.S. forces or Israel. If Israel does it, there is a possibility of nuclear weapons being employed. But Israel would prefer the U.S. to do the dirty work.
That this would constitute folly piled on top of folly is no deterrent to the Bush administration. Like the French Bourbons, it forgets nothing and it learns nothing. It takes pride in not adapting. Or did you somehow miss George W. Bush’s declaration of Presidential Infallibility? It followed shortly after the visit to the aircraft carrier with the “Mission Accomplished” sign. The Democrats taking either or both Houses of Congress, if it happens, will not make any difference. They would rather have the Republicans start and lose another war than prevent a national disaster. Politics comes first and the country second.
Many of the consequences of a war with Iran are easy to imagine. Oil would soar to at least $200 per barrel if we could get it. Gas shortages would bring back the gas lines of 1973 and 1979. Our European alliances would be stretched to the breaking point if not beyond it. Most people outside the Bushbubble can see all this coming. What I fear no one forsees is a substantial danger that we could lose the army now deployed in Iraq. Well before the second Iraq war started, I warned that the structure of our position in Iraq could lead to that greatest of military disasters, encirclement. That is precisely the danger if we go to war with Iran.
The danger arises because almost all of the vast quantities of supplies American armies need come into Iraq from one direction, up from Kuwait and other Gulf ports in the south. If that supply line is cut, our forces may not have enough stuff, especially fuel, to get out of Iraq. American armies are incredibly fuel-thirsty, and though Iraq has vast oil reserves, it is short of refined oil products. There are two ways our supply lines from the south could be cut if we attack Iran. The first is by Shiite militias including the Mahdi Army and the Badr Brigades, possibly supported by a general Shiite uprising and, of course, Iran’s Revolutionary Guards (the same guys who trained Hezbollah so well). The second danger is that regular Iranian Army divisions will roll into Iraq, cut our supply lines and attempt to pocket us in and around Baghdad. Washington relies on American air power to prevent this, but bad weather can shut most of that air power down.
Unfortunately, no one in Washington and few people in the U.S. military will even consider this possibility. Why? Because we have fallen victim to our own propaganda. Over and over the U.S. military tells itself, “We’re the greatest! We’re number one! No one can defeat us. No one can even fight us. We’re the greatest military in all of history!” Bull. The U.S. armed forces are technically well-trained, lavishly resourced Second Generation militaries. They are being fought and defeated by Fourth Generation opponents in both Iraq and Afghanistan. They can also be defeated by Third Generation enemies who can observe, orient, decide and act more quickly than can America’s vast, process-ridden, Powerpoint-enslaved military headquarters. They can be defeated by strategy, by stratagem, by surprise and by preemption. Unbeatable militaries are like unsinkable ships. They are unsinkable until someone or something sinks them.
If the U.S. were to lose the army it has in Iraq, to Iraqi militias, Iranian regular forces, or a combination of both (the most likely event), the world would change. It would be our Adrianople, our Rocroi, our Stalingrad. American power and prestige would never recover.Link here.
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