Wealth International, Limited

Offshore News Digest for Week of December 25, 2006

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

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



When my husband Dan Prescher and I arrived in Mexico in late 2002, we had no idea how this country was about to affect our lives. In December of 2002 we started our 3-month driving odyssey. We left our dog in short-term care with family in Arkansas and drove from the U.S. across the border at Laredo, Texas, and into our new homeland. We headed for the shores of Lake Chapala, where our first stop was Casa Flores, in Ajijic. Walt and Jean Smith, the owners of the B&B we chose, have since become good friends. They were the first to introduce us to a warm new way of life in Mexico. We spent many happy hours on their beautiful, flower-filled terrace.

We did not stay long that time, though. We found a storage facility and packed away all the things we had brought from the States (and could not live without ... or so we thought), and we got back into our little Toyota Tacoma and hit the road. This was our true indoctrination to Mexico. We wanted to find the ideal spot in this country to settle. We started with a little apprehension ... at least Dan did. He likes to plan things, and I prefer spontaneity. He prefers to stick to the plan (and the main highways) and I like to seek out those out-of-the-way places, and figure out how to get there as we are getting there – the road less traveled and all that.

Our trip ultimately took us to Cancún, on Mexico’s Caribbean Coast, where we explored Isla Mujeres and Isla Cozumel, the island we had visited many times in our pursuit of the world’s best scuba diving destinations. These islands are easy to get to, popular with tourists, have terrific infrastructure and amenities, and yet remain relatively inexpensive as far as Caribbean property prices go. Although Cozumel has changed drastically over the past several years, thanks to its popularity as a cruise ship destination, it still offers great value for anyone seeking a Caribbean island getaway.

Next up, we set sights on Puerto Escondido. Located 240 miles south east of Acapulco, Puerto Escondido – “the hidden port” – is still one of the best-kept secrets along the Mexican Pacific. Primarily known as a world-class surfing mecca, this city of about 50,000 inhabitants keeps its small-town charm while offering a diverse, international atmosphere with breathtaking ocean vistas and miles of wide sandy beaches. For anyone looking for really beautiful Mexican Pacific Coast property at still reasonable prices, this is the place to look. But prices have doubled since we were there three years ago. We spent three weeks in Puerto Escondido, thinking this might be the place for us. Before long, though, we were feeling the heat. We were tired and grouchy and generally out of sorts. We were second-guessing our decision to live outside the U.S.

As we drove north back to Jalisco we decided to quit our jobs and go back home. We composed our letter of resignation and as soon as we got to Ajijic sent it off. We returned to Casa Flores in Ajijic, where we received a warm reception from Walt and Jean. That night, we went to dinner at Bruno’s, one of the best lakeside restaurants. After a nice steak dinner and a few margaritas, things were looking better. The next day, we walked to Ajijic’s pretty plaza. It was February, and the weather was perfect – not the oppressive heat we had experienced on the coast. We got a fast Internet connection at one of the local Internet cafés, and we sent an email rescinding our resignation of the day before. We decided to put down roots. We rented a beautiful home in Ajijic for $800 a month and started researching and writing in earnest about living and investing in Mexico. It was there that the idea for Mexico Insider was kindled. There is a lot of information out there about being a tourist in Mexico, we reasoned, but no one was writing in detail about what it was like to live and buy property here. We launched Mexico Insider in August 2003.

A year later, wanderlust struck again. We pulled up stakes in Ajijic and headed east to San Miguel de Allende. There, we bought a home, and learned about remodeling the Mexican way. It took some time, and lots of patience on our part – but it was worth the wait. Our home in San Miguel became a blissfully tranquil place to live and work. It is not a stretch to say we fell in love with San Miguel. And who wouldn’t? This is a place where dawn still finds burros with milk cans making deliveries along cobblestone streets, yet it also offers the latest in modern conveniences. Located between the Sierra Madre mountain ranges in the central highland state of Guanajuato, San Miguel is in the geographic center of Mexico and is considered one of the best-preserved colonial towns in all of the Americas. And we think it is one of the most beautiful.

Dan and I both compiled our list of the top 10 things we have learned from our time in Mexico ...

Link here.

Mexico: Gringo Furniture

Putting the dreams of a better life aside, relocating is hard! It does not matter where in the world you are going .... 1,000 miles or 5,000, there will be many a day when you sit with head in hands and think, “What am I doing here?”! And it is the little things that get you – aside from language difficulties and cultural differences. The thing that almost pushed me over the edge, was the furniture issue.

Back in January of 2002 my husband and I bought our first villa in Mexico. It was a very exciting time in our lives and we were so thrilled to finally realize our dream of owning a vacation home. Actually closing the purchase deal was a process completely outside of our experience, but we were lucky to have bought a home that had clear title and find lawyer who would complete the deal correctly. By July of that same year we were owners of our new villa.

One of the most exciting jobs for me was to decorate the villa. After all the stress and worry of actually buying the property I was going to have some fun. I would be able to buy all those Mexican pieces that were so expensive up in Canada and have them in my new home in Mexico. So, we took a one week holiday, jumped on a plane to Mexico, rented a car, planned out what stores we were going to go to and set off on our first full day believing we were prepared and organized. It seemed easy enough and there would be time for the beach too. Within the first few hours we realized we had underestimated the magnitude of the task and there was not going to be a single moment left for anything other than shopping. Bye-bye to the beach and any rest or relaxation we had hoped to get. This week was going to consist of getting up at the crack of dawn, driving around, getting lost, driving around again, getting lost again and trying to furnish our villa with something acceptable. The thrill of the idea was rapidly replaced with panic and thoughts of going over our budget.

In the end a week was not enough and we had to return a few weeks later to finish up. We got home exhausted, over budget, stressed out and certainly not 100% happy with what we had bought. It was so much harder than we had imagined, to buy something as simple as furniture in a foreign land.

In 2005, gluttons for punishment that we were, we began construction on a new vacation home in Puerto Morelos, Mexico, on the Mayan riviera. The thought of furnishing a place twice the size of our previous project left me feeling dejected, and that is when an idea took seed in my mind. Why not start a business sourcing and providing furniture for people in the same situation as myself, and use this new house as a test run. And that is when Gringo Furniture was born ...

Link here.


Raul Castro has set a new tone for Cuban politics, telling university students in Havana that they should debate “fearlessly” and bring their concerns directly to him. Castro’s remarks, published last week by the Communist Party newspaper, Granma, are the clearest indication yet of how he might reshape Cuba after the death of his ailing brother, Fidel Castro. Raul Castro, who is Cuba’s defense minister, tempered his remarks by telling the students that a “unified command” is a key military principle but “that doesn’t mean that discussions can’t happen.”

The notion of freewheeling political debate is almost unheard of in Cuba, where many residents fear repercussions if they criticize the government. But it is not without precedent. At one time, Raul Castro encouraged open debates, including criticism of the government, at Cuba’s military college. Those debates have been reined in over recent years, but some experts say they think Raul Castro could one day open Cuban society to a similar system of free speech. “It’s true that Raul Castro has tried over the years to open spaces for conversation,” said Jorge Dominguez, a Mexican political analyst who has written extensively about Cuba.

Castro has been Cuba’s acting president since his brother’s July 31 intestinal surgery. And even though Fidel Castro appointed his brother as interim president, Raul Castro still seemed reticent to seize the official mantle of power while his brother is still alive.

Link here.


The Supreme Court in Argentina has ordered the country’s banks to repay in full savings that were frozen during the economic crisis of 2001-02. The government had frozen U.S. dollar accounts held by some 50,000 depositors then forcibly converted them to devalued pesos.

With this ruling, the Supreme Court hopes to help lay to rest the years of anger and financial hardship caused by the economic crisis. At that time, investors were caught up in a series of government decisions. Firstly, it froze bank accounts and then forcibly converted any accounts held in dollars into devalued pesos. Until the financial crisis, Argentina had pegged its currency at a rate of one to one to the U.S. dollar. In the midst of the economic meltdown, it dropped that peg, and the Argentine peso went into freefall and eventually settled at about three pesos to the dollar. Account holders effectively lost 2/3s of their money and they have been campaigning ever since for its return.

In their ruling, the justices say those dollar account holders will get their money back in pesos at an equivalent rate to the peso’s current exchange rate with the dollar. In that sense, the ruling stops short of giving the savings account holders what they wanted – to have had the dollars they had deposited returned to them as such. As the justices also point out in their ruling, their decision is not just about returning lost savings deposits, but also about protecting property rights and helping the country find social peace – which has yet to fully return to the streets of Argentina some five years on from the crisis despite the economic recovery the country has enjoyed in recent years.

Link here.


In an open letter addressed to the international financial community published last week, IMF Managing Director, Rodrigo De Rato commented on the progress towards economic reform made by the government of Belize in the last couple of years: “Over the past two years, the authorities have made commendable strides in correcting serious macroeconomic imbalances based on their adjustment strategy. Tax measures and expenditure cuts have led to a sharp improvement in the central government’s primary balance, which has moved from a deficit of 3% of GDP in FY2003/04 (April to March) to a surplus of 3% of GDP in FY2005/06.”

“However, these efforts alone will not be sufficient to bring the economy back onto a sustainable path, and for this reason, the authorities are undertaking further adjustment efforts during FY2006/07 and beyond. ... Even with this additional adjustment effort, as well as the additional official financing that is being provided by multilateral and bilateral lenders, large fiscal and balance of payments financing gaps would remain in 2007 and beyond. It is against this background that Belize has sought to engage with its external private creditors to achieve an orderly and cooperative debt restructuring. ... The [IMF] has welcomed the progress the authorities have made in addressing Belize’s serious macroeconomic imbalances in the context of a home-grown adjustment strategy. Nonetheless, Belize’s situation will remain vulnerable for quite some time, allowing little room for slippage in implementing the policy framework.”

The Government of Belize last week made an offer to exchange the country’s outstanding commercial indebtedness in return for new U.S. dollar bonds to be issued by Belize.

Link here.


The Bahamas Financial Services Board has contracted with Oxford Economics to assess the economic importance of financial services and associated activities in The Bahamas. The results of the study will be delivered in January. According to Wendy Warren, the BFSB’s CEO & Executive Director, the board is seeking to obtain a comprehensive picture of the financial services industry’s contribution to The Bahamas – specifically, the direct, indirect and imputed impacts. “We believe the contribution of the financial services industry goes beyond economics. The positive and long-standing social impact of the industry must be identified,” she said.

The research project will provide BFSB with empirical data, enabling it to engage in wide ranging communication with all stakeholders regarding the long standing and significant socio-economic contribution of the sector to the nation, and the need for continued development and growth of the industry. Further, the growth and contribution of the sector will be monitored through annual comprehensive reporting. The project arose from a BFSB Working Group that had been engaged in reviewing various options to best utilize existing data and looked at the indirect contributions that are not being tracked at the present time. Founded in 1981, Oxford Economics is one of the world’s leading providers of economic analysis, forecasts and consulting advice.

Link here.


Grenada Finance Minister Anthony Boatswain recently presented his government’s budget for 2007, predicting a 10% increase in revenues and a 6% fiscal surplus as a result of strengthened revenue collection techniques. Mr. Boatswain said that it was important for Grenada to demonstrate self-reliance to the international community after the devastation caused by two hurricanes. He said that the current account surplus would be used to finance capital programs.

For the fiscal year 2007, current revenue is estimated to be EC$441 million, with current expenditure at EC$350.7 million, up 6.9% on 2006. The economy grew at 1.3% in 2006. “The rise in current expenditure is largely explained by higher anticipated outlays on wages and salaries, interest payments and current transfers. Notwithstanding these increases, the Ministry of Finance will continue its effort to exercise control on discretionary recurrent expenditure on goods and services,” Boatswain said.

Earlier in the year, Grenada’s Prime Minister said that the country would likely delay its entry into the CARICOM Single Market because of fears that the economy could not withstand the new tide of competition that the liberalised trading environment would bring. Hurricane Ivan struck Genada in September 2004 and caused total estimated damage in excess of EC$2.4 billion, more than 200% of Grenada’s 2003 nominal GDP. Nearly 90% (apx. 28,000) of the houses in the country were damaged – about 30% so badly that they required complete replacement.

Just 10 months later, on July 14, 2005, Hurricane Emily, with sustained winds of 90 miles (145 kilometers) per hour, passed directly over Grenada. Emily exacerbated the severe losses from Hurricane Ivan and struck the few areas left relatively undamaged by Ivan. Total damages inflicted by Hurricane Emily are estimated to be approximately EC$140 million, or more than 12% of Grenada’s 2004 nominal GDP.

Link here.


Mauritius Prime Minister Navinchandra Ramgoolam has reiterated the determination of the government to develop a sound financial system and transform Port Louis into an international financial and trading center. The Prime Minister was speaking at the inauguration of the new Headquarters of the Bank of Mauritius (BoM) last week in which he underscored the role of the Central Bank as the heart of the financial sector in the domestic economy. “The competitive edge of a small country like Mauritius to a great extent depends on the quality of its institutions. In this respect, the Central Bank has a critical role to play,” he said.

Ramgoolam pointed out that the efforts of the BoM are already bearing fruits as reflected in the quality of the balance sheets of banks and the numerous expressions of interest by large international groups to enter the banking sector in Mauritius. According to Ramgoolam, over nearly four decades, the BoM has successfully created the appropriate market environment for a growing and dynamic financial sector. It has helped to build an investor base, encourage the supply of financial instruments and modernised the payment and settlement system. It has also ensured a liquid market and improved access to new sources and skills for management of capital and debt.

Link here.


“Market sentiment has gravitated toward a central scenario for a benign slowdown which keeps inflationary pressures contained,” the IMF said in an update to its bi-annual Global Financial Stability Report. “But downside risks remain and there have been changes in underlying financial conditions that warrant continued vigilance.” It noted debt leverage levels have grown at private equity funds, while hedge funds that sold financial options may be exposed to sudden market swings.

By and large, the outlook was characterized as encouraging. U.S. growth has slowed as the housing market has cooled, but there appears to have been little spillover from this to the rest of the economy, while activity abroad has gathered pace. On the other hand, a sharp fall in volatility levels in financial markets, as well as a concentration of risk as investors adopt similar trading strategies, could be storing up trouble for the future. “Investors appear to be giving insufficient weight to downside risks and might assume that the low risk premia are a permanent feature of the financial market landscape,” the report said. In particular, IMF economists worried that cyclical factors might be adding to the low levels of volatility, which could reverse with potentially disruptive consequences.

Link here.


Although the post-Christmas subsea earthquake which shook Taiwan caused relatively little damage on the ground, it has severely disrupted telephone and Internet communications across south-east Asia by damaging fibre-optic cables. Taiwan’s Chunghwa Telecom said that 98% of communication with Malaysia, Singapore, Thailand and Hong Kong had been cut off. Hong Kong telecommunications officials said that all seven of the main cables serving the SAR had been damaged, six of them seriously.

Despite the damage, by Thursday all roaming and long-distance phone services were working again, except to Taiwan. Internet service, however, is still very patchy, and for a while large parts of China were off-line altogether since most of its Internet access is via Hong Kong. Cable operators said they had been able to re-route most traffic, but that complete restoration of the afflicted cables might take weeks. Some of them may have to be completely replaced. Financial markets largely avoided shut-down, but bank Internet services were badly affected.

Link here.



Virtual worlds are now producing real millionaires. Two weeks ago, Ailin Graef announced that her avatar inside Second Life had amassed virtual-property holdings worth $1 million in U.S. funds. She started 2 1/2 years ago with a $10 account in the online 3-D world – then parlayed her design skills to amass in-game capital. Graef owns 36 square miles of Second Life property, a couple of virtual shopping malls and several in-game brands.

That is not bad pin money for online play. It has made many online gamers wonder if they could become the next in-game Donald Trump. But it has got tax lawyers wondering when the IRS will show up. If you make a boatload of profits inside a game – will the taxman soon want his cut? This debate has simmered for years, but it has now come to a boil because in-game economies have become worth so much in real money. Indeed, you do not even have to be a Graef-like mogul to profit from online play.

Say you have been playing World of Warcraft for the last year and you have got a few level-60 characters. Well, according to the going rates on IGE or eBay, you have created an account that could be worth more than $1,000. And then there is all your gold – according to the rates currently posted at IGPlace.com, a piece of WoW gold is worth 18 cents. Every time you go online and kill monsters, you are creating value as surely as if you were working a shift at Starbucks. A few years back, the economist Edward Castronova stunned the game world by deducing that people playing Everquest made more than $3 an hour in real-world value by playing the game – which gave Everquest a per-capita GDP nearly as big as Russia’s. WoW’s economy is easily as big as that now, or larger. Things are even more intense in a world like Second Life, because publisher Linden Labs explicitly lets you own in-game property and create new in-game objects to sell to others.

Almost everyone agrees these days that if you “cash out” – and sell a valuable avatar or big stash of gold on eBay, exchanging virtual goods for real greenbacks – you owe taxes on the profit. But what about stuff that stays inside the game? If you played WoW for three years and racked up $4,000 worth of avatars and gold, but never cashed out – should you still be paying annual taxes on your increased value, as if it were income? This is where the rubber hits the road, because the profits currently locked up inside these worlds are becoming big enough – hundreds of millions at least, and maybe billions – that they are a juicy target for the IRS.

Could they tax this stuff? Is there a tax argument in favor of it? Many tax experts say yes. Bryan Camp, professor of Law at Texas Tech University School of Law says it would be easy for the IRS to argue that in-game profits have real-world value even when they are locked up. What is more, in-game trades of valuable virtual goods could qualify as barter – and the IRS already taxes barter. Mind you, if the IRS ever did tax this stuff, it could seriously harsh the mellow inside these games. Dan Miller, a senior economist for the Joint Economic Committee, a congressional think tank that recommends policy to lawmakers – who is a gamer himself – thinks taxes would be ruinous, and argues against them. They would alter the geopolitics of online worlds, as pissed-off gamers would flee to games hosted in countries like China or Korea, where the IRS could not reach. “If we start slapping taxes on these worlds, we’re going to inhibit the growth and development of these places, and other countries would simply pick up the slack,” he says.

But set aside the question of whether the feds could tax in-game economies. Will they? Predictions range over the map. Miller is worried, and so is Bryan Camp, professor of Law at Texas Tech, who suspects Second Life might be particularly in danger, because its players constantly insist “it’s not a game. ... And if it’s not a game, if you’re not playing it for entertainment, then what – it’s for business, right? You’re in there because you want to be the next Bill Gates? That’s what the IRS would think,” he says. “The more they say that, that’s like painting a big target on you.”

Predicting the IRS is a black art. A precedent could be set in many ways. Maybe a local tax official in Spokane audits a guy and discovers he amassed $40,000 in in-game items – then hits him with a judgment. Or maybe a top IRS official has a teenager who runs a profitable virtual T-shirt brand in Second Life, and the official decides to make her career by pushing for in-game taxation. Either way, online worlds are growing up fast. You could soon see your Form 1040 including a deeply weird line, “In-Game Income”. Welcome to the real world.

Link here.


As the end of the year approaches, now is the time to plan and take advantage of U.S. tax law changes for the 2006-filing year, according to the Ernst and Young 2007 Tax Guide. With 2007 around the corner, the authors of the guide offer the following tips for taxpayers on new credits and deductions.

Link here.


The IRS has announced new guidance to help tax filers in 2007 claim the extended deductions and other tax advantages in the Tax Relief and Health Care Act of 2006 signed into law last week. The IRS said that while the start of the 2007 filing season will begin on time, the recent changes in the law mean the IRS will not be able to process a small percentage of individual tax returns until early February, primarily involving three tax deductions. “The IRS is taking a number of steps to ensure taxpayers have the correct information on these deductions when they prepare and file their tax returns,” IRS Commissioner Mark W. Everson said.

The IRS urged taxpayers to use e-file instead of the paper forms to minimize confusion over the late changes and reduce the chance of making extender-related errors on their returns. “As we always do, we encourage taxpayers who think they may claim these deductions to file electronically,” Everson said. “They will get their refunds faster through e-file. Even more importantly, e-file will greatly reduce the chances for making an error compared to claiming the deductions on the paper 1040.”

The new legislation affects a number of areas of tax law, but the most significant effect on individual taxpayers involves the deductions for state and local sales tax, higher education tuition and fees, and educator expenses. The sales tax deduction was claimed on approximately 11.2 million tax returns filed in 2006 for Tax Year 2005. The tuition and fees deduction was claimed on about 4.7 million returns and the educator expense deduction was claimed on 3.5 million returns. The IRS will not be able to process tax returns claiming these extender-related deductions until early February. This year, the IRS expects to receive about 136 million tax returns.

The IRS also announced details on how taxpayers can use existing lines on the current Form 1040 and other tax documents to claim the three major extenders provisions. The key forms (Forms 1040, 1040A, Schedule A&B, and instructions) went to print in early November and reflected the law in effect at that time. The instructions contain a cautionary note to taxpayers that the legislation was pending at the time of printing.

Link here.


More than a year since President Bush’s Panel on Tax Reform made some sensible suggestions, there are signs of stirring in the undergrowth. The 19th Annual Institute on Current Issues in International Taxation at the George Washington University just before Christmas brought together a star-studded team of U.S. and international tax luminaries to discuss an agenda for change in the U.S. and overseas.

Speakers included commissioners, deputy commissioners and director generals of tax authorities from the IRS and revenue authorities in Canada, Japan and the UK, along with many senior tax lawyers and directors of taxation from larger companies. Subjects covered at the forum included many aspects of international taxation, including tax treaties, transfer pricing, international restructuring, and private equity. Mr. Donald L. Korb, Chief Counsel, IRS, used a Luncheon Address to set out IRS goals for tax reform in the year ahead.

Although the President has probably got too many foreign policy and political worries to feel very enthusiastic about tax reform, the IRS may find the Congress more accommodating. A history-making alliance between Sens. Ron Wyden (D-Oregon), Larry Craig (R-Idaho) and 15 organizations spanning the U.S. political spectrum has pledged to work together toward a Congressional debate over federal tax reform. The coalition’s campaign is centered around the principles outlined in its “Cleanse the Code” statement, which contains three broad principles: Simplification, Transparency, and Certainty; Opportunity for All Americans to Get Ahead; and Fiscal Responsibility. “Although we may disagree on the merits of a particular tax reform proposal (and each may have additional core standards for reform), we do agree that major reform – much as we saw in 1986 – is needed,” the joint statement noted.

“Most taxpayers should be able to calculate their taxes on a single form or no form at all, and in most cases by themselves, with a few hours or less of preparation. ... A more transparent tax code would make it easier for individuals and businesses to pay the taxes that they owe, and for the IRS to help them comply with their obligations under the Tax Code,” the statement continued.

Link here.


The European Commission issued a number of reasoned opinions addressed to Austria, over its application of the reduced rate to supplies of goods in connection with the treatment of waste water and refuse and over its levying of VAT on cars leased in other Member States; France, over the application of a reduced rate to certain services supplied by lawyers; and Italy, over the extension of the fiscal amnesty to VAT debts incurred in 2002. Unless the Member States in question bring their legislation in compliance within two months of receipt of these opinions, the EC may decide to refer these cases to the Court of Justice of the European Communities.

Link here.
EC takes issue over Belgian tax treatment of foreign charities – link.



Teekay Offshore Partners L.P. (NYSE: TOO) completed its initial public offering of 8,050,000 of its common units at a price of $21.00 per unit. Gross proceeds of the offering were $169,050,000. The Partnership used the net proceeds of the offering to repay indebtedness and to redeem 1,050,000 common units from Teekay Shipping Corporation (NYSE: TK). The 8,050,000 common units issued in the offering represent a 40.3% L.P. interest in the Partnership and Teekay Shipping Corporation owns the remaining partnership interests, including common units, subordinated units, incentive distribution rights and its 2% general partner interest. The common units trade on the New York Stock Exchange under the symbol “TOO”. Citigroup Corporate and Investment Banking and Merrill Lynch acted as joint book-running managers and representatives of the underwriters.

Teekay Offshore Partners L.P. (TOO), a Marshall Islands partnership recently formed by Teekay Shipping Corporation (TK), is an international provider of marine transportation and storage services to the offshore oil industry. TOO owns a 26.0% interest in and controls Teekay Offshore Operating L.P., a Marshall Islands limited partnership with a fleet of 36 shuttle tankers, four floating storage and offtake units and nine conventional crude oil Aframax tankers. TOO also has rights to participate in certain floating production, storage and offloading opportunities involving Teekay Petrojarl ASA.

Link here.


The BVI Financial Services Commission statistical bulletin for the first quarter of 2006 has shown little change in the composition of the offshore banking sector, but encouraging growth in the number of professional funds and business companies incorporating in the jurisdiction. According to the bulletin, during Q1 2006, one new general banking licence was granted and the total assets for the banking industry stood at approximately $2.44 billion. Currently, there are only nine institutions which have been licensed to operate in and from within the BVI. Meanwhile, the bulletin reported that the jurisdiction’s trust sector has experienced moderate growth and has been growing at a rate of 4% annually since 1995.

Professional funds are the most popular funds constituted in the BVI. There was a 46% increase in the number of professional funds recognized in the first quarter of 2006 vs. the same quarter in 2005, and a 54% increase from the previous quarter. During the Q1 2006, six new captive insurance companies were licensed by the Commission, however, no domestic insurer or insurance manager licenses were issued. The majority of new captive insurance licensing occurs in the fourth quarter, with 43 licensed in Q4 2005.

Starting January 1, 2006, all new incorporations were added to the Register of Companies as BVI Business Companies (BVIBCs). This quarter represents the highest number of incorporations since 2002. Approximately 18,000 BVIBCs were incorporated in Q1 2006, a 13% increase from Q1 2005 and a 46% increase from Q4 2005. The quarterly incorporation figures include IBCs and local companies, and the 2005 and 2006 figures also include BVIBCs.

Link here.


The Swiss Parliament approved on the last day of its winter session the ratification by Switzerland of the Hague Convention on the Law Applicable to Trusts and on their Recognition of July 1st 1985 (Hague Trust Convention). Both Houses of the Swiss Parliament have now unanimously accepted the Swiss Federal Council’s bill. The bill authorizes the Swiss Federal Council to ratify the Hague Trust Convention as well as introducing new legal provisions into Swiss law to deal with international conflict issues – jurisdiction, applicable law, recognition and debt enforcement – relating to trusts.

Upon its publication in the official Federal Bulletin and in accordance with the Swiss Constitution, this bill is subject to the possibility of a referendum during 100 days pursuant to the Swiss Constitution. However, according to the Society of Trust and Estate Practitioners (STEP), it is unlikely that any referendum will be launched against the bill. The entry into force of the Hague Trust Convention and of the new internal legal provisions can be expected as early as July 2007.

Link here.


The Bermuda Companies Act 2006 is expected to come into force shortly. It incorporates a wide range of improvements to legislation which essentially dates from 1981, in response to a request from the Minister of Finance that the law should be updated “to meet the demands of business in the 21st century.” Key aspects of the new legislation are as follows

Currently, Bermudan companies are usually formed by registration under the Companies Act 1981 as amended, taking between two and five days. Local companies must be 60% owned by a Bermudian and they can trade within the domestic economy. Two directors are required who cannot be corporate but need not be Bermudian. A secretary is required, does not have to be local, and can be corporate. The minimum capital was previously $12,000. Accounts must be kept at a local registered office along with the share register and minutes of shareholders’ and directors’ meetings although the accounts are not open to inspection. The share register, register of directors and officers, certificate of incorporation and memorandum and articles of association are all publicly accessible. Shelf companies are not obtainable but old companies are available on occasion.

Link here.



If you have traveled abroad recently, you have been investigated, and been assigned a score indicating what kind of terrorist threat you pose. That score is used by the government to determine the treatment you receive when you return to the U.S. and for other purposes as well. Curious about your score? You cannot see it. Interested in what information was used? You can not know that. Want to clear your name if you have been wrongly categorized? You cannot challenge it. Want to know what kind of rules the computer is using to judge you? That is secret, too. So is when and how the score will be used.

U.S. customs agencies have been quietly operating this system for several years. Called Automated Targeting System, it assigns a “risk assessment” score to people entering or leaving the country, or engaging in import or export activity. This score, and the information used to derive it, can be shared with federal, state, local and even foreign governments. It can be used if you apply for a government job, grant, license, contract or other benefit. It can be shared with nongovernmental organizations and individuals in the course of an investigation. In some circumstances private contractors can get it, even those outside the country. And it will be saved for 40 years.

Little is known about this program. Its bare outlines were disclosed in the Federal Register in October. We do know that the score is partially based on details of your flight record – where you are from, how you bought your ticket, where you are sitting, any special meal requests – or on motor vehicle records, as well as on information from crime, watch-list and other databases.

Civil liberties groups have called the program Kafkaesque. But I have an even bigger problem with it. It is a waste of money. The idea of feeding a limited set of characteristics into a computer, which then somehow divines a person’s terrorist leanings, is farcical. Uncovering terrorist plots requires intelligence and investigation, not large-scale processing of everyone. Additionally, any system like this will generate so many false alarms as to be completely unusable. In 2005 Customs & Border Protection processed 431 million people. Assuming an unrealistic model that identifies terrorists (and innocents) with 99.9% accuracy, that is still 431,000 false alarms annually. The number of false alarms will be much higher than that.

The odds of this program being implemented securely, with adequate privacy protections, are not good. Last year I participated in a government working group to assess the security and privacy of a similar program developed by the Transportation Security Administration, called Secure Flight. After five years and $100 million spent, the program still cannot achieve the simple task of matching airline passengers against terrorist watch lists.

Link here.

The real purpose behind the terror screening system.

I am bewildered over all the fuss surrounding the recent revelations that every international traveler entering or leaving the U.S. for the last four years has been given a “terrorism risk” assessment. And this assessment will reside in a secret file for 40 years after the border crossing. I am not disputing that this is an outrageous and unacceptable invasion of privacy, and that 40 years is far too long to keep this information on file. But come on now, people, what do you expect?

We have accepted the “no fly” rules like sheep. How do you think the government has decided who to put on the no-fly list? Through the secret terrorism risk assessment system, of course. I have long maintained that the “no fly” rules have very little to do with security and are in fact designed to identify political opponents to the Bush administration. This may sound like a paranoid fantasy, but consider. According to the Homeland Security Administration (HSA), about 400 million people enter or leave the U.S. each year. HSA will not say how many of these people it considers terrorists, but there are about 44,000 on the no fly list, as of late September. We know the overwhelming number of these people are NOT terrorists. But let us say that 1% of the people on the list are, in fact, terrorists. That means that for each terrorist the HSA’s super-duper data-mining software correctly identifies, it misidentifies 100 people as potential terrorists.

The HSA surely knows this. Yet it persists in its data-mining program, ostensibly to find terrorists. They persist in spite of the number of falsely identified terrorists vastly outnumbering real terrorists, not to mention having numerous dead and incarcerated real terrorists on its no-fly list. So then what is the real purpose of the HSA program?

It turns out that looking for other types of people who are not as rare as terrorists is much more plausible using data-mining technologies. For instance, there are a lot of international travelers who do not like George Bush. Some of them may subscribe to anti-Bush publications, make phone calls to other people who do not like Bush, etc. Since all of these records are “mined” by the National Targeting Center, it would be easy for the HSA to use this information to identify Bush political opponents. In other words, while the HSA program is almost useless for identifying terrorists, it is an extremely effective way for the government to engage in mass political intelligence gathering. And that is what I think it is being used for.

Link here.

Homeland Security admits it did not follow privacy law.

The HSA admitted it did not follow the Privacy Act two years ago in obtaining more commercial data about U.S. airline passengers than it had announced it would. 17 months ago, the Government Accountability Office, Congress’s auditing arm, reached the same conclusion. Even so, in a report on the testing of TSA’s Secure Flight domestic air passenger screening program, the HSA’s privacy office acknowledged TSA did not comply with the law.

But the privacy office still could not bring itself to use the word “violate”. Instead, the privacy office said, “TSA announced one testing program, but conducted an entirely different one.” In a 40-word, separate sentence, the report noted that federal programs that collect personal data that can identify Americans “are required to be announced in Privacy Act system notices and privacy impact assessments.”

Congress has been unhappy with TSA’s domestic airline screening program for years – since it was called CAPPS II before it was tweaked and renamed Secure Flight. Federal law now bars TSA from implementing a domestic screening system until the GAO is satisfied it can meet 10 standards of privacy protection, accuracy and security. Secure Flight has never passed all those tests, and SA spokesman Christopher White said there is no target date for implementing it. “We are more concerned with getting it right,” White said.

The report reinforced concerns on Capitol Hill. “This further documents the cavalier way the Bush administration treats Americans’ privacy,” said Sen. Patrick Leahy, D-Vermont, who is set to become Senate Judiciary Committee chairman in January. “With this database program, first they ignored the Privacy Act, and now, two years later, they still have a hard time admitting it.”

Link here.


A search engine that uses sophisticated facial recognition to allow users to identify and find people in online images will launch next month. But civil liberties groups say the biometric-style tool could compromise the privacy of anyone who has their picture online. Search engine Polar Rose reconstructs the 3D shape of a person’s face and then combines that with characteristics of their features to generate a unique “face print”. This can then be used to search other photos for a match.

In January users will be able to download a plugin for their browser that allows users to enter information about faces they recognize in online images. This data is then sent to a central server allowing anyone looking at an image containing that particular face print to tell who it is. Users can also search the web for more photos containing that face. Online image search engines usually work much like their text counterparts. “They find images on pages that contain the words you search for,” says Jan Erik Solem, whose PhD project at Malmö University College, Sweden, led to the new company. “Search engines are blind to images, Polar Rose is not.”

“Some biometric companies are using 3D laser scans of faces to aid identification from photos,” Solem says. “We’ve developed a way to work backwards. We can create a 3D model of a face from a 2D image.” That allows Polar Rose to recognize people even when the pose or lighting has changed, he says. The technique was developed using a database of around two thousand 3D face-scans paired with normal 2D photos. “We used statistical methods to work out the relationship between the two,” explains Solem. A video (AVI file) on the Polar Rose website shows the technique being used to reconstruct actor Tom Cruise’s face.

The 3D shape is combined with colour and shape data from the 2D picture to generate the face print that serves as a unique identifier. Solem says he cannot give figures on the search engine’s accuracy until it is tested by the public. It works on any image with a face at least 100 pixels across, as broadband becomes more common, more and more pictures will fit the bill, he predicts.

Polar Rose and future developments that make facial recognition available to the masses risk encroaching on people’s privacy, warns Yaman Akdeniz, director of the UK non-profit group Cyber-Rights & Cyber-Liberties. “Although this sounds like a great idea, I would not like to be searchable in this way, or so easily tracked without my consent,” says Akdeniz. The database compiled by Polar Rose is similar to the kind of biometric database some governments wish to use, he points out. He suggests people think twice before embracing such potentially intrusive tools, and consider which photos of themselves they allow online.

Simon Davies, director of the campaign group Privacy International and a specialist in technology and privacy fears Polar Rose could help identity thieves or stalkers, or even be used by the police to monitor protesters. “They could use the service to find where people have been, what their activities are, or who they associate with,” he says.

Link here.


A draconian regime of fines, which would hit families at times of marriage and death, is being drawn up by ministers to enforce the Identity Card scheme. Millions of people, from struggling students to newly-wed women and bereaved relatives, will face a system of penalties, netting more than £40 million for the Treasury. People would be fined up to £1,000 for failing to return a dead relative’s ID card, while women who marry will have to pay at least £30 for a new card if they want to use their married name, risking a £1,000 fine if they do not comply.

The revelations will fuel debate over ID cards in the countdown to their nationwide introduction, which the Government claims will boost security, tackle identity fraud and prevent illegal working. But costs are soaring and the technology has failed in tests. The Government says people will have to pay £30 for a simple ID card, or more than £90 for one with a passport. Experts, however, claim that the cost of a combined card could be as high as £300, pushing the implementation costs beyond £20 billion.

The fines revelation shows that the scheme “will hit the taxpayer not the terrorists” and is “just another Labour stealth tax,” said David Davis, the shadow home secretary. “It is shocking that the Government is considering charges and fines on people at some of the most sensitive times in life. The Conservatives would scrap this plastic poll tax and invest the savings in practical measures to improve security.”

The first cards will be issued by the Identity and Passport Service to passport applicants in 2009 and will become compulsory from 2010. As well as a picture, the card will carry a microchip holding biometric information such as fingerprints, iris or facial scans. Everyone over 16 applying for a passport will have these details added to a National Identity Register starting 2008. The extent of the fines for minor infringements is revealed in written answers from John Reid, the Home Secretary, and other ministers. They show that the Government is drawing up sinister sounding “guidance on death registration” which will order bereaved families to return the card of their deceased relative within a specified period, or face a £1,000 fine.

Link here.


All passports issued by the U.S. State Department after January 1, 2007 will have always-on radio frequency identification chips, making it easy for officials – and hackers – to grab your personal stats. Getting paranoid about strangers slurping up your identity? Here is what you can do about it. But be careful. Tampering with a passport is punishable by 25 years in prison. Not to mention the “special” customs search, with rubber gloves. Bon voyage!

  1. RFID-tagged passports have a distinctive logo on the front cover. The chip is embedded in the back.
  2. “Accidentally” leaving your passport in the jeans you just put in the washer will not work. You are more likely to ruin the passport itself than the chip.
  3. Forget about nuking it in the microwave – the chip could burst into flames, leaving telltale scorch marks.
  4. The best approach? Hammer time. Hitting the chip with a blunt, hard object should disable it. A nonworking RFID does not invalidate the passport, so you can still use it.
Link here.



2006 will be remembered as the year in which our government imprisoned journalists, embraced kidnap and torture as a “no-brainer”, and moved toward implementing an infrastructure for total surveillance of American citizens. Hopefully, it also will be remembered as the year we started to bring these practices to a halt. In this column, I look back on three civil liberties crises that reached a critical point in 2006. In my next column, my first for 2007, I will take a more proactive view of what the new year could mean for civil liberty.

Legal attacks on journalists. This year the U.S. State Department launched the Global Internet Freedom Task Force to challenge other governments that repress online journalism. Perhaps it should start at home. This year, reporters from the The New York Times and Time magazine faced imprisonment for refusing to say who leaked information about the identity of undercover CIA agent Valerie Plame. Two San Francisco Chronicle reporters are facing jail time for refusing to reveal who gave them grand jury transcripts detailing the steroids charges against Barry Bonds and other professional athletes.

This is a disturbing erosion of press freedom. Historically, courts have punished people who illegally leak information, but have generally kept their hands off the journalists who spoke with those people and published the information. The source privilege is a bedrock of a free press, which is to say, a press that does not have to follow the official line. Many states have shield laws that explicitly protect reporters from being forced to disclose the identity of their confidential sources. But the federal government does not, which makes the state laws easily bypassed. In the most recent battle, the Department of Justice is subpoenaing the ACLU to force the group to return a leaked confidential document. The effort threatens to subvert free speech protections established in the Pentagon Papers case, which held that the government could stop journalists from publishing classified information only in the most dire of circumstances.

This year, we have also seen companies and law enforcement go directly to the ISP or telephone company for information about sources, rather than subpoenaing the journalist, and giving him or her a chance to raise a legal defense and protect his source. Changing law enforcement attitudes are not the only threat to the freedom of the press. Technology is too.

Condoning torture. More information is coming out about the government’s “extraordinary rendition” program, an admitted effort to kidnap alleged terrorist operatives and take them to countries without safeguards against torture for “interrogation”. The Bush administration has defended the practice, and while it denies that the extra-territorial interrogations amount to torture, no one doubts that the techniques approved by the administration would be illegal in the U.S. Indeed, vice president Dick Cheney has called the use of torture a “no-brainer”.

To escape responsibility for torture, officials are hiding behind the “state secrets doctrine”, and strenuously seeking to avoid all public oversight, judicial review or liability for its actions. Even when they torture the wrong guy. For example, German citizen Khaled El Masri was kidnapped by the CIA in 2003, transported to Afghanistan and tortured – before the CIA realized it had arrested the wrong person, and, fortunately, released him. El-Masri’s lawsuit against the CIA was dismissed on state secrets grounds, but is now on appeal. Since the trial court dismissed the case, there is more public information available about extraordinary rendition, including Cheney's extraordinary admission and more legal decisions on the books rejecting state secrets protection for official law-breaking. El Masri’s appeal may be granted.

In early January, an Italian court will consider whether to issue indictments against CIA agents accused of kidnapping an Egyptian cleric on the streets of Milan and taking him to Egypt, where he was beaten and given electric shocks. If the Italian case moves forward, we will learn more about our government’s complicity in torture. At that point, we will have to focus on the administration’s decision (backed by Congress) to deny detainees access to the courts, and call it what it is – not a streamlining of counter-terrorism efforts, but a massive coverup.

Surveillance infrastructure. 2006 has seen a peak in government and corporate access to individuals’ private information, with little or no legal checks and balances. Litigants and investigators can go directly to phone companies, banks, websites, ISPs and employers for personal information on nearly anyone they want. In January, AmericaBlog showed it could purchase Gen. Wesley Clark’s phone records online for $89.95. Then Hewlett-Packard’s investigation of leaks from its board shined a light on pretexting, a controversial way to get information from phone companies and the like by pretending to be the subscriber.

Congress just passed a statute outlawing pretexting against phone companies, but nobody else. Meanwhile, the government collects communications data directly from the telephone companies. Documents provided to the Electronic Frontier Foundation, as well as news organizations including Wired News, appear to show a domestic spying program that dragnets all U.S. communications, regardless of source or destination, for National Security Agency review without legal process. Combine that data with voting records, criminal histories, credit records, utility usage, library records, internet search histories, closed circuit TV cameras, facial recognition, RFID tags, and we have got a robust surveillance infrastructure.

Maybe the government does not care about you at the moment – but someone always cares, whether advertisers, identity thieves, employers, lovers or friends. Everyone has private matters they want, and are entitled to keep, secret. In the past, much of our privacy sprang from the simple fact that data was not readily collected or searched. Now that we live in an information society, we need legal barriers to surveillance. What remains to be seen is whether we will choose to implement new laws to regain the zone of privacy we used to be able to take for granted, or not.

Overall, 2006 was not particularly better, nor particularly worse, for civil liberties than other recent years. Many important issues, however, have moved closer to resolution. Next year will determine whether we continue down a path of increased government power with decreased oversight and transparency ... or not.

Link here.

Torture is now part of the American soul.

After thousands of years of practice, you might have imagined that every possible means of inflicting pain had already been devised. But you should never underestimate the human capacity for invention. United States interrogators, we now discover, have found a new way of destroying a human being. Take the instance of Jose Padilla, a U.S. citizen detained as an “enemy combatant” ...

Link here.


A one-time Texas drug agent described by his former boss as perhaps the best narcotics officer in the country plans to market a how-to video on concealing drugs and fooling police. Barry Cooper, who has worked for small police departments in East Texas, plans to launch a Web site this week where he will sell his video, “Never Get Busted Again”. A promotional video says Cooper will show viewers how to “conceal their stash”, “avoid narcotics profiling” and “fool canines every time.”

Cooper, who said he favors the legalization of marijuana, made the video in part because he believes the nation’s fight against drugs is a waste of resources. Busting marijuana users fills up prisons with nonviolent offenders, he said. “My main motivation in all of this is to teach Americans their civil liberties and what drives me in this is injustice and unfairness in our system,” said Cooper.

As a drug officer, Cooper said, he made more than 800 drug arrests and seized more than 50 vehicles and $500,000 in cash and assets. “He was even better than he says he was,” said Tom Finley, Cooper’s former boss on a West Texas drug task force and now a private investigator in Midland. News of the video has angered authorities, including Richard Sanders, an agent with the Tyler Drug Enforcement Agency. Sanders said he plans to investigate whether the video violates any laws. Smith County Deputy Constable Mark Waters, a narcotics officer, said the video is insulting to law enforcement officials. “This is a slap in the face to all that we do to uphold the laws and keep the public safe,” he said.

Link here.


One just knows that there is going to be an interesting subtext in a story with a headline like this one: “Egg-toss prank turns deadly in Ohio”. Yep, some bored kids were lobbing eggs at passing cars. One driver did not take too kindly to that, and pursued the kids. Someone in that vehicle fired some shots that ended up killing a 14-year-old boy. What caught my attention is the way the tale is turned in the report:

Cars give people a sense of anonymous power that helps explain such confrontations, a type of road rage, said Northeastern University criminologist Jack Levin.

“That’s what kids do, they have fun on the weekends,” said ... a sophomore at nearby West High School. “That’s what him and his boys was up to – having fun doing what they do.”

“We had hoped that he would graduate from high school, possibly go to college,” said [the 14-year-old’s] grandmother ... “We hoped he would date and marry and have children, and of course all of that was ended because of somebody’s stupidity.”

Ah yes. Somebody’s stupidity. Unfortunately – but totally typically – what Grandma apparently fails to realize is that the stupidity that brought about her grandson’s death was his own. Initiating force against someone’s person or property will almost always result in some kind of response. Sometimes that response might not be immediately apparent.

Does that mean that I condone firing at teens egging cars? Not at all. It seems to me an obviously disproportionate response of force. That said, I think I have an inkling of understanding as to why these kinds of events happen. Do you grok the unspoken implication in all the excerpt I quoted? It is that respecting private property is not appropriate. Getting angry at someone whose actions could endanger your life and damage an expensive item is not acceptable. It is road rage. Throwing stuff at other people’s property is not potentially dangerous or vandalism. It is having fun. And if someone does get upset about having his property targeted and retaliates, it is stupidity.

In a culture that does not value private property, and does not respect property rights, individuals who do expect a basic level of common courtesy become increasingly frustrated at its absence. He also sees that aggressors are increasingly released from accountability, which has the inevitable result of increasing their trespasses. Therefore, it is not surprising at all that a few individuals snap, and take the action that the shooter in this report did.

Link here.



At the heart of the Christmas story rests some important lessons concerning free enterprise, government, and the role of wealth in society.

Let’s begin with one of the most famous phrases: “There’s no room at the inn.” This phrase is often invoked as if it were a cruel and heartless dismissal of the tired travelers Joseph and Mary. Many renditions of the story conjure up images of the couple going from inn to inn only to have the owner barking at them to go away and slamming the door. In fact, the inns were full to overflowing in the entire Holy Land because of the Roman emperor’s decree that everyone be counted and taxed. Inns are private businesses, and customers are their lifeblood. There would have been no reason to turn away this man of aristocratic lineage and his beautiful, expecting bride.

In any case, the second chapter of St. Luke tells of the charity of a single inn owner, perhaps the first person they encountered, who, after all, was a businessman. His inn was full, but he offered them what he had – the stable. There is no mention that the innkeeper charged the couple even one copper coin. Without the assistance of this private businessman, the story would have been very different indeed. And yet we do not even know the innkeeper’s name. In 2,000 years of celebrating Christmas, tributes today to the owner of the inn are absent. Such is the fate of the merchant throughout all history: doing well, doing good, and forgotten for his service to humanity.

Clearly, if there was a room shortage, it was an unusual event and brought about through some sort of market distortion. It was because of a government decree that Mary and Joseph, and so many others like them, were traveling in the first place. They had to be uprooted for fear of the emperor’s census workers and tax collectors. Thus we have another lesson: government’s use of coercive dictates distorts the market.

Moving on in the story, we come to Three Kings, also called Wise Men. Talk about a historical anomaly for both to go together! Most Kings behaved like the Roman Emperor’s local enforcer, Herod. Not only did he order people to leave their homes and foot the bill for travel so that they could be taxed. Herod was also a liar: he told the Wise Men that he wanted to find Jesus so that he could “come and adore Him.” In fact, Herod wanted to kill Him. Hence, another lesson: you cannot trust a political hack to tell the truth.

Once having found the Holy Family, the Wise Men offered their gifts of “gold, frankincense, and myrrh.” These were the most rare items obtainable in that world in those times, and they must have commanded a very high market price. Far from rejecting them as extravagant, the Holy Family accepted them as gifts worthy of the Divine Messiah. Neither is there a record that suggests that the Holy Family paid any capital gains tax on them, though such gifts vastly increased their net wealth. Hence, another lesson: wealth is something to be valued, owned privately, given and exchanged.

When the Wise Men and the Holy Family got word of Herod’s plans to kill the newborn Son of God, did they submit? Not at all. The Wise Men, being wise, snubbed Herod and “went back another way” – taking their lives in their hands (Herod conducted a furious search for them later). As for Mary and Joseph, an angel advised Joseph to “take the child and his mother, and fly into Egypt.” In short, they resisted. Lesson number four: the angels are on the side of those who resist government.

In the Gospel narratives, the role of private enterprise, and the evil of government power, only begin there. Jesus used commercial examples in his parables (e.g., laborers in the vineyard, the parable of the talents) and made it clear that he had come to save even such reviled sinners as tax collectors. And just as His birth was facilitated by the owner of an “inn”, the same Greek word “kataluma” is employed to describe the location of the Last Supper before Jesus was crucified by the government. Thus, private enterprise was there from birth, through life, and to death, providing a refuge of safety and productivity, just as it has in ours.

Link here.


Windows Vista will have a major impact on the personal computing experience of millions of users worldwide during the coming years, but that does not mean Microsoft’s latest operating system is a killer product, nor something you necessarily need or want. Wired News recently obtained a copy of the final RTM, or Release to Manufacturing, build of Windows Vista Ultimate from Microsoft. This edition of the OS is the most powerful and advanced of the four editions Microsoft will make widely available January 30, 2007.

Other editions of Windows Vista are made for home users (Windows Vista Home Basic, $200, $100 upgrade), users who want a better entertainment experience (Windows Vista Home Premium, $240, $160 upgrade) and business users (Windows Vista Business $300, $200 upgrade). Windows Vista Ultimate ($400, $260 upgrade) is made for the hard-core gamer, the media collector and anyone wishing to squeeze the best performance out of drool-worthy high-end machines. Visual splendor is Vista Ultimate’s greatest selling point – the new OS does offer a graphically intensive interface that differs greatly from that of Windows XP. Also, Vista dumbs everything down for you, streamlining the Wild West of complex OS software into a useful product. This makes tasks ranging from networking to setting parental controls a lot easier. However, I encountered several bumps in the road during testing that show Vista is not ready for everyday use by millions of people just yet – no matter how pretty it looks.

Vista developers managed to adhere to Microsoft’s tradition of making the operating system much easier to set up than the previous generation of Windows. Two decades ago, installing DOS was a delicate and risky process that often required professional help. Incremental improvements were made over the years, and Windows XP was about as easy to install as a video game. I found that Vista coddles you even more than Windows XP did during installation. Every test installation took less than an hour to complete.

Vista scans your computer when you install it and applies a performance rating to your hardware. Microsoft calls this rating the Windows Experience Index. The software then adjusts its settings to best match your hardware’s score. Whether your Windows Experience is rated at 3.1 or 5.1, you will probably notice little if any difference in performance while drafting a spreadsheet, using a word processor, browsing the web, or even watching a DVD. The first thing you notice about Vista when you load it up is its pretty graphics, which are still not any more beautiful than those of my equally robust (and much less expensive) SuSE Linux operating system. However, other than the new graphics, Vista’s overall look and feel are not drastically different compared to XP. Vista has media, networking and other features that XP does not, but I have yet to find a single feature not already available with Linux distributions or freeware. The e-mail software, Windows Mail, is fundamentally similar to Outlook Express. Navigating the “Start” and “All Programs” menus is essentially the same.

Security has been one of Microsoft’s key talking points when hyping Vista. Given the vulnerabilities that constantly emerge within Windows XP, who can blame the company? We did not seek to exploit or discover any security flaws. However, Vista does make some simple security features available that you would previously have had to install separately under Windows XP. After setting up a user with administrator privileges, you can configure Vista to require the administrator to key in a password when new software is installed. This might represent an aggravation for some, but given how quickly a Windows XP machine can amass 50 or more programs – often mixed with malware that constantly runs in the background while you are caught unaware – I welcomed this feature. I turned on Vista’s parental controls and selected them for my daughter’s account. Access to certain websites – as well as games with a mature rating – could be blocked. One flaw I found is that the website-blocking feature is not worth much in a multilingual home or office setting. Good old American porn sites were blocked, but I had carte blanche access to the raunchiest of raunchy French and Spanish sites.

Enabling file sharing between PCs under Vista is a lot easier when compared to the often painstaking process under XP. Still, file sharing remains quirky in Vista. Sharing folders and files between a PC running Windows Vista and one running Windows XP was a royal pain.

Vista has garnered some initial criticism because of the ample amount of computing power it devotes to its graphics interface. At least in theory, more computing power requires more energy, which in turn eats up a notebook’s battery life. Surprisingly, the test laptop’s battery lasted longer with Vista running than it did with XP running – without even tweaking Vista’s power settings to extend the battery life.

The Verdict

Vista’s power consumption superlatives aside, I would not recommend going out and buying Vista off the shelf or pre-installed on a PC when it becomes available. Users will likely suffer many headaches with missing peripheral drivers and a lack of backward compatibility with legacy software, and those headaches will not make Vista worth its hefty price tag. If possible, wait a year or more after Vista’s launch to invest in the OS. At least by then, numerous updates, hardware drivers and service packs will likely have been released.

Link here.


With Democrats about to take charge on Capitol Hill, we are going to be hearing a lot about the widening income gap between rich and poor. There are a variety of different measures for inequality and lots of factors that drive the data, ranging from winner-take-all labor market competition and the weakness of unions to the pace of immigration and the tendency of high-income people to marry each other. Furthermore, during different periods, this widening of the gap has been most apparent at various rungs of the income ladder – between the poor and the middle class in the 1980s, between the middle class and the upper class in the early 1990s, and, most recently, between the very rich and just about everyone else. All of this is about to become grist for a great national debate on inequality, with everyone picking the income measures, gaps and causes that best support their economic views or their preferred solutions. As it plays out, it is important to remember that there is not one correct analysis or any silver-bullet solution.

In that spirit, I would like to toss out an idea borrowed from a reader in Canada with no particular training in economics but an intuitive sense about the connection between trade flows and income inequality. The idea goes something like this: In terms of the global economy, the elephant in the room for much of the last 25 years has been the large and persistent U.S. current account deficit (loosely, the trade deficit), which this year is likely to exceed $800 billion. Roughly speaking, the richest country in the world spends 106% of its income.

If the U.S. were almost any other country, we would not be able to sustain this huge imbalance for very long because the rest of the world would be unwilling to finance it. But, as it happens, developing nations suddenly have more savings than they know what to do with, much of it denominated in dollars as a result of selling us inexpensive clothing and electronics and very expensive oil. These countries know that if they were to try to exchange all those dollars for their own currencies, it would drive down the value of the dollar – and with it, demand by American consumers for all the things they sell. Rather than accept slower growth and higher unemployment, they have decided to keep their currencies loosely pegged to the dollar by investing those trade-surplus dollars in U.S. assets.

One obvious effect of this decision is to drive up demand for U.S. stocks, bonds and real estate, which foreigners have purchased either directly or through such intermediaries as hedge and private-equity funds. Their money was a significant factor in the tech and telecom bubbles of the 1990s, the current bubble in corporate takeovers and commercial real estate, and the just-ended bubble in residential real estate. Indirectly, it also helps explain why stock prices are at or near all-time records. Moreover, because so much of the trade deficit is reinvested in debt instruments such as Treasury bonds, it has had the effect of lowering interest rates below where they would otherwise be. Low interest rates, in turn, encourage both foreign and American investors to use more borrowed money in their investment strategies, allowing them to buy more assets with the same amount of their own money.

What does this have to do with income inequality? Quite a bit, actually. Increased trade with low-wage countries depresses wages of workers who produce goods and services now imported. But as the trade deficit is depressing wages at the bottom, it is now boosting incomes at the top by significantly inflating the value of stocks, bonds and real estate – assets whose ownership is concentrated heavily in the hands of high-income people. By buying and selling these assets, and borrowing against them, these people have been transforming their paper wealth into spendable (and measurable) income at a record pace.

Finally, all this buying, selling and monetizing of assets has created lots of fat fees for handling these transactions or serving as financial intermediaries. Those fees, in turn, translate into eye-popping bonuses for Wall Street investment bankers, hedge fund managers and partners in private-equity firms.

Now inequality also is rising in countries with trade surpluses, but I think the deficit does help explain why so much of the country’s income gains have gone into the pockets of investment bankers, money managers, real estate developers, wealthy families and corporate executives loaded up with stock options. I am sure these folks believe they are pulling away from the pack because they work harder and create more economic value than the rest of us. But in the coming debate, we need to remember that they are also the lucky beneficiaries of a runaway trade deficit and the bubble-prone economy it has created.

Link here.


It is reasonable that honest, compassionate people seek a means for governments to air their differences. It is also reasonable that honest, compassionate people should desire some way to voluntarily pool resources to provide charitable aid to those who are starving or are victims of natural disaster. Indeed, this is the image of the UN that has been sold to the world since its inception. It is not, however, the reality.

The UN gives validity to zealots and bigots. It helps to keep tyrannical dictators in power. It gives a voice to international terrorists. Delay. Negotiate. Recommend. Study. Reconsider. Do nothing. This is the game the UN has played in nearly every international crisis.

The UN is buried under scandals. It has Oil-for-Food scandals. Smuggling scandals. And theft scandals. UN peacekeeping missions – with their record of rob, rape,and pillage – can actually bring fear to the local citizens they are supposed to protect. Who has the power to oversee and control its actions? The people do not vote on UN actions. The media has little access behind the scenes. Who audits the accounting books?

UN supporters admit such problems, and they call for “reform”. But to them, reform does not mean plugging holes in UN spending or clearing up scandals. Instead, it means global governance. Since its inception, the UN’s advocacy has amounted to a desire to eradicate the sovereignty of nations – while imposing what it calls “world-mindedness”. A 1949 UNESCO document said, “...nationalism [is] the major obstacle to the development of world-mindedness.”

Therein lies the UN’s true goal. And that belies its public image of being simply a place where nations may come to air their differences and act responsibly. Instead, the UN works to gain power for itself in order to become independent and supreme over its member nations. To do that, it needs the power to tax. If the UN gains the power to tax, it will become a monster free of its chains. And, of course, the UN wants its own military. It already has its own court. Imagine a world run by the justice of China, with the economics of Cuba, and the military might of the U.S. Such is the world of the future under UN global governance.

A glance at recent history shows that the UN is irrelevant as a body to deliver world peace. Using images of dire environmental emergencies, life-threatening diseases, or starving children, the UN promotes an agenda that seeks to redistribute the world’s wealth. The inability to own private property creates poverty. Confiscation of private property never helps to eradicate poverty. It is bad economic policy. Yet that is the UN’s only solution to the massive suffering throughout the world.

The UN is not “dysfunctional” as some “reformists” have claimed. It is a criminal enterprise in which no moral nation should ever participate, let alone perpetuate.

Link here.


(This essay by Albert Jay Nock first appeared in The American Mercury in March 1939.)

As well as I can judge, the general attitude of Americans who are at all interested in foreign affairs is one of astonishment, coupled with distaste, displeasure, or horror, according to the individual observer’s capacity for emotional excitement. ... All our institutional voices – the press, pulpit, forum – are pitched to the note of amazed indignation at one or another phase of the current goings-on in Europe and Asia. This leads me to believe that our people generally are viewing with wonder as well as repugnance certain conspicuous actions of various foreign States. For instance, the barbarous behavior of the German State towards some of its own citizens, the merciless despotism of the Soviet Russian State, the ruthless imperialism of the Italian State, the “betrayal of CzechoSlovakia” by the British and French States, the savagery of the Japanese State, the brutishness of the Chinese State’s mercenaries, and so on, here or there, all over the globe – this sort of thing is showing itself to be against our people’s grain, and they are speaking out about it in wrathful surprise.

I am cordially with them on every point but one. I am with them in repugnance, horror, indignation, disgust, but not in astonishment. The history of the State being what it is, and its testimony being as invariable and eloquent as it is, I am obliged to say that the naive tone of surprise wherewith our people complain of these matters strikes me as a pretty sad reflection on their intelligence. Suppose someone were impolite enough to ask them the gruff question, “Well, what do you expect?” – what rational answer could they give? I know of none.

Polite or impolite, that is just the question which ought to be put every time a story of State villainy appears in the news. It ought to be thrown at our public day after day, from every newspaper, periodical, lecture platform, and radio station in the land. And it ought to be backed up by a simple appeal to history, a simple invitation to look at the record. The British State has sold the Czech State down the river by a despicable trick? Very well, be as disgusted and angry as you like, but do not be astonished. What would you expect? Just take a look at the British State’s record! The German State is persecuting great masses of its people, the Russian State is holding a purge, the Italian State is grabbing territory, the Japanese State is buccaneering along the Asiatic Coast. Horrible, yes, but for Heaven’s sake do not lose your head over it, for what would you expect? Look at the record!

That is how every public presentation of these facts ought to run if Americans are ever going to grow up into an adult attitude towards them. Also, in order to keep down the great American sin of self-righteousness, every public presentation ought to draw the deadly parallel with the record of the American State. The German State is persecuting a minority, just as the American State did after 1776. The Italian State breaks into Ethiopia, just as the American State broke into Mexico. The Japanese State kills off the Manchurian tribes in wholesale lots, just as the American State did the Indian tribes. The British State practices large-scale carpetbaggery, like the American State after 1864. The imperialist French State massacres native civilians on their own soil, as the American State did in pursuit of its imperialistic policies in the Pacific. And so on.

In this way, perhaps, our people might get into their heads some glimmering of the fact that the State’s criminality is nothing new and nothing to be wondered at. It began when the first predatory group of men clustered together and formed the State, and it will continue as long as the State exists in the world, because the State is fundamentally an anti-social institution, fundamentally criminal. The idea that the State originated to serve any kind of social purpose is completely unhistorical. It originated in conquest and confiscation – that is to say, in crime. It originated for the purpose of maintaining the division of society into an owning-and-exploiting class and a propertyless dependent class – that is, for a criminal purpose.

No State known to history originated in any other manner, or for any other purpose. Like all predatory or parasitic institutions, its first instinct is that of self-preservation. All its enterprises are directed first towards preserving its own life, and, second, towards increasing its own power and enlarging the scope of its own activity. For the sake of this it will, and regularly does, commit any crime which circumstances make expedient. In the last analysis, what is the German, Italian, French, or British State now actually doing? It is ruining its own people in order to preserve itself, to enhance its own power and prestige, and extend its own authority. And the American State is doing the same thing to the utmost of its opportunities.

The weaker the State is, the less power it has to commit crime. Where in Europe today does the State have the best criminal record? Where it is weakest: in Switzerland, Holland, Denmark, Norway, Luxembourg, Sweden, Monaco, Andorra. Yet when the Dutch State, for instance, was strong, its criminality was appalling. In Java it massacred 9,000 persons in one morning which is considerably ahead of Hitler’s record or Stalin’s. ... What does all this mean but that if you do not want the State to act like a criminal, you must disarm it as you would a criminal. You must keep it weak. The State will always be criminal in proportion to its strength. A weak State will always be as criminal as it can be, or dare be, but if it is kept down to the proper limit of weakness – which, by the way, is a vast deal lower limit than people are led to believe – its criminality may be safely got on with.

So it strikes me that instead of sweating blood over the iniquity of foreign States, my fellow-citizens would do a great deal better by themselves to make sure that the American State is not strong enough to carry out the like iniquities here. The stronger the American State is allowed to grow, the higher its record of criminality will grow, according to its opportunities and temptations. If, then, instead of devoting energy, time, and money to warding off wholly imaginary and fanciful dangers from criminals thousands of miles away, our people turn their patriotic fervor loose on the only source from which danger can proceed, they will be doing their full duty by their country. ...

Furthermore, the idea that the procedure of the “democratic” State is any less criminal than that of the State under any other fancy name, is rubbish. ... No, “democratic” State practice is nothing more or less than State practice. It does not differ from Marxist State practice, Fascist State practice, or any other. Here is the Golden Rule of sound citizenship, the first and greatest lesson in the study of politics: You get the same order of criminality from any State to which you give power to exercise it; and whatever power you give the State to do things for you carries with it the equivalent power to do things to you. A citizenry which has learned that one short lesson has but little more left to learn.

Stripping the American State of the enormous power it has acquired is a full-time job for our citizens and a stirring one. If they attend to it properly they will have no energy to spare for fighting communism, or for hating Hitler, or for worrying about South America or Spain, or for anything whatever, except what goes on right here in the United States.

Link here.

North American secessionists confront the empire.

On December 13, a French-language television station in Belgium reported that the Flemish-speaking region of Flanders had declared its independence, spelling the end of Belgium as a nation-state. With pictures of the King and Queen fleeing the country and of trucks blocked at the new border, the report appeared authentic enough for the newspaper Le Soir to announce the next day that “Belgium Died Last Night”. As it turns out, the report on the secession of Flanders was a hoax, and the uproar over the spoof revealed the sensitivity of Belgians to the possibility of the breakup of that fragile union of 10 million people.

It seems safe to say that citizens of the United States are not similarly fearful that their union of 230 years will soon disintegrate. However, a group of about three dozen activists that met in early November in Burlington, Vermont, hopes to change that. A few days before the elections that would return the Democrats to control in the Congress, this group was neither assessing the state of various campaigns nor prognosticating the close races. On the shores of Lake Champlain, the participants in the first North American Secessionist Convention were hoping to start a national movement that would eventually make such elections irrelevant.

If you thought the cause of secession in the U.S. died with the surrender of Lee to Grant at Appomattox, you might be surprised to know that there are at least two dozen secessionist and separatist groups in the U.S. In that sense the meeting was more an attempt at cooperation than creation. Organized by the Middlebury Institute, a sort of secessionist “think tank” headed by the writer Kirkpatrick Sale, the convention assembled representatives from nine separate secessionist organizations, as well members of several groups who do not have secession as an explicit goal but who considered themselves fellow travelers. A handful of academic observers and journalists (including a reporter from the New York Times who is doing a series on offbeat Americans) rounded out the audience.

According to the conventional political categories, this was an odd collection of organizations, with the spokesperson for the environmentally-minded Cascadian Independence Project (incorporating Oregon, Washington and British Columbia) sitting next to the delegate from the fiercely libertarian Republic of New Hampshire, and the representatives of a Hawaiian sovereignty group sitting across from the Southern nationalists in the League of the South and next to the anti-corporate Second Vermont Republic. But this group aligned not on a left-right political continuum but rather a top-bottom axis. In spite of the ideological differences, there was unanimity in the room regarding the diagnosis of the problem and its most effective treatment.

The problem? In short, the American Empire. The delegates virtually all wanted to smash the Empire and bring an end to the suffering it causes at home and abroad. The invasion and occupation of Iraq was repeatedly condemned, and no praise was forthcoming for George W. Bush or any other politician (except for the candidates of the Alaskan Independence Party, the only political party in the room). In fact, several of the participants expressed the fear that the U.S. was heading toward fascism. For this group, the most effective way to resist the Empire was to simply withdraw from it, chip away at its geographic foundation. Secession was seen as a way to restore democracy and promote freedom through reducing the scale (in both the senses of spatial scope and size) of government.

A related problem for the participants was what they saw as the economic evisceration of local communities. If big government played the role of the villain at this convention, big corporations received equal billing as its evil twin. Just as it would help restore democracy, secession was presented as a way to promote the economic health of communities over the bottom line of corporations.

As clear as they were about the advantages (and indeed necessity) of secession, the participants were also frank about the challenges facing them. The association in the public mind of the idea of secession with the Confederacy, slavery, and war is a major obstacle for the movement, and they are well aware of this. Given that Americans tend to think that the secession question was settled by the Civil War, American separatists clearly have their work cut out for them. Because of the unique historical baggage this issue has in the U.S., the secessionists face odds that are likely more daunting than those confronting similar movements in other countries. But they are convinced that freedom and prosperity in the future will only be achieved through the disuniting of the United States. If Americans tire of empty promises and finally conclude that reforming the beast is hopeless, the ranks of the secessionists in this country may swell.

Link here.
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