Wealth International, Limited

Offshore News Digest for Week of January 1, 2007

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

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



A few weeks ago, due to an unfortunate series of events, I found myself stranded in a foreign country. I was sick, alone, and without funds. Hard times can feel scarier and bigger when you are abroad. Being on your own suddenly does not seem like such a good idea.

Every expat will tell you that the hardest part of living abroad is the isolation. No matter how extensive your social life, whether you like solitude or not, the fact remains that you left everything and everyone that was known and familiar to you. There are times when the weight of that isolation becomes unbearable and you just want to pack up. It is a real test of resilience uprooting yourself to live in a country where you are completely alone and when you are sick, if you suffer the results of a crime, or if you find yourself without resources, who, if anyone, do you turn to? We do not live in a perfect world and those things are bound to happen and I think that an expat’s real test comes when he or she is faced with that solitude in a time of crisis. How would you react? Where do you seek shelter?

Isolation comes in many forms and many degrees. For some, the quiet stillness of the phone is a daily reminder of it. For others, the absence of recognition when you walk into your favorite restaurant or shop – back home they called you by your first name. For myself, I feel the isolation most when I need to whine, to cry, or vent to a sympathetic ear. You find out what your Achilles’ heel is. When everything is going your way, isolation is just another aspect of living in a foreign country. But when you need help, it becomes the number one impediment, your biggest challenge.

How can you counteract isolation? Are there ways of preparing for it? Who can help? Unless you live in a tent in the desert, chances are you can takes steps to make being alone easier to manage and ensure your journey is solitary by choice. Isolation can be a make it or break it deal to your foreign experience. You may choose to vagabond through the world alone and there is a real lesson to be discovered doing that, but no man is an island onto himself to use well known words. If you manage to pick when you are alone, you are bound to treasure your solitude. Surrounding yourself with people who care, even doing so from across the world, guarantees that you are never truly isolated.

Link here.


As a teenager, Mary Ned Fotis would lie on the grass at her rural Midwestern home, gazing at changing patterns in the clouds, wondering if the sky looked the same in France, in Africa, in ???. Her questions were answered years later when, along with her peripatetic Greek husband and toddler son, she was plucked from the security of their New England suburb and plunked into Cairo, a place she had earlier vowed she would never return to. Her letters and reflections, just published in Cobras in the Playground, Rabbits in the Moon humorously follow her growing family as they face challenges (“Mommy, there was a cobra in the playground today”) and delights (yes, there IS a rabbit in the moon – in Southeast Asia, that is) of six years of expatriate life in Africa and Asia in the 1980s.

Link here.


New Web service aims to provide unbiased financial analysis of overseas investment opportunities.

A survey carried out by Savills Research with Holiday-Rentals.co.uk has shown a price and rental premium for properties located near airports served by low cost airlines. This was one of the key findings of the survey which questioned over 12,000 owners of overseas property who use Holiday-Rentals.co.uk to advertise their properties.

Analysis of the sample of properties included in the survey showed that the average price of a property located within 10 miles of an airport served by a low cost airline is 39% higher than for similar properties within the same distance to an airport without a low cost airline carrier. The research showed that the impact of low cost airlines on property prices reduced as the distance from an airport increased – there was only a 2% difference in the average price of properties situated over 80 miles from an airport. The survey revealed that properties served by low cost airlines had higher average rents than those without low cost airlines. The difference in average rent was as much as 30% for properties within 10-20 miles of airports.

The rental potential of holiday properties was one of the most important factors owners considered when buying foreign property, which highlights the fact that many are looking to rental income to help cover the costs of the investment. Ross McGowan, sales director, www.Holiday-Rentals.co.uk comments. “Marketing a holiday property on the Internet is the most efficient way to reach a large number of potential renters. It also eliminates the need to employ a property management company that will take up to 30 per cent or more of profits through commission, charges and fees.”

In terms of the factors influencing price growth, well over half of respondents recognized that new emerging holiday destinations, characterized by a growing number of flights and low cost airlines, offered the greatest opportunity for price growth. Said Jacqui Daly of Savills, “Interestingly the established medium distance destinations such as Cyprus and the Canary Islands, where the flight time is about 4 hours, reflect the greatest premium in terms of capital value because of the availability of low cost flights.”

Another UK web-site launched a new service this week tailored to the needs of the individual overseas property investors. Invest2Gain.co.uk aims to ensure that potential investors make the most informed choices on where to put their money to get the best return – by providing professional and unbiased financial analysis of investment opportunities overseas. Managing Director Terry Pentland explained, “Based on personal experience, many of the expensive brochures issued by developers (and there are a lot of them) paint a very rosy picture and this is not surprising. However, a more detailed analysis can strip the gloss from some of these ‘opportunities.’ Investments that look attractive at the outset, can produce some very nasty surprises further down the line! ... We provide a level of detail not only on the entry costs, but more importantly, the EXIT costs. Unless an investor is able to assess the whole picture in detail, their hopes of an early retirement may be dashed!!”

Link here.


Premier of Nevis and Minster of Finance in the Nevis Island Administration Joseph Parry presented a $164 million budget in December, calling it a budget of confidence and people empowerment. The budget predicts an overall deficit of $10 million. According to Mr. Parry, his five month Administration had inherited many challenges and problems but nonetheless would take a positive approach to development and would empower its people to become more self-reliant and independent and thereby reduce the burden on the state.

Mr. Parry pointed to two major areas of concern, the high cost of debt – the most critical challenge inherited by his administration – and the cost of living in Nevis. He blamed the debt on the former administration’s reckless expenditure which generated an overall deficit of $300 million over the 14 years it was in office. The debt he said, had been placed on the shoulders of Nevisians, which his administration now had the task to control and rectify.

Elections in June 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 Joseph Parry replaced former Nevisian leader, Vance Amory of the Concerned Citizens Movement (CCM). The CCM 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.

Following a review visit to Nevis in October, the IMF said that the island’s economy is moving in the right direction. Budget Analyst in the Nevis Island Administration Ms. Hazel Brandy attributed the improvements to a rigorous restructuring process at the Inland Revenue Department and the Customs Division which resulted in a significant increase in the revenue collected. 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. 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.

St. Kitts and Nevis are islands in the Caribbean Sea, about one-third of the way from Puerto Rico to Trinidad and Tobago. The two volcanic islands, which are renowned for their beautiful mountain scenery, total 261 sqare kilometers in area and are separated by a 3-kilometer-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.


Amendments revising the Cayman Islands Immigration Law (2006 Revision) have now come into force, the Cayman government has announced. Following the passage of the Immigration (Amendment) (No. 2) Bill, 2006, in the House last month, the bill received the Governor’s assent and was gazetted on December 21. The law contains a number of changes to the existing Immigration Law, 2003. The areas of the law that attracted the changes included work-permit term limits, permanent residency, a new category of “key employees” and the ability of the Chief Immigration Officer to grant Caymanian Status to certain categories of applicants.

Explaining the need for speed in passing the bill into law before the end of 2006, Tibbetts noted that a number of important amendments that would benefit employers and employees are closely linked to the fixed term work permit provisions and the fact that a large number of persons are rapidly reaching the end of their term limit. With the revised law coming into effect quickly, there would be the opportunity of applying for key employee status, he noted. “One of the fundamental intentions behind the amendments to the law is to provide certainty for employers and employees,” said Tibbetts.

Link here.


The Bahamas financial services industry has developed an immigration framework designed to help the jurisdiction compete with other offshore financial centers for a finite pool of skilled workers. The proposals have been drawn up following discussions between the Bahamas Financial Services Board (BFSB), responsible for promoting the jurisdiction’s finance industry internationally, and the Ministry of Immigration, Labour and Training (MILT). The framework was circulated to BFSB members for review last month.

Two primary “financial services industry” contacts have been appointed within the Department of Immigration, with the turnaround period for the processing of completed FSI work permit applications now pegged at 6 weeks. The MILT will also consider a more flexible work permit system that reflects the availability of workers in certain occupations and may grant shorter work permits for employment in areas where there is an acute shortage of skills in just the Bahamas, and medium- to long-term permits for jobs where there is a worldwide shortage of qualified candidates.

Currently, when work permits are about to expire, employers must advertise the post locally before MILT will grant an extension. However, the Ministry said that it will review this process and may give favorable consideration where the position is for senior positions in an organization. It will also expedite the processing of applications for temporary permits, which are valid for a period of up to three months. It is anticipated that the framework will be updated continually to meet changes and developments taking place in the industry.

Link here.

Moody’s issues favorable report on the Bahamas.

Moody’s Investor Services latest Credit Opinion on the Bahamas has noted that official foreign exchange reserves remain ample relative to debt service requirements, despite a fall in the first 10 months of last year. The report shows that the national budget was in a small surplus for the first 3 months of the 2006-2007 fiscal year, due to continued buoyant revenue growth, coupled with expenditure restraint. The Bahamas has an A3 issuer rating for foreign currency debt and bonds as well as its foreign currency country ceiling.

Moody’s says that the strong credit ratings are based on “a very low risk of a payments moratorium in the event of a government bond default,” and that the strength of the Bahamian economy comes from its proximity and integration with the U.S., its competitive position in tourism and financial services, and its track record of prudent economic management. Moody’s noted, however, that the country’s economy faces risks posed by the effects on the tourism sector from geopolitical terrorism. That industry, it said, needs to show it can withstand external shocks.

Link here.


The Executive Board of the IMF announced last month that it has completed the 7th and last review of Dominica’s performance under its 3-year Poverty Reduction and Growth Facility (PRGF) arrangement. As a result of the review completion, Dominica can draw an amount equivalent to SDR 1.2 million (about $1.8 million) under the PRGF arrangement, which will bring total disbursements to SDR 7.7 million (about $11.6 million).

Murilo Portugal, of the IMF Executive Board, stated that, “The Dominican authorities have continued to implement their economic program successfully, and macroeconomic performance has strengthened further. Economic activity is expanding strongly in almost all sectors, with buoyant domestic demand and indications of a rebound in private sector confidence. Progress has also been made with structural reforms.”

He continued, “The strong fiscal performance in FY 2005/06 and the stance of the FY 2006/07 budget reflect the authorities’ commendable commitment to implement prudent fiscal policies. The primary surplus envisaged in the FY 2006/07 budget will allow further progress toward the medium-term sustainability of public finances and debt. Measures to streamline public sector employment and strengthen public financial management are being implemented. The authorities are committed to expanding revenue reforms. The value-added tax (VAT) regime is operating well; and the authorities are committed to continued monitoring going forward to avoid its weakening. Significant progress has been made recently in debt restructuring, and the authorities are making good-faith efforts to reach collaborative restructuring agreements with their remaining creditors.”

Link here.


Hong Kong Chief Executive Donald Tsang has said that “positive feedback” has been received from Beijing regarding further expansion of renminbi business in the city during 2007. Tsang has asked the Mainland authorities to consider allowing Hong Kong importers to settle direct import trade from the Mainland in renminbi, and allowing Mainland financial institutions to issue renminbi financial bonds in Hong Kong. Tsang indicated that announcements on new renminbi business could be made soon.

Tsang also discussed how to encourage Mainland banks and enterprises to make listing applications in Hong Kong and said Mainland authorities agreed to speed up the procedures for approving qualified Hong Kong companies’ applications to operate in the Mainland. While the easing of restrictions on yuan trading and services has been frustratingly slow for many businesses in Hong Kong and China, the SAR believes that the current liberalization process will eventually lead to the currency becoming fully tradeable in Hong Kong.

Speaking earlier this year, Hong Kong’s Monetary Authority Chief Executive Joseph Yam suggested that as the currency of one of the largest economies of the world, the renminbi will become an international currency, and argued that the declared policy of gradually introducing convertibility for capital account items of the balance of payments will help it to achieve this status. He said the use of renminbi by Mainland residents for consumer spending outside the Mainland, particularly in Hong Kong and Macau, and in foreign cities on the Mainland’s border, is increasing.

“There is a possibility that in the fullness of time, when the Mainland develops into one of the major economic powerhouses of the world, the renminbi may even become a reserve currency, just like the U.S. dollar, the euro and to a lesser extent the yen are now, and an anchor currency for the region,” Mr. Yam predicted. “I believe that this process is an inevitable one. As an international financial center, Hong Kong must develop its capability to handle financial transactions denominated in the renminbi, which will increase.” However, the Monetary Authority chief has called for caution over the implications of too rapid financial liberalisation for monetary and financial stability on the Mainland, particularly in the increasingly complex global financial environment.

Link here.


One week after a subsea earthquake knocked out internet and telecommunication services across Asia, Hong Kong’s Office of the Telecommunications Authority (OFTA) has reported that major internet service providers have recovered about 80% of their international connection capacity, with no serious congestion reports received on the first business day after the New Year holiday. While access to overseas websites is generally slower than usual, OFTA said that business users should find internet services generally acceptable during normal office hours.

It may take longer for residential service users to access websites in some overseas countries, particularly Japan, South Korea, Taiwan and North America. Some real-time applications such as IP telephony may also be affected by the slow response time as the traffic must be rerouted. However, IDD and roaming services functioned normally on the first working day of the year. People are urged to minimize non-essential visits to overseas websites, uploading or downloading large files to and from these websites, and other non-essential activities that demand large bandwidth over international connections.

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

Link here.


PartyGaming announced that it will acquire the assets, players and gaming related contracts associated with Empire Online’s (EOL) gaming business and all of Intercontinental Online Gaming’s business and assets as the company continues to strengthen its non-U.S. facing customer base. Neither EOL nor Intercontinental accept bets from customers in the U.S., where the judicial authorities have cracked down hard on the industry and new laws have been passed to ban online gaming.

Despite the loss of its U.S. business, the group’s overall revenues remain healthy. However, PartyGaming revealed last year that the restructuring of its operations following the passage of anti-online gaming legislation in the U.S. in October is likely to cost in the region of $250 million. In response, the company’s strategy has been directed towards broadening its product offering and making “opportunistic” moves in the mergers and acquisitions market. Online gaming websites operated by EOL and Intercontinental that are being acquired by PartyGaming include NoblePoker.com, Clubdicecasino.com, EnterCasino.com, MissBingo.com, FairPoker.com, and MagicBoxCasino.com.

Link here.


Ireland has become the jurisdiction of choice for high value investments in hi-tech manufacturing plants, research and development projects and financial services according to the Irish government’s Industrial Development Agency as it marked an “outstanding” year for growth and new investments in 2006. “Ireland is now seeking and winning high value investments, that add to our innovation and support regional development. 2006 was a very good year for these investments and we are well set for 2007,” said Sean Dorgan, Chief Executive of IDA Ireland, launching the Agency’s end of year review. “The quality of investments from global companies into Ireland is of the highest standard, reflecting the remarkable evolution of the business ecosystem in Ireland as international competition and Irish economic conditions have changed.”

“There has been a rapid transformation in what Ireland offers international investors since the year 2000, which was the last year of volume-based growth,” Dorgan continued. “Now our growth is quality-based. Then we measured job numbers, now we seek job value. In the past we were concerned to add jobs, because employment numbers mattered. Now, while we still add jobs (gaining a net 3,800 jobs in 2006 in IDA supported companies), it is the impact of creating new areas of opportunity and of raising living standards that drives us. As a result, today’s jobs tend to be more satisfying and better paid.”

In biopharmaceuticals Amgen and Eli Lilly have joined Schering Plough, Wyeth, Genzyme and Centocor in making Ireland the location of choice outside the U.S. for development and manufacture of the newest drugs. Ireland has also attracted several big names in the digital media, with Amazon in Cork and Dublin, and Google in Dublin growing rapidly, along with other leaders such as eBay subsidiary Paypal and Yahoo. Meanwhile, the IT sector saw new investments from Cisco, IBM, Netgear, Sandisk and Trend Micro, among others. The financial services sector also continues to thrive and saw new investments from Citco (Cork), Northern Trust (in Limerick) and Vesta (Dundalk).

Link here.



Heavy penalties on U.S. offshore “promoters” have been proposed previously. Will they be enacted?

Hopefully, the new year will be both prosperous and free of further restrictions on our liberties, but I am somewhat apprehensive about the latter. With a Congress controlled by the Democrats, the prospects for beneficial tax and economic legislation is not favorable – particularly in the international part of the tax law. I make no claim to having a cyrstal ball or a good track record at making prognostications, but here are a few personal observations about what we might expect in the next two years.

Regarding the reduced personal income tax rates, it seems unlikely they will be repealed with new laws. The expansion of the 10% bracket clearly favors lower income taxpayers and is likely to be retained for at least the next two years. The expansion of the 15% rate bracket for married couples is scheduled to expire after 2010 but it does not seem likely to be a target for the Democrats who claim to be advocates of the middle class and the poor. The increased exemption for the alternative minimum tax (AMT) is scheduled to expire after 2010 and if the Democrats are still in control of the Congress, it probably will not be extended. On the other hand, repeal of the expanded exemption is unlikely in the next two years.

The estate tax is due to expire in the year 2010 but will be automatically reinstated in 2011 to the levels of the 2002 rates and exemptions if it is not extended. Some of the Democrats may attempt to change the law before then to reduce the exemption and increase the rates, but I suspect changes in the estate tax will not even get to the President’s desk in the next two years. After 2008, it will depend on the shift in power resulting from the 2008 elections. Some speakers at estate planning conferences have suggested that the eventual outcome will be a compromise to keep the estate tax but with a much larger exemption than in the past. They speculate that we may end up with an exemption amount of $2 to $3 million.

What does seem to be at risk are some of the international tax rules. High on that list is an attempt to impose a tax on unrealized gains of assets for those who expatriate. (A similar law exists in Canada.) Some of the Democrats want to repeal the foreign earned income exclusion, but that will be resisted with extensive lobbying by large corporations, by the CPAs and by the tax bar. There are proposals in the Congress to require tax preparers to be more “diligent” in seeking information about clients who have foreign accounts or foreign trusts, but that is being resisted by the tax accountant and tax law organizations.

Some influential members of Congress do not seem to believe that the present laws are adequate to deter U.S. taxpayers from evading taxes with foreign trusts and foreign corporations, so they are proposing heavy penalties on promoters. The definition of a promoter would include anyone who is involved in any way in helping a taxpayer to establish a foreign financial account, a foreign trust or a foreign corporation. Needless to say, the lawyers and accountants are strongly opposed to such rules. If these laws were passed it would have the effect of imposing a gag order on financial and legal advisors. Without the benefit of informed advice, taxpayers would end up relying on the advice of foreign promoters who are not subject to our laws and are largely unconcerned about helping U.S. persons to commit tax evasion.

The members of Congress who are the proponents of these restrictive rules talk about preventing people from evading taxes because it invokes some sympathy from the media and from the public. But I suspect the real reason is because they are concerned about an escalation of the movement of money from the U.S. to other countries and also of a movement of investors, entrepreneurs and even large corporations to more favorable political climates.

Hopefully, none of these adverse changes will occur in the next two years. In my humble opinion, the best we can realistically hope for is a do-nothing Congress.

Link here.


Determining the tax consequences of moving to another country, whether permanently or temporarily, requires some foresight. Since Canadian residents are taxed on worldwide income, maintaining residency in Canada will require you to file a Canadian tax return on an annual basis, including in your return income from all sources, both Canadian and foreign. You may also be required to file a tax return in the country you are going to live in. If you sever your Canadian residency for tax purposes, a final “departure tax return” should be filed in Canada.

Since many other countries around the world have lower individual income tax rates than Canada, you may want to sever your residency in order to be in a situation where you will no longer be taxed on your worldwide income in Canada. It is important that before you make that decision, you first determine if you are even in a position to be able to sever residency and whether it makes sense in your situation. Tax residency does not affect your citizenship or legal residency status. It is specific to tax. Determining if you are a resident of Canada for tax purposes depends on your intention at the time you leave Canada. You must ask yourself if you plan to return to Canada in the “foreseeable” future. If your plans are not to return to Canada, you may be in a position to sever your residency with Canada if you support your intention to remain abroad by severing your residential ties with Canada. There is no specific time period after which you will be seen to be a non-resident of Canada, so it is important that the steps you take to prove your intention to be a non-resident are followed carefully.

Residential ties with Canada are typically seen as primary or secondary. It is important that you sever all primary residential ties when ceasing residency. Maintaining any significant primary ties could be looked at by the Canada Revenue Agency (CRA) as causing your residency to be maintained in Canada. Secondary residential ties are looked at collectively by the CRA. No one secondary tie would likely be seen as causing you to be viewed as maintaining Canadian residency, however, efforts should be made to sever all ties to Canada.

Some common examples of primary ties are maintaining a residence(s) in Canada that is available for your use, leaving a spouse or common-law partner in Canada and supporting dependants in Canada. Some common secondary ties are personal property left behind in Canada, maintaining Canadian bank accounts, Canadian credit cards, and professional and/or club memberships in Canadian organizations. In addition, it is important that you inform any Canadian residents making payments to you, such as financial institutions that you have investments with, that you intend to be a non-resident of Canada. Not only does this show the CRA your intention to be a non-resident, but it also ensures that payments made to you after your departure are subject to the appropriate non-resident withholding taxes. If your residency status is questioned by the CRA, they may ask you to submit a form NR73 – Determination of Residency Status (Leaving Canada). It is advisable that you fill in this form at the time of your departure and keep a copy for your records, in case it is requested.

If you become a non-resident of Canada for tax purposes, you must file a final departure tax return in Canada, due April 30th after the year in which you sever your residential ties with Canada. There are various tax implications that could arise in this final return. The most common example is the deemed disposition of certain assets you own, based on fair market value. Apart from the departure tax return itself, rental properties owned by non-residents have specific filing requirements in Canada on an annual basis. This is just a sample of some of the issues that should be considered on your departure from Canada.

Link here.


Ahead of planned elections in the Czech Republic, a center-right coalition of three parties has dusted off plans for a flat tax which were abandoned by last year’s minority government in the face of opposition from the Social Democrats. The representatives of the Civic Democrats, the Christian Democrats and the Greens said after Christmas talks that they would introduce a 17% to 19% flat tax if they win the elections, to apply both to companies and to individuals. Elections are necessary following abortive talks in December on a unity government between the Christian Democrats and Social Democrats.

The corporate tax rate in the Czech Republic was reduced to 24% last year, and personal income tax rates are levied at progressive rates between 15% and 32%. The standard rate of VAT is 19% for most goods and services, with a 5% discounted rate for certain specified goods.

In August, incoming conservative Czech Prime Minister Mirek Topolanek had said that he would set aside his party’s goal of introducing a flat rate of income tax, and pledged instead to simplify the tax system. In an interview, Topolanek revealed that he wanted to emulate much of the tax policy of Robert Fico, the Prime Minister of neighboring Slovakia, who is seeking to dismantle the country’s own 19% flat tax by introducing a two-tiered VAT system and extra income tax on high income earners. “We are headed towards something that I would call reforms of Mikulas Dzurinda amended by Robert Fico minus a millionaire tax,” Topolanek told the paper.

Link here.


Foreign firms in China to lose tax advantages.

Foreign-funded enterprises operating in China could pay corporate tax at a rate of 25% starting January 2008 if the Tenth National People’s Congress (NPC) adopts new corporate tax proposals in March this year. The draft legislation proposes to unify China’s corporate income tax rate at a rate of 25%. Under current corporate tax law, domestic enterprises pay tax at a rate of 33%, while foreign-backed firms pay 30%. However, foreign-funded companies are able to utilize deductions and other benefits to whittle down their effective corporate tax rate to as low as 13%.

According to Wu Bangguo, Chairman of the NPC Standing Committee, the new law is essential to create fairness in the tax system and to “improve China’s socialist market economic system.” Foreign-funded enterprises will reportedly benefit from a five-year transition to adjust to the new tax rate.

In a separate move to level the tax playing field between domestic and foreign-invested firms, the latter will lose their exemption from paying land use tax. As part of a plans aimed at helping the government exert more control over the use of development land, current land use taxes, which have remained static for almost 20 years, will triple, and both domestic and foreign companies will pay the same rates. The new tax rates will range from between 1.5 yuan to 30 yuan ($0.20 to $3.84) per square meter depending on the location of the land and its intended use.

Link here.

Hong Kong Financial Secretary dampens tax cut expectations ahead of 2007 / 08 Budget.

Hong Kong Financial Secretary Henry Tang says he understands people have high expectations for the 2007-08 Budget, but argues that a balance must be struck between different parties’ interests when devising it. He said that the Budget will be based on the principle of prudent management of public finances and will provide flexibility for the government of the next term.

In response to requests for reverting the salary tax to the 2002-03 level, Tang said the four elements which determine the tax, including allowances, the level of tax rates and the standard rate, have been changed since 2002-03. “Even if there is room for adjustment, we believe that there is no need to change all the four elements simultaneously,” he stated. When asked whether owners of unleased property could be exempted from paying rates, the Financial Secretary said he would consider the suggestion. On wine tax, Tang said his personal interest will not interfere with his decision in devising budgetary policies. He will consider three elements when making the decision, including whether the measure will create job opportunities, promote Hong Kong’s economy and enhance the development of tourism, and the exhibition and conference industries.

When asked whether other cities in mainland China will replace Hong Kong’s role as a financial center, Tang said the Mainland should be able to have more than one such center, but noted that Hong Kong and other Mainland cities are at different development stages and could support each other and create a win-win situation.

Link here.
Hong Kong Stock Exchange leads in record year for global IPO activity – link.

Singapore’s Prime Minister confirms Goods and Services tax rate increase.

In his New Year message to Singapore’s people, Prime Minister Lee Hsien Loong said that the country’s economy grew 7.7% in 2006, but would slow to 4-6% growth in 2007. He confirmed an increase in the GST from 5% to 7%. The Prime Minister said that the increase, together with a constitutional amendment to allow the drawing of more net investment income from past reserves would allow extra resources to tackle income disparities, including the launch of a Workfare program. However, he added, “We will strengthen our competitiveness by lowering direct taxes when the need arises, particularly on companies.”

Mr. Lee noted that in the last five years, real per-capita GDP had grown on average by 4.3% per annum, but that real average wages (after adjusting for inflation) grew at only half this rate – 2.1%. “Higher-end wages have risen by more than this. But at the lower-end wages have increased by much less, and some have even stagnated,” he said.

Generall, the Prime Minister was bullish about the economy. “The strong economy created more than 124,000 jobs in the first three quarters alone, the highest number ever. About half of these jobs were taken up by residents. Unemployment was down to 2.7%. Companies are reporting better performance, and workers are enjoying good wage increases and higher bonuses. The economic outlook is positive,” added Mr. Lee. “There are some downside risks, including a slowing U.S. economy, weaker global electronics demand, and high oil prices. Nevertheless, the global climate remains favorable.”

Link here.


I am not now nor have I ever been a big fan of the “tax protester” movement. Wikipedia has a good definition: “A tax protester is an individual who denies the obligation to pay a tax (for which the government has determined that person is liable) based on a belief that the government is acting outside of its legal authority when imposing such taxes.” Tax protesters make what I believe are arcane legal arguments about why this or that tax has no legal basis. I am not going to bother over the details of their arguments. I have heard them for over 25 years ad nauseum. Fortunately, law professor Jonathan R. Siegel has performed that disagreeable task for us. A fine three-part series by by Sheldon Richman also exposes some of the fallacious arguments of the tax protesters.

The courts have held that there is a legal obligation to pay taxes. What the “legal” in that term means exactly is a very interesting question which I addressed at length in paper which I will publish at some point. The bottom line is that “legal” means that if you do not comply, the government may use physical coercion against you. The tax protesters apparently believe that if they make their esoteric arguments to the authorities that the authorities will magically cease to enforce tax laws. It is a complete waste of time in my view. Many tens of thousands of people have spent many hundreds of thousands of dollars supporting the tax protester movement. What have they accomplished? Several prominent tax protesters, including Irwin Schiff, have been convicted and sentenced to prison. As long ago as the early 1980’s my law professor told me that tax protesters were getting killed in the “advance sheets”, the most recent decisions of the U. S. Courts of Appeal.

Tax protesters are not exercising civil disobedience as Henry David Thoreau did. That would be an entirely different strategy. Civil disobedience involves deliberately violating an unjust law so as to arouse public sentiment against it. That is not what tax protesters are doing. Thoreau wrote in this regard: “Cast your whole vote, not a strip of paper merely, but your whole influence. ... If a thousand men were not to pay their tax bills this year, that would not be a violent and bloody measure, as it would be to pay them, and enable the State to commit violence and shed innocent blood. This is, in fact, the definition of a peaceable revolution, if any such is possible.

Much tax protester time is spent praying to the Constitution. Big problem. Government has claimed the exclusive right to say what Constitutions mean. More importantly, the Constitution is a legal document. Law is a reflection of pre-legal values. The values that gave rise to the U.S. Constitution are in large part dead. The vast majority of the public no longer holds them. You might as well be speaking Chinese to them. Worse yet, a large portion of the population is on the federal dole. They will favor the tax authorities over the most elegant legal arguments against the legality of the federal income tax. This is the tax protesters’ biggest problem and yet I have never heard them address it! Say the Supreme Court actually bought the tax protester arguments and held that the income tax as presently understood is unconstitutional. Congress would meet in the morning and approve a constitutional amendment retroactively overruling that decision. 38 state legislatures would meet in the afternoon and ratify the amendment. Yawn.

Even as political strategy, tax protesting fails. It takes enormous effort just to understand their arguments and it is virtually impossible to translate them into plain English for a mass audience. Also, by urging individuals to stand up to the system by themselves, they allow the government to pursue a divide and conquer strategy. They counter with the common sense and intuitively appealing argument that the tax protesters are just making the rest of us pay more. A much more effective argument is to argue for a general and steep decline in taxation for all of us.

If legal arguments are a waste of time, how do we fight confiscatory taxation? By making moral, philosophical, economic, historical and practical arguments against it. And by explaining why the various programs funded by taxation are unnecessary or destructive and can be replaced by market-based solutions. To fight tax slavery and the horrendously destructive policies it funds, support the organizations working hard to end it – the Mises Institute, LewRockwell.com, the Future of Freedom Foundation, and the newest kid on the block, Free New York. To my tax protesting brothers and sisters. You have been led astray. Join us. The path of lesser resistance has gotten you nowhere.

Link here.
Tax resistance in early America – link.


As the American tax law gets more and more complicated, lawyers have come up with one more way to make life difficult for taxpayers. Now you may face a patent infringement suit if you use a tax strategy that someone else thought of first. “I can”t even imagine what it will be like in 5 or 10 years,” said Dennis Drabkin, a tax lawyer with Jones Day in Dallas, “if anytime a lawyer or accountant gives tax advice, they have to find out if there is a patent on this.” He notes that researching patents, and then licensing them, would just make tax compliance more costly.

Drabkin is chairman of an American Bar Association task force on the issue. He said that at one conference where tax strategies were discussed, participants later got a letter warning that using one idea mentioned would be in violation of a patent. Why would Congress pass a law allowing such a thing? The answer is that it did not. But a U.S. appeals court ruled in 1998 that business methods could be patented, and since then the U.S. Patent and Trademark Office has issued 50 tax-strategy patents, with many more pending.

There is even one case pending in U.S. court in Connecticut, in which an organization called the Tax Strategies Group complains that John Rowe, the chairman and former chief executive of Aetna, infringed on its patent by using a certain type of trust to minimize taxes on profits from stock options. The group wants Rowe to be barred from using that strategy unless he buys a license from it. To patent lawyers, all this makes some sense. Others might see it as an example of judicial absurdity.

But if it is legal, the mind boggles at the possibilities. Could I get a patent on taking a deduction for dependents, so that every parent in America would have to pay a royalty to me to take advantage of the tax law passed by Congress? I presume the patent office would find that obvious, and thus not patentable, but there are plenty of slightly more complicated strategies that might be patentable, particularly considering the fact that patent examiners may not be tax experts. Indeed, Cheryl Hader, representing Rowe, argues that a strategy she uses is clearly authorized by the tax law and that no patent should have been granted.

One can imagine lawyers and accountants rushing to the patent office as soon as a new tax law is passed, seeking to claim credit for dreaming up ideas that were made possible by the new tax law. Lobbyists who get tax breaks inserted into such bills would be in a preferred position to win the race to patent them. Asked how Congress might react, lawyer John Fuisz said action was possible, recalling that six years ago doctors got Congress to protect them from patent infringement suits over surgical techniques. But, he added, it will be a battle of interests. “You will see the people making money off these patents lining up against those who dispense tax strategy advice,” he said. So now we can have lobbying over whether all can benefit from what the lobbyists accomplished earlier.

Link here.



The OECD just hates bearer shares! They have gone out of their way to brand any country that allows bearer shares as “uncooperative”. But they have a problem. In the words of the comic strip character Pogo, “we have met the enemy and they is us!” Switzerland is an OECD member and many major Swiss corporations still issue bearer shares, and such shares are regularly traded. Another well-known OECD member nation is the United States, one of which, Nevada, allows bearer share corporations. There are some other less known jurisdictions that have still retained bearer shares as well. These include the Marshall Islands, Uruguay, and several other Latin American countries.

Bearer shares are certificates which convey corporate ownership to whomever possesses them. Such shares can be transferred by simply handing them to another person. To better understand how bearer shares work, think of another more common bearer instrument, paper money. It has value, and the presumptive owner is the person in whose possession it is found. Depending upon the jurisdiction in which the company has been founded, bearer shares may need to be temporarily exchanged for voting shares at shareholders meetings, and the person voting those shares may need to be identified – in such cases, the person voting the shares will ordinarily be an attorney so that the confidentiality of the beneficial owner of the shares can be protected. Now you can more fully understand why the OECD hates bearer shares. They provide real privacy – if they are properly used.

Properly does not include brazenly. Anyone who follows the advice of certain “corporate specialists” from Nevada who advise you to simply deny ownership of the bearer share company, even though you very publicly operated it, is an idiot! If you try that in a court of law you will at best, be cited for contempt, and at worst will find yourself in prison for perjury. In Uruguay for example, bearer shares are the norm, and registered shares – those with someone’s name on them – are the exception. As such, one can even open a bank account for a Uruguay company, at some banks in Uruguay, without ever being asked about the beneficial owner.

One of the more interesting bearer share stories is the way in which the Marshall Islands was able to keep its bearer shares. The main registry for Marshall Islands nonresident companies is, for all practical purposes, located a short distance west of Washington, D.C. It is fair to say that the U.S. has more than a little influence over its operations. However, the Marshall Islands Registry is privatized. It is owned by a group of very savvy, very influential Americans. The founder was Edward R. Stettinius, U.S. Secretary of State during the latter part of World War II. Consequently, it has survived and prospered while others have crashed and burned.

The Marshall Islands gave up forming international trusts as part of a deal with the U.S. which allowed it unhampered operation of the rest of its offshore companies. Consequently, Marshall Island corporations can have bearer shares, and Marshall Islands LLCs are among the finest in the world. Worried that the Marshall Islands’ negotiations with the U.S. government means collusion? Think again. the Marshall Islands Registry requires no client information whatsoever. Since it has no information, it cannot betray any trust. If that were to change, so would my recommendation concerning the Marshall Islands.

So contrary to what you may have been told, bearer shares do exist, and when used judiciously are an excellent tool in the offshore practitioners toolbox.

Link here.


Maples and Calder, an offshore law firm, has announced the publication of “Drafting Cayman Islands Trusts”, co-authored by Tony Pursall, a Cayman Islands attorney-at-law based in the firm’s London office and James Kessler QC, a leading English Chancery barrister and UK tax adviser. This is the first book of its kind on Cayman Islands law and takes a clear, modern approach to legal drafting.

While the Cayman Islands is one of the main jurisdictions for establishing offshore trusts, the drafting of effective Cayman trust instruments can be complex. The authors have prepared practical precedents in plain English with a detailed explanation of their terms and related drafting issues. As a systematic approach to drafting Cayman Islands trusts, the authors say that this book will be a valuable resource for practitioners and administrators alike. Mr. Pursall explained, “I felt there was a need for clear, well-explained Cayman trust precedents in plain English. The aim was to make it easier for clients and their advisers to understand the documents and to focus on the real issues. Our hope is that it results in better trust documents. It was also an opportunity to work with James Kessler QC, who is the clear leader in this field and has already done a great deal to raise standards for the drafting of English law trusts.”

Link here.


Following a previously announced decision by the European Commission, Luxembourg has terminated its 1929 holding company regime, although pre-existing publicly listed companies will continue to benefit from their current tax regime for an additional four years.

The 1929 regime exempted other qualifying companies from corporate income tax, withholding tax on its dividend payments and certain other Luxembourg taxes. According to the EC, the preferential tax regime in favour of Luxembourg’s Exempt, Milliardaire and 1929 Financial Holding companies violates EC Treaty state aid rules by granting “unjustified tax advantages” to providers of certain financial services who set up holding structures in Luxembourg. The EC ordered the government of Luxembourg to dismantle the regime by the end of 2006, but has permitted the transition period for existing companies to last through 2010. The benefits will hold irrespective of any share transfers that may occur within that period.

Link here.



“Signing statement” added to mundane bill gives White House unprecedented power.

President Bush has quietly claimed sweeping new powers to open Americans’ mail without a judge’s warrant. The President asserted his new authority when he signed a postal reform bill into law on December 20. Bush then issued a “signing statement” that declared his right to open people’s mail under emergency conditions. That claim is contrary to existing law and contradicted the bill he had just signed, say experts who have reviewed it.

Bush’s move came during the winter congressional recess and a year after his secret domestic electronic eavesdropping program was first revealed. It caught Capitol Hill by surprise. “Despite the President’s statement that he may be able to circumvent a basic privacy protection, the new postal law continues to prohibit the government from snooping into people’s mail without a warrant,” said Rep. Henry Waxman (D-California), the incoming House Government Reform Committee chairman, who co-sponsored the bill.

Experts said the new powers could be easily abused and used to vacuum up large amounts of mail. “The [Bush] signing statement claims authority to open domestic mail without a warrant, and that would be new and quite alarming,” said Kate Martin, director of the Center for National Security Studies in Washington. “The danger is they’re reading Americans’ mail.”

“You have to be concerned,” agreed a career senior U.S. official who reviewed the legal underpinnings of Bush’s claim. “It takes Executive Branch authority beyond anything we’ve ever known.”

Most of the Postal Accountability and Enhancement Act deals with mundane reform measures. But it also explicitly reinforced protections of first-class mail from searches without a court’s approval. Yet in his statement Bush said he will “construe” an exception, “which provides for opening of an item of a class of mail otherwise sealed against inspection in a manner consistent ... with the need to conduct searches in exigent circumstances.” Bush cited as examples the need to “protect human life and safety against hazardous materials and the need for physical searches specifically authorized by law for foreign intelligence collection.” White House spokeswoman Emily Lawrimore denied Bush was claiming any new authority. But “exigent circumstances” could refer to an imminent danger or a longstanding state of emergency.

Critics point out the administration could quickly get a warrant from a criminal court or a Foreign Intelligence Surveillance Court judge to search targeted mail, and the Postal Service could block delivery in the meantime. Martin said that Bush is “using the same legal reasoning to justify warrantless opening of domestic mail” as he did with warrantless eavesdropping.

Links here and here.


Wisconsin’s revenue agency said that it sent as many as 170,000 forms to taxpayers with mailing labels mistakenly printed with their Social Security numbers. The state Department of Revenue was scrambling to alert taxpayers to be on the lookout for the mailings. “We want to prevent any chance identity theft might occur,” a department spokesperson said. An agency news release included an apology to taxpayers and a statement that steps were being taken “to make sure that this will never happen again.” The agency said the postal service has agreed to retrieve and return any tax booklets that have not yet been delivered.

Link here.


After the news that China has decided to force manufacturers to standardize phone charging ports to the mini-USB format, it turns out that there is an even easier way to get the industry-wide feature you want implemented. Just be the FBI. What cellphone manufacturers are reluctant to include in-among all the blurb about Bluetooth and high-speed data connectivity is that apparently every recent phone sold in the U.S. has a built-in tracking device that, once activated remotely, can be set to keep the microphone powered on even when the phone itself is switched off.

The FBI used the technology in collecting evidence for the recent Genovese crime family trial, and it should be made clear that they can only do so with the relevant court order. Saying that, just how difficult is it to get a court order in our age of super-terror? The only way to circumnavigate the tracker is removing the battery, which then makes the phone rather useless.

Link here.


Call me naive. I think you can make a lot of money, go public, even monopolize a market, and still retain a moral compass that points in the direction of Google’s stated top priority – users. But Google lost me today. Google is now displaying “tips” that point searchers to Google Calendar, Blogger and Picasa for any search phrase that includes “calendar” (e.g., Yahoo calendar), “blog” and “photo sharing”, respectively. This is clearly bad for competitors, and it is also a bad sign for Google. But I generally support anything that benefits users, even if it is controversial. I believe, for instance, that shipping Internet Explorer with Windows was a good move. So why are tips bad for users?

The tips are bad for users because the services they recommend are not the best in their class. If Google wants to make it faster and easier for users to manage events, create a blog or share photos, it could do what it does when you search Google ... link to the best services. To prevent Google from being the gatekeeper, the company could identify the services algorithmically.

Google is predicated on the idea that the democratic structure of the Web will push the cream to the top. Search for “photo sharing” and you should already get the highest quality services. According to Google, Picasa is not one of them. These “tips”, then, can only be a tacit admission of failure – either the company does not believe in its own search technology, or it does not believe its products are good enough to rise to the top organically. I would guess the latter. And if I were on the Calendar, Blogger or Picasa teams, I would not be celebrating the news that my employer has lost faith in me.

Google has been advertising its own products through AdWords for some time, and I see nothing wrong with that. While advertisers compete to be first in a string of lookalike ads that are often shunted to the side, Google now determines the precise position and appearance of ads tips that are not subject to any of the same rules. Its ads get icons while others do not, and if you think that is small potatoes, you are not an advertiser – images boost clickthrough. Google can make a Picasa ad say “Easier to use than Kodak,” but Kodak cannot create an ad that reads “Easier to use than Picasa.” And the kicker is, neither the highest quality ads nor the highest quality search results can replace these tips.

Google’s new age “bundling” is less threatening than Microsoft’s because changing operating systems is hard, while changing search engines is easy – so easy that every engine out there is desperately trying to stay in your face. And choosing an alternative to Microsoft’s bundled software used to be prohibitively complicated for the average person, not to mention time consuming. Eventually everyone will be experienced enough to procure applications, and then word of mouth alone will bury the distribution advantages Google and Microsoft now enjoy.

But we are not there yet, and in many ways, Google’s bundling is worse than anything Microsoft did or even could do. Google knows what users want and can discreetly recommend its products at the right time. Microsoft cannot, and would not want to, easily hide a program packaged with Windows, but competitors can only discover Google’s bundling, which might be transient or limited to certain regions, through trial and error searching. Perhaps the most nefarious aspect of this feature is how it operates within our collective blind spots. How much does a result have to look like a Result to cross the line? Google promised not to be the type of company that needs to ask.

Link here.


Copy-protection features in Windows Vista make the operating system more bloated while giving few benefits to end users, according to a new security paper. Peter Gutmann, a medical imaging specialist, argues in the paper that Microsoft’s cumbersome approach to DRM is doomed to fail and will only succeed in pushing users towards buying faster hardware to cope with degraded performance, effectively imposing collateral damage on the rest of the industry.

Many of the criticisms Gutmann makes will be familiar to those who have followed the development of Vista’s copyright protection features. However, his hard-hitting prose style and warning that the Vista Content Protection specs could “very well constitute the longest suicide note in history” has reinvigorated the debate. Gutmann argues, for example, that in order lock down High Definition content, Vista limits the number of connectivity options to users. “Providing this [DRM] protection incurs considerable costs in terms of system performance, system stability, technical support overhead, and hardware and software cost. These issues affect not only users of Vista but the entire PC industry, since the effects of the protection measures extend to cover all hardware and software that will ever come into contact with Vista, even if it’s not used directly with Vista ...,” Gutmann writes in an abstract to his paper here.

Microsoft is risking annoying its customer base and users in a bid to corner the market for home distribution of premium content. Gutmann argues that hackers will find it just as easy to bypass the content protection mechanisms of Vista as they have with other versions of the OS. These ultimately doomed efforts will lead to a more expensive and less functional operating system for users, he argues.

Link here.



With Congress back in session on January 3, the federal “hate crimes” bill could be reintroduced any time. The Anti-Defamation League of B’nai B’rith introduced the same legislation last January 6, three days after Congress convened. This is the most dangerous legislation ever to come before Congress. It leads directly to an end of free speech. Once free speech is gone, there is little to prevent the loss of all our other freedoms. The new Democrat-controlled Congress has all the votes it needs to quickly run this Orwellian bill through committee in the House and Senate and pass it. Unless they lose their nerve, thrown back by massive protest from the American people.

Extraordinary action must be taken NOW to back down ADL and intimidate them from even introducing the hate bill in this session. Protest from the American people has defeated the hate bill three times in the last two years. Here is how we can do it again ...

Link here.
“Hate Laws Will Make You a Criminal” mailer – link (PDF).


Rep. Fred Kessler (D-Milwaukee) said that the value of unused gift cards should go to the state treasury – not to the merchant – and that change will be part of a bill he will introduce in the legislative session starting in January. Kessler said millions of dollars a year go unused by gift card recipients, and retailers are allowed to book the unused values after the cards expire. He cited figures from Consumer Reports showing that 19% of all gift cards are not used because they are lost or expired.

Kessler called that a “windfall”. Under his bill, after a one-year expiration date on all cards, 80% of the value of unused cards would go to the state treasury. Merchants could keep 20% of the value of an unused card to pay for processing, Kessler said. “I’d rather have people spend the money and use the gift card, but if they aren’t, I’d rather the state get the money.”

Link here.


Last week’s Beijing verdict against web portal Sohu.com for offering illegal downloading of pirated movies has encouraged observers to believe that China is getting serious about on-line intellectual property protection. Beijing First Intermediate People’s Court ordered Sohu’s subsidiary Beijing Sohu Internet Information Service Company, to pay damages of RMB1.08 million yuan ($140,000) to five movie companies and publish an acknowledgement of its infringement.

The Motion Picture Association brought the lawsuit on behalf of Fox Movies, Warner Bros, Sony Pictures, New Line Cinema and Universal City Studios and the 10 movies which were offered for download included The Day After Tomorrow, The Lord of the Rings, Ocean’s Eleven and Harry Potter III. Sohu has also been ordered to remove the movie download area from its websites. Currently it offers more than 100 movies for download under a subscription service. The company can appeal the verdict if it wishes.

The U.S., the EU and various international bodies have persistently complained to China that it is doing too little to rein in widespread IP infringement.

Link here.


Suddenly, it is a tough time to be a plantiffs’ attorney.

In 1901 a well at Spindletop Hill sent petroleum shooting 200 feet in the air and made Beaumont, Texas, one of the first oil boomtowns. Decades later some locals tapped into a different kind of gusher – personal-injury litigation. Starting with highway and refinery accidents, and then moving to asbestos and tobacco, lawyers at the firm of Provost & Umphrey hauled in the kinds of fees that would make Wall Street lawyers drool.

But as is the case with oil in Texas, the easy money in injury lawsuits is gone. Thomas Walter Umphrey says the firm he co-founded in 1969 is downsizing. It is also prospecting in other fields of law to try to keep the business flowing. A couple of hundred miles to the north, in Daingerfield, plaintiffs’ firm Nix Patterson & Roach is also pushing in new directions. “If today we were relying on personal-injury cases in Texas, we would be bankrupt,” says partner Nelson J. Roach.

What has happened in Texas is not unique. In state after state, the tide has turned in one of the most protracted, hard-fought political struggles of the past two decades – the battle over so-called tort reform. Few other business issues have generated more controversy, polemics, and campaign spending than the effort to scale back the types of lawsuits people can file and how much they can recover. In a speech on November 20, for example, Treasury Secretary Henry M. Paulson Jr. charged that “the broken tort system is an Achilles’ heel for our economy” and exhorted his audience to tackle “one challenge that will take a concerted effort over the long term to correct – the need for reform of our legal system.”

But what Paulson and others have overlooked is that in large areas of the country, that “reform” has taken place, and business has emerged triumphant. The American Lawyer, an influential trade publication, recently declared an end to the era of mass-injury class actions, but the changes are far broader than that. Courthouse doors have slammed shut on a wide variety of claims. Michigan, for example, has virtually wiped out all lawsuits against drugmakers in the state. Six states have passed laws seriously restricting the kinds of asbestos suits that can be filed, and 23 now have statutes saying you cannot sue the likes of McDonald’s for making you fat. Damage limits in many states have rendered medical malpractice litigation nearly comatose.

Both federal and state courts are reinforcing the trend. In December a U.S. appeals court in New York nixed a class action accusing investment firms of manipulating the price of initial public offerings. That was a big loss for securities fraud plaintiffs’ lawyers, especially in a year when the total number of shareholder suits filed was about half the level of prior years. In 2005 the Illinois Supreme Court struck down a $10.1 billion judgment against Philip Morris, saying a state law protects the company from suits alleging that its marketing of “light” cigarettes was deceptive.

It all adds up to an extraordinary turnabout for the plaintiffs’ bar. These days the law firm that once was the nation’s most prolific filer of shareholder lawsuits is under indictment, thousands of asbestos and silicosis claims are being probed for fraud, and Vioxx litigation, once thought to be a gravy train express, is chugging in reverse. (Of 12 cases tried to verdict involving the painkiller, Merck has won 8.) Even many victories are evanescent.

Of course, when plaintiffs’ attorneys see a falloff in business, lawyers opposing them do, too, and in Texas both sides are feeling the pain. Surprisingly, even businesses may occasionally feel the sting of lawsuit reform. Plaintiffs’ lawyers, closed out of their traditional pursuits, are working harder to drum up claims companies can bring against one another. Additionally, the conservative legal climate may be making it harder for companies that believe they have legitimate claims to get what they feel they are entitled to when they file a lawsuit.

Link here.


Clinging to rights enumerated by some crusty old landed gentry on a now centuries-old piece of paper is not conducive to the goal of the free society or to a consistent anarchist or libertarian ethic of rights. It is abundantly clear that despite the ostensible “good intentions” of The Sacred Founders we are conditioned to fawn over, the “Bill of Rights” has not really protected the rights it was allegedly drafted to secure. Of course, it is true that none of the first ten amendments have been “officially” repealed as a matter of “law”. That is, the Federal Government of the U.S. still claims to protect these rights because it is bound by the Constitution to defend these rights.

With regard to The Sacred Founders’ good intentions I might submit, somewhat tangentially, that a stronger historical case can be made that the Constitution was made because most of its drafters did not find The Articles of Confederation amenable enough to the construction of a slave-supported, state-corporatist complex friendly to the interests of the well-connected and well-to-do. “America”, it might be said, was conceived of a bloodless coup d’etat by a bunch of spoiled, landed gentry. The fact that many well-connected, prominent American politicians and businessmen came to publicly favor “The American System”, powerful patent departments, state-bank alliances, corporate welfare and subsidies, and the remainder of the gamut of statist monstrosities, is not surprising in the least. The Bill of Rights implies similar interpretations of “intentions”. Is it not conceivable that the 10 carrots were offered up as a means of mollifying Everyman, to allow the statesmen to build their state-corporatist complex without harassment from the hoi polloi?

Even though Americans still theoretically possess de jure legal rights as “enshrined” in The Holy Bill of Rights and the Constitution, the de facto situation is much more sinister. This is not particularly surprising. Thinkers as diverse as Murray Rothbard, Lysander Spooner, Voltairine de Cleyre, and Mikhail Bakunin have pointed out in their own ways that the State really does not protect rights or safeguard common-sense morality, but is indeed predicated on violating and tearing asunder both.

As Bakunin wrote, “[W]hat constitutes [the Statist] morality? Only State interests. From this point of view, which, with very few exceptions, has been the point of view of statesmen, of strong men of all times and all countries, all that is instrumental in conserving, exalting, and consolidating the power of the State is good – sacrilegious though it might be from a religious point of view and revolting as it might appear from the point of view of human morality – and vice versa, whatever militates against the interests of the State is bad, even if it be in other respects the most holy and humanely just thing. Such is the true morality and secular practice of all States.”

In such a light, then, we see that it is conceivable that those who debated and penned the “Bill of Rights” probably did not do so out of some selfless concern for liberty and an ethical political structure in and of itself. This furthermore gives insight into the present condition, that the continued de facto erosion of rights continues apace is simply more proof that politicians do not and never really have been concerned per se with the rights of “citizens”.

Many institutions exist which are ostensibly concerned with preservation of rights, such as the American Civil Liberties Union (ACLU) and the National Rifle Association (NRA). But all such institutions and lobbying groups make the same mistake. Their arguments turn on appeals to The Sacred Founders’ Intentions and on incessant appeals to the Bill of Rights. Their strategy hinges on arguing rights and the law within the context of the Bill of Rights and precedents in law. But should friends of liberty not get in their licks where possible? In a sense, yes – if some abridgment of rights can be stopped by appealing to some amendment or another, this is probably a superficially “good” thing. But, do not bet that there will arise very often or very many situations in which this is possible.

The problem with arguing matters of rights within the context of Bills of Rights is that arguing on the statists’ own terms does nothing less than concede the very legitimacy of the statist context of the debate! This is intellectual cowardice that waters down the elegant essence of the radical position. “Partyarchy” is not conducive to the abolition of the state or to the reacquisition of rights. Appealing to “Bills of Rights” will look like we do not truly believe in the natural, transcendent status of rights and liberty. The State is founded not on protection of rights but on their very usurpation. Does it not seem like madness to appeal to the “Bill of Rights” and state “protections” of rights. To ask the usurper to act as the caretaker is a bald affront to good sense.

Link here.



It is a question that has puzzled us for years. How is it that a reasonably intelligent man can perfectly well drive through traffic without killing himself, but ask the same man his thoughts on global warming, the war on poverty or public education ... and what you get is such preposterous nonsense you can barely believe your own ears?

We have mentioned many times that there is a world of difference between a New England town meeting and the U.S. federal government. The size of the New England town meeting is one that the human brain is prepared to deal with. At the town meeting, a man can know which of the people he is dealing with is a moron and which is a self-interested hustler. But when it comes to national politics, the same man is totally ill-equipped ... like a mechanic who shows up with a pair of pruning shears, or a veterinarian with a wrench in his hand. He is ignorant of the facts, the procedures, and completely helpless in front of the controls. He cannot tell the connivers from the honest bumblers. He has lost the points of reference that are meaningful to him. He is like a driver who looks ahead and sees only fog. He turns the steering wheel to the left, but the car lurches to the right. He puts on the breaks and the car speeds up!

What can the poor fellow do but resort to lies and such über-simplifications as take your breath away. “If we don’t fight the commies in Vietnam,” he said in 1965, “we will have to fight them in California!” “If you want better educated people, you have to spend more on public education,” he said in 1975. “If we do not stand up to the Evil Empire, it will take over the world,” he said in 1985. “If you invest in a balanced portfolio of stocks, you will always make money over the long run,” he said in 1995. What can he do? He replaces local knowledge and experience with empty slogans. He replaces the detailed evidence before his own eyes with broad categorical generalizations. Meanwhile, the precise figures and intricate calculations that he would make on his own give way to statistics and averages.

The world on TV becomes the woodcutter’s world too ... a world where the local details are washed out and replaced by caricatures and national averages. It gives rise to a whole new understanding of things. Standards are set, not according to local custom or individual experience, but according to the great wash of national broadcasting and advertising in which particularities are bleached out, with local colors faded. Everything comes to be seen through the grayish, white light of national broadcasting. Instead of speaking his local dialect, he is soon speaking the lingua franca of the nightly news. Instead of wearing the clothes he likes, he is dressed to suit The Gap or Brooks Brothers.

Education, too, takes on a new look. It is not enough to learn things. In any case, the busybodies are incapable of organizing real, individual learning. What they can organize is “education”, with the learning removed or standardized to fit into some new larger national standard. “Educators” cannot be bothered with individual students as they actually are, nor even with local curricula. Everyone has to learn the same thing. And they have to learn it the same way. The world may be infinitely complex and detailed but in the national educational program, the details have to be knocked off – like the fine detailed trim work from an old house – so that all that is left is measurable, standardized space, which can be quantified and allocated by bureaucrats, who may have never met a single student in their entire lives. Are educational standards falling short? Spend more money to increase the space! Who cares if anyone is actually learning? The critical thing is that all students get the same claptrap pounded into their poor heads, so that they leave the machinery with the same prejudices and illusions.

The woodchopper from New Hampshire may soon discover, too, that he lives not only in a “substandard” hovel, but that he is “poor”. A man may be perfectly happy with his lot in life. He may have no running water, no central heat, and no money. Imagine him tending his garden, feeding his chickens, and fixing his tattered roof. Out in the woods, he may even have set up a still for refining the fruits of the earth into even more pleasurable distillates. In fact, by all measures that matter to him, he could have a rich, comfortable and enjoyable life. But as the scale of comparison grows, the details that make his life so agreeable to him disappear in a flush of statistics. He discovers that he is “disadvantaged” and “under-privileged”. He may even be delighted to realize that he has a “right” to “decent housing”. Maybe he will qualify for food stamps. The idea of being “poor” may never have occurred to him before. But now that the spell is on him, it sits like a curse. His new scaled-up consciousness has turned him into a malcontent. The poor man, previously happy in his naïve particulars, is now miserable in his role as a poverty-stricken hick.

But the worst thing about it is that TV and popular opinion twist him towards thinking that it is the public view of himself – not his own private view – that really matters. In a matter of months he has forgotten how content he really is. He might as well be a stock market investor. He sees himself on television as an unfortunate hillbilly. The national newspapers say he needs help. And now the revenuers are in the woods looking for his still!

All over the world, local customs, styles, manners, accents are disappearing. As the scale increases, with the expansion of the globalized market economy, people are being homogenized, leveled. Their food, their music, their clothes – all are becoming standardized, mongrelized. While it is true that regional variations hang on in vestigial, folkloric form, whether you go to New Orleans, Nashville or Vienna, you will hear about the same music, find the same fashions in the same shops, and be able to eat the same McDonalds’ hamburger.

An investor in Bombay speaks the same language as one in New York. Yet, it is the particularities of investments that make the difference between investment failure and investment success, the very things the world financial media cannot be bothered with – the kind of precise, detailed, particular, local knowledge that you really need for investment success. Instead, what you get is the standardized imprecise broadcast news. And what the investor gets is the equivalent of a public school education. He knows nothing much ... and thinks he knows everything. And since all investors know pretty much the same thing – which is to say, they all share the same illusions and take them for wisdom – the markets tend to reflect the popular fashions as if they were the season’s latest blue jeans.

A man knows perfectly well that he needs to be able to defend himself. Around the hills of New Hampshire, he may judge the risk of attack so slim that he goes unarmed. But walking through the back alleys of Manchester he may wish he were packing heat. But as the scale increases, he is unable to judge the risk. Give him a little TV news and he is ready to go to war with people he has never met, in places he has never been, for reasons he will never understand. He cannot know the facts, the people, or even the theory. He does not know what he is buying, but he is ready to pay with his life.

The large-scale chatter does not even stop at the bedroom door. He may have enjoyed a perfectly satisfactory sex life. But now he is confronted with comparisons. Before, these matters were personal and private. In the company of his wife, the two of them set their own standards. But now, there is no such thing as a private matter. There is scarcely anything that is so private, so personal, so detailed, so local, and so important that it does not yield to large-scale standardization. No longer does he know what really matters except by reference to the public spectacle, from how frequently people make love to what kind of misgovernment they have in Iraq.

We are now all equal ... all the same, all the time. We live in the same houses. We eat the same food and suffer the very same illusions as every one else. If we are unhappy, it is because the TV says we should be.

Link here.


The state is an organization, a national version of one’s city government so to speak; but to convey the concept more richly and concretely, think of it as a gang. A correspondent took me to task for disrespectfully referring to states as gangs. Another observed that I had impugned gangs. Actually, the similarity to gangs is useful, since most of us have seen gangs in gangster movies.

In old gangster movies, we see the gang members meeting to plan their holdups. That is like political leaders meeting in capitols to pass laws. The gangs decide to make bartenders buy their barrels of beer or introduce slot machines. That is like lawmakers introducing programs, taxes, tribute, and regulations. We see scenes of the tough guys intimidating and threatening the saloon owners, who give in and pay. That is like us paying our taxes to avoid being carted away. The gang always is expanding into the territory of some other gang, causing a gang war. That is like one nation attacking another and provoking war. Gangsters speed along city streets while throwing bombs or machine-gunning opposition gang leaders. They conduct massacres and executions. That is the nation’s military going about its deadly business.

The U.N. is kind of a loose gang syndicate. Terrorists are independent gangs with aspirations to join the syndicate. To acquire recognition, terrorists need only be strong enough to seize a state. Sooner or later, the other states accept its credentials; at which point they forget all about its terrorist origins.

The inner circle of a gang consists of the gang’s boss and his right-hand man. That is like a president and his closest advisors. The circle of gangsters widens to include the most experienced henchmen. That is like key officials and legislators. Then there are underbosses, gunmen, tipsters, flunkies, and lawyers. The state has bureaucracies, military leaders, and judges. In short, the state is like a gang. The biggest difference is that the state is far worse than any gang because it is far more powerful.

Political theorists make a big deal out of the fact that the state allows us to punch a ballot every so often. This means we get to choose between the north side gang and the south side gang, or between the red gang and the blue gang. Since the gangs are in cahoots, this choice makes little difference. Despite some fresh gang members in Washington, our leaders are still considering an increase of 20,000–30,000 troops in Iraq. So much for the November election and the voter rejection of administration policies.

How do states behave? For example, why do South Korea and Japan dispute a few bits of rock in the ocean? We cannot understand how states behave without thinking about how the leaders of states behave, since they make the decisions for the organization. The first step is to link the two. By the actions of states, we mean the actions of the gang bosses, whom the nation commonly refers to as its leaders. These actions hinge on what the bosses conceive to be the interests of the states, those matters that are of concern and importance because they affect the state. A leader’s values link to those of his organization. They affect his actions. He takes these actions in order to achieve favorable outcomes with regard to the organization’s interests.

A gang leader has the main say over the gang’s interests, until he is bumped off and replaced by an underling who disagrees with him. States also change hands by violent means, as well as via elections. States, like gangs, have interests. Outsiders often have difficulty knowing what a state’s interests are. Where do interests come from? Are they always sensible? To what extent are they the pet concerns of the leaders?

Things that do not concern the U.S. shed light on what the U.S. state is concerned with. In case after case after case, U.S. leaders display a marked callousness and indifference to human life, even when the costs of taking an action are very low. For example, the U.S. supported Pol Pot, bin Laden, and Saddam Hussein. U.S. sanctions on Iraq killed 500,000 Arab children. President Clinton stood in the way of even small steps to shut down the Rwandan genocide. The U.S. avoided using the term “genocide” so as to avoid having to act under U.N. agreements. The U.N., French, and Belgian governments did no better. The U.S. and others failed to jam radio broadcasts within Rwanda that stimulated the massacres.

What U.S. leaders conceive to be or advertise as U.S. interests takes precedence over virtually any amount of collateral damage, that is, slaughter of innocents. It appears that humanitarian interest groups have almost no influence in shaping U.S. interests, while the most brutal and violent groups intent on butchery do. It appears that U.S. leaders readily adopt the values and concerns of groups whose ideas invariably lead to widespread killing and destruction. The U.S. is all too ready to fund the CIA in all sorts of covert death-dealing and now torture, but to fund even a tiny force that can quell genocide is not on its agenda.

Anti-Communism was the foundational concern of the U.S. for decades, influencing and shaping all its foreign interests. This has now been replaced by terrorism as a pervasive umbrella or vehicle for molding U.S. interests. In both cases, the U.S. has found a convenient and plausible enemy. In both cases, war-makers and war-supporters combine to influence U.S. actions. The general population is left in the dust to have their ideas and thoughts manipulated by the latest propaganda.

President Bush asks, why do “they” hate us? He frames what are political issues in terms of very personal matters. They hate “our freedom of religion, our freedom of speech, our freedom to vote ...” Who is “they”? The Muslims, the Arabs, the foreigners, the strange ones with strange customs, strange religions, strange clothes, and strange languages. It is easy to stir up generalized hatreds. The generalized they, whoever they are, do not hate us. They respect us. They adopt our institutions. There are stock markets in throughout the Muslim world. There is trade with all of these countries. The number of Muslims worldwide is about 1 billion people. Do they hate us? Ridiculous. How many jihadists are in al Qaeda? No one knows, but estimates rarely exceed 20,000. This is 0.002% of the Muslim population.

But will they come to hate us? Will we give them just cause to hate us? Will we stir up resentment and hostility by our own deeds? Place yourself in their shoes. Do Americans react with calm neutrality when terrorists butcher someone and release a videotape of it? It is not in the interests of American people to have a billion Muslims hate us, or to encourage even a small fraction of that mass of humanity to become terrorists willing and able to attack Americans domestically and worldwide. These are the effects of the U.S. state. Through both design and ineptitude, the U.S. state is acting against American interests.

The generalized war on terrorism is in the interest of the U.S. state. It suits the state by giving it an endless and vague enemy located anywhere and everywhere and at all times now and in the future. This war it then can use as a club over Americans to retain and augment its power and ability to act in an unconstrained fashion. The ill-chosen and ill-executed war in Iraq is a Frankenstein sewn together by the convergence of several misconstrued U.S. interests (oil, terrorism, Israel, security) and the personal interests and war-making blunders of powerful figures of state. The sway of U.S. interests is a sway over us.

Link here.


There are a thousand hacking at the branches of evil to one who is striking at the root.” ~~ Henry David Thoreau

Lake dweller Thoreau enjoyed an enviable, pastoral life in the pre-industrial age. Living in the woods on the shore of the 60 acre Walden Pond, a mile from the village of Concord, Massachusetts, Henry had ample time to dwell on the topic of good and evil. The year was 1845. Slavery existed then in America. The Mexican War had not yet begun but would very soon. The War Between The States (for some unknown reason called a civil war) was 15 years in the future, but the issues drove many men into a frenzy. Most of the native tribes, “Indians”, living west of the Missouri River, had not yet been eradicated. And all of these topics and hundreds more caught the attention of Thoreau. Like Tolstoy, 50 years later, Thoreau dwelt on the topic of good and evil (among many others), trying to determine the clearest definition of the two in a so-called civilized society.

What he discovered was what most folks discover. Nobody much gives a damn about good and evil. Most folks were just too busy. At any moment, anywhere in the Western world, most men simply want to work and relax, “get paid and laid,” as my younger brother so clearly defined the focus of most civilizations.

Good? Evil? Can anyone define the terms? The Seven Deadly Sins your definition of evil? What about a flag-waving series of wars based on lies? Is that good for some people and evil for others? Most folks prefer their Congressmen or televangelist or talk show host to define good and evil and do all their thinking for them. Never mind that these televangelists and U.S. Representatives seem to represent themselves, rather than any declared ethic, and instead rapturously rubberstamp those wars. “What is hateful to yourself, do not do to another ... That is the whole law,” Jewish rabbi Hillel taught about 2,000 years ago. But how many top Jewish leaders today make foreign or domestic policy with that wisdom in mind? How many so-called Christian leaders conduct their lives with the Sermon on the Mount in mind? Nobody in Congress that I know, aside from Ron Paul. Otherwise, how could so many hypocrites have voted for the Iraq War?

160 years ago, Thoreau protested the flag-waving imperial war of his day. He protested a poll tax by going to jail. Who would do that today? One out of 100, maybe? One of 1,000? Can a person protest evil? Thoreau defended the Abolitionist John Brown for attacking and occupying the arsenal at Harper’s Ferry, West Virginia. For his efforts, Brown and his co-conspirators – or heroes – got hanged. What did Brown accomplish? Did John Brown hack at the roots of evil? Did Thoreau? A large number of people were killed in the raid on the arsenal. What did Brown accomplish but agitate a hornet’s nest that eventually led to the Confederacy and the War of Secession and a half million dead? Arguably, taking up arms against evil might then become a greater evil.

Leo Tolstoy (an admirer of Thoreau) spent the last years of his life writing short stories and moral essays dealing with good and evil, the moral duty of a man, the lassitude of society. Not surprisingly, Tolstoy determined that evil has plagued humans since some men asserted control and others let them. He wrote, “Government is an association of men who do violence to the rest of us ... In all history there is no war which was not hatched by the governments, the governments alone, independent of the interests of the people, to whom war is always pernicious even when successful.” Is the war-loving state the stem of evil, while the root cause is a society’s willing surrender to it? Or are humans predisposed to evil? The evidence that humans are flawed is overwhelming.

“There are two basic reasons why people commit evil,” wrote Fred E. Foldvary, in The Origins of Evil. “Some people are simply amoral. They lack sympathy and don’t think there is any morality. To them their victims are like rabbits. They think, if someone is weak or foolish enough to be a victim, they deserve no better ... But most evil is committed by people who believe they are doing good.” Presto. Or by people too lazy or programmed to reflect upon their actions.

Like most folks, I will continue hacking at the branches of evil, and tell myself it is a good thing to do. After all, to strike at the root might require I get my hands dirty and acquire the proper digging tools. Who wants to do that? Most importantly, however, I would need the wisdom and ability to recognize the root when I see it and not mistake it for a fallen leaf.

Link here.
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