Wealth International, Limited

Offshore News Digest for Week of January 8, 2007

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

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The Belizean economy is essentially a bifurcation of two different kinds of people, the locals versus the foreigners. With such a small population that is Belizean born and raised, the foreigners are really the ones who have started to dominate the economy. Because of this, many locals feel left behind due to a lack of education, lack of resources, and high crime rate – especially in the capital city.

Outside of Belize City, however, the country is starting to boom. Tourism is up 500% over the last few years, and agriculture and lumber workers are finding the soils of western Belize to be among the most fertile in the world. Thousands of acres of orange trees are being grown outside the western city of San Ignacio. With poor yields this year in Florida and Brazil, Belize has been one of the major beneficiaries of extremely high orange prices. Much of the same is true with the grapefruit crop, which was nearly eliminated in Florida from the hurricanes of 2004 and 2005.

Perhaps the commodity that most defines Belize though is mahagony. A rare hardwood that fetches premium prices on the world market, mahagony seems to have been a staple of the Belizean economy well before its independance from Britain. Much of the southern part of the country is dedicated to rows and rows of these trees. With the exception of the now booming tourist industry in San Pedro, the vast majority of foreign investment into the country has been in orange, grapefruit, bamboo, and mahogany enterprises.

Foreign entrepreneurs have been driving into the country in hordes. With an extremely relaxed immigration policy (it only takes 6 months to become a citizen), people from all over Central America and Asia have been opening up shops along the Cayes to take advantage of the influx of tourists into the area. Many of them have become quite wealthy, as there has been little competition from the local Belizean people. Other investors, who want to take advantage of the boom in commodities, have been running towards the western and southern parts of Belize. Only a short time ago, in an effort to make more productive use of the land, the government was essentially giving it away to the local people for $100/acre. With little knowledge of agriculture, many locals have done almost nothing with this land. Realizing they have no other option, they have now been selling this land to foreign workers.

Despite the manifest difference between the locals and the foreigners, the risk of a backlash from this is very low due to Belize’s extremely sparse population. Belize City itself only has a total of 60,000 people, and the foreigners have started to excercise not only economic control, but political power as well. In fact, the leader of the country is himself an Iranian born pro-western businessman. With such an influx of hard working, knowledgeable people into a country that already contains some of the most fertile land in the world, it is a very real possibility that Belize may be one of the great success stories over the next decade.

Link here.


Independent mini-state Sealand could be handed over to new “rulers”, if they are prepared to cough up the asking price of more than £65 million. It is a chance for someone to have their own island home off the Suffolk coast, a real getaway from it all – with just passing ships and seabirds for company.

One of the world’s smallest countries, the 550 square meter principality, which is seven miles off Felixstowe, is this year celebrating its 40th anniversary and currently undergoing major refurbishment work following a fire last summer. It has been ruled for the past four decades by Major Roy Bates, now 85, and his family but they are looking to “transfer” tenancy to someone else, although they would still keep ownership.

The chairman of the real estate company handling the sale said the firm was constantly being asked by clients if they could buy an island or even a small country. “The transfer of Sealand will be conditioned by the previous official status of autonomy of the ‘Principality of Sealand’ and without agreement to that the transfer will not take place,” he said. “Now whoever comes to ask us if they can create their own country, we will be able to offer them the closest concept that exists – Sealand.”

The former war-time fort is always occupied by some Sealanders or members of the country’s security service, and also an internet company which uses it as a base for its servers. There has been speculation for several years about whether the Bates family might one day sell it but they have insisted Sealand is a sovereign country and not up for sale. Prince Regent, Prince Michael of Sealand said the aim of finding tenants was to generate some money to invest in Sealand. Repairs costing between £250,000 and £500,000 have been carried out since the fire last June, which was caused when a generator exploded.

Link here. Sealand weblink here.


Panamanian banks Banco General and Banco Continental have agreed to a merger that will create one of the largest financial services companies in the region. The parent companies of the two banks – Empresa General de Inversiones, which owns Banco General, and Grupo Financiero Continental, owner of Banco Continental – will merge to form a new entity to be named BG Financial Group Inc.

Under the terms of the agreement, Empresa General de Inversiones will own 61% of the new company and Grupo Financiero Continental will own the remaining 39%. The new group will control assets of about $7 billion, with a loan book of approximately $4.5 billion and equity of $800 million.

The merger remains subject to regulatory approval, but is expected to close some time during 2007. The merger reinforces the consolidation of Panama’s banking market and comes after UK-based banking giant HSBC’s agreement last July to acquire Panama’s Banistmo – the country’s largest bank. The Banistmo group also has a significant presence across Central America, providing a full range of personal and commercial banking services through a further 106 branches in Costa Rica, Honduras, Colombia and Nicaragua. Citigroup has also announced plans to acquire Banco Custcatlan and Banco Uno.

Link here.

Four financial institutions request banking licenses to operate in Panama.

Four financial institutions have asked Panama’s banking regulator (SB) for different types of banking licenses. The regulator issues three types of banking licenses: (1) The general license, issued to banks conducting both domestic and international banking. (2) The international license, issued to offshore banks and other financial institutions outside the country. (3) A license for representative offices. Panama’s financial sector includes 41 onshore banks, 38 offshore banks, and seven representatives offices. The country’s total onshore and offshore assets amounted to $49.5 billion as of September 30.

Link here.


Dozens of Costa Rican employees have been laid off by one of the online gambling industry’s larger companies, BetUS.com, according to a report from sportsbook portal Gambling911, which suggests that the company is the latest group to significantly downsize its Costa Rica operations. Bodog.com announced similar plans last month.

Costa Rica’s economy sustained damage when BetonSports, with close to 1,500 employees, shut down during last summer following the arrest of its CEO on U.S. soil and the subsequent passage of the Unlawful Internet Gambling Enforcement Act. The Costa Rican online gambling industry is believed to employ well over 5,000 people, 911 reports. The sector is the nation’s third largest industry after telecommunications and tourism.

Operators have expressed the fear that the Costa Rican government may not be sufficiently committed to protecting the industry from extra-jurisdictional actions initiated by an aggressively anti-online gambling U.S. Justice Department. BetUS.com maintains a marketing office in Vancouver, and there are unconfirmed reports that the company may soon open a new call centre in Panama, Antigua or Curacao (Netherlands Antilles).

Link here.


Secretary General of CARIFORUM/CARICOM, Edwin Carrington, and European Commissioner for Development and Humanitarian Aid, Luis Michel, on Monday signed a financing agreement for a grant of €40.5 million ($52.6 million) to support the Caribbean region in achieving its objective of regional economic integration and repositioning into the world economy. Among the key program components are support for the range of measures to implement the Caribbean Single Market and Economy and general support for the CARICOM Secretariat.

Link here.

Caribbean’s Digicel posts record growth.

Caribbean telecommunications operator Digicel Group announced that it had achieved record growth in 2006, ending the year with a total investment in the Caribbean region exceeding $1.5 billion, operations in 22 markets and more than 4.0 million customers. “Digicel’s progress in 2006 reinforced our position as the largest GSM provider in the Caribbean region, with sustained growth in our existing markets and unrivaled growth through our entrance into new markets, such as Haiti, Trinidad & Tobago, Guyana and El Salvador,” said Colm Delves, Digicel Group CEO.

Link here.


Israeli online casino entrepreneur, Avi Shaked, has offered to give $100 million to help boost the poor Palestinian economy if the prime minister sits down with his Israeli counterpart. He will give the Palestinine leader another $900 million if the talk results in an agreement that would bring long lasting peace to the area. The initial instalment of $100 million was promised to be made if Prime Minister Ismail Haniyeh, a leader of the Islamist militant group Hamas, and Israel’s Ehud Olmert simply sit down and start the negotiations.

Shaked, a main operator of 888.com, wants the money to bring the Palestinian economy up to the standards of the Israelis which he believes would put the sides on a level footing thus doing away with the poverty that helps fuel the conflict. Haniyeh, who is on a tour of the Middle East to try to raise money for his government, hamstrung for the past nine months by international sanctions, was reported to have rejected the offer. But Shaked said he understood Haniyeh and Hamas, which has run the Palestinian government since March after winning elections, were considering the proposal.

Israel’s government was more dismissive of the initiative, with an official saying it was already committed to long-standing proposals such as the U.S.-backed “road map”. “With all respect, this is not something you do with millionaire’s money,” said the official, who asked not to be named. “This is a government that answers to an electorate.” Olmert has said he will not negotiate with Hamas. He has said, however, that he will talk to Palestinian President Mahmoud Abbas, the leader of Fatah, a more moderate party and rival to Hamas.

The initiative for peace offered up by Shaked goes against the American policy makers beliefs that online gambling money goes to support terrorism.

Link here.


Viet Nam on January 11 became the 150th and newest member of the WTO, following its ratification of the accession package in December 2006. The decision ends over 11 years of preparation, including eight years of negotiation. Speaking late last year, WTO Director-General Pascal Lamy stated that, “The remarkable efforts that Viet Nam has put into preparing for membership should be an inspiration to us all, as several members have observed. ... Viet Nam has shown how anchoring domestic reforms in the WTO can yield dramatic results. Viet Nam’s economic growth topped 8% last year, foreign direct investment rose steeply to over $6 billion, and exports surged by over 20%. More must surely follow with the new laws, administrative measures, and commitments on goods and services that are in Viet Nam’s membership package.”

Vietnamese Trade Minister Truong Dinh Tuyen, speaking at the same time, explained that the negotiations for WTO membership closely accompanied his country’s economic reforms, known as “doi moi”. “It is these reforms that ensure Viet Nam’s constant economic growth, forming a firm foundation for the accession as a whole,” he said. “WTO accession poses major challenges to Vietnam’s economy. However, we do believe that with cooperation extended by the members, Vietnam will make the most of opportunities, successfully handling challenges, ensuring fast and sustainable growth, proactively playing its part for the development of the multilateral trading system.”

Link here.


In his New Year message to members, the leader of the Professional Contractors Group, which represents the interests of the UK’s freelance community called on government, industry and trades unions to recognize the “third way” of working. David Ramsden, who chairs the PCG, said the organization’s biggest challenge is “to get across the very simple message that not everyone chooses to be either an employer or an employee. For too long, employment and tax legislation has been based on the notion that there are only two ways of working. Successive governments have always talked in terms of bosses or workers. Europe cannot conceive of another way except in its recognition of ‘les artisans’ and the assumption is always that today’s sole trader is tomorrow’s Richard Branson or Alan Sugar.”

The PCG has announced that in 2007 it will spearhead a major independent research project to find out how many freelancers there are in the UK, how they came to choose that way of working and the issues that are of greatest concern to them. “Our membership is growing and that alone tells me that more and more people are choosing to go freelance,” said Ramsden. “In every other walk of life, we celebrate diversity but not when it comes to work. Our task is to continue to represent those tens of thousands of people – creative, innovative, independent, flexible and mobile – who play such a valuable part in the local, national and global economy. My prediction for next year is the research findings will surprise an awful lot of people.”

The PCG was formed in May 1999 to provide independent contractors and consultants with a representative voice in opposition to the original IR35 tax proposals. Since then, the organization has evolved from being a single-issue campaign group to being a fully fledged, professional body representing knowledge workers who choose to be self-employed.

Link here.


Conflicts over IT procurement, commercialization challenges, and spotty broadband coverage. It sounds like Canada, but Ireland is going through similar growing pains as its industry tries to keep up with the big companies setting up shop around them. Thanks in part to tax-friendly business policies and government investment in higher education, Ireland has become known as the “Celtic tiger” in the last 10 years, with Dublin, its capital city, called the Silicon Valley of Europe.

Google’s European headquarters is there, as is Microsoft’s European operations center. This past summer, IBM marked its 50th anniversary in the country with a promise to create 300 new jobs by expanding its software lab there. More recently, Ottawa’s Cryptologic said it will move its headquarters to Dublin. The next step, according to local industry watchers, is to match Ireland’s reputation as a home for high-tech heavyweights with some more home-grown success stories. “They are not really scaling up, really going international,” said Michelle Quinn, director of the Irish Software Association (ISA), which promotes and supports local application developers. “They also face the challenge of getting the requisite amount of funding without signing away half of the company.”

Even the best-run companies can have a hard time getting exposure to one of Ireland’s biggest IT customers, the government. Quinn said that there is little centralization of technology purchasing. Instead, decision-making tends to happen at the departmental level, where local Irish software companies often do not make the cut, she said. Ireland last year went through an IT spending scandal when a public health payroll system’s costs spiraled out of control, reaching €150 million before the plug was pulled.

E-government and business Web strategies will not have a full impact unless Ireland does a better job at expanding broadband to rural areas, said Maeve Kneafsey, managing director of Dublin-based Web strategy consulting group Elucidate. “It is a bit of a joke,” she said. “Even in parts of Dublin it’s not that great.” Kneafsey, who is also a board member of the Irish Internet Association, said part of the problem may be traced to the market dominance of Eircom. “It’s a monopoly. You will see the ads saying, ‘Sign up for this service,’ and people will, and then (Eircom) will tell them, ‘Oh, sorry, we don’t service that area.’” The situation was not helped when Smart Telecom, one of Eircom’s few competitors, went through such dire financial troubles that the company was sold last year for a symbolic one euro, Kneafsey added.

The University of Dublin’s Trinity College has partnered with Lucent Technology’s Bell Labs on a 5-year, €69 million program to create a Center for Telecommunications Value-Chain Research (CTVR). If any of the fruits of the researcher’s work makes its way into Lucent’s product portfolio, the intellectual property is shared 50-50. Donal O’Mahoney, the CTVR’s director, hopes to double its size within 10 years. The program could also create a steady stream of radio frequency engineers, which are highly in demand, he added. “Whether they will remain in Ireland – now that’s another matter.”

Link here.


Peter Caruana said in his New Year message that this has been “another hugely successful year for Gibraltar economically. ... This Constitution puts us into a modern, non-colonial constitutional relationship with the UK, while at the same time fulfilling our aspiration to truly govern ourselves to the greatest extent possible consistent with our wish to retain British Sovereignty and close constitutional links with the UK.”

He added that the UK Government has recognized two very important things. Firstly, that the referendum by which Gibraltar citizens approved and accepted the new Constitution is an exercise of their right to self determination. Secondly, that the new Constitution results in a modern relationship between the UK and Gibraltar, which cannot be said to be based on colonialism. This was the route to and manner of decolonization that the GSD Government set out – decolonization through modernization of its constitutional links with Britain.

The airport is now open to normal air links with the rest of the world. Flights to Madrid have already resumed, and it is hoped that flight to and from other countries will follow soon. Gibraltar airport is and will remain Gibraltar Airport. As promised, there are no implications for Sovereignty, jurisdiction or control of the Airport or the Isthmus. Management and control of the airport is and will remain exclusively in Gibraltar’s hands – as will all forms of political, administrative and legal jurisdiction and functions, he said. Moreover, in mid-February, Spain will accept Gibraltar’s 350 code, and normality will be restored in all aspects of telecommunications between Gibraltar and Spain.

According to the Chief Minister, “Spain will not, now or after 2008, be exercising any control whatsoever on anyone relating to their leaving or entering Gibraltar (except of course by refusing their entry into Spain).” He went on to say that the Government seeks the maximum possible degree of friendship and normality in relations with Spain, but do so from a position of firmness in our resolve to uphold and protect our political rights and aspirations as a people.

The economy has also had another excellent year. Employment levels have remained at record highs, the finance center continues to mature and grow, and the gaming industry continues to prosper despite various external challenges, particularly the criminalization of online gambling in the USA. Some Gibraltar operators are responding by reducing jobs, but these jobs will be replaced by new companies that the Government is licensing and by growth in others. The private sector economy continues to perform very well and the economy as a whole continues to grow by around 7% a year. Government bandied about at budget time each year. Similarly, he added, the Government continues to carry out a wide ranging and extensive capital projects investment program designed to enhance and modernize Gibraltar’s physical facilities.

Link here.



A bipartisan group of senators on last week introduced a bill calling for the death of the stealth tax that lawmakers on both sides of the aisle have criticized. Senate Finance Committee Chairman Max Baucus (D-Montana), ranking Republican and former committee chairman Charles Grassley (R-Iowa) and three other committee members introduced legislation to fully repeal the alternative minimum tax (AMT) as of 2007. The bill is similar to one the group introduced in 2005. On the House side, Charles Rangel (D-New York), the new chairman of the Ways and Means Committee, has said repeatedly that fixing the AMT is a priority.

The AMT imposes a higher bill on taxpayers than the regular tax code. The tax, originally intended for the wealthy, now threatens to catch tens of millions of middle-class taxpayers unless lawmakers increase the AMT adjusted gross income exemption levels, since the original levels were never adjusted for inflation. So far, Congress has been issuing temporary annual “patches”. For tax year 2006, for instance, in addition to allowing certain personal credits to offset AMT liability, they raised the AMT adjusted gross income exemption levels to $42,500 for single filers, up from $40,450, and to $62,550 for joint filers, up from $58,000.

But if no other changes are made, the exemption levels for tax year 2007 will drop to $35,750 for single filers and $45,000 for married filers, and the personal credits will be disallowed. As a result, the number of taxpayers nabbed by AMT will jump from 3.5 million in 2006 to 23 million for tax year 2007 and to 39 million by 2017, according to the Tax Policy Center. That assumes President Bush’s tax cuts implemented since 2001 expire as scheduled. If they do not, then 53 million taxpayers – or about half of all taxpayers – will pay the AMT by 2017.

Hardest hit are married couples with kids who take a lot of the deductions and credits disallowed under AMT. The Tax Policy Center estimates that by 2010 nearly 90% of married couples with two or more children and an adjusted gross income between $75,000 and $100,000 will be subject to AMT. The cost of full repeal is not cheap, and it could thwart the chances of balancing the federal budget by 2012. Permanent repeal of the individual AMT is estimated to cost approximately $60 billion per year for 10 years.

Links here and here.


AMT, “tax gap”, IRS and outsourced parties’ collection practices highlighted.

National Taxpayer Advocate Nina E. Olson has released her annual report to Congress, designating the alternative minimum tax for individuals (AMT) and the federal tax gap as the most serious problems facing taxpayers. The report also focuses extensively on concerns about IRS collection policies and the transparency of IRS information to the taxpaying public. By statute, the NTA each year is required to identify at least 20 of the most serious problems encountered by taxpayers.

The AMT was designated as the most serious problem in the Advocate’s report both in its own right and because it symbolizes the broader problem of tax-law complexity. The tax gap remains a high priority because noncompliance by some taxpayers requires every compliant taxpayer to pay, on average, more than $2,200 in extra tax each year to subsidize that noncompliance. Seven of the most serious problems discussed in this year’s report relate to IRS collection policies. “Rather than intervening early and making personal contact with taxpayers,” Olson said, “the IRS often waits until taxpayers’ debts become so large that they warrant the intervention of much more expensive IRS field collection personnel.” The report noted the following vis a vis this area:

“Virtually any debt-collection operation will acknowledge that as delinquent accounts receivable age, their collection potential declines,” Olson said. “Yet it appears that as IRS collection cases age, IRS policies and procedures make it very difficult for taxpayers to obtain reasonable collection alternatives, with the result that the IRS often collects nothing.” Elaborating further on the area, she continued:

In her preface, Olson states that the primary theme of this year’s report is transparency and the important role it plays in tax administration. The report notes that the Freedom of Information Act (FOIA) requires the IRS to make certain procedures and guidance available to the public. The report credits the IRS with improving its compliance with FOIA requirements in recent years but concludes that further improvements are needed. “[W]e believe FOIA represents a floor on transparency, not a ceiling,” she said.

Among 15 legislative recommendations, the report proposes that Congress revise its budget procedures to improve IRS funding decisions. The report states the current federal budget procedures treat the IRS as a classic government-spending program and pit the IRS dollar-for-dollar against many other federal programs for resources. However, studies show that each additional dollar appropriated for the IRS would generate far more than a dollar in additional federal revenue.

Link here.


Did you sell a few kilos of marijuana, take a bribe or steal a computer in 2006? Be sure to include that income on your tax return, unless you want to get in trouble with the IRS. Virtually all Americans know they should report income such as wages, capital gains and tips, even if they do not. But if you are an average taxpayer, you might not be familiar with some of the tax code’s lesser-known income rules.

The basic rule is that if it counts as income, it is taxable. It does not matter where that income comes from. Prohibition-era gangster Al Capone contended, “The government can’t collect legal taxes from illegal money,” but he was wrong and wound up with eight years in prison for tax evasion. The tax laws are regularly used to nab other crooks the same way. Maybe your year was better than a convicted drug dealer’s. Did you win a Nobel prize or a beauty contest? You might have additional income to report. Here is what the IRS says about certain instances of “other income”:

Link here.
IRS kicks off 2007 U.S. tax filing season – link.


Canadian governments are too reliant on personal income and business taxes and need to rebalance the tax system to make it more efficient through additional use of consumption taxes such as the GST, according to a new study released by the Fraser Institute, the free market think tank. “Our current tax system is inefficient. It discourages investment and savings, and it is expensive for both taxpayers to comply with and governments to administer,” observed Jason Clemens, Director of Fiscal Studies at the Fraser Institute and co-author of Tax Efficiency: Not All Taxes Are Created Equal.

In the study, Clemens and co-authors Niels Veldhuis and Milagros Palacios examine how governments can raise revenue through taxation in the least costly and economically damaging manner in order to improve Canada’s economic performance. They also compare Canada’s mix of taxes to that of 30 other industrialized nations. The study found that the costs associated with taxes extend far beyond the direct amount of taxes collected. One of the most important costs associated with taxes is how they affect behavior and incentives. For example, taxes on capital such as corporate income taxes impose much higher costs on society than consumption taxes such as the GST.

The authors also point out that among 30 industrialized countries, Canada has the 4th highest reliance on income and profit taxes, accounting for 46.5% of Canada’s total government revenues vs. an average of 34.4% for other OECD countries. These taxes are considered to be more costly to society in terms of their incentive effects and the cost of compliance. Canada ranks 24th out of 30 OECD countries for its use of taxes on the consumption of goods and services (e.g., the GST). Canada relies on consumption taxes for 25.9% of its total revenues compared to an average of 32.3% for other OECD countries. These types of taxes impose much smaller costs on society.

The study makes several recommendations that involve shifting Canada’s tax mix: reduce corporate income taxes and eliminate capital taxes, reduce personal income tax rates, harmonize provincial sales taxes with the federal GST, eliminate restrictions on contributions to tax sheltered savings accounts such as RRSPs or pensions, create new prepaid tax savings accounts, and increase the use of consumption-based taxes such as the GST. Such a program “would not only enhance the incentives for savings and investment, but it would bring our tax system in line with our chief competitors in the industrial world,” Clemens concluded.

Link here.


Luxembourg has defended Switzerland’s position in the ongoing dispute between Bern and the EU over corporate tax breaks. In an interview with the Zurich-based Tages-Anzeiger newspaper on, Luxembourg Finance Minister Luc Frieden said attacks on Swiss cantonal taxation stemmed from a “poor knowledge of the federal system” and “jealousy”. The interview followed talks between Frieden and his Swiss counterpart, Hans-Rudolf Merz. “When a growing number of individuals and companies leave a country, the country itself should try and improve its own working and living environment rather than accuse others,” Frieden told the Tages-Anzeiger.

Switzerland has been embroiled in a corporate tax dispute with the EU since September 2005. Many EU countries are angry that tax revenues are being lost as companies relocate to Switzerland to take advantage of lower levies. In early January Arnaud Montebourg – a French socialist politician and spokesman for presidential candidate Ségolène Royal – urged the EU to crack down on Swiss cantons that set low tax rates to entice companies and individuals to relocate from other countries. Montebourg also took a swipe at Luxembourg, Liechtenstein and Monaco. “Those who make such statements are defending higher taxes,” said Frieden. “And the fact that certain countries have lower tax rates than others should not automatically be seen as unfair tax competition – let alone banditry,” he added, in response to Montebourg’s comments.

Speaking after his talks with Frieden, Merz hit back at claims that Switzerland’s low tax regime violates the terms of a 1972 Free Trade Agreement. “Attacking cantonal taxation is the same attacking Swiss sovereignty,” he said. Merz commented that both Switzerland and Luxembourg had strong financial centers and common interests. Frieden echoed this, saying Luxembourg would be “standing alongside Switzerland” if there had to be tougher EU discussions on taxation. René Matteotti, a tax law professor at Bern University, told Swiss German public radio that this was the first time an EU member country had vocally supported the Swiss position on taxes. Matteotti said that as long as there was no consensus within the EU, Brussels was unlikely to take measures against Switzerland.

Link here.


French President Jacques Chirac has said that he envisages a cut in the country’s corporate tax rate to as low as 20% within five years, which would give France one of the lowest rates of corporate tax in the EU. In his New Year address, Chirac predicted that the corporate tax rate, currently 33%, would fall to its lowest level for 25 years by the end of 2007. “Fiscal competitivity compared to other countries is the major challenge,” the president said.

Chirac also called for additional tax incentives for companies which share their profits equally between shareholders and employees. Such firms should be allowed to pay a special corporate tax rate of 10%, he stated. The ruling center-right party has made easing the tax burden on business and individual taxpayers a high priority ahead of this year’s national elections. Last year, Prime Minister Dominique de Villepin announced that payroll taxes for workers earning the minimum wage at small companies will be eliminated in July 2007 in an effort to reduce the constraints that hinder job creation.

Link here.


Upcoming talks between Indian and Mauritian officials will focus on changes to the two countries’ Double Tax Avoidance Treaty. Indian worries about abuse of the residence rules under the Treaty are holding up full implementation of a Comprehensive Economic Cooperation and Partnership Agreement signed last year.

Indian tax officials, with perhaps only lukewarm support from their government, hope that Mauritius will stiffen the requirements for tax exemptions under the DTAA. The Indian tax authorities fear particularly that short-term stock market gains can be sheltered in Mauritius by Indian traders, a practice known as “round-tripping”. The Mauritian authorities did move to placate the Indians last year, tightening up on the issuance of Category 1 Global Business Licence applications. But India wants further action before it will implement parts of the CECPA which will be highly favorable for Mauritian exports to India.

Link here.


A quasi-judicial tax authority ruling has rekindled the debate on taxing portfolio investors’ profits. The Authority on Advance Ruling (AAR) has decided that the earnings of Fidelity, which is registered as a U.S. foreign institutional investor (FII) in India, are capital gains and not business income as the fund claims. That means Fidelity will have to pay 10% capital gains tax on short-term profits. Foreign companies seek advance rulings to understand tax implications of their operations, especially in areas that are new and where tax laws can be variously interpreted. The rulings are case-specific, binding, and normally not challenged.

Tax experts say that the decision would bring several U.S.-based portfolio investors under the Indian tax net but will not affect investors who route their money through Mauritius with which India has tax-shelter treaties. The capital gains tax rate is just 4% in the island nation. Nearly 40 sub-accounts of Fidelity from the U.S. and Canada had sought the AAR’s views on tax liability from their portfolio investments in India. Now Fidelity faces a clear liability on future transactions although it has the option to challenge the ruling in the Supreme Court.

“The Indian revenue authorities should accept this decision in totality and extend the implications of this decision even to Indian investors,” said TP Ostwal, a chartered accountant who was rated 11th best tax expert in the world by Forbes. According to Ostwal, Indian equity investors should also be treated like FIIs and their income qualified only as capital gains and not business income. The AAR pointed out that Fidelity’s group entities, which used to classify their income as capital gains, had started declaring it as business income starting in 2003-04. Some of its sub-accounts had even applied for refunds on the basis of this change in the classification of income.

Link here.



The year 2006 was a banner year for offshore finance, according to leading global offshore law firm Walkers, as the market saw more hedge funds and private equity funds involved in takeovers and buyouts, more varied use of alternative investment vehicles, and more investment activity in emerging markets last year. Walkers notes that one of the biggest market drivers was the increase in buyouts of public companies by private equity firms and bigger deals overall. Globally, 2,262 private equity deals worth $563.2 billion had been struck by December 2006. In 2005, total private equity deals were worth $350.1 billion.

“There are several contributing factors to the growth in number and size of these private equity deals,” Iain McMurdo, a partner in Walkers’ Investment Funds group said. “Some public companies are trying to avoid the burden of Sarbanes-Oxley regulations by going private. In addition, private equity funds have billions of dollars to invest, which is fueling the takeover activity worldwide.”

Walkers observed that for a third consecutive year, pension funds continued to drive investments into hedge funds. Even emerging markets got in on the activity. China’s state pension fund is preparing to make its first investments abroad, putting up to $1 billion into foreign financial markets in an effort to improve returns on its reserves. The pension fund twist in 2006 was that private equity investments were also being added to the mix, Walkers noted. Britain’s biggest pension fund, BT, is switching about a third of its UK equity holdings – some £3 billion – into hedge funds and private equity. Continued interest and investment by pension funds into hedge funds is likely to continue in 2007 following the 2006 mid-year amendments to the U.S. Pension Protection Act. These amendments have reduced the number of hedge funds that need to operate in compliance with ERISA and eased the compliance burden for hedge funds that manage the “plan assets” of ERISA investors.

As is to be expected in financial markets, regulation was also a big topic in 2006. The U.S. S.E.C. continues to look for ways to protect investors including the introduction of measures to prohibit fraud by investment advisers and the raising of the net-worth standard for investing in hedge funds. The UK’s Financial Services Authority is also looking for ways to increase transparency and change access to some types of funds.

In the Cayman Islands, changes to the jurisdiction’s Mutual Funds Law were enacted to improve certain aspects of doing business in Cayman for outside investors, including the introduction of innovative and market-leading electronic audit and electronic reporting procedures. Similarly, in the British Virgin Islands, the segregated portfolio company (SPC) regulations were enacted, thereby allowing the incorporation of SPCs for mutual fund and insurance companies in the British Virgin Islands. Further amendments were also made to the recently enacted BVI Business Companies Act to fuel the jurisdiction’s growth as an offshore financial center.

Finally, emerging markets such as Asia and the Middle East continued to mature. Asian investors embraced more sophisticated structures including real estate investment trusts (REITs), increased the flow of venture capital investments into businesses in China, and continued to support the use of unit trusts within hedge fund vehicles as a way to combine new investments with more traditional standards. Dubai also continued to see record-breaking growth in the size and number of private equity deals, as well as the use of sukuk to finance debt while still adhering to Islamic principles.

“In a year where hedge funds domiciled in the Cayman Islands passed the 8,000 mark, it’s clear that global investment opportunities are expanding,” Mark Lewis, a Senior Investment Funds Partner for Walkers, said. “Even with some notable fund crashes in 2006, we continued to see growth in all of our offices – from Cayman, London, and Jersey to Dubai, Hong Kong and the BVI.”

Link here.


Double and triple digit returns on your investments are certainly exciting. And it is also exciting to be one of the few who can actually take advantage of those kinds of returns. Investment diversification should be one of goals if you choose to go offshore – there is no point in holding only U.S. dollars onshore when you can just as easily hold euro or British pounds offshore – but for many, the investment returns are what draw them offshore. Some are not ready for offshore trusts or a second citizenship. Here is a quick list of the investment options available offshore.

  1. Offshore funds. These include mutual funds, hedge funds, managed futures, and investment trusts from all over the world. Offshore funds offer a greater selection than domestic funds, a greater margin of safety, foreign currency diversification, greater financial privacy, and offer a hedge against any market disturbance in the U.S. Be warned that you should only invest in these through a tax-deferred vehicle.
  2. Global stocks and bonds. From an offshore private bank you can trade and invest in almost any security, anywhere in the world. Provided you do not trade too frequently, it is a great platform to maximize international opportunities in foreign currency-denominated equities or bonds.
  3. Currencies. One of the key benefits to investing offshore is currency diversification. If you choose wisely and invest at the right time, you can profit from currency appreciation on top of any increase the investment may have enjoyed. You can also invest in currencies through domestic multi-currency deposits via a bank account, Currency ETF’s via a stock brokerage account, Currency Options via a stock brokerage or futures account, Currency Futures via a futures account, or the Spot Forex using a spot forex account.

Offshore investing repays careful planning on your part. Start by comtemplating what kinds of investments you want to make offshore, incorporating your specific offshore investment goals. Regardless of your goals, you must understand how these investments will be taxed by the IRS (or your home country) before buying anything. Time to go out and grab those exciting returns!

Link here.


If you plan on investing in offshore funds as an American, you absolutely must use a tax-deferred vehicle. Unfortunately, some misguided individuals either do not know this rule, or they discard it. Instead, they just go ahead and invest in global funds through an offshore bank. That means that every single year, they are taxed on the global funds’ gains. They are stuck with huge penalties. Offshore banks will not necessarily inform investors as to these penalties. The investors have to figure that out for themselves. And if they choose to ignore these taxes, they face even larger fines with the IRS down the road.

But if you choose a tax-deferred vehicle, you can avoid all of this. With a tax-deferred vehicle, your funds investment profits grow tax-deferred until you are ready to spend them. So you can see why a tax-deferred vehicle is so important, if you are interested in global funds. I call my favorite tax-deferred vehicles “one-stop solutions” because they do more than just defer taxes.

A variable annuity is really just an insurance policy. You buy an annuity contract from an insurance company. Then the insurance company invests some or all those funds using investment strategies you approve. Most offshore variable annuity policies require a minimum of $50,000 to start. Offshore insurance companies have access to the entire range of global investments, including many investments Americans cannot touch. They can invest your annuity fund in global equities, foreign currencies, bonds, and commodities. Sometimes, your annuity can be invested in alternative investments like hedge funds and managed futures funds. Annuity investments are tailored for a long-term investor, as annuity investors generally hold their annuity for at least five years. There is one caveat – you may not specifically direct the investments. You pick an investment style or area you prefer and the investment selection will be made for you. In addition to investment potential, there are many added perks to variable annuities such as:

Nearly unlimited investment discretion, asset protection, privacy, and liquidity. And your funds grows tax-deferred, so you can avoid the harsh tax penalties. That is why we call annuities “one-stop solutions”.

Link here.


Accountancy firm Grant Thornton calculated the scale of tax avoidance by the super-rich and concluded that Britain’s 54 billionaires pay tax on only a tiny fraction of their wealth. The Sunday Times was forced to commission the research after HM Revenues & Customs (HMRC) refused requests by the newspaper under the freedom of information act to disclose the aggregate payments made by Britain’s super-rich. Even though no names would have been made public, the HMRC claimed the release of such information would breach taxpayer confidentiality.

According to Grant Thornton, the UK’s billionaires paid income tax totalling just under £15 million on their £126 billion combined fortunes. Only a mere handful pay capital gains tax. More than 32 of the individual billionaires or family groups were calculated not to have paid any personal tax, even though they are all liable for value added tax (VAT) and council tax.

Grant Thornton analyzed the published accounts and other records publicly available on the 54 billionaires identified by the 2006 Sunday Times Rich List. The research concluded that, in total, the 54 billionaires paid an estimated tax bill of just under £75 million. In addition to the UK becoming an onshore tax haven, the Blair government has fought to retain so-called loopholes that allow offshore tax havens to be exploited by the super-rich. At least 42 of the 54 billionaires utilize havens like the Channel Islands, Switzerland and the Turk and Caicos Islands. The Times used the example of Richard Branson, who has established a complicated series of offshore trusts and companies that own his business empire. While Branson’s wealth is estimated to exceed £3,000 million, he pays little tax because his wealth is tied up in these companies.

According to the Times, the loophole most taken advantage of by billionaires is that whereby “non-domicile” status is offered to foreigners or those with foreign-born parents living in the UK. This clause enables wealthy individuals to claim they are “domiciled” abroad, even though they may carry British passports and may have lived in the country for decades. Those afforded such privileged terms are free to locate their assets in offshore tax havens and liable only to pay tax on those sums they choose to bring to Britain. Another law allows the wealthy to become non-residents, allowing them to move abroad, often to a tax haven like Monaco or Zurich, but return to the UK for a maximum of 90 days or approximately a quarter of the year.

Before gaining power in 1997 the now Chancellor of the Exchequer Gordon Brown vowed to close the so-called loopholes benefiting the super-rich. 19 months ago a consultation paper was promised on the issue, but the government is “continuing to review” the residence and domicile rules. In contrast, every year hundreds of thousands of self-employed workers and owners of small businesses come into conflict with HMRC and are threatened with jail over relatively small amounts of money.

Link here.
HM Revenue & Customs clarifies position on tax residence – links here and here.


HM Revenue & Customs has been holding secret talks with banks in an attempt to coax them to out customers who have failed to declare tax on offshore income. If it cannot persuade the banks to do this voluntarily, it is expected to take legal action in the next few months to force them to hand over information.

It is not illegal to hold money offshore, but it is against the law to conceal the interest earned. Savers caught doing this could face a payment order for the tax due plus interest, as well as penalties that can be up to 100% of the amount owed. HMRC is believed to be considering an amnesty for offshore account holders to encourage people to come forward. During an amnesty, penalties would be reduced to between 10% and 25% of their maximum level. But accountants say taxpayers should not wait for an amnesty to come clean, as there is no guarantee it will be implemented. Last week, HMRC refused to confirm or deny whether an amnesty is imminent.

Banks have not traditionally had to disclose details of customers’ accounts, although the EU savings directive and a landmark case last year against Barclays have eroded this principle. Under the savings-tax directive, introduced in July 2005, most EU states now share information about people who earn savings income in their country but live elsewhere. So if a UK resident has an account in France, the French authorities will share information with HMRC.

However, Austria, Belgium, Luxembourg, the Channel Islands, the Isle of Man, and the British Virgin Islands implemented the directive differently. Rather than share customers’ information, they levy an annual withholding tax on savings income if the saver lives in another country, unless the customer can prove they are not liable in their home country, or if they authorize the bank to share information with the relevant authorities. HMRC cannot automatically get access to information about bank accounts in these countries, but can be given the go-ahead by a special commissioner of HMRC. Last May HMRC won a landmark ruling that forced Barclays to hand over records of thousands of customers with offshore accounts. HMRC estimates that this first inquiry will yield about £1.5 billion in unpaid tax from Barclays customers.

Link here.



RIP Money. Born 640 B.C. Died 2007 A.D. Payment by phone is here.

Money talks, and in the very near future it will be talking through your mobile phone. Fumbling for coins in your pocket will be a thing of the past as the latest technology lets you load up your phone with credit and pay by simply pointing it at the till. In the coming year, even the smallest purchases will be paid for electronically after credit card giants Visa and Barclaycard struck a deal to create the next generation of “wave and pay” cards for purchases of less than £10. Users will simply wave the card across a scanner to pay for small items for which they would normally use coins, such as their Daily Mirror or a pint of beer.

The Baja Beach Club in Barcelona has taken the technology one step further by having tiny data chips implanted surgically under customers’ skin. The VeriChip then allows clubbers to pay for drinks by waving their arm across the counter. Already more purchases are made on plastic than in cash, and a study by retail analyst Datamonitor suggests that cards could replace cash altogether within 10 years.

Last year Mastercard launched Cashplus, the first UK version of the pre-paid plastic cards popular in the U.S. No bank account is needed as they can be topped up at the Post Office. Oyster cards, which many Londoners use to pay for public transport, now account for 70% of Tube and bus journeys. Tesco is apparently considering its first totally cashless store while German hypermarket Real is trialing stores where customers can only pay with a credit or debit card.

But your mobile phone is likely to be the biggest threat to cash. Last year a new EU ruling eased the restrictions on using them to pay for goods, and soon we will be able to pay for anything from theater tickets to parking fees simply by sending a text message. In Berlin, shoppers can already buy a drink by sending a text message to the vending machine. The charge is added to the monthly phone bill. Experts believe it will not be long before so-called “mobile commerce” – or m-commerce – takes off, especially in countries with better mobile phone networks than banks. Mark Bowerman, from the Association of Payment Clearing Services, says, “People use cards more than cash, but the data on a card can be stored anywhere. There’s no reason why it can’t be kept on your mobile phone, or even underneath the skin on your wrist.”

Consumer groups are suspicious of moves to abolish cash transactions. Janice Allen, from the National Consumer Council, says, “One of the most worrying aspects of replacing cash is the reliance on making our personal information widely available.”

Link here.


A study of bank notes currently in circulation in the greater Dublin area found that every single one was contaminated with cocaine. A sample of 45 bank notes, in denominations of €5-50, were analyzed as part of an ongoing research project into the detection of illicit drug use. Three of the notes were also found to be contaminated with heroin. The study was carried out by a Ph.D. student at DCU’s National Centre for Sensor Research.

The cotton structure of euro bank notes absorbs chemical residues, making them relatively easy to analyze. Contamination can occur whenever direct contact between a note and the drug takes place. This can happen following the practice of “snorting” the drug through a rolled up bank note, as a result of transfer during drug dealing, or through the cross-contamination of notes during the counting process in financial institutions. 62% of the notes were contaminated with cocaine levels at concentrations sufficiently great to indicate suspected direct use of the note in either drug dealing or drug inhalation. Around one-third of the notes showed only ultra-trace quantities and were probably contaminated as a result of contact with other contaminated notes.

Describing the 100% results as “surprising”, the student pointed out that the most recent survey carried out in the U.S. showed that 65% of dollar notes there were contaminated with cocaine. “Further research would need to be carried out to provide a more accurate picture of the scope of cocaine and heroin use in Ireland today,” the student’s supervising professor said.

Link here.


When federal agents searched the offices of Comprehensive Drug Testing in Long Beach, California, on April 8, 2004, they officially were looking for the records of 10 baseball players suspected of buying steroids from the Bay Area Laboratory Co-Operative (BALCO), a sports nutrition center whose owners had been charged with illegal steroid distribution. They left with information that went far beyond what their warrant described, including data on 1,200 baseball players and almost 3,000 computer files unrelated to Major League Baseball drug testing.

The U.S. Court of Appeals for the 9th Circuit recently told the government it may keep these records because they were “intermingled” with the records of the 10 original targets. But you need not worry about the privacy of your electronic records, as long as you are confident they have not been hanging with the wrong crowd. Then again, no one can be sure of that. According to the rule endorsed by the two-judge majority, wrote dissenting 9th Circuit Judge Sidney Thomas, the government “may seize, retain, and view all confidential records in any electronic database on which private data responsive to a warrant resides.” In effect, he said, this decision “removes confidential electronic records from the protections of the Fourth Amendment.”

The majority said people who object to a seizure after the fact can ask a magistrate to review the information and decide whether there is probable cause to retain it. But the magistrate can let the government keep records outside the scope of the warrant if he decides they cannot be removed “without creating new documents” or “without distorting the character of the original document.” More important, by letting the government seize first and answer questions later, this approach puts the burden of preventing an unreasonable seizure on people who may not even realize their records have been taken. In this case, along with information on baseball players, whose union challenged the seizure, the government took the medical records of players in 13 other sports organizations, participants in three athletic competitions, and employees of three businesses.

The government planned a wide search from the beginning. It initially obtained a grand jury subpoena demanding drug testing data for all Major League Baseball players. After Comprehensive Drug Testing and the players’ union objected, it switched to a much narrower subpoena focused on 11 players. When they said they planned to challenge that subpoena as well, it sought a search warrant from a different court. Federal agents chose not to isolate the information described in the warrant by performing an on-site database search. They also declined to submit the records to a magistrate for redaction. As a result, the government got what it wanted without having to ask for it. And then some. It has left open the possibility of using drug testing data on people who are not even baseball players.

The 9th Circuit’s loose treatment of “intermingled” data allows investigators to peruse the confidential electronic records of people who are not suspects, hoping to pull up something incriminating. It replaces a particularized warrant based on probable cause with a fishing license.

Link here.


Austria, Switzerland, Panama and several other countries have some of the world’s strongest bank secrecy laws. But the laws do not have any effect outside these countries’ borders. I was reminded of this a few days ago when I received an email message from a reader who wondered why I recommend never using a debit card in your own country that draws against a foreign bank account.

The problem arises because while the bank records from a country such as Austria may be confidential, the records from whatever domestic company clears the debit card transactions may not be. If there are a large enough number of domestic transactions to pave a trail back to “you”, it is relatively easy to prove that you are the person connected to the card. And there goes your privacy!

In the U.S., the IRS has issued blanket “John Doe” subpoenas of hundreds of millions of debit card records from domestic clearing firms. Thousands of people have been audited and dozens have been sent to jail for tax evasion. So if you value your financial privacy, minimize any transactions in your own country with your offshore bank.

Link here (scroll down).


Any system that encrypts your entire hard drive is overkill for most PC users. I prefer encrypted safes, which are files that contain encrypted folders and files. To the outside world, a safe looks like a big file filled with gobbledygook. Open a safe with its password, and you reveal a virtual drive holding your sensitive data. When you are done and you close the safe, the data reverts to gobbledygook. Safes are easy to use, transportable from one PC to another, and a breeze to back up. I recommend the free open-source safe program TrueCrypt, which supports multiple heavy-duty encryption algorithms. TrueCrypt can even place your safe inside another safe.

No encryption is secure with an easy-to-guess password. Safest is a string of 20 or more apparently random letters and numbers. But how do you remember such a password? Make up an easy-to-remember but impossible-to-figure-out formula of family names, birthdays, and memorable words. For instance, use your kids’ names spelled backward, with every third letter capitalized, followed by your birthday squared. Be sure, however, not to use a formula that has been printed in PC World. Here are more tips on crafting secure passwords. Write the password or the formula on a business card and carry it in your wallet. It is unlikely that someone will steal your wallet and your PC, and even less likely that they will figure the card out.

What files should you put in the safe? Any that you do not want crooks, competitors, coworkers, or even your own children to see. One top priority is financial information, especially if it involves credit card, bank, or Social Security numbers. Passwords to retail Web sites should also be stored in the safe. You might put some sensitive work-related files there as well (although your IS department likely has an encryption policy). Your résumé , family photos, private e-mail, and other files that you want to keep secure and confidential are candidates for the safe, too.

Link here.


President George W. Bush’s brand of conservatism is something completely foreign to traditional norms. He has outspent even the most liberal administrations. He has led the nation into undeclared foreign wars under false pretenses. He has bloated the size and scope of the federal government like no president since Franklin D. Roosevelt. He has increased federal funding for abortion providers at home and abroad. Over the objections of a Republican-controlled Congress, Bush even supported the Clinton gun ban.

However, it is President Bush’s preoccupation with turning America into a total surveillance society that separates his administration from any and all others. Before this administration, no conservative president had endorsed the concept of turning the U.S. into the fulfillment of Aldous Huxley’s Brave New World, but that is exactly what G.W. Bush is attempting to do. Under the rubric of fighting terrorism, Bush has done more to strip the American people of their freedoms than any administration since Abraham Lincoln.

The latest example of Bush’s tyrannical tendencies comes in the form of his most recent “signing statement”. And please understand that President Bush has issued more “signing statements” than any president in history. In fact, before President Reagan, there was a total of only 75 “signing statements” by all previous administrations. Then, Presidents Reagan, George H.W. Bush, and Bill Clinton issued 247 “signing statements” combined. So far, President George W. Bush has issued 147 “signing statements” that have challenged constitutional restrictions (upon him) to more than 750 statutes.

After signing a postal reform bill called H.R. 6407, the “Postal Accountability and Enhancement Act”, President Bush issued a “signing statement” that declared his (Bush’s) right to open the private mail of American citizens without a judge’s warrant. According to the New York Daily News, “That claim is contrary to existing law and contradicted the bill he had just signed, say experts who have reviewed it.” The News continues by saying, “Experts said the new powers could be easily abused and used to vacuum up large amounts of mail.” Bush’s decision to grant himself the power to open private mail without a warrant is similar to what he has done in the recent past. Remember that he recently said he had the authority to perform warrantless eavesdropping on the American people.

A total surveillance society is something that Americans heretofore understood to be completely contrary to the principles of liberty. Such a society was reserved for Marxist or Nazi regimes, and was repugnant to all true Americans. No More. President Bush has taken the concept of a surveillance society into the mainstream of America’s public life and culture. Sadder still is the fact that there is only a handful of people that seem worried about it, and none of these are conservative Christian leaders. Since G.W. Bush became president, the American people have had their Fourth, Fifth, Sixth, and Seventh Amendment protections gutted. Phone calls, emails, and even private discussions can be (and are) monitored by federal police agencies without court order. Beyond that, virtually all of their major banking transactions are constantly monitored, as well as their travel and shopping activities.

The Republican Party has demonstrated that it has no inclination to oppose Bush’s New World Order, that is for sure. The GOP always was, and still is, the party of Big Business. And just who do you think is getting all the high-dollar federal contracts to do all this national snooping? You bet. The GOP’s Big Business buddies. The national conservative Christian leaders have likewise demonstrated a total disregard for Bush’s push for an Orwellian society. After all, they have been too busy enjoying the perks and benefits of sitting at the king’s table. Plus, they do not have to worry about being the target of Bush’s secret police stings. They are part of the “inner circle”, don’t you know? That brings it down to the Democrats. What will Nancy Pelosi and company do to slow down this emerging police state juggernaut? Probably not much. Their track record is hardly reassuring. This is the same bunch that took delight in trashing the Second Amendment.

In the end, it always comes down to “we the people.” Until America’s local pastors, local sheriffs, local and state elected officers, and local and state judges begin standing up to this out-of-control federal monstrosity, the slippery slide into fascism will continue. Whoops! I just remembered that most of those people are also on the federal take. Therefore, a return to traditional conservatism is just about out of the question. Then again, we could do something revolutionary, such as casting aside both major political parties, and start supporting true constitutionalists for a real change in America. The skeleton for such a movement already exists in the form of the Constitution Party.

Link here.



Widespread voluntary cooperation by international banks is helping the U.S. isolate drug traffickers, terrorists and other outlaws from the international finance system, a top Treasury official said. As a result, Washington’s efforts to financially isolate supporters of international terrorism and other outlaws are “much, much more powerful,” said Stuart Levey, Treasury undersecretary for terrorism and financial intelligence.

Treasury last month listed nine persons, an electronics company and a shopping center in South America as specially designated global terrorist entities for providing support to Hezbollah. That designation under a post-September 11 counterterrorism executive order bars transactions with Americans and freezes any U.S. assets of the entities. Cooperation by foreign banks “represents, I think, a very significant step in protecting the integrity of the international financial system ...”, Mr. Levey said.

Banks are assessing “legal, compliance, operational and reputational risks in a more holistic, global manner,” said an executive at a major European bank who did not want to be named. The executive, who works to counter money laundering, stressed that the industry is acting on several factors, not just the U.S. government. These factors include the UN, the EU and other regulatory regimes, as well as a reluctance to conduct business in support of terrorism or other international dangers, he said. Officials from other banks would not comment.

Mr. Levey cited measures taken against North Korea, Iran and the Hamas-led Palestinian government as examples “because in all three of these circumstances, we’ve seen the private sector, particularly financial institutions, go way beyond what they’re required to do to adhere with United States law.” The U.S. government named North Korean entities in the proliferation of weapons of mass destruction. In 2005, it named Banco Delta Asia in Macau as a “primary money laundering concern,” whose “special relationship” with North Korea aided criminal activities of agencies of the North Korean government and front companies. Mr. Levey said the move “has led to what has really put the pressure on North Korea and their illicit activities: banks questioning whether they want to do business with the North Korean government, which has cut North Korea off from the international financial system. The private sector has greatly amplified the formal legal effect of naming this one bank in Macau.”

A similar process is beginning with Iran, which Mr. Levey called “the central banker of terror.” Mr. Levey said financial institutions and other legitimate business have been re-evaluating their business with Tehran. He said that some financial institutions are refusing to issue letters of credit to Iranian businesses.

Link here.


China’s biggest money laundering racket involving 5 billion yuan ($633 million) was uprooted in Shanghai when a bank reported that a customer visited the bank a dozen times a day. The anti-money laundering bureau of the People’s Bank of China, Shanghai Branch, received a report from the Pudong Branch of the Bank of Communications about a man who had been making money transfers every day from the first quarter of last year.

“We asked him to apply for a VIP card, which would give him preferential treatment as he seemed to be a really big client, with extremely busy business and large accounts of money,” recalled an official with the Pudong branch. “However, he refused every time. It was really strange that he kept making money transfers at different windows of the bank, and showed no dismay at the long queues in front of him.” A later investigation by the bureau of the central bank uncovered that he was not working alone, with an accomplice working in other banks in Shanghai.

“It’s obviously a money laundering case,” said Fan Ruqian, a vice director with the bureau’s Shanghai branch, which soon reported the situation to the city’s public security bureau. The Singaporean suspect, who has been arrested with another three suspects in Shanghai, has been accused of operating an underground bank in the city, making large money transfers and providing foreign exchange and other banking services between Singapore and China. Zhu Hai, an inspector with the economic crime investigation department of the city’s public security bureau, told CCTV they discovered that the four men had made at least 20,000 transactions through 2004 to May of 2006. “That means they had to visit local banks no less than 30 times a day for the five billion yuan of illegal funds, except on holidays and weekends,” Zhu said.

Last October, the national legislative body adopted China’s first anti-money laundering law, which expands the definition of money laundering to include corruption and bribery, and gives the central bank greater power in investigations. The law, which went into effect on January 1, requires financial and some non-financial institutions to maintain client and transaction records, and to report large, suspicious transactions. The institutions are also empowered to freeze capital for up to 48 hours to prevent corrupt officials from shifting their illicit gains.

Link here.


New York District Judge Loretta Preska agreed last week to dismiss a deferred criminal charge against KPMG resulting from the settlement reached by KPMG and the Justice Department over the sale of improper tax shelters in 2005. Former executives of KPMG who are facing separate criminal charges attempted to prevent the dismissal, claiming that KPMG’s refusal to pay their legal fees amounted to a breach of KPMG’s agreement with the government. However, the judge did not agree.

In August 2005, KPMG agreed to pay $456 million in penalties to cover former clients who participated in the tax shelters known as Blips, Flip, Opis and Short Option Strategy. Under the agreement, prosecution was deferred, with the government agreeing to drop charges after December 31, 2006 if KPMG submitted to outside monitoring and discontinued some types of tax-related activity. The trial of the former employees is currently delayed after the trial judge cited concerns over the dispute concerning who should pay the defendants’ lawyers.

The 16 former KPMG employees and two others are accused of selling tax shelters which were deemed “abusive” by the IRS. The agency has estimated that the tax shelters helped investors avoid some $2.5 billion in taxes. However, the trial bogged down when in June, U.S. District Judge Lewis A. Kaplan found that prosecutors violated the constitutional rights of the former KPMG partners by pressurising them to cut off payment of legal costs to the defense. The former executives then filed a civil complaint against KPMG seeking advancement of defense costs. A trial on the fee issue was scheduled for October, but KPMG appealed Kaplan’s ruling, saying the matter should be dealt with by arbitrators rather than the Courts.

Link here.

Court backs IRS in LILO tax shelter case.

The IRS has won a significant court victory in its fight to outlaw the use of a tax shelter known as “lease in lease out”, or LILO. Judge Norwood Tilley ruled in the U.S. District Court in North Carolina last week that a leasing arrangement used by financial services firm BB&T Corp. had no other purpose than to reduce its tax liability.

BB&T had used a LILO arrangement to lease wood-pulp facilities owned by a Swedish company, Sodra Cell AB. Under LILO arrangements, companies pay an accommodation fee to lease facilities from another company or a municipality, but then claim depreciation on these facilities to reduce their tax bill. In 2004, Congress moved to ban the use of similar LILO arrangements, which coincided with a wider crack down on corporate tax sheltering, and legislation shutting down certain LILO schemes was included in the American Jobs Creation Act.

BB&T had attempted to claim a tax refund of $3.3 million which stemmed from a 1997 lease transaction, but the request was denied by the IRS and the company subsequently went to court to appeal the agency’s decision. According to Dow Jones Newswires, BB&T disagrees with the court’s verdict and plans a further appeal.

Eileen J. O’Connor Assistant Attorney General for the Justice Department’s Tax Division welcomed the decision. “To have a tax deduction for lease or interest expense, you must actually incur them. And to incur them, you must have a genuine lease and genuine indebtedness, respectively,” she said in a statement. “In BB&T vs. United States of America, the District Court found that the Lease-In, Lease-Out tax shelter involved neither, and therefore does not result in the tax deductions claimed by those who participate in it.”

Link here.



Here is a professionally produced, full-length movie that alerts Joe Sixpack to the erosion of his liberties, and as such it deserves our close attention. This reviews its strengths and weaknesses. The movie (hereinafter, “AF2F”) was produced and narrated by Aaron Russo, who in 2004 came close to winning the Libertarian Party’s nomination for President and who may be best known for producing the hilarious comedy (and useful primer on commodity investing) “Trading Places”. Production quality is excellent, and Russo injects himself into the film as narrator and interviewer. Russo flies to Washington and knocks on doors in the corridors of power. He aims to make Joe get out of his couch, get mad and refuse to take it any more, and Joe can readily identify with him. AF2F conveys three main themes:

  1. The income tax is a total fraud, enforced without any legal basis.
  2. Americans are on the brink of losing every last shred of privacy and self-governance.
  3. The primary culprit for the above is a shadowy group of international bankers.

Russo’s treatment of the complex subject of the income tax is also done superbly. I have never seen a better exposé – and all done in less than an hour! Although he does not hide the intricacies of the law, he relies more on letting government people try – and fail – to answer simple questions about what law compels anyone to file 1040s, pay the tax, etc. Central to that approach is Russo’s interview of Sheldon Cohen, a former Commissioner and Chief Counsel for the IRS – who completely stumbles over the simplest, most basic question! If a person like that cannot show the applicable law, it is fair indeed to conclude that none exists. He interviews many others, to the same effect. So AF2F does an excellent job of exposing the income tax as the Swindle of the Century.

The movie ends with an account of the Outrage #2, and very powerfully. Russo shows that close and illegal surveillance started long before 9/11, but nicely denounces the odious Patriot Act and incorporates a fine clip from the ACLU. Image and music are combined skillfully to move the audience to anger and action as the movie ends, and that alone may justify helping pass it around to family and friends. It is hard for anyone to stay complacent after a 109-minute exposure to AF2F.

That then is the good news about the movie. The flip side is its unfortunate, repeated emphasis on the evils of the Federal Reserve, and its attribution of blame to an unnamed group of international bankers aiming to rule the world. This is conspiracism writ large, and is plain silly. Of course, like every one else in Washington, the Fed is far from blameless. Banks do very nicely indeed out of their alliance with the FedGov, just as the latter prospers by borrowing from the former to buy votes with benefits not paid for out of current taxes. Half an hour with Murray Rothbard’s What Has Government Done to Our Money? suffices, however, to put the whole subject in a sensible perspective. The idea that the Fed controls the Feds like puppets on a string is rubbish. Without the laws that grant bankers special privilege (like the one forcing creditors to accept their bits of paper in payment), no banker would have any heavier clout than your neighborhood 7-11.

AF2F calls out indignation that the money extracted from us in the income-tax fraud is really paid over to a set of “private banks” – just as if it would be quite OK if the extraction were legalized and the money handed to a bunch of politicians! This is the huge flaw in the film, and is most unfortunate – even if it were true, which it is not.

Had the film identified the correct culprit – government itself – it could have pointed correctly to what needs to be done, patiently over the next decade or three, along the lines of what I wrote under The Power of One – and which will, in due course, bring about a dissolution of all government along with all the massive evils they bring – including, for good measure, the Federal Reserve and any sinister associates dreaming of world dictatorship. That is a heap less sexy than marching on Washington and refusing to accept a Real ID card, and places a greater strain upon the brain. But unlike the latter, it will actually do the job.

This film is, alas, a prime example of trimming the branches of evil but totally failing to hack at the root. Is it, even so, a good way to focus our friends’ attention to how little freedom we have left? That is a tough call. It describes two of the symptoms very, very well – but prescribes the wrong cure. See it for yourself, and decide accordingly. It is available from Google Video, from Netflix or a local video rental, or can be bought from Amazon or elsewhere.

Link here.


States too often get a free pass from people who think they try to do good for society. How can we show that states do not act out of a merciful concern for humanity? One method is to show that the nature of the state demands a very different type of behavior. In this article I ask why states behave as they do. Why do they select the interests or concerns that they exhibit? How do we prove that their interests are not humanitarian? Economists have answered these questions by suggesting that politicians act out of self-interest. I take a different tack. I seek answers to these questions by asking what interests of the state are implied by its very nature as an organization?

The answers are simple and obvious, which makes them no less true and powerful. Yet I doubt that they are fully and widely realized or appreciated. I will stress that the state naturally is an organization whose members’ acts are designed to keep the state going with its powers intact so as to maintain the benefits that flow to members of the state. While free market organizations also wish to survive and benefit their members, the difference is that they cannot lawfully achieve those aims without benefiting society. On the other hand, the state cannot achieve its aims without harming society.

To begin at the beginning, the state is the top and unique political organization ruling over a nation or a society who live in a given area. As such it has the final power to enforce law. It has the legal power of taxation. And within limits that are often very broad, it has the power to say what is lawful and unlawful. As is true of most organizations, the prime concern or interest of any state is to maintain its existence – to survive. Only by surviving can benefits flow to the state’s members. This interest in surviving, I now show, implies a necessarily strong interest in maintaining its unique powers intact.

Business concerns in free markets survive in one way only – by satisfying customers without going broke, for they cannot exclude other firms from luring customers away. In addition, free market firms have no power to make suppliers of capital contribute resources to the firm. Since a state has official monopoly powers, it has far more latitude in not satisfying its “customers”, primarily the citizens or sub-governments under its jurisdiction. Since the state can tax those citizens, it can obtain capital at its command. These powers in and of themselves facilitate the state’s survival as compared with business enterprises. Furthermore, these powers are essential attributes of what the state is, and, most importantly they are the wellsprings of the rewards that the members of the state garner for themselves. Were the state to face competition, its members would suffer. As a matter of fact, the state would disappear since its essence is this set of monopoly powers. Therefore, directly derived from its interest in survival, the state has an exceedingly important and overwhelming interest in maintaining its powers intact.

The argument is very simple, but it has interesting implications. From it, we deduce that to interpret a state’s actions, we should always look first and foremost to their relation to the survival of the state and the maintenance of its powers. Because of its interest in maintaining its powers, it follows that ordinarily the state will not willingly give up or cede any of its powers of taxing, law-making, law-interpreting, law-enforcement, etc., to either the citizens or the sub-governmental units under its control. All such cessions diminish the state and represent threats to its survival.

Looking at the state’s activities through the lenses of survival and maintenance of powers, we better understand that the state’s rhetoric is offered merely to persuade its citizens that the state is a beneficial and necessary institution with noble and humanitarian concern for its subjects. This rhetoric could not be further from the truth, which the state obviously wishes to conceal. If the state aimed for benefits, it would fold up its welfare/warfare/regulatory tent and fade away to a watchman state, for we know praxeologically that the welfare/warfare/regulatory state’s acts by and large inflict harm.

The analysis tells us that because the state has a monopoly on its powers that benefits its members, it necessarily seeks to survive as an organization and maintain its powers intact. Every act of the state, from the level of its taxes to its programs and to its level of corruption, therefore can be measured against those objectives so as better to understand them.

Link here.


For more than a decade, Somalia has been Exhibit A in the Hall of Statelessness, a place where the state had not merely weakened into irrelevance but disappeared. Somalia’s statelessness had defeated even the world’s only hyperpower, the U.S., when it had intervened militarily to restore order. Fourth Generation war theorists, myself included, frequently pointed to Somalia as an example of the direction in which other places were headed.

Then, over the past several weeks, a Blitzkrieg-like campaign by the Ethiopian army seemed to change everything. A Fourth Generation entity, the Islamic Courts, which had taken control of most of Somalia, was brushed aside with ease by Ethiopian tanks and jets. A makeshift state, the Transitional Federal Government, which had been created years ago by other states but was almost invisible within Somalia, was installed in Mogadishu. The Somali state was restored. Or so it seems.

This direct clash between the international order of states and anti-state forces is a potentially instructive test case. If the Ethiopians and their sponsors succeed in recreating a self-sustaining Somali state, it may put Fourth Generation elements elsewhere on the defensive. Conversely, if the Somali state again fails, it will suggest that outside efforts to restore states are unlikely to succeed and the future belongs to the Fourth Generation.

How will it all turn out? My guess is that in Somalia as elsewhere, the dependence of the wanna-be state on foreign troops will prove fatal. In the end, Fourth Generation wars are contests for legitimacy, and no regime established by foreign intervention can gain much legitimacy. On the other hand, if the Islamic Courts cannot organize effectively, the new government could win by default. Either way, it is safe to say that the outcome in Somalia will have an impact far beyond that small, sad country’s borders.

Link here.
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