Wealth International, Limited

Offshore News Digest for Week of January 15, 2007

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

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



In the late 1990s, I first began hearing about Panama while living in Costa Rica. There was a groundswell movement of expats who felt that the cost of living in Costa Rica was too high and sought greener pastures, quite literally. They found their lower cost lifestyle a few hundred miles south in Panama’s highlands. The words “Chiriqui” and “Boquete” were a total mystery back then, but over the past years they have emerged clearly as affordable living options to many foreign retirees.

Houses for $60,000? Farm land for under $900 an acre? At the very least, I was skeptical about how good life could be at those costs. After some investigation, I became pleasantly surprised by both the charming mountain town of Boquete and the cosmopolitan flair of Panama City. That was 2001. I fell in love with Panama instantly and began to spend as much time down there as I could.

Six years later, the contrarians who sang Panama’s praises are no longer a muted, limited chorus. They are a marching band. Thousands of retirees now call Panama home. Multinational businesses have opened shop here. The $5 billion expansion of The Canal was recently approved and opportunists are rushing to lap up the drippings. Dozens of cranes dot the Panama City skyline, a harbinger of the “new Panama” that is being recreated at a Dubai-esqe pace. The once-quaint town of Boquete is now bustling, with new restaurants and small hotels seemingly opening monthly.

The bad news? Panama is not a dirt cheap place to retire anymore. And Panama real estate is not for bargain hunters either. For those hoping to snatch up a former military house in the former Canal Zone for $50,000, that ship has sailed. Prices rising to meet the exponential increase in demand for real estate in Panama. The Europeans and Canadians who were the pioneers of Panama retirement are now being outpaced by the next wave of investors – Americans. Acting in line with the common assumption that all U.S. citizens inherit a money tree, local developers are building homes, condos and apartments that reflect “gringo” tastes and budgets. If the shroud of secrecy over Panama was not already lifted, Hollywood power couple Brad and Angelina’s highly publicized New Year’s visit officially let the cat out of the bag.

The good news? Some things are still very cheap in Panama. In general, the cost of living is very affordable. Healthcare is extremely reasonable and the quality of service is excellent. An entrée at a nice restaurant in Panama City ranges from $8 to $15, and a beer in a country side watering hole can be found as cheap as $.50. And unlike other offshore retirement destinations, Panama boasts great selections and prices on imported electronics, furnishings and other consumables thanks to low taxes and The Canal.

No doubt those same expats who were grumbling about life in Costa Rica nearly a decade ago are now in a local cantina somewhere in Panama voicing similar concerns. Sadly, a secret this good does not stay a secret very long.

Link here.


A report published by the U.S. Treasury and the Federal Reserve on December 29 contained the startling revelation that holdings of foreign securities by U.S. persons and companies increased 24% in 2005 from year-end 2004 levels. The findings are from the annual survey of U.S. portfolio holdings conducted at year-end 2005. In absolute terms, the numbers are staggering. At the end of 2005, U.S. holdings of foreign securities came to $4.6 trillion, up from $3.3 trillion at year-end 2004. U.S. investors increased their holdings of foreign securities by more than $900 billion in 2004 alone.

These results directly from the U.S. Treasury provide empirical proof that there is a massive movement of dollars out of the U.S. markets into foreign markets. This phenomenon, combined with the continuing trend of foreign central banks to decrease their holdings of U.S. dollars, can only be read as bearish for the dollar.

Link here (scroll down).


Viking warriors have moved within striking distance of London. A group of Swedish file sharers is trying to buy the Principality of Sealand, a World War 2 observation deck off the Suffolk coast that has been occupied since the 1960s. “The Pirate Bay”, which hosts one of Sweden’s largest file sharing sites, is asking for contributions to buy the Principality and is offering citizenship to anyone who makes a significant contribution. The group was shut down by the Swedish authorities last May and moved to The Netherlands.

The Principality of Sealand consists of a concrete and steel platform that was originaly designed as a bomber spotting platform. It was occupied in 1967 by Paddy Roy Bates, a former radio broadcaster and British Army major who styled himself H.R.H. Prince Roy, The Prince of Sealand. The Royal Navy tried to retake the platform a year later but were driven off by the inhabitants, who seldom number more than 10. Although not recognized by any other nation the Principality of Sealand has its own constitution, national anthem and passports.

“It should be a great place for everybody, with high-speed internet access, no copyright laws and VIP accounts to The Pirate Bay,” the organization claims on its Buysealand.com website. “If we do not get enough money required to buy the micro-nation of Sealand, we will try to buy another small island somewhere and claim it as our own country.”

Link here.


The DIFC has announced the issuance of the first license to a U.S. law firm, Akin Gump Strauss Hauer & Feld LLP, to open an office at the DIFC. Operating from the DIFC, Akin Gump will have access to a broad range of emerging markets stretching across Africa, the Middle East and South Asia. Akin Gump, a firm with 15 offices around the world and a well-established Middle East presence, is now authorized to provide legal services to financial institutions operating in the DIFC.

Akin Gump’s Chairman, R. Bruce McLean, commented, “We entered the Dubai market to advise our clients on increasing investment to and from the Middle East. The area’s dramatic growth and continued development has further solidified our commitment to the region.” Akin Gump lawyers have been advising clients in the region for several decades, and the firm has had a presence in the Middle East for over seven years. The Dubai office, managed by energy and projects partner Gavin Watson, was opened in 2005 and advises clients on a range of matters, including alternative investment products, corporate/commercial activities, private equity transactions, and energy project development and finance.

Mr. Watson noted, “The importance of being licensed to operate in one of the world’s largest untapped financial markets cannot be overstated. The DIFC is doing a tremendous job of bringing together an array of resources to support the region’s economic growth. With significant expertise in private equity and investment funds, and a strong reputation in energy project development and finance, Akin Gump is ideally positioned to help our clients participate in this dynamic market.”

The DIFC was created by Dubai in 2004 to serve as an onshore hub for global finance, bridging the time gap between the financial centers of Hong Kong and London. With approximately $1 trillion in infrastructure projects underway or planned throughout the region, Dubai and the DIFC have emerged as key operational centers for firms seeking to provide specialized financial and legal services to the United Arab Emirates and beyond.

Link here.
Liechtenstein looks to nurture relations with DIFC – link.
Prudential receives license from the Dubai Financial Services Authority (DFSA) – link.


Information gathered by the Mauritius government’s Central Statistics Office shows that the economy of Mauritius is expected to grow by around 5.5% in 2007, higher than the 4.7% growth of last year, the government has claimed. Financial intermediation is predicted to grow by around 7.0%, with an expected increase of 5.0% for commercial banks in line with the economy, and 10.0% for the offshore banks. EPZ manufacturing industries are set to expand by 2.5%. The construction sector is forecast to grow at around 6.0% compared to 5.0% in 2006, mostly due to the construction of hotels and Integrated Resort Scheme projects. Hotels and restaurants are expected to expand by around 7.3% with tourist arrivals forecast at 850,000 following market diversification, liberalization of air access and increased seat capacity on the national airline. The government is also anticipating sugar production of around 550,000 tonnes in 2007.

Link here.

Offshore legal giant launches in Mauritius.

Appleby Hunter Bailhache has lauched an office in Mauritius. Appleby already has offices in Bermuda, the British Virgin Islands, Cayman Islands and Jersey, as well as offices in London and Hong Kong. The two-partner outpost is expected to focus primarily on African and Asian-focused funds, with India a particular target. Mauritius, a member of the WTO, the Common Market for Eastern and Southern Africa (COMESA) and the Southern African Development Community (SADC), is also party to a number of double taxation agreements.

Link here.


Until three years ago, Aruna Gaikwad used to earn a meagre 20 rupees (44 cents) a day as a farm worker. Today, the 34-year-old has set up a successful vegetable vending business and makes 400 rupees ($9) daily. She is one of the thousands of women in the drought-prone Mann Desh region of Satara district in the western Indian state of Maharashtra whose lives have been transformed by the 10-year-old Mann Deshi Mahila Sahakari Bank (MDMSB), a unique cooperative bank run by and for women. “Our mission is to empower women in poverty-stricken areas so that they achieve financial independence and self-sufficiency,” says founder-president Chetna Gala Sinha. Mrs. Sinha herself hails from a well-to-do business family in Mumbai (Bombay). A post-graduate in economics, she left city life and settled down in Mhaswad, a village in Satara district, after marrying Vijay Sinha, an activist and a farmer.

The Mhaswad-based 9-year-old bank operates across five districts. A unique aspect of this fully computerised bank is that it offers weekly and fortnightly credit and savings schemes to its customers, most of whom are daily or weekly wage earners. Unlike any other bank, it also provides daily loans for buying vegetables or fruits. With 48,000 members and assets worth 90,000,000 rupees ($2 million), the bank enjoys a repayment rate of 97.5%.

The bank has created 16,720 women entrepreneurs in the region around Mhaswad. The clientele consists of poor women with annual incomes averaging 22,000 rupees ($490). MDMSB is the first bank in the country to have more than 6,700 members from the backward castes. “We also have male depositors, but we provide finances only through women,” says Mrs. Sinha. “We have observed that when women control household finances, more money is spent on children, education, health care, and other important domestic requirements.”

Now the bank has launched a business school that will provide technical, financial and marketing training and guidance to girl school dropouts and women with no formal education to start and improve their own small enterprises. The bank has also established kiosk centers to enable farmers to plan and manage farming activities and market their products with optimal returns.

To stop men from driving their wives out of the house or selling off the property at their whim, Mrs. Sinha has implemented a novel idea. “For obtaining loans, women are required to make their husbands declare them as co-partners in the family property,” informs Mrs. Sinha. “The monetary benefits of a loan encourage the men-folk to readily agree.” The bank has helped as many as 600,000 women to get a share in the property. In 2004, it also convinced the authorities to include women’s names on property papers in recognition of a woman’s right to household property. Women can now use these papers in the court of law to prevent their husbands from selling or divesting household property.

“Our bank demonstrates the effectiveness of microfinance as a financial tool to reach out to the poorest of the poor. We would like to expand our activities to encompass migrant workers and street vendors in urban areas,” said Mrs. Sinha. “We have shown that banking with the poor isn’t always a loss-making proposition. Each success story has inspired more innovation and creativity.”

Link here.


Hong Kong has been ranked as the world’s most free economy for the 13th consecutive year by the Heritage Foundation. The Heritage Foundation’s annual Index of Economic Freedom, published in conjunction with the Wall Street Journal, aims to produce a user-friendly index as a tool for policymakers and investors. This year’s study assessed 10 broad factors in 157 economies worldwide, including business freedom, trade freedom, fiscal freedom, freedom for government, monetary freedom, investment freedom, financial freedom, property rights, freedom from corruption and labor freedom. Hong Kong was followed by Singapore, Australia, the U.S. and New Zealand, respectively. India and China ranked near the bottom of the index at 104th and 119th, the study said.

Hong Kong was ranked first in four broad factors – trade, investment, financial freedom and property rights. The city also ranked among the top 10 in another four areas, namely fiscal freedom, freedom from government, monetary freedom and labor. The report said that Hong Kong’s income tax and corporate tax rates were extremely low, and overall taxation was relatively small as a percentage of GDP. It also noted Hong Kong’s simple business regulation and highly flexible labor market. Hong Kong was wide open to investment, it said, with virtually no restrictions on foreign capital. China was hobbled by a lack of investment freedom, weak financial institutions and a poor judicial system that did not properly protect property rights, said Edwin J. Feulner, president of Heritage Foundation. Although Hong Kong is a Chinese territory, it was ranked separately from China because it has retained a separate economic and legal system since its return to Chinese rule in 1997.

The Foundation complimented Hong Kong on being one of the world’s leading financial centers, with an extensive banking and services industry that was transparent and regulated non-intrusively. It highlighted that the judiciary was independent of politics, the city was virtually corruption-free, and it had an exemplary ability to protect property rights. However, But the city did not do as well as Singapore in labor freedom and in the ease of starting businesses. Hong Kong was also seen as less free from corruption concerns than Singapore.

“We see the role of the Government as that of a facilitator,” responded Hong Kong Financial Secretary, Henry Tang. “We provide a business-friendly environment where all firms can compete on a level playing field and establish an appropriate regulatory regime to ensure integrity and smooth functioning of a free market. ... We will study the report carefully and strive to preserve fervently those strong aspects of our economic freedom, while enhancing those other aspects where there is room for further improvement.”

Links here and here.
The Americas lead world in economic freedom – link.


“We have moved from being a jurisdiction that used to allow offshore to one that now frowns on it,” says parliamentary secretary.

Malta’s financial services sector is healthy and is expected to achieve even better results in 2007, said parliamentary secretary Tonio Fenech. Mr. Fenech said that the achievements made by Malta in financial services has spread the country’s reputation as a safe and serious jurisdiction. He said that these results are a good advert for Malta and help attract investment from foreign companies.

Mr. Fenech said that companies wanting to invest in financial services look for respected jurisdictions. “And Malta is one of them. It has almost become scandalous for a company to be associated with offshore funds. We have moved from being a jurisdiction that used to allow offshore to one that now frowns on it. This gives us the foundations for future development,” he said. The government had amended and introduced legislation to strengthen the sector, said Mr. Fenech, and to attract more companies to invest in financial services in Malta. He also spoke about employment in the sector and said that more people trained in the sector are needed.

Link here.


The biggest corporate trial in Swiss history began January 16 with 19 former top executives, board members and consultants linked to Swissair facing charges stemming from the collapse of the airline that had been a longtime icon of Switzerland. The trial opened with the insistence by the first defendant, former board member Gerhard Fischer, that he was innocent and had acted honorably in the demise of the airline.

Swissair was grounded abruptly on October 2, 2001, when it became unable to pay for fuel and landing fees. Tens of thousands of passengers were stranded worldwide. Thousands of employees and shareholders lost their life savings, and the country’s four main political parties have demanded that former executives be held responsible. The entire managerial board faces charges that include damaging creditors, mismanagement, making false statements about the business and forging documents. The trial will last until March 9.

Swissair, already weakened by a failed expansion strategy of buying shares of other airlines, lost about 3 billion Swiss francs (then $2 billion) in the travel disarray during the final months of 2001. In the makeshift courtroom crowd were former Swissair employees who said they were hoping that the defendants would be sent to prison, but experts have said that was unlikely. Under the law, a maximum sentence of five years in prison – or a fine – is possible. “Most of the accused will probably be acquitted,” said Christopher Chandiramani, a former bank analyst who said he lost his job before the collapse because he forecast large Swissair losses. “Stupidity isn’t a crime.”

The abrupt ruin of the airline cost hundreds of jobs. Big banks had to inject billions of dollars into the successor, Swiss International Air Lines. The Zurich cantonal (state) prosecutor’s office has produced a 100-plus-page indictment based on 4 1/2 years of investigation. Those accused include some of the biggest names in the Swiss business world.

Link here.


In light of the Unlawful Internet Gambling Enforcement Act (UIGEA), as one would expect, the online gambling industry has indeed shifted its focus to non-U.S. countries. In addition, the UK has taken steps to make it more complex to use its services illegitimately. Meanwhile, although it may not be quite as harsh as the UIGEA, Turkey has begun to issue new restrictions on its own online gambling sites.

Apparently, the UK and Spain seek to advance their online gambling enterprises. In extension of their developmental plans, the UK based Bookmaker Ladbrokes has made a joint venture with the Spanish Corporation Cirsca Slot, as both parties have the mutual goal of generating a sports betting business for the Spanish market. Betbull, a UK-based chief European bookmaker that seeks to secure a prominent role in Italy’s betting has recently received four Italian betting licenses for Como and Milano.

Meanwhile, Betbbrokers announced an arrangement with an identity management specialist to use their identity verification service. This web-based electronic service is the UK’s new method of verifying the identification of new clientele in order to intercept potential cases of identity fraud, money laundering, and underage gambling. Contrastingly, a Turkish newspaper relates the new binding regulations that Turkey has placed on online gambling sites and the punishments that will befall perpetrators.

Link here.
Alderney to exhibit e-gaming sector in London – link.

U.S. feds detain NETeller founders.

NETeller founders John Lefebvre and Steve Lawrence were detained in the U.S. on January 15th. The news of their detainment sent shockwaves through the online gambling industry. NETeller, based out of the Isle of Man, is publicly traded on the London exchange and states on their website they are “the world’s largest independent money transfer business”. The most recent annual report states that the company took in revenues of $172.1 Million.

Sources from Costa Rica have reported that John Lefebvre’s wife was from Southern California and that may have been the residence were he was apprehended. Steve Lawrence was the Chairmen of NETeller up until October 13th, 2005 and reports have him being apprehended in New York. Some reports have both Lawrence and Lefebvre still working with the company up until November 2005. A NETeller customer service representative said that, “They were detained but no charges have been filed at this time.”

The besieged online gambling industry has been hit hard over the last six months. In July, the U.S. arrested BetonSports PLC CEO David Carruthers while on a layover between Costa Rica and the UK in the Dallas/Fort Worth Airport, and is currently out on house arrest awaiting trial in Missouri on money laundering and tax evasion. BetonSports Founders Gary Kaplan and Tom “Norm” Miller are still at large.

Approximately one month after Carruthers’s arrest, the U.S. Congress passed the UIGEA (Unlawful Internet Gambling Enforcement Act of 2006), which made it illegal for financial companies to knowingly process internet gambling transactions. UIGEA was signed into law by President Bush in November 2006. Last week, online gambling giant Pinnacle Sports decided to pull out of the U.S. Market to focus on European expansion. The move was blamed on the current U.S. Legal environment as it relates to online gambling transactions.

Link here.


As Rafael Correa assumes Ecuador’s presidency, the country’s foreign debt is not the only thing in danger, some experts warn. Ecuador’s dollarization may also be affected. “Bad economic and political policies will undermine dollarization,” says Dora de Ampuero, who heads up Ecuadorian think-tank Instituto Ecuatoriano de Economia Politica (IEEP). “Government spending will increase to comply with the electoral campaign promises while production and investment will be reduced. These are negative factors to maintain monetary stability.”

Jose Luis Cordeiro, a Venezuelan economist and the author of a book on dollarization in Ecuador, agrees. But he sees dollarization surviving. “Obviously, bad economic decisions will have a negative impact on dollarization,” he says. “However, unless dollarization itself is attacked, there is no reason for it to collapse. The government of Ecuador could even go bankrupt and declare default without eliminating dollarization, just as some dollarized economies have declared default without having to devalue the currency. This has already happened before all the way from Panama to cities and counties in the USA.”

One leading expert sees the opposite happening. “Most observers have the story backwards. It is dollarization that threatens the dangerous economic policies that Correa has proposed, not the other way around,” argues Steve H. Hanke, a professor of applied economics at The Johns Hopkins University in Baltimore who served as an adviser to Ecuador’s Minister of Economy and Finance when Ecuador dollarized six years ago. “Dollarization was adopted to stabilize the economy by putting a ring fence around Ecuador’s politicians and their serial economic bungling and corrupt ways, and that is exactly what it has done. In consequence, Correa has inherited an economy that is in the best shape it has been in decades.”

Panama and El Salvador, along with Ecuador, are the only countries in Latin America that formally use the U.S. dollar as their only currency, although the greenback is also used de facto as a leading currency in the rest of Latin America, especially in countries with unstable currencies and rising inflation. Several countries have considered dollarization, but so far failed to advance further.

Link here.
The lost continent of Latin America – link.


How the U.S. uses globalization to cheat poor countries out of $trillions.

John Perkins describes himself as a former economic hit man – a highly paid professional who cheated countries around the globe out of trillions of dollars. 20 years ago Perkins began writing a book with the working title, Conscience of an Economic Hit Man. Perkins writes, “The book was to be dedicated to the presidents of two countries, men who had been his clients whom I respected and thought of as kindred spirits – Jaime Roldós, president of Ecuador, and Omar Torrijos, president of Panama. Both had just died in fiery crashes. Their deaths were not accidental. They were assassinated because they opposed that fraternity of corporate, government, and banking heads whose goal is global empire. We Economic Hit Men failed to bring Roldós and Torrijos around, and the other type of hit men, the CIA-sanctioned jackals who were always right behind us, stepped in.”

John Perkins continues, “I was persuaded to stop writing that book. I started it four more times during the next twenty years. On each occasion, my decision to begin again was influenced by current world events: the U.S. invasion of Panama in 1980, the first Gulf War, Somalia, and the rise of Osama bin Laden. However, threats or bribes always convinced me to stop.”

But now Perkins, who worked from 1971 to 1981 for the international consulting firm of Chas T. Main where he was a self-described “economic hit man”, has finally published his story. The book is titled Confessions of an Economic Hit Man. John Perkins joins us now in our Firehouse studios.

Perkins: “... [W]hen the National Security Agency recruited me, they put me through a day of lie detector tests. They found out all my weaknesses and immediately seduced me. They used the strongest drugs in our culture, sex, power and money, to win me over. I come from a very old New England family, Calvinist, steeped in amazingly strong moral values. I think I, you know, I am a good person overall, and I think my story really shows how this system and these powerful drugs of sex, money and power can seduce people, because I certainly was seduced. And if I had not lived this life as an economic hit man, I think I would have a hard time believing that anybody does these things. And that is why I wrote the book, because our country really needs to understand, if people in this nation understood what our foreign policy is really about, what foreign aid is about, how our corporations work, where our tax money goes ...”

Link here.



Will Liechtenstein registered companies with participations in EC countries benefit from European Court of Justice (ECJ) judgements? Is this the end of dividend withholding taxes, even if Liechtenstein does not have any double tax treaty, apart from that one with Austria? Is this the end of double tax treaties at all in order to minimize double taxation for dividend payments?

ECJ Judgement C-170/05 (Denkavit French withholding tax case): Article 43 EC and Article 48 EC preclude national legislation which, in imposing a liability to tax on dividends paid to a non-resident parent company and allowing resident parent companies almost full exemption from such tax, constitutes a discriminatory restriction on freedom of establishment.

The ECJ stated that differences in the tax treatment of dividends between parent companies, based on the location of their registered office, constitutes a restriction on freedom of establishment, which is prohibited by the EC Treaty and incapable of justification. The ECJ opinion deals with freedom of establishment (participations of larger extent). It is very likely that the ECJ comes to the same result regarding the freedom of movement of capital, which applies to portfolio situations. It is therefore clear that the treatment of resident and non-resident shareholders differently for dividend withholding tax purposes is against the EC Treaty. This is very important for example for Liechtenstein pension funds which could be subject to a less favorable withholding tax treatment than dividend distributions to domestic pension funds in France. But the judgement is beneficial to any Liechtenstein registered company.

Liechtenstein as a member of the European Economic Area (EEA) but not of the EU, implements the EU Directives and has implemented nearly all of them into its own law. As Liechtenstein is not fully integrated into the EU, there is no tax harmonization and no tax information exchange agreement. Liechtenstein will probably enter the “Schengen Agreement” with Switzerland in 2008. Liechtenstein uses the Swiss currency as legal tender. Liechtenstein has long standing tradition in its constitution and laws to protect the private concerns of its citizens and all persons who are engaged in Liechtenstein’s business life, as do other countries like Switzerland, Austria and Luxembourg who have anchored the protection of privacy as an important right in their laws. And Liechtenstein as EEA member can surely benefit from such ECJ judgements.

Link here.


Offshore companies are gradually leaving the country, tax experts say. Though in 2006 the special offshore status and its 4% tax bracket were abolished, offshore companies had the incentive to stay in the country with a less than 8% corporate tax. But the recently introduced 4% solidarity tax managed to uproot these companies, since the combined 12% tax is higher than the 10% they have to pay in Cyprus and not significantly lower than the 12.5% in Ireland, said Gabriella ErdQs, tax partner at PricewaterhouseCoopers.

Csaba László, tax partner of KPMG expects a gradual decrease in the offshore companies’ activity, saying the majority of those desperate to leave are already gone. By amending the corporate tax law the government aimed to make Hungary the headquarters of holding companies, i.e., the finance center for company groups, but Hungary is not really competitive enough in this field, said ErdQs.

Link here.


If cutting back on your tax bills is your New Year’s resolution, there is no time like the present to start. But before proceeding, please note that Americans who “go offshore” for investment diversification or asset protection usually do not receive much in the way of tax relief. That happens frequently in spite of all the wild claims made by charlatans who promise that they can tell you how to avoid paying U.S. taxes. U.S. taxes are tied to citizenship, and nothing can override that unless you choose to expatriate. But there are a few ways to legally avoid taxes offshore.

Investing offshore can (1) Defer taxes in some cases, using annuities and life insurance, and (2) exempt you from domestic offshore taxes. For example, if you had a Panamanian business entity that did not do business in Panama, it would not be subject to Panamanian tax. Living offshore can (1) cut operating and living costs for U.S. citizens living outside the U.S. (2) Permit U.S. citizens to earn up to $82,400 annually, free of U.S. tax obligations ($168,800 for a married couple, both living offshore). To qualify, you must spend at least 11 months a year living outside the U.S., or be “tax-resident” in a country other than the U.S.

Link here (scroll down).

Why French “Elvis” seeks out the high life in Gstaad, Switzerland.

The official motto of Gstaad, perched beneath stunning mountains at the bottom of a perfect Alpine valley in the German-speaking canton of Bern, is “come up and slow down.” The unofficial motto, according to one long-term resident, the first wife of a major European property developer, “be rich ... but be discreet.”

“This is the place where you come if you are very, very rich and have no wish or need to show it,” the 55-year-old said, before adding that “a few parvenus” were “spoiling things a little at the moment.” Whether she meant Elizabeth Taylor, Sean Connery, Elle Macpherson, Mohamed al-Fayed, and Bernie Ecclestone, the Formula One boss worth £2.5 billion, or Taki Theodoracopulos, the right-wing journalist and socialite, all of whom are among the 3,000 residents of Gstaad, was not immediately obvious.

But what is clear is that the arrival of Johnny Hallyday, France’s greatest rock star, in a helicopter might have been luxurious but it was far from discreet. Though Gstaad residents shrugged, Hallyday’s compatriots did not. His move provoked screaming headlines and a major political row back home. In stark contrast with France, where heavy taxes punish big earners, Switzerland imposes no wealth tax and the state takes only part of the annual income of rich foreigners. In addition, individual cantons can arrange single “flat tax” arrangements with the very rich.

Hallyday will join an estimated 100,000 French citizens now enjoying fondue, the Alps and fine watches. According to Francois Micheloud, a Swiss tax expert, Hallyday would be paying up to 60% of his estimated £4 million annual earnings to the exchequer in France. His tax bill in Switzerland is certain to be considerably less – as low as £105,000. Tax is now a major issue in the run-up to next year’s presidential elections in France, which explains in part why the decision of Hallyday, a vocal supporter of Nicolas Sarkozy, the Interior Minister and right-wing candidate, is so controversial. Socialist candidate Segolene Royal sneered that she prefers to have friends who do not leave France to live in tax havens. Sarkozy snapped back that Hallyday was only forced to leave by left-wing laws that meant France welcomed only those who have “no papers, no training ... and no desire to succeed.”

Not all are convinced that Hallyday has made the right decision. The reaction in the Swiss press has been notably negative. “Johnny is simply going to bore himself to death,” said Peter Rothenbuhler, the editor of Le Matin.

Link here.


House Ways and Means Committee Chairman Charles Rangel (D-New York) has said that he will support a repeal of legislation which handed the collection of tax debts from the IRS to private debt collection agencies. The campaign against the IRS’s unpopular tax debt collection privatization initiative was given new impetus last week by National Taxpayer Advocate Nina E. Olson’s report to Congress which raised numerous concerns about the project that has been in operation since September 2006, and she called for the scheme to be axed.

“Private collectors are driven and paid by commission, costing the taxpayer additional money to do the same job an IRS official can do more efficiently. I will work with my colleagues on the Committee and with IRS officials to make good on this proposal and return the job of enforcing our volunteer tax laws to the trained, courteous professionals at the IRS,” Rangel said.

Olson warned that the potential for private debt collection firms to abuse taxpayer rights through “psychological techniques” to coax debtors into paying and privacy abuses was “significant”. The report concluded that the benefits of the private debt collection initiative were limited in revenue terms and urged Congress to repeal the IRS’s authority to outsource tax collection. According to Rep. Steve Rothman (D-New Jersey), the private collection scheme lets private debt collection agencies charge 25 cents for every dollar collected, whereas additional IRS employees will only cost the government 3 cents for every dollar collected. Rothman attempted to block the outsourcing of tax debt collection last year.

Link here.
Congress questions IRS audit practices – link.


The standard rap on the Alternative Minimum Tax is that it was originally designed to snag just a handful of rich taxpayers, but that it was not indexed to inflation when it was written, which is why it is rapidly becoming a middle-class tax. The implication? It is all just some crazy misunderstanding!

Nonsense. How many major tax bills have been passed since the AMT was instituted? I count about 26 or 18, depending on which version of the AMT you start with. Since at least the Clinton administration, the growing impact of the AMT has been well known in Washington. Every time a tax bill is written, somebody has to do the math and figure out how much revenue the government can expect to bring in and what the budget will look like under the new system. So when Congress is debating whether it should cut or raise the top marginal rate by X, they do that knowing they will be collecting Y from the AMT. The AMT is not the result of a decades-old mistake. It is a conscious decision by Congress and the President make every time they pass a big tax bill.

Pretending that the AMT is just a thoughtless boo-boo serves two purposes, it seems to me. First, it deflects responsibility for a tax that is driving a growing number of people nuts. Second, it allows you to do what Grassley seems to be attempting, which is to characterize a significant tax cut – at a time when that seems hard to afford – as little more than a technical fix.

Link here (January 11 blog entry).


Municipal leases and offshore “corporate inversions” are among targets.

Sen. Chuck Grassley, ranking member of the Committee on Finance, has praised the committee’s passage of a series of measures cracking down on tax shelter abuses. Grassley originally developed the bipartisan measures when he was chairman. The Senate passed them before but the House resisted them and they were never enacted.

“We need to keep cracking down on tax avoidance abuse,” Grassley said. “Every taxpayer who doesn’t pay what he owes makes a sucker out of everyone who does. It’s appropriate to shut down abuse and use the money from that to help small businesses preserve jobs as they face a minimum wage increase.” The committee unanimously passed the tax shelter loophole closers as part of the Small Business and Work Opportunity Act of 2007, which extends tax relief for small businesses in conjunction with an expected minimum wage increase. The tax relief includes a tax credit to hire disadvantaged workers and allows retailers and restaurant owners to more quickly write off the costs of remodeling leased buildings. The tax loophole closers approved as part of the package include:

Link here.


A consultation document setting out how the Government proposes to update HM Revenue & Customs’ (HMRC) criminal investigation powers and accompanying safeguards has been published. The consultation is the latest stage of HMRC’s work to modernize its powers, deterrents and safeguards. Currently, HMRC relies on provisions inherited from its predecessor departments – the Inland Revenue and HM Customs and Excise – which evolved over a considerable period of time, and involve substantial differences between different areas and taxes.

An earlier consultation paper, published in August, set out a new approach on HMRC criminal powers. Under the new approach, HMRC’s investigatory powers in England, Wales and Northern Ireland would be based on the Police and Criminal Evidence Act (PACE), while a statutory code would be introduced for Scotland, where PACE does not apply. This approach received broad support in the earlier consultation.

As now, specifically authorized officers would be able to apply to the courts for search warrants and production orders, and exercise powers of arrest. Modernization would harmonize these powers across all taxes, and would mean that HMRC criminal investigations were subject to the statutory codes of practice and safeguards which attach to criminal investigations generally. Criminal investigation powers are only available to the specialist teams in HMRC who actually undertake criminal investigation work. They are not available to other HMRC staff undertaking routine assurance or compliance work. HMRC has reorganized recently to ensure a clear separation between the criminal investigation work and all its other responsibilities which affect the vast majority of taxpayers. The changes set out in the clauses would reinforce the separation.

Link here.



What is the point of an offshore asset protection trust? For starters, it protects your assets better than any domestic trust ever can simply because it is located outside your home country. Distance makes the trust grow stronger. And that includes protection from creditors. In many cases, foreign courts in “asset havens” will not recognize U.S. court orders. A foreign judgment creditor seeking your assets must argue their claim in the local asset haven’s courts after hiring local lawyers.

Other benefits include, (1) Minimal requirements. Offshore trusts do not have to be complicated. (2) Confidentiality, which secures stronger financial privacy. (3) Estate planning. Minimize estate taxes for your heirs. (4) Investment potential. An offshore trust can be your platform for more diversified investments.

If you are interested in a trust, make sure to learn about any potential tax liabilities and all reporting requirements to your home country.

Link here (scroll down).


You have opened your offshore bank account, acquired shares of one of the world’s best-performing hedge funds, and purchased a second home on a sunny beach in the Caribbean. Now, all you have to do is to sit back and enjoy the warm weather, and let your profits grow, right? Well, not exactly. While you are enjoying the sunshine, potential tax problems may be brewing.

For instance, when you purchase offshore shares, you may suffer taxation of both dividends and capital gains by two countries. A “tax trap” in the Internal Revenue Code could threaten to not only strip you of all the profits you make in the hedge fund, but also effectively confiscate part of your principal! And you might be surprised to learn that your hedge fund is subject to inheritance taxes where you bought it. So the person you intended to pass it on to might not be able to inherit it under that country’s laws. The “9th circle of hedge fund hell” is when hedge fund managers do not tell you how much tax you should be paying yearly on your offshore hedge funds.

Fortunately, there are creative ways to deal with these problems. If file a U.S. personal tax return, you can usually take a credit for the foreign taxes paid against your U.S. tax liability on the same income, subject to a lot of “ifs ands or buts”. In other situations, you may need to resort to a tax treaty to avoid double taxation. Or you may need to establish lower withholding taxes on dividends, interest, and (sometimes) capital gains.

If you want to buy hedge funds, but are frustrated by the insane U.S. rules that make them such a pain for taxpayers, you can own them in a tax-sheltered form such as variable annuities, life insurance policies, and retirement plans. But you must follow the strict IRS rules to achieve tax deferral on your income or gains. To avoid having your property in the Caribbean being subject to a foreign probate proceeding at your death, you might want to consider holding it through a trust. There are always tax and reporting issues to consider, and in some countries you will need to hold the property through a local legal entity.

Link here.


The Liechtenstein law provides for both private law (privatrechtliche) and public law (öffentlichrechtliche) foundations. This overview is confined to family foundations established under private law.

Definitions of the foundation in legal scholarship include the following: “The foundation is a legal entity without members and with its own organization, the object of which is to achieve a certain specific purpose by means of the endowment made.” A foundation must be understood as a legal entity embodying an endowment fund. The endowment made for a given purpose becomes an independent legal person with its own rights and obligations. Liechtenstein’s provisions concerning foundations derive largely from the Swiss Civil Law. Austria incorporated the private foundation into its law a few years ago too, an example followed by Panama and the Dutch Antilles and no doubt others. The foundation acts through its governing bodies, which are bound by the wishes of the founder.

Family foundations are versatile instruments which can be used, (1) for separation of assets (to increase anonymity), (2) for protection of the foundation’s assets in general, (3) for asset transmission and management covering of several generations, (4) for protection of separate family members, (5) for protection against the claims of creditors (segregation), and (6) for tax planning.

With regard to succession planning, for example, the family foundation offers a number of advantages as compared to a bank account held directly by a natural person. If the account-holder dies, his heirs can dispose of the assets held on the account in Switzerland, Liechtenstein and elsewhere collectively, while the bank requires the production of a death certificate, plus an inheritance certificate, executor’s certificate and other succession documentation. The use of a foundation for holding assets (cash, securities) at a bank avoids disclosure and allows immediate access to funds with the foundation council having only to satisfy itself as to the death or conditions having been met. If the first beneficiary passes away, the big advantage would be the continuity in the business relation with the bank and ready access to the foundation assets. The foundation will remain the contracting party of the bank. The foundation assets at the bank are not transferred to any succeeding heirs or next beneficiaries. They simply stay in the foundation.

A case brought before the Liechtenstein Supreme Court a few years ago furnishes a useful example of how Liechtenstein protects the foundation objects, while taking into consideration foreign laws and mutual assistance. A foreign person living in a country outside of Liechtenstein considered she had an interest in the funds of the foundation, set up by her father where he was the first beneficiary until he passed away, and where his daughter was a minor second beneficiary together with other family members and others, as part of the father’s estate, and wanted that all foundation documents were sent to the foreign country in order to be submitted to court in her respective country of domicile (same country as that where her father passed away). The case was opened in that respective country, and the foreign court/prosecutor sought legal assistance in Liechtenstein (relating to criminal law matters for nondisclosure of assets to heirs). During the procedure, the bank account of the foundation was blocked.

The Liechtenstein judge argued that one of the essential rules to grant legal assistance to a foreign court was the requirement for it to be a criminal law matter in both countries for that specific situation. The wilful nondisclosure of assets at the disadvantage of certain heirs benefiting from forced heirship rights – here according to their nationality – is also punishable in Liechtenstein, and therefore the basis of legal assistance is principally given. The request by the foreign court serves to close missing elements of a case and to provide for further evidence in order to help that court to have the conclusive documents and information to continue the criminal case. It is not the duty of the Liechtenstein court to investigate the case in detail in order to determine and therefore to run the case on behalf of the foreign court.

In the case in question, the foundation as a separate legal entity did not pass over assets to any other person merely because the sole first beneficiary passed away, nor did any assets belonging to the foundation fall into the estate of the person who passed away. Therefore the alleged criminal offence of nondisclosure was not demonstrated, and any person alleging of not having received his or her forced heirship portion – according to his own law (of nationality or eventually domicile) – of assets held by the foundation should have opened the case at the Liechtenstein court and not in the foreign court. The Liechtenstein court rejected the request as there were no assets falling into any estate.

If the relevant person had started proceedings before the Liechtenstein court, i.e., to attack the foundation to restore his or her privileged forced heirship rights, the Liechtenstein court would have analyzed the foundation’s structure, and above all the matrimonial situation when assets were conveyed to the foundation by the founder and/or donator, as well as the overall family assets worldwide of the founder (being the sole first beneficiary) passed away, in order to determine if the foundation should restore a certain portion of its assets. It is not a foregone conclusion that a foundation would in the circumstances be revoked. It may only be forced to distribute a certain amount of the assets until the privileged forced heirship rights of a certain family member are fulfilled.

It is also important to realize that an heir could open a case against a foundation in Liechtenstein or at the location of its bank account which is not in Liechtenstein, and it is therefore highly recommendable that the domicile of the foundation is located in a country with a legal system similar to that of the country where the bank account is held, e.g., a Liechtenstein foundation having its bank account in Liechtenstein, Switzerland, Austria or Luxembourg.

With respect to creditor claims, the following should be pointed out that heirs or creditors of the founder may challenge the validity of a foundation in the same way as a donation. The founder and his heirs may challenge the foundation by reason of lack of intent in accordance with the same provisions as for defects in contractual agreements, even after the establishment of the foundation. Creditors may claim only against the assets of the foundation. Except for the extensive provisions in the case of family foundations, the income which a person receives from a foundation without valuable consideration may be diverted by injunction, levy, or bankruptcy proceedings only where the said income is not required for the defrayal of the essential living expenses of the beneficiary, his spouse and his children. A family foundation founder may also specify that the creditors of specific beneficiaries shall not be able to divert their beneficial interest, without valuable consideration, by means of injunction, levy, or bankruptcy. If the founder makes donations, the creditors may demand that the funds be restored within five years. In most cases, however, an action to dispute a donation must be brought within one year.

The Liechtenstein law on rescission establishes international private law provisions which must be heeded. In practice, the judge will in most cases have to deal with foreign rules on rescission. The foundation should therefore be established at a time where no potential or possible creditor claims exist and the standard of living of the donor is unaffected by the donation to the foundation. Family foundations may be used for other additional objects such as charitable purposes or to care for an ailing family member or to receive and hold assets in special terms.

Family foundations are considered to be legal persons with respect to the EU Savings Tax Directive, and therefore they are not affected by the reporting requirements nor by withholding principles. Liechtenstein foundations do normally have bank accounts in civil law countries such as Liechtenstein, Switzerland, etc. These countries have similar legal provisions when judging infringements of matrimonial or forced heirship rights, or considering a foundation as a sham because of too many rights of intervention reserved by the founder. Using a Liechtenstein foundation correctly can prevent such negative consequences.

Link here.


The most significant change to Bermuda company law in 50 years, is how the international business sector is describing amendments to the Companies Act which took effect two weeks ago. The Bermuda International Business Association (BIBA) expressed its support for the changes yesterday, which it said were “e-friendly” and would cut the cost of doing business on the Island. The Companies Amendment Act 2006 aims to assist companies, the Registrar of Companies and service providers in improving efficiency and convenience through the use of technology.

BIBA chief executive officer Cheryl Packwood said improvements being made to the regulatory environment by the Ministry of Finance were helping to strengthen Bermuda’s position in international business. “This ‘e-friendly’ Act carries amendments that now authorize organizations to use electronic communications as a means of conducting business, significantly improving efficiencies and the cost of doing business in Bermuda, which is critical if we are to remain competitive as an international business jurisdiction,” Ms. Packwood said.

During its scrutiny of the proposed amendments, BIBA’s Legislative Change Committee took note of legal developments in Britain, continental Europe, the U.S. and Canada, and crafted what become know as the “A List” of enhancements, which incorporated the best features of company law from around the world. “In our view, this is probably the most significant change to Bermuda company law in half a century,” committee chairman Anthony Whaley said. “The Act significantly improves efficiency and will reduce the cost of doing business in Bermuda. The Bermuda company will look radically different moving forward.”

Link here.


Banks in Switzerland hold 28% of the world’s private wealth deposited abroad, a study has revealed. Global private wealth held abroad – so-called offshore capital – which totaled $5.9 trillion ($7.53 trillion) at the end of 2005, a study by the Swiss Bankers Association showed.

Hong Kong and Singapore, two cities flourishing on the back of the rapidly rising number of wealthy clients in Asia, held only 4% and 3% respectively of global offshore wealth, the study also said. The total amount of assets under management in Switzerland, including domestic and institutional money, stood at CHF6.9 trillion ($5.5 trillion) at the end of 2005, according to the survey of the country’s 200 largest banks.

Switzerland is home to UBS, the world’s largest wealth manager, and to Credit Suisse, which also ranks in the top 10. Clients benefit from the country’s strict laws on banking secrecy. Management fees had been stable despite increasing competition, with 80-120 basis points on assets under management, the study said. But the bankers’ association warned the good times might not last forever. Switzerland is a sufficiently attractive center for private banking that a spate of international banks have set up their wealth management operations in the country, pumping more money into the industry and hiring extra staff.

Link here.


Computer hackers, increasingly tied to organized crime rings, have begun targeting online investment accounts. And if they target your account, your broker may not be required to reimburse you for your losses. Just ask Joe Lopez. He regularly uses online services from Bank of America to send and receive money internationally to and from his business account. But in April 2004, he discovered an unauthorized wire transfer for $90,348 sent to a bank in Latvia. Lopez notified police, who with the aid of the U.S. Secret Service performed a forensic examination of his PC. There, they discovered a “Trojan Horse” program that permits an outsider to take over a PC.

Bank of America disavowed responsibility, prompting Lopez to sue the bank to get his money back. The case is still pending. “We fully investigated his claims and determined that all of our internal protocols and security measures were in place,” says Shirley Norton, a Bank of America spokeswoman.

Even though the theft from Lopez’s account took place more than three years ago, many online banks and brokerages still have a “blame the customer” mentality. While consumers are protected by federal laws that limit their fraud losses in most cases to $50, business customers like Lopez have no such protection. In addition, online brokerage customers, both consumer and business, have no legal protections whatsoever beyond that provided by the broker itself. In some cases, that protection does not amount to much at all.

Dave DeSmidt, a customer of J.P. Morgan, lost 25 years of retirement savings on October 23, 2006. One moment, there was $179,000 in his 401(k) retirement account. The next, he had nothing. Morgan concluded that the break-in was not their fault and dismissed any responsibility to reimburse DeSmidt for his loss. However, DeSmidt continued to pressure J.P. Morgan for answers and the investigation was reopened. And just last month, J.P. Morgan told him the stolen funds had been recovered and would be credited to his account.

How can you protect yourself from this kind of fraud? Short of abandoning the convenience of online banking or brokerage accounts, you should first review the service contract with your online bank or brokerage service to see what their policy is concerning fraudulent access to your account. Second, make certain that you are using up-to-date firewall and anti-virus software. Third, change passwords frequently. You should do this at least once a month. Finally, log on to your account regularly, even if you are not making a transaction, to make certain that no funds are missing. Congress may eventually enact legislation that will provide more robust legal protections for consumers, and perhaps businesses as well, against online fraud. But until it does, it is up to you to protect yourself.

Link here (scroll down).



Here are the Top Ten Privacy Stories of 2006 and Ten Privacy Issues to Watch in 2007 from the Electronic Privacy Information Center (EPIC).

Top Ten Privacy Stories of 2006.

  1. Millions of military records go missing when laptop is stolen.
  2. Identity theft keeps top spot on list of the FTC’s Top 10 consumer complaints.
  3. National Security Agency conducts warrantless surveillance of international telephone and Internet communications on American soil.
  4. Hewlett-Packard sends private investigators to dig into the telephone records of board members and journalists.
  5. Choicepoint gets privacy religion, after the data broker and former recipient of a Big Brother Award was caught selling personal information on about 185,000 American consumers to an identity theft ring.
  6. Passenger profiling and terrorist scoring by the Department of Homeland Security’s “risk assessment” program, which was expanded from screening shipping cargo to scrutinizing travelers.
  7. Digital strip search machines tested in Phoenix airport produce photo-quality images of metal, plastic and organic materials underneath clothes by using low-radiation X-rays, which reveal not only prohibited items but also medical details such as prosthetic devices and old injuries. The fact that the machines are designed to record and store images has largely escaped notice by the mainstream media.
  8. Europeans battle U.S. over privacy, in disputes over the transfer of European financial records and European travel records to the U.S. government.
  9. Congress passes phone pretexting bill, in response to H-P incident (above). But the bill only applies to phone records, and it provides an exemption for law enforcement, who can bypass getting a subpoena and use false and fraudulent representations to gain access to the telephone records.
  10. De facto national ID cards implemented in Real ID Act specifying federal standards for state driver’s licenses and identification cards. Records retention and information sharing requirements of Real ID could trump privacy protections.

Issues to watch in 2007.

  1. Privacy oversight and the new Congress. Hearings on the privacy rights of Americans, the misspent funds on surveillance technology, and the flagrant abuse of law could be interesting to watch.
  2. REAL ID not so real? Cost, Democrats, lack of interest by DHS, may spell end of the law.
  3. Renewed interest in medical records privacy. Health IT legislation that would have exposed Americans’ most sensitive medical records on an electronic network has failed to pass, but the private sector will be developing its own electronic medical system. How long before medical record identity theft and security breaches?
  4. E.U.-U.S. privacy showdown, as ongoing dispute over use of European data continues.
  5. “No-swipe” credit cards containing RFID chips come under fire as Congress wakes up to the dangers of the “spychip” technology.
  6. Cell phone tracking and spim: Verizon announces it will place banner ads on cell phone displays, and the police are hoping to avoid those burdensome warrant requirements with new search procedures that will enable location tracking of cellphone users ... even when the devices are off. Time for the tin foil.
  7. Privacy in second life, as the virtual world is seeming less virtual. Everyone is moving online, dressing their avatars in hip new outfits. But what happens when Second Life and Real Life collide?
  8. Databanks of children: Even before they get a cellphone or an IM account, kids will find their private lives in new government databases, tracking everything from drug dosages to grades in math.
  9. Sex blogging brings up question whether bloggers are responsible for the private facts of others they put online? Is it political speech, a diary, or just very uncool? A federal court will address these questions this year.
  10. Smarter cameras combined with more surveillance means that cameras in public spaces might be able to scan crowds and match images against databases of facial images, such as the state DMV records. The systems are unlikely to be very reliable, but they will raise new privacy issues.
Link here.


When Colorado state Sen. Andy McElhany (R) championed adoption of the strictest identification requirements in the country, his aim was to keep illegal immigrants off state welfare rolls. He did not anticipate making it harder for his 15-year-old daughter to get a learner’s permit.

But that is what happened when his wife and daughter showed up at the Division of Motor Vehicles office in Colorado Springs in September. They brought the teen’s passport, only to discover DMV had changed the rules and a passport was no longer a sufficient form of identification. Going to the DMV never has been a walk in the park, but it is likely to get even more difficult as states across the country begin to comply with stringent federal identification rules required by the 2005 Real ID Act.

Americans by the tens of millions will have to dig out documents such as Social Security cards and birth certificates, or go to the expense of getting new ones, to renew their driver’s licenses. The Real ID Act is a response to the fact that four of the 19 foreign hijackers on Sept. 11 had obtained valid U.S. driver’s licenses. Worries about voter fraud and the chance that illegal immigrants are taking advantage of taxpayer-funded public services also have prompted a surge in stiffer identification requirements. To weed out the few, all Americans growingly need a paper trail to qualify for some of the perks of citizenship.

Colorado ran into legal trouble within months of enacting the nation’s toughest ID standards. New rules requiring proof of both identity and legal U.S. residency left some unable to get a driver’s license or state ID card. Without ID, they also were left without access to everything from welfare to winter heating assistance to fishing licenses.

Link here.


The Pentagon and to a lesser extent the CIA have been using a little-known power to look at the banking and credit records of hundreds of Americans and others suspected of terrorism or espionage within the U.S. Pentagon spokesman Bryan Whitman said the Defense Department “makes requests for information under authorities of the National Security Letter statutes ... but does not use the specific term National Security Letter in its investigatory practice.” Whitman did not indicate the number of requests that have been made in recent years, but said authorities operate under the Right to Financial Privacy Act, the Fair Credit Reporting Act and the National Security Act.

“These statutory tools may provide key leads for counterintelligence and counterterrorism investigations,” Whitman said. “Because these are requests for information rather than court orders, a DoD request under the NSL statutes cannot be compelled absent court involvement.” The national security letters permit the executive branch to seek records about people in terror and spy investigations without a judge’s approval or grand jury subpoena. The FBI, the lead agency on domestic counterterrorism and espionage, has issued thousands of national security letters sinc September 11, 2001. The national security letters have prompted criticism and court challenges from civil liberties advocates who claim they invade the privacy of Americans’ lives, even though banks and other financial institutions typically turn over the financial records voluntarily.

Link here.


They say money talks, and a new report suggests Canadian currency is indeed chatting, at least electronically, on behalf of shadowy spies. Canadian coins containing tiny transmitters have mysteriously turned up in the pockets of at least three American contractors who visited Canada, says a branch of the U.S. Defence Department.

Security experts believe the miniature devices could be used to track the movements of defence industry personnel dealing in sensitive military technology. “You might want to know where the individual is going, what meetings the individual might be having and, above all, with whom,” said David Harris, a former CSIS officer who consults on security matters. “The more covert or clandestine the activity in which somebody might be involved, the more significant this kind of information could be.”

The counterintelligence office of the U.S. Defence Security Service cites the currency caper as an example of the methods international spies have recently tried to illicitly acquire military technology. The service’s report, “Technology Collection Trends in the U.S. Defence Industry,” says foreign-hosted conventions, seminars and exhibits are popular venues for pilfering secrets. The report did not indicate what kinds of coins were involved. As a result, the type of transmitter in play and its ultimate purpose remain a mystery. Harris speculates leaps in miniaturization could allow for a sophisticated transmitter capable of monitoring a target’s travels. “It’s a brave new world, and greatly concerning on so many levels,” he said, noting passing the coin to an unwitting contractor could mark the person for kidnapping or assassination.

Link here.



In 1998 when an Illinois state trooper stopped him for driving 6 miles per hour over the speed limit, Roy Caballes was carrying 282 pounds of marijuana in his trunk. At first it looked like he would get off with just a warning. Then another officer pulled up and swept his car with a drug-sniffing dog named Krott. The pooch uncovered the dope. Caballes thought the cops did not have a legitimate reason to bring in Krott, and he fought the search. In 2003 the Illinois Supreme Court ruled that the officers had indeed violated the Fourth Amendment by transforming the traffic stop into a drug investigation without probable cause, or even the weaker “reasonable suspicion”. But in the 2005 decision Illinois v. Caballes, the U.S. Supreme Court ruled that the dog sniff could not have rendered an otherwise lawful traffic stop unconstitutional unless the dog sniff itself violated Caballes’s “constitutionally protected interest in privacy.” The Court concluded it did not, citing a 1983 decision in which it ruled that, because a dog sniff reveals only the presence of contraband in which there is no “reasonable expectation of privacy,” it is not a “search” at all. The Supremes sent the case back to Illinois, and Caballes ended up with a 12-year prison sentence.

The dog sniff that caught Caballes is just one crude, old-fashioned example of the search technologies available to law enforcement. A new wave of advanced surveillance tools is capable of detecting not just drugs but weapons, explosives, and illicit computer files, potentially flying under the Fourth Amendment’s radar all the while. A handheld scanner picks up stray particles of cocaine on a car during a routine traffic stop. Is that a search? A high-tech camera detects the gun one pedestrian is carrying under his jacket. Is that a search? A forensic analyst finds a single image of child pornography on a computer server containing thousands of files owned by hundreds of users, without ever seeing any other private information. Is that a search?

In a nation whose reams of regulations make almost everyone guilty of some violation at some point, Americans have grown accustomed to getting away with minor transgressions – the occasional joint or downloaded movie or high-speed dash to the airport. For at least some crimes, though, the expectation that our peccadilloes will slip through the cracks may soon be outdated. The new style of noninvasive but deeply revealing detection – call them “pinpoint searches” – will require rapid adjustments in both legal rules and social mores.

Courts already have started to tackle some of the questions raised by these new technologies, but not consistently enough for us to predict with confidence where they will go in the future. The “storage device” approach treats a digital storage medium as though it is a single physical container, like a briefcase or a trunk. Once the lock is lawfully popped, all the contents are subject to observation. With the “virtual file” approach, a digital storage device is more like a warehouse containing many thousands of individual closed boxes. Police may have the authority to go looking through the warehouse for a few particular containers, but that does not mean they may pry anything open willy-nilly. Even under a “virtual file” approach, the logic of Illinois v. Caballes suggests that a scan for illicit files comparing the files’ signatures with the signatures of a database of known illegal files, which does not technically “open” the file, will not count as a search once police have lawful access to the storage medium.

Some want to see Caballes consigned to the dustbin of jurisprudence online and offline. Marc Rotenberg, executive director of the Electronic Privacy Information Center, proposes rolling back the Caballes exception and hewing to a strict version of the standard the Supreme Court articulated in Kyllo v. United States, under which any information about certain protected spheres, beyond what an unaided human observer could glean, would be regarded as presumptively private. “Your expectation of privacy really has to be measured against what an unassisted police officer might be able to obtain from you,” Rotenberg argues, “not what technology might make possible.” Otherwise, he suggests, that expectation will only grow ever weaker as technology improves.

Applying the Fourth Amendment’s protections to pinpoint searches would also create an obstacle to the use of the search power to harass, something that loomed large in the fears of the Founders. If pinpoint searches are not subject to any judicial oversight, law enforcement agencies will have broad discretion over whom to search and how often to search them. There is ample reason to suspect that such discretion will not always be exercised equitably. Whites and blacks use illicit drugs at similar rates, for example, but blacks make up nearly half of state prison inmates convicted of drug offenses. It is easy to imagine some politically unpopular person or group subject to frequent pinpoint searches for minor drug infractions, zoning code violations, or whatever other commonplace low-grade statute violations new technologies make it possible to detect.

Despite such concerns, some civil libertarians greet these new technologies with surprising enthusiasm. Veteran civil liberties litigator Harvey Silverglate notes that the Fourth Amendment’s clause requiring searches to be “reasonable” is technically separate from the clause outlining the preconditions for a warrant to be issued, and that there are conditions under which courts have ruled warrantless searches to be reasonable. So you can concede that pinpoint searches really are searches subject to judicial oversight without ruling out the possibility that some searches, under some circumstances, are “reasonable” even without a warrant. Silverglate believes the law will move away from strict warrant requirements for minimally intrusive technologies, such as hand-held explosive sniffers, that are geared to prevent especially severe crimes, such as terrorist attacks. “The courts,” he predicts, “are going to say that if some germ or atomic weapon could kill thousands of people, then some methods are going to be ‘reasonable’ that wouldn’t be when you’re trying to find a guy smoking pot.”

For the most optimistic take on pinpoint searches, turn to the futurist David Brin, author of the 1998 book The Transparent Society. Brin believes a world of more perfect enforcement will create democratic pressure to either eliminate or drastically reduce penalties for “victimless” offenses. Andrew Napolitano, the author of The Constitution in Exile, a legal analyst for Fox News, and a former New Jersey judge, joins Rotenberg in insisting that a “neutral magistrate” stand between police and the subjects of all government searches.

Whether we adopt the sanguine approach, embrace strong privacy protections, or look for a middle path such as Silverglate’s, we will be forced to make difficult tradeoffs. But the debate over how to strike that balance must begin now, before today’s prototype rolls off tomorrow’s assembly line. These new technologies are too powerful to use thoughtlessly. We are already entering a pinpoint-search world. Now we must decide how to live in it.

Link here.


The New York Times reported last June that President Bush invoked the International Emergency Economic Powers Act to justify warrantless searches of Americans’ and other people’s financial data. According to Treasury Undersecretary Stuart Levey, the U.S. government may have conducted “hundreds of thousands” of warrantless searches of Americans’ and others’ personal financial data. The Bush administration used broad administrative subpoenas to commandeer the personal data – simply a bureaucratic command to “give us the information.”

The media paid little attention to the law the president invoked to justify the incursion. Instead, almost all the coverage and analysis was consumed by harangues over whether the NYT was guilty of treason for informing Americans of what the federal government was doing. But the International Emergency Economic Powers Act (IEEPA) is not something safe to ignore. This law gives the president the prerogative to proclaim the existence of an “unusual and extraordinary threat to the national security, foreign policy, or economy of the United States” that originates “in whole or substantial part outside the United States.” Once the president pushes this power, many of the limits to his other powers vanish. This law was passed in 1977, codifying and slightly reforming some of the powers that Franklin Roosevelt had commandeered during the Great Depression.

In 1973, a congressional Special Committee on the Termination of the National Emergency reported,

Since March 9, 1933, the United States has been in a state of declared national emergency. In fact, there are now in effect four presidentially proclaimed states of national emergency: In addition to the national emergency declared by President Roosevelt in 1933, there are also the national emergency proclaimed by President Truman on December 16, 1950, during the Korean conflict, and the states of national emergency declared by President Nixon on March 23, 1970, and August 15, 1971.

These proclamations give force to 470 provisions of federal law. These hundreds of statutes delegate to the president extraordinary powers, ordinarily exercised by the Congress, which affect the lives of American citizens in a host of all-encompassing ways. This vast range of powers, taken together, confers enough authority to rule the country without reference to normal constitutional processes.

These emergency decrees had resulted in some of the most devastating power grabs in U.S. history.

As a 2005 Congressional Research Service (CRS) report noted, Roosevelt’s proclamation was based, a “on the somewhat questionable authority of the Trading with the Enemy Act of 1917.” Roosevelt proclaimed a “bank holiday – halting “a major class of financial transactions by closing the banks,” the CRS noted. When Congress passed the Trading with the Enemy Act during the First World War, congressmen were not thinking of average citizens in Omaha and Sioux Falls as the target of the legislation. Yet Roosevelt contorted the law to his purposes, and Congress effectively retroactively approved his action with new legislation.

On April 5, 1933, Roosevelt commanded all citizens to surrender their gold to the government. No citizen was permitted to own more than $100 in gold coins, except for rare coins with special value for collectors. Roosevelt used the same “hoarding” rhetoric against anyone who owned gold that Stalin used against Ukrainian peasants who sought to retain part of their wheat harvest to feed their families. But while Stalin sent execution squads to kill peasants who had a few bushels of grain hidden in their hovels, Roosevelt was kinder and gentler, seeking only 10-year prison sentences for any citizen who retained more than five Double Eagle gold coins.

On August 15, 1971, President Nixon imposed wage and price controls, thereby effectively criminalizing tens of millions of actions every day. His enforcement agents brought the weight of government (and the threat of criminal prosecution) upon the head of any business that did not kowtow to his guidelines, he also directed the Federal Reserve to flood the nation with new paper money. At the same time that he undermined the value of the dollar, Nixon also closed the gold window, prohibiting foreigners from redeeming their dollars for anything more than a “tough luck” shrug from the U.S. government. Such powers may have helped inspire Secretary of State Henry Kissinger’s famous saying, “The illegal we do immediately. The unconstitutional takes a little longer.”

Nixon’s abuses of power helped spur concern about the extent of emergency power. The 1973 congressional committee sought to “bring together the body of statutes, which have been passed by Congress, conferring extraordinary powers upon the Executive branch in times of national emergency.” But there were so many such provisions that no one had kept track of them. Unfortunately, Congress did not pull the plug on this nonsense. Instead, the 1977 act perpetuated many of the same powers.

The current IEEPA case – involving Bush’s order to conduct warrantless financial surveillance – may yet draw attention to the underlying power that he used. Unfortunately, neither Congress nor the courts have done much to restrain “emergency” power grabs. As a 1987 Independent Institute study noted, “The [Supreme] Court has ruled on several occasions on the permissibility of emergency powers; these decisions constitute a melancholy chapter of constitutional history, a record of evasion and capitulation of the judicial function against which many justices on the minority side have objected.”

In the era of the Founding Fathers, Americans referred to “emergency” as “the tyrant’s plea.” Unfortunately, far too many Americans have forgotten why tyranny is a bad thing. Instead, they wait to be rescued by politicians seizing absolute power. Too few Americans recognize that the loss of inviolable rights may be the biggest emergency of them all.

Link here.


Tone Grant, former president of Refco Inc., the bankrupt futures trading firm, was indicted for helping the company’s chief executive hide hundreds of millions of dollars in losses in a 2004 leveraged buyout. The indictment came as federal prosecutors in New York added new bank-fraud charges against Refco CEO Phillip Bennett and former CFO Robert Trosten. Bennett and Trosten were previously charged with securities fraud.

Prosecutors said that Grant received $16 million in a leveraged buyout of the company that was led by private equity fund Thomas H. Lee Partners LP. Bennett and his two subordinates misled investors about the “true financial health of Refco” by hiding hundreds of millions in losses, U.S. Attorney Michael Garcia alleged. Grant is charged with conspiracy, securities fraud, bank fraud, money laundering and wire fraud. Prosecutors say Bennett and Grant hid losses by making them appear as debt owed to Refco by a holding company they controlled, Refco Group Holdings Inc., or RGHI.

In August 2004, Thomas H. Lee Partners bought a majority interest in then-privately held Refco for about $1.9 billion through an LBO. In connection with the deal, Refco sold about $600 million in bonds and borrowed about $800 million from several banks. A year later, Refco raised about $583 million in a stock IPO. According to the new indictment, Grant, Bennett and Trosten defrauded the banks and Lee, the purchasers of the $600 million in notes, about Refco’s financial health.

The indictment says Bennett and Grant used customer funds to cover Refco losses, leaving the company “perpetually short of cash”. Refco was sometimes $100 million a day short of funds needed to settle customer transactions, the indictment said. “Refco purposely selected, on a rotating basis, institutions with whom it would fail to make settlement, and attempted to stagger its failures to make settlement with each institution so as not to arouse suspicion,” the indictment said.

Bennett disclosed on October 10, 2005, that he owed Refco $430 million and was arrested the next day. Refco put out a press release disclosing the debt, and customers began withdrawing funds from their accounts. Refco eventually froze some accounts and later claimed the cash and securities in those accounts was company, not customer, property. Refco filed the 15th-biggest bankruptcy in U.S. history on October 17, 2005. Refco owes creditors about $16.8 billion.

Refco previously said that it had not engaged in trading for its own account. According to the indictment, Refco in 1998 lost at least $40 million on its investment in Russian bonds after the Russian government defaulted.

Link here.


The day a judge awarded her family $400 million in damages for Cuba’s execution by firing squad of her brother, Jeannette Hausler said his death had been vindicated. “We have found justice,” she said. But now comes the hard part for Hausler and other family members of Robert Fuller, an American who owned a plantation in Cuba and was tortured and killed on October 16, 1960. They must try to identify Cuban assets frozen in U.S. bank accounts in an effort to collect any money.

“How much there is, is not clear. The banks are very coy about telling you how much is there, because they don’t want to get sued by the Cuban government,” said Alfonso Perez, one of the Fuller family’s attorneys. “Are we going to try to get some of those assets? Absolutely.”

After Fidel Castro’s death, Cuba might seek normalized trade and diplomatic relations with the U.S., opening an avenue for the Fuller family and others who have won judgments against Cuba to get their money directly from Havana. “If Cuba wants to be part of the world economic community, if they want to have investments in the U.S. or have U.S. companies invest, I think they are going to have to deal with these judgments one way or another,” said Joseph DeMaria, who represents families of two other men killed by the Castro government in 1961.

Link here.



In one remarkable burst at the beginning of the 20th century, Washington, D.C., enacted revolutionary legislation and broke ground on breathtaking monuments that would make it the political, economic, and mythic center of a new American realm. 1913 stands out as the busiest year in a short, intense period of centralization and consolidation. In the space of a few years, the leaders in the nation’s capital successfully squared America’s historic, republican institutions with a blueprint for imperial grandeur formerly undreamed of. To accomplish this seemingly impossible feat, these leaders had to fuse together two clashing regions into a united imperium. Despite the smoldering distrust left over from one of history’s bloodiest wars, North and South would meld at this time into a united force greater than anything the world had ever seen. This unification process would transform Washington, DC, from the administrative center of a constitutionally limited government into a ruling world capital, a city brimming with powerful, white marble images that not only gave physical form to mystical notions of divine purpose, but also symbolized a newfound oneness of resolve to carry out that purpose.

1913 was the 50th anniversary of that war’s greatest battle, Gettysburg, and the approach of that momentous date must have intensified ongoing efforts to realize this new blueprint, as well as inevitably reminding its architects of the great difficulty facing them in making this vision a reality. Chief among these architects was Woodrow Wilson, who served as president from 1913 to 1921. Despite the utter confidence he publicly expressed for realizing this new conception of the U.S., even going so far as describing it as determined by the hand of God, Wilson privately confessed nervousness about his mission. Wilson’s Southern birth – of Ohio parents – worked to his advantage, allowing him to address Southerners as one of their own, though he disdained Southern distinctiveness. Wilson’s mission was always nationalistic, aimed at redirecting Southern martial spirit toward supporting an aggressive foreign policy.

In order to forge Wilson’s “united and irresistible nation” from a loose federation of States, political and economic power had to be centralized in Washington. 1913 saw the passage of the 17th amendment, which stripped the State legislatures of the right to appoint Senators to represent them in the nation’s capital, and instead authorized direct election of Senators. This made the Senate subject to the influence of Washington special interests. The 16th amendment, passed in February, 1913, gave the Federal government tremendous economic power by allowing it to directly tax personal income. Not only did this provide Washington, DC, with nearly unlimited treasure, it also yielded vast amounts of information about its citizens, as well as new tools to control them. And the 1913 creation of the Federal Reserve System resurrected an institution that States’ Rights defenders had long opposed, a central bank. Senator Nelson Aldrich, who had been instrumental in passing the 16th amendment, boasted that before the Federal Reserve was passed, New York bankers could only dominate the reserves of New York, but now could dominate the bank reserves of the entire country.

When Europe erupted in war in 1914, New York bankers pounced on it as an investment opportunity of historic proportions. J. P. Morgan provided Britain and France with more than $2 billion in loans. The inevitable coming together of the aims of centralized banking and centralized government steered Wilson toward breaking his campaign promise of American neutrality, and siding with the Allies. In Wilson’s mind, he now helmed a united and irresistible nation whose force he could now place “at the service of humanity” to carry out the “great things” he had vowed. With political and economic power now centralized in Washington, the Federal government now commanded the means to assert itself as a benevolent empire out to remake the world. Sadly, as Jim Powell documents in Wilson’s War: How Woodrow Wilson’s Great Blunder Led to Hitler, Lenin, Stalin, and World War II, America’s intervention may have protected Morgan’s investment, but also afflicted Western civilization with demons that still torment us.

But before any of this transpired, Washington had to have its people unified, eager to realize their divine mission. The nation’s capital had to recast itself as the binding force that held its far-flung lands together. To symbolize its new role in the benevolent American empire, the Arlington Bridge was contructed, literally and figuratively connecting North and South. As seen from the heights of Arlington, Memorial Drive creates a straight line to Arlington Memorial Bridge, which stretches across the Potomac and ends at the Lincoln Memorial. This scene is reminiscent of Trajan’s Column, which celebrated the Emperor’s triumph over the rebellious Dacians and their forced reunification with Rome. At the top of the original column stood Trajan, triumphant. Similarly, the virtual column in “New Rome” proclaims the forced reunification of the South with the U.S., with Abraham Lincoln, the conqueror of the rebellious South perched on top – in triumph. The presence of Abraham Lincoln appears regal and overpowering within the cavernous, dusky memorial, which was authorized in 1911. The etched inscription over Lincoln specifically identifies the structure as a temple rather than a memorial, and the chair he occupies was designed not for a president, but a ruler. To emphasize that impression, Lincoln’s hands rest on two Roman-style fasces, the ancient symbol of imperial unity.

By making Lincoln godlike, even honoring him with his own temple, Washington conferred a kind of divine status on all future presidents (even Gerald Ford). And to back up the symbolic connection to Roman emperors, future U.S. presidents would have the muscle to back up their new status. Thanks to the measures passed in 1913, future presidents would indeed wield the power of the Caesars. Those who doubt this should note the current uproar caused by the President’s unilateral decision to expand a war the nation wants ended.

For those who can stomach it, viewing the heavy-handed symbolism of Washington’s monuments is very instructive. As you study them, remember that monuments serve a political purpose by defining – or redefining – citizens’ relationship with their government. Do DC’s monuments proclaim the government’s power to hold a sprawling country together by force, or do they honor a republic based on constitutionally limited government? To answer that question, drive to Washington, DC, some day and see for yourself. If you live in New York or San Francisco, you can start your trip by taking the Lincoln Highway, the first to link both coasts. It was originally proposed in 1913.

Link here.
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