Offshore News Digest for Week of February 12, 2007

GLOBAL LIVING & BUSINESS

SAILING AROUND THE WORLD FOR FREE

If you want to experience owning a boat, go into a small, dark closet with a large, wet dog, and tear up $100 bills. Ask any boat owner if this is true, and you will most likely receive a grim nod and a wry smile. However, if you are smart, you can experience the joys and trials of boating life without having to tear through your savings. It is simple. Sail on someone else’s boat.

Around the world, large yachts are being built faster than bored people can leave their jobs to become qualified crew. Since there are more available boats than available crew, the average person with little or even no experience can get a free ride on a yacht, as long as they do not look like an axe murderer. There are many different positions that crew can choose from on boats of all sizes. At the bottom of the crewing job pile (and the easiest to get) is a position on a cost-sharing boat. This is where the crew pitches in some money (usually $20-70 a day) to help the owner cover food, fuel, and marina costs. Beware of the boat that advertises “cost-sharing” of $1000 or more for a week. In this case, the boat owner is usually trying to make money and calling it a cost-share instead of a charter. In a true cost-share arrangement, you are simply paying your own way and the owner makes no profit from you.

The next step up for crew would be a totally free ride, where the owner covers all costs. In this situation, the captain can sometimes be a professional skipper, or the owner. This free ride arrangement is frequently available when boats need repositioning or delivery. In exchange for your help moving his boat, the owner covers food, boat costs, and some will even pay your return airline ticket home. Other skippers require you to deposit money with them to ensure you can get yourself home at the end of the trip. A delivery is a great way to gain experience and sea time, without having to pay for it. Sea time is needed if you wish to pursue any sort of a career on boats.

With a little bit of luck and some experience, you can be paid to live on someone else’s boat and eat their food. This is a job, so you will naturally spend a lot of your time working. On professional yachts this means polishing, sanding, and lots of cleaning. Most boats prefer at least a one-year contract. Depending on the boat, the owner is often nowhere to be seen. When he does come aboard with his guests, then the real work begins. If you feel ready to take this route, there are many crew placement agencies available in the major ports that can assist you.

Should you land a paying job, keep in mind that many boats are registered offshore your wages may be tax-free. [Ed: Not so for U.S. citizens.] Since all your living expenses are covered, you can save almost all your paycheck. If you prefer not to go at it alone, you can take your significant other with you and work as a team. Usually one person is the cook, the other the professional captain. This combination is actually preferred on many yachts, and does not necessarily have to be a married couple.

The easiest way to get a job on boat is to go where the boats are. Boats tend to move around the same way every year, ending up at the same places to avoid hurricanes and follow trade winds. These places are overflowing with crew hungry boats and are known as “cruising bottlenecks”. Just show up and get yourself down the marina to walk around the docks, and start talking. Although Internet crew lists have made it easier to find a boat without leaving your desk, dock walking is still a great way to network and get jobs. The biggest market in the United States is in Fort Lauderdale, Florida at the end of the hurricane season as boats prepare to head south for the high season (End of October). Newport, Rhode Island also has a fair number of boats headed south for deliveries on or around November 1.

So get out there, and give it a try. One word of advice: Make sure you do not just take the first boat that comes along. Use your best judgment, especially if you are female, because once you are on the boat it can be difficult to jump ship in the middle of the ocean.

CARICOM MEETING CELEBRATES SINGLE MARKET PROGRESS

At the opening of a CARICOM Heads of Government conference in St. Vincent and the Grenadines this week, outgoing and incoming chairmen Dr. Denzil Douglas, Prime Minister of St. Kitts and Nevis and Ralph Gonsalves, host Prime Minister, celebrated the progress made by the Community during the last year. Dr. Douglas said that the Community could take pride in the progress that made in advancing the agenda for the Caribbean Single Market and Economy (CSME). “I am fully persuaded,” he said, “that the CSME is a critical tool that we must utilize to the fullest to bring meaningful benefits to the people of the Region. ... I am particular pleased with the framework outlined in the paper ‘Single Vision for the Single Economy’ which will be presented to this meeting. It is for me a signal achievement, which given the political will, ought to define the future development of our Community.”

2006 saw substantial progress within CARICOM itself towards the creation of a unified free trade area. Barbados, Belize, Guyana, Jamaica, Suriname and Trinidad and Tobago launched the Caricom Single Market and Economy (CSME) in mid-year, while the OECS states, including Anguilla, Antigua and Barbuda, BVI, Dominica, Grenada, Montserrat, St. Lucia, St. Kitts and Nevis and St. Vincent and the Grenadines signaled their intention to form their own economic union, as well as committing to membership of the CSME. In July, Chief Minister of the British Virgin Islands, Dr. Orlando Smith, revealed that the territory’s government is considering its future participation in the CSME. CARICOM negotiations with the USA for a free-trade area saw a number of substantive meetings having taken place during the year.

DUBAI SEEKS TO STRENGTHEN LINKS WITH CITY OF LONDON

The visit of the Lord Mayor of the City of London, Alderman John Stuttard, to the Dubai International Finance Center (DIFC) has underscored the growing economic ties between London and Dubai, two of the world’s most dynamic investment capitals, and the strategic importance of that relationship, says Omar Bin Sulaiman, Governor of the DIFC.

“Since its founding, the DIFC has emerged as the world’s fastest growing financial center, and as the international investment hub for the time zone between Europe and Asia. Our relationship with London has been integral to this success,” Bin Sulaiman noted. “HSBC, Lloyds TSB, Barclays and a number of other prestigious London-based institutions have made a base for themselves at the DIFC. We expect that number to continue to grow to the benefit of both the City of London and the DIFC. This relationship also offers clear benefits for Dubai, the UAE and the wider region.”

Commerce between the UK and the UAE has soared in recent years, with annual bilateral trade now exceeding £6 billion ($11.7 billion). The financial sectors of London and Dubai are expected to play an increasingly central role in what Bin Sulaiman described as a “partnership for prosperity”. He cited the DIFC’s regulations, transparency and efficiency as being at the core of its appeal to London-based firms. The Lord Mayor is Head of the City of London, and acts as ambassador for the UK financial services industry.

City bonuses should be shared or taxed, says senior Labour Party figure.

The UK Treasury has played down comments made by a senior government minister calling for City banks and investment houses to face tougher tax and regulation unless they share out the “grotesque” amounts paid to their employees in end-of-year bonuses with charitable groups. In an interview with the Sunday Telegraph, Peter Hain, currently Northern Ireland secretary and thought to be a leading candidate for the deputy leadership of the ruling Labour Party, warned that City firms could face a “big fight” unless they began to self-regulate to curb bonus money, or share it out with less deprived boroughs bordering the “opulent” square mile.

“There is a real problem of people on average incomes feeling there is a sort of super rich class right at the top,” he told the paper. “Four thousand city workers receiving more than a million pounds each in bonuses. People don’t feel that is proportionate. We have lost a sense of moral corporate responsibility here.” The Telegraph reported that this year’s bonus pot is expected to be in the region of £8.8 billion ($17.1 billion), much of which is likely to be invested in property within the capital, further inflating already out-of-reach house prices for ordinary London workers.

According to the Financial Times, the Treasury has played down Hain’s comments in an attempt to reassure the City that they do not represent government policy. The Treasury has been keen to cultivate a pro-business image with the City in recent months, culminating with the first ever meeting between Chancellor of the Exchequer, Gordon Brown, the Economic Secretary, Ed Balls and the High-Level City Group to discuss proposals to maintain and enhance the City of London’s competitiveness throughout the world.

SOUTH ASIA LAGGING BEHIND ON BUSINESS REFORMS

The pace of business reform in 2005 and 2006 was slower in South Asia than in any other region, with only India and Pakistan starting to improve their business environment, according to a new report by the World Bank. The South Asia “Doing Business” report covers 8 countries. The top ranked countries in the region are the Maldives (53) and Pakistan (74), followed by Bangladesh (88), Sri Lanka (89), Nepal (100), India (134), Bhutan (138), and Afghanistan (162).

As a region, South Asia performs comparatively well in business start-up and protecting investors, but lags far behind on the ease of employing workers, enforcing contracts, and trading across borders, the report finds. The report finds that entrepreneurs in South Asia face large regulatory obstacles to doing business. For example, it takes 18 months of salary, on average in the region, to dismiss a redundant worker. More than a year (425 days) is needed to register property in Bangladesh. High taxes are also an obstacle. A standard company in India pays 81% of commercial profits in taxes and in Pakistan, it takes 560 hours per year to comply with all tax regulations.

According to the report, complex and costly business regulations in the region push workers into the underground economy. In India, just over 8 million workers have formal jobs in the private sector – in a country of over 1 billion people and a work force of 458 million. Sri Lanka has over 4 million workers in formal jobs in the private sector – out of a work force of about 7 million. By comparison, in Northern European countries, where it is easy to do business and people benefit from social protection, less than 8% of all economic activity occurs in the underground economy.

SMALL EU STATES RUSH TO JOIN SINGLE CURRENCY

Cyprus has applied to join the eurozone on 1 January 2008, as part of a trend that is seeing the EU’s smallest new members rush to get into the single currency while bigger economies such as Poland and Romania pull further away from the euro-horizon. Cyprus’s move follows Slovenia’s euro-entry last month, with commission officials also expecting Malta to apply in time for the June summit and with Lithuania, Latvia and Estonia planning to join between 2009 and 2010. Lithuania had applied to join this year, but missed the criteria by a whisker.

Added together the total populations of these six smaller, eurozone-friendly states amount to 10 million people and the total size of their economies comes to €134 billion. The eurozone’s biggest member, Germany, alone has 82 million people and is worth €2.2 trillion. A number of other tiny non-EU states have also already adopted the euro as their official currencies for a mixture of reasons. Monaco, San Marino, the Vatican City, Andorra, Montenegro as well as the UN-run province of Kosovo all use the EU currency, even though Liechtenstein prefers the Swiss franc.

By contrast, analysts predict that inflationary pressure is likely to see Slovakia miss its formal 2009 target. Bulgaria could join as late as 2012. High public deficits in the Czech republic and Hungary mean that 2012 would be optimistic and Romania is looking at 2014. Meanwhile, Poland – the biggest of the new EU states – has not even set a target date, with the country’s eurosceptic government instead planning to hold a referendum on euro entry in 2010 in a scheme that could clash with its EU accession treaty promise to join the eurozone. “Some of these are simply lacking the fiscal conditions but others are manoeuvring to widen the public deficit as much as they can while they can still get away with it,” HSBC analyst Juliet Sampson said. “In Poland, it’s much more political.”

“The bigger eastern European countries are not so keen,” Credit-Suisse expert Dennis Brandes said. “You could say the Cyprus move is a vote of confidence for the euro. But I am not sure that it will affect the bigger picture.” The euro has taken a beating in public opinion terms in the past year with former Italian leader Silvio Berlusconi last July saying the euro had “screwed” his economy and with an FT-Harris survey last month showing that most people in Germany, Italy, France and Spain preferred their old currencies. Under EU law, once a country joins the euro there is no legal mechanism for getting out of the currency again. “Some people in Italy are discussing this. But legally speaking, it is for eternity and any kind of break up would have a catastrophic effect on the currency,” Mr. Brandes said.

In Cyprus itself a recent Eurobarometer showed that 55% of people have a negative or very negative opinion about the euro, while just 33% support the switch to the common currency. The old Cyprus pound is also unloved however, as it is associated with a period of UK colonial rule that ended in 1960. A Cypriot diplomat said that the advent of the euro could even improve chances for the reunification of the island, with a 2004 referendum on a UN reunification plan rejected by the Greek Cypriots because – among other reasons – they did not like the idea of having two currencies (the pound and the Turkish lira) and two central banks. “Now nobody [in the Turkish Cypriot north] would say anything against the euro, so this might create a better climate. This aspect of the solution will not be disputed anymore,” the diplomat explained.

Malta to apply for euro accession in March.

Malta will submit its formal request for accession to the eurozone in the first two weeks of March. Sources close to the government told the newspaper that the government instructed the Ministry of Finance to finalize preparations and submit its application to the EC and the European Central Bank after Cyprus presented its own application. Malta’s target date to accede to the euro is 1st January 2008.

Prior to its submission, Malta will have new statistics in hand outlining its progress where its GDP and inflation rates are concerned. To qualify to join the eurozone, member states must fulfill the Maastricht convergence criteria applied to the existing euro area members, namely a high degree of price stability, sustainable government finances in terms of both public deficit and public debt levels, a stable exchange rate and convergence in long-term interest rates.

EC WELCOMES U.S. PROPOSALS ON DEREGISTRATION FROM CAPITAL MARKETS

The European Commission announced that it welcomes new rules proposed by the U.S. Securities and Exchange Commission that would make it much easier for non-U.S. companies listed on U.S. capital markets to deregister from those markets at a time of their choosing, once certain criteria have been fulfilled. In the EC’s view, the new rules, which are based on a comparison of the company’s trading volume on the U.S. market and on its primary market, have the potential to largely resolve issues concerning the existing rules, which are based on the number of U.S. investors, and are considered by EU companies to be overly restrictive.

ANTIGUA AND BARBUDA TO HELP UK DRAFT E-GAMING REGULATIONS

The Division of Gaming within Antigua and Barbuda’s Financial Services Regulatory Commission has announced that the country expects to play a key role in developing international regulations and legislation for remote gambling following publication. L. Errol Cort, Antigua and Barbuda’s Minister of Finance and the Economy commented, “Antigua offers its unique experience and insight wholeheartedly in developing regulatory standards for the international remote gambling industry as part of the expert working group proposed by the DCMS.”

The Antiguan government claims that the e-gaming regulations it has put in place are more stringent than those imposed by the U.S. on its own legal gambling industries. It was reported last month that the WTO’s Dispute Settlement Body’s panel is likely to rule against the U.S. on its spat with Antigua and Barbuda over e-gaming. The Panel has sent a confidential version of its ruling to the parties, and a U.S. Trade Representative spokesperson, Gretchen Hamel, confirmed that the Panel did not agree with the United States’ contention that it had taken the necessary steps to comply with the WTO’s 2005 ruling in Antigua’s favor.

The US government has been cracking down hard on offshore e-gaming firms, arguing that they suck billions of dollars out of the country, and have the potential to act as a conduit for money laundering. Last year, the U.S. has passed the Unlawful Internet Gambling Enforcement Act of 2006, which while expanding domestic opportunities for legal gaming, effectively bans all international and inter-state online gaming, by making it illegal for banks and credit card firms to make payments to such internet operations.

DEMOCRACY IN ACTION IN CALIFORNIA FIEFDOM

The city fathers of Vernon run their tiny town like a family business, with unchecked power, pay and perks.

Four miles south of downtown Los Angeles sits the city of Vernon, a 5-square-mile industrial enclave of meatpacking plants, warehouses and paint-mixing factories. There is not much to see, but smells are plentiful, courtesy of a rendering factory that boils the dead pets of southern California into grease and high-protein animal feed. Only 92 people live in Vernon. There are no parks, schools, libraries, health clinics or grocery stores. The only four restaurants close by 4 p.m. By sundown the 44,000 workers who commute here have all fled the stench.

Vernon’s leaders like it that way. California’s tiniest city, if you want to call it a city, is one of the nation’s most lasting and efficient political machines, run almost entirely for the benefit of a handful of rarely opposed, extremely well-paid politicians. Vernon should have been subsumed long ago into the surrounding city of L.A, but its independence is a strange and stark example of how a democracy can become a dynasty.

TAXES

EC READIES OFFICIAL COMPLAINT AGAINST SWISS TAX SYSTEM

The European Commission is reportedly about to make its displeasure with Switzerland’s cantonal tax system officially known. According to a report by Swissinfo, the EC will officially condemn the tax practices of some cantons as “discriminatory” and “distorting competition”. The report said that the document gives detailed information about the tax regimes of cantons Zug and Schwyz in central Switzerland, and the privileges they give to holding companies and other firms.

It is not the first time that the EU has taken issue with the tax regimes of these particular cantons. In a letter sent to the Swiss Mission in Brussels in 2005, the EC made particular reference to the tax regimes in Zug and Schwyz which, Commission officials warned, could “grant fiscal advantage to undertakings for ... economic activities taking place outside Switzerland.”

While the arguments put forward by the Commission in the new document are said to be “vague”, and the extent of the alleged trade distortion is not quantified, Brussels nonetheless believes it has a case against Switzerland under article 23 of the 1972 free trade agreement, arguing that a privilege which “threatens to distort” trade is enough to breach the protocol. However, the EC must prove “serious difficulties” in trade under another provision in the treaty before it can consider the question of applying punitive tariffs against the Swiss. The Swiss government, which has consistently rejected Europe’s claims, is once again expected to rebuff this latest accusation.

Last month, State Secretary Michael Ambuhl “strongly rejected” criticism from the EU concerning the compatibility of the Swiss tax system with the trade agreement. Ambuhl argued that there was no agreement between Switzerland and the EU requiring Switzerland to bring its company taxation into line with EU member states, and that consequently, “no violations of any agreements were possible.” President Micheline Calmy-Rey has also said that there is “absolutely no room for negotiation,” regarding Swiss tax laws.

In Switzerland, cantons can set their own tax rates within the framework of the 2001 Tax Harmonization Act, and a direct link between voters and tax policy has helped to push local tax rates lower. This has attracted a growing number of international holding companies, and several high profile multinationals have established headquarters in Switzerland to help minimize their tax bills. The “fiscal deal” offered by many cantons has also lured many well-paid and wealthy tycoons and celebrities to Switzerland from countries such as France, Germany and the UK, much to the annoyance of tax collectors in these EU member states.

Europe tells Switzerland to scrap “unfair” company taxes.

The EC has officially decided that certain company tax regimes in Swiss cantons in favor of holding, mixed and management companies are a form of state aid incompatible with the proper functioning of the 1972 Agreement between the EU and Switzerland. “Switzerland enjoys the benefits of privileged access to the internal market and must accept the responsibilities that go along with this,” explained External Relations Commissioner Benita Ferrero-Waldner. “The decision the Commission has taken is not about tax competition but about state aid undermining the level playing field necessary for our partnership and the trade relations between Switzerland and the EU.”

Under Swiss law, the cantons may fully or partially exempt profits generated abroad from cantonal and municipal company tax. All Swiss cantons have made use of this provision, although in different forms. “Over the years, this has proved to be a formidable incentive for the headquarters, co-ordination and distribution centres of multinationals to be based in Cantons such as Zug and Schwyz, in order to minimize their tax liabilities,” the EC said in a statement. “As these multinationals are mostly active in the EU market, such tax regimes may directly or indirectly affect trade between the EU and Switzerland. While the Commission is not against tax competition or low tax rates, it cannot accept schemes that differentiate between domestic and foreign source income.”

Switzerland to fight on against EU tax claims.

The Swiss government has repudiated allegations made by the EC that the country’s company tax regime infringes the Switzerland/EEC free trade agreement, dismissing them as “unfounded”. In an official response to the complaint, the Swiss government reiterated its belief that no contractual regulations exist between Switzerland and the EU on the harmonization of company taxation and that consequently, it is not possible for there to be an infringement of any agreement.

Moreover, the Swiss government emphasized the fact that it is not part of the Single European Market, so neither the rules on competition in the EC Treaty – among others the rules on state aid – nor the code of conduct on company taxation agreed amongst EU member states are applicable to Switzerland. Switzerland also argued that the cantonal measures on company taxation under criticism do not discriminate against domestic companies and do not constitute special treatment of foreign companies, because they are not selective but are open to all commercial players – regardless of nationality or manufacturing or economic sector.

Cantons hold key in EC business tax row.

Swiss cantons say the latest European Commission attack on Swiss corporate tax breaks will fail without a referendum to end the cantons’ financial independence. Cantons are free to set their own tax rates under the Swiss constitution and they told swissinfo they would ignore renewed demands from the EC to end “unfair” privileges.

The EC accused non-EU member Switzerland of violating the 1972 Free Trade Agreement by allowing individual cantons to set low tax rates to tempt foreign companies to relocate. In essence, the Commission argues that firms are being unfairly poached, thus depriving member states of valuable sources of tax revenue.

The report was presented to the Swiss federal authorities, but central government would be powerless to make the cantons cooperate even if ministers changed their position of defending the system. “The Commission clearly does not understand our political system. The federal authorities have no say in this matter,” Kurt Stalder, secretary of the Conference of Cantonal Finance Directors, told swissinfo ahead of the EC report. “It is written into our laws that cantons set their own taxes and there must be a national referendum to change this. The people have had numerous invitations to make a change in the last few years but they have always voted to accept the system.”

Stalder added that the 26 cantonal finance heads had voiced a unanimous resolution to resist pressure from Europe during a recent meeting of the Commission. Canton Zug finance director Peter Hegglin could not understand why the Commission has decided to launch its challenge now. “The holding company taxation system criticised by the European Commission has existed in individual cantons for over 50 years. We should not allow ourselves to be intimidated,” he said.

The practice of lowering corporate tax rates to attract large company headquarters has also been successfully utilised by Ireland and Cyprus, among others. But Switzerland is a particularly strong magnet because of the high standard of living to be enjoyed in the country. Some cantons have broken ranks in the separate issue of the granting of tax breaks to wealthy individuals. Zurich in particular is concerned that neighboring cantons have been attracting rich people who then “freeload” on the nearby city’s services and lifestyle. However, the disagreements stop when it comes to the EC’s assault on business tax breaks.

IRS TO WAIVE ESTIMATED TAX PENALTIES FOR SOME EXPATS

The IRS and U.S. Treasury have announced the release of guidance on the estimated tax penalty for citizens or residents of the U.S. living and working abroad. The Tax Increase Prevention and Reconciliation Act of 2005, enacted in May 2006, changed the maximum amount of foreign earned income and housing costs that may be excluded from gross income under section 911 of the Internal Revenue Code.

TIPRA increased the maximum amount of foreign earned income that may be excluded from gross income to $82,400, while limiting the amount of housing costs that may be excluded or deducted under section 911. TIPRA further provided that the tax applicable to income not covered by the foreign income exclusion will now be calculated as though the exclusion had not been elected. These changes are effective for taxable years beginning after December 31, 2005.

Because these changes are retroactive to the beginning of the taxable year, persons relying on the law as it existed prior to the enactment of TIPRA may have underpaid their estimated tax liabilities for 2006 and may be liable for an addition to tax under section 6654(a). The IRS stated this week that it will waive additions to tax under section 6654(a) to the extent that the underpayment is attributable to the changes enacted under TIPRA. This waiver is only available to qualified individuals who file a Form 2555, Foreign Earned Income, or Form 2555-EZ, Foreign Earned Income Exclusion, with their timely filed Form 1040, or 1040X Amended U.S. Individual Income Tax Return. About 300,000 individual taxpayers filed Form 2555 and Form 2555-EZ for tax year 2004.

A substantial number of U.S. expats living abroad have been considering returning home as a result of changes to income tax laws passed last year. According to a survey conducted by the American Chamber of Commerce in Singapore during October and November 2006, 40% of the 144 respondents said they were thinking about returning home to avoid being hit by increased tax. Half of the sample also believed that the tax changes would prompt employers to hire fewer U.S. workers abroad.

STUPID TAX TRICKS YOU CAN DO FROM HOME

Here is an amusing game, fun to play as April 15 approaches. Hold up an investment product and say, “Tax benefit!” Then watch investors jump through hoops and make idiots of themselves. My catalog of dumb tax avoidance moves has three items. “Dumb” means that the fees on the tax shelter exceed what you would have paid the IRS.

Annuity trusts. In this scheme, you find a buyer for, say, your auto body shop but do not sell it directly. Instead you transfer it into a trust, which sells it to the buyer and uses the proceeds to buy you a monthly annuity. The tax you are avoiding is as little as 15%. The middlemen is fees for setting up the annuity and telling you how clever you are can run to 10% of the money involved, plus annual maintenance fees. Your capital gain is merely deferred, not escaped forever. The fees are calculated as a percentage of the sale proceeds, not a percentage of the gain. The arrangement is so bad that some taxpayers hire a second set of advisers to help them get out from under the heels of the first set.

1031 swaps. This popular gimmick has the seller of an appreciated asset swap it for another of a “like kind”, in order to defer tax. When is one asset like another? For such distinctions, you need to hire an expert. So, you sell your illiquid real estate and get, in return, another piece of illiquid real estate. Figure on two sets of real estate agents wanting fees, plus the lawyers, the accountants and the “exchange accommodators” who pretend to be swapping with you. A 45-day deadline is built into this charade. Faster than you can say “roll over,” you have overpaid for the replacement property.

Deferred annuities. These are mutual funds wrapped up in a costly insurance policy that is taxed only when you cash it in. $200 billion of these things were sold in 2005. Remember, you are getting a deferral, not a tax holiday. If you are buying stocks, the federal tax you do not pay today is 15%. But when the appreciation and dividends come out of the annuity at the other end they are converted into ordinary income taxed at 35%.

IRS TACKLES STOCK OPTION MIS-PRICING

IRS officials have announced an initiative aimed at providing relief for rank-and-file employees affected by their companies’ issuance of backdated and other mispriced stock options. While the program will be available to help those employees who may be unaware that they held backdated options, the opportunity will not be available for backdated options exercised by most corporate executives or other insiders.

If an employee exercised a “backdated” stock option in 2006, the employee may owe an additional 20% tax, plus an interest tax, under the Federal tax laws governing deferred compensation. If the option had been properly priced, the employee normally would only have owed income tax on the difference between the value at the date of grant and exercise. The initiative allows companies to step forward and pay the additional 20% tax and any interest tax that employees owe. The initiative does not permit the company to pay the additional tax for stock options exercised by its top executives or other insiders.

“This shameful practice was widespread,” stated IRS Commissioner Mark W. Everson. “We are allowing employers to satisfy the tax obligations of employees who did not knowingly participate in these schemes. This initiative does not extend to the executives and insiders who were the principal beneficiaries of the backdating schemes. We continue to pursue these cases and work closely with the Securities and Exchange Commission and the Justice Department as appropriate.”

Under the initiative, employers must notify the IRS of their intent to participate by February 28, 2007. The employers, in turn, will be required to contact affected employees by March 15, 2007 to inform them that the employer has applied to participate in the Compliance Resolution Program. Where an option has been backdated, the employee remains obliged to pay the full amount of income tax due upon exercise, including any additional gain realized from backdating, whether or not the employee was aware of the backdating. Affected employees who have not previously taken corrective action on their own will remain liable for the additional 20% tax and the interest tax if their employers do not participate in the program, or fail to abide fully by its terms.

Corporations that elect to participate and relieve their affected employees will be required to provide the specific details about the options, including specifics on the tax calculation that will enable the IRS to ensure the full amount of taxes owed is paid. The taxes the companies will pay to relieve employee tax bills will be treated as additional 2007 compensation income for those employees in the 2007 tax year.

CANADIAN LIBERALS PITCH ALTERNATIVE INCOME TRUST TAX PLAN

Canada’s Liberal Opposition has announced a plan that it claims could return as much as 2/3s of the losses suffered by investors as a result of the Conservative government’s decision to tax income trusts. “When this minority Conservative government undertook what it knew would be a harmful action to Canadians, it should have taken the utmost care to minimize the damage it would cause its citizens,” argued Liberal Leader Stephane Dion. “The government broke a promise and imposed a radically higher tax that resulted in a $25-billion blow to the savings of hard-working Canadians.”

The Liberals are proposing that the government repeal its planned 31.5% tax regime and replace it with a 10% tax, to be paid by the companies, that would be refundable to Canadian residents. The tax would be imposed immediately, with the revenue shared equitably with provincial governments. “Rather than considering what is best for Canadians, the Prime Minister simply decided that he was going to put an end to the income trust sector,” stated Liberal Finance Critic John McCallum. “After hearing from dozens of expert witnesses we have developed a proposal that is fair to Canadian investors, to corporations and the income trust sector as well as federal and provincial governments.”

The Liberals say that their proposals are underpinned by four main policy objectives: (1) minimizing the loss of savings for Canadians who invested in income trusts, (2) preserving the strengths of the income trust sector – notably a high-yield instrument for savers and for the energy sector, (3) creating tax fairness by eliminating any tax leakage caused by the income trust sector, and (4) creating tax neutrality by eliminating any incentive to convert from a corporation to an income trust purely for tax purposes. The Liberals also propose that the ban on new trust formations be continued, but that the government should commit to considering representations from sectors which can conform to the enumerated policy objectives.

SOUTH AFRICAN REVENUE SERVICE URGES SMALL FIRMS TO VOLUTARILY COMPLY WITH TAX AMNESTY ... OR ELSE

As the deadline for the tax amnesty applications draws nearer, SARS is continuing to appeal to small businesses that are not tax-compliant to apply. The amnesty began on August 1, 2006 and will remain in place until May 31, 2007. Companies with an annual turnover of less than R10 million are permitted to participate in the scheme. The amnesty is designed to entice the substantial number of small businesses currently operating in the “informal economy” to regularize their tax affairs, while encouraging a compliance culture and broadening the tax base.

However, the South African government has reported that applications for amnesty were coming in at a slow pace, and the authorities are warning that non-compliant firms who fail to declare before the deadline will “face the full might of the law.” SARS spokesperson Adrian Lackay said that the tax department had received more than 10,500 applications and over 40,000 public enquiries on the campaign. “There is a high level of public enquiries but unfortunately they do not translate into applications. With just over 100 working days to go before deadline, we call on businesses to apply,” Lackey stated.

Meanwhile, draft regulations prescribing circumstances under which SARS may waive additional taxes, penalties and interests for qualifying small businesses closed for public comment last week. Small businesses that did not apply for amnesty ran the risk of having a 200% penalty imposed on them, Lackey warned. However, if these businesses applied before the deadline, SARS could end up requiring them to pay only the basic tax and waive the rest. “It must be emphasized that the waiver applies only to additional tax, penalties and interest and excludes the underlying tax portion of the tax debt owed to SARS,” Lackay stated. The maximum amount of additional tax, penalties and interest that may be waived is R1 million and it covers the situation of the vast majority of small businesses. In return, the applicant must settle any outstanding balance within six months or a longer period as SARS may allow, failing which the waived amount would be reinstated.

IRISH INTERNAL MARKET COMMISSIONER SPEAKS OUT AGAINST HIGH TAXES

Speaking at the Irish Taxation Institute/Revenue Commissioners Joint Conference, Internal Market Commissioner, Charlie McCreevy outlined his position on taxation within the EU, suggesting that “higher taxes feed fatter government”.

“Some see taxation as a means of making society more equal. Of leveling down. Of limiting the upside rewards that go with taking risk or working hard. I do not,” he said. “I see it as necessary to help those who cannot help themselves and to provide services or infrastructure that is necessary for economic development but that the market alone cannot economically provide. I do not see taxation as meritorious in its own right.

“I believe taxes – of all kinds – should be kept as low as possible and that the pressure to get them down should be relentless. I believe also, where there is a choice on how to levy taxes, preference should be given to levying them on spending. Taxes on income are taxes on effort, work and entrepreneurship. Taxes on capital are taxes on investment and risk taking. But it is effort, work, entrepreneurship, investment and risk taking that we need to continue to grow our economic base. ...

“It was when taxes on income were raised and the thresholds at which they became payable were lowered that Ireland’s economy and public finances came close to basket case status. When capital taxes on wealth creation and entrepreneurship proliferated non-compliance proliferated with it, and wealth and jobs were driven out. In fact the tax revenues that some of those taxes generated were barely adequate to cover the cost of collecting them.

“But getting taxes down is not easy because so much of public spending is deeply embedded. Generally, it requires hard choices. When you look at the composition of public spending in any country, you see that the vast majority of it is on health, social welfare, education, housing, and transportation. And when you look at the administrative cost of running the public sector, the vast majority of it is in the form of pay. Reducing social provision is anathema to any government. As to reducing bureaucracy, there are so many rigidities in the system that without real incentives, strong leadership, and carefully cultivated cultural change it can be very difficult.”

SINGAPORE MAY CUT CORPORATE TAX RATE, AND SHIFT REVENUE BURDEN TO CONSUMERS

Singapore may cut corporate taxes for the first time in three years and shift the revenue- shortfall burden to consumers amid efforts to make the island a more conducive place for companies such as Intel and Royal Dutch Shell to do business. The island’s longest economic expansion in six years may encourage Prime Minister Lee Hsien Loong to lower company taxes by at least 1 percentage point to 19%, narrowing its gap over Hong Kong’s 17.5% rate. The government has also signaled plans to raise the goods and services tax by 2 percentage points to 7%, and will announce its decision in its budget this week.

Lee’s move to reduce income taxes and raise those on goods and services comes as record job creation and tourist arrivals helps offset slower growth in exports. The government’s strategy to benefit from wage increases and more visitors, while cutting costs for businesses, will boost revenue as unemployment drops and domestic and tourism spending climbs, economists say. “The policy shift from direct taxation to one of indirect taxation can only benefit Singapore’s economy,” said Tomo Kinoshita, an economist at Nomura Securities in Singapore. Singapore’s $134 billion economy, Southeast Asia’s 4th-largest, expanded 7.9% in 2006, and is forecast to grow between 4.5% and 6.5% this year.

Singapore has shaved six percentage points off the corporate tax rate since 2000. In the same period, Hong Kong’s tax rate rose from 16%, while Ireland has a rate of 12.5%. In Eastern and Central Europe, Slovakia and Poland’s corporate tax rate is 19%. “The main motivation to cut rates is to keep Singapore competitive and to attract investments so a bigger cut will be more meaningful in closing the gap with Hong Kong,” Latha Mathew, an international and corporate tax services partner at Ernst & Young, said. “By doing it at one go, it will be a strong statement of confidence in the economy.”

The government aims to attract as much as S$9 billion (US$5.8 billion) of manufacturing investment and up to S$2.9 billion in business spending from service industries including information, communications and media, education and health care in 2007. “It’s a tough world out there and competition for the investment dollar is getting more intense,” said Lim Siong Guan, chairman of the Economic Development Board. The advent of two casinos resorts by 2010 is expected to see Singapore’s visitor arrivals rise from 9.7 million tourists last year to 17 million visitors by 2015.

Retailers and other businesses may not be cheering at the higher goods and services tax, or GST. When the government raised the tax by 1 percentage point at the beginning of 2004, retail sales slowed as the increase crimped spending. The government may also take advantage of the accelerating economy to lift mandatory employers payments to the state pension fund. Singapore cut companies’ payments into employee pension funds by three percentage points in October 2003 as it sought to stanch a flow of jobs to cheaper destinations and win fresh investments.

ASSET PROTECTION / LEGAL STRUCTURES

CAN YOU LOSE MONEY IN A FUND YOU HAVE LONG SINCE EXITED?

Fraudulent conveyance rears its ugly head in Bayou Group hedge fund bankruptcy.

That may happen in the strange case of Bayou Group, the $450 million hedge fund in Connecticut that filed under Chapter 11 in May 2006 after hiding losses for years with rosy phony profit reports. A receiver for the fund has sued investors who got out before it crashed to get them to return all their money – principal as well as profits – so he can divvy it up among all investors. In past cases cashed-out investors in hedge funds have been forced to hand back just profits. But never has a court required that hedge fund principal be returned, too.

If the receiver succeeds, the implications for hedge fund investors are huge, says Carole Neville of Sonnenschein Nath & Rosenthal, representing 26 Bayou redeemers. In total the receiver is seeking from 122 redeemers $122 million in principal, money that would reimburse Bayou investors who stayed until the bitter end for some of the $250 million they lost.

The case revolves around the issue of fraudulent conveyance, a legal concept that goes back to an old English statute made famous in a 1601 ruling against a man who gave his sheep to a relative to keep them out of creditors’ hands. Bayou allegedly committed a similar sin when it used money from new investors to pay old redeeming ones to create the impression it had plenty of cash. The law generally requires shifted assets to be shifted back, less any value the scamster got in exchange for them. In other words, profit is returned. It does not matter whether the recipient was an unwitting participant in the scheme.

But when the fight is over principal, a different standard applies. The Bayou receiver, Jeff J. Marwil of law firm Winston & Strawn, is relying on a section of the bankruptcy law that he says can force such unwitting participants to forfeit all their money if they should have known about the scam because of red flags. The law places the burden of proof on the accused, forcing redeemers to show they could not have suspected fraud from such clues. Marwil claims many investors were “tipped” by investment advisers to get out, and that there were plenty of red flags, too. For instance, the no-name outfit called Richmond-Fairfield that audited Bayou’s books was formed by a Bayou cofounder.

Philip Bentley of law firm Kramer Levin Naftalis & Frankel, representing 67 redeemers, says his clients did not know about the fraud but that it does not matter anyway. His argument in a nutshell is that he who bails out first gets to keep the loot. A decision is expected in February on a motion in U.S. Bankruptcy Court in New York to dismiss the suit. Appeals are likely.

AUSTRALIAN CRICKETERS EMBROILED IN OFFSHORE TAX EVASION INVESTIGATION

Some of the offshore structures are a bit on the informal side as well.

Shane Warne and possibly other top cricketers have become embroiled in the Wickenby tax haven investigation after failing to declare hundreds of thousands of British pounds managed in offshore accounts. Investigators believe a large portion of their English playing and endorsement earnings were housed in offshore trusts managed by the tax haven specialist Philip Egglishaw. It is understood the players were not advised that their British income should have been declared and taxed in Australia. The investigation is being led by the Tax Office, and criminal charges are considered unlikely.

A Crime Commission investigation into the affair has already involved 38 people including the entertainers Paul “Crocodile Dundee” Hogan and John Cornell, who deny wrongdoing, and the rock manager Glenn Wheatley, who says he is “cooperating with authorities” and is expected to plead guilty to tax fraud charges. Speaking through the intercom at his home, Warne said to go through “proper channels” and the queries “were bordering on harassment”. Warne is understood to have relied on advisers and to have told tax officers that he was unaware that his international arrangements might have breached Australian tax rules.

Mr. Egglishaw is an accountant and principal at Strachans, a secretive firm that recently moved from Jersey in the Channel Islands to Geneva, Switzerland. Strachans is at the center of Project Wickenby, Australia’s largest-ever tax avoidance sweep. Five federal agencies have been given A$305 million to chase a similar amount of unpaid tax. Project Wickenby involves hundreds of other Australian international sportsmen, entertainers, accountants, lawyers and business people. A number of cases have been settled out of court.

Investigators have been criticised for slow progress, as they grapple with more than a dozen well-resourced court challenges and the sheer volume of material seized in more than 100 raids across the country. Mr. Egglishaw is thought to control hundreds of millions of dollars in tax haven trusts on behalf of his Australian clients.

According to a brochure secretly obtained from his room at the Sheraton on the Park in Sydney in 2003, Strachans services have “proved particularly attractive to entertainers (including actors and pop stars), film directors and producers, sportsmen, international executives ... and other clients who have already established offshore structures.” Another Strachans brochure outlines how clients can use offshore trusts to minimize tax “or avoid it altogether.”

One client, who remains in touch with Strachans, said the firm’s worldwide business had been badly hurt by adverse Australian publicity “in the age of Google.” Typically Strachans houses client money in tax haven trusts and disguises its true ownership. A number of Egglishaw’s clients have told of concerns that they do not have sufficient paperwork to compel Strachans to repay their money. Tax Office monitoring of advertising shows the number of promoters selling tax haven services to Australia has grown to about 100, not including internet-based promoters.

UK OFFSHORE TAX EVASION PROBE

Four high street banks are being made to hand over details of their clients’ offshore bank accounts. The Financial Times has reported that details of approximately 100,000 customers of HSBC, HBOS, Royal Bank of Scotland and Lloyds TSB will be disclosed to HM Revenue and Customs in an action expected to produce £275 million in unpaid tax. Tax officials in the UK are now searching records for information on UK-domiciled individuals who have not declared income on money kept in offshore centers. The action is thought unlikely to force the disclosure of secret bank accounts in Switzerland and some other offshore jurisdictions.

Island-based Phil O’Shea, president of the Association of Licensed Banks and chief executive of Close Bank, said it was not clear whether this ruling included the Isle of Man. “It is still speculation who the banks are at the moment but there has been some discussion that HMRC are undertaking an amnesty – and are inviting people who have not made a declaration to do so before a certain date.”

Paul Hotchkiss, senior tax manager at KPMG in the Island, said, “The FT’s stab at naming the banks is pure speculation. HMRC approached the Special Commissioners for these rulings and these decisions were anonymous. Therefore we may never officially know the identity of the banks concerned unless they themselves put the information into the public domain.

“The identity of the banks does not matter – it is not the banks’ responsibility to complete a UK individual’s self assessment return. This responsibility rests with the individual. However, what is of concern is that there will be a number of customers, who quite legitimately hold bank accounts overseas, who will run the risk of unnecessary (and potentially time consuming] HMRC enquiries. This is the problem with this type of blanket approach but it is difficult to see how else they can locate these individuals who are not properly disclosing and paying tax on overseas bank interest.”

Mr. Hotchkiss continued, “Of course, it must be borne in mind that this ruling does not ‘force’ any offshore bank to provide information. What it does is to force the UK bank to provide information on customers with offshore bank accounts where that customer’s information is in the UK bank’s possession – there is a difference.”

Malcolm Couch, the Island of Man’s Assessor of Income Tax, said, “HMRC only has jurisdiction over UK operations and information and does not have a right to access information in the Isle of Man. It really depends on how the bank or organization is structured – if they have a branch overseas they can access this information. However they do not have an automatic right to information outside the UK.”

UK’S FINANCIAL SERVICES AUTHORITY BLASTED OVER “SOFT OPTION” REGIME FOR OFFSHORE TRUSTS

Britain’s financial watchdog, the FSA, has come under blistering fire for proposed rule changes that “remove fundamental elements of investor protection”. The attack, from the Association of Investment Companies (AIC), has been sparked by FSA plans to waive 120 pages of regulation for offshore investment companies seeking a London listing. The AIC says the proposals would remove safeguards put in place after the split capital trust debacle and might “lead to a disaster, with investors losing their shirts due to a lack of proper regulation of companies using the minimum standard.”

Trust investors lost tens of millions of pounds in the split capital crisis, in large part caused by a proliferation of cross-holdings between similar trusts, leading to a domino-style collapse. Among the requirements being waived under the FSA’s “minimum standards” proposals are regulations restraining the build up of substantial cross-holdings, an obligation to maintain a spread of risk and a requirement to consult investors on changes to their rights. And it would now be open for unscrupulous companies to switch out of the UK and seek a London listing under the lighter, “Chapter 14” regime.

AIC director-general Daniel Godfrey said, “There are very real dangers in allowing some companies all the prestige of a full London listing without any of the necessary statutory standards, which protect the interests of investors and which still apply to all existing investment companies, causing additional confusion for investors.”

INVESTMENT FUND LIQUIDATION TO BE CONSIDERED BY BERMUDA COURT

Island’s reputation as a finance center enters into equation.

The Bermuda Supreme Court will consider the liquidation of IPOC International Growth Fund Ltd, which holds assets in Russian telecommunications companies, including OAO MegaFon. A petition for IPOC to be liquidated, filed by the Registrar of Companies, will be heard by the court on April 27.

The Bermuda government is seeking to “address seeming breaches of our laws” and protect the island’s reputation as a finance center, the Finance Ministry said. Scott Learmouth and Kirsten Smart at London-based Media Strategy, which represents IPOC, did not return phone calls requesting comment. IPOC is in a dispute with Russian billionaire Mikhail Fridman’s Alfa Group over a 25.1% stake in MegaFon, Russia’s 3rd-largest mobile phone company. A Zurich-based arbitration tribunal concluded on May 16 that Leonid Reiman, Russia’s Information Technology and Communications Minister, and close ally of President Vladimir Putin, is the beneficial owner of Bermuda-based IPOC – a contention that Reiman has repeatedly denied.

BAHAMAS SENATORS DEBATE AMENDMENTS TO FINANCIAL LAWS

Want to mitigate burden of, and loss of business due to, laws they passed to get off the FATF blacklist.

Senators began debate on amendments to a package of nine key pieces of Financial Services legislation passed nearly seven years ago. The amendments are designed to reduce some of the difficulties encountered in implementing financial laws passed in response to the blacklisting of The Bahamas by the FATF. The amendments would also relax the confidentiality principle between regulators, allowing them to cooperate with other regulatory authorities in the Bahamas and share information.

For the past four years the government has been busy attempting to meet international standards in its local financial services sector. Now the government says these financial legislation amendments would foster more comprehensive cooperation and information sharing between all regulators and better supervision of activities in the sector. Minister of State for Finance Senator James Smith indicated that the amendments were “in response to persistent cries from the industry together with observations by external agencies that the Bahamas’ new financial services legal framework has exceeded international best practices in primary areas of financial regulation, and if left unchanged, could contribute to a lowering of the country’s competitive edge.”

Regarding the Know-Your-Customer (KYC) procedures, Senator Smith said the government intended to review financial legislation and make necessary amendments that would streamline and reduce the paperwork requirements of the Financial Transactions Reporting Act (FTRA) and other related statutes. “We have recently implemented a risk-based approach to the know-your-customer requirement under the anti-money laundering regime of the FTRA. This was done at the end of 2003. Prior to this approach, simple financial transactions under the FTRA left locals as well as international clients frustrated and disenchanted,” he said. “This aside from the complexity of the regulatory structure introduced in 2000 appears to have been one of the biggest [factors in driving business away from the Bahamas.]”

Mr. Smith said while there has been a marked improvement in how international organizations view local regulator’s willingness to cooperate with them, the very nature of securities and the potential for fraud and abuse of investors makes it crucial for this jurisdiction to cooperate with international organizations. According to the senator, the Financial Service Reform Commission also made recommendations to give the Securities Commission and the Central Bank equal powers.

According to Senator Smith, the IMF has consistently noted that the Bahamas’ domestic regulators were granted more powers of cooperation with overseas regulators than was provided for cooperation with their domestic regulators. Senator Smith said the government is committed to maintaining and growing its share of the global financial services industry.

WELCOME TO SINGAPORE – THE SWITZERLAND OF SOUTHEAST ASIA

I have been meeting with numerous private banks, lawyers, accountants and real estate consultants in Singapore. Let me say, I am totally impressed with this city-state. I am convinced Singapore will continue to grow exponentially over the next decade and beyond and increasingly draw huge sums of global capital inflows. The country is incredibly efficient, highly literate and the entire population speaks English fluently. This is just a great place to do business.

It is also a great place to invest. The economy thrives on the heels of booming regional trade. Singapore also looks like a smaller version of Switzerland – only with lush palm trees and a warm climate year-round. This city is extremely clean and well-organized. And compared to smog-laden Hong Kong, Singapore still enjoys fresh air. That is one of the main reasons why many Hong Kong executives have moved there since 2000. Singapore’s economy thrives on international shipping, financial services and technology manufacturing. This central hub acts as a bridge between regional trading partners in nearby Malaysia, Vietnam, China, Thailand and Indonesia. Shipping is definitely a major source of revenue for Singapore, and once you visit here, you will easily see the signs of a major shipping hub.

Driving the influx of foreign capital and international investors to Singapore is the its low corporate and individual tax rates, same as in Switzerland (see article summary above). Singapore has been steadily slashing its top income-tax rate, from 55% at independence in 1965 to 28% in 2000 and 20% in 2007. Singapore’s corporate tax rates are heading lower by at least one percentage point in 2007, according to government finance officials. Currently, Singapore’s corporate tax rate is 20%. The city-state also imposes a national sales tax, currently at 5%. Singapore may raise it to 7% this year to cover government spending plans instead of raising individual and corporate tax rates.

Singapore’s People’s Action Party (PAP), founded by Lee Kuan Yew, has controlled the island since gaining independence from the U.K. in 1965. The country’s mixed population of Chinese, Malays and Indians has accepted decades of the PAP’s often authoritarian rule in exchange for phenomenal economic growth that has transformed this former British trading outpost into one of the world’s most prosperous states. Singapore’s economy grew 7.7% in 2006, making it one of the fastest-growing regional markets after China and Vietnam. Singapore, unlike most advanced economies in the OECD continues to serve as a model economy harboring a positive budget and trade surplus. The local currency, the Singapore dollar, remains Asia’s strongest unit versus the U.S. dollar this decade.

Watch out Switzerland. Singapore’s banks are moving in!

But what impresses me most as a global investor is how Singapore is quickly emerging as THE private banking haven in Asia. Over the last decade, Singapore has built up an impressively financial services industry that challenges their rival, Hong Kong and is attracting lots of mutual fund and hedge fund business, including prime brokers and big international banks. Singapore is now Asia’s 3rd-largest financial center, after Japan and Hong Kong, and it is gaining market share.

Private banking has emerged as a leading source of revenue for Singapore. In fact, over the last five years, Singapore has matured as a leading private banking destination for international investors, drawing deposits away from kingpin Switzerland. Unlike Switzerland, where an estimated one-third of all private banking deposits are held, Singapore is not under constant political pressure from the European Union’s Financial Action Task Force (FATF), which is constantly attempting to strip away Switzerland’s tax advantages and privacy. That is luring many European and international investors to Singapore.

PRIVACY

COMPUTER TIPS AND PRIVACY

Here are some computer tips for those of us who are anti-state, anti-war, and pro-market. First off, I am not against Microsoft software, I use Windows 98. It is just that Mozilla and other programs work much better and offer more security from hacker viruses, spam, and trojans than Microsoft products.

Download Firefox. Do it NOW. Never use Internet Explorer (MS IE6 or IE7) again. I also use Opera as a back-up but it does not have the features Firefox does. It is important to never use Internet Explorer because hackers target it since it is widely used. An amazing Firefox “add-on” is the capability to spell check your typing inside a web browser page by adding this important add on: US English Dictionary. I am using it to correct my spelling as I type.

The following Firefox add-ons are critical to simplify your Internet browsing experience. ADBLOCK can clear out tons of junk off web pages. And while you are at it download the ADBLOCK filter update here. You can make ads and images on web pages disappear. “Fasterfox” is a must. It will speed up your surfing. For Windows XP, Keyscrambler is a must have. [Ed: There as some reports that this does not work properly.] “Flashblock” is perhaps the greatest add-on. It replaces flash animations with a button that you can choose to click. It cuts way down on the amount of Flash crap you have to wade through to view a site. Firefox 2.0 has a wonderful tiny URL creator, available here.

The most important thing for privacy advocates who have the bandwidth is called TrackMeNot. It protects against search data profiling by issuing randomized queries to popular search engines with fake data. I clear all my cookies and other private data when I close Firefox, but I relish the idea that I am clogging search engines with random queries such as “Light Works, been variously dated, Brand name products, Current Unlisted Number, Translate this page, statement continually executes, will forward your details, your international removal, Dutch Auctions Prove More Efficient, Blind Books ...”

For emailing, get Thunderbird. You can transfer all your email and addresses from Outlook Express. It is wonderful, although I use Yahoo! for most of my email and especially for the bulk filtering capability. Enigmail is the plug-in you will want to get for smooth encryption. If everyone used encryption, the National Security Agency would go out of business. They cannot decrypt everything. While you are at it, get disposable email address from yahoo.com for all your forms and subscriptions on the internet. Keep your real email address private. When you forward e-mails to people, it is important to use the “bcc” function on your e-mail program. Read why here.

Recall if you may that Alberto Gonzales wants all ISPs to stockpile at least 6 months worth of browsing history so that the powers that be can better find out if you have been on unpopular sites. For a simple introduction into computer privacy, first read and understand this web page. For totally private browsing, use TORPARK, available here. You can even download the program into a flash drive and use it while surfing on public computers. You get a secure and encrypted tunnel to a site you are viewing, and you will leave NO tracks behind.

For communications point-to-point, you MUST get Pretty Good Privacy (PGP) or its open source counterpart. Make certain you use a strong pass phrase. I use GnuGP, an open source encryption program that meshes with Thunderbird. Test the system a lot before you use it. PGP or GNU PGP is not intuitive. To the best of our knowledge, the NSA cannot break PGP with existing computer power.

For communications to others use chains of “Mixmaster” anonymous re–mailer (more here). Many users of anonymous re-mailers use a program called Quicksilver, an email client which makes the Mixmaster program work with your ISP’s e-mail system. Make certain you send test messages to USENET (Use a *.test group) and try sending e-mail to yourself before using it for sensitive communications. Mixmaster 3.0 is still in a development stage and not ready for routine use. For “light” anonymity purposes, try the German web-based re-mailer “Anonymouse”. Test it first to make sure you understand how it works. For example, post to a USENET test group and send email to yourself.

For safeguarding sensitive files on your PC, use a disk encryption utility such as Scramdisk. I recommend using Triple DES as the encryption cypher when you first use Scramdisk to create a container. Erase files and spare disk space using Eraser. You can set up this utility to wipe your swap file, temporary internet files, and disk free space. Windows “delete” is NOT secure, you must wipe the files with Eraser.

If you use these tips you will have a much more secure and private Internet experience. And Bush and his minions will not be able to tell either what you are doing with or where you are surfing to on your computer.

Windows’ Vista only slightly more inspiring than the one over the town dump.

Windows Vista. More than five years in the making, more than 50 million lines of code. The result? A vista slightly more inspiring than the one over the town dump. The new slogan is “The ‘Wow’ Starts Now”, and Microsoft touts new features, many filched shamelessly from the Macintosh. But as with every previous version, there is no wow here, not even in ironic quotes. Vista is at best mildly annoying and at worst makes you want to rush to Redmond, Washington and rip somebody’s liver out.

Vista is a fading theme park with a few new rides, lots of patched-up old ones and bored kids in desperate need of adult supervision running things. If I can find plenty of problems in a matter of hours, why can’t Microsoft? Most likely answer? It did – and it does not care.

Example: If malware somehow gets into your machine, Windows Firewall will not stop it from making outbound Internet connections to do its evil deeds. If you turn off that firewall in favor of a better one, the Windows Firewall control panel will admonish, “Your computer is not protected; turn on Windows Firewall.” But the Windows Security Center will correctly tell you that a firewall is on and that you should not run two at a time. Call it convistancy. Gaffes like this make you wonder if security really is improved as much as Microsoft claims.

As usual, things Microsoft was touting last time have mysteriously gone away in favor of putative new wonders. Windows XP’s heralded “task-based interface” often let you perform actions by picking them from a list. Now many of those actions have disappeared ... except where they have not. Control Panel options have been totally rejiggered yet again for no apparent reason. You can still use the Classic panel view that has been available since time immemorial, but several items have been confusingly renamed out of sheer perversity. The new desktop search features are a mess.

Windows Mail is a mild reworking of Outlook Express whose big new feature is a spam filter that in my tests flagged nonspam as spam and vice versa an unacceptable 10% of the time. The bare-bones word processor WordPad used to be able to open Microsoft Word files. No more. What possible rationale could there be for “fixing” that, except to force users to shell out for the real thing? Many touted improvements, like the Web browser and media player, have been available for XP for months. Only in Windowsland will you find howlers like a Safely Remove Hardware button for memory card readers that happen to be hardwired into your computer.

Still with us: program crashes, followed by the machine’s refusal to shut down until you lean on the power button awhile. Thereafter you may be subjected to ugly white-on-black text from CHKDSK, a DOS-era program that issues baffling new reports like “44 reparse records processed.”

Should you upgrade your current machine? Are you nuts? Upgrading is almost always a royal pain. Many older boxes are too wimpy for Vista, and a “Vista-ready” unit Microsoft upgraded for me could see my wireless network but not connect to it. My recommendation is, do not even consider updating an old machine to Vista, period. And unless you absolutely must, do not buy a new one with Vista until the inevitable Service Pack 1 (a.k.a. Festival o’ Fixes) arrives to combat horrors as yet unknown.

I suggested to one Windows product manager that if the company were truly serious about security, Vista might offer a simple way to delete files securely and eliminate all traces of identity and passwords so you could safely pass the machine on or sell it years from now. “Does any other operating system do that?,” he asked. That tells you all you need to know about Microsoft. The real slogan: “No innovation here.”

As Bill Gates winds down his roles at Microsoft, Windows Vista may be the chief software architect’s swan song. It is a shame his legacy is something so utterly unimaginative, internally discordant and woefully out of tune.

THE BRAIN SCAN THAT CAN READ PEOPLE’S INTENTIONS

A team of world-leading neuroscientists has developed a powerful technique that allows them to look deep inside a person’s brain and read their intentions before they act. The research breaks controversial new ground in scientists’ ability to probe people’s minds and eavesdrop on their thoughts, and raises serious ethical issues over how brain-reading technology may be used in the future. The team used high-resolution brain scans to identify patterns of activity before translating them into meaningful thoughts, revealing what a person planned to do in the near future. It is the first time scientists have succeeded in reading intentions in this way.

“Using the scanner, we could look around the brain for this information and read out something that from the outside there is no way you could possibly tell is in there. It is like shining a torch around, looking for writing on a wall,” said John-Dylan Haynes at the Max Planck Institute for Human Cognitive and Brain Sciences in Germany, who led the study with colleagues at University College London and Oxford University. The research builds on a series of recent studies in which brain imaging has been used to identify tell-tale activity linked to lying, violent behaviour and racial prejudice.

The latest work reveals the dramatic pace at which neuroscience is progressing, prompting the researchers to call for an urgent debate into the ethical issues surrounding future uses for the technology. If brain-reading can be refined, it could quickly be adopted to assist interrogations of criminals and terrorists, and even usher in a Minority Report era (as portrayed in the Steven Spielberg science fiction film of that name), where judgments are handed down before the law is broken on the strength of an incriminating brain scan.

Barbara Sahakian, a professor of neuro-psychology at Cambridge University, said the rapid advances in neuroscience had forced scientists in the field to set up their own neuroethics society late last year to consider the ramifications of their research. “Do we want to become a Minority Report society where we are preventing crimes that might not happen?,” she asked. “For some of these techniques, it is just a matter of time. It is just another new technology that society has to come to terms with and use for the good, but we should discuss and debate it now because what we do not want is for it to leak into use in court willy nilly without people having thought about the consequences.”

LAW

IRS REMINDS SMALL MONEY SERVICES BUSINESSES OF BANK SECRECY ACT OBLIGATIONS

The IRS reminded small businesses that provide money services, including money transfer services, check cashing, and money orders, may be accountable to reporting and record keeping requirements under the Bank Secrecy Act (BSA). The BSA, passed in 1970 to fight money laundering in the U.S., requires businesses to keep records and file reports that have a high degree of usefulness in criminal, tax, and regulatory matters. The IRS offered the following reminders on BSA requirements:

• Reporting Cash Payments Over $10,000 Received in a Trade or Business (Form 8300). The general rule is that you must file Form 8300 if your business receives more than $10,000 in cash from one buyer as a result of a single transaction or two or more related transactions.
• Reporting Foreign Bank and Financial Accounts. If you own a foreign bank account, brokerage account, mutual fund, unit trust, or other financial account, then you may be required to report the account yearly to the IRS.
• Registration of Money Services Businesses. According to the January 2006, U.S. Money Laundering Threat Assessment report, many money services businesses (MSBs) are not registering with the U.S. Department of Treasury’s Financial Crimes Enforcement Network (FinCEN) despite the fact that the law started requiring such registration in 2001.
• Suspicious Activity Reports. SARs are one of the government’s main weapons in the battle against money laundering and other financial crimes since these reports generate leads that law enforcement agencies use to initiate money laundering investigations.

UK’S LAW SOCIETY RENEWS MONEY LAUNDERING DIRECTIVE PLEA

The Law Society again suggested that draft regulations implementing the third European money laundering directive into domestic law will harm competitiveness, particularly for City firms with international client bases. The Society is urging the government to think again about key provisions of the draft regulations which will impose unnecessary burdens on solicitors.

According to the Society, of particular concern is the failure to transpose article 15 of the directive, which provides that UK firms may rely on international third parties who are subject to money laundering regulation for customer identification, even where the documents used by the third party are not exactly the same as those which would be required in the UK.

Law Society president, Fiona Woolf said, “The Government is taking an unnecessarily heavy-handed approach and putting UK firms at a disadvantage by not allowing us to rely on customer checks carried out by regulated third parties as the directive sets out. This will result in unwarranted regulation and increased costs for solicitors and their clients. The government can easily resolve this problem by transposing article 15 into the implementing regulations.” Tim Cave, partner at Freshfields, added, “We hold a real concern that the draft regulations will not enable us to ‘passport’ clients between our European offices where their document gathering requirements differ.”

U.S. PLAYERS UNABLE TO CASH OUT AS NETELLER FUNDS SEIZED IN THE U.S.

U.S.-based online gamblers are suffering delays in getting their money from Neteller plc, the Isle of Man-based online money transfer business, following news that the company has had significant sums of money seized by the U.S. Attorney’s Office. Neteller issued a statement advising that certain of its funds have been seized by the USAO.

Among its comments Neteller plc stated, “As a result of the restrictions placed by third parties, court-ordered seizures, and related legal concerns, the Group is currently unable to make payments to U.S. customers. Nevertheless, the Group is in discussions with the USAO to manage an orderly return of funds to U.S. customers. As part of these discussions, it is contemplated that the USAO will engage a forensic accounting firm, at the Group’s expense, to assist in this process and to examine the Group’s financial position.

“US customers wishing to withdraw funds from their Neteller e-wallet accounts will experience ongoing delays while these discussions continue, and a further update will be provided by the Group once effective repayment mechanisms are determined.” The Neteller statement comes while the group’s quoted shares remain suspended on the London Stock Exchange AIM market following the arrest of two of the founding ex-directors of Neteller last month on various charges of money-laundering and similar complaints.

Neteller plc also stated, “The discussions between the Group’s legal advisers and the USAO are ongoing. The Group is, under advice of its legal advisers, commencing production of documents and intends to cooperate with the USAO in its investigation. ... To the Group’s knowledge, no criminal action or proceeding has been brought against the Group, its current officers or directors by the USAO. Nevertheless, there can be no assurance that the Group will not be charged in a criminal action at some subsequent time. The Group intends to work with the USAO to seek a negotiated resolution of any allegations relating to its US activities. Any resolution of this matter may lead to potential sanctions against the Group including material financial penalties, fines and forfeitures.

IS THE FEDERAL GOVERNMENT ALLOWED TO TAX YOU?

Well, the people have the all the power, of course, but we set up a federal government and said it could have the power to collect taxes to carry out its limited duties. Where did we give it this authority? In the Constitution. You remember ... “We the people ...,” yada, yada, yada? So, who can they tax? Well, let us see what it says: “Representatives and direct Taxes shall be apportioned among the several States which may be included within this Union, according to their respective Numbers. ...” – U.S. Constitution, Article I, Section 2, Paragraph 3.

So, it can tax the states, but it has to be in proportion to the number of people in that state. Makes sense. What else does it say about how it is to do this taxing? “The Congress shall have Power to ... Lay and collect Taxes, Duties, Imposts and Excises, to pay the Debts and provide for the common Defence and general Welfare of the United States; but all Duties, Imposts and Excises shall be uniform throughout the United States;” – USC, Art. I, Section 8, Paragraphs 1 & 2. So if the federal government is to tax the states, it should tax them uniformly. What else?

“The Migration or Importation of such Persons as any of the States now existing shall think proper to admit, shall not be prohibited by the Congress prior to the Year [1808], but a tax or duty may be imposed on such Importation, not exceeding ten dollars for each Person.” – USC, Art. I, Section 9, Paragraph 1. This is a little outmoded. Before 1808, Congress could tax the states not more than ten dollars for each person it “imported” (slaves) or allowed to immigrate. Now, slaves are gone and the federal government controls immigration (or is supposed to), so forget about this one. It is good to note, though, that every time taxes have come up, it has been about the Fed’s power to tax the states – nobody else.

“No capitation, or other direct, Tax shall be laid, unless in Proportion to the Census or Enumeration herein before directed to be taken.” – USC, Art. I, Section 9, Paragraph 3. I guess they put this in here to make sure it was understood that, regardless of the tax on the immigrants mentioned before, nothing had changed. Congress still had to take the census to see how many people were in the state before it taxed them. They are still taxing the state and no one else.

So what or who else did we, the people, authorize the Fed’s to tax? Well, there is nothing else until we get to the famous Sixteenth Amendment: “The Congress shall have power to lay and collect taxes on incomes, from whatever source derived, without apportionment among the several States, and without regard to any census or enumeration.” – USC, Amendment 16. This one is talking about the states, too. It just does two things, though. First, it makes clear that wherever the state gets its income – from taxes, imposts, duties, fees, or wherever it gets it – Congress may still tax that state on that income. Second, it says that it can now tax that state at any rate Congress wants, regardless of how big the state is. It no longer has to give any regard to a census for tax purposes. The cencus is just to allot the state’s number of representatives in Congress.

This is contrary to the idea that big, rich states ought to pay more. But the point at hand is that this amendment does not give Congress any power to tax anyone else. It is still talking, like it has before, about their authority to tax the states. There is no other way to read it. Certainly, the terms “apportionment”, “census” and “enumeration” have no reference to an individual citizen. I mean how else do you count an individual except “one?” Obviously a census or enumeration is of a group of people. What is the group? Obviously, the same group it has been talking about in every other reference to Congressional taxation authority. The state. It even says it specifically – “... among the several States. ...”

Well, that is all the Constitution basically says about Congress’s authority to tax. I still do not see where it says anything at all about their having power to tax the individual citizens of a state or their businesses. They evidently left that up to the states and they made that clear in the Tenth Amendment: “The powers not delegated to the United States by the Constitution, nor prohibited by it to the States, are reserved to the States respectively, or to the people.”

So can the U.S. Congress tax you? Well, they sure can, but do they have the legal authority? No. That is left up to the state. The federal government taxes them. The state has to get the money somewhere to pay the Feds and provide services for us. I guess they could get it from the county and the county could get it from the cities and towns, but where would the cities and towns get it? Now we get down to you and me – no government left. We are the ones who produce the goods and services that make money, not government.

So, how come everyone says the U.S. Congress is allowed to bypass all those levels of government, including the elected representatives of a sovereign state, and reach right down into our pocketbook? You sure got to be some kinda expert to make the Constitution say that!

OPINION & ANALYSIS

HOW THE BABY BOOMERS ALMOST SAVED THE WORLD ... AND WHY THEY FAILED

In the 1960s, the first half of the Baby Boom generation began to emerge from childhood into – well, teenhood. Already liberated (or corrupted, depending on who you asked) by Elvis and Little Richard, this tsunami of youthful rebellion continued on the road to heaven (or hell), which was apparently paved with massage oil, bricks of hashish, and 45-rpm records – the fabled “sex, drugs, and rock ‘n roll.” Long hair, peace, and love were in. Racism, being uptight, and waging war were out. Naturally, our parents were horrified. Not everyone fit these stereotypes, but enough did that one might speak of the tenor of the times.

Instead of Burning Man, Boomers had Woodstock and the Summer of Love. Instead of rap and video games, Boomers grooved to Stevie Wonder (and a thousand other artists who were focused, as much as anything, on love and peace) and staged massive anti-war protests. “Do your own thing” was the generation’s affirmation of personal freedom and rejection of all forms of repression. “Do whatever you want as long as you aren’t hurting anyone else” was another oft-heard sentiment.

Boomers took the “not hurting others” part seriously and rejected the racist and sexist attitudes of their elders, supporting integration, civil rights, and gender equality – despite sometimes violent opposition. As the Vietnam War raged, Boomers not only embraced peace and compassion, but put real energy into anti-war demonstrations and marches, and in political opposition to President Johnson and other war-mongering Democrats. Boomers supported Eugene McCarthy and even Richard Nixon, who was not much in harmony with Boomer ideals but said he had a “plan” to end the war, although he, uh, could not tell us what it was. Best of all, many Boomers supported Nobody. The Nobody for President movement, begun in 1975, brought the voting choice “none of the above” into the limelight, along with the subversive idea that we might actually be better off without anyone ruling us.

It was easy to see a more free, peaceful, and compassionate world emerging as this Baby Boom generation moved into the future. The Boomers’ personal respect for the choices of others seemed to ensure that freedom would blossom as the younger generation gradually became the adult majority. Boomers’ willingness to visibly and energetically oppose war and other evil made a warmer, more humane future believable. The sense of connection with others shown by many Boomers reinforced that sense of being on the verge of a better, healthier world. Surely, the repression, conformity, racism, and war-mongering of previous generations were about to give way to a more open, free, compassionate, and peaceful world.

So what happened? I believe the answer is surprisingly simple. With tragic consequences, Boomers failed to embrace non-coercion, at least where government was concerned – and that one mistake sabotaged everything positive the Boomers stood for, including peace, love, and freedom. Failing to reject coercion eventually even corrupted the Boomer’s positive stance on sexuality. When a 17-year-old can be sentenced to 10 years in prison because his 15-year-old girlfriend initiated oral sex, you know that the use of government coercion to “protect” us has gotten so far out of hand as to almost defy description. And this is only one example of how “compassion” becomes “tyranny” when enforced by government power.

Compassion is not something you “enforce”. Compassion does not long survive coercion, and attempts to provide compassion via coerced taxation reminds of the ‘60s anti-war saying that “killing for peace is like f*cking for virginity.” One does not make progress towards a goal by using methods that undermine or destroy the goal.

Compassion is a natural and voluntary emotion that, in a healthy person, leads to appropriate action within the context of his or her own life. Compassion and coercion are diametrically opposed. Whenever coercive government begins doing something for alleged reasons of compassion, you know a disaster is in the making.

By supporting government power (“But only good government power, man!”) the Boomers of all stripes played into the hands of Power itself. The power elite adapted instinctively, dancing around the issues like Cassius Clay danced around opponents in the ring, shifting from the Red Menace to the War on Drugs to the War on Terror; moving from the Great Society to Compassionate Conservatism. “You want GOOD power? You want a warm, cuddly, mommy-daddy government that will make everything OK? You GOT it, boys and girls! We feel your pain! We promise to solve every problem, to leave no child behind, and to make all the bad people be nice. So on election day, be sure to vote!”

The Clinton presidency finally brought a Boomer to the White House. Yet pot smokers continued to be arrested and imprisoned by the hundreds of thousands, and every other evil of America’s coercive power machine also continued without a hitch. The Bush II presidency which followed gave us another Boomer. In comparison, the Eisenhower years of the 1950s really were a golden age. To say it plainly: Boomers, as a group, failed to understand that love and freedom require each other. Like millions before and since, Boomers were seduced by the idea that compassion can be imposed at gunpoint by the State – not that this scam is ever described so directly by proponents.

Emphasizing love at the expense of freedom leads to horrors, because freedom is a necessary part of love. Even seemingly minor reductions in freedom begin the process of corrupting love, because love and coercion are polar opposites. More of one always means less of the other. For that reason, it is equally true that freedom without love also leads to horrors. A free society absolutely requires a sense of connection with others (love) to function. A million people who do not give a bleep about each other will never create a healthy, functional free society, no matter how many of them have read Ayn Rand.

A TURNCOAT NARC OFFERS TIPS ON HOW TO MOVE YOUR WEED

He looks like a good cop. He has got the mustache, the short-cropped hair, the pushed-out chest and the shiny badge. He sounds like a good cop too. He has got a TV reporter’s microphone in his face and a brick of marijuana in his hand, and he is answering questions – not in the “I just accidentally Tasered an old lady” kind of way, but with a grin of accomplishment. The total bust was in the neighborhood of 275 pounds. This is the old Barry Cooper. He claims more than 300 felony drug arrests during his eight years as an officer in Gladewater, Big Sandy and Odessa (Texas), and a former supervisor says he was damn good at his job, even if he does not agree with Cooper’s latest get-rich idea.

The video cuts to a decade later, a few months ago. “That was me, Barry Cooper,” he says, “top narcotics officer.” His hair is longer. That mustache is now a full-on goatee. The top cop has become a dude. “I’m going to show you places that I never found marijuana hidden.” He talks with his hands, like a mellowed-out P.T. Barnum. “I’m going to teach you exactly how narcotic-detector dogs are trained, and I’m going to answer that age-old question: Do coffee grounds really work?”

It is quite the pitch. Former drug warrior sees the light, goes to the dark side and makes a video, Never Get Busted Again, with tips on how to fool the fuzz. Stoners rejoice. The new beginning of the end of prohibition is near. “The drug war is a failed policy, and the legal side effects on the families are worse than the drugs,” Cooper says. “I was so wrong in the things I did back then. I ruined lives.”

Cooper now sees himself as the new face of marijuana reform, and he just might be right. He has got the credentials ... the charisma ... the shiny new DVD. Sure, his former colleagues do not approve, but that is to be expected. What is surprising is that Cooper has also managed to piss off some of the old guard, the hippies-turned-reformers who have been knocking on the back door for years, chipping away at the legal system with talk of medical marijuana and overcrowded prisons. He is a Johnny-come-lately, they say, an ex-narc looking to make a fast buck. He claims he does not understand why they are against him, but he is confident he will eventually lead the flock.