Wealth International, Limited

Offshore News Digest for Week of February 19, 2007

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

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



0nce a hard copy publication about lifestyles and real estate in the Caribbean, Caribbean Property Magazine is undergoing a rebirth as a monthly online ezine. It is about living, working and investing in the Caribbean region. The ups and downs; the good and bad. Every article is written by someone actually living the dream. Each contributor has made the break and is here ... bathed in the Caribbean sunshine, enjoying the beaches and the rainforests, making it work amongst the many different cultures, languages and island nations which populate and surround the Caribbean Sea. How did they do it? Read each month and find out. Each month we will focus on a particular country. This month we look closely at Dominica.

An unexpected welcome to the first organic country in the world.

Expectations can be painful, and really need to be handled with care. But occasionally, surprisingly, they are met and then some! Having finally moved to the Commonwealth of Dominica after two years of digging ourselves out from the British Virgin Islands, where we had lived for 18, Dominica is so much more than we ever expected. The intense heat of the hurricane months in the BVI does not seem to reach Dominica. In the cool mountains of Dominica we wear track suits in the evenings and early mornings all summer, and yet are still only a 10 minute drive from an empty Caribbean bay and a cool refreshing swim.

And I mean empty! The numbers of cruise ship visitors touring the island is insignificant compared to the infrastructural meltdown that takes place in the BVI during the daily cruise ship visits. In a world where governments run expensive marketing campaigns to teach us how to conserve our fast depleting energy reserves, Dominicans are naturally way ahead of us. You rarely see one person in a car. If you are driving somewhere, you pick up as many people as you possibly can. Importation duty on cars runs as high as 140%, and consequently there are very few cars on the road.

Women do not use the pumps and taps inside their homes for their clothes washing, they take their laundry to the fast flowing rivers, and make it a social gathering. Outside of Roseau (the principal town) there is little fresh food in the village stores. They are simply meeting places for the local community with a few rusting tins of vienna sausage. Food ripens on the trees and on the ground everywhere you go. Households sell their surplus on the roadside. You pick it, or buy it when you need it and put it in the pot. No chemicals, no packaging, no storage, no waste. Once a week we go down to town. It is hot and noisy and full of exhaust fumes, just as we expected. Our errands get crossed off the list as fast as possible so that we can return to the cool green mountains. And as we scurry out of the bank mid-morning we hear the sound of a conch shell blowing – the universal call in Dominica from a fisherman with a fresh catch. In half an hour the fisherman has sold his entire catch.

Dominica has recently outlined a plan to be the first completely organic country in the world. Part of our decision to move here was to be able, for the first time, to eat freshly grown, organic food. Our expectations have been more than met. We did not expect a lifestyle that made so much sense in a world gripped by the dawning understanding that we are running our planet dry.

Link here.
Education and schooling in Dominica – link.
Health and medical care in Dominica – link.
Cultural pleasures of Dominica – link.


LandAmerica Financial Group a leading provider of real estate transaction services, announced the opening of LandAmerica Commonwealth Title of Central America. LandAmerica Commonwealth Title of Central America is headquartered in Liberia, Guanacaste, Costa Rica. It offers title, escrow, and other real estate transaction services to buyers, sellers, developers, and lenders throughout Costa Rica, Panama, Nicaragua, Honduras, Guatemala, Belize, and El Salvador.

“Central America is quickly becoming the first choice for retired North Americans looking for warm weather and real estate value,” said Karla Amador, Manager of the new company. “We provide our residential and commercial customers in Central America with the same level of superior service that they are used to receiving in the U.S.” Amador reports that North American buyers, sellers, developers, and lenders appreciate having their real estate transactions in the region handled by a company with LandAmerica’s reputation for attention to detail and financial strength.

Link here.


This attractive country has been transformed from an American “colony” into a major Latin American nation over the last 30 years. Panama is now a world class tax and asset haven, sitting in the midst of a major economic expansion and construction boom unparalleled anywhere in Central or South America. The Latin Business Chronicle reports that the IMF has predicted that “... Panama is set to grow more than any other country in Latin America.”

Panama also registers high on the freedom scale. On the Heritage Foundation/Wall Street Journal 2006 Annual Freedom Index, Panama receives high scores for business and fiscal freedom, freedom from government interference, and on financial, investment and monetary freedom. Commercial operations are generally subject to clear rules. Personal and corporate income tax rates are moderate for locals. Foreigners generally pay zero income tax. Government expenditures are also fairly low, and the country experiences only a marginal amount of inflation. The law welcomes foreign capital and imposes only minor restrictions on investments. Panama has used the U.S. dollar as its currency since 1904.

During my visit to Panama the big question on many folks’ minds was whether this nation’s continuing economic boom, especially, its real estate sector, may be a “bubble” about to burst. I think there may be some cooling of that boom, especially in Panama City condo sales and prices. The bargains are getting harder to find as some local prices approach those in South Florida. But you can still find deals at a quarter or a third less than comparable U.S. ocean front and ocean view prices. Numerous, multi-story condos are going up everywhere in Panama City. The Pacific and the Canal waterfront is beginning to look like a miniature version of the Shanghai building boom. Construction cranes are everywhere. Donald Trump’s announcement of his planned Trump Towers in Panama City (shaped as a giant ship’s sail) has only turned up the heat, as well as condo sale prices.

Some local observers argue that Panama’s road and utility infrastructure (especially in the Panama City area, home to 1.5 million people) is inadequate to meet the thousands of condo units under construction. The government has just announced a multi-million dollar road building program to meet such concerns. Five years ago there were no major mega-malls in the city. Now there are three that can compare with almost any U.S. mall.

On recent trips here I received very good health care service, with a doctor’s fee and the prescription costing half what it would in the U.S. As to pollution, the waters around the city look as clean as they ever have – which is not all that great, but hardly worse than what can be found in some parts of the U.S. My one complaint is that the monopoly Bell South cell phone service is less than adequate.

Major international companies, retirees from across the globe, expatriates looking for second homes, and real estate investors have long since discovered the advantages and lower costs of Panama – and they are still coming. The planned expansion of the Panama Canal should continue to drive expansion. Assuming sound financing can be obtained (China, Japan and the U.S. are all interested in contributing the $6 to $10 billion needed), eventually the Canal expansion could mean tens of thousand of new jobs in a nation the size of South Carolina with only 3 million inhabitants.

Link here.


Waking up in the tropics is a pleasure. At 5 a.m., we open up the double doors to our bedroom and look out at the sea. Already, the sky is lightening. A soft, pink hue surrounds the hills to the east. The beach is still in shadow. The sea remains a dark gray. All we really see are the lines of white foam made by the waves crashing on the shore and advancing up onto the beach. We imagined ourselves watching an attack of foot soldiers from a lookout post, like Robert E. Lee watching the attack on Cemetery Ridge. The white line moved ahead in a jagged formation, some troops making more progress against the enemy than others ... but all of them are then driven back as the beach counterattacks and the wave recedes.

Below the crest of the hill and above the line of furthest advance of the white foam is not the quaint village of Gettysburg, but a group of condominiums built in the last couple of years. Walking past in the evening, we found the condos full of norteamericanos – soft, white people sitting on their soft, white plastic chairs enjoying the last soft light of day. These people seemed to be having a good time. The area must be a paradise to them, as it is to us. The beach is empty. The sun is warm. The beer is cold. What more could they ask for? The most remarkable thing is that they are here at all. This life is now affordable even to a mid-level manager at the Gap or even a union factory worker in Milwaukee. They can live in a way that used to be reserved for the rich.

You may be wondering where this is headed. Since we are on vacation, we do not feel the need to have a particular destination. But as we looked out our door this morning, we had an insight. A trivial one, but still one worth passing on. In the 1920s, the tycoons and stock jobbers took the train from New York all the way to Palm Beach, where they built their mansions and enjoyed their repose. They were followed by the well-to-do middle classes. And then the not-so-well-to-do lower middle classes. The Venetian-style great houses on Palm Beach were followed by the bungalows two blocks back, and then by the trailers in Central Florida. But all of them found a new way of life in the Sunshine State, a life of leisure and luxury and warmth ... a life that they never could have had in the North.

The whole phenomenon was new. It was only in the 20th Century that the idea of leisure came into being in a major way. Before that, everyone expected to work from childhood until the end of his days. Then, thanks to the internal combustion engine, assembly lines and electricity, fairly large numbers of people accumulated enough capital so they could live without working at all. And then, later, after the imposition of the Social Security system in the 1930s, everyone came to believe that he deserved a period of rest and “retirement” after the age of 65. Of course, relatively few people reached 65 back then.

Now the dream is ubiquitous. Everyone takes for granted that he can have “vacations” during his working years, and that when his work is finished he can enjoy many more years of retirement – preferably in a warm place. In Europe, this dream is even more elaborate than in America. And among government workers, in both places, it is more extravagant than in the private sector. A government employee in France can count on six weeks of vacation each year and, depending on his particular work career, he may retire as early as 55 or even 50. Thereafter, he lives entirely at the expense of the rest of the society.

Americans are more niggardly with their vacations, and more long suffering about their work. The typical American worker earns more take home pay, but he has to work a lot more hours to get it. And when he has finally has earned his reward – he is likely to head for the sun. Until recently, he aimed for Florida or Arizona. Now, he is more adventuresome. He may get out the map and find Mexico, Puerto Rico ... or even Nicaragua. Coming in large numbers, they are changing the places they come to.

“How do we know when we actually make things better?” I asked my wife. It was a leading question. We already had our answer. But conversation and cross-examination often work better when questions are put to the witness. “I guess you just have to look at the results,” was the answer. It was not the answer we were looking for. “You have no choice but to apply your own standards…your own aesthetic and moral sense. What else is there?”

“Well, that is just the problem ... I was thinking about what we have done here. We came here to Nicaragua before anyone else. Now, there are roads, houses, condos ... the local people have work. Money is coming in. And the gringos seem to be having a good time. But suppose we had decided that what we wanted was simply to buy up land on the coast and keep it for ourselves. We could have had a big house and employed guards to keep others out. That might have been “better” from our point of view. But would it have been better for others? Would it have been better for the world?”

“I don’t know, but I think it might. This was such a lovely place when it was virgin tropical woodlands. It is not necessarily better because it has condos on the beach. And this idea of “better” is a rather loaded term, don’t you think? It depends on what you mean by it. Better for whom? Better how?”

“Well, of course, it is freighted with all our prejudices, tastes, and desires. Suppose we had done nothing. It would have been better for the people who like virgin tropical woodlands. But we, and the local fishermen, would have been the only ones to appreciate them. ...

“What I am getting at is that the only way to tell if you have really made things better or not is by following the money. If you had made more money building green houses than pink houses, it would have told you that more people liked green then pink. And the only measure of what is good – or what makes things better – is what people are willing to pay for, isn’t it? If you disagree with that, are you not merely substituting your judgment for the judgment of others? That is what communists, neoconservatives and central planners do. If they decide that the world would be a better place if everyone lived in pink houses, they force everyone to live in a pink house – whether they want to or not. When you take away the freedom of choice, and the free movement of prices, you no longer know what people really want ... and so you don’t know how to make things better.”

“Surely, not everything is reducible to money,” Elizabeth replied. “Paris Hilton might make a fortune producing a sex video. Is that really making the world a better place? You can pander to people’s weaknesses ... to their flaws and foibles. You can make money, but it does not necessarily make the world a better place, does it? I guess I would say that the world is always a worse place when you force people to live in pink houses when they do not want to. But it is not necessarily a better place when you sell them pink houses either.”

“Yes, that is it, isn’t it? You can try to make the world a better place by holding a gun to people’s heads. Or by stealing their money. Or killing them. But it rarely goes well. Because if they are not free to express their own private wishes – even if they are depraved or tacky – you have no way of knowing whether you are really doing good or not. People express what they want, and what they regard as making their lives better, by how they spend their money. If you over-ride them, by forcing them to do things they would not otherwise do, you are bound to make a mess of things. Of course, even if you proceed without violence, you can still make a mess of things. But that is just life. You do your best. Sometimes you succeed and sometimes you don’t.”

We both looked out the door again. There, on the Pacific Coast of Nicaragua ... a country that was once a banana republic ... then an experiment in mass delusion... and lately, a tourist destination, where plumbers and dentists from North America are enjoying a few days in the sun. They have the ocean in front of them, air-conditioning behind them, and ice-cold drinks inside of them. They bought their condos and their vacations of their own free will. And now, with the sun peaking over the hills, they rise and stretch, and look out their own doors too. And who can doubt that it is a better world?

Link here (scroll down to piece by Bill Bonner).


Not only has the Cayman Islands continued to maintain its leadership position in international financial services and national economic performance, but it is also moving ahead of competitors, the government has claimed, pointing to a new credit rating report. Moody’s has raised Cayman’s ceiling – the highest rating obtainable for an issuer of long-term foreign currency-dominated bonds – for foreign currency bonds and notes from Aa3 or high grade, to Aaa or exceptional – which means that it is now alongside the U.K., U.S., Canada and Bermuda. This resulted from a change in the rating methodology last year which included raising the foreign currency country ceilings of approximately 70 countries. Of these countries, the Cayman Islands is among only three countries which had their ceilings upgraded to Aaa.

Moody’s advises that an Aaa country ceiling for foreign currency bonds and notes could be interpreted as “having the best and/or exceptional quality with the smallest of investment risk.” This ceiling is based on the agency’s assessment of a very low risk of a payments moratorium in the event of a government bond default. “In other words, Moody’s expects a very low risk that the government will impose a limit on the foreign currency debt payments of the borrowing entity,” Financial Secretary Kenneth Jefferson explained. The Cayman foreign currency ceiling for short-term debt of P-1, in place since 1997, was already at the highest ratings category for short-term debt. Both ceilings imply a superior ability for repayment, leading market positions in well-established industries (e.g., offshore financial services), high rates of return, conservative capital structure, and well-established access to a range of financial markets.

Leader of Government Business, Kurt Tibbetts commented, “The Government fosters a stable political environment and practices fiscal prudence – and will continue to do so. Both of these factors have a positive impact on the Islands’ ratings.” Moody’s has listed a number of positive macroeconomic and political factors that contributed to Cayman’s current ratings, including:

Link here.


Macroeconomic conditions were generally good in the CDB’s borrowing member countries in 2006, as a high level of external and domestic demand continued to drive expansion in the region, the bank announced. According to the CDB, the main contributions to economic growth across the region came from tourism and construction activity, although growth in business services and in agricultural output was important in a few countries. In Trinidad & Tobago, petroleum-related activities were the main, but not sole, drivers.

The contribution from tourism came despite moderate rates of expansion in the number of long-stay arrivals and a decline in the number of cruise visitors, and reflected increases in visitor expenditure. Construction sector activity was driven by reconstruction from past hurricane damage, investor expectations of continuing growth in tourism, high domestic demand from prospective home-owners, from the business sector deemed to have a favorable medium-term outlook by and active marketed to by financial institutions, and by high levels of public sector investment. The increase in spending by the public sector in some countries was partly driven by the need to improve facilities and infrastructure in anticipation of the cricket World Cup competition early in 2007, the bank explained.

This performance, however, took place within the context of generally higher prices owing to elevated oil prices, and in some countries, supply disruptions in the provision of agricultural commodities, and higher tariff levels.

Link here.


Monaco the most expensive, followed by London. Berlin a relative bargain.

Monaco has overtaken London as the most expensive location to buy flats and apartments in Europe, according to the Global Property Guide. Figures from the guide reveal that apartment space in the Principality now sells for €24,900 per square meter, or just under €3 million per 120 square meters. Monaco’s prices are being driven higher as growing demand from a flock of foreigners, particularly from the U.K., seeking out its unique benefits as one of lowest of the low-tax jurisdictions in the world, while being only a couple of hours flying time from London. Add in the constraints of Monaco’s size at not much more than 1 square kilometer, or 485 acres, and the rise in property prices is hardly surprising.

According to travel guide yourmonaco.com some Monaco property buyers are already paying nearly $1 million for studio apartments. The travel guide also predicted that prices would continue to rise over the next few years. It cited one survey which predicted a 4-fold increase in the ranks of British millionaires over the coming years.

Ever since Monaco lost about half its territory to France in return for independence 150 years ago, it has sought ways in which to expand its territory – typically a few square meters at a time on land reclaimed from the sea. But Monaco recently announced a new 10-year multi-million euro plan to increase its territory by about 5% with the construction of a new floating “offshore” district off the coast of Monte Carlo. The project is expected to increase the 32,000 population by about 4,000, but is unlikely to rein in the principality’s run-away real estate prices.

Closely following Monaco in the Global Property Guide’s ranking is London. Flats and apartments in prime locations in London are now costing €14,522 per square metre, or almost €1.75 million per 120 square meters. This is about double the amount you would expect to pay in more non-exclusive areas of the capital, where flats typically sell for €7,200 per square meter. According to the Global Property Guide, the large difference is explained by London’s highly segmented top-end market, with super-luxury apartments in absolutely prime areas commanding considerable premiums. Nonetheless, flats in London’s less exclusive neighbourhoods are still the 3rd most expensive in Europe.

Paris and Amsterdam follow London (€6,667 per square meter). Rounding out the top ten were Vaduz (Liechtenstein), Moscow, Rome, Zurich, Oslo, and Dublin (apx. €5000 per square meter). The Guide also noted that the Baltic states have accelerated quickly up the price ladder and can now be considered expensive. A high-end apartment in central Vilnius, Lithuania will cost on average around €3,792 per square meter and high-end apartments in central Riga, Latvia, cost an average of €3,020 per square meter.

There are still some relative bargains to be had, the Guide informs, with Berlin a notable example. Apartments there can be had for about €3,167 per square meter (€380,000 per 120 square meters) and the city is said to be seeing large inflows of foreign money into its property sector. However, the guide points out that parts of Central and Eastern Europe are much less inexpensive, such as Warsaw (€1,175 per sqare meter).

In terms of rental yields the Global Property Guide reports wide differences throughout the continent. Chisinau, Moldova offers the best yields in the survey, at 14.13%, while Monaco offers the least attractive yields at 2.43%. Most of the higher yields are to be found in the east, such as Warsaw at 13.28%, Sofia, Bulgaria at 10.56%, and Bratislava, Slovakia at 10.06%. The higher risks are seen as the driving the higher yields. Some Western European cities also have good rental yields: Amsterdam and Paris (8.25% in both), Munich (7.80%) and Brussels (7.53%), but the Guide warns that these can all be classified as “high tax” countries. The guide cautions that rents failing to keep pace with prices is “a cause for concern” and considers yields falling below 4% to be a “danger signal”.

Link here.


Satellite radio rivals XM and Sirius agreed to a $13 billion dollar merger that is likely to face tough opposition from antitrust regulators and could be disruptive to millions of subscribers who may have to buy new radios and accept fewer listening options. Capping months of speculation, Sirius Satellite Radio said it plans to buy its bigger and only competitor, XM Satellite Radio Holdings in a stock deal. The new company would have annual revenue of about $1.5 billion and about 14 million subscribers.

Combining the two companies would create a monopoly overnight. “There’s a choice now of satellite radio services, and there will not be a choice after the merger,” said Josh Bernoff, principal analyst at Forrester Research. Industry and legal analysts said the deal will have a tough time winning approval from the Federal Communications Commission and antitrust regulators at the U.S. Department of Justice. “I would predict a stony path for this merger, both at the FCC and the Justice Department,” said Antitrust lawyer Steve Axinn, senior partner at a New York firm. “I would not predict this merger going through.”

Both companies have experienced sizable subscriber growth over the past year, partly due to their success in attracting exclusive high-profile programming deals. Sirius saw its subscriber total rise 80% after it signed an exclusive $500 million contract with notorious terrestrial radio “shock jock” Howard Stern. XM countered by doing a deal with TV talk show host Oprah Winfrey. Still, both companies have consistently lost money, both reported slowing subscription growth during Q4 2006, and shares of both have slumped over the past year.

Links here and here.



Congress is on the verge of passing a law that would impose the first-ever “exit tax” on expatriates (former U.S. citizens or long-term residents). Like many outrageous laws, this ridiculous bill is cleverly hidden within another Act. In this case, it is buried in the “Small Business and Work Opportunity Act”, which includes an increase in the minimum wage along with tax breaks for small businesses. That means once this bill emerges from the conference committee, and both houses of Congress approve the bill, it would be political hari-kari for President Bush not to sign it.

Right now, this bill is stuck in a conference committee in Congress. If it passes, it could include a little-known provision, which demands that expatriates pay a tax on all unrealized gains of their worldwide estate. The gains will be assessed based on the fair market value of the expatriate’s assets and the tax due within 90 days of expatriation. This exit tax would apply to assets held in retirement plans and trusts, both domestic and foreign. The only thing it would not apply to is U.S. real estate investments, which remain subject to U.S. tax under existing law.

Presumably, the phantom gain would be taxed as ordinary income (at rates as high as 35%) or capital gains (at either a 15% or 25% rate), as provided under current law. When the assets are actually sold, no further U.S. tax will be due (although the gain might be taxed again by the country in which the expatriate resides). The section of the bill that applies to retirement plans is particularly onerous. First, these gains are not eligible for the more favorable 15% long-term capital gains rate. Also, expatriates who must withdraw assets from retirement plan to pay this tax, and are under 59 1/2 years old, will be hit with a 10% penalty tax on top of the exit tax. And finally, when distributions are actually made, the country where the expat resides could tax those distributions a second time. Talk about legislative overkill!

In all cases, the first $600,000 of gains will excluded from the exit tax ($1.2 million in the case of married individuals filing a joint return, both of whom relinquish citizenship or terminate long-term residence). That exclusion will increase each year as the cost of living adjusts.

The uproar over expatriation would not even exist if U.S. citizens, unlike citizens of almost every other country in the world, were taxed on the basis of their residence, rather than their citizenship. Individuals living in the U.K., Japan, Australia, or almost every other country merely need to leave those countries and become non-resident for an extended period to stop paying taxes in their home country. But not the U.S. Since the publication of a 1994 article in Forbes describing how a handful of billionaires had given up their U.S. citizenship to escape the clutches of the IRS, the image of former U.S. citizens living tax-free in some tropical paradise has been an irresistible populist target. Former Congressman Martin Frost, a Texas Democrat, supported an exit tax on the basis of “basic patriotism and basic fairness.”

The tax will affect many more than just a handful of wealthy Americans who become tax exiles by giving up their U.S citizenship. It will also affect hundreds of thousands of wealthy long-term green card holders who are not U.S. citizens. If anything, it is likely that this new exit tax will inspire these wealthy non-citizen residents to leave the U.S., if they have not already lived here for eight years. Not to mention, it will discourage successful foreigners from taking up residence in the U.S. in the first place.

For those affected by the exit tax, a great practical problem to consider is how to come up with the cash to pay the tax without selling the underlying assets. For illiquid, highly appreciated assets, such as a closely held business, it may be impossible to come up with the necessary cash to pay the tax. For such situations, there are provisions in the law to permit deferral of the exit tax, but they come with a stiff price. For those who might be tempted not to comply, the law states that anyone who does not comply with the new U.S. Tax Code will be denied entry to the U.S.

By enacting an exit tax, the United States would join the ranks of Nazi Germany and the former Soviet Union, which confiscated part (and sometimes all) of the assets of wealthy emigrants. Apartheid South Africa imposed a similar levy on emigrating whites. And for what? The exit tax is estimated to raise only $250 million over the next five years. Of course, these estimates do not include the losses in revenue from highly talented individuals who may not ever establish U.S. residence or citizenship because they want to avoid such harsh tax consequences.

U.S. courts could declare the exit tax unconstitutional. The right to expatriate is fundamental in American law. Indeed, the Declaration of Independence cited it as a “law of nature.” The U.S. Constitution guarantees the right to end U.S. citizenship, to live and travel abroad freely, and to acquire citizenship from other nations. All of these rights have been affirmed by the U.S. Supreme Court. Will America’s highest court have the courage to defend what populists scornfully refer to as the “billionaire’s loophole?” I am not holding my breath – and neither should you.

Link here.


Bipartisan legislation has been reintroduced into Congress that aims to close the supposed $17 billion capital gains tax gap by making the tax code simpler, but placing more reporting requirements on brokers and mutual funds. The Simplification Through Additional Reporting Tax (START) Act, first introduced in March 2006, is being sponsored by Senators Evan Bayh (D-Indiana) and three other Senators.

The legislation will require brokerage houses and mutual fund companies to track and report to taxpayers and the IRS investment information related to capital gains taxes. The lawmakers say that this will make it easier for taxpayers to file their tax returns and help the IRS tackle those who intentionally under-report capital gains, as well as taxpayers who make innocent mistakes on their tax returns. American employers submit wage information reports – W-2 forms – to the IRS. No comparable reporting occurs with stocks and capital gains income.

The most common error, deliberate or otherwise, is misstating the original purchase price. The new legislation would take the reporting out of the taxpayers’ hands and require brokers to track the purchase price and report the adjusted-cost basis to the IRS. In 2005, 32 million tax filers reported a capital gain or loss. The lawmakers are forecasting that the legislation would bring in $7 billion in tax revenues over 10 years. “No business would succeed if it failed to collect $17 billion in sales every year, and the United States government can’t afford to operate that way either,” Bayh observed.

Link here.


But it is easy to request the default refund amount offered.

Search warrants were issued in seven cities around the country last week by special agents from the IRS which is seeking evidence from tax-preparation businesses suspected of preparing returns on behalf of clients requesting egregious amounts, under this year’s special telephone excise tax refund. “We want everyone who is eligible for the telephone tax refund to claim it but not to inflate the amount requested,” explained IRS Commissioner Mark W. Everson. “We have seen limited but serious instances of abuse, and we’ve sent in criminal investigators to pursue the matter accordingly.”

Along with the IRS enforcement action, other tax preparers across the nation who are preparing questionable telephone tax refund requests are receiving visits from IRS revenue agents (auditors) and special agents. The agency began conducting the visits last week. The IRS advised taxpayers to stay away from unscrupulous promoters and tax preparers who make false claims about the telephone tax refund and suggest that many, if not most, phone customers can get hundreds of dollars or more back under this program. At the same time, the IRS has urged taxpayers now filling out their 2006 returns not to overlook the telephone tax refund. Out of early filers, nearly one in three are failing to request this special refund, and although some of them may not be eligible, others may qualify and not know it.

The government stopped collecting the long-distance excise tax last August after several federal court decisions held that the tax does not apply to long-distance service as it is billed today. Officials also authorized a one-time refund of the federal excise tax paid on service billed during the previous 41 months, from the beginning of March 2003 to the end of July 2006. The tax continues to apply to local-only phone service.

Some tax-return preparers are requesting thousands of dollars of refunds for their clients in instances where clients are entitled to only a tiny fraction of that amount. In some cases, taxpayers requested a refund in the thousands of dollars, suggesting that the taxpayer paid more for telephone service than they received in income. In several instances, taxpayers requested a refund of $30,000 – hundreds of times of what could be reasonably expected. Some refund requests appear to be for the entire amount of the taxpayer’s phone bill, rather than just the 3% long-distance tax. Taxpayers who request more of a refund than they are entitled to receive will have their refunds held and be subject to an audit.

To make the refund easier to figure out, the government established a standard refund amount, based on personal exemptions, ranging from $30 to $60. If taxpayers have phone bills and other records, they can request the actual amount of excise tax paid. Though using the standard amount is optional, it is easy to figure and approximates the eligible amount for most individual taxpayers. Taxpayers only have to fill out one line on their return, and they do not need to present proof to the IRS.

Link here.


Government rejects equalizing rates with domestics.

The Indian government is set to continue the concessional long-term capital gains tax regime for FIIs investing in private placements in unlisted securities. FIIs pay a 10% long-term capital gains tax on profits from the sale of unlisted securities. Short-term capital gains are taxed at 30%. These shares are not traded on the stock exchange and hence do not attract the securities transaction tax (STT). Domestic investors, on the other hand, pay a 20% long-term capital gains tax on profits from sale of unlisted securities.

The finance ministry is in favor of retaining the concessional tax rate on long-term capital gains from the sale of unlisted securities in order to lend certainty to the tax treatment of foreign institutional investors. According to official sources, the ministry has rejected the recommendation made by the task force on non-resident taxation (2003) to usher in equality in the tax treatment between residents and non-residents.

Currently, FIIs and domestic investors who invest listed securities have to pay STT. If these investors offload the shares before one year, they have to pay a 10% short-term capital gains tax. If the shares are sold after one year of acquisition, they are exempt from paying long-term capital gains tax. Mauritius-based FIIs do not pay even the 10% short-term capital gains tax – from transactions which attracts STT. This is because Mauritius does not tax capital gains. Whereas FIIs from destinations such as the U.S. have to pay the 10% short-term capital gains tax.

Link here.



A bipartisan trio of U.S. Senators have introduced legislation that targets the $100 billion in revenues they claim is drained from the U.S. Treasury every year by offshore tax haven and tax shelter abuses. The “Stop Tax Haven Abuse Act” is being backed by long-time offshore foes Carl Levin (D-Michigan) and Norm Coleman (R-Minnesota) the Chairman and senior Republican of the Permanent Subcommittee on Investigations. It is also being supported by Sen. Barack Obama, (D-Illinois).

For more than four years, Levin and Coleman have led an in-depth Subcommittee investigation into offshore tax havens, abusive tax shelters, and the professionals who design, market, and implement these tax schemes. Citing experts, they have estimated that up to $70 billion in tax revenues is lost every year through individual offshore tax avoidance, and an additional $30 billion from corporate offshore tax planning initiatives. “Abusive” tax shelters add tens of billions of dollars more, they said.

“With a $345 billion annual tax gap and a $248 billion annual deficit,” said Levin, “we cannot tolerate a $100 billion drain on our Treasury each year from offshore tax abuses. We cannot tolerate tax cheats offloading their unpaid taxes onto the backs of honest taxpayers. Offshore tax havens have declared economic war on honest U.S. taxpayers by helping tax cheats hide income and assets that should be taxed in the same way as other Americans. This bill provides a powerful set of new tools to clamp down on offshore tax and tax shelter abuses.”

“It is simply unacceptable that some individuals are using offshore tax havens and secrecy jurisdictions to shelter trillions of dollars in assets from taxation,” said Coleman. “This is a basic issue of fairness and integrity,” said Obama. “We need to crack down on individuals and businesses that abuse our tax laws so that those who work hard and play by the rules aren’t disadvantaged.”

The Stop Tax Haven Abuse Act is a strengthened version of a bill that Levin, Coleman, and Obama introduced in the last Congress. “None of these offshore schemes would work,” said Levin, “without the secrecy that prevents U.S. agencies from enforcing our laws. Our bill offers innovative ways to combat offshore secrecy. We can’t let the offshore tax havens hide $100 billion in U.S. tax revenues which are needed to protect our troops, fund health care and education, and meet the other needs of American families.” Among other measures, the 68-page bill would:

Link here.

Presidential hopeful Obama targets hedge funds with tax haven bill.

Senator Barack Obama, who has launched a campaign to become the first black U.S. president, has thrown his backing behind a bill that would require hedge funds to establish anti-money laundering programs under the supervision of the U.S. Treasury Department. Citing an alleged $100 billion lost to the U.S. Treasury through offshore tax evasion and abusive tax avoidance schemes, Obama has joined senators Carl Levin and Norm Coleman in introducing legislation aimed at stopping offshore tax haven and tax shelter abuses.

Coleman, a Republican, is the chairman and Levin the senior Democratic Party representative on the Senate’s Permanent Subcommittee on Investigations. Over the past four years they have led a probe into offshore tax havens, abusive tax shelters, and the professionals who design, market and implement tax avoidance schemes. The senators say the draft legislation has been strengthened the subcommittee investigation which resulted in a hearing and report last August 1, highlighting a series of cases in which U.S. taxpayers have used offshore jurisdictions to avoid taxes.

According to its sponsors, the bill would establish presumptions to combat offshore secrecy by allowing U.S. tax and securities law enforcement to presume that non-publicly traded, offshore corporations and trusts are controlled by the U.S. taxpayers who formed them or sent them assets, unless the taxpayer proves otherwise. The legislation would authorize “special measures” to stop offshore tax abuses by giving the Treasury authority to take special measures against foreign jurisdictions and financial institutions that impede U.S. tax enforcement. The bill aims to close offshore trust loopholes by taxing offshore trust income used to buy real estate, artwork and jewelery for U.S. persons, and treating as trust beneficiaries those persons who actually receive offshore trust assets.

However, it is not clear how the income of trusts not subject to U.S. jurisdiction would be taxed. It is not immediately clear whether the proposed bill would have the desired effect of increasing the transparency of U.S.-owned assets in offshore jurisdictions beyond agreements to curb tax evasion already in place with most leading offshore jurisdictions. Over the past six years the U.S. has signed tax information exchange agreements with countries and territories including Aruba, the Bahamas, Bermuda, the British Virgin Islands, the Cayman Islands, Guernsey, Jersey and the Isle of Man.

Link here.


Islands’ tax haven status a matter of “Now you see it, now you don’t.”

The USVI lies 1100 miles southeast of Miami – and it is one of the most impoverished jurisdictions under the American flag. But most Americans only know the islands as a vacation venue with beautiful resort hotels, white sandy beaches and blue lagoons. The three principal islands – St. Croix, St. John and St. Thomas – have a population of 108,605. Per capita income in the territory is $18,652 – less than half the average in the continental U.S. and $7,000 less than Mississippi, the poorest state.

The U.S. Virgins have another unusual distinction. They have been, until now, America’s very own tax haven. But if the IRS and U.S. Senator Charles Grassley have their way, that will not last for long. In 1986, the U.S. Congress created special tax breaks to spur economic development in this poor territory. They allowed the Islands to offer a major tax deal to Americans who moved there to set up a business. Companies and individuals only had to pay 10% of the income tax and other taxes they paid in the U.S. (USVI residents pay U.S. tax rates, but the money goes to the local government, not Washington.) To qualify for the 10% tax break, companies had to invest at least $100,000 in the local economy. They had to hire at least 10 people, with 80% of those employees from the Virgin Islands. And finally, they had to contribute $50,000 or more to local charities.

An aggressive marketing campaign was launched to attract corporations to USVI. As a result, about 100 companies moved to or expanded on the islands between 2002 and 2004, and employed nearly 3,100 people. The tax benefit program began paying dividends almost immediately after hedge funds were invited in 2001. The islands’ tax revenue doubled to $800 million in a 5-year period ending in 2005. The increase erased a $287.6 million deficit for the territory in 1999. The program was worth about $100 million annually to the local economy. A USVI spokesman said that the program was crucial in lifting the territory from a dire financial crisis seven years ago to the present-day projection of a fiscal year surplus in excess of $50 million.

All went well until 2003 when someone sent the IRS an anonymous letter which included marketing materials advertising the territory’s economic program as an easy way to legally reduce taxes while living in a sunny Caribbean climate – which it was. But U.S. Senator Charles Grassley (R-Iowa) saw this as tax evasion, notwithstanding the fact that the law clearly allowed these tax breaks. The letter included a memo recommending that an unnamed client obtain a post office box in the territory, open a local bank account with the appropriate balance, get a USVI-issued driver’s license and register to vote in the islands. On May 20, 2003, the IRS raided Kapok Management LP, a financial-services firm. The IRS accused Kapok Management of sheltering income for dozens of partners who were living on the U.S. mainland. Afterwards, they arrested exactly one Massachusetts life insurance executive in February 2004 for tax evasion charges in St. Croix.

The events prompted the publicity-seeking Grassley, (who at one time was a major critic of the IRS as being too touch on taxpayers), to charge the IRS was not acting fast enough to combat what he called tax fraud. The insurance executive, Gary Payne, followed the memo’s recommendations but lived and worked full-time in Massachusetts, according to court documents. Facing five years in prison, he reached a plea agreement in exchange for a lenient sentence, which has not yet been handed down.

The Grassley legislation imposed a strict 6-month residency requirement and clarified that the territory’s tax benefits apply only to income earned exclusively in the islands. This law was slipped into a major tax bill without any hearings, or without even notice to USVI officials, who were stunned to learn it had become law. The Payne case prompted the IRS to open about 100 audits says Marjorie Rawls Roberts, a St. Thomas-based tax lawyer who has advised about half of all USVI-based hedge funds. Even her clients who are not being audited still have to wrestle with the new residency requirement. Since the new law was adopted, 23 of the 49 hedge funds have either halted their activities temporarily or withdrawn from the islands. The number of financial firms that make the Virgin Islands their corporate home has fallen to less than 60 from 100 two years ago. An expected finance boom never came. Instead, the IRS and Senator Grassley knocked it out with a combination punch of legislation and subsequent IRS rules that are still unclear.

The IRS also drafted an intrusive new form for island residents it says is needed to prove valid residency. The form requires those who stop filing tax returns with the IRS in order to file them in the USVI to list where their immediate family lives, where their cars are registered and where they hold driver’s licenses. The form also asks for a list of memberships in social, cultural, professional and country clubs as well as chambers of commerce and political organizations in which the resident participates.

The betrayal of the Virgin Islands by the federal government, assures only one thing: Americans seeking legal tax breaks will instead find them in secure tax havens such as Panama, Belize, the Channel Islands, Singapore and Hong Kong. Meanwhile, the U.S Virgins have been had.

Link here.


Business bankruptcy filings are down by 45% and corporate debt default rates remain near all-time lows. Yet bankruptcy pros are buzzing with anticipation. Call them cynical and firm believers in business cycles. Lawyers, consultants and financial advisers who work with troubled companies are getting ready for the next surge in business, which some predict may come as soon as the end of this year. “My experience over the last 20 years is that what goes up, must come down,” said Jeff Marwil, a Chicago attorney. “Change is inevitable.”

The credit markets that Marwil and his peers closely watch are enjoying one of the biggest expansions in recent history. Companies are borrowing cheaply, as banks and investors such as hedge funds are eager to lend. That has resulted in a flurry of debt-driven corporate mergers, spinoffs and buyouts. It also means that struggling companies are more able to refinance their debt and delay fixing operational problems. One sign that the financial system is flush with cash is that business bankruptcy filings through the first nine months of 2006 totaled 14,228, compared with 26,275 in the same period the year before.

But some analysts are now warning that the good times could soon come to an end, meaning higher borrowing rates and more defaults – or what bankruptcy professionals like to call “inventory”. To prepare, some big law firms have bolstered their bankruptcy practices by cherry-picking prominent attorneys from other firms. An uptick in hiring is also happening outside the legal profession. A 2006 poll of more than 200 financial-advisory and consulting firms by the Chicago-based Turnaround Management Association found that 37% had added employees last year, vs. 32% in 2005.

In anticipation of the next wave of corporate restructurings, the association held its first-ever “Distressed Investing” conference last month, which brought together turnaround experts with financial dealmakers who buy securities in troubled companies. All the attenders were asking the same question that some outside the industry might consider grim: When is the bubble going to burst?

If defaults do rise, bankruptcy professionals expect to be very busy. The issuance of U.S. junk bonds, or high-yield corporate debt, has topped $100 billion in three of the last four years, levels not seen since the late 1990s. Companies have rushed to the bond market to refinance. Buyout funds also are taking advantage of low borrowing rates to raise money for takeovers. About 40% of the junk bonds issued since 2004 are rated B- or below and have higher chances of default. “All the available liquidity is papering over a lot of problems right now,” Marwil said. With companies leveraged to the max, there is little margin for error. Any blip could lead to a crisis.

The need for restructuring will not necessarily mean an increase in bankruptcy filings in coming years, experts said. New bankruptcy laws and the high cost of going to court will dissuade some companies, especially privately held ones, from making public filings, said attorney Richard Chesley. “I think people are positioning themselves for a different market,” he said. “I think we are going to see more out-of-court settlements, especially among portfolio companies of the private-equity firms.”

Link here.



The fears of the direct marketing industry came true. Once a do-not-call list was created, people did register, in droves. The list was created in 2003, not as a way to protect privacy, but to remove a powerful irritant from the lives of Americans. The Federal Trade Commission, which administers the list, says that more than 137 million phone numbers have been placed on the list by people tired of interruptions during dinner or their favorite TV show.

The popularity of the do-not-call list unleashed a demand for other opt-out lists. A consumer can now opt out of the standard practice of their banks or loan companies selling their information to others. Other opt-outs stop credit card companies from soliciting consumers or end the flow of junk mail and catalogs.

While most of the opt-outs are intended to make life less annoying, they can also have the side effect of protecting personal information that can be misused by identity thieves or unscrupulous merchants. “Over the years, it has gotten so much easier to opt out,” said Ari Schwartz, deputy director of the Center for Democracy and Technology (CDT), a public interest group that lobbies Congress on privacy issues. “There are still gray areas.” While financial companies have to provide an opportunity to opt out of sharing personal information, other kinds of companies do not. Some that tell you they will share the information do not offer the option to protect personal information (other than not doing business with the company). For those who just can’t take it anymore, here is a master list of where you can take control.

Phone solicitations. To stop them, go to donotcall.gov. Or call toll free, (888)382-1222, from the number you are going to restrict. Remember to register if you get a new phone number. You can register cellphone numbers as well. A listing is good for five years, after which you will have to repeat the process.

Junk mail. You can try to opt out of direct mail solicitations, but it will probably not work very well. A private organization, the Direct Marketing Association, handles that list and not every merchant with pages of hot leads is a rule-abiding member. If you want to give it a shot anyway, write the association, in care of the Mail Preference Service at P.O. Box 643, Carmel, N.Y. 10512. There is an online form here.

E-mail. Whatever you do, do not respond to an unsolicited e-mail message when it gives you the option to opt out of receiving more e-mail. That is a trick used by spammers to confirm they hit a live address. Other than spam filters, there really is no good way to prevent spam. You can try to make it harder for spammers to get your address in the first place by never posting your address in public forums. Spammers employ software to scrape the sites of anything with that @ symbol. Instead spell it out in a unique way like “your_name at your_ISP dot com.”

Credit card offers. Almost as annoying as the direct marketing call is the mailbox stuffed with credit card solicitations. The more you ignore their offers, the more you will receive. Signing up for so many cards and running up such high levels of debt that you become a credit untouchable is not a good plan. Instead, call (888) 567-8688, but be ready to give out some personal information like your Social Security number.

The major credit bureaus, like Experian, Equifax and TransUnion, that collect information on your borrowing habits let you opt out of what they call prescreened offers of credit here. This opt out might be particularly useful when you apply for a mortgage. When you seek such a loan, the credit bureaus notice and they put you on a “trigger list” – the information that you are a ripe prospect is then sold to other lenders in as little time as 24 hours. Suddenly, other lenders are calling. Still, some callers may actually have better deals than the one your mortgage broker or bank is offering. “Do you want to opt out and never learn how to save money,” asked Stuart Pratt, president of the Consumer Data Industry Association, a trade group. Will opting out protect your identity from thieves? Mr. Pratt said that “lender data tells us that prescreened offers of credit result in lower levels of fraud.” Nonetheless, he did recommend using a paper shredder on the offers you do reject.

Credit freeze. The ultimate opt-out for your credit is a credit freeze. You will sometimes hear it recommended as a way to protect yourself from fraud because once you sign up to have your credit report frozen, no company can get access to your credit report without your expressed permission. That means no one can open up a credit card or take out a loan in your name. This sounds great at first, but doing so can backfire. You might be buying an expensive flat-screen TV at a warehouse store and want to get the instant credit card to score another 5 percent discount. You will not be able to. But about half the states have passed laws making credit reporting companies quickly unfreeze a report, some in as little as five minutes.

Use the credit freeze only if you are a true victim of identity theft, which means that some criminal has your personal information and is opening up credit card accounts, borrowing money or buying property with your credit history. If you suspect you may be a target, but have not been harmed yet, a better form of protection is asking the credit bureaus to flag your report with a fraud alert, which is supposed to make lenders take extra precautions.

Other opt-outs. Your personal information is accessible in less obvious ways. For instance, your computer tracks where you have visited online. DoubleClick, a company that collects data for online advertisers, offers a way to prevent your computer from giving it information here. But again, it is only a piecemeal solution. Other online advertising companies will still put “cookies” on your computer to collect the same data. So the next-best solution is to frequently run software that cleans out cookies. You can get Spyware Blaster, Spybot, or Ad-Aware at download.com free.

Your personal information, including parts of your Social security number, are available in publicly available data bases that you may never see. The most common ones offer a way to opt out of a listing. Nexis, one of the biggest, says you can opt out of its people-finding lists here. Nexis requires that you prove you are a victim of identity theft before it will consider your application. The CDT provides addresses and forms for other companies, like ChoicePoint, that do not let you opt out online, here.

Real estate filings. You have to file deeds with the local government office and once you do, companies swoop in to compile lists of new homeowners from the public records. That is why you get the discount coupons from Home Depot and other merchants right after you buy. Birth certificates and marriage licenses are also scraped for data. There is little you can do about it because the records are intended to be public. Any good lawyer can show you how to make it a little harder for personal information to be listed on a deed. [Ed: Or you can figure out how to do it without a lawyer. Start here and work backwards.]

Link here.


Legislation introduced in Congress requires all Internet service providers to keep track of what their customers are doing online to aid police in future investigations. Employees of any Internet provider who fail to store that information face fines and prison terms of up to one year, the bill says. The U.S. Justice Department could order the companies to store those records forever. The bill, part of a Republican-led “law and order agenda”, echoes almost word for word a proposal made last year that never made it to a floor vote.

Lamar Smith (R-Texas), the top Republican on the House Judiciary Committee, called it a necessary anti-cybercrime measure. “The legislation introduced today will give law enforcement the tools it needs to find and prosecute criminals,” he said in a statement. A second requirement, also embedded in Smith’s so-dubbed Safety Act, requires owners of sexually explicit Web sites to post warning labels on their pages or face imprisonment. This echoes a proposal from last year that was approved by a Senate committee but never made it to a floor vote.

Even though both requirements are central to a Republican-led effort, neither data retention nor Web labeling are that partisan. Diana DeGette (D-Colorado) has been the most vocal proponent of data retention in the entire Congress. Other bills in the Republicans’ “law and order” agenda are related to terrorism, the death penalty, gangs, computer data breaches and drug trafficking.

Supporters of the proposal say it is necessary to help track criminals if police do not respond immediately to reports of illegal activity and the relevant logs are deleted by Internet providers. They cite cases of child molestation, for instance [of course]. Industry representatives respond by saying there is no evidence that Internet providers have dragged their feet when responding to subpoenas from law enforcement. Details about data retention requirements would be left to Gonzales. At a minimum, the bill says, the regulations must require storing records “such as the name and address of the subscriber or registered user to whom an Internet Protocol address, user identification or telephone number was assigned, in order to permit compliance with court orders.”

Link here.



What happens to the concept of probable cause in a world of constant surveillance?

Welcome my son,
Welcome to the machine.
Where have you been?
It’s all right – we know where you’ve been ...

– Pink Floyd, Welcome to the Machine (1975)

For prophetic visions of where we are headed, forget the economists, philosophers, historians, politicos – and especially climatologists (30 years ago, they predicted an impending ice age, for Pete’s sake). It is only every once in a while that they get something right about what is waiting for us around the corner. But for my money, society’s real seers are the novelists and short story writers.

Look at how today’s America mirrors Aldous Huxley’s vision in Brave New World of a hedonistic, classist, high-tech future world where consumerism is civic duty – and where relentless promiscuity and legalized drug use (the author’s euphoria-inducing “soma” equating to modern-day Prozac, Percocet, OxyContin, et al) are standard measures of what is normal and healthy. See how Kurt Vonnegut’s vision of a 2081 U.S. government that codifies and enforces equality in the brilliantly comedic Harrison Bergeron resonates in both the modern American education system and its tax code, both of which punish or ignore excellence while overlooking or rewarding failure and mediocrity.

Consider how H.G. Wells’s The Island of Dr. Moreau foreshadowed Nazism, eugenics, and the human genetic meddling and embryonic selection (now called pre-natal “health screening” but, perhaps soon, prenatal “enhancement”) we are increasingly accepting as a normal part of reproduction. And of course, everyone is aware of how American society is creeping evermore toward a PC surveillance state, where both privacy and dissention are borderline criminal – a la the “Thought Police” and “Big Brother” from George Orwell’s 1984.

But as unsettlingly accurate as these quasi-prophecies have proved, what is next for America may be even more terrifying: A dehumanized cyber-world more akin to Isaac Asimov’s I, Robot. I am talking about a world where robots – any combination of hardware and software that can detect, assess, and classify human actions or events – compete directly with humans, and where the most critical decisions in our society are increasingly made by artificial intelligence. It is already beginning.

In the wake of September 11 we have seen an explosion of warrant-less civilian surveillance. Cameras are everywhere nowadays – in the store, at the ATM machine, in the bank, on bridges over the highway, in cops’ cars, on street corners, at stoplights, in parking garages, at the airport, and on almost everybody’s cellular phone. It is getting so that you cannot steal a smooch (or whatever) from your lover at a stoplight anymore for fear of some bored government employee in some office with beige-painted cinderblock walls zooming in on you to get his kicks. This is not yet happening in “real time” whenever you are at a stoplight. As it stands, footage from the cameras that watch us in intersections and on street corners usually only gets looked at in review – to better gather facts in case a crime has been committed. All it takes is for the wrong thing to happen in the foreground while you are in the background and your mug (or again, your whatever) is on display in some crime lab, court room, and no doubt someday on the Internet. Awkward, vulnerable or risqué moments happen in any life worth living – and now, they are happening on camera.

It is not just the population centers, public areas, and highways that are under round-the-clock surveillance in America, either. Space-based satellite imaging covers every square inch of this country – albeit with varying degrees of resolution. However, that is all but certain to soon change. Robot technology may soon allow Big Broth ... er, I mean the government ... to constantly monitor these channels in “real time”, instead of simply reviewing images after the fact in an evidentiary capacity. This is bad.

“Intelligent video” is the next big development in law enforcement surveillance. Basically, this is cutting-edge computer software that will be employed by various agencies of the government from the local police on up to monitor everyday actions – picked up 24/7 by both cameras and microphones – in order to identify and sound the alarm about “suspicious” behaviors. Soon, everything you do and say in almost any public setting could be filmed, taped, and checked by artificial intelligence against a list of behaviors and speech that a bunch of pointy-headed G-men have determined are threats to public safety or national security. Things like loitering, circling a location, or walking away from a package – or simply uttering words like “bomb” or “explosive” – would constitute alarm-worthy actions in the eyes of intelligent video.

What scares the hell out of me about this is not simply the fact that we may soon be watched and scanned with high-performance computer technology. That is already happening every time we go to the airport. No, what bothers me about this Orwellian inevitability is that machines will be making the call about what constitutes probable cause for detention, search, or arrest. Now, I am no lawyer, but it seems to me that this standard has been shifting lately from meaning roughly “a reasonable suspicion that a crime has been committed” to more or less meaning “anything that could indicate a crime might soon be committed.”

Think about it for a minute. Errors made by human cops in the establishment of probable cause can be remedied or nullified in court. Cops can be cross-examined for prejudicial behavior and interpretations of their words and actions can be disputed, records can be expunged, and reputations restored if a person is found to have been wrongfully (or at least unlawfully) detained. But how would people secure justice when these prying robotic eyes made the wrong call and sounded a false alarm? Would innocent people wrongfully detained on some machine’s say-so be able to get justice in courts? Who would people be able to sue for wrongful arrest? How would one sue a machine for damages? Would the accountability fall to the software engineer – or to the agency that implemented the system? Will cops ultimately be prohibited from making arrests unless a machine “sees” a crime (or the likelihood of one) and gives them the OK?

There is only one way that “intelligent video” could be legitimized. That is if Americans resigned themselves to the necessity of it and were willing to submit to the supposed impartiality of machines in yet another invasion of our privacy and subversion of our rights. Of course, we will do it. Our leaders will tout the system as an end to wrongful arrests, when, in fact, it could be the beginning to many more of them. They will say the impartiality of machines will make the criminal justice system less corrupt and less prone to abuses and brutality. It will allegedly make our streets, roads, shopping centers, and neighborhoods safer without draining the public coffers on more police. It could foil terrorist attacks by spotting suspicious behavior patterns mere humans could never detect (but without profiling, of course).

And once more, we will cave and sacrifice yet another huge chunk of our freedom and privacy on the altar of safety and security. The fact that we might be trading one kind of danger for another will not even enter into the equation. Like they always do, the machines will have become the catalyst for seismic change, and we will be left with the aftermath, which is always the same: Less liberty and the illusion of more security.

Link here.


It is one thing to offload (illegally) a dozen or so GPS units from a storage facility and beg the police to nab you by leaving them turned on. But for the boys in blue to slide a tracking device into your ride to keep dibs on your doings, well that is just fine. Earlier this month, the Seventh Circuit of the U.S. Court of Appeals “ruled against a defendant who claimed that the surreptitious placement of a GPS tracking device amounted to an unconstitutional search,” essentially giving the coppers the green light to add a GPS module to a suspicious ride sans a warrant.

The district judge found that they had had a “reasonable suspicion that the defendant was engaged in criminal activity,” and it seems that a well-placed hunch was enough. Interestingly, the government argues that no warrant was needed since “there was no search or seizure within the meaning of the Fourth Amendment,” but did add that “wholesale surveillance of the entire population” was to be viewed differently. And it is not like your vehicles have been entirely devoid of data capturing devices up until now anyway, so here is fair warning to be on your best behavior when rolling about.

Link here.


The U.S. OCC said it issued a consent order for a civil money penalty against the International Bank of Miami and fined it $250,000 for violations of the Bank Secrecy Act (BSA). The Coral Gables-based bank has been under an OCC cease & desist order since October 20, 2004, regarding issues including those the regulator cited in its new order. The bank consented to the order, dated January 26, without admitting or denying any of the violations.

The OCC’s new order cited violations committed between 2001 and 2004 by International Bank, including some in its now-closed Capital Markets Group. In a written statement, Alberto Valdes, International Bank’s chairman and chief executive officer, said: “The OCC has now completed the investigation of the matters that led to the issuance of a consent order in 2004. The bank has actively worked with the OCC to correct the deficiencies found and has agreed to the imposition of a civil money penalty of $250,000. We are pleased that this matter has come to an amicable resolution.”

In the OCC’s order, the OCC said the bank committed a series of violations of the BSA, committed unsafe and unsound banking practices and “failed to assure” that some securities transactions were conducted in a safe and sound manner and in compliance with the BSA. The 1970 BSA requires banks to have programs for monitoring their customers and their transactions for possible money laundering and other criminal activities. International Bank’s Capital Markets Group (CMG) arranged loans by the bank and other transactions for clients’ purchases and sales of debt issued by Latin American governments.

Link here.


The Royal Court in Jersey has ruled clients of advisory firm Alternate Insurance Services are entitled to more than £1 million in compensation after it was found the firm had provided misleading advice. The Court found in favor of the Jersey Financial Services Commission (JSFC) in 27 of the 28 cases it brought against the firm in the belief the members of the public were “recklessly misled” by their financial adviser Alternate.

The Court ruled because of the advice given, the investors in question bought high-risk investments believing they were low-risk and, as a result, lost significant sums of money. The JFSC says the action was brought against the firm after it started to investigate three complaints about the product, before widening the net to investigate the cases of all investors who were sold the Traded Endowment Investment Portfolio Plans (TIPPs).

A TIPP typically involves customers purchasing a portfolio of second hand endowment policies. To allow investors to invest in a bigger portfolio than they would otherwise be able to afford, the TIPP includes borrowing significant amounts of money which are then added to the investment. But the JFSC says while this approach enables additional endowment policies to be purchased, it also has the effect of increasing the risk to investors who have to repay the loan regardless of the performance of the policies. Many investors did not know about the significant loan element forming part of the product or of its effect.

John Harris, director general of the JFSC, says, “The regulatory regime requires that firms offering advice, offer suitable advice and the Commission was of the view that not only was the advice unsuitable for these investors but that they had been misled.” Harris says the Commission now intends to do its best to recover as much money for the investors as possible, although he admits this will not be easy. “As Alternate does not have any real assets, we will be exploring the options for recompensing the investors by bringing a case against the insurers in the UK and speaking with the lending institutions, Newcastle Building Society, Bank of Ireland and The Royal Bank of Scotland International, which were criticized by the judge,” he said.

The Commission has also accepted the Court’s recommendation that a full review should be made as a matter of urgency, to identify whether the regulatory regime can be strengthened still further and to learn as many lessons as possible from what the judge described as a “regrettable affair”.

Link here.



You are probably unaware of former National Security Adviser Zbigniew Brzezinski’s indictment of the Bush Regime in his testimony (PDF) before the Senate Foreign Relations Committee on February 1, as the U.S. no longer has a media – only a government propaganda ministry. Brzezinski damned the Bush Regime’s war in Iraq as “a historic, strategic, and moral calamity.” Brzezinski damned the war as “driven by Manichean impulses and imperial hubris,” for “intensifying regional instability,” and for “undermining America’s global legitimacy.”

Finally, a voice with weight speaks. Brzezinski is a real intellect, a real expert, unlike the political hacks who have followed him in the office. Brzezinski told the Senate that “the final destination on this downhill track is likely to be a head-on conflict with Iran and with much of the world of Islam.” He predicts “some provocation in Iraq or a terrorist act in the U.S. blamed on Iran; culminating in a ‘defensive’ U.S. military action against Iran that plunges a lonely America into a spreading and deepening quagmire eventually ranging across Iraq, Iran, Afghanistan, and Pakistan.”

There is something deadly wrong with a society and a political system that permits a Regime capable of such insane and criminal “leadership” to remain in power. By the time Hitler launched World War II, the German Reichstag had no power to prevent him. But we have not yet reached that point in the U.S. Brzezinski concludes his testimony with the statement that it is “time for the Congress to assert itself.”

The reasons for impeaching Bush and Cheney exceed by many multiples all the reasons for impeaching every president combined in U.S. history. If members of Congress were faithful to their oaths of office to uphold the Constitution, Bush and Cheney would already have been impeached and convicted. The very least Congress can do at this very late stage is to make it perfectly clear in no uncertain terms that any attack on Iran under any pretext without the authorization of Congress after a careful examination of the pretext will lead to the immediate removal of Bush and Cheney from power, as will any escalation of the war in Iraq without explicit authorization by Congress. Having delivered this ultimatum, Congress must immediately begin investigations of the Bush Regime’s attack on civil liberties and the separation of powers, on the Bush Regime’s use of lies and deception to lead America into a war with Iraq, on the Bush Regime’s violation of the Geneva Conventions, and on the Bush Regime’s plans to attack Iran.

The American people and their representatives in Congress must face the fact that criminal and dictatorial persons control executive power in the U.S. and immediately rectify this highly dangerous situation.

Link here.
Is the military our last hope? – link.
The world can halt Bush’s crimes by dumping the dollar – link.


It is becoming clear as we move further away from the Cold War years and confront new geopolitical threats that there is a high correlation between the level of asymmetrical threat from a country and the hopelessness of life in the country concerned. Thus North Korea is a country from which threats to our existence (if we inhabit a major U.S. city) are only too apparent, whereas any threats from China and India are much less immediate, even though both countries have a nuclear arsenal many times North Korea’s. The consequences of this correlation for our economic development priorities are considerable.

We can no longer assume that terrorism will be safely confined to a tiny minority of fanatics, or that even the most dangerous weapons will not fall into terrorist hands. The proliferation of terrorist groups in the last 30 years, combined with the proliferation of nuclear powers since 1998, some of them increasingly irresponsible states, has made an intersection of a terrorist group and a nuclear capability more or less inevitable in the not-too-distant future. The only saving grace is that the nuclear weapons currently available to terrorists are of relatively low power by nuclear standards, while delivery methods pose them another and by no means trivial problem, so that any nuclear attacks in the near future are likely to be isolated incidents rather than harbingers of all-out assault. However North Korea has demonstrated that economic impoverishment is no reliable barrier to nuclear ambition.

It has also become clear, through developments in China, India and Vietnam, that while rapid economic growth and integration into the world’s trading and financial systems does not cure international tensions, it greatly lessens the likelihood that they will escalate into full scale aggressive war, either directly or through terrorist surrogates. By looking at the world’s economic development profile, we can thus determine where future outbreaks of terrorist/rogue state activity might arise.

In the eastern half of Asia, there are now few economic basket cases. China and India have soared into prosperity and Vietnam appears to be following them. While Philippines and Indonesia remain of concern, both are currently competently governed and moving more forward than back. Sri Lanka remains a problem because of its ethnic divisions, but its economic growth rate suggests it too may grow itself out of trouble. In all of these countries there has been no significant terrorist or nuclear threat to the West. They have managed to maintain control over their societies and focus the attention of their people on getting rich and acquiring Western consumer goods. As these societies get richer, their threat to international order lessens, though that might change if they suffered a major economic setback, as did Germany in 1929-33.

The few “basket case” countries of eastern Asia are considerably more threatening. North Korea has a population of only 23 million, and suffers frequent famines, yet has a nuclear capability that is able to force U.S. negotiators to at best a draw. Myanmar and Bangladesh, not currently on the world’s terrorist radar screens, are just as worrying. Myanmar is as poor as North Korea with a per capita economic growth rate of 1.5%, has a government only marginally less paranoid than North Korea’s and a population of 47 million, double that of North Korea. Bangladesh, where democracy has recently been suspended with both major democratic parties in disfavor with the electorate, has a population of 147 million, rocketing up at over 2% per annum. It is only marginally richer than Myanmar and North Korea and has a largely Islamic population (a contributing but not a controlling factor.) Its only savior currently is its economic growth rate of 4% per capita per annum, but if democracy is not restored satisfactorily and Bangladesh suffers a slump, it may become a very serious source of world unrest.

There is probably less threat from Middle Eastern countries while oil prices remain high. Iran, for example, has a relatively educated population and substantial oil wealth. If it co-operated with the West it could be very much richer than it is, as those with memories of the Shah’s reign know. A nuclear attack on Israel which cut off Iran’s ties to the West and brought economic destruction to Iran, would hugely damage the standard of living that ordinary Iranians already enjoy. Hence in the long run Iran is likely to be a much less threatening source of terrorist outrage than North Korea or even Bangladesh. A sharp drop in oil prices would however change this picture considerably. The combination of an impoverished government and a deep recession, while radical Islamists still controlled the country, would be dangerous.

Turkey is also unlikely to be dangerous while growth persists, although there it is a sharp further rise in oil prices that poses the principal economic risk. Pakistan is a borderline case – although growing rapidly it remains very poor and its population growth rate is more than 2% per annum, far too high for its economy to be stable. In Pakistan also, there is the threat of a return to democracy. President Pervez Musharraf cannot last forever, and past experience has shown Pakistan’s democratic governments to be economically illiterate.

In Europe, even the poorest countries are far enough from destitution to avoid terrorist action. The only dangers are from pockets of poverty such as Bosnia or Kosovo, or from impoverished and disaffected minorities within a mainly prosperous country, such as the Moslems of the Paris banlieus or the Birmingham slums.

The former Soviet Union is an interesting case. Russia itself should be wealthy enough not to engage in terrorist activity, strong though the temptation may be for Vladimir Putin and future Russian leaders to gain political strength through radical posturing and alliance with terrorist forces elsewhere. However outside Russia in the impoverished states of Central Asia there are a number of countries which if sufficiently radicalized might well take up terrorism. Geography makes their future prosperity very problematic.

Africa is a different story. Here the majority of countries are highly impoverished, with high population growth rates, poor governments and economic stagnation that combine to make them dangerous. In the past, there has not been a sufficient radicalized intelligentsia in Africa to cause significant terrorist trouble worldwide, but the spread of multinational education means that the West cannot assume that a relatively wealthy terrorist elite will not seek to radicalize the impoverished population as a whole. Such countries as Sudan, Islamist and home to a civil war, Eritrea, Islamist and radical, and Nigeria, partly Islamist and highly corrupt, are all potential nexuses for terror to a much greater extent than the oil-rich states of the Middle East.

Finally, Latin America should not be ignored. The electoral successes of Hugo Chavez in Venezuela and his allies in Ecuador, Bolivia and Nicaragua have already demonstrated the continent’s penchant for radicalism and self-defeating economic policies. Economic growth has been poor for the last quarter century and in some countries such as Venezuela and Argentina for the last half century, while income distribution is atrocious, producing the potential of a mass radicalized proletariat. The Latin American people do not naturally have pro-American instincts. Hence the continent is likely to prove a fertile ground for terrorist recruiting, and its inhabitants are likely to perpetrate an increasing share of terrorist atrocities against both the U.S. and Europe in the years ahead.

Thus there are plenty of countries where current living standards and economic growth rates are insufficient for the local populace to exert a worthwhile restraining influence on a radical terrorist-friendly government. Many of those countries have little or no connection to Islam. This has implications for U.S. and EU foreign policy, but also for international development policy. Each country which becomes a Vietnam, emerging into rapid economic growth and increasing commercial links with the world, is one less country where terrorism can potentially incubate. Thus the West has an urgent need of more Vietnams, in particular in countries like Bangladesh where excessive population growth, deep poverty and Islam produce a fertile ground for terrorist activity if the wrong leadership emerges. Nevertheless, the long term trend if world economic growth continues is towards fewer potential terrorist states, not more.

Link here.


Every time I go to the United States (I have just returned from two weeks in Washington), I am astonished by the antic security, by the proliferation of admonitions and alarms and inchoate fear. Now it is illegal to carry toothpaste on airplanes. I find myself wondering: Is this just another spasm of periodic hysteria, like Prohibition, the Sixties, and a Commie Under Every Bed? Or is it calculated political programming?

Most of it impinges at best lightly upon reality. For example, measures for security at airports are largely useless ... if their purpose is to increase security. Think about it. Time and again the public-address system warns that vehicles left unattended in passenger-loading zones “may be ticketed and towed.” Why? By the time anyone notices that the truck is unattended, by definition the driver will be somewhere else. He will certainly be able to walk a hundred yards before the tow-truck arrives – and push the button. Boom. In the case of a suicide bomber (which is what we are worried about, no?) it does not matter anyway. Boom. For that matter, at any airport you can drive up, load a hundred pounds of suitcases containing god knows what onto a baggage cart, and go into a crowded waiting area. Boom.

Most of security is just theater. Over and over, the PA system tells you not to leave baggage unattended or it may be destroyed by security personnel. This doubtless serves to make legitimate passengers watch their luggage. Who cares? None of this keeps a terrorist from leaving a baggage cart and walking for two minutes, far enough to be outside the blast radius. No, I am not giving ideas to terrorists. Everything in this column is obvious to anyone with a three-digit IQ.

It gets sillier. If you ride Metro, Washington’s subway, you will incessantly hear things like, “Passengers! Look up from your papers occasionally. Be alert! Report any suspicious behavior to Metro employees.” Yeah, sure. As a security measure, this is worthless. Why? First, a terrorist would be careful not to look suspicious. Second, what is suspicious behavior on an urban subway? You have got rastas, Goths, spike-haired young in leathers, semi-derelicts, blacks from the slums, people from India, Guatemala, Morocco, drunks, stoners, people talking to Mars through the transmitters the CIA put in their teeth, and swarthy men speaking languages you cannot identify. What is suspicious? How do you implement this in the real world?

Urban subways at rush hour – which, of course, is when a terrorist would strike – are madhouses. People are packed so tight they can hardly move. Everybody is thinking, “Come on, come on, get this damned thing moving.” Suppose you are aboard, and you see what appears to be a forgotten briefcase. What do you do? You could scream, “Bomb!” However, the odds are much better than 999 to 1 that it is not. The briefcase turns out to contain two sandwiches and a report from Agriculture on locust infestations in Chad. You probably go to jail. And of course a terrorist would leave the briefcase on a timer to give himself a few minutes to leave the subway and be walking innocently up the street when the thing went off. Say, five minutes. Real world: What are the chances that anyone will notice the briefcase, take it seriously, and clear the train, in five minutes? Zero.

It is theater. If people actually reported strange behavior however defined, or if Metro cleared trains for forgotten briefcases until the bomb squad arrived, trains would never run. Are security measures going to keep terrorists out of the U.S.? I just finished reading De Los Maras a Los Zetas, by a Mexican crime reporter. (I do not think it is available in English.) He talks mostly about the drug trade, but mentions the smuggling of illegal immigrants. In particular he tells of a tunnel going under the border (estimating that at any one time about 40 such tunnels are active) through which, he says, about 150 illegals a day passed. All it takes is $2000 or so and you are in the U.S. There is no border security, boys and girls. Not against anyone serious.

Now, yes, we may well see more terrorist attacks on the U.S. We certainly ask for them. Or they may be prevented by other means. But dramatic announcement on the subway are going to prevent nothing. Nor are color-coded terror alerts that you hear every five minutes in airports. What does anyone do differently when the level is orange instead of green? Cancel reservations? Wear body armor?

On examination, most of the measures purportedly taken to stifle Terror do not. Opening mail without a warrant? Pointless once the terrorists know you are doing it, but effective in intimidating honest citizens. The same with warrantless wiretaps and searches. Does the gutting of habeas corpus make us safer against terrorists? Or merely suppress dissent by citizens? The whole business looks remarkably like malign vaudeville, like mummery intended to accomplish two things. The first is to persuade the foolish that the nation is At War. Actually only the president is at war. The second, and I would like to be wrong about this, is to train the public to obedience. The formula is simple: Keep ‘em scared and you can do anything. It works. Americans are rapidly becoming accustomed to Soviet-style surveillance, to the state’s power to search and spy without restraint, to being barked at and ordered about by low-level federal employees. People deserve what they tolerate.

Link here.
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