Wealth International, Limited

Offshore News Digest for Week of March 12, 2007

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

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



Money goes where it’s treated best.” ~~ Wriston’s Law

I submit the story of arguably the finest leader the 20th century ever produced. His greatest quality? He left things alone. He called his approach “positive non-intervention”. It is the story of a man whose legacy legitimized the laissez-faire economic policies of Milton Friedman and the University of Chicago boys. According to the Chicago approach, intervention almost always did more good than harm.

Our hero set the bar as Hong Kong’s financial secretary throughout the 1960s. Sir John James Cowperthwaite was born in 1915 in Britain. Before joining the Colonial Administrative service in Hong Kong in 1941, Cowperthwaite studied economics at St. Andrews University and Christ’s College in Cambridge. Cowperthwaite arrived in Hong Kong immediately following World War II. That was a good thing. Roughly four years of Japanese occupation had taken its toll. Manufacturing ceased. Inflation soared. Tens of thousands were cast in the streets. Many more were deported to the Mainland. By the war’s end, only 600,000 of the original 1.6 million citizens remained.

Unlike most British colonies at the time, Hong Kong did not receive its freedom immediately following the war. The reason was simple: Hong Kong sat right next door to communist China. So while the Brits sat at home channeling their energy around their newly enlightened pampers-to-pampers welfare state, Cowperthwaite stepped back. He took his hands off the Hong Kong economy. Personal taxes were kept at a maximum 15%. Government borrowing became an oxymoron. There were no tariffs or subsidies. He managed to reduce the red tape to a level on which a new company could be registered with a one-page form.

Cowperthwaite’s intrinsic distrust for government enabled him to prevent even the highest bureaucrats from keeping figures on the rate of economic growth or the size of GDP. He reasoned that, “If I let them compute those statistics, they’ll want to use them for planning.” In his very first budget speech, he said, “... in the long run the aggregate of decisions of individual businessmen, exercising individual judgment in a free economy, even if often mistaken, is less likely to do harm than the centralized decisions of a government; and certainly the harm is likely to be counteracted faster.”

During his “do nothing” tenure, the island only six times the size of our Washington, D.C., with no natural resources of which to speak of, witnessed a 50% rise in real wages and a two-thirds fall in the number of households in acute poverty. From 1960 to 1996, Hong Kong’s per capita income rose from about one-quarter of Britain’s to more than a third larger. Thank you, Sir John.

While the 20th century history books exalt the purveyors of active Government intervention – names like Churchill, Keynes, Roosevelt, and Wilson, I offer you this: money will flow where it is treated best. And I think you will be hard-pressed to find any other place in the world that treats money better than Hong Kong. The highest tax bracket comes in at 17%. Individuals are only assessed on annual employment income. Dividends and capital gains are not taxed. Real estate assets may be passed down generations without any tax liability whatsoever. And like many progressive tax systems, Hong Kong grants allowances for certain deductions like charitable contributions. When you consider Hong Kong provides arguably the world’s greatest municipal services in a relatively crime free environment, you will be hard pressed to find a more favorable tax policy anywhere in the world.

Link here.

Hong Kong finance sector receipts up almost 50% in 2006.

Hong Kong’s financing sector, excluding banking, saw business receipts rise 47.9% last year over 2005, thanks in large part to the buoyant local stock market, the Census and Statistics Department has announced. Other service industries that recorded large increases in business receipts included insurance (21.3%), banking (19.6%), business services (19.5%), hotels (13.8%), transport (10.6%), import and export trade (10.1%) and storage services (10.1%). Broken down by by service domain, business receipts of the tourism, convention and exhibition services domain increased 13%, while those of the computer and information services domain rose 9.8%. Comparing Q4 2006 with a year earlier, business receipts of all surveyed service industries increased.

Link here.

Chinese government promises to boost financial cooperation between mainland, Hong Kong.

The government of mainland China plans to enhance Hong Kong’s role as an international financial center and increase cooperation between the mainland and Hong Kong, the South China Morning Post reported. The newspaper quoted People’s Bank of China governor Zhou Xiaochuan as saying the mainland’s banking, securities and insurance regulators had put forward proposals for the enhancement of financial cooperation between the mainland and Hong Kong. It quoted analysts as saying they expect mainland officials to announce policies more favorable to Hong Kong before July.

Link here.


For the 6th year running, Panama comes out on top in International Living’s Annual Global Retirement Index. Panama’s top ranking again this year comes as no surprise to us. We remind you often of the advantages and attractions of the world’s top retirement haven. In brief: The country currently boasts the world’s most appealing program of special benefits, discounts, and perks for foreign retirees (see below). It is easily accessible from the U.S. Its cost of living is low. Its landscapes and coastlines are beautiful. Its population is friendly and welcomes foreign residents and investors. And its capital city, Panama City, is without peer in the region.

This is still the developing world, no question, but in Panama City you can enjoy all the amenities and conveniences of First World living. A friend in the country for the first time as I write reports, “The grocery store where I shopped this morning is better than my grocery store back home in the States. It had everything ... including special French cheeses ... even French butter ... and an impressive selection of wines from around the world.”

The infamous pensionado program.

Panama’s pensionado program is without serious competition worldwide. If you can document a minimum monthly pension of $500 (plus another $100 per dependent), you are eligible for a long list of perks, including:

Before I go further reviewing for you the final rankings of this year’s Index, I want to make two points. First, no place is perfect. Every country, including Panama, has its drawbacks and downsides. We assume you realize this and point out particular disadvantages or challenges when appropriate but, generally, focus on the benefits each destination offers. Second, numbers can be misleading and ours, in cases, are subjective.

To prepare our annual survey each year, we begin by sourcing statistics on everything from real estate to special benefits, from culture to infrastructure, and from climate to health care from official government websites and Interpol data. We use the numbers we search out on the web as a starting point. Then we move from the Internet to the streets for the real-life story. We ask our correspondents and contributors living and spending time in each country included in the Survey to review our compiled data – and to give us the real scoop. Our roving Euro Editor Steenie Harvey, for example, had this reaction to the original Climate numbers: “Poland has a better climate than Cyprus? Tell THAT to the Poles!”

We adjusted accordingly nearly every figure we had collected in our internet research, based on feedback from our in-country experts. The numbers you see presented here, therefore, began as compiled, government-approved statistics, and then went through our filters. We believe they are far more representative of real life in these places than any numbers you will find on the State Department or World Bank websites.

Dwell in the Valley of flowers and eternal spring. Or escape to the beaches.

Back to Panama. Panama City is lively, sophisticated, cosmopolitan, and historic. It is also hot. This is reflected in its low score in the Climate category (28 points). But the good news is that it is not hot and humid countrywide. For mild, spring-like temperatures year-round, escape to the interior of this country, to the mountainous Chiriqui region. Specifically, we recommend the little town of Boquete, at the base of the tallest peak in Panama, an extinct volcano called Baru. The surrounding mountains are covered with coffee, banana, mango, palm trees, and wildflowers of every tropical color. The Panamanians call it the “Valley of flowers and eternal spring.”

On May 31 of this year, Boquete was featured in a Reuters report (“Pensioners seek paradise in Panama mountain idyll”). The article included an interview with Michigan-born Casey Koehler, who moved to Boquete last year. The reporter also interviewed others who had moved to Boquete, attracted by its temperate climate and low cost of living. The conclusion in the article was resounding. All interviewees agreed that they are living in Paradise, and spending far less than they would back in the States – $3,800 a month less in Casey Koehler’s case.

Or perhaps you are dreaming of a home at the beach and do not mind the heat. Cross the Canal from Panama City, continue over the Bridge of the Americas, then onto the Pan American Highway for 50 miles, and you are beach bound. The beaches here are wide and perfect for surfing, snorkeling, swimming, and fishing. This part of Panama is known as Arco Seco (dry arc), because it is an arc-shaped region along the Pacific Coast where it rains significantly less than it does in the rest of the country. These beach towns are quiet and restful during the week, then often jam-packed and lively on the weekends. These are not rustic fishing villages. Still, it is possible to find a little beach house to call your own, with all the modern conveniences, for less than $100,000.

Malta and New Zealand place 2nd and 3rd.

Malta, which is, in fact, twin islands of Malta and Gozo, takes silver in the 2006 Retirement Index. Steeped in history and tradition, these small islands, with near-perfect climates year-round, offer a simple, relaxed lifestyle. The cost of living remains low on these islands, and permanent foreign residents can take advantage of a 15% tax rate. Property taxes do not exist. Crime, too, is practically nonexistent. The locals are helpful and friendly – and everyone speaks English. You can fill your days with golf, tennis, sailing, and horse riding.

Only a mile of sea separates Malta from Gozo, but the two islands are distinctly different. If you enjoy people, choose Malta. This bursting-at-the-seams island is effectively a city-state. Home to about 30,000 inhabitants and a miniscule 26 square miles in size, tranquil Gozo, on the other hand, provides a nostalgic escape. This is a world of deep-blue seas and hidden coves, green fields and scattered windmills, church spires and ancient, sleepy villages. Home prices on Gozo are cheaper than in most parts of Malta, but word is getting out. Its flat-roofed, honey-hued stone farmhouses today are changing hands for around $150,000.

Our 3rd-place winner has a fly in its retirement soup. New Zealand is not in the market of attracting foreign retirees, but rather is looking for younger, professionally qualified immigrants. To obtain full-time residency here, you must qualify through a point system, with points awarded the younger and more qualified for particular types of work you show yourself to be. But you will have no trouble spending up to six months a year in the country. And the reasons to want to spend time there are many. Indeed, New Zealand scores well in every category in our survey except special benefits for retirees.

In addition to its magnificent scenery and an array of activities to keep you busy and fit, New Zealand has a low cost of living, an English-speaking population, great infrastructure, and one of the world’s highest “healthy longevity” figures. Not only can you go from the beach to the mountains – seeing tropical forests and snowy scapes in the same island – but when it is winter in the U.S., it is summer in New Zealand. Divide your time right between the two, and you could enjoy an endless summer. Nature-lovers are spoilt for choice with all the national parks, bird sanctuaries, and stunning natural phenomena, from geysers to snowfields to primeval forests. Furthermore, New Zealand hides some of the best real estate bargains in the world. According to the Real Estate Institute of New Zealand, the average house prices as of June 2006 is $190,000. The country also imposes no capital gains tax.

Uruguay moves up to 4th place.

Uruguay is a paradox. South America’s second-smallest country, about the size of Missouri, looks like Europe and feels like Europe. But its price tags will remind you that this is the Third World. Wedged between Brazil and Argentina, Uruguay has the lowest poverty level in Latin America, the longest life expectancy, and (as of October 2004) the second lowest level of corruption. The literacy rate is 98%. Uruguay sits in the Southern Hemisphere at about the same location that North Carolina occupies in the Northern, and it has four seasons. The average daytime high is about 85° F in summer (December through February), and the low is 65° F. In winter, highs run around 60° F, with lows near 42° F.

Just across the river from Buenos Aires, Montevideo is a big city with a small city charm. It is a South American capital that feels like Europe. Perhaps most remarkable, it is an attractive city where you can still buy a small apartment for less than $30,000. In fact, Mercer HR Consulting recently named Montevideo the second least expensive city in the world.

Uruguay’s pros include modern, first-world infrastructure, excellent highways, drinkable water, good communications, and stunning beaches. During high season, it is fun and lively. During low season, it is quiet and peaceful. Prices for just about everything are excellent. But it may be too slow for some during low season.

Mexico rounds out the top 5.

Our parents retired to Florida and Arizona. Today’s baby boomers are heading South of the Border. Mexico is the United State’q closest neighbor to the south (to state the obvious), and at no other time in the long history of that relationship have the benefits of living and investing in Mexico been more apparent, or easier to take advantage of. Not only for U.S. citizens, but Canadians and Europeans, too.

Mexico has it all – rich culture, perfect climate, affordable living, not to mention mountains, beaches, deserts, and just about everything in between. Geographically and culturally, this country is enviably diverse - from little silver mining towns where the winding streets seem to run straight up into the clouds, to fishing villages where the boats land in the morning with the giant snapper you will have for lunch. For all these reasons and more, Mexico is one of the world’s top destinations for retiring. This makes it not only a great lifestyle choice but also one of the hottest real estate investment markets in the hemisphere.

Beaches, mountains, deserts, forests, plains, and fertile valleys…sophisticated cities and quiet villages. Once you have made the decision to move to Mexico, you are left with the mind-boggling decision of where, specifically, to settle. To help start you on your way to your new life in Mexico, below are the 10 places we think make the most sense for expatriate living in this country, based on criteria such as health care, climate, infrastructure, and housing costs.

  1. Rosarito Beach
  2. Puerto Vallarta
  3. Querétaro
  4. Mazatlan
  5. Mérida
  6. La Paz
  7. Campeche
  8. Playa del Carmen/Riviera Maya
  9. Ajijic/Chapala
  10. Sayulita/San Pancho (San Francisco)
Link here.


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 for foreign currency bonds and notes from Aa3, or high grade, to Aaa, or exceptional – which means that it is now alongside the UK, 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, according to reports. The country ceiling is the highest rating obtainable for an issuer of long-term foreign currency-dominated bonds. 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.”

“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 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. Cayman has held the P-1 rating since 1997.

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:

  1. The country’s recovery efforts from the effects of Hurricane Ivan, which boosted growth and investment and produced an exceptional surge in exports.
  2. The level of public debt which was contained despite large reconstruction costs.
  3. The stable political environment, and the fact that the current administration is committed to the Public Management and Finance Law.
  4. The well-established tradition of fiscal prudence which is expected to continue.
  5. The absence of pressure on the currency board regime or the exchange rate.
Link here.
Cayman Islands Stock Exchange continues growth – link.


The UN defines conflict diamonds as “diamonds that originate from areas controlled by forces or factions opposed to legitimate and internationally recognized governments, and are used to fund military action in opposition to those governments, or in contravention of the decisions of the Security Council.” So “Conflict diamonds” is the term used to describe diamonds which are illegally traded to fund conflicts. In recent times, conflicts in some of the poorest parts of Africa have often focussed on rebels controlling their country’s natural resources and assets – e.g., oil, wood, minerals and also diamonds.

Conflict diamonds came to the attention of the world media during the extremely brutal conflict in Sierra Leone in the 1990s. While Sierra Leone is now at peace, currently, Liberia, Republic of Congo (also known as Congo Brazzaville) and the Ivory Coast are under UN sanctions. How many of the world’s diamonds are conflict diamonds? Less than 1%. In the late 1990, conflict diamonds represented approximately 4% of the world’s diamond production.

How does the diamond industry ensure conflict diamonds are not in the pipeline? The brutal conflict in Sierra Leone caused the UN, governments, the diamond industry and NGOs (such as Global Witness and Amnesty International) to recognize the need for a global system to prevent conflict diamonds from entering the legitimate diamond supply chain and thus helping to fund conflict.

A simple process called the Kimberley Process was agreed in which rough diamonds are sealed in a tamper-resistant container and have a forgery-resistant, conflict free certificate with a unique serial number each time they cross an international border. This process ring-fences conflict diamonds in order to prevent them from entering the diamond supply. Governments of the exporting and importing countries are responsible for checking all Kimberley Process certificates. In addition, the diamond industry has agreed to provide evidence to all purchasers in the chain that diamonds are from conflict free sources. Diamonds are imported with a Kimberley Process certificate up to the point of sale with the consumer.

Link here.
International terror and blood diamonds – link.


Thinking of going online and wagering on a few games in the upcoming NCAA basketball tournament? Uncle Sam does not want you to, but he is having trouble stopping anyone. The U.S. government’s latest effort to get Americans to stop gambling via the Internet has been largely ineffective, according to the online gambling industry.

In autumn, Congress passed – and President Bush signed into law – the Unlawful Internet Gambling Enforcement Act. U.S. lawmakers cannot crack down on the online betting sites because most operate from foreign countries, so they instead moved to cut off the flow of money. The law makes it illegal for American financial institutions, such as banks and credit card companies, to transfer funds between U.S. citizens and online gambling sites that offer sports wagering, poker or casino games. If online gamblers cannot get money to the online sites to gamble with, and cannot collect their winnings, they will stop gambling, lawmakers figured. They figured wrong.

“Some people have stopped betting on sports online because of (the law), but savvy bettors know how to get around the law,” said Russ Hawkins, an expert on the online sports betting industry. Hawkins runs MajorWager, a Web site that does not offer sports betting but presents news and information about the industry, as well as advertising for online sportsbooks. As he is in regular contact with more than 40 Internet sportsbook operators around the world who buy advertising on his site.

“The number of people betting online on (the) Super Bowl was down about 35 percent from a year ago,” Hawkins said. “I expect to see the same drop-off for the NCAA basketball tournament. But within a year, I expect online sports betting levels to be back to normal.”

Online sports bettors from the U.S. who used to use credit cards, bank wires or Western Union cash transfers to fund online sports wagering accounts could no longer do so after passage of the Internet gambling law, Hawkins said, so most bettors simply adjusted and started using foreign payment methods instead. Internet money-transfer services – known as e-wallets – based outside the U.S. were more than happy to pick up the slack left behind by U.S. financial institutions controlled by the new law, he said. “Eventually, Americans will not use American currency to make wagers online,” Hawkins said. “That is ultimately how to beat the government crackdown. ... Online gambling is not going away.”

Among the foreign e-wallets used by American online gamblers are NuCharge, Make a Deposit and EcoCard. Online sportsbooks are encouraging American bettors to use these and similar methods to fund online gambling. DimeLine Sports, an Internet sportsbook based in Curacao, last month sent an email message to its U.S. customers telling them how to get around the new law and bet online on the upcoming NCAA basketball tournament. “Check out our new deposit and payout methods for USA clients,” the email declares, the proceeding to tell American clients how to “fund your cashier account using Make a Deposit.” It also notes that “EcoCard is a fast and easy way to fund your account.”

Los Angeles sportscaster, gambling expert and acknowledged online sports bettor Fred Wallin hosts a national radio show, “Sports Biz”, on the Business TalkRadio Network that frequently delves into the world of online sports betting. “The federal government’s ridiculous anti-online gambling legislation has not ended online sports betting, but it certainly has put a crimp into it for thousands of sports fans in this nation that prides itself on individual liberties for all,” Wallin said. “This prohibition will eventually fail and be overturned, as right-thinking people will come to their senses.”

The Internet gambling law’s passage was the second major offensive by the federal government against online gambling. In 1998, Attorney General Janet Reno issued arrest warrants for 21 people the Justice Department said were involved in Internet gambling operations around the world. Three of the 21 – Jay Cohen, Steve Schillinger and Haden Ware – were San Franciscans operating an online sports betting operation from Antigua. Cohen turned himself in, was convicted on Internet bookmaking charges and served a year and a half in a federal prison. Schillinger and Ware remain fugitives in Antigua, where they still run an online sportsbook, World Sports Exchange.

Links here and here.



The sick men of Old Europe are learning to love tax cuts and deregulation, at least a little. Could they beat the U.S.?

While congress weighs tax hikes and legislation to make it easier for labor unions to strong-arm employees, Europe is running– okay, more like speedwalking – in the other direction. By year’s end its real growth rate touched 3.3% (annualized), beating the U.S.’s 3% in the fourth quarter.

It is not just the Czechs and Poles discovering the virtues of capitalism. Germany and France are becoming more pro-industry, with lower taxes, fewer employment strictures, more room for business to maneuver. “The reason growth has done so well in the U.S. is that we are so flexible,” says Thomas Higgins, chief economist at Payden & Reygel, a Los Angeles investment firm. “Now the Europeans are figuring out that flexibility really works, so watch out.” Payden, which manages $50 billion in assets, has lifted the amount of stock it has in Europe from 10% four years ago to 30% now.

Western European countries have reduced corporate tax rates from an average 38% in 1995 to 29.5% last year. The movement has been prompted by smaller countries like Ireland, which cut its corporate taxes by nearly 30 percentage points, and Poland and Slovakia, which each lopped off 20 points.

The lesson is sinking in. Now Angela Merkel is pushing tax cuts in Germany. She was criticized last year for hiking the value-added tax by 3 points to 19%, a change that sucked buying power from already too-frugal German consumers. Now, emboldened by neighboring Austria, which in 2005 cut its corporate income tax from 35% to 24%, Merkel drafted a law that cuts the German corporate rate from 39% to 30%. Merkel is soft-selling the cuts as “reforms” rather than “tax cuts”. Her opponents say she will bankrupt Germany’s social programs.

Even France, long the Tax Misery king in the Forbes annual survey of tax rates, is getting religion. Since 1995 President Jacques Chirac has cut the corporate tax rate by 2 points, to 34%, and wants to get it to 25%. Last year his government lowered the personal tax rate on income over $53,000 a year from 48% to 40%. It is also trying to soften the country’s 35-hour workweek maximum– only requiring it be met on average by year’s end, using comp days. All the promised future tax cuts and labor flexibility would probably die if the French elect Socialist Ségolène Royal as Chirac’s successor.

The U.S. has retained a corporate rate of 35% for 14 years, even as it has reduced personal levies under George W. Bush. Democrats want to scuttle those cuts. The U.S. still has a margin for error, says Baring Asset Management Chief Investment Officer Michael Hughes, but it can lose the edge. “In 1990 I thought of the States as the best emerging market in the world,” he says. “Now, today, I think there’s a serious chance for catch-up in Europe.”

Link here.


As part of its Budget submission, the Institute of Directors (IoD) has warned the UK government that economic policy now stands at a “fork in the road,” and that the level of taxation now stands at a “tipping point” as international companies begin to seek out more tax competitive jurisdictions in increasing numbers.

The IoD argues that the UK government now faces a choice of continuing along its present path towards an economy that will mirror that of other EU economies with large governments, or of pursuing polices that aim to reduce the size of the state towards the levels seen in the U.S., Australia, Ireland and Switzerland, where public spending is between 34% and 37% of GDP. The IoD also warned that the government’s fiscal position is exposed in the event of a sharp economic slowdown, as the surplus on the current budget is a mere 0.1% of GDP and consequently there is no buffer in the public finances to absorb the impact of such an event.

Miles Templeman, Director General of the IoD commented, “There is nothing inevitable about a rising burden of public spending and taxation. Other countries have achieved huge reductions in the spending to GDP ratio. The UK should take Spanish lessons. Since 1993 public spending in Spain has fallen by 10.8% of GDP – from 48.6% to 37.8% of GDP in 2007.

“The optimal size of Government in the UK is well below its current size. It will be a huge political and economic challenge to rein back the size of the state, but in the absence of effective action, UK competitiveness will be undermined. We hope the next Prime Minister will make the right choice. ... Unfortunately, the current size of the state in the UK is not globally competitive.”

The IoD said that the UK tax system has also “come to a fork in the road” with a succession of 400-page Finance Acts having added substantially to its complexity. The budget submission calls on the government “to resolve to pursue this path no longer” but to limit change to where it is necessary or is fully justified. It also cautions against continuing erosion in corporate tax competitiveness and is urging the government to cut the corporation tax rate by 2% to 28%. The Institute also called on the government to consider its previously announced proposals to simplify the capital gains tax system and abolish inheritance tax, while calling for the proposed planning gain supplement to be abandoned.

“Competitiveness is not a single issue, but when the UK is already less than world-class in other areas, such as transport and education, erosion of our previous relative advantage in the burden of taxation, could become hugely significant. In this way tax could become a ‘tipping-point’ issue for international companies,” Mr. Templeman concluded.

Link here.


The Singapore government has recently come up with a package of incentives for entrepreneurs planning to incorporate a company in Singapore. For newly incorporated Singapore companies, full tax exemption will be granted on normal chargeable income of a qualifying company up to $100,000, for any of its first three consecutive years of assessment (YA) that fall within YA 2005 to YA 2009. To qualify for the tax exemption for a relevant year under the new scheme, a company must:

A Singapore subsidiary of a foreign company does not qualify for this tax exemption since the shareholder is a foreign company and not an individual. Any Singapore company that does not meet the qualifying conditions for any of its first three consecutive years falling within 2005 to 2009 may still be eligible for partial tax exemption.

The Singapore tax system is territorial. Income tax is levied on the net income of companies from sources within Singapore and on foreign source income if remitted into Singapore. Non-resident Singapore companies and businesses are taxed on the same basis. The company income tax rate is currently 20%. There is no capital gains tax imposed. Singapore does not levy a withholding tax on dividends. Interest, royalties or rental of equipment payments to non-residents are subject to a 15% withholding tax.

Income tax for foreign-sourced income is applicable only if the income is remitted into Singapore. A Singapore company can enjoy tax exemption from its foreign-sourced dividends, foreign branch profits, and foreign-sourced service income that is remitted into Singapore if the highest corporate tax rate (Headline tax rate) of the foreign country from which income is received from is at least 15% in the year the income is received, and if the foreign income had been subjected to tax in the foreign country from which they were received.

Link here.


Russia has declared a tax amnesty. The law allows individuals to file a simplified income tax return between March 1, 2007 and January 1, 2008, for revenues since 2001 on which they have not paid taxes. The amount of taxes to be paid can be determined by individuals themselves. It all seems simple and convenient.

For the first time, Russia made a breakthrough in the tax reform in 2001 by introducing a flat income tax rate of 13%, one of the lowest in the world. As a result, the share of grey salaries went down by 1% a year. The amount of taxes collected rose accordingly. In 2004 the government further alleviated the tax burden by reducing the Unified Social Tax (UST) from 35.6% to 26%. This reduction was expected to save businesses up to 280 billion rubles, which would be reinvested into the economy. The authorities also hoped to get rid of undeclared salaries. But 2006 saw a drop in tax collection. Salaries headed for the shadow again. It is abundantly clear that the large-scale tax reduction has failed to achieve the desired effect.

For years, the Russian authorities have been persuading their compatriots to pay taxes with amazing patience, but to no avail. Few believe that the tax amnesty will produce satisfactory results. The new law does not relieve of responsibility those businessmen who failed to deduct taxes from their employees’ salaries on time, or who did not send the right UST to the government coffers. In other words, the appearance of self-reported tax criminals in a tax inspection office may spell trouble for their employers. Nobody is going to encourage whistle-blowers.

However, there are many people who will benefit from the amnesty. Those who are suspected of tax evasion and are about to face charges are likely to turn themselves in without delay. The amnesty will not apply to those who are already behind bars. Yet, the new stage in the tax reform is indicative in many respects. The Russian authorities are determined to continue fighting tax evasion. Judging by all, they are getting ready to tighten regulations on January 1, 2008.

Link here.


Making use of a recently-passed law giving the government 90 days to issue tax reform laws, the Peruvian finance minister Luiz Carranza announced that existing tax exemptions on stock market capital gains and bond interest will be rolled back. Starting in 2009, a tax rate of 5% will be applied to capital gains on stock investments. However, capital gains and interest on government-issued paper will remain tax exempt. These changes were agreed with the IMF during consultations earlier this year. The government is not able to use the 90-day delegation to create new taxes, raise the rates of existing taxes, introduce tax exemptions, or tax savings.

The government had agreed with the IMF that a comprehensive reassessment of tax incentives was essential to strengthening the effectiveness of the tax system. IMF staff had also recommended transforming the temporary tax on assets (ITAN) into a minimum corporate income tax. However, the government decided to maintain the ITAN in place for 2007 at a reduced rate of 0.6%. Peru posted growth of more than 7% in 2006 and expects to maintain at least 5% growth in 2007. The public sector finances are nearly in balance.

Link here.


Australia’s Minister for Revenue and Assistant Treasurer, Peter Dutton, has written to the Australian Tax Commissioner asking him to investigate media reports that some radical Islamic clerics are encouraging their followers to avoid paying tax.

“Reports today that some radical Islamic clerics are encouraging their followers to avoid paying tax are very disappointing," Dutton said in a statement. “The vast majority of hard-working Australians won’t tolerate that attitude and expect that all income earners pay their fair share of tax, no matter what their background.

“Australians understand that our taxes fund the education system, the health system, the welfare system, roads, defence forces and a range of other services for the benefit of our community. ... Ripping off other income earners by dodging the tax system is unfair on families and businesses who pay their fair share. ... I encourage people to contact the Australian Taxation Office regarding anyone they suspect of cheating on tax or encouraging others to do so.”

The government is urging taxpayers to contact the Australian Tax Office anonymously to report suspected cases of tax evasion.

Link here.



Offshore financial centers are booming. The best of them are more than just tax havens.

If the deal over North Korea’s nuclear-weapons program holds, Kim Jong Il may be able to indulge his penchant for fine wines and Hollywood blockbusters again. Banks around the world had severed ties with North Korea after America last September blacklisted a Macau bank accused of doing business with the hermit kingdom, making foreign money tighter for the Great Leader. But a move towards more normal relations with America could help restore the flow. The financial system is modern warfare’s newest front. In a globalized economy money moves instantly and anonymously across borders. This can benefit terrorists, drug traffickers and rogue nations in need of cash. Keeping such customers out of the world’s sprawling financial system is becoming ever harder.

Financial regulators have another big concern. The huge growth in the use of esoteric derivatives and the rise of hedge funds have made it increasingly difficult to understand where financial risk lies, partly because much of it is hidden away on islands with variable supervision. But the most vexing problem that highly mobile financial flows pose for governments is that when they cross borders they may take tax revenues with them. This is particularly serious for rich Western countries, who have launched a raft of initiatives to strengthen the international financial system against financial crime, financial contagion and tax evasion. The idea is to prod financial centers worldwide to adopt international best practice on bank supervision, the collection of financial information and the enforcement of money-laundering rules.

One group has become the object of special scrutiny is offshore financial centers (OFCs). These are typically small jurisdictions, such as Macau, Bermuda, Liechtenstein or Guernsey, that make their living mainly by attracting overseas financial capital. They offer low or no taxes, political stability, business-friendly regulation and laws, and above all discretion. Big, rich countries see OFCs as the weak link in the global financial chain. In the past OFCs have indeed permitted various dodgy doings. Critics think their dependence on foreign capital encourages them to turn a blind eye to crime and corporate fraud within their borders. Many corrupt leaders have looted their countries, helped by the secrecy offered not just by certain tax havens but also by some onshore financial centers – a point often ignored by the OFCs’ critics. The accounting scams at Enron, Parmalat and Tyco were made easier by complicated financial structures based in OFCs, but also in onshore centers such as Delaware.

But the most obvious use of OFCs is to avoid taxes. Many successful offshore jurisdictions keep on the right side of the law, and many of the world’s richest people and its biggest and most reputable companies use them quite legally to minimize their tax liability. But the onshore world takes a hostile view of them. Offshore tax havens have “declared economic war on honest U.S. taxpayers,” says Carl Levin, an American senator. He points to a study suggesting that America loses up to $70 billion a year to tax havens. The Tax Justice Network, a not-for-profit group that is harshly critical of OFCs, reckons that global tax revenues lost to OFCs exceed $255 billion a year, although not everybody believes it.

Business in OFCs is booming, and as a group these jurisdictions no longer sit at the fringes of the global economy. Offshore holdings now run to $5-7 trillion, five times as much as two decades ago, and make up perhaps 6-8% of worldwide wealth under management, according to Jeffrey Owens, head of fiscal affairs at the OECD. All this has been very good for the OFCs’ economies. Between 1982 and 2003 they grew at an annual average rate per person of 2.8%, vs. 1.2% for the world as a whole. Bermuda is the richest country in the world, with a GDP per person estimated at almost $70,000, compared with $43,500 for America. On average, the citizens of Cayman, Jersey, Guernsey and the BVI are richer than those in most of Europe, Canada and Japan. This has encouraged other countries with small domestic markets to set up financial centers of their own to pull in offshore money – most spectacularly Dubai but also Kuwait, Saudi Arabia, Shanghai and even Sudan’s Khartoum, not so far from war-ravaged Darfur.

Globalization has vastly increased the opportunities for such business. As companies become ever more multinational, they find it easier to shift their activities and profits across borders and into OFCs. As the well-to-do lead increasingly peripatetic lives, with jobs far from home, mansions scattered across continents and investments around the world, they can keep and manage their wealth anywhere. Financial liberalization – the elimination of capital controls and the like – has made all of this easier. So has the internet, which allows money to be shifted around the world quickly, cheaply and anonymously. The growth in global financial services has helped too. Financial services are in essence the business of managing data. “It is zeros and ones,” says Urs Rohner, the chief operating officer of Credit Suisse. These zeros and ones can be traded, structured, lent and sold anywhere. Profits can be booked almost anywhere, too, and are increasingly being shifted to OFCs.

The growing importance of the financial-services industry in many economies means that a greater chunk of profits and concommitant tax liabilities are easily moved offshore. The taxman also has to worry about non-financial companies that are acting like financial ones. The main profit engine for General Electric, a large American conglomerate, is its finance division. Non-financial companies run pension funds and stock-option plans for their employees across the world, manage their corporate treasuries in myriad currencies and increasingly employ esoteric financial products such as derivatives to hedge risks and raise money. All of these activities can be set up in OFCs and often are, supported by an army of lawyers, accountants and investment bankers.

OFCs are often portrayed as financial parasites that survive by diverting tax and other revenues from “real” economies, offering a haven for tax cheats and money-launderers. Some of this undoubtedly goes on – but it goes on in big onshore economies as well. Businessmen and wealthy individuals insist that OFCs can play a legitimate role in reducing tax liabilities. The business community in particular argues that in a fiercely competitive global economy where national tax regimes can vary widely, minimizing tax payments is a competitive necessity and OFCs are one solution. OFCs themselves insist that they are specialist financial centers and have far more to offer than just low taxes. The big risk is that “globalization is perceived to be rigged against the average citizen,” says David Rosenbloom, formerly the international tax counsel at the Treasury Department in America.

Critics also worry that OFCs do not supervise business within their borders tightly enough, which gives crooks an opportunity to enter the global financial system. OFCs themselves will admit that in the past regulation in many offshore jurisdictions left much to be desired and bad money found its way in with the good. OFCs argue that this has changed and their supervision is now at least as good as onshore, sometimes better. Libertarians say that tax, regulatory and other competition is healthy because it keeps bigger countries’ governments from getting bloated. Others argue that OFCs may be an inevitable concomitant of globalization. Some academics have found signs that OFCs have unplanned positive effects, spurring growth and competitiveness in nearby onshore economies.

Countries try to discourage investment in tax havens through the tax code and pour resources into tracking down tax cheats. But close one regulatory loophole and lawyers will open another. Convince one OFC to co-operate in the fight against tax evasion or financial crime and another will take its place. International organizations have launched various initiatives to try to get OFCs to tighten supervision, cooperate more with foreign governments to catch tax cheats and, at least in Europe, eliminate “harmful” tax practices. OFCs think such initiatives are designed to force them out of business. The countries that set these standards “are an oligopoly trying to keep out smaller competitors. They are both players and referees in the game. How can they be objective?,” asks Richard Hay, a lawyer in Britain who represents OFCs.

What is clear is that globalization has changed the rules of the game. It has produced many benefits for rich countries, but has also provided more opportunities for tax leakage, which explains their anxiety over OFCs. OFCs, for their part, have by and large done well out of globalization. Two decades ago, they were mainly passive repositories of the cash of large companies, rich individuals and rogues. Some jurisdictions still ply this trade today. But the best of them have become sophisticated, well-run financial centers in their own right, with expertise in certain niches such as insurance or structured finance.

Link here.


The Center for Freedom and Prosperity Foundation is to conduct a month-long tax competition education campaign during March in Panama, Singapore and Hong Kong. The education drive began yesterday in Panama, where the Center co-sponsored an event in Panama City with the Fundación Libertad (Liberty Foundation), a Panamanian free-market think tank. Dan Mitchell of the Cato Institute was the featured speaker and several topics were be discussed including the territorial tax system and OECD/EU/UN tax harmonization schemes.

On March 27th, Dan Mitchell will be one of the featured speakers at the “The Lion Roars” Conference in Singapore and he will speak on the “Status of International Anti-Tax Competition Initiatives: A Special Focus on Implications for Asian Financial Centers”. On March 30th, The Center’s Andrew Quinlan and Mitchell will be the featured speakers at a lunch sponsored by the American Chamber of Commerce in Hong Kong. Like the meetings with the other AmChams in Panama and Singapore, the threatened repeal of Section 911 – which partially protects overseas Americans from having their labor income taxed by both their host country and the IRS – and the implications of the EU and OECD efforts to force low-tax countries in Asia to surrender their fiscal sovereignty, will be featured topics.

Link here.


Bermuda has been a good privacy jurisdiction in years past. Today Bermuda chases the tourism industry. Every day numerous cruise ships tie up in Bermuda. They have beach front hotels, gambling casinos, diving, fishing etc. The tourism industry employs more people and is more lucrative than the banking industry was, so Bermuda gave in to international pressure and eliminated their secrecy and privacy laws to a very large extent.

Bermuda imposed tight anti-money laundering legislation, called the Proceeds of Crime Amendment Act 2000, starting June 1, 2001, which applies to all banking and financial institutions. With this Act in place, fiscal offenses (think tax-related) are now consistent with international anti-money laundering standards and all forms of tax evasion are now a criminal offense in Bermuda. Not good for privacy, and it opens the door wide for fishing expeditions to get records to see if there has been some tax violation.

The Anti-Terrorism Act enacted in December 2004 makes it an offense “to raise funds for terrorism, to use and possess money or other property for terrorism, and to be involved in any arrangements where money has been made available for terrorism.” This law requires any business to report any activity they deem to be suspect of terrorist involvement. Of course terrorist activity is broadly and loosely defined. The courts have been empowered to call for account monitoring, of course without the knowledge of the account holder. The funds and property of suspected terrorists can also be seized and held for up to two years while the investigation proceeds and then forfeited permanently if the investigation results call for it.

Privacy and protection are now seriously missing as priorities from this once private jurisdiction.

Link here.


A decision by the EC that under EU law Gibraltar is not entitled to have a tax system different to that of the UK puts the future of the finance center on the balance. This is the worrying aspect of the EU decision that gains topicality as the court hearing unfolds in Luxembourg. It would have been different had the EU requested Gibraltar to change aspects of its financial legislation, as changes are possible. It has been suggested that Gibraltar could have a tax structure that is equal for all and is not discriminatory.

But when the EU says that the tax system in Gibraltar must be the same as that in the UK it does not allow flexibility. If Gibraltar’s taxation is equal to that of Britain, there is no reason for anyone to be attracted to the former. Faced with such a damaging prospect, both the Gibraltar and UK governments have been challenging the EC’s decision.

Gibraltar’s chief minister, who has flown to Luxembourg, takes the view that Gibraltar “has formulated and submitted an impressive array of arguments.” The government has sought to support its arguments by the recent landmark ruling by the European Court of Justice in the Azores case. “We are thus confident in the merits of our case,” said Mr. Caruana, who is in Luxembourg to attend the oral hearing of the case. The oral hearing is the final stage of the litigation, so much depends on the written representations that have been made.

Link here.


Global energy company Halliburton has announced the opening of a corporate headquarters office in the United Arab Emirates. Halliburton Chairman, President and CEO Dave Lesar will move to Dubai to lead the company’s efforts in growing Halliburton’s business in the Eastern Hemisphere, an important market for the global oil and gas industry. Halliburton said that the opening of a headquarters in Dubai is the next step in a strategic plan announced in 2006 to focus on expanding its customer relations with national oil companies while concentrating more of the company’s investments and resources in growing its business in the Eastern Hemisphere.

“As we invest more heavily in our Eastern Hemisphere presence, we will continue to build upon our leading position in the North American gas-focused market through our excellent mix of technology, reservoir knowledge and an experienced workforce,” explains Lesar. “The Eastern Hemisphere is a market that is more heavily weighted toward oil exploration and production opportunities and growing our business here will bring more balance to Halliburton’s overall portfolio.” The company will continue to maintain a corporate office in Houston.

Link here.

Halliburton feels Democrats’ wrath after Dubai move.

A number of prominent U.S. Democratic lawmakers have hit out at Houston-based energy firm Halliburton’s decision to transfer part of its operations to Dubai, calling into question whether the firm’s true motives for the move are to avoid U.S. taxes, greater scrutiny of its contracts with the U.S. government, or both. Speaking at a press conference, Hillary Clinton, New York Senator and Democratic presidential hopeful for 2008, said that Halliburton’s move “raises a lot of serious issues we have to look at. ... Does this mean they are going to quit paying taxes in America? They are going to take all the advantage of our country but not pay their fair share of taxes?”

Clinton also expressed concern that if the company redomiciled to Dubai, investigations into alleged abuse of government contracts may be hindered. “They get a lot of government contracts – is this going to affect the investigations that are going on? Because we have a lot of evidence of misuse of government contracts. They have taken the money and not provided the services, so does this mean that we won’t be able to pursue these investigations? I think it raises a lot of very big concerns and I think we are going to be looking into that in Washington,” she said.

Senator Byron Dorgan (D-North Dakato) also issued a statement following Halliburton’s announcement, describing the move as “bizarre”. “This is one of the country’s larger defense contractors. It has gotten billions of dollars in defense contracts, many of them no-bid contracts, and has been accused of under-performing and over-billing,” Dorgan said. “I want to know, is Halliburton trying to run away from bad publicity on their contracts? ... Or are they trying to set up a corporate presence in Dubai so that they can avoid the restrictions that currently exist on doing business with prohibited countries like Iran?”

Meanwhile, Charles Rangel (D-New York), Chairman of the House Ways and Means Committee, said he was “not surprised” that Halliburton wanted to move its corporate headquarters to the Gulf emirate, because it wanted to be closer to the source of its profits in Iraq. Nonetheless, he lamented “another sad example of American companies increasingly moving offshore,” and has called for changes in tax law to discourage U.S. corporations from following suit.

Sen. Chuck Grassley (R-Iowa), ranking member of the Senate Finance Committee has pledged to investigate whether Halliburton will receive any “inappropriate tax benefits” from its action, although he was satisfied that the move to Dubai does not amount to a corporate inversion, whereby companies set up an offshore office to reduce domestic taxes – a transaction outlawed under recent legislation. However, he criticized Democrats for condemning Halliburton on the one hand, while on the other, stalling on legislative proposals that will further inhibit U.S. firms’ ability to dodge U.S. taxes through offshore structures. “You’d think that with all the fuss about Halliburton, the House Democrats would be more reform-minded,” was Grassley’s parting shot.

Link here.

Dubai will not shield Halliburton from tax, according to tax experts.

Democratic Senators are making political capital out of demonizing the decision of Halliburton’s CEO to move to the Middle East, but more level headed accountants point out that the company will still be domiciled in the U.S. for tax purposes. Halliburton Chairman and CEO Dave Lesar will be moving to Dubai, but that does not mean that the entire company is being moved offshore.

As far as tax law is concerned, “moving the chairman’s office to Dubai is the same as moving it from the fourth to the 18th floor,” said H. David Rosenbloom, director of the international tax program at New York University School of Law. Aspiring politicians will not let these cold facts stand in the way of a much better story, and are saber rattling in Washington. A motion is expected to be filed on Capital Hill this week that will ask the White House to address no-bid government contracts for contractors who relocate overseas. If Halliburton moved completely offshore, this move would prevent it from landing contracts in Iraq that are not put out to open tenders.

Halliburton might not benefit directly from a reduction in corporation tax, but its move to Dubai will certainly be good for its employees, and that might ultimately increase its bottom line – driving up tax liabilities when money is repatriated back into the States. Dubai has no income tax, and a far more relaxed attitude towards the rights of employees than is found in the U.S. Trade unions are banned in the country, and industrial action is rare and disorganized. Companies throughout the Gulf often pay wildly different salaries for the same jobs depending on countries of origin, a practice that would be illegal in America.

Link here.


Offshore law firm Mourant has reinforced its Caymans legal market initiative by becoming the first offshore law firm to open a New York office. The news follows Mourant’s announcement last week that it is joining forces with Cayman firm Quin & Hampson. Mourant, which celebrates its 60th anniversary in 2007, has 850 people operating from offices in seven countries.

Senior associate Simon Felton is relocating from Mourant’s London office in April. He will be Mourant’s first foreign legal consultant in New York and will be based at the firm’s existing Manhattan office, which has grown to a team of 35 people since opening in March 2005. It provides third party fund administration and tax compliance services to some of the highest profile private equity funds in North America.

Stephen Ball, CEO of Mourant du Feu & Jeune, said, “New York is a vital feeder market for the Cayman Islands, and we are very excited to be the first offshore law firm to open an office there. It will be a key element in the business development strategy for our enlarged Cayman practice ...” The firm has announced ambitious plans to grow the new office along the lines of its four-partner London office, one of the largest offshore practices in the City.

Link here.



For those who have been fighting for the ideas of freedom, the Internet Revolution opened a new era. Technology would help educate people on the benefits of freedom and the need to restrict government. And as the informational content of goods and services grew, a larger percentage of exchanges could be dealt with in the virtual world of the Internet, far from the controlling eye of the state. Not only that, government control of information would become harder. Now anyone would just go online and find the latest information from British or U.S. media, or Spain’s blogs, etc. It is for this reason that countries such as Cuba and China make concerted efforts to control access to the net and deny unfettered access to most of their people.

Technology is a knife that cuts both ways. And even though it seems now that it is mostly enlarging the realm of individual freedom, it is also used by government to move in a Big Brotherly direction. The provincial taxman in Buenos Aires, the most populated province in Argentina, is now using Google Earth Pro in order to detect “evaders” to the tax on land and real estate. Tax authorities are looking to find out if the size of properties declared coincides with what they can measure from above. And the government claims to have found some 362 undeclared houses and another 245 under construction on about 90,000 square meters in private neighborhoods. The structures have an estimated value of $35 million.

Argentine taxpayers are starting to rally against the move. They are claiming the government is intruding into the intimacy of their homes. And they are also complaining about government mismanagement in the first place. According to a real estate developer who built several of the neighborhoods under surveillance, at the same time the inspectors were finding the houses and new constructions, in another governmental office the blueprints of the new houses were awaiting to be approved by the same government. The bureaucrats should probably also use Google Desktop – to find out that the information they are looking for is already within their own computers!

Link here.



The nation’s top two law enforcement officials acknowledged last week that the FBI broke the law to secretly pry out personal information about Americans. They apologized and vowed to prevent further illegal intrusions. Attorney General Alberto Gonzales left open the possibility of pursuing criminal charges against FBI agents or lawyers who improperly used the USA Patriot Act in pursuit of suspected terrorists and spies.

The FBI’s transgressions were spelled out in a damning 126-page audit by Justice Department Inspector General Glenn A. Fine. He found that agents sometimes demanded personal data on people without official authorization, and in other cases improperly obtained telephone records in non-emergency circumstances. The audit also concluded that the FBI for three years underreported to Congress how often it used national security letters to ask businesses to turn over customer data. The letters are administrative subpoenas that do not require a judge’s approval.

Shoddy record-keeping and human error were to blame for the bulk of the problems, said Justice auditors, who were careful to note they found no indication of criminal misconduct. Still, “we believe the improper or illegal uses we found involve serious misuses of national security letter authorities,” the audit concluded. FBI Director Robert S. Mueller said many of the problems were being fixed, including by building a better internal data collection system and training employees on the limits of their authority. The FBI has also scrapped the use of “exigent letters,” which were used to gather information without the signed permission of an authorized official.

Mueller said he had not been asked to resign, nor had he discussed doing so with other officials. He said employees would probably face disciplinary actions, not criminal charges, following an internal investigation of how the violations occurred. The audit incensed lawmakers in Congress already seething over the recent dismissals of eight U.S. attorneys. Democrats who lead House and Senate judiciary and intelligence oversight panels promised hearings on the findings. Several lawmakers – Republicans and Democrats alike – raised the possibility of scaling back the FBI’s authority.

American Civil Liberties Union said the audit proves Congress must amend the Patriot Act to require judicial approval anytime the FBI wants access to sensitive personal information. “The attorney general and the FBI are part of the problem, and they cannot be trusted to be part of the solution,” said ACLU’s executive director, Anthony D. Romero.

Link here.

Same old FBI.

The FBI is caught red handed in an abuse of power. Once again a shocked ... shocked! ... FBI director, Robert Mueller, apologizes, takes full responsibility and promises swift reform while congressional “watchdogs” pledge immediate inquiry and threaten reorganization of the bureau.

It is, of course, an idle threat made by lawmakers who have only themselves to blame for this latest example of FBI arrogance, an incredible misuse of authority granted it to fight terrorism in the wake of 9-11, an improbable event that succeeded partially because of FBI incompetence. The fact that agents pried into the lives of tens of thousands of Americans without justification is hardly startling given the history of the organization and the failure of Congress over the years of scandal to rein it in. In fact, the inevitability of it was warned repeatedly during debate over the Patriot Act.

Link here.


U.S. prosecutors have filed federal charges against three Indian nationals who allegedly hijacked online brokerage accounts in the U.S. in order to conduct pump and dump scams. Two of the three men were arrested in recent weeks in Hong Kong. The third is still at large. All three face charges of conspiracy, fraud and aggravated identity theft after they allegedly hacked into online brokerage accounts in order to manipulate the prices of at least 14 securities.

The pump and dump scheme, which occured between July and November 2006, has cost one brokerage firm at least $2 million in losses. An estimated 60 customers and nine U.S. brokerage firms were identified as victims. Operating from Thailand and India, the men used their own online brokerage accounts to purchase shares of several thinly-traded stocks. They then hacked into the accounts of others using stolen usernames and passwords and bought back the same stocks to drive up the market price. The defendants then sold their own shares for a profit.

The complaint also alleges that the defendants opened new online brokerage accounts using stolen personal data, and then funded these accounts using hundreds of thousands of dollars taken from the account holders’ own bank accounts. The US Justice Department says the case marks the first time that individuals have been arrested overseas in connection with an online brokerage intrusion scheme perpetrated in the U.S.

In a related action, the S.E.C. has filed a civil complaint against all three defendants in federal court in Nebraska. Earlier this month the S.E.C. obtained an emergency court order freezing $3 million contained in an online trading account held by a Latvia-based bank that has allegedly been used to run a “pump and dump” market manipulation scheme. In addition, last week the S.E.C. suspended trading in 35 over-the-counter penny stocks that have been the subject of repeated spam email campaigns.

Link here.


Three members of a money laundering gang were jailed for a total of 15 years, HMRC has announced. According to the UK tax authority, between June 2003 and September 2005, the gang laundered more than £100 million in cash for criminal organizations and individuals throughout the U.K. Zaka Ud Din, Ghafoor Ud Din, and Mr Sabz Ali Khojo had all pleaded guilty at earlier hearings. A fourth defendant, Stephen Giles Parker was found guilty on 25 January.

The court heard that this large scale money laundering operation was centered around a Money Services Bureau (MSB) in Croydon. This was run by Zaka Ud Din, with the assistance of Sabz Ali Khojo. As well as offering legitimate money services to the local community, the Bureau was being used as a front for a much larger operation, offering the laundering of cash.

The HMRC Chief Investigation Officer, commenting after the sentencing, said, “This successful operation, which has lasted for more than two years, has highlighted the relentless approach of HMRC in tracking down and prosecuting money laundering in this country. ... The ability of criminals to dispose of their ill-gotten gains is essential to criminal enterprise. The Proceeds of Crime Act 2002, sought to make the disposal of the profit from crime as difficult as possible and this operation, believed to be one of the largest successful prosecutions in the UK under this legislation has, in the opinion of HMRC, dismantled an organization that was willing to launder huge amounts of criminal cash for personal gain.”

In sentencing the men, Judge Peter Thompson observed that, “You were all caught after long and complex investigations by [HMRC] and the public should be thankful for the officers having broken up your organization and for having arrested you. You were deeply involved in disposing of criminal cash on a massive scale and you have brought disgrace and humiliation to both yourselves and your families.”

Link here.


The authorities in the Bahamas are reported to have alerted Nigeria’s Economic and Financial Crimes commission to a bank account belonging to a former Nigerian regional governor holding $5 million of illicit funds. The EFCC’s chairman Nuhu Ribadu said he could not disclose the name of the individual, but that the person concerned was planning to stand in next month’s governorship elections.

The Commission was set up by President Olusegun Obasanjo in 2001 to fight corruption. Ribadu said that many of Nigeria’s 36 state governors had been investigated for corruption, with four having been removed from office. He said the agency planned to use the Constitution to prevent indicted individuals from standing in the elections.

Said Ribadu, “The laws have made it possible to trail and follow all illicit wealth. No such wealth can be hidden again today. It will be traced and recovered and the EFCC has the capacity and is in a position to trace all financial transactions locally and internationally. It is therefore fruitless to attempt to hide assets. The EFCC international networks are also far reaching.”

Link here.


Kosovo and international police have arrested two people, including Jahja Luka, political adviser to prime minister Agim Ceku, on suspicion of money laundering, local media reported this week. Luka and Pristina Kasa Bank director Milaz Abazi are under house arrest for 30 days while the case is investigated.

Luka, administrator of a special fund for the defence of former premier Ramus Haradinaj, accused for war crimes against civilians by the U.N. International Criminal Tribunal for the Former Yugoslavia (ICTY), was arrested with Abazi. The money was channeled to the Haradinaj fund through the Pristina Kasa Bank, investigators allege. Ceku said that Luka was arrested on suspicion of financial abuses relating to the operation of the Haradinaj fund, not to his role as prime minister’s adviser, and that he would decide on Luka’s political future in the coming days, depending on the findings of the probe.

Haradinaj, the leader of the Alliance for the Future of Kosovo, was a regional commander of the Kosovo Liberation Army (KLA) which began a rebellion against Serbian rule in 1999. He was indicted by the ICTY in 2005 for killing scores of Serbs and “non-loyal” ethnic Albanian civilians during military operations in western Kosovo in 1998 and 1999. Haradinaj resigned as prime minister after the indictment and turned himself in to the Hague Tribunal, but was released pending trial. €10 million have so far been collected for Haradinaj’s defence from individuals, companies and various organisations, of which €7.5 million have already been spent, according to investigators.

Link here.


Papua New Guinea Central Bank warns against high yield schemes.

Australia and seven other Pacific islands nations are being placed under the U.S. government’s microscope for being dirty money launderers. They are being described as “Jurisdictions of Primary Concern” and “Jurisdictions of Concern” which means countries vulnerable to money laundering schemes by rogue elements. Jurisdictions in this categories receive priority attention.

According to the laundry comparative table published in the Economic Perspective, an electronic journal of the U.S. State Department, Australia and Nauru are placed with a group of countries labeled as “Jurisdictions of Primary Concern”. Countries include the U.S., U.N., Japan, Canada. Six other Pacific nations including the Cook Islands, Marshall Islands, Niue, Palau, Samoa and Vanuatu are being placed in the second category known as “Jurisdictions of Concern”. Papua New Guinea, Fiji, Solomon Islands, New Zealand, and the Federated States of Micronesia are in a much lesser “Jurisdictions Monitored” category.

U.S. State Department senior policy adviser John McDowell, and program analyst Gary Novis of the Bureau of International Narcotics and Law Enforcement Affairs, reported in the Economic Perspectives that money laundering distorts business decisions, increases the risk of bank failures, takes control of economic policy away from the government, harms a country’s reputation, and exposes its people to drug trafficking, smuggling, and other criminal activity. A high level of international cooperation is vital to keep them in check due to technological advances money launderers employ to disguise the origin of their money.

Each year U.S. officials from agencies with anti-money laundering responsibilities meet to assess money laundering situations in more than 175 jurisdictions. The U.S. and U.K. have comprehensive laws and conduct aggressive anti-money-laundering enforcement efforts, but still classified as “Primary Concern” jurisdictions due to the size of their economies. While the threat from jurisdictions classified under “Concern” is not as acute, they must undertake efforts to develop or enhance their anti-money-laundering regimes. Jurisdictions in the “Other” category do not pose an immediate concern, but it will nevertheless be important to monitor their money laundering situations because, under the right circumstances, virtually any jurisdiction of any size can develop into a significant money laundering center.

Meanwhile, in Papua New Guinea the Central Bank has again warned the public to avoid doing business with fast money schemes. Governor Wilson Kamit warned that people who invest their money with promoters or agents of these schemes will always lose their hard-earned cash. It is not clear if these schemes are “money laundering front” operations, but the bank named the illegal money schemes as U-Vistract, Papalain Association (or Bulolo Forest Products Ex-employees Association), Money Rain, Windfall, Hosava Stocks, Bonanza 99, and a new one known as Christian. Kamit added there are some smaller schemes disguised as non-government organisations operating throughout PNG. He said the bank can only prevent these money schemes from operating but it is the prerogative of the investors to refrain from putting money in them. “You are warned and reminded that you may never see your money and whatever you are promised in return.”

Link here.


Offshore accounts used to channel bribe money.

In Germany’s first trial involving the bribery of foreign officials by a German company, two former Siemens employees have admitted to paying kickbacks to secure contracts for power plants in Italy. The men, both former managers at Siemens power generation unit, are charged with paying more than €6 million ($7.8 million) to secure €450 million worth of contracts between 1999 and 2002 from Italian energy concern Enel.

Before the Darmstadt court, 63-year-old Andreas Kley admitted to authorizing the bribes, but stressed he had done this without consultation with top Siemens managers. He also said he and the other accused, Horst Vigener, had only been responding to demands for money for Enel officials. In a statement read by his lawyer, Vigener, the unit’s former finance chief, admitted to being involved in the payments, which he said he regretted. Vigener said he was not in a position to make decisions about the situation and had never offered the Enel contacts money.

Vigener also outlined a series of sham companies in Liechtenstein and escrow accounts in Switzerland, Liechtenstein, Abu Dhabi and Dubai used to cover up the origins of the payments. “There were many people that helped Siemens receive business but did not want to be named,” the accused said. “In order to allow these helpers to receive anonymous money, there was a series of diverse companies in Liechtenstein.” Vigener said this was common practice to receive contracts – and not just in Italy. “Many people within Siemens knew about the method of payment. Getting a contract is not easy.”

Darmstadt state prosecutor Ulrich Busch told the court the payments should be considered as bribery of public officers because at the time Enel was government-controlled and fulfilled “public duties” for the state. Although Siemens is not a defendant in the trial, if the two managers are found guilty, then as a party to the bribery, Siemens could find themselves having to pay their profits from the Enel deal into the state coffers. The trial is unrelated to another Siemens corruption scandal involving kickbacks, which has been dogging the multinational giant.

Link here.


KPMG, the receiver of collapsed Canadian hedge fund Portus Alternative Asset Management, has filed suit in an Ontario court against Montreal lawyer Anthony Malcolm, alleging that he helped Portus founder Boaz Manor to siphon off assets through offshore accounts both before and after the fund collapsed. “There was no legitimate business purpose for the creation or use of these accounts,” said KPMG in the suit, which asks for damages of C$25 million. Accounts were set up in the Cayman Islands, the Turks and Caicos Islands, and in Switzerland.

KPMG said last summer that about C$662.15 million and about US$37.2 million of Portus assets had been found and secured in 130 bank and investment accounts in Canada, the Turks and Caicos and the Cayman Islands, out of more than $800 million that was collected by Portus. The majority of Portus assets remain tied up in notes issued by France’s Société Générale which were purchased for $529 million, and mature between 2008 and 2011.

Link here.


After months of unsuccessful negotiations, U.S. media giant Viacom filed suit against Google and its subsidiary YouTube, seeking more than $1 billion in damages for alleged copyright infringement. The suit also requests an injunction to prevent further copyright infringement by Google and YouTube. Viacom, which owns a number of cable networks, says that Google is hiding behind its professed policy of removing offending video clips on demand, knowling full well that users will quickly re-post any clip that is removed.

Viacom said in its statement, “Defendants know and intend that a substantial amount of the content on the YouTube site consists of unlicensed infringing copies of copyrighted works and have done little or nothing to prevent this massive infringement. To the contrary, the availability on the YouTube site of a vast library of the copyrighted works of Plaintiffs and others is the cornerstone of Defendants’ business plan. YouTube deliberately built up a library of infringing works to draw traffic to the YouTube site, enabling it to gain a commanding market share, earn significant revenues, and increase its enterprise value.”

Analysts say that the lawsuit is just another gambit in the negotiations between the two companies, and expect a settlement to be reached. Although at first sight it appears that YouTube, or at least its users, are infringing copyright, it is thought that the media companies do not necessarily mind all that much because of the immense publicity benefits. They would far prefer to reach a revenue-sharing deal rather than to destroy the YouTube model outright.

Link here.



80% of humanity is living in squalor. Why? The Peruvian economist Hernando de Soto asked and answered that in his 2000 book, The Mystery of Capital. His analysis of the cause of these anomalies is stimulating. In my view his prescription for a fix is less so.

De Soto discovered everywhere he went that poor people are industrious and entrepreneurial, seeking trade wherever it can be found – and saw no evidence that they are poor by choice or indolence. Instead, he identifies two causes of abject Third World poverty: (1) Governments make it difficult and expensive for them to join the community of “legitimate” businesses, which are able to raise capital by issuing shares and selling bonds. Hence, expansion is hobbled. (2) Governments make it difficult and expensive to obtain clear and well-documented title to assets, notably houses, which might be used as collateral for business expansion loans.

De Soto and his team of economists did their research the right way. They went where the poor live, in a range of countries from Russia to Egypt to Haiti to the Philippines to South America, and found out what was actually happening. His report of the anomalies is colorful. Large-scale investors building plants in developing countries like China will echo de Soto’s concern about property rights. They need to be sure that profits will be returned intact. His point here is, however, a bit different – the need is considered from the viewpoint of the borrowers, and millions of small ones at that.

Is he right? I am not sure. Of course, it is always desirable to know whether or not you own your own home. But why for the specific purpose of securing a loan? He argues that if you add up the value of 1.5 billion lean-to shacks worldwide, you get collateral for $9 trillion to fund the termination of world poverty. Why not use other sources of expansion capital such as just plowing back what has been saved out of profits, and leave the family home unexposed to business risk? Further, assuming that investors have $9 trillion ready and waiting for good opportunities, would they not be just as happy to lend it on the basis of the merit and promise of each of the business ventures themselves? Secured, then, by properly recorded bonds or ownership shares? Whether the capital comes from outside or from the owner himself by plowback, the first of the two factors above becomes the main one to address, not the second. The investor needs to be sure the business can continue to function and grow without interference by government meddlers.

De Soto asks rhetorically how much of his huge wealth Bill Gates would have amassed if he had been unable to patent his software innovations, enforce his long-term development contracts, take risks without insurance and limited liability, store accumulated capital without unambiguous property records, pool resources without fungible property representations and make other millionaires without recorded stock holdings. Not much, perhaps. But did you notice the unstated premise? Those desirable things must be provided by government. Oops!

De Soto’s whole emphasis is to set out to reform governments so that they provide the services of asset and business registrations much more cheaply than now and with far less red tape. He seems to assume that the massively expensive tangle of obstacles got there by accident or oversight, or at worst by bad management, and displays no understanding that the erection of artificial restraint on trade competition is exactly what governments are bound to do, by their very nature. It is what they have normally done, throughout history. Now and again a government may be reformed or reduced so as to remove impediments to business growth, e.g., 19th Century America and 20th Century Hong Kong [Ed: see lead article on this page]), and with spectacular results. But such reform is likely to be short-lived. Every year in America, as we all know, bureaucracy increases again towards the choking point. Take the U.S. health care industry. Please!

So it follows that while clear title to homes is “good” and may help finance growth, its absence is not a crushing impediment to upward social mobility in the Third World. The main one is the existence of laws to keep businesses “illegitimate” so that they stay inconspicuously small, for fear that visibility will attract thieving, meddlesome bureau-rats. Government barriers to trade are deliberate and endemic. They are elected by the well-connected precisely so as to protect their several interests from low-price entrants. When Chavez nationalizes the highlands of Venezuela’s economy, he is not doing it to champion the poor, as advertised. He is doing it to favor his wealthy friends so that they will in the future face no competition. The result in due course will be more poverty in the very working class he is so skillfully fooling.

It is a particularly cruel myth that governments exist to help the poor, when in reality they exist to protect rich clients from the poor. But it has always been so, and widespread poverty will continue until the myth is exposed. What a shame that this somewhat free-market economist stopped short. Having seen much of the cause of poverty, he wants to make the government-myth work, instead of ripping it to shreds. Such is the major difference between conservatives and market anarchists.

Link here.


When Ayn Rand finished writing Atlas Shrugged 50 years ago this month, she set off an intellectual shock wave that is still felt today. It is credited for helping to halt the communist tide and ushering in the currents of capitalism. Many readers say it transformed their lives. A 1991 poll rated it the second-most influential book (after the Bible) for Americans.

At one level, Atlas Shrugged is a steamy soap opera fused into a page-turning political thriller. At nearly 1,200 pages, it has to be. But the epic account of capitalist heroes versus collectivist villains is merely the vehicle for Ms. Rand’s philosophical ideal: “Man as a heroic being, with his own happiness as the moral purpose of his life, with productive achievement as his noblest activity, and reason as his only absolute.”

In addition to founding her own philosophical system, Objectivism, Rand is honored as the modern fountainhead of laissez-faire capitalism, and as an impassioned, uncompromising, and unapologetic proponent of reason, liberty, individualism, and rational self-interest. There is much to commend, and much to condemn, in Atlas Shrugged. Its object – to restore man to his rightful place in a free society – is wholesome. But its ethical basis – an inversion of the Christian values that predicate authentic capitalism – poisons its teachings.

Rand articulates like no other writer the evils of totalitarianism, interventionism, corporate welfarism, and the socialist mindset. Atlas Shrugged describes in wretched detail how collective “we” thinking and middle-of-the-road interventionism leads a nation down a road to serfdom. No one has written more persuasively about property rights, honest money (a gold-backed dollar), and the right of an individual to safeguard his wealth and property from the agents of coercion (“taxation is theft”). But there is a dark side to Rand’s teachings. Her defense of greed and selfishness, her diatribes against religion and charitable sacrificing for others who are less fortunate, and her criticism of the Judeo-Christian virtues under the guise of rational Objectivism have tarnished her advocacy of unfettered capitalism. Still, Rand’s extreme canard is a brilliant invention that serves as an essential counterpoint in the battle of ideas.

The Atlas characters are exceptionally memorable. They are the unabashed “immovable movers” of the world who think of nothing but their own business and making money. Her chief protagonist, John Galt, is an uncompromising superman. He is the proverbial Atlas who holds the world on his shoulders. He has invented a fantastic motor, yet is so frustrated with state authority that he withdraws his talents – hence the book’s title. Mr. Galt somehow succeeds in getting the world’s top capitalists to go on strike and, in many cases, strike back at an increasingly oppressive collectivist government. Rand’s plot violates a key tenet of business existence, which is to constantly work within the system to find ways to make money. Real-world entrepreneurs are compromisers and dealmakers, not true believers. They would not give a hoot for Galt. Rand, of course, knows this. And that is OK, because Atlas Shrugged is about philosophy, not business.

Rand is truly revolutionary because she makes the first serious attempt to protest against altruism. She rejects the heart over the mind and faith beyond reason. Indeed, she denies the existence of any god or higher being, or any other authority over one’s own mind. For her, the highest form of happiness is fulfilling one’s own dreams, not someone else’s – or the public’s. Galt crystallizes this. No sacrifice, no altruism, no feelings, just pure egotistical selfishness, which Rand declares to be supreme logic and reason. This philosophy transcends politics and economics into romance. The novel’s sex scenes are narcissistic, mechanical, and violent. Are the lessons of her book any way to run a marriage, a family, a business, a charity, or a community?

To be sure, Rand makes a key point about altruism. A philosophy of sacrificing for others can lead to a political system that mandates sacrificing for others. That, Rand shows with frightening clarity, leads to a dysfunctional society of deadbeats and bleeding-heart do-gooders (Rand calls them “looters”) who are corrupted by benefits and unearned income, and constantly tax the productive citizens to pay for their pet philanthropic missions. But is the only alternative to embrace the opposite of extreme self-centeredness? Must we accept her materialist metaphysics in which, as Whittaker Chambers wrote in 1957, “Randian Man, like Marxian Man, is made the center of a godless world”?

No, there is another choice. If society is to survive and prosper, citizens must find a balance between the two extremes of self-interest and public interest. Adam Smith, the founder of modern economics, may have found that Aristotelian mean in his “system of natural liberty.” Mr. Smith and Rand agree on the universal benefits of a free, capitalistic society. But Smith rejects Rand’s vision of selfish independence. He asserts two driving forces behind man’s actions: (1) “Sympathy” or “benevolence” toward others in society. (2) Self-interest, which he defines as the right to pursue one’s own business. Both, he argues, are essential to achieve “universal opulence.”

Smith’s self-interest never reaches the Randian selfishness that ignores the interest of others. In Smith’s mind, an individual’s goals cannot be fully achieved in business unless he appeals to the needs of others. This insight was beautifully stated two centuries later by free-market champion Ludwig von Mises. In his book, The Anti-Capitalist Mentality, he writes: “Wealth can be acquired only by serving the consumers.” Smith’s theme echoes his Christian heritage, particularly the Golden rule.

Today’s most successful libertarian CEOs, such as John Mackey of Whole Foods Markets and Charles Koch of Koch Industries, have adopted the authentic spirit of capitalism that is more in keeping with Smith than Rand. Theirs is a “stakeholder” philosophy that works within the system to fulfill the needs of customers, employees, shareholders, the community, and themselves. Their balanced business model of self-interest and public interest shows how the marketplace can grow globally in harmony with the interests of workers, capitalists, and the community – and can even displace bad government.

The golden rule is the correct solution in business and life. But would we have recognized this Aristotelian mean without sampling Rand’s anthem, or for that matter, the other extreme of Marxism-Leninism? As Benjamin Franklin said, “By the collision of different sentiments, sparks of truth are struck out, and political light is obtained.”

John Galt – it is time to come home and go to work.

Link here.
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