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PANAMA HAS NO CENTRAL BANK
In this modern, post-Bretton Woods world of “monetary order” and coordinated central-bank inflation, many who are otherwise sympathetic to the arguments against central banks believe that the elimination of central banking is an unattainable, utopian dream. For a real-world example of how a system of market-chosen monetary policy would work in the absence of a central bank, one need not look to the past. The example exists in present-day Central America, in the Republic of Panama, a country that has lived without a central bank since its independence, with a very successful and stable macroeconomic environment.
The absence of a central bank in Panama has created a completely market-driven money supply. Panama’s market has also chosen the U.S. dollar as its de facto currency. The country must buy or obtain their dollars by producing or exporting real goods or services. It cannot create money out of thin air. In this way, at least, the system is similar to the old gold standard. Annual inflation in the past 20 years has averaged 1% and there have been years with price deflation, as well – 1986, 1989, and 2003.
Panamanian inflation is usually between 1 and 3 points lower than U.S. inflation. It is caused mostly by the Federal Reserve’s effect on world prices. This market-driven system has created an extremely stable macroeconomic environment. Panama is the only country in Latin America that has not experienced a financial collapse or a currency crisis since its independence.
As with most countries in the Americas, Panama’s currency in the 19th century was based on gold and silver, with a variety of silver coins and gold-based currencies in circulation. The Silver Peso was the currency of choice. However, the U.S. greenback had also been partially in circulation, because of the isthmian railroad – the first railroad to connect the Atlantic to the Pacific – that was built by a U.S. company in 1855. Panama originally became independent from Spain in 1826, but integrated with Colombia. Being a small state, it was not able to immediately secede from Colombia, as Venezuela and Ecuador had done. In 1886 the Colombian government introduced several decrees forcing the acceptance of government fiat paper notes. Panama’s open economy, being based on transport and trade, plainly could not benefit from this. An 1886 editorial of its main newspaper read: “Everything we consume here is imported. We have no products and can only send money in exchange for what is imported.”
In 1903, the country became independent, supported by the U.S. because of its interest in building a Canal through Panama. The citizens of the new country, in distrust of the 1886 experiment of forced fiat Colombian paper notes, decided to include article 114 in the 1904 constitution, which reads, “There will be no forced fiat paper currency in the Republic. Thus, any individual can reject any note that he may deem untrustworthy.” With this article, any currency in circulation would be de facto and market driven. In 1904 the Government of Panama signed a monetary agreement to allow the U.S. dollar to become legal tender. At first, Panamanians viewed it with mistrust, preferring to utilize the silver peso. Gresham’s Law, however, drove the silver coins out of circulation.
In 1971 the government passed a banking law that allowed for a very liberal and open banking system, without any government agency of consolidated banking supervision, and confirmed that no taxes could be exacted from interest or transactions generated in the financial system. The number of banks jumped from 23 in 1970 to 125 in 1983, most of them being international banks. The banking law promoted international lending, and because Panama has a territorial tax system, profits from loans or transactions made offshore are tax free. This, and the presence of numerous foreign banks, allows for international integration of the system. Panama has no capital controls. Therefore, when international capital floods the system, the banks lend the excess capital offshore, avoiding the common ills, imbalances, and high inflation that other countries face when receiving huge influxes of capital.
Fiscal policy has little room to maneuver since the treasury cannot monetize its deficit. Banks cannot coordinate inflation due to ample competition and the fact that (unlike even the U.S. banking system prior to the Federal Reserve) they do not issue bank notes. The panics and general bank runs that were so common in the U.S. banking system in the 19th century have not occurred in Panama, and bank failures do not spread to other banks. Several banks in trouble have been bought – before any runs ensue – by larger banks, attracted by the profits that can be made from obtaining assets at a discount. There is no deposit insurance and no lender of last resort, so banks have to act in a responsible manner. Any bad loans will be paid by the stockholders.
After malinvestments during the booms, banks begin the necessary liquidation of bad credit. Since there is no central bank that can step in to provide cheap credit, the recession begins without any hampering by monetary policy. Banks thus create the necessary contraction by obeying market forces. Panama’s recessions commonly create deflation, which mollifies consumers and also facilitates the recovery process by reducing business costs. Only the fact that the law does not allow for the downward flexibility of wages makes recessions longer than they would otherwise be.
Deflation happens without the terrible consequences that Keynesian economists predict. The country, now under democratic rule, is experiencing its 4th year of market economic growth well above 7%. So the policy makers who have said that abolition of the central bank is unfeasible need only look to Panama’s macroeconomic environment, which has been favorable for over 100 years, to realize that it is, in fact, not only possible, but very beneficial. Clearly no government-forced fiat currency, no central bank, and the absence of high inflation are working quite well in this small country. Who can argue that these policies would not work in larger economies?Link here.
EXCHANGE RATES CUT INTO U.S. TRAVELERS’ FUN IN EUROPE
But not by that much.
A weakened dollar could send at least some Americans packing for destinations other than Europe this summer. Bookings for Western Europe this summer are down by nearly 3% compared with the same period last year at travel agency AAA’s 1,000 locations. Online agency Travelocity sees a 2% drop-off from last year.
“The middle of the market is certainly evaluating where they want to be this summer,” says Terry McCabe of Altour, a Manhattan-based travel agency. Even Altour’s well-heeled clients are showing a growing interest in saving money, she says. “Instead of splashing on 5-star hotels everywhere, they may save it to go wild at one or two places.”
The U.S. dollar on April 30 continued to hover near last week’s all-time intra-day low against the euro of $1.3682 per euro. On April 18, the British pound soared above $2 for the first time in 26 years and continues to trade near there. For Americans, it makes meals, entertainment and lodging extra pricey.
Perhaps sensing Americans’ reluctance in light of the weak dollar, a growing number of hotel operators in Europe are offering promotions designed to take their minds off of soaring currency rates. Luxury hotels such as the Merrion in Dublin, The Capital in London and the Esprit Saint-Germain in Paris offer specials that guarantee room rates in U.S. dollars, shifting the currency exchange risk to the hotel. And the Four Seasons hotels in Dublin, Lisbon and Geneva are offering a fourth night free during the peak summer season through September 3.
Tour operators in Germany are not too concerned, says George Vella of the German National Tourist Office in New York. He says currency rates are not as big a barrier for visitors as in the past. Plus, he says, German river cruises are soaring in popularity and Germany’s hotels remain cheaper than those in other capitals, with a 5-star Berlin hotel going for about $250 a night.
Airlines, at this point, continue to be optimistic about summer travel to western Europe. “We are seeing record bookings to Europe this year for reasons we don’t totally understand,” says Mike Rudolf, of German carrier LTU. Airline schedules also reflect confidence. They are offering a net increase of 35 daily flights this summer, vs. 25 daily flights last summer, says New York consultant Craig Jenks, president of Airline/Aircraft Projects.Link here.
ST. KITTS AND NEVIS TO IMPROVE BUSINESS ENVIRONMENT
St. Kitts and Nevis is moving swiftly to improve its “doing business” rating in the world market, according to the twin island federation’s government. “Being mindful of the need to improve the rating of St. Kitts and Nevis in the World Bank ‘Doing Business assessment,’ Cabinet reviewed a recommended package of reforms that must be adopted to bring the necessary results,” Minister of State for Information, Sen. Nigel Carty has disclosed.
Last February, the Cabinet mandated that the Ministry of Industry and Commerce undertake the necessary studies to advise on important reforms and has now agreed that those reforms need to be implemented. A new policy calls for streamlining of the business registration requirements, cutting the time of property registration, speeding up contract enforcement – particularly through reviewing the limit of claims that can be heard by the magistrate court, helping to expand access to credit, and simplifying tax administration.Link here.
BRITISH VIRGIN ISLANDS FINALLY DECIDES ON TELECOMS LICENCES
After some months of hesitation, the BVI Government has announced a telecommunications liberalization policy which will see the three existing operators competing in all sectors of the market for the next three years. New licences were supposed to be issued by the end of this past January, the moment when Cable & Wireless’s 40-year monopoly licence expired. But the government appeared to be unable to make up its mind over how many new licences to issue, so that the BVI’s new Telecommunications Regulatory Commission was forced to give a series on monthly extensions to existing licence holders, including fixed-line operator C&W, mobile operator CCT Global Communications and BVI Cable TV.
Minister for Communications and Works Elmore Stoutt said that the objective of the liberalization policy is to create the conditions for a fully effective and successful telecoms sector in the BVI. “Government promised the people of the BVI that it would liberalize the telecommunications industry. This policy therefore sets the process in motion and as a result, the public can look forward to better services and prices,” he said.
The Government has invited each of the three current licensed public suppliers to apply through the Telecommunications Regulatory Commission for licences to operate across all three sectors (fixed line, mobile and cable). Applications are due by close of business on May 4, 2007. Other applicants who will be disappointed include Digicel and Virgin Live Media.
Although the market is only opened to the three existing operators, successful applicants will be able to compete in all areas of telecommunications including fixed, mobile and international services, as well as Internet and the distribution of cable network and wireless network television program services.Link here.
PRESIDENT OF URUGUAY PRAISES DUBAI’S STRATEGIC VISION
Uruguay President HE Tabaré Vázquez expressed his Government’s interest in economic cooperation during a visit to DP World Jebel Ali and Jebel Ali Free Zone (Jafza). The President and his delegation were welcomed by Jamal Majid Bin Thaniah, Vice Chairman of Dubai World and Group CEO, Ports and Free Zone World, and presented briefs on the world-class projects undertaken by DP World, Nakheel, Istithmar, Jafza and other group companies.
President Vázquez praised Dubai’s vision of diversifying its economy through the development of non-oil trade: “We are impressed with Dubai’s development and the high levels of performance in diverse economic sectors. The Republic of Uruguay would like to learn and gain from these experiences and we welcome Dubai’s expertise in developing mutually beneficial projects in our own country.”
Uruguay has a long coastline, as well as a strategic inland waterway that connects to neighboring Argentina, Paraguay and Brazil. Container handling in the country’s main port in Montevideo has grown from 293,000 TEU (20 foot equivalent container units) in 2002 to 522,000 TEU in 2006, representing average annual growth of over 15%. The major factor for growth has been the emergence of Montevideo as a significant hub for the relay of cargo to the hinterland.
Uruguay enjoys a positive investment climate, with a strong legal system and open financial markets. It grants equal treatment to national and foreign investors, making it one of the most open economies in South America.Link here.
INTERNATIONAL IDENTITY OF ISLE OF MAN RECOGNIZED
A landmark declaration recognizing that the Isle of Man has its own identity and interests in the international arena has been announced. The framework of principles agreed by the governments of the UK and the Isle of Man reinforces the Island’s separate status within the context of its constitutional relationship with the UK.
Chief Minister Tony Brown MHK, who signed the document on behalf of the Manx Government, said, “This is a significant step forward in the Isle of Man’s evolution as a mature and responsible democracy. It confirms in writing that the Island has its own distinct and legitimate interests on the world stage, which may differ from those of the United Kingdom.
“The understanding that has been reached should help the Isle of Man to flourish as a reputable center for international business. There is now greater clarity about the Island’s position, which will be useful in dealing with governments, organizations and businesses around the globe.”
The UK has ultimate responsibility for the Isle of Man internationally and historically all international matters affecting the Island were handled by the UK. In recent years – with the rise of Island as an international business center and its increasing involvement with global issues – it has started to deal directly with other governments and organizations, and there has been growing awareness that it has distinct interests internationally.Link here.
JERSEY AND U.K. REACH LANDMARK CONSTITUTIONAL AGREEMENT
Jersey’s Chief Minister, Senator Frank Walker has said that an historic agreement which he recently signed with the UK Secretary of State for Constitutional Affairs, Lord Falconer, was a significant step in the development of Jersey’s international identity. The agreement highlights the unique constitutional relationship between Jersey and the UK. It recognizes that Jersey has a unique identity separate from and different to the UK. It also recognizes that there will be times when their interests might differ.
Senator Walker said, “Whilst we will work together to resolve some differences, it is entirely justified for others to remain, to be recognized and respected.” In a statement to States members, the Chief Minister continued, “The framework does not seek to change our unique constitutional relationship with the UK. We agree that it works well and that we are both committed to evolving methods of achieving our mutual interests. ... I am also pleased that we have agreed that Jersey and the UK will work together to promote a wider understanding and development of Jersey’s international status and identity. ... We have all been working hard for many years to counter the negative images that some people would like to paint. A clear statement by the UK endorsing Jersey as a responsible, stable and mature democracy sends a message to the International Community that our detractors will find hard to counter. ... [I]t recognizes that understanding the different identities of Jersey and the UK is key to the appropriate representation of Jersey on the international stage.”Link here.
ANDY XIE WARNS OF CHINA CRASH
Morgan Stanley former star economist Andy Xie warned of an imminent stock market crash in China – but still hopes to raise money to invest in the country. Xie, who attracted a wide following while he was at Morgan Stanley because of his often contrarian views on China’s economy and stock markets, also warned that the global boom in equities would be over by 2008 and that this would coincide with a worldwide recession. The recession would start from the U.S. and spiral down into Asia where exporters would be hit, Xie, 46, told Reuters.
“I think it is going to be bust very soon,” Xie said, adding that a combination of excess liquidity, rising inflation and rich valuations would result in a global crash soon. “People will be surprised. When the end comes, it is going to be pretty bad.”
Despite his ultra-bearish view on the markets, Xie said that he plans to set up an “investment club” that would be open only to people he knows. The club would invest in unlisted firms, would have total funds of $200 to $300 million and would be focused solely on China. “I am going to be flexible – mainly looking at early-stage companies that appeal to domestic demand,” Xie said. Unlike other private equity funds, Xie said his club would also help provide management consultancy for the companies in which it invests.
Xie, who worked at Morgan Stanley for nine years and spent five years as an economist with the World Bank, resigned from the U.S. investment bank after an email with disparaging comments about Singapore’s economic policy was leaked to the public. His email was written shortly after the IMF/World Bank meetings in Singapore in September. Xie declined to elaborate on his departure, but said he was already considering resigning from the bank before then. He added that he would not join another firm again and does not rule out heading his own fund in future. He sees himself traveling around China, dispensing economic advice.
Earlier this month, Xie warned investors of an imminent meltdown in the red-hot China stock market in an article in Hong Kong’s South China Morning Post. His comments were published a day before a global sell-off on April 19, which was caused by fears of a rate hike in China. Xie, who has a doctorate in economics and a master’s degree in civil engineering from the Massachusetts Institute of Technology, said China was not doing enough to limit the country’s frothy stock market. The benchmark Shanghai stock index is up about 44% since the start of the year. China’s central bank announced that it would lift reserve requirements by a further 0.5 percentage point, but Xie said this would not stem the “humungous” excess liquidity in the market.
Xie said the Chinese government understood the importance of limiting the bubble in the market, but was reluctant to implement more forceful measures, fearing a political backlash. “College students are putting their tuition money into the market ... stroke-stricken retirees get wheeled into branches of securities firms to trade,” Xie said in his SCMP article. “People are not paying attention to anything else.”Link here.
ONLINE GAMBLING’S “PUBLIC OUTCRY CAMPAIGN” GAINING SUPPORT AND MOMENTUM
The online gambling industry’s “Public Outcry Capaign”, meant to reveal the public’s displeasure in this century’s form of prohibition, is moving into phase two this week. Callers will be emphasizing to their representatives that the Unlawful Internet Gambling Enforcement Act should be repealed because it is in direct violation of a recent World Trade Organization ruling. The campaign, sponsored by Casino Gambling Web, has been going on for only under a week and thousands of phone calls have already been made to congress people expressing a strong desire to repeal the Unlawful Internet Gambling Enforcement Act.
A case was brought up against the U.S. by Antigua to the WTO because when the U.S. banned Internet gambling they wiped out the major revenue stream of the small island country. The U.S. claimed they banned internet gambling because they believed it to be morally wrong, yet in the bill the U.S. allowed exemptions for state-run lotteries and betting on horse racing. The WTO ruled that if the U.S. was claiming to ban internet gambling for moral reasons, then they must not include the exemptions which are contradictory to their moral claims. The WTO said the U.S. must comply with the ruling or they will face sanctions.
In terms of the legalization of gambling, the U.S.A. has the most liberal and progressive laws in the world. Las Vegas, Nevada is the largest gambling mecca in the world. Atlantic City, New Jersey has long been a favorite gambling spot for those on the east coast of America. Louisiana has a large casino in New Orleans that gamblers in the south attend. Mississippi is also host to many major gambling casinos in the south. Florida has been expanding many Indian gaming casinos. Pennsylvania just approved slot parlors and then they approved a virtual form of table gaming for those slot parlors. West Virginia has slot parlors and they just approved full Vegas style table games. Delaware has slot parlors and virtual table games. California just approved 22,500 slot machines to be added to Indian casinos, which is the equivalent of ten Vegas style casinos. Many more states are also considering gambling. Yet, internet gambling was deemed to be “morally wrong” by the U.S. government, so it was banned.
Many American states have state run lotteries that are heavily promoted on public television. Any person over 18 can enter any gas station in a state where lottery gambling is legal and they can buy as many lottery tickets as they can afford, they can even buy more tickets than they can afford. Lottery gambling is not only morally acceptable, it is also heavily promoted, yet, internet gambling was deemed “morally wrong”.
U.S. Congressman Barney Frank, who is the leader of the future bill meant to repeal the Unlawful Internet Gambling Enforcement Act, said last week in an interview, “One argument for [the passing of the UIGEA] was this activity adds nothing to the GDP. That is a chilling principle, that if something does not add to the gross domestic product we can ban it. That is a kind of ... corporatism that is very troubling to me.”
Frank emphasized that callers should continue expressing their dissent and focus on telling their congress people that they must abide by WTO rulings if they want other countries to follow rulings in the U.S. favor. The goal of the “Public Outcry Campaign” is to let all politicians know that Americans want their freedom back. The intended result of the campaign is to end the 21st century form of prohibition that does not allow responsible adults to spend their money however they want in the safety of their own home.Link here.
TAX ACTIVIST NOW WISHES HE HAD FILED AND AVOIDED PRISON
Like Plainfield, New Hampshire’s Ed and Elaine Brown, Pennsylvania resident Larken Rose believed so strongly he was not required to pay income taxes that he was willing to battle the federal government in court. Unlike the Browns, Rose – who in January finished serving his prison sentence for failing to file tax returns – no longer thinks the battle was worth it.
In a telephone interview last week from his home in Hollywood, Pennsylvania, Rose – an outspoken IRS critic whose video “Theft by Deception” was presented by Elaine Brown as evidence during her trial – said he has not renounced his theories on the income tax and would still have spoken out about those views. But if he had it to do over again, Rose said, he would not have put his ideas into practice. He said the disruption to his family’s life caused by his prosecution, conviction and prison term was simply too great. “I probably would have filed incorrect returns, pretending my income was taxable even though I know it is not,” Rose said. “For the exact same reason that if I lived in a city where the Mafia came by and smashed people’s kneecaps, I would give them money because I like my kneecaps. That is despicable, but in this country, that is the only way to stay out of trouble.”
A jury convicted the Browns on January 18 on charges springing from their decision not to pay federal taxes on about $1.9 million in income since 1996. The Browns have argued throughout and after their trial that there is no law requiring American citizens to pay federal income taxes. Ed Brown has stayed holed up in his Plainfield home since he quit attending the couple’s trial on January 12. Elaine Brown, who had been ordered after her conviction to remain with a son in Massachusetts, broke her bail conditions when she rejoined her husband in February at their house. Arrest warrants have been issued for both. It is unclear whether the Browns intend to come to their sentencing hearing. Ed Brown declined to comment on the couple’s plans.
Rose, who stood trial on considerably less serious charges than the Browns – willfully failing to file tax returns is a misdemeanor, while Ed and Elaine Brown have been convicted on felony charges – said he sympathized with the Browns’ decision to have no truck with the legal system. “I obviously didn’t go the route Mr. Brown went, but I can certainly understand why he has no faith in the system granting justice, because it did not in my case,” Rose said. Rose was disillusioned after seeing a jury of his peers so ready to believe the arguments of government prosecutors. “Basically, I regret having put my freedom in the hands of the American public because they are utterly clueless and not deserving of the freedom they still have.”
Rose’s own argument is that tax laws do not define the income of American citizens working within the U.S. as taxable. But Rose said he was prevented from presenting his views as evidence in court. As a result, he said, the jury only heard the government’s side of the story before sentencing him to 15 months in prison. (Rose said he was in prison for just over a year before his release.) The complaint echoes many voiced by Ed and Elaine Brown, who have said that they were not allowed to give a full account of their anti-tax views in court and that the judge misdirected jury members when he told them that the constitutionality of the IRS code was not on trial.
Part of the government’s case against the Browns was to show that IRS officials repeatedly warned the couple that their reading of the law was incorrect. “It’s really a matter of notice,” Michael Mello, a criminal justice professor at Vermont Law School, said. “Once you are on actual notice that your legalistic contentions lack merit, you can’t continue to stand on them.” Mello, a former public defender in capital murder trials, said criminal defense strategies often founder on a defendant’s sincere belief that a law is unjust or does not apply in certain cases.
Rose said he had his doubts about whether his own imprisonment had upped his credibility in the eyes of the public. He said sales of his book and video have stayed about level throughout the ordeal. He doubts he benefited from any “martyr” effect. “Different people react differently,” he said. “Some people think, ‘If you’ve been to prison, I’m not listening to you.’ Other people think, ‘If you believed in this enough to take it seriously, I’ll believe you.’ All in all, it probably has a net-zero effect.”Link here.
WASHINGTON STATE MAN ACCUSED OF OPERATING “WAREHOUSE BANKING” TAX EVASION SCHEME
A federal court in Seattle announced that it has shut down a tax evasion scheme operated by Robert Arant out of his Des Moines home from past seven years. According to the federal complaint filed against him, Arant helped his hundreds of customers to hide assets and income from the IRS and falsely assured them he could make their banking transactions untraceable.
Evidence submitted by the IRS showed that from 2002 to 2005 Arnat’s customers deposited nearly $28 million to his so-called bank Olympic Business Systems LLC, which then commingled the funds and deposited them in six accounts at three banks namely, Bank of America, U.S. Bank, and Wells Fargo Bank. OBS then would pay customer’s bills from those bank accounts without leaving a paper trail and thus hiding their identities. For his service, Arant would charge his customers a $75 annual fee, plus fees for wire transfers, initial account set-up, and even issuing a debit card, according to the Associated Press reports.
In a temporary restraining order freezing OBS’s assets, signed last month, Chief Judge Robert L. Lasnik held that Arant “is or should be aware that courts have repeatedly held that warehouse banks are tax evasion schemes.” In 2005 a federal court in Oregon sentenced operators of a warehouse bank to prison, after their criminal convictions. If convicted, Arant could face civil penalties of $1,000 per false statement he made to each of his customers.Link here.
IRS SEEKS NOMINATIONS FOR ADVISORY COUNCIL
The IRS has announced that it is requesting membership nominations for the Internal Revenue Service Advisory Council (IRSAC). IRSAC’s purpose is to provide an organized public forum for IRS officials and representatives of the public to discuss relevant tax administration issues. The committee presents a report to the Commissioner of Internal Revenue each year at a public meeting in the fall.
Members are drawn from substantially diverse backgrounds. Membership is balanced to include representation from the tax professional community, including, but not limited to, tax attorneys, certified public accountants, enrolled agents, enrolled actuaries and appraisers, as well as large and small business representatives and other tax practitioners. IRSAC is comprised of up to 30 members, who are appointed for three-year terms by the Commissioner. Nominations are currently being accepted for five to seven appointments that will begin January 2008.
Interested parties may nominate themselves and/or one other qualified person for membership. Nominees should be in good standing regarding their own tax obligations, and should represent professional and ethical ideals. All nominees must complete an application and a tax check waiver form. In addition, FBI criminal and subversive checks using fingerprints and, if applicable, practitioner checks are required of all nominees.Link here.
IRISH BANKERS’ FEDERATION STRONGLY OPPOSES EU TAX PLANS
Proposals for changes to EU tax laws will prove “very damaging to business and to the interests of the wider economy,” the Irish Bankers’ Federation claimed. Commenting on plans announced by EU Commissioner for Taxation and Customs Union László Kovács today, the IBC said it was “vehemently opposed” to any attempts to introduce a common consolidated corporate tax base (CCCTB). The CCCTB will ultimately reduce the flexibility of the EU’s corporate tax system as the agreement of a large number of member states will be required in order to make any changes. Business group Ibec also reiterated its “strong opposition” to the moves.
Among the measures outlined by Mr. Kovacs are a common corporate tax base which would apply to the financial services industry. The corporate tax base in a number of member states would change as a result of this. Ireland’s low rate of corporation tax is seen as key to attracting and retaining continued foreign direct investment.
Under the commissioner’s plan, the EU would set an EU-wide tax authority to oversee the process of introducing common corporate taxes. The IBF, which represents over 60 financial institutions in the State, said it regarded the proposals as “deficient in their own right and as a gateway to a common corporate tax that would be very damaging for Ireland.” It said the plans would undermine Ireland’s competitiveness and that the flexibility every member state currently has to amend its tax system to reflect its policy priorities would also be lost. The commissioner, the IBF said, had not produced any analysis in support of his claim that they will enhance European competitiveness.
IBF chief executive Pat Farrell said, “As an open, trading economy operating in a very challenging global environment, it is imperative that we maintain what competitive advantages we have and that we continue to sharpen our competitiveness at every opportunity. This is as true for financial services as it is for any other sector of our economy. ... We strongly oppose the CCCTB proposals because they are in themselves very deficient and because they are the gateway to a common EU corporate tax that will further undermine Ireland’s competitiveness.
Ibec said that, contrary to the Commission’s claims, it would not strengthen the competitiveness of the EU. They would be “particularly damaging to the economies of smaller member states such as Ireland,” Ibec claimed. Ibec chief economist David Croughan said the proposal would almost certainly lead to an increase in companies’ tax bills by transferring taxable profits to the regions with large populations. “It would effectively result in a transfer of resources from smaller countries to larger ones,” he said.
“In the case of Ireland, which exports the greater part of its output to the larger central economies of the EU, companies would see part of their profits, currently taxed at 12.5 per cent, apportioned to other higher taxed member states such as Germany or France. Such countries, who have made no secret that they see the introduction of CCCTB as a first step to tax rate harmonization, would benefit from higher tax revenue earned by companies located in Ireland,” said Mr. Croughan.
Mr. Croughan said policy makers must be able to react rapidly to changing economic circumstances and developments in other tax jurisdictions. As an open, trading economy operating in a very challenging global environment, it is imperative that we maintain what competitive advantages we have and that we continue to sharpen our competitiveness at every opportunity.
Mr. Kovács said he is not proposing any harmonization of tax rates throughout the EU. “We are now entering the crucial phase where technical fine tuning and strong political support are needed,” he said. “I know this project is an ambitious one and has raised some scepticism from certain member states and questions that are to be answered.”
According to the Department of Finance, “Ireland supports the Commission’s efforts in transforming the European Union into the most competitive economic zone in the world but we do not believe that the introduction of a Common Consolidated Corporate Tax Base could advance the Lisbon Agenda nor that it could improve the competitiveness of the European Union.”
A statement on the Department’s website continued, “Our position on the CCCTB is well known. We do not favor it for reasons of principle and practicality. The proposal cuts across national sovereignty and subsidiarity. We believe that choices on taxation and expenditure are matters for each member state. It is for each member state to decide on the structure of its own tax system reflecting its historical traditions and social and economic priorities.”Links here and here.
CANADA’S FLAHERTY PLOWS AHEAD WITH PLANS TO LIMIT OFFSHORE INTEREST DEDUCTIBILITY
Canadian Finance Minister Jim Flaherty rejected opposition demands that he hold consultations with industry before moving ahead with a controversial plan to tighten rules on the use of offshore tax havens. Flaherty is working on a bill, to be introduced to Parliament shortly, that will no longer allow companies to deduct the interest payments on borrowed money used to acquire shares of foreign affiliates. He says the current system is abused by some firms via tax havens, mainly Barbados.
The opposition Liberal Party and some chief executives argue that his plan will handicap Canadian firms versus their foreign rivals when bidding on other companies. They say other forms of rule-tightening would be more effective and that consultations with industry are required. But Flaherty flatly rejected those ideas in remarks to reporters in Ottawa, saying his proposal would be contained in a bill to be presented to the House of Commons within the next few days.
“We have to focus on the tax havens. That is the tax avoidance vehicle and so we have to make sure the legislation we do bring in focuses on that,” he said. Flaherty has said he is willing to be flexible on the length of the phase-in period for the new restrictions. New information coming from firms suggests that the tax avoidance by this method is bigger than the government originally thought, he said. “There is a lack of transparency, which is to be expected in this area because people don’t report to the government of Canada that they are double-dipping using a tax haven.”Link here.
STUDY HIGHLIGHTS HUGE COST OF MAINTAINING CANADA’S TAX SYSTEM
Preparing, filing and submitting tax returns plus maintaining a government bureaucracy to manage and regulate the tax system cost Canadians between C$19 billion and C$31 billion in 2005, says a new study from The Fraser Institute, an independent research organization. “That translates to a cost of C$585 to C$955 for every man, woman and child in the country,” said Jason Clemens, Director of Fiscal Studies at The Fraser Institute and co-author of the study.
The new study, Compliance and Administrative Costs of Taxation in Canada, uses existing data to estimate the total cost to the Canadian public in 2005 of complying with tax laws and regulations and the costs to governments in managing and maintaining the tax system. The study examines two types of costs associated with taxation – compliance costs and administrative costs. Compliance costs are expenses incurred by individuals, families, and businesses to comply with tax regulations. These include the time and expenses to maintain proper records, undertake tax planning, file necessary reports, and calculate required remittances. They include both the costs incurred by individuals and businesses as well as fees paid to tax professionals such as accountants and lawyers. Costs incurred by businesses include collecting, managing, and remitting taxes paid by employees to the government, the costs of paying the businesses own taxes, and in providing tax-related information to governments.
Administrative costs are incurred by governments to collect taxes and enforce tax regulations. These costs include collecting, administering, and managing the tax collection system. They include the direct costs of the Canada Revenue Agency, which is responsible for administering and managing the Canadian tax system, and related overhead. They also include indirect costs incurred by judicial bodies responsible for settling disputes between taxpayers and the government.
Clemens pointed to the recently created fitness tax credit as an example of a regulation adding unforeseen additional costs to the tax system. “People may like the idea of receiving a tax break for putting their kids in sports,” he said. “But to get that tax break, parents have to make sure they obtain receipts for all their kids’ sports. Volunteers from athletic associations have to be sure they issue the receipts. Organizations have to make sure they are eligible under CRA guidelines to provide receipts. When you add up all the time and costs, it adds up to millions of dollars. And it appears to be getting worse.”
“The goal of tax policy should be to raise sufficient funds for the government to provide services demanded by citizens in the least costly manner possible,” Clemens concluded. “Given the high cost of operating and maintaining Canada’s tax system and the burden it places on the average taxpayer, governments need to look at measures to reduce these costs. The most obvious and most important measures are ones that reduce or eliminate tax policies that add complexity to the tax system, such as special preferences, multiple tax rates, and the number of taxes collected.”
Compliance and Administrative Costs of Taxation in Canada is a chapter from a forthcoming book on tax reform to be published later this year by The Fraser Institute.Link here.
GIBRALTAR’S TAX CASE AGAINST THE EU COMMISSION
Although it may be as long as three months before Gibraltar learns whether or not its tax case against the EC has been successful, this week’s 4 1/2 hearing of oral evidence before the European Court of Justice in Luxembourg has strengthened a sense of quiet optimism about the outcome among the Government’s legal team. A ruling in Gibraltar’s favor will open the door to a new tax structure that, it is widely believed, will see the application of an across-the-board company tax in the vicinity of 10%.
If Gibraltar gets the court’s green light in time, the 2007 Budget also is expected to significantly reduce Gibraltar’s personal tax levels, as well as setting up the new corporate regime. If, however, a decision is not made in time for the Budget, the Gibraltar Government will have to reconsider its taxation plans – and postpone the introduction of new structures for another year, Chief Minister Peter Caruana has indicated.
Spain’s intervention at the oral hearing focused on the issue of material selectivity which relates to the form of the actual tax reform plan. Madrid is understood to be concerned with the possible effect of any court ruling on tax regimes already operated in areas of Spain such as the Basque homeland. Significantly, a favorable ruling also will remove much of the uncertainty which has clouded Gibraltar’s economic horizon for almost three years since the EC first intervened to claim that Gibraltar could not have a corporate tax regime which differed from that of Britain. Although Gibraltar’s economy has continued to grow across the financial sector, efforts to capture new markets have been constrained by the ongoing uncertainty created by the EU moves.
The EU also argued that Gibraltar’s new series of tax proposals, first put out for consideration four years ago, infringed EU State Aid rules. Both arguments were rejected by the British and the Gibraltar governments, but the Commission’s stance also led Gibraltar deciding to put on hold several planned tax changes and to scrap plans for a “zero tax” regime which was believed at that time would enhance the Gibraltar’s attraction for foreign investors.
Gibraltar’s optimism has been encouraged by a judgment handed down by the European court last year which confirmed Portugal’s right to make separate tax arrangements in respect of the Azores without infringing EU State Aid rules. Whereas the Azores is an integral (albeit autonomous) part of the Portuguese state, Gibraltar is not part of the UK. And under Gibraltar’s new Constitution, which came into effect at the beginning of this year, Gibraltar has in effect a new, non-colonial relationship with Britain – a fact which was stressed in the oral evidence presented in Luxembourg this week.
The feeling in Gibraltar generally is that the EU Court will rule in favour of Gibraltar’s ability to have its own tax regime independent of the UK. Nevertheless, it is widely anticipated that however the Court adjudicates the issue of the new proposed zero tax regime, Gibraltar will move to a system of low corporate tax rates.Link here.
EUROPEAN TAX REGIMES STYMIE GROWTH OF DIGITAL MEDIA, SAYS KPMG
The failure of direct and indirect tax regimes to proactively address the seismic shifts taking place in the media sector may discourage development in this critically important arm of the EU economy, according to professional services firm, KPMG. David Nickson, Media Tax Partner for KPMG in the UK suggested that, “For companies on the cutting edge of developing and delivering digitised products and services, particularly those fuelling the growth in internet businesses, it is becoming increasingly difficult to align these new ways of doing business with international tax principles.
“The challenges presented to national tax laws are principally those of intangible borders. The immediate reaction from fiscal authorities to the changing environment has been to try to counter the potential for tax leakage, however, it would be wrong to focus solely on the potential for tax loss, as taxpayers simply seeking to meet their obligations will find it increasingly difficult to do so when tax systems fail to proactively address the way profits are generated in the online world.
“In addition, by shoehorning new forms of economic activity into existing tax frameworks, there is a serious risk that governments’ underlying objectives, such as stimulating business activity and consumer spending in certain sectors could be inhibited.”
Amanda Tickel, Indirect Tax Partner with KPMG in the UK added, “The 2003 changes for VAT in Europe are a good example – at the same time a tax leakage for electronic services sold in to the EU was addressed, EU tax authorities limited the extent of zero or reduced VAT rates, and instead taxed all media published electronically. Now there is a stark difference between VAT payable on printed books and books sold in any other form – audio, digital and downloadable. For the publishing industry, these changes amount to real tax increases and are not simply measures to counter the threat of potential tax leakage.”
The rates levied on digital media throughout Europe average four times those on traditional media such as books and newspapers. In the UK, the difference is between 0% for traditional media, and 17.5% for digital.Link here.
GOLDMAN SACHS DENIES SOUTH KOREAN TAX EVASION CLAIMS
But other reports say sheltering of capital gain using offshore subsidiary is under question.
Global investment bank Goldman Sachs has confirmed that the South Korean National Tax Service (NTS) is conducting an audit of the company’s business affairs in the country, but has denied these are connected to allegations of tax evasion. Christopher Jun, a spokesman at Goldman Sachs, has said that the process is a “routine tax audit of the firm’s businesses in Korea.”
However, Yonhap News reported that the NTS is looking into Goldman Sachs’s investment in Jinro Ltd., the nation’s leading maker of the distilled liquor soju, which was subsequently sold by the bank to the Hite Brewery Co in 2005 for 3.4 trillion won ($3.7 billion). Goldman Sachs is said to have made a profit of more than 1 trillion won from the sale. Yonhap said that Goldman Sachs did not pay taxes on the entirety of this gain because the deal was handled mainly by an Irish subsidiary known as Senna Investment Ltd. which took advantage of the double taxation avoidance agreement in place between South Korea and Ireland.
South Korea has been particularly sensitive to the activities of foreign investment firms in recent years and has moved to block the booking of large capital gains by such firms through offshore companies to prevent them from avoiding Korean taxes. The most notable example has been the case of Lone Star, the Dallas-based investment firm, which stood to make a tax free gain from the sale of its majority stake in Korea Exchange Bank by using South Korea’s double taxation avoidance treaty with Belgium. The 50.5% stake was acquired by Lone Star’s Belgian subsidiary in 2003 for about $1.2 billion. Last year it was worth about $5 billion.
In July 2006, Jun Goon-pyo, then the newly installed head of the NTS, warned that there would be no let up of pressure on foreign investment companies under his regime, and promised “stern measures” to prevent foreign funds from trying to exploit loopholes in the double-taxation avoidance treaties. “Speculators will realize it is no longer possible to make profits through speculation in real estate,” he warned.Link here.
TAX REVENUES SOAR TO NEW HIGH IN HONG KONG
Total tax revenue collected in Hong Kong soared to a record high of HK$155 billion (US$19.8 billion) in 2006-07, up 7% on the last financial year, Commissioner of Inland Revenue Alice Lau announced on Wednesday. Income from profits tax rose 3% over a year earlier, to HK$71.9 billion, while that from salaries tax grew 3% to HK$38.6 billion. An 8% rise was recorded in revenue from property tax and personal assessment, bringing the income to HK$4.8 billion.
Estate-duty revenue plummeted 54%, to HK$778 million, while that from stamp duties soared 40%, to HK$25.1 billion. The income from other taxes also rose 5%, to HK$1.8 billion, while revenue from betting duty nudged up 1%, to HK$12 billion. In this year’s Budget, the Financial Secretary proposed waiving 50% of salaries tax and tax under personal assessment for 2006-07, subject to a ceiling of HK$15,000 per case.Link here.
OFFSHORE TAX AVOIDANCE SCHEMES SET OFF ALARM BELLS AT AUSTRALIAN TAX OFFICE
A daring new range of offshore tax avoidance products is being marketed to Sydney tax advisers, despite the opprobrium attached to the Project Wickenby tax haven investigation. Advisers say the products have been discreetly promoted in Melbourne, Sydney, the Gold Coast and Brisbane by non-tax specialists, including a financial adviser who is also a suspect in an Operation Wickenby criminal investigation. The promoters have claimed the schemes are legitimate and backed by legal opinions from senior barristers.
One scheme involves an “investment bank” called HQZ Argentum, which has a presence in Sydney, Auckland and Singapore. But the promoters’ efforts to preserve confidentiality appear to have failed. The Tax Office has issued a “taxpayer alert” warning of a scheme where taxpayers claim deductions on payments to an Australian or offshore employee entitlement fund. It says the money – or promise to pay the money – is generally controlled by a trustee associated with the promoter. The offshore money is purportedly held for the future benefit of employees. “However, the scheme promoter then returns the funds to the employer via other parties,” the Tax Office says.
Tax advisers approached by the promoters say the range of arrangements involve blatant, Wickenby-style round-robin schemes that only “work” by disguising the true ownership of offshore funds. “They say they have got lots of clients interested and they are going gangbusters, and the ATO can’t do a thing. I was gobsmacked,” said one adviser who had been approached.
The Tax Office alert also points to a variation where contributions are made towards a tax-free offshore life insurance plan. The alert was distributed by the deputy commissioner for the aggressive tax planning division, rather than the serious noncompliance unit – implying the office is not necessarily treating the schemes as fraudulent.
Tax advisers have told of other variations, including property development insurance with put-and-call options. Always, however, there seems to be an underlying, old-style “captive insurance” structure, where tax-free profits are shifted offshore as “fees” or “premiums” to cover some future contingency and then channeled back to the taxpayer’s control. The promoters are said to be charging fees of 6% to 8% on the money shifted offshore.Link here.
TAX HAVEN LONDON (AND DELAWARE)
Jokes about offshore tax havens with more mailboxes than people are plentiful in the world’s onshore financial centers. But it looks as if the jesters have got it wrong. The real offshore tax havens may be the UK, the U.S. and other supposedly “onshore” financial centers. These countries need to practice what they preach on reducing tax -avoidance.
A new report points to the widespread failure of large countries to adhere to the tax rules that they have previously laid down for the havens. It brings into question what is really offshore. The U.S. lies off the shores of most other nations in the world. It is also fond of pointing fingers at Caribbean islands, but is unable to reel in its own renegade states. Delaware, for example, falls short of some of the demands of the OECD – a club of large, rich economies – on small countries for tax reporting. Little wonder that it hosts mailboxes for more than half of U.S. corporations and 60% of Fortune 500 companies. The vast majority of U.S. states do not require – let alone verify – ownership information when a company is formed. Companies need to provide almost as much information to register a web address.
It is hypocritical of rich countries to rail against offshore tax havens, while failing to do the maximum to penalize foreign tax avoiders within their own borders. Countries with a large population and tax base will always have a stronger argument against small countries that attract tax avoiders, but it is best to lead by example. Organizations such as the OECD should not be timid in pointing out failings within their own member states. International tax and regulatory competition is inevitable. The important thing is to provide a level playing field for all countries.
At the very least, it is time to rethink what we mean by “offshore”. Size and proximity to the coastline do not seem to make much sense. A new definition would include anywhere that makes it easy for foreigners to reduce their tax bill. Great Britain, however, seems to fulfil either definition. It offers generous perks to nondomiciled foreigners. And it is an island.Link here.
WHAT MAKES A REPUTABLE OFFSHORE FINANCIAL CENTER?
A cursory look at leading financial centers such as Bermuda, the Cayman Islands, the Bahamas and the Channel Islands leads one to instantly detect certain underlying ingredients which underpin their international tax planning industry (often erroneously referred to by laymen as “offshore banking”). The most critical of these factors combine to form what I refer to as “jurisdictional profile” which is determined after a particular type of peer review.
A jurisdiction is not reputable merely because its local inhabitants, government or regulator says so. The accolade is earned only when those countries which are already deemed “reputable”, admit this other jurisdiction as a “recognized jurisdiction” and gives its practitioners all the facilities and accommodations worthy of membership of this informal yet elitist club. Any country that “recognizes” other jurisdictions, but is recognized by no other, is clearly at the bottom of the pecking order.
The factors referred to are: (1) The competence and reputation of the local regulator. (2) The level of technical expertise available on the private sector side of the industry. And (3), the quality of the banking services and facilities available in the jurisdiction.
There are certain secondary factors which come into the mix, but only after the primary issues above have been properly satisfied. Such secondary factors include: (a) The quality and scope of the legislation (especially as this relates to companies and trusts). (b) The level of taxation and the availability of a tax treaty network. And (c), the quality of the general infrastructure (airport access, schools, restaurants, conference facilities, etc.).Link here.
BAHAMAS TO IMPROVE PRIVATE TRUST LAWS
Legislative amendments to allow for the formation of Private Trust Companies has been introduced in the Bahamas, Parliamentary Secretary, Ministry of Finance, Michael Halkitis has revealed. “This is a progressive step in the continued growth and development of our financial services industry and of our economy,” he told last month’s Private Trust Company seminar.
Currently, the government is consulting with relevant stakeholders. A recent seminar was designed to discuss the use and review of legislation pertaining to Private Trust Companies. Speakers included Michael F. L. Allen, partner at McKinney, Bancroft and Hughes. Allen explained that a private trust company is a concern formed for the specific purpose of acting as trustee of a single trust, or a group of related trusts for the benefit of members of the same family. “Generally it has no intrinsic value. Its sole purpose is to act as trustee of the family trust and so its value is usually no more than the amount of its paid-up share capital,” he said.
A substantial portion of the world’s wealth is “ultimately controlled by private individuals and their families” and the management and preservation of family wealth is a major aspect of Private Wealth Management (PWM). PWM, Allen said, is arguably the most successful and enduring dimension of financial services for the Bahamas. PWM for family wealth involves the creation of structures to generate wealth in a cost efficient manner, protect wealth from attack by predators and control the transfer of wealth across generations.
PWM services are typically geared to high net worth individuals and high net worth families, and managing high net worth financial wealth is a big business, Allen said. In 2003, the money owned by these high network individuals was valued at $29 trillion and expected to grow to about $41 trillion by 2008, he explained.
In the Bahamas, the current regulatory environment allows for the licensing of such family trust companies with a restricted license, Allen said. “The Bahamas has not been a jurisdiction of choice for such companies due to the costly and time consuming licensing process.” Allen reminded the participants that approximately 27% of Bahamian GDP is directly or indirectly attributable to the financial services industry. It supports around 22,000 jobs in the Bahamas, representing over 13% of total employment and job opportunities are among the best-rewarded jobs available. “The success of our financial service products and the industry as a whole is critical to maintaining the quality of life and ensuring a better Bahamas for the next generation.”Link here.
MALAYSIA’S OFFSHORE FINANCE HUB TO RELAX RULES, OFFER INCENTIVES
Malaysia plans to relax rules and offer more tax incentives to attract investors to its offshore financial center in Labuan off Borneo island, officials said. “A review of the entire legislation pertaining to Labuan and an increased range of products and services is currently underway,” the Labuan Offshore Financial Services Authority (LOFSA) said in a statement. “New company structures will be introduced to cater for the demands of users in the offshore environment.”
LOFSA chairman Zeti Akhtar Aziz said the review was necessary due to a constantly changing business environment and competition from other offshore centers. “One of the main reviews is regarding the tax structure. We have already made a number of changes but there is room for further review and further changes,” Zeti, who is also the central bank governor, told reporters. “We want to remain relative to other offshore financial centers.”
Zeti said the tax incentives will be announced later in the year when the government unveils its budget for 2008. She said Labuan plans to identify niche businesses to focus on as well as expand its Islamic financial services. “An area we believe we will see more growth originating out of Labuan is debt issues,” she said, pointing to a $750 million Sukuk issue that was listed on the Labuan International Financial Exchange last year. Sukuk refers to Islamic certificates or notes. Their mechanics are similar to trust certificates issued by other conventional issuers but based on Islamic principles, which ban interest payments.
In reviewing Labuan’s performance in 2006, Zeti said the offshore center had “another strong performance.” A total of 5,678 companies were registered in Labuan in 2006. There were 53 offshore banks with total assets of $21.1 billion. The Labuan exchange saw six additional listings, bringing the total number to 40 with a market capitalization of $15.1 billion. The Labuan offshore center was established 10 years ago and has over 300 financial institutions that provide conventional and Islamic offshore financing services, including banking, insurance, investment holding and fund management.Link here.
SEYCHELLES APT TO OFFER OFFSHORE FINANCIAL CENTER
The offshore industry is estimated to be generating a turnover of around $15-20 million into the Seychelles economy and the country has now reached a stage where it is well capable of developing into a modern and credible financial center for the region. Officials from the Seychelles Industrial Business Authority (SIBA) said this recently as the organization ran a “Compliance, risk management and anti-money laundering” workshop. They said the program was organised as part of Siba’s ongoing efforts to raise staff’s skills capacity which they said was “important in sustaining this growth by constantly acquiring and developing the country’s professional workforce with the right skills that will allow them to effectively detect any fraudulent or suspicious activities.”
The workshop was organized in collaboration with the Seychelles Institute of Management. This is the second year running that the course was organized and it is expected that SIBA will run similar programs as part of its educational activities to continually train and provide practitioners with latest skills and knowledge. The course was designed to equip participants with the knowledge and skills required to objectively assess the adequacy of their organizations’ risk management controls systems with an appreciation of understanding the impact that these risks may have onto a firm or onto a country’s reputation.
The course was particularly relevant for practitioners involved in the financial services industry and was highlighted by real life case studies to help participants gain an insight as to how money launders could effectively make use of legitimate corporate structures to “clean” their money and fund criminal activities.Link here.
OUR BENEVOLENT SURVEILLANCE STATE
The expansion of the Surveillance State is endless. Buried within an ABC report on the Virginia Tech shootings is this paragraph: “Some news accounts have suggested that Cho had a history of antidepressant use, but senior federal officials tell ABC News that they can find no record of such medication in the government’s files. This does not completely rule out prescription drug use, including samples from a physician, drugs obtained through illegal Internet sources, or a gap in the federal database, but the sources say theirs is a reasonably complete search.”
Is there any good reason whatsoever why the federal government should be maintaining “files” which contain information about the pharmaceutical products which all Americans are consuming? The noxious idea has taken root in our country – even before the Bush presidency, though certainly greatly bolstered during it – that one of the functions of the federal government is to track the private lives of American citizens and maintain dossiers on what we do.
If that sounds hyperbolic, just review the disclosures over the course of recent years concerning what data bases the Federal Government has created and maintained and the vast amounts of data they contain – everything from every domestic telephone call we make and receive to the content of our international calls to “risk assessment” records based on our travel activities to all sorts of information obtained by the FBI’s use of National Security Letters. And none of that includes, obviously, the as-yet-undisclosed surveillance programs undertaken by the most secretive administration in history.
It is true that much (though not all) of this data is already scattered in the hands of various private corporations and insurance companies. But, for multiple and self-evident reasons, it presents a fundamentally different type and level of threat when it is all consolidated and centralized in the hands of the federal government. Amazingly, it is the political movement that spent all of the 1990s stridently warning of the dangers of federal government power – The Black Helicopters and Janet Reno Are Coming – which has brought us this Surveillance State and continues to cheer on its infinite expansion.
The federal government data base which contains all of our controlled substance prescriptions, for instance, was mandated by a law passed in 2005 by the Republican-controlled Congress (though with full bipartisan support) and signed into law by the “conservative” Leader. That law appropriates funds to each state to create and maintain these data bases which are, apparently, accessible to federal agencies, federal law enforcement officials, and almost certainly thousands of other state and federal employees (as well as, most likely, employees of private companies).
The Department of Homeland Security last month promulgated proposed regulations for enforcement of the so-called Real ID Act of 2005. Those regulations require that every state issue technologically compatible driver’s licenses which enable, in essence, uniform and nationwide tracking of all sorts of private information about every individual. Just as the Prescription Drug Tracking Law is “justified” by the Drug War, these national ID cards are justified by the War on Terrorism. EPIC explains why these regulations are so disturbing: The requirement for non-REAL ID-compliant DL/ID to have explicit “invalid for federal purposes” designations, turns this “voluntary” card into a mandatory national ID card. Anyone with a non-REAL ID-compliant card would be instantly suspicious. Compliant cards would be necessary for federal purposes such as entering courthouses, air travel or receiving federal benefits, such as Medicaid or Social Security. It would be easy for insurance companies, credit card companies, even video stores, to demand a REAL ID-compliant DL/ID in order to receive services.
That the “conservative” movement is ushering in measures such as a federal law mandating that every state create National ID cards is ironic on multiple levels. But numerous states – the latest being Montana (after Idaho, Arkansas and Maine) – have enacted laws refusing to comply with these requirements on the ground that they infringe on the privacy of the citizens of that state and/or on the ground that the law violates federalism principles by taking over areas (i.e., regulating driver’s licenses) traditionally preserved for the states. For those reasons, many other states, particularly in the Mountain West and even the Deep South, are on their way to enacting similar laws refusing to comply.
It is simply no longer news when the “conservative” movement violates every “small-government” and states’ rights principle it pretended to embrace. Apparently, we need to empower the federal government to maintain comprehensive dossiers on all Americans, otherwise our freedoms might be at risk from The Terrorists. It is hardly worth pointing out that the idea of the Federal Government engaging in massive surveillance of innocent American citizens is about as far away from the core beliefs of the American Founders as one can get. Anyone who does not realize that is likely beyond the realm of persuasion.
The only people who would think that it is fine to have the Federal Government compiling dossiers like this are those who place blind faith in our Leaders not to abuse their power. But that is the ethos that is the exact opposite of the one on which the country was founded, but which has come to dominate so much of our political culture. Whatever else one can say the modern-day Republican Party stands for, individual liberty is plainly not it. Democrats could do themselves – and the country – a great service by devoting themselves to a defense of the core liberties which are being eroded so rapidly by “conservatives” in the name of Protection from the Terrorists and The Glorious, Endless, Epic War of Civilizations.Link here.
E-GOLD TARNISHED BY MONEY LAUNDERING CHARGES
Online digital currency business e-gold has been indicted by a federal grand jury in Washington, DC. The company and its owners have been accused of running an unregulated financial network that catered to cyber-criminals moving money, according to U.S. media reports.
Founded in the 1990s, e-gold allowed users to move funds across the internet by transferring ownership of gold bars. A user could move money simply by transferring a tiny amount of gold to another user’s account instantly, paying e-gold a commission on each transfer. Unlike credit cards, e-gold transactions are non-reversible and all transactions are final.
According to a statement by the U.S. Department of Justice, the indictment alleges that the owners of e-gold allowed the service to conduct fund transfers despite knowing that the money being moved was the result of illegal activity such as credit card fraud, investment fraud and child exploitation. The indictment further alleges that e-gold was operating without a licence and without registering with the federal government, thereby violating money transmitting laws.
Professor Ross Anderson, of Cambridge University, accused e-gold of being the most frequent launderer of phishing and credit card fraud revenues. “Banks are finally starting to take serious action against e-gold,” he said. “What will count is the level of muscularity. This could range from as little as legal sanctions to parking a destroyer outside their offices.” Accounts connected with the alleged illegal activity have been frozen as part of the investigation.
“E-gold has drawn criticism in the past because it has been claimed that the company does not do background checks on people applying for accounts, and it is too easy to create an account in a phoney name,” said Graham Cluley, senior technology consultant for Sophos. “Criminals may have been attracted to use systems like e-gold for illegal ends because of the anonymity provided to them compared to high street banks.”Link here.
E-gold founder denies criminal charges.
On April 24, 2007, a Federal Grand Jury handed down an indictment charging e-gold Ltd., Gold & Silver Reserve, Inc., and the Directors of both companies with money laundering, operating an unlicensed money transmitter business, and conspiracies to commit both offenses.
Dr. Douglas Jackson, Chairman and Founder of e-gold, speaking on behalf of his fellow directors and both companies vigorously denies the charges, taking particular exception to the allegations that either company ever turned a blind eye to payments for child pornography or for the sale of stolen identity and credit card information.
Dr. Jackson states, “With regard to child pornography, the government knows full well that their allegations are false, yet they highlight these irresponsible and purposely damaging statements in order to demonize e-gold in the eyes of the public. During the Inquisition, accusations of witchcraft and heresy were used to sanctify torture and seizures of property. In post 9-11 America, child porn and terrorism serve as the denunciations of choice. e-gold, however, as a matter of incontrovertible fact, is the most effective of all online payment systems in detecting and interdicting abuse of its system for child pornography related payments. e-gold Ltd. is a founding member of the National Center for Missing and Exploited Children’s (NCMEC) Financial Coalition to Eliminate Child Pornography. e-gold is the only member institution to demonstrate with hard, auditable data a dramatic reduction of such payments to virtually zero, while billions of child porn dollars continue to flow through other (heavily regulated) payment systems. [Most members, that is, all the banks and credit card associations are utterly unable to even provide an estimate of the volume of such payments processed by their systems. eBay’s PayPal subsidiary, who may have the ability to make such a determination, has refused to do so and has indicated they destroy payment records after two years.] What is worse, until August 2005 when NCMEC courageously broke ranks with U.S. law enforcement agencies and began directly notifying e-gold of criminal sites via the CyberTipline, component agencies of the U.S. Department of Justice purposely concealed their knowledge of child pornography abuses from e-gold’s investigators, subordinating actual crime fighting to a policy agenda designed to dirty up e-gold.”
In December 2005, the Secret Service (USSS) deceived a Federal Magistrate judge with bogus testimony in order to obtain search and seizure warrants authorizing the government to seize the US bank accounts of Gold & Silver Reserve, Inc. The seizure, which netted the government about $0.8 million, was designed to put e-gold out of business without due process, since G&SR serves as the contractual Operator of the e-gold system. At a subsequent emergency hearing, the government made no effort to defend their (sealed) allegations of lurid criminality, falling back to a position that their action was warranted because of a licensure issue. At the hearing, G&SR described its ongoing dialog with the Department of Treasury, initiated by formal request of the company in Spring 2005, to determine a possible basis for regulating the company’s activities, since it was patently clear to competent authorities that G&SR’s exchange service was not encompassed within any existing regulatory rubric [subsequently re-confirmed by experts at the Federal Reserve]. The U.S. Attorney for the District of Columbia, responsible for the prosecution, was completely unaware of this orderly proceeding, as well as Treasury reports issued the same week that acknowledged e-gold as an innovation not meeting definitions of a money services business or a money transmitter.
Concurrent with this latest attempt to knock e-gold Ltd. and G&SR out of business and thereby effectively deny them due process, the government also attacked other prominent exchange services that deal in e-gold: IceGold, The Bullion Exchange, Gitgold, Denver Gold Exchange, AnyGoldNow, and Gold Pouch Express, plus a sophisticated and secure alternative payment system called “1MDC”. All of the listed exchange services also follow stringent Customer Identification Programs congruent with what would be required of a currency exchange business, if the law supported such a classification. Two of the services, IceGold and AnyGoldNow, are located in Europe and deal primarily with non-US customers. As a direct and immediate result of the seizures, these companies, all of who had built a reputation for honoring their obligations to customers in a timely fashion, have been disrupted, and, at least in the case of Gitgold, checks to customers issued in fulfillment of exchanges have bounced. This is a repeat of what happened to G&SR as a direct result of the 2005 seizure, when over 200 checks to customers bounced and refunds had to be sorted out with severely crippled liquidity and without a U.S. bank account.
It must not be overlooked that the search warrant obtained by misrepresentations before a magistrate judge in 2005 resulted in the government helping themselves to the financial records of hundreds of thousands of American citizens [plus citizens of virtually every other country] who had not been accused of any wrongdoing. Since the initial raid, the prosecutor has caused the Grand Jury to order complete dumps of the e-gold data base on three additional occasions.
This case has nothing to do with criminal activity, at least not on the part of e-gold Ltd., G&SR, the named individuals or these other exchange services of high reputation. It is about a Department of Justice that is out of control, cognizant of having made a horrible mistake but determined at all costs to preserve its turf. In a meeting at the U.S. Attorney’s office in Washington on December 29, 2006, a Chief Assistant U.S. Attorney told us that the U.S. knew we were not “bad guys” and that the U.S. had no interest in sending any of us to prison or causing e-gold to go out of business. This was in virtually the same breath as proposing that the current defendants plead guilty to Federal felony charges.
The plain fact is that the repeated statements and actions of the government since 2001, especially the USSS, are directly responsible for crippling e-gold’s ability to market its service to mainstream businesses and consumers, slowing [but fortunately not stopping] e-gold’s continuous development of advanced anti-crime capabilities, subordinating U.S. law enforcement’s cybercrime fighting efforts to the forlorn hope of destroying e-gold, driving market share to non-U.S. based alternative payment systems and making the U.S. law enforcement community the laughingstock of competent cybercrime fighting agencies worldwide because of its obstinate inability to back down from the USSS’s longstanding e-gold vendetta.
All inquiries should be directed to the law offices of: http://www.fuerstlaw.com/
THE LUCIFER EFFECT REVIEWED
Where does evil come from? Look in the mirror, the author says.
During the Rwandan genocide, the level of participation by ordinary, normally peaceful citizens was greater than the world had ever seen. I spent time there as a reporter in the mid-1990s, just after the slaughter of 800,000 members of the Tutsi minority, largely by their Hutu neighbors. I tried to imagine how I would have acted if I had been born a Hutu in Rwanda and had grown up in a culture that put a high value on pleasing authority, demonizing Tutsis and planning their extermination. What would I have done? Maybe I would have been a killer too.
This is the kind of admission that Philip Zimbardo, a longtime psychology professor at Stanford University, wants all of us to make. In The Lucifer Effect: Understanding How Good People Turn Evil, he styles himself a tour guide of the dark side. The book is built on his well-known Stanford Prison Experiment, which is a standard lesson in many Psych 101 courses.
In the summer of 1971, Zimbardo placed a want ad in local newspapers seeking test subjects for a two-week study. Offering $15 a day, he sought psychologically stable young men to be randomly selected to serve as inmates or guards in a mock prison set up in the basement of the Stanford psychology department building. Six days into the study, the professor called it off, because some of the guards had become mildly sadistic, forcing prisoners to embrace each other, play leapfrog, defecate in buckets and do push-ups as punishment for defying orders.
Three decades later, that project stands as one of the seminal studies on the nature of evil. Its lesson is that, in the wrong situation, seemingly good people can turn bad. Zimbardo is not talking about individuals with pathologies who unravel in fits of psychotic rage (as appears to be the case with the shooter in the tragedy at Virginia Tech), but of rational, stable people. Some of the study’s acclaim has to do with Zimbardo’s relentless self-promotion. So what else is there to say about the study now? For Zimbardo, a lot. The book jacket promises the “full story” for “the first time and in vivid detail,” but too often this amounts to giving readers large blocks of transcribed interviews and diaries.
The occasion for this latest revival of the famous study is Abu Ghraib. After the scandal broke in 2004, Zimbardo made the interview rounds as a talking head. He has also served as an expert witness in the legal defense of Ivan “Chip” Frederick, an Army reservist who worked at Abu Ghraib. Zimbardo repeatedly highlights the parallels between his study and the abuses of Abu Ghraib: that much of the mistreatment was sexual in nature, that the worst abuses happened on the night shift and that most of the guards were untrained. But the real-life details of Frederick’s story – how a flag-flying, churchgoing husband from small-town Maryland wound up attaching an electrode to the hand of a hooded prisoner standing on a box, and then had the now-infamous photo taken as a souvenir – is more powerful evidence of the Stanford Prison Experiment’s conclusions than what happened in the actual study.
The chapters on Abu Ghraib are the most compelling part of The Lucifer Effect. Zimbardo builds a persuasive case for why the prison had all the ingredients necessary to bring out the worst in humans. Guards, who covered their name tags for anonymity, were unsupervised. The rising American death toll outside the prison helped feed an atmosphere in which the prisoners came to be viewed as less than human. The prisoners became mere playthings for the guards. It was as if the guards did not realize they were doing wrong.
Originally, the Stanford Prison Experiment researchers were curious about how the prisoners would adapt to a state of powerlessness. The BBC later tried to concoct its own version of the study, with entirely different results. The guards and prisoners formed a peaceful commune. Zimbardo dismissively calls theirs a “pseudoexperiment”.
This does not mean that the lessons Zimbardo derives from his study are wrong. Throughout history, philosophy and literature, there is ample evidence that he is right. On a hopeful note, though, Zimbardo coins a new phrase – “the banality of heroism” – because ordinary people are capable of great acts. Even the Stanford Prison Experiment had a hero. Christina Maslach, who had recently received her doctorate under Zimbardo and was dating him (today they are married), witnessed the guards’ behavior and urged him to end the study.
At Abu Ghraib, there was Joe Darby, a young Army reservist who blew the whistle on the abuses. Was there something about his inner core that inclined him to risk his military standing and arguably his life? Zimbardo argues that there was little in his background or psychological makeup to distinguish him from Frederick and the other abusers.
The defense of Frederick failed and he pleaded guilty and was sentenced to eight years in prison. Zimbardo does not argue that he did not deserve to be punished but asserts that situational factors should have mitigated his sentence. He extends blame up the chain of command to President Bush and key Bush administration officials for creating “the System” that facilitated the abuses. An obsession with national security, Zimbardo explains, created an “administrative evil”.
This begs a question that goes largely unanswered in the book. Does Zimbardo’s thesis that evil is a product of circumstance rather than character also apply to those at the highest ranks of power?Link here.
The History Channel’s recent presentation of “Sherman’s March” has been rightly drawing a lot of criticism from those of us who care about such things. In theory, historical events should become clearer as time passes and the controversies they involved grow less heated. But that is not the case in regard to the War to Prevent Southern Independence – because the myth of a benevolent and righteous crusade against evil and its martyred saint is the essential base of American state worship. The myth also seems to be a deeply felt emotional necessity for the self-love of millions of Americans.
This TV docudrama is very peculiar. A whole team of 3rd-string, half-baked carpetbagger “historians” of the type that now staff all Southern universities are presented to make the best possible case for the glory, brilliance, justice, and benevolence of Sherman’s operations in Georgia and the Carolinas in the winter of 1864–65. The peculiarity is that much of the actual evidence that manages to come through contradicts the rationale that is presented. Historians used to at least pretend to dig into the primary sources and examine all the evidence before making judgments, but now they are rewarded by how well they cherry pick bits to support the already established line. Our scholars give us the official story, dressed up and paraded yet again.
Sherman’s March was a great military feat. A lie. An army of 60,000 men marched through territory undefended except for a few thousand cavalry and home guards. Even this opposition gave Sherman trouble whenever it became active. And he was checked whenever he met a real Confederate force, even one greatly outnumbered.
Sherman’s army only seized food on its march because of necessity and in keeping with recognized rules of foraging. A stupendous lie. One does not need to look at a single Southern commentary but only at the words of Sherman and thousands of his men. The expedition was deliberately intended and carried out as a campaign of terrorism against the noncombatant population. The recognized rules of foraging did not involve the wholesale burning of dwellings, schools, and churches, destruction of crops and livestock, theft of everything portable of value, molestation of women, brutality toward old men, boys, and slaves, both male and female. This had been federal practice since the first day of the war but had not been previously as systematized. But, Golly, Sherman should not be criticized for burning Atlanta. He actually destroyed only a third of it!
Sherman’s army brought benevolent emancipation to grateful slaves. One need not consult a single Southern source to establish beyond a doubt that Sherman and his men overwhelmingly despised the black population of the South and preyed upon them as readily as upon white women and children. If it had been a question of being there to free the slaves they would have all gone home.
Any atrocities that Sherman ordered or allowed were only just retaliation against Southerners, because the Southerners for some unaccountable reason, perhaps their natural depravity, were “vicious”. This lie speaks for itself.
The deliberate sack and destruction of Columbia, after it had been peacefully surrendered, is no big deal and Southerners are emotional and deluded to resent it. This only works if you start with the assumption that Southerners are inferior beings and have no right to resent anything their betters do to them.
Much more could be said. But let us finish by saying that it is a bad cause that has to be defended by lies. And it can only be defended by lies, then and now. Those who want to understand the facts have an invaluable new source, just published last week by Pelican Press, Walter Brian Cisco’s War Crimes Against Southern Civilians, a concise and factual survey of a large subject, such as has long been needed.Link here.
CIVILIZATION IN FREE-FALL
The news story and accompanying photo were quite startling. According to the report, Sony – a dominant firm in the electronic industry – held a party to announce a new computer game it was putting on the market. As part of this soirée, a goat was decapitated, with the photo showing its not fully severed head hanging over the table on which it lay, having been sacrificed to the gods of corporate sales. Party guests were even encouraged to reach inside the goat’s body cavity to remove and eat the offal to be found therein.
All around us can be found the evidence of a civilization in its death throes – a culture that has evolved from the creation of life-sustaining values to the ritualistic celebration of death. Dr. Pangloss’s “best of all possible worlds” has backslid into an anti-life swamp. Sony’s public relations stunt did not generate this collapse, but only reflects it.
Upon reading this news report, my first response was to seek the confirmation of its validity elsewhere. Might this be nothing more than a dark side version of one of my favorite websites, The Onion? Jon Stewart, The Onion, and a few other sources have helped us to appreciate the difficulties associated with satirizing absurdity. Only a faithful commitment to reciting the ludicrous details of what we now accept as “reality” will suffice.
Where does one begin to describe – much less analyze – our institutionalized commitment to death? The war system is certainly the most dramatic, having accounted for some 200,000,000 deaths in the 20th century alone. So insistent is our culture on the perpetuation of this corporate-state slaughterhouse that those who sponsor debates among presidential aspirants have systematically excluded the two candidates – Democrat Mike Gravel and Republican Ron Paul – who have most consistently opposed continuation of the war in Iraq. And what of the academic and corporate institutions that derive so much of their income from designing and producing “new and improved” weapons systems that reduce the unit costs of butchering others, thus fostering the values of “efficiency” by which the spiritually-bankrupt calculate their bottom-lines?
The state in its other varied expressions manifests this same hostility to life. All political systems are defined by their use of violence – whether actual or threatened – to compel people to do what they do not otherwise choose to do. Life is a spontaneous, self-directed process. To forcibly intervene in human action is to make life become or do what it does not choose to be or do. Because uncoerced people will always act for the purpose of achieving their desired outcomes, governmental action will, of necessity, produce lesser degrees of well-being.
And why does the state engage in such life-depleting behavior? Part of the explanation lies in the fact that there will always be some segment of humanity that enjoys the exercise of coercive power over others. But there are others who find the use of force quite useful for their own ends – those with concentrated economic interests wanting to control political machinery in order to restrain the competitive behavior of others. Major business interests and labor unions have been the principal examples of such restrictive desires.
This institutionalized war against life permeates our entire culture. Our world abounds with people-pushers who want to use state power to control the kinds and quantities of food we eat, how we raise our children, the language we can use with one another, the drugs we are both prohibited from and required to ingest, whether and where we can smoke, the prices at which produce can be sold, and the health care services we may use. These are but a few examples of this mania, with additional proposals being offered on a regular basis.
The state insists upon its mechanisms of control, with expanded police powers, warrant-less searches, the erosion of habeas corpus, increased government databases of people, an exponential increase in prison populations in America, and a grater domestic military presence. These are among the current practices that go largely unquestioned. In Great Britain, surveillance cameras and recording devices have become so widespread that it is estimated there is one such camera for every 14 people! This has led at least one critic of the system to grasp the anti-life implications of such practices in saying that Britain risks “committing slow social suicide.”
At this point, one normally hears an indictment of television, motion pictures, rock music, video-games, or that all-encompassing demon ... Hollywood. Such is an expression of the superficiality of our understanding. Institutions that either employ, or advocate, the use of coercion are, of course, responsible for their actions. Furthermore, the butchery practiced by operatives of the state is quantitatively more destructive than that perpetrated upon a goat in order to kick off a sales campaign. Having said that, I am obliged to look beyond institutions for the explanations of our anti-life self-destructiveness. Even the state itself, for all its life-consuming viciousness, is of lesser significance in our plight than is the real culprit: our thinking.
Conflict-ridden thinking has generated the institutions that mobilize our inner divisiveness. The state has expanded its powers over us by playing upon our fears, be it of “communists”, “illegal immigrants”, “drug dealers”, “the Hun,” or the now-fashionable “terrorists”. As Carl Jung advised us, we project our “dark-side” fears of ourselves onto others, define them as enemies, and then act to control or destroy them. Others begin to enjoy power over us only as we abandon both the authority and responsibility for our own lives. As Shakespeare expressed it: “The fault, dear Brutus, is not in our stars, But in ourselves, that we are underlings.”
Once we learn to look outside ourselves for meaning and direction in our lives, we set ourselves up to be exploited for whatever purposes our “authorities” have in mind for us. Having given up our own centeredness – our own integrity – we become as balls in a pin-ball machine, capable of being moved about by forces over which we have no control. Over time, the logic of the machine defines our mindset and, like Pavlov’s dogs, we learn to slobber on cue and press the levers that deliver our prearranged rewards.
When our minds become other-directed, we should not be shocked to find our actions reflecting the values and emulating the behavior of external forces. Why did Sony undertake its tasteless and grotesque action? Probably for the same reason that it sells video games that appeal to appetites for computerized violence. There are enough people whose thinking attracts them to such products. That there is a demand for such merchandise provides no more justification for criticizing the marketplace than attends the sale of anything else. Animal-rights advocates who would turn to the state to prohibit such conduct unwittingly contribute their energies to a disrespect for life that generates the wrongs they seek to prevent.
Our civilization is experiencing more than a “slow social suicide”, but is more in a state of free-fall. A vibrant society is one that encourages the production of life-sustaining values – which include a respect for the inviolability of the lives and property interests of one another, a condition that becomes synonymous with peace. America, however, is a nation in a constant state of war, not only with the rest of the world, but with itself. What condition that people-pushers are quick to identify as a “social problem”, does not carry with it proposed legislation to forcibly restrict how others are to live their lives?
For reasons largely explainable as a reaction to the increased decentralization that threatens the institutional order, our formal systems – as well as those who take direction from them – are becoming increasingly sociopathic. The day may soon be upon us when cannibalism will emerge as the “politically correct” solution to all our problems, with Hillary writing a cookbook and The New York Times editorially praising her for her “bold” program to “serve her fellow man.”Link here.
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