Wealth International, Limited

Offshore News Digest for Week of May 14, 2007

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

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



Are you coming up on retirement in a few years or already retired? Do you have an adventurous spirit and decent health? Would you like to speak English in a foreign country while enjoying low prices, great weather and awesome food?

Malaysia could be the place you have been dreaming about. Malaysia is situated on the lower part of the Malay peninsula, just north of Singapore. East Malaysia is situated on the northern third or so of Borneo – about 400 miles east of the mainland. Peninsular Malaysia is more developed, with all of the major cities, and East Malaysia is where you will find large expanses of jungle, many rivers, and some of the best diving in Southeast Asia. Most retirees would probably find Peninsular Malaysia more convenient for living, and East Malaysia good for occasional visits.

Malaysia was a British colony until 1957, and has existed in its present form since 1963. English is spoken widely, although many other languages are spoken as well. In practical terms you can get along fine just about everywhere with English. The national religion is Islam, although there are also many Hindus, Chinese Temple devotees, Christians, Buddhists, and even Sikhs. Malaysia is one of the most open Muslim countries, and religious tolerance has been a tradition since its founding. Be sure to remove your shoes when entering most religious buildings, as a sign of respect. The local cuisine is quite varied – Malay food, many kinds of Chinese food, Indian food. Two coasts make for plentiful and cheap seafood.

Until recently the local currency, the Ringgit, was pegged to the dollar, 3.8 to the dollar. This made most things a great bargain. The peg was loosened up, but prices are still very reasonable for most things, apart from alcohol, cars, and luxury goods, which are somewhat expensive. There are loads of factories in Malaysia, and many manufactured goods are quite cheap. You will also find goods from many other parts of Asia, sold very inexpensively. A 2-star hotel room can be had for $25 a night, and a cheap – but still entirely adequate – hotel room for $10 a night. A great resource for local information and what is available at what price is adpost.com. Go to the Malaysia section of the site, and poke around in the real estate ads, car ads, and so on. Housing is higher in Kuala Lumpur, the capitol, and is usually less expensive in other areas.

Why retire in Malaysia? For starters, you can get by speaking English. Malaysia seems to welcome foreign retirees, with one of the best retiree programs around – Malaysia My Second Home (MM2H). You do not have to be rich to qualify, you can buy a home without spending a fortune, and it is not expensive to apply for MM2H. In general it can be hard to settle in an Asian country, but this program gives you the option of living somewhere inexpensive, and really enjoying life without making a lot of sacrifices.

Malaysia is more expensive than some other neighboring countries, but it is also a lot more convenient and stable – with good infrastructure, decent health care system, good transport system, large selection of furnished rental housing, and a very stable economy. Tourists are in evidence but you will not be overwhelmed by them. Crime is very low, and violent crime is rare. Malaysia has had a civilian government for ages, and good economic management. The country is not perfect, but once the honeymoon is over you will probably find yourself with fewer complaints about the place than just about any other place you could retire in Asia.

Health conditions are generally quite good, and health facilities in the cities are staffed by English speaking doctors. Malaria has been mostly cleaned out of Peninsular Malaysia, although in East Malaysia you should exercise more caution. You can generally drink the tap water, but you should drink bottled water on the smaller islands. Hygeine standards in the restaurants seem to be quite good – so just order what you like and exercise normal caution.

Malaysia is a tropical country, with high humidity year round. The monsoon season generally runs from December to March, and hits the East Coast hardest – although rain is year round. It can be very hot in northern Malaysia in the summer, and temperatures in the low-lying areas generally reach into the low 90s (F) at their hottest.

Who would dislike living in Malaysia? If you have to be close to the States, where you can get back every month or two, Malaysia probably is not the best idea – it is a long flight from the States. If you like to drink alcohol daily it is expensive, unless you go to the duty free zones on some of the islands. For people who have to work in retirement to make ends meet, you are not allowed to do that here (although you can always work via the internet, if that is an option). People who want to live exactly like they do in the States – that sort of lifestyle is not available here.

Link here.


I have lived on Margarita Island for almost 4 years. I recently took a trip to Panama to see for myself what all the “hoop-la” was about. Here are my impressions of Panama City, Panama as it compares to Margarita Island, which is located off the coast of Venezuela. I found a big difference between the two! Panama City is a metropolis with over 1.5 million inhabitants. The largest city on Margarita Island is Porlamar. Best estimate of the entire island population is about 300,000 during the low season.

Panama City is an interesting, bustling city, but I also noticed some disadvantages as I compared the living conditions on Margarita Island with those I observed in Panama City. The first thing I noticed was the dirt/soot that was constantly spewed for buses and trucks. It lays down a coat of black greasy grit and this is not just in the downtown area, but in outlying neighborhoods as well. Soot comes in through open windows, and even collects on your skin and hair if you are walking around the city. Anyone with respiratory problems – this city is not for you! My eyes burned even while riding in an air-conditioned taxi! The cleanest residential area was the former U.S. Military base at Fort. Clayton. On Margarita Island we do not have the black, greasy soot over everything. You might find more in the downtown areas because of more traffic, but not in the overwhelming amounts found all over Panama City.

Panama City has unpleasant odors in many areas ... even some of the up-scale areas. Some restaurants pipe their grey water to the street gutters, where it runs for blocks and smells awful. Add to this the fact that trash collection sites are seldom cleaned and you will get an idea of the effluvium that gets worse as the day grows warmer. Casco Viejo is the historic area of Panama City and part of it has been restored. The real estate is very expensive but just around the block there are horrible slums. People I talked to there said all this would “eventually” be cleaned up, but at this time it is still mostly slums and not very safe. However, many other areas of Panama City are clean, well-maintained, and safe. You will seldom encounter offensive odors in the urban areas of Margarita Island. Trash collection can be slow during the holiday seasons but is usually adequate.

Panama City traffic is insane! If you took all the car horns away, the city would come to a standstill. You can expect to pay $8.00 per hour for a clean taxi and many have English-speaking drivers. They drive very aggressively, so fasten your seat belt! If you want to take a bus, good luck. The locals call the buses “Diabolos Rojos” or “Red Devils”. Their drivers hurtle their vehicles through the traffic like they are straight out of hell and in a hurry to get back. Do not get in front of one either on foot or in a car. With all the honking horns, revving engines, car alarms, and the noise level is unbelievable! Margarita Island drivers are more laid-back. You will seldom hear honking horns – except at traffic lights if you do not move quickly enough. Many of the buses here look pretty decrepit, but do not emit the black smoke like those in Panama City. Daily rate for a taxi is about the same as in Panama.

The area near Panama City’s airport looks a lot like the bayous in southern Louisiana. Driving across the Canal Zone toward Costa Rica, there is nothing to see but vegetation for miles. Just outside Panama City proper there are some beautiful neighborhoods with mature trees, lawns and flowers. Margarita Island is a fairly small island – 934 square kilometers, almost 600 sqare miles – and you will find everything from desert to semitropical ecosystems. There are no tropical jungles here as there are in Panama. La Restinga is a jungle-like Natural Park located between the eastern side of the island and Macanao on the west. Porlamar and Pampatar, the main cities, have green areas, beautiful homes, and a nice climate.

Panama is a beautiful tropical country with jungles and mountains. Unfortunately the jungles are closer to the city and the cooler mountains further away. Panama City is rainy, hot, and humid. Annual rainfall average is 64.7 inches. The humidity after a rain shower is intense. Your a/c bill alone can run to $200-$300 per month. To escape the heat and humidity it is necessary to drive more than an hour away from the city into the mountains. Margarita Island’s average annual rainfall is 22 inches. From Macanao, the “Arizona-like” western part of the island, to the mountains around El Copey – highest mountain at 890 meters – you can find almost any environment you seek. There are over 100 beaches and coves just a few minutes from anywhere on the island. It is slightly cooler in the mountain area just 15 or 20 minutes from the beach. The island is much less tropical than Panama and humidity is usually not as high. We use our air conditioner when needed, cook with electricity, and have a washer/dryer. Our bill has never been over $65 a month.

Panama City is an international business and banking center, and most other countries have at least a branch bank there. The main advantage to banking in Panama is that the banks are sound. Bank transactions in Panama are private and even the U.S. government must obtain special permission to view your records, and only if they can prove money laundering or terrorist activities. Your financial information is safe from prying eyes. Banking in Venezuela is risky, so it is wise to only keep a minimum basic amount in a national bank here.

Panama City has some beautiful and very expensive high-rise condos and apartments. These also have a “high-rise” price tag. Apartments in older buildings can be had for about $1000 per square meter. Homes in better neighborhoods are in the $100,000 to $200,000 up price range. Margarita Island Condo high-rises on are generally not as tall or as elegant as those I saw in Panama City. There is an abundance of apartments and condos here and more are being built as of this writing. The average cost is between $800 and $1000 per square meter. Homes in good areas inland can be found for around $40,000 up to whatever you are willing to pay. Ocean view property is naturally much more expensive. It seems building costs in both Panama City and on Margarita Island are generally comparable. Both places are experiencing a building boom– more so in Panama City. A foreigner can own real estate in either country.

You have to drive 2 to 3½ hours or more to find a nice beach near Panama City depending on whether you prefer the Atlantic or Caribbean side. If you want to live close to a beach the properties are expensive and there is not much else to do but go to the beach. Colon on the Caribbean side is a pigsty and very dangerous. There are some beautiful islands accessible only by boat. Bocas Del Toro is touted as being very popular, but it is 6-7 hours from Panama City and there is little infrastructure in place there. Household electricity is expensive (15 cents per kwh) but necessary as the areas near the beaches are hot and humid. Margarita Island has any kind of beach you seek. There are also dive tours and excursions to nearby Coche & Los Frailes Islands.

The bottom line? Which is the best deal for living within your means? I believe that depends on individual tastes, income, and priorities. If you are more comfortable in a big, busy city, Panama City has a lot to offer. On the other hand, if you prefer a slower-paced, more Caribbean lifestyle that still offers all the modern amenities, Margarita Island might be more to your liking. At present Margarita Island is one of the least expensive islands in the Caribbean. Other contenders might be the Dominican Republic or San Andreas Island (owned by Columbia). Both the Dominican Republic and San Andreas are in the hurricane zone, and the Dominican Republic is reputed to have a high crime rate. Margarita Island is only 25 km. off the Venezuelan coast, and 45 minutes to Caracas by air.

Thanks for your attention. Viva Margarita!!

Link here.


Digicel Group has confirmed that it has obtained leave from the Courts of the BVI to file an application for Judicial Review, and has also obtained an Interim Injunction relating to the Telecommunications Regulatory Commission’s (TRC) failure to deal with Digicel’s application for a mobile license. Digicel maintains that its application to operate a GSM license in the BVI has not been addressed in accordance with the Telecommunications Act, which stipulates that each application must be considered on an objective, transparent and non-discriminatory basis.

After some months of hesitation, the BVI Government announced last month 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 January, 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.

The Government has invited only the three current licensed public suppliers to apply for licences to operate across all the fixed line, mobile and cable sectors. Other applicants, including Digicel and Virgin Live Media, were excluded from the process. According to Digicel spokesperson, Jan Tjernell, “Digicel has an excellent track record of delivering significant investment and job creation, producing better value of services and setting new standards in network quality and customer care. ... Digicel has always been interested in entering the BVI mobile market and still remains interested. We are seeking an objective, transparent and non-discriminatory process which will be to the benefit to everyone in the BVI.” Citing independent international studies, Digicel said that the BVI can support up to four licensed operators offering services in the telecommunications sector.

Link here.


The EC is expected to give the green light for Malta and Cyprus to adopt the European single currency from January 1, 2008. According to the Times of Malta, Malta will be given the go-ahead to enter the eurozone because it has “sufficiently converged towards EU levels according to the criteria set in the EU Treaty to adopt the euro on January 1, 2008.” Cyprus is also expected to receive approval for similar reasons, after Nicosia sent its application to join the eurozone.

Commission sources told the Times that Brussels is “really impressed” with the progress of the Maltese economy and the way that the island’s government has handled the public finances during the convergence program. Malta’s budget deficit has fallen below 3% of GDP from a high of 10% just three years ago, meaning that it meets the basic criteria for joining the euro as stipulated by the Growth and Stability Pact. Malta’s convergence program foresees growth in the country’s GDP of 3% in 2007, rising to 3.1% in 2008 and 2009. However, this is markedly more optimistic than the program’s forecasts in January 2006. The EC also expects more moderate growth, and its autumn 2006 economic forecast predicted GDP expanding 2.1% this year and 2.2% in 2008.

In its annual review of Cyprus, the Economist Intelligence Unit (EIU) has revised down its forecast for Cyprus’s growth to 3.4% (from 3.6%) in 2007, and to 3.6% (from 3.8%) in 2008. Growth is expected to remain substantially flat over the next few years. However, the EIU sees the island’s low-tax environment and its location as its main attractions for investors, together with its regulatory reliability as an EU member state, although the local market is small, and labor costs are high relative to other countries in the region.

“Our baseline assumption is that the budget deficit will widen only slightly and will remain just under 2% of GDP in 2007-08, well below the 3% ceiling established by the euro area Stability and Growth Pact," the EIU said last month. However, the publication went on to warn that, “Experience from the previous election suggests that public spending can go out of control very fast in Cyprus’s small economy, therefore much will depend on the government”s vigilance.”

Under EU rules, Cyprus is due to increase the rate of value-added tax (VAT) on specific items, including medicines and restaurants, from January 2008. Depending on the item, rates will go up from 0% to 5%, 8% to 15%, or 0% to 15%. The government is trying to negotiate a delay to avoid perceptions that adoption of the euro will lead to a spike in prices.

Link here.
Romania and Bulgaria sign accord to join European Economic Area – link.


The emergence of new outsourcing markets continues within Europe’s nearshore, and Malta is positioning itself as a location that is able to provide multilingual services across verticals. This is a according to Peter Ryan, an analyst with independent market analyst Datamonitor. Ryan recently had the opportunity to visit the location and examine its contact center sector. In his view, Malta’s established contact center sector, language capabilities – capacity to provide multilingual services over the long term and its open business environment and incentives, bode well.

According to Ryan, Malta’s already solid-base of operating contact centers bodes well for its burgeoning business process outsourcing (BPO) sector. In addition to in-house deployments, a number of independent outsourcers are already doing offshore work for a number of different industry verticals, including travel & tourism, telcos and financial services. The fact that English is an official language, coupled with near universal fluency in Italian bodes well for contact center service provision in Malta. Not only is Malta a location of choice for UK tourists, but the lack of Italian offshore options is also an advantage. Many Italian firms are looking for offshore locations in which to house some of their contact center operations, and Malta’s proximity and language skills could play into that strategy.

Malta’s inclusion in the EU and steps to liberalize its economy are also selling points for potential outsourcing clients. In addition, its program of targeted incentives could prove attractive to companies requiring assistance in establishing operations in Malta. As has been the case with many other countries looking to establish BPO sectors, Malta is limited by a small population and limited real estate. Thus, in order to continue to progress, there must be efforts to attract the right projects to the island. Malta will not be able to compete on scale, but it has the potential to add value in terms of higher end customer care and sophisticated service.

Link here.


China’s monetary authorities took another big step toward liberalizing financial markets last week. It seems they are finally getting serious about reining in excessive stock market speculation in the mainland’s overheated stock markets. Interestingly enough this important move by the government did not merit much mention in the western press. Nor was the story covered much better by the local beat either – which is exactly the way I like it. I see this initiative as a vitally important step toward leveling the investment landscape in China. From a money-making perspective, this should be a key catalyst for Hong Kong shares, which have quite a bit of catching up to do with their mainland cousins.

First, the BIG news: Last Friday after the markets had closed for the week, the China Banking Regulatory Commission announced that mainland investors would be allowed to purchase overseas equities for the first time. I have been expecting and hoping for a development like this for some time. And apparently so have many other investors, who pushed the Hang Seng Index of Hong Kong-listed shares to a new record high the very next trading day, accompanied by unprecedented volume.

Shanghai and Shenzhen no longer the only games in town.

Make no mistake. This is a sea change in the way China will invest going forward. Big Chinese commercial banks are now free to invest as much as 50% of funds in overseas stock markets. Banks can finally invest outside the Shanghai and Shenzhen exchanges, which were previously the only game in town. We are talking billions of dollars in investment capital in search of higher returns than offered by Chinese savings accounts, which yield less than the “official” inflation rate.

There is a wide world of investment opportunities out there, but the average Chinese investor knows that the best game in town is still China itself. The investment capital can go anywhere overseas but I expect that the majority of it will not go very far. Hong Kong seems like the most logical destination.

Many of mainland China’s biggest blue-chip companies also have shares listed on the Hong Kong stock exchange. This arrangement was originally necessary for these companies to raise much needed capital. Due to draconian capital controls imposed by the government, only the wealthiest retail investors, along with the major banks and brokerage houses, had any chance of investing even a token amount overseas. By Beijing’s definition, “overseas” included Hong Kong. And individual investors were completely forbidden from taking their investment assets anywhere else. But now those restrictions have been lifted by half . And if you know just where to invest, you can position your portfolio in front of potentially trillions of dollars in investment capital that may soon begin flowing to Hong Kong in search of much better stock market values, and higher returns.

Hong Kong’s H-shares a screaming bargain compared to Shanghai.

With the government’s long history of strict capital controls, China’s stock markets developed a two-tiered trading system. Share prices of some companies in Shanghai are quoted at prices 50% higher, and in some cases twice the price, of the very same company’s shares listed in Hong Kong. Chinese mainland investors were stuck because of Beijing’s capital controls. They could either buy shares of China’s big domestic energy firm Sinopec on the Shanghai exchange, at a 60% premium to the share price in Hong Kong. Or they could keep their money in a bank CD earning 3%. Either way, they lost.

But now, thanks to China’s partial relaxation of the rules, Sinopec and many other Chinese mainland stocks just became a whole lot more attractive to purchase ... at least in Hong Kong. You could see this fact clearly demonstrated in the market action following the announcement. The Hang Seng China Enterprises Index (HSCEI) of 42 mainland Chinese firms, which also have shares listed in Hong Kong, surged more than 5.5% higher to a new record. The Shanghai exchange was up about 0.8% on the day.

The Shanghai index is up around 50% in 2007. The HSCEI was basically flat this year – until that 5.5% surge. And I believe that Monday’s big rally in Hong Kong shares was just the opening act! Beijing’s rule changes will profoundly affect the way hundreds of millions of Chinese invest their growing wealth going forward. And it creates a huge opportunity for you to profit by jumping in ahead of the curve, before this tidal wave of investment cash flows into financial markets.

Link here.



The goal of this article is to provide a comprehensive checklist of information for a person to consider prior to accepting an assignment in the U.S. This article is not designed to teach you the technical competence required to perform self compliance, however it will certainly arm you with the knowledge to determine if your U.S. tax preparer knows all that they should know to provide you with technically competent professional services.

Most countries, except the U.S. which taxes its individuals based upon their citizenship (and legal residence or “green card”), taxes its individuals based upon their “tax residency”. “Tax residency” is determined by a variety of facts and circumstance tests or features unique to each countries tax system. E.g., permanence and purpose of stay, personal property and social ties, spouse, dependents and dwelling, etc. An overriding tax resident principle is that tax residents of a particular country are taxed in that country on their worldwide income and tax nonresidents of that particular country are taxed there only on income from that country and not on their worldwide income.

Therefore if you were to continue to maintain a source of income from your former country of tax residence or nationality, that income would continue to be taxed to you in that country. A basic taxation premise is that the country of income source maintains the first right of taxation over its particular income. However treaties usually seek to have that income taxed in the country of residence and not the country of source to avoid a double filing compliance obligation.

All U.S. citizens, green card holders and foreign national individuals in the U.S. meeting the Substantial Presence Test (SPT) – comprising the addition of the actual days of U.S. presence in the current year with a fractional two year look back rule – are U.S. resident aliens. All U.S. resident aliens are subject to U.S. tax on their worldwide income, regardless of where the income is earned, what currency it is in, or where the income is deposited to. All U.S. nonresident aliens are taxable in the U.S., only on U.S. source income and income effectively connected with a U.S. trade or business, which includes compensation income but excludes passive income.

Many U.S. states have enacted in addition to a facts and circumstances “domicile” rule, a “statutory residence rule”. The main purpose of the statutory residence rule is to catch those individuals claiming a foreign state as their state of domicile, where the statutory residence rule sets down rules as to physical days of respective presence, and in some circumstances subjective terminology such as a “Permanent Place of Abode”. Certainly this discussion should be conducted state by state as results do vary.

Link here.


The typical American taxpayer could be paying $3,026 more in federal income taxes five years from now under the budget resolution adopted recently by the U.S. House of Representatives, according to free market think-tank, the Heritage Foundation. The new state-by-state and district-by-district report by the Foundation estimates that the House plan’s other downstream costs would result in an average loss of $502 in annual personal income – slowing of employment growth amounting to almost 1 million lost jobs, and a $100 billion hit to economic growth.

These are among the sobering calculations of a report titled “Tax Increases Ahead”, Heritage’s analysis of what the House budget resolution will mean for each of the nation’s 435 congressional districts. The report arrives as House and Senate conferees meet on the budget.

The report suggested that New York residents would lose the most in 2012. Taxpayers in Rep. Pete King’s District 3 face the biggest tax hikes, with an average annual increase of $5,740, nearly double the national average. New York districts hold a total of seven in the Top 20 by size of tax increase. The remaining 13 most-taxed districts, where taxpayers will receive average increases of more than $4,600, are located in New Jersey (four districts), California (three) Illinois (two), Connecticut, Virginia, Georgia and Colorado.

Adopted March 29 by a vote of 216-210, the House budget resolution does not contain a detailed tax plan, although the Heritage Foundation believes that the resolution puts the budget on track to collect an additional $894 billion in taxes over the next five years, and $3.3 trillion over 10 years.

Link here.


Senate Finance Committee Ranking Member Chuck Grassley has warned that Democrat plans to raise the AMT threshold could lead to a dramatic increase in the upper income tax rate to replace lost tax revenues. Grassley, a supporter of total AMT repeal, once again appealed to his fellow lawmakers not to get blinded by the potentially huge revenue loss that would be brought about through rolling back or scrapping AMT, but instead use it as an opportunity to clip government spending and restore some transparency to the budget process.

The AMT, enacted in 1969, created a two-tier tax system to ensure that America’s wealthiest taxpayers did not evade income taxes altogether through the use of tax shelters, loopholes and deductions. However, unlike federal income tax, AMT is not indexed to inflation, meaning that every year more and more U.S. taxpayers are falling into the AMT trap.

In 2004, about 3 million taxpayers (about 2% of all taxpayers) were subject to the AMT, but without Congressional action, Grassley said that up to 23 million taxpayers will be subject to the AMT in the 2007 tax year. Taxpayers living in high tax states with three or more children will be the hardest hit because the AMT causes taxpayers to lose standard deductions for state and local tax payments and personal exemptions, including spouses and children. Over the past 6 years, Congress has had to enact a series of patches to prevent the AMT from harming more and more middle class Americans.

While Grassley and Finance Committee Chairman Max Baucus have written legislative proposals to repeal the AMT, Congress has, despite the AMT’s huge unpopularity, hesitated from axing the tax because of the massive amount of revenue that it is set to raise over the next decade. House Democrats have reportedly come up with a compromise plan that would exempt everyone who earns less than $250,000 from the AMT – a plan Grassley said “might be on the right track to full repeal.” However, he is far less supportive of how the Democrats propose to offset the lost revenue.

One option reportedly being talked about in the House side is an increase in the top marginal income tax rates. “We have found some shocking numbers when we examine that further,” Grassley said. “In order to exempt folks who earn less than $250,000 from the AMT if you insist on raising taxes to offset it, you would have to raise the top marginal tax rate to over 46%,” he added. “Another option that may be working its way through the mill on the House side is to pay for that exemption by raising the top AMT rate. Again, with that option, the tax rate increase is staggering. The top AMT rate would go up to nearly 37%.”

Grassley continued, “Now the folks who voted against my amendment to take that AMT revenue off the table for the tax and spenders have some real explaining to do soon. ... I suggest that the tax and spenders consider learning to hum a different tune and spend within their means soon or folks may just figure out that you planned to raise their tax rates all along. So, the sad reality is that while it is the new Congressional majority that needs to face the music, it is likely to be the American taxpayers that will end up singing the blues.”

Link here.


Canadian Finance Minister Jim Flaherty has announced a new initiative to crack down on companies that he says are shifting the tax burden unfairly to small taxpayers by using offshore corporate structures to evade Canadian taxes. Flaherty announced, “When multinational corporations use this tax loophole, Canadian taxpayers are indirectly subsidizing their international operations. Our goal is to improve the fairness of our tax system and further reduce taxes for hard-working Canadians while preserving Canada’s overall tax advantage for our globally successful companies.”

Specifically, the new rules are being designed to prevent multinational corporations from using tax havens and other tax avoidance structures to generate two expense deductions for only one investment, so-called “double dipping”. Flaherty said there would be a transition period to 2012, after the planned reductions to the federal statutory corporate tax rate are fully phased-in and the rate has been reduced to 18.5%. The Finance Minister said that tax revenues generated through the Anti-Tax-Haven Initiative would be used to further reduce business taxes in Canada.

Flaherty also announced the creation of an advisory panel of experts in the near future to look for ways to further improve the fairness and competitiveness of Canada’s international tax system. “We are providing corporate Canada with a transition period of almost five years to comply with these rules. We think this is fair and reasonable,” he added. “Implementation will take place once our planned corporate tax reductions are fully implemented, allowing us to make our strong competitive economy even stronger.”

The Conservative government has committed itself to cutting a number of taxes since taking office 15 months ago. These include cutting corporate tax to 18.5% by 2011 and eliminating the corporate surtax in 2008. When fully implemented, the government claims its tax policies will move Canada from the 3rd highest tax rate on new business investment in the G7 to the 3rd lowest.

Link here.


The EC has launched a new information tool for citizens and business. The Taxes in Europe online database provides information on the main taxes in force in the Member States. It offers information on around 500 taxes, such as the tax base, main exemptions, and rates applicable, as provided to the Commission by national authorities. In addition, it gives information on the revenue generated by each tax. Access is free for all users.

“This information tool is ’user friendly’ and ‘citizen-oriented’. It gives citizens, business, tax professionals, researchers and the press direct access to information that was until today only available piecemeal,” announced László Kovács, the Commissioner responsible for Taxation and Customs. “Furthermore, it fosters transparency by allowing for an easy comparison between the several taxation systems in the EU.”

Customs duties and tariff are not described in the new database, and instead are provided by the Commission via the TARIC database. The database will be updated every year. Coverage will be extended in the near future to Cyprus, Ireland, Malta and Portugal – who are currently not included.

Link here.


The Irish Taxation Institute (ITI) has said that the report outlined earlier this month by EU Commissioner for Taxation, Lászlo Kovács for common corporate taxes in all EU Member States remains “dangerously fuzzy.” Commenting on the Commissioner’s statement on CCCTB (common consolidated corporate tax base), Mark Redmond, CEO of the ITI said moves towards a common means of paying corporate taxes in the EU is bad for Ireland and bad for Europe. “The more you harmonize taxes, the more tax rates will rise, the more compliance costs will rise and the more unemployment will rise,” he said.

Redmond continued, “These proposals remain dangerously fuzzy. They fail to come clean on the burden they will bring on both domestic and international businesses and they fail to address the widely held belief that it will mean higher corporate tax rates by the backdoor. Taxation policy has been central to the Irish success story and attempts to wrestle control on tax policy away from individual Member States should be fiercely resisted.

“A common tax rate is bad for Ireland and bad for Europe. To grow and sustain our economy we have got to stay competitive and one key way of doing so is through sound tax policies. If tax costs start to creep upward in Europe, the instinct of multi-nationals and other key employers will be to look to the Far East.”

Redmond said the proposal to widen CCCTB to the financial services sector was worrying. In 2006, IFSC companies alone contributed €1.1 billion in tax revenues to the Irish exchequer. Redmond also said the proposal to establish an overall EU Revenue Authority would mean another costly bureaucratic layer for business to grapple with.

Following a first progress report in 2006, the European Commission has adopted a second communication on the progress towards a Common Consolidated Corporate Tax Base. The CCCTB would enable companies to follow the same rules for calculating the tax base for all their EU-wide activities, rather than in accordance with the existing 27 systems, thereby, simplifying procedures, improving efficiency and reducing compliance costs, the EC has argued.

However, despite assurances that no plans are in the pipeline for harmonizing tax rates, several member states (most notably Ireland) have raised objections to the possibility of any kind of harmonization of any elements of EU member state tax regimes.

Link here.
Portuguese tax amnesty against EU law, says EC – link.


The UK’s Fraud Advisory Panel (FAP) earlier this month warned that activities such as fraud, money laundering and tax evasion are increasingly taking place via online communities, such as Second Life, and urged the government to extend real-life legislation into these virtual worlds.

Chairman of the Panel’s Cybercrime Working Group, Steven Philippsohn explained that, “Such communities are not just chat rooms, they are also lucrative and growing marketplaces. Members use these interactive sites to buy and sell tangible goods and services such as land and property, clothing, music and bookmaking. But there’s nothing virtual about online crime, it’s all too real.”

Online virtual communities can combine internet chat rooms, 3D games, and next generation internet environments in which residents can choose what they look like and what they do, with goods and services traded using virtual money. The Panel has argued that the UK government must ensure that funds exchanged in this way count as genuine financial instruments covered by existing laws and regulations. “That is the key to successful crime prevention in this evolving area,” argued Mr Philippsohn. The Fraud Advisory Panel highlighted several problems arising with virtual communities, including:

Virtual communities can also be used by organised gangs intent on avoiding surveillance. Mr. Philippsohn concluded, “The legitimate benefits of virtual communities will prove enormous but people need to be aware that this cutting edge technology has a darker side.”

Link here.


HM Revenue and Customs’ tax “amnesty” is wider-ranging than previously believed, with banks providing the taxman details of accounts held by offshore companies and trusts with a connection to UK individuals, warned PKF tax investigations partner John Cassidy. He said the firm had come across instances of banks supplying account details for offshore companies and trusts, which is a wider provision of information than expected, and individuals will be liable for penalties if tax evasion can be proved.

“It has quickly become apparent that the banks’ provision of in formation is much wider than most people expected. Bank letters we have seen clearly show that they have supplied details of company bank accounts,” said Cassidy. “Anyone who thinks their funds are still secret because they used an offshore company or trust might be in for a nasty surprise.”

HMRC could be hindered by the amount of information it will be provided with on trusts and companies, most of which will be useless to the taxman. “However, HMRC must have considered this and still believes it is worth while to go after company and trust cases,” said Cassidy.

HMRC’s tax amnesty, known as the offshore disclosure facility , is also effective for onshore tax evasion disclosures before the 22 June cutoff date. Tax and interest for up to 20 years of disclosure will have to be paid, along with a 10% penalty, under the terms of the offshore disclosure facility.

Link here.


The ATO has announced that it is investigating arrangements that seek to reduce tax on Australian income through the use of foreign tax credits. Tax Commissioner Michael D’Ascenzo revealed that the arrangements are mainly marketed to financial institutions. The arrangements involve the purchase of bonds by Australian financial institutions from offshore banks to generate large foreign tax credits.

The “Taxpayer Alert” issued by the ATO describes an arrangement where an Australian resident taxpayer seeks to enhance its return on a bond investment, through access to foreign tax credits for withholding tax claimed to be payable under the arrangement. The desired net effect of the arrangement is that neither the bond issuer group, nor the Australian resident taxpayer, bears the economic cost of the tax withheld.

Under the arrangement, an Australian resident taxpayer establishes a wholly-owned LLC in an offshore jurisdiction. The LLC is treated on a flow-through basis for the purposes of tax in the foreign jurisdiction and is treated as a foreign hybrid for Australian tax purposes. The LLC acquires bonds (or similar instruments) issued in another jurisdiction, e.g., in the UK by a UK financial institution, which offer an enhanced return over those of a similar grade of issuer. The payment of interest on the bonds is claimed by the issuer to attract UK withholding tax at the rate applicable.

A securities lending arrangement is then put in place within the issuer’s group that is claimed by that group to create a credit known as a “reverse charge” tax credit. That credit is equal to the amount of the UK withholding tax liable to be paid under UK tax law. A foreign tax credit is claimed by the taxpayer for the amount of UK withholding tax paid. The foreign tax credit exceeds the Australian income tax payable on the net interest income from the arrangement. This excess is claimed to be available for use to reduce Australian tax payable on other foreign sourced income of the taxpayer. The effect of this arrangement is that the taxpayer is provided with an enhanced return funded not by the issuer, but through the availability of the foreign tax credits.

Link here.


New Zealand Finance Minister Michael Cullen has announced a 3% cut in the country’s rate of corporate income tax along with a series of other measures designed to improve the nation’s international business competitiveness. The most significant component of Cullen’s 2007 Budget was the decision to reduce the rate of corporate tax to 30% from April 1, 2008.

“Business has long argued that such a reduction will assist in boosting productivity and competitiveness and attracting more foreign direct investment increasing labor productivity and wage rates,” Cullen stated, adding that the move would also “reduce the attractiveness of structuring businesses so as to report minimal profits within New Zealand.” The cost of the reduction is expected to be NZ$675 million (US$494 million) in the first full year, 2008-9.

According to Cullen, the review of the international business tax regime could be of greater significance than the corporate rate cut or a research and development tax credit in contributing to future economic growth and could cost far less. “Our current tax rules in relation to New Zealand companies investing in offshore activity impose additional costs that are not faced by businesses resident in other countries. This has created an incentive for New Zealand firms to migrate,” Cullen observed.

Currently, New Zealand taxes New Zealand residents on their worldwide income. This includes any income that is earned by a foreign company that is controlled by New Zealand residents. This applies in all countries except the eight countries on the so-called “grey list”. A discussion document released in December last year signaled an intention to provide a tax exemption for active income earned by such a controlled foreign company.

A new international tax package proposes: (1) the introduction of a tax exemption for active income, (2) tax exemption for ordinary dividends from controlled foreign companies, (3) the replacement of the current “grey list” exemptions with a simple test treating any controlled foreign companies with less than 5% passive income as exempt, (4) a limited definition of passive income under the new rules, (5) the introduction of interest allocation rules for offshore investments, and (6) repeal of the conduit rules.

“This is a balanced package which is simpler, more consistently applied, and more internationally competitive than the current controlled foreign company rules,” Cullen stated. “It is easily the most comprehensive business tax package since the mid-1980s and marks the first reduction in the corporate headline rate since 1988 under the Fourth Labour Government.”

Link here.



Governments wage war on anything and anyone that interferes with their insane wish to dominate everything in sight. They are only about power, for its own sake. Any regular reader of Strike The Root will know this. Still, it is amazing to watch it happen.

The latest war, and in some ways one of the most sinister, was launched at the end of April. The owners of e-gold were indicted for the victimless crime of money-laundering. The jury-swaying sales line was that some of their customers were operators of child pornography. That may or may not be true, but is certainly irrelevant. The obvious real reason lies in the true statement, up-front on their website, that e-gold provides all customers with “better money” that is “backed 100% at all times with unencumbered metal in allocated storage.” This, the FedGov can hardly tolerate. If they do not control money – all money – their dreams of empire would be at risk, and that just will not do.

As their propaganda makes clear, the thugs are most horrified that money transactions can take place without the benefit of their scrutiny. Oh, horrors! How did mankind survive, all these millennia, while using coins that passed from hand to hand without any government snoop being the wiser?

E-gold’s CEO and his colleagues will no doubt put up a spirited defense in government court, and the very best of luck to them. But the DoJ has practiced hard at jury manipulation, so I cannot rate their chances high. Government courts are about policy enforcement, not about justice – or even about law – and the outrageous seizure of the company’s operating funds will make it very hard for them to stay in business, or hire legal assistance, which suits the DoJ just fine. They would be in big trouble if they had to play fair.

E-gold’s big mistake was to run this highly innovative non-bank bank with a toe-hold in the Land of the Free. Had they kept all their domiciles and offices and assets well outside Uncle’s jurisdiction, they would have been harder to hobble. Some of their rivals are doing just that.

For those not yet familiar with the merits of gold, nearby is shown a chart of its value compared to that of government paper. There has been a relentless erosion of the purchasing power of the greenback, of about three quarters in just the 37 years charted. $1 now buys what 25 cents did in 1970. Gold, in contrast, keeps its value over huge periods of time with remarkable consistency. One ounce will buy a fine quality suit of clothes today, just as it did in Roman times.

When the Age of Government is finally over gold will almost certainly be the exchange medium the resulting free market society will choose. It is durable, rare, intrinsically valuable, hard to counterfeit, and pretty to boot. Yes, one can fashion a necklace out of $100 bills, but it looks trashy. Average price levels, measured in gold, will not necessarily be constant, for gold is also a commodity in demand for purposes other than money. During the century when America was on a gold standard, prices actually fell by about 0.5% a year, presumably because productivity increased a bit faster than gold was mined and minted. But for 5,000 years or so, it has proven to be the best option available.

Gold does have a couple of drawbacks. It is heavy, and it buys so much that it is very hard to divide into small coins for purchases of low-price, everyday items. Even $70 worth of groceries would take only a tenth of an ounce, and a coin of that size is awfully easy to mislay. So electronic gold will surely have an important place in the free society for which we all yearn. An account such as e-gold offers, with an associated (and lightweight) plastic card that can be swiped to effect purchases of any amount, down to several decimal places of a gram. The company that the FedGov is on the brink of ruining right now is the one that pioneered just such a money system. It is all part of the war on liberty, privacy, real money and innovation.

For now, private systems of electronic money transfer must be seen as vulnerable to government savagery, and the bigger their U.S. footprint, the shorter the life expectancy. The convenience of bypassing the government-controlled banking cartel is so great, though, that many will favor continuing to use e-gold and its rivals by holding relatively small account balances, while for savings and asset storage physical gold, hidden where no snoop can find or steal it, is now clearly preferable. A nice feature of the e-gold service has been that of “redemption” – one can order the company to deliver one’s holding in physical form. I hope that can long continue.

Link here.

Feds try to shut down e-gold.

E-gold is one of the oldest gold-backed digital currencies around, and certainly one of the most successful. And it is squarely in the sights of the U.S. government. On April 30, the Department of Justice indicted the operators of E-Gold on charges of money laundering, conspiracy, and operating an unlicensed money transmission business. It also has issued 24 seizure warrants on nearly 60 accounts it says are involved in money laundering.

Between May 3 and May 9, the government forced Omnipay, e-gold’s payment system, to redeem all the gold backing these accounts and convert the proceeds to a U.S. dollar account owned by the U.S. government. The gold confiscated in this civil forfeiture has a market value exceeding $11 million. By using civil forfeiture laws to make these seizures, the government was able to close down the 58 accounts without accusing the owners of any crime. Indeed, the government does not need to reveal anything to the owners for at least 30 days, possibly longer. Until the government actually files a civil forfeiture complaint, these owners can do nothing to defend themselves or recover their assets.

It seems likely that e-gold was targeted because it permits the essentially anonymous transfer of money outside the banking system. Although there is a permanent record of all transfers, users only need a valid email address to use the services. The indictment of e-gold paints a lurid picture of the system being used by child pornographers, identity thieves and investment scams. Although founder Douglas Jackson claims that on numerous occasions, the company has voluntarily shut down accounts possibly tied to criminal activity.

Despite the indictments, e-gold is open for business – indeed, in the course of writing this, I opened an account there, although I have not funded it. Time will tell how the E-gold saga will play out. I would not be surprised to see a mass exodus of e-gold’s customers to other companies. One company that offers services similar to e-gold, albeit with a strict “know your customer” policy, is Goldmoney.com.

Link here (scroll down).


Why the latest attack on tax havens is completely unfounded.

Earlier this month I spent several days in one of the world’s leading tax havens – Panama. I was there for a conference. Most of the attendees there were concerned about the many attractions and services any tax haven worthy of its name offers. They were looking for the best iron-clad asset protection, financial privacy guaranteed by law, profitable investments and discrete private banking.

Tax havens are again in the news in America since the Democrats took control of the U.S. Congress. Already U.S. Senators such as Michigan’s Carl Levin and North Dakota’s Byron Dorgan have introduced radical new proposals. These left-wing politicians claim that every year over $100 billion in taxes are illegally evaded by Americans who use offshore tax havens as a cover for their alleged tax crimes. There is absolutely no proof to back up this bold assertion or the fantastic number used. But the lazy “news” media is still going right along with the big lie without question. At the U.S. Senate hearings last week, it seemed that the senators did not even know what the definition of a “tax haven” is. Or as Bill Clinton once said, “It depends on what the definition of ‘is’ is.”

The senators are considering bills that would officially label 40+ foreign nations as suspected tax havens and promoters of tax evasion. The potential blacklist includes such unlikely candidates as Switzerland and Bermuda. But interestingly, their list excludes the two leading tax havens in the world - the U.S. and the U.K. Both tax their own citizens heavily, but are superb tax havens for foreigners.

What “tax haven” really means anyway.

Dan Mitchell of the Cato Institute recently addressed the definition of a tax haven and wrote, “[A] tax haven is probably best defined as a jurisdiction that meets at least two criteria: First, it will have at least some tax and/or regulatory policies that are market friendly and those policies will be perceived to attract economic activity from other jurisdictions. Second, it chooses, in at least some cases and within its right as a sovereign entity, not to help foreign governments tax economic activity inside its borders.” Certainly places such as Panama meet those criteria.

Dan continued, “So-called tax havens now are being persecuted. Politicians in high tax nations resent these jurisdictions because globalization has made it much more difficult to impose confiscatory tax rates. Indeed, tax rates have dropped dramatically since 1980, in part because havens have facilitated greater tax competition among nations. To fight against the liberalizing impact of globalization, politicians from high tax nations are working through international bureaucracies such as the [OECD] in a campaign against tax competition.” The Senate bills proposed are part of that malevolent campaign.

The real incentive behind this frivolous attack.

Of course, the leftist American pols who scream about tax havens claim they are doing so in order make all citizens, especially the so-called “rich”, pay their fair share. But in reality, these pols need more taxes to finance their big government political schemes. Gary Shilling figures that 52.6% of Americans, including dependents of direct recipients, “now receive significant income from government programs,” the Christian Science Monitor reported. In 2000, that number was 49.4%. And back in 1950, only 28.3% of Americans relied on Washington. That really shows how government welfare has expanded over the last half century.

Investor’s Business Daily puts all this in perspective: “The left delights in shrieking about how the rich beat down the poor, about how the wealthy benefit from the tax cuts at the expense of those at the bottom. But the top 5% of income earners pay 57.1% of all federal income taxes. At the same time, 45 million Americans, many of them in the lower income grouping, pay no taxes at all. Instead of the rich getting richer while the poor get poorer, the rich are paying a growing share of the tax burden while the poor’s share shrinks.”

Nearly two centuries ago, Alexis de Tocqueville predicted that in a democracy such as America, the nation will be headed towards oblivion as soon as the masses discover they can vote to transfer wealth from those better off to themselves. Small wonder then, that Americans of even modest wealth seek offshore tax havens.

I say, enough is enough!

Link here.


Venezuela’s Marxist/Communist/Socialist Dictator, Hugo Chavez has shown the usual megalomaniacal traits of all dictators. He has suppressed freedom, accumulated power by unilateral decree and bullied opponents. Now he is on a nationalization kick. (Mike Burnick has written extensively about Venezuela’s asset expropriation in the name of nationalization in his blog.) Venezuela is simply not that interesting to those of us active in the offshore financial area – just as a real estate investor would not be interested in buying a burning building. But there are lessons to be learned from what is happening in the formerly prosperous and free country of Venezuela.

The egotistical Chavez is stupidly following the Fidel Castro’s proven path to national economic ruin. What has this got to do with offshore banking and investment? One of our primary concerns when we assess countries for tax and other financial advantages is the stability of the local government. We use our unique access to formulate judgments about foreign governments on your behalf. That is why our top picks are places such as Switzerland, Panama, Liechtenstein and Hong Kong.

Now I just listed a pure democracy, a country some see as a banana republic, an absolute monarchy and a Communist controlled city-state as our four top favorites. How could so drastically different forms of government be considered stable for foreign investment and other financial activities? In each jurisdiction there exist salient factors that have less to do with the formal means of political control and more to do with the actual policies and attitudes of each government. You may not know all these subtleties, but we do. We watch current events in each place carefully to detect any changes that may be detrimental to offshore financial activity there.

Each of these jurisdictions welcomes foreign capital, protects investors with the rule of law and guarantees financial privacy by law. And in all four jurisdictions it can be reasonably said that political stability will exist for the foreseeable future. Hugo Chavez is a gross example of what can go wrong in a hitherto normal country. Meanwhile, we will keep watching for any signs of change in many nations so we can protect you.

Link here.



May 14th is the official deadline for cable modem companies, DSL providers, broadband over powerline, satellite internet companies and some universities to finish wiring up their networks with FBI-friendly surveillance gear, to comply with the FCC’s expanded interpretation of the Communications Assistance for Law Enforcement Act.

Congress passed CALEA in 1994 to help FBI eavesdroppers deal with digital telecom technology. The law required phone companies to make their networks easier to wiretap. On mobile phone networks, where CALEA tech has 100% penetration, it is credited with boosting the number of court-approved wiretaps a carrier can handle simultaneously, and greatly shortening the time it takes to get a wiretap going. Cops can now start listening in less than a day. Now that speed and efficiency is coming to internet surveillance.

While CALEA is all about phones, the Justice Department began lobbying the FCC in 2002 to reinterpret the law as applying to the internet as well. The commission obliged, and last June a divided federal appeals court upheld the expansion 2-1. (The dissenting judge called the FCC’s position “gobbledygook”. But he was outnumbered.)

So, if you are a broadband provider (separately, some VOIP companies are covered too), hurry! The 68-page official industry spec for internet surveillance is here. It will cost you $164.00 to download, but then you will know exactly what format to use when delivering customer packets to federal or local law enforcement, including “e-mail, instant messaging records, web-browsing information and other information sent or received through a user’s broadband connection, including on-line banking activity.” There are also third party brokers who will handle all this for you for a fee.

The new requirements do not alter the legal standards for law enforcement to win court orders for internet wiretaps. Fans of CALEA expansion argue that it therefore will not increase the number of Americans under surveillance. That is, of course, wrong. Making surveillance easier and faster gives law enforcement agencies of all stripes more reason to eschew old-fashioned police work in favor of spying. The telephone CALEA compliance deadline was in 2002, and since then the amount of court-ordered surveillance has nearly doubled from 2,586 applications granted that year, to 4,015 orders in 2006.

Link here.


Soon after the 9-11 attacks, the U.S. government mistook Hasan Elahi for a terrorist. On a return trip from Europe, the Bangladesh-born, New York-raised artist was flagged at the airport and interrogated. To prove his whereabouts, Elahi showed them his Palm PDA, a device that yielded enough information – from calendar notes of appointments and classes he teaches at Rutgers University – to placate his interrogators. But shaking off the feds would not be easy. In the months after the first round of questioning, the FBI subjected Elahi to more interviews and to a lie-detector test. Though he passed the test, his paranoia grew.

The artist hatched a plan. If Big Brother wanted proof of his coordinates, why not surveil himself? Recording his own moves could, theoretically, seal his alibi. And, when conceived of as art project, the action might satirize federal intelligence gathering. From the day in 2002 when Elahi implanted a GPS-enabled device in his cellphone, art and life merged. Several times a day, the artist input his location into the phone and his computer recorded the data (he hopes to incorporate a live GPS tracker soon). He then created a Web site that allowed viewers to see where he is at any given time, and he began taking photographs with a digital camera as further proof of his whereabouts.

A documentary exhibition, “Tracking Transience: The Orwell Project”, grew from Elahi’s promising scheme. But as an exhibition, “Tracking Transience” loses its way. Elahi’s premise is based on real-life evidence and the obsessive recording of events. In this area, his exhibition succeeds. Yet precious few of the images here are presented with time or date stamps or any identifying information. It is as if the element of corroboration has gone missing. How are we to know when Elahi was where he said he was? Or if it was indeed the artist’s phone that registered these coordinates?

The questionable authenticity of images is as old as the history of photography. The digital age invites further doubt. But there is something missing here – a strand of evidence that establishes the artist as a voice of authority, if only mock authority. As it stands, doubts hang at every turn. ... Without real-life documentation corroborating the artist’s truth, “Tracking Transience” becomes an exercise in solipsism.

Link here.


Another type of automated ticketing machine is being added to the photo enforcement arsenal alongside red light cameras and speed cameras. Australian vendor Redflex announced it had developed a first-of-its-kind machine designed to issue tickets for what some refer to as a Boulevard Stop or a California Stop. This is the practice of slowing to a crawl, without ceasing all forward motion, at a stop sign when there is no traffic around. Appropriately enough, the new ticketing technology is to be installed in Los Angeles by the Mountains Recreation and Conservation Authority (MRCA). “We are truly honored to work with MRCA on implementation of this revolutionary solution that is new to the U.S. market,” Karen Finley, head of U.S. operations for Redflex, said in a statement.

The more familiar stoplight cameras typically photograph a vehicle entering an intersection if a signal light changes to red as little as 0.1 seconds after the car crosses the stop bar line. In most cases, the resulting ticket photograph will show both the vehicle in the intersection and a visible red light, offering visual documentation of the technical violation. With the new Redflex stop sign cameras, a machine will make calculations to determine whether a vehicle did not come to a complete stop and deserves a ticket. California law says nothing more than that motorists are expected to come to a full stop at a stop sign, regardless of the lack of traffic on the roads.

California law also forbids the practice of paying a per-ticket bounty on citations and the use of photo radar in the state. According to the Redflex contract with MRCA, the company will keep $20 from every ticket it is able to issue. It will also set up several speed cameras. The launch date for the new system has yet to be announced.

Link here.


Last week, the FBI arrested six men accused of plotting an attack at Fort Dix, N.J., home to several thousand U.S. military personnel. The attack represented a “new form of terrorism,” according to an FBI spokesperson. “They operate under the radar ... they strike when they feel it is right whenever that might be.”

What new form of terrorism, you might ask? It turns out that one of the accused terrorist plotters often made pizza deliveries to Fort Dix and to nearby McGuire Air Force Base. He believed that under the guise of delivering a pizza, he could penetrate security at the base, and help bring about an attack “to kill as many soldiers as possible,” according to the indictment. Is this really a “new form of terrorism?” No.

There are an exceedingly small number of real terrorists, and they all seek to “blend in” with the larger population in order to carry out their actions. Blending in as a pizza delivery person to penetrate security at a military base is hardly a unique strategy.

Naturally, the arrests are already being used to justify support for a national ID card and other initiatives that would compromise civil liberties. But I have a simpler solution. Rather than force pizza delivery persons to carry a biometric national ID card (or perhaps have it implanted in their hand), or turn pizza delivery services over to the FBI, why not require all deliveries of food and other nonessential items to military bases be sent to a secure location away from large groups of people or equipment?

Otherwise, if you work on a military base or other “secure” location, the next time you order pizza, the dialog might go something like this next time it is delivered: “That will be $9.95 for the pizza and $19.95 for the ‘pizza terror screening.’ Plus tip.”

Link here (scroll down).



As with most bureaucracies, what the Transportation Security Administration (TSA) claims to accomplish and what it actually does accomplish are entirely different things. The excuse it offers for patting us down and rifling our belongings at airport checkpoints is that these shenanigans protect us – from terrorists, if not from sexual predators and thieves. In reality, the TSA exists to control us. Theory tells us that, and so do the facts when we connect several recent but isolated events.

First, the TSA’s screeners have once again failed to stop undercover agents from smuggling fake weapons through their checkpoints. This is becoming so habitual that we should add it to death and taxes as life’s only certainties. The TSA routinely flunks tests of its ability to intercept weapons. Flamingly. We are talking failure of 90% on those rare occasions when it is not a full 100%. Since 2002, when the TSA began operations, the GAO, the Department of Homeland Security, and even the TSA itself have tested airport screening hundreds of times. And the TSA has flopped hundreds of times. The TSA cannot and does not protect us.

So why is it not disbanded? Because the agency controls us far more effectively than it finds bombs. To wit:

On March 29 Shane James Deighan “fled” the Lanai Airport in Hawaii when baggage screeners found 43 Hawaiian driver’s licenses sporting “35 different names, addresses, and Social Security numbers” in his bag. Cops “tracked” him down the next morning. They “seized 19 credit cards, of which 11 matched one of the Hawaii driver’s licenses, three other Hawaii driver’s licenses, two Texas driver’s licenses, three Social Security cards, two blank checks, one military identification and a Canadian birth certificate.” He was arraigned on charges of forgery April 10. Some will probably say, “Great! Looks like screeners caught an identity thief who’s guilty as heck!’ But should we also eviscerate the Fourth Amendment when passengers are carrying drugs the government does not like?

Police must rejoice at airport screening. Hanging around checkpoints, waiting for “criminals” to come to them rather than chasing down alleys and streets, searching citizens without the bother and paperwork that warrants require certainly makes policing easier. And far less dangerous, too. But it is lethal to liberty. The list of items the state does not want us to have extends well beyond phony IDs and drugs to such innocuous things as bookmarks and money. That list will keep growing as the government does.

Link here.


Would increase criminal penalties for copyright infringement, including “attempts” to commit piracy.

Attorney General Alberto Gonzales is pressing the U.S. Congress to enact a sweeping intellectual-property bill that would increase criminal penalties for copyright infringement, including “attempts” to commit piracy. “To meet the global challenges of IP crime, our criminal laws must be kept updated,” said Gonzales. The Bush administration is throwing its support behind a proposal called the Intellectual Property Protection Act of 2007, which is likely to receive the enthusiastic support of the movie and music industries, and would represent the most dramatic rewrite of copyright law since a 2005 measure dealing with prerelease piracy. The IPPA would, for instance:

A representative of the Motion Picture Association of America said, “We appreciate the department’s commitment to intellectual-property protection and look forward to working with both the department and Congress as the process moves ahead.” What is still unclear is the kind of reception this legislation might encounter on Capitol Hill. Gonzales may not be terribly popular, but Democrats do tend to be more closely aligned with Hollywood and the recording industry than is the GOP. (A few years ago, Republicans even savaged fellow conservatives for allying themselves too closely with copyright holders.)

“Any plan to stop IP theft will benefit the economy and the American worker,” said Rep. Lamar Smith of Texas, the top Republican on the House Judiciary committee. “I applaud the attorney general for recognizing the need to protect intellectual property.” But a similar copyright bill that Smith, the RIAA and the software industry enthusiastically supported last April, never went anywhere.

Link here.


Law enforcement authorities in Switzerland confirmed that they had opened a criminal investigation into possible money laundering at BAE Systems, adding to the international scrutiny of the company. In December, the Serious Fraud Office in Britain closed its inquiry into reports that BAE had paid bribes to secure military contracts from Saudi Arabia. British officials said at the time that the investigation risked jeopardizing relations with the Saudis. Tony Blair of Britain supported that decision, which drew a public rebuke from the OECD as well as a diplomatic protest from Washington.

Swiss banks are required by law to report any suspicious financial transactions. Swiss investigators will be able to examine accounts held by Wafic Said, a Syrian financier who may have acted as a middleman for payments and whom the Swiss consider a potential witness. Ms. Balmer, of the Swiss prosecutor’s office, declined to give any further details of the investigation, citing Swiss secrecy laws.

The news follows a meeting last week in The Hague of prosecutors from Austria, Britain, the Czech Republic, Sweden and Switzerland. They are seeking to coordinate corruption inquiries related to the sale and lease of Gripen fighter jets, which are built by Saab of Sweden and sold through a joint venture with BAE. The two companies are accused of offering intermediaries as much as 1 billion kronor, about $150 million, to promote the sale of the jets to the Czech Republic and Austria in 2002.

BAE has denied making corrupt payments to win a contract known as Yamamah, under which it has supplied arms to Saudi Arabia for more than 20 years. The deal, the biggest in British history, has been worth an estimated £40 billion in sales and maintenance. An extension, involving the sale of Typhoon Eurofighter jets for an estimated value of at least £6 billion, was agreed to in 2006.

Link here.


After four years of negotiations, the European Parliament and the Council approved a regulation harmonising the rules concerning the law applicable to non-contractual obligations (Rome II). The aim is to ensure that courts in all the Member States apply the same law in the event of cross-border disputes in matters of tort/delicts [offense, civil wrong], thus facilitating the mutual recognition of court decisions in the EU.

The initiative more particularly concerns questions related to civil liability for damage caused to others, particularly in the event of an accident. It applies, for example, to road accidents, defective products and environmental pollution. Expanding trade and travel in the Union mean that disputes of this nature are bound to become more frequent. However, currently, EU Member States have no common rules to designate the applicable law in non-contractual matters, and each court observes its national rules. Accordingly, the legal solutions are likely to vary widely from one Member State to another, and parties might be tempted to refer the dispute to the court which will apply the law that is most favorable to them (known as forum shopping).

The Rome II rules aim to strike a reasonable balance between the interests of the alleged perpetrator of the damage and the victim. The Regulation adopts the solution applied in the majority of Member States and establishes a general rule that the law of the country in which the damage occurs (for example, the law of the place of the road accident) will apply, unless the parties both have their habitual residence in another country, in which case the law of that country will apply.

There are a number of specific rules for the commonest specific torts/delicts such as product liability, environmental damage, anti-competitive practices, etc. Regarding the highly controversial question of media violations of privacy, the co-legislators chose to exclude them from the scope of the Regulation, but called on the Commission to present a detailed study by the end of 2008.

Link here.


We now live in a country in which the president wields the power to send the entire nation into war on his own initiative, without the congressional declaration of war required by the Constitution.

We live in a country in which the president and the military wield the power to arrest an American citizen and incarcerate him in a military installation for the rest of his life on suspicion of being a terrorist, denying him due process of law, trial by jury, and other procedural rights guaranteed by the Bill of Rights.

We live in a country in which the president wields the power to conduct warrantless searches and seizures, regardless of the provisions of the Fourth Amendment. We live in a country in which the president wields the power to ignore any law passed by Congress simply by signing a statement, in his military capacity as a commander in chief, indicating an intention to ignore the law.

In fact, we live in a country in which the president effectively wields the same power here in the United States that he wields in Iraq, given his belief that the entire world, including the U.S., is a battlefield in the “war on terror.”

How did it all come to this? How did a country that once prided itself on being the freest nation in history end up with a ruler who wields such omnipotent powers? It is not as if we have not been warned. Our Founding Fathers warned us repeatedly what would happen if we abandoned the founding principles of our nation.

James Madison, the father of the Constitution, said that of all the enemies to liberty war is the greatest, because it inevitably encompasses all the other threats to people’s freedom. War is the parent of armies, and with armies come death, destruction, taxes, inflation, regulations, and ever-increasing assaults on liberty at home. John Quincy Adams, in his Fourth of July address to Congress in 1821, expressed pride in the fact that America does not go abroad in search of “monsters to destroy.” If America ever pursued such a policy, he said, she would inevitably make herself the “dictatress of the world.” Thomas Jefferson, in his First Inaugural Address, warned against entangling alliances and against our nation’s involvement in foreign intrigues and foreign wars. Our forefathers warned against the dangers of big standing military establishments, pointing out that historically rulers could never resist the temptation to employ them against others, which inevitably fomented new enemies and crises, which then would be used to suspend rights and freedoms at home, the suspensions being enforced by the military.

What distinguished our ancestors from modern-day Americans was how the former viewed the federal government. Today, Americans look on the federal government as a close friend or even as a parent, sometimes even a god, given that it provides the people with retirement, health care, education, housing, food, money, and other “benefits”. Our forefathers, on the other hand, viewed the federal government as the greatest threat to their rights and freedoms. They believed that government, being force, was neither their friend nor their parent nor their god. The underlying philosophy of the Constitution reflects how the Framers viewed the federal government. Even the restrictions on power in the Constitution did not satisfy the American people, however. Soon after the Constitution was ratified, people demanded and secured passage of 10 amendments to the document that expressly forbade federal officials to infringe on fundamental rights and to convict people of crimes without following long-established legal procedures.

“But we live in a different time now. Today, the terrorists hate us and are coming to get us. The Constitution is not a suicide pact.”

That raises the important question of why people around the world, especially in the Middle East, are angry and hateful toward our nation. Getting the prescription right usually depends on arriving at a correct diagnosis of the malady. The federal rationale is that foreigners hate America for its “freedom and values”. The other rationale holds that foreigners hate our nation because of extremely bad things that the federal government has done to people overseas.

The obvious benefit of the first rationale, from the standpoint of U.S. officials, is that it obviates any critical examination of U.S. foreign policy. In fact, its underlying premise is that a major justification for a pro-empire, pro-interventionist foreign policy is to project power across the world in order to protect America from those who already hate us. The second rationale contends that it is that pro-empire, pro-interventionist policy itself that generates the deep-seated anger and hatred that produce the threat of terrorism against the U.S.

The Iraq intervention might well be the dead end of the pro-empire, pro-interventionist, “super-power” foreign-policy paradigm that has held our nation in its grip for decades. If so, then as the death and destruction continue to mount, Americans might well begin looking for an alternative paradigm – one that not only is workable but is also consistent with the principles of morality, liberty, and limited government on which our nation was founded.

That is why the libertarian paradigm on foreign policy and civil liberties is so critically important. By restoring the principles of a limited-government republic, libertarianism provides a way out of the morass into which the pro-empire, pro-interventionist paradigm has plunged the nation. Returning to the founding principles of our nation, libertarians would rein in the federal government by bringing home all U.S. troops stationed overseas, including those in Iraq, South Korea, Europe, Latin America, and Japan, and discharging them into the private sector.

The libertarian paradigm also entails dismantling the enormous military-industrial complex that President Eisenhower warned us against (along with the enormous taxes that fund it), retaining a relatively small but sufficient military force. Its sole purpose would be to provide an initial defense to an invasion of the U.S., until able-bodied citizen-soldiers were able to come to its assistance. Given the fact that no nation today remotely has the military capability to invade and conquer the U.S., the size of such a military force would be minimal.

By the same token, libertarianism calls for unleashing the private sector – that is, the American people – to travel, trade, and interact with the people of the world. That would entail the dismantling of all sanctions and embargoes against all other countries, including Cuba, North Korea, and Iran. The private sector, not the federal sector, provides the best means of restoring America’s rightful place in the world, one which reaches out to the people of the world in friendship and harmony.

The paradigm of empire and intervention has brought our nation nothing but death, destruction, militarism, taxation, and tyranny. The paradigm of libertarianism would restore liberty, free markets, and a constitutional republic to our land. What better way to lead the world?

Link here.



Freedom has been fading in America – where “freedom” is the national slogan and where enormous personal freedom (relative to most times and places) characterized the nation’s beginning – for more than a century. This increasing lack of freedom in America has brought forth the natural response of a freedom movement, including the Libertarian Party, market-anarchist groups and websites, and other pro-freedom organizations and efforts. For decades now, thousands of people have worked to interest others in freedom and to help them understand what freedom is and why it is important.

By now, we can no longer avoid the truth. This pro-freedom movement has failed. America is nearing a tipping point, where the formal institutions and rules designed to protect human rights no longer function effectively. History makes the danger of this situation very clear.

Why has the freedom movement failed so miserably? Put another way, why has the market rejected our offering? Perhaps the product is not as desirable as we think it is, or perhaps we are doing a poor job of marketing. There is a third possibility, however. Perhaps we have not understood our product accurately or completely, and thus have been promoting a damaged or incomplete version. If that is true, then it is no wonder we have failed in the marketplace. We should fail in the marketplace, until we bring the product up to spec and learn to promote it properly.

Expanding our market share, as it were, is more important than with most products. History shows that lack of freedom is incredibly dangerous. Even aside from the increasing dangers, we need very wide public support if we are to oppose tyranny effectively. Indeed, any plan without a realistic approach for dramatically increasing public support will fail, and that failure will likely have catastrophic consequences. We are trying to get the system to allow us our freedom – yet the purpose of the system is to prevent freedom. Without an understanding of what people want and need, and of what freedom actually means, we risk not only failing but actually being counterproductive. We risk making things worse instead of better as, indeed, we seem to have been doing these past several decades.

The freedom movement has proceeded from the assumption that “freedom” means nothing more than lack of interference from government, and that people want this freedom by definition. Those assumptions may be wrong. Indeed, I believe they are wrong, and the poor results of our efforts support that opinion. Since we have apparently been marketing something most people are not interested in, it behooves us to at least understand what people are interested in. It behooves us to consider what people actually want.

To encourage thought on those issues, I have questions: (1) What kind of world do you want? We will never succeed at interesting others in our vision of a better world until we have both a solid intellectual understanding of that world and a deeper, more profound emotional sense of that world. Seeing this world with emotional depth gives rise to a sense of loss, and a sense of longing for a world that should be. You have that world within you. Find it. Get familiar with it. Spend time with it. A passionate and emotional understanding of the world we are made for – which requires freedom – is one of the keys to advancing the freedom movement from obscurity, to interesting curiosity, to upcoming minority, and eventually to success. Without the passion, nothing happens. (2) What, beyond the non-initiation of coercion, is necessary for such a world?

Here is what I want, personally: a healthy society. Naturally, any healthy society must be free. Use of initiated coercion would never be conceived, much less condoned, in a truly healthy society. Yet a healthy society would offer much more than mere lack of government interference. A healthy society (or world) would include the necessary elements to encourage, protect, and sustain the division of labor and honest free-market activity. In such a world, people would feel a connection with each other, for one thing. A healthy society would include the compassion necessary to encourage even the poor, the sick, the disabled, and the disadvantaged to support the social order. A healthy society would be just and humane as well as free. That does not mean everyone would be equal in wealth, any more than they would be equal in height or beauty or athletic ability. It does mean that concern for one’s fellow man would be deeper and more widespread than one sees today. A healthy society would include widespread emotional health as well as freedom from coercion.

The contest between freedom and tyranny is an epic, world-changing struggle, and will be fundamentally a contest between paradigms. As I have already suggested, the freedom movement has failed so dismally because the paradigm it uses is broken and incomplete. The freedom movement itself has failed to promote or even to understand the integrated nature of love and freedom. If we want success, we need a new paradigm.

Freedom in human affairs requires love. Because people often see “freedom” as merely a lack of coercive interference, it is easy to miss the human element here. But we are human beings, not inanimate objects, and humans have needs beyond lack of coercion. In addition to personal needs for love and connection with others, the market, the division of labor, and society itself require widespread emotional health (the foundation of love) to function well and to prevent a drift towards fraud and coercion. Love is the lubricant and anti-corrosive for a free society. A widespread and severe lack of emotional health ensures a nightmare, no matter what the original political situation.

Link here.


The Peter Principle in the executive branch.

Some of the Bush administration’s more vehement critics see its failures as the result of a twisted worldview. Others see them as the product of powerlust and corruption. But watching Alberto Gonzales fumble his way through a Senate hearing last week suggested that neither ideology nor venality is to blame. The real problem lies in a phenomenon known as the Peter Principle, which says, “In a hierarchy, every employee tends to rise to his level of incompetence.”

That iron law of human organization came to light in a 1969 book by Laurence Peter, who theorized that if you do a job well, you are not likely to be left in that job but promoted to another one. If you do well in the next assignment, you will be promoted once again. Eventually, you will reach a job that is beyond your abilities, at which point you will no longer be promoted but left to exercise your ineptitude.

At the hearing, Gonzales gave the impression of someone with only passing involvement in his own life. He defended his decision to remove eight U.S. attorneys last year, but had serious trouble recalling why, or who came up with the names, or how the entire episode came about. Feeble mindedness cannot be it. Gonzales, after all, graduated from Harvard Law School, made partner at a distinguished Texas law firm, and eventually became a justice of the Texas Supreme Court -- where, the Los Angeles Times noted in 2001, “he developed a reputation as a thoughtful and ideologically moderate justice.”

But as Peter noted, “for every job in the world, there is someone who can’t do it.” In Gonzales’s case, that job is attorney general of the U.S. You do not have to be a partisan Democrat to see he is in over his head. Last week, CNN quoted one “prominent Republican” as saying the interrogation of the hapless Gonzales was like “clubbing a baby seal.”

Gonzales, alas, is far from being the only person in the administration who excelled in previous jobs only to reach his level of incompetence. I am on record praising Dick Cheney’s selection as George Bush’s running mate in 2000. As President Gerald Ford’s chief of staff and as secretary of defense under the first President Bush, he had demonstrated sound judgment and a cool head in challenging situations. He had the good sense, for example, to reject the idea of marching to Baghdad to topple Saddam Hussein during the first Iraq war. “Once we had rounded him up and gotten rid of his government,” Cheney said later, “then the question is what do you put in its place?” Only when he was elevated to the vice presidency did he start following orders transmitted through his dental fillings from the Death Star.

Unfortunately, there is no way for presidents or anyone to know when a talented performer will finally come up short. So, as Peter pointed out, it is up to each of us to avert being promoted too far through the use “creative incompetence” – such as parking in the boss’s space, wearing too much perfume, hinting at a sordid private life or otherwise creating the impression that you have already reached the outer limits of your capacities. Gonzales may wish today that back in Texas, he had occasionally showed up for work with stubble on his chin or lipstick on his collar. It would have saved him and the rest of us a lot of trouble.

Link here.
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