Wealth International, Limited

Offshore News Digest for Week of May 21, 2007

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

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



Cokes have not tasted as good as they used to because of the substitution of corn syrup for sugar. Coke tried something like this once before in the 1980s and it was a big flop. If you want a coke that is worth drinking keep going west. Out here you can get all the real Coke you want, made with real sugar, in glass bottles or can.

As far as buying things is concerned, you can also buy a quart of good gin in the grocery store for $0.67. (My typing keyboard does not even have a cent sign on it anymore). You can hire a plumber all day for $10. A full-time house maid earns $60 a month. The young man who drives my cars eats and sleeps at his home about half the time and I pay him about $150 a month. My gardener and maintenance man lives here, and works 26 days a month for $160 a month.

The brand-new high-tech hospital has pre-registered all in my family so that there can be no delay in admitting any of us in case of emergency, or for any other reason. In fact the CEO and Chief Neurologist made a house call to see us and get our histories. My neurologist charges me $9 when I visit him for a checkup, or to write a prescription. If you would like to have a complete medical blood test of the standard items just walk into any of the private labs you find everywhere and pay $10 and come back later that day to pick up the report.

Hong Kong is our nearest neighbor. The airfare over to their new airport is $39. It is a one and a half hour flight. Can you fly from Atlanta to Chicago for $39 up and $39 back? If you have not been to Hong Kong lately, you have probably missed something. I could go there to buy several cases of black fountain pen ink which is no longer worth buying in Western countries. Why? It is no longer black, but merely a badly dull kind of dark grey. Did you know that had been stolen from you? Why do such things happen to nice people?

A good techie will show up and work all day for $20. He can even bring you Vista Ultimate for another $20 (although he would try to talk you out of using it). The local franchise car repair location can change all your shock absorbers, springs, bushings, pads, and motor mounts for $60 plus $40 each for the gas shocks. This tends to make your car run more safely, securely, quietly ... more like new. If the A/C is not cooling like it used to, they will put in a couple cans of Freon for about $5 each, just like you always did. They can make a house call, too, if you need some gears replaced in your transmission. They do not drop any oil on your driveway either.

The hardwood narra tree has been endangered by the national governmentt and is almost extinct. We pay a caretaker at one of the older cemeteries with many trees to collect leaf seedpods for us every season, and we bring them home to propagate with loving care in the fertile ground in our front and back yards. I would say we have already set out about 50,000,000 currency units worth of hardwood narra trees so highly prized by the populace here and unavailable except for what is left of old burnt out tree trunks.

So, if you still want that swell-tasting, ice-cold Coke in a real glass bottle, go on West, Man. See what else they have that you can use, too, while you are there.

Link here.


According to new research from the Bank of Scotland, 42% of Britons are interested in buying property abroad or moving abroad, with Australia being the favorite destination. 10% of respondents ranked Australia in the top spot, followed by New Zealand at 9% and America and Canada with 7% each. France topped the European destinations with 6% of people wanting to move there, followed by Spain at 5%.

Out of the 42% of people who would like to own property abroad, the largest proportion were based in the South East (18%), followed by the North West and London (10%). 4% of respondents surveyed already owned property abroad. Over one quarter of these respondents were again based in the South East (28%), followed by London (15%) and Yorkshire and the Humber and West Midlands (7%.)

Tony Wilcox, managing director at Bank of Scotland, said, “If you are planning to leave the UK to live temporarily or permanently overseas, you need the right products and services in place, so that you have a firm foundation for your finances, no matter where you are. When moving abroad there are many aspects of life which British expatriates have to adjust to and personal finance is no exception.” Bank of Scotland International offers a comprehensive range of banking and savings solutions worldwide from its offices in Jersey and Isle of Man.

Link here.


Would be country’s first ever referendum.

Costa Rican voters will go to the polls in September this year to decide whether they want the country to ratify the Central American and Dominican Republic Free Trade Agreement (CAFTA-DR), although a review of the agreement by the constitutional court may yet throw the referendum into doubt. With the government and the national assembly seemingly at loggerheads over whether to accept the trade deal, the Supreme Electoral Tribunal (TSE) has announced that the people will decide on the issue in the country’s first ever referendum, set for September 23.

However, following weeks of speculation, Costa Rica’s Constitutional Chamber of the Supreme Court (Sala IV) has announced that it will review the text of the 2,000 page agreement to ascertain whether it violates the country’s constitution. This review, which was announced on May 11, is expected to be completed after a month. If the court rules that CAFTA-DR is unconstitutional, it is unclear whether the referendum will go ahead in September as planned.

While all the other signatories of CAFTA-DR, including the U.S., the Dominican Republic, El Salvador, Guatemala, Honduras, and Nicaragua, have signed and ratified the agreement, Costa Rica remains the only country to waver on its commitment following fierce protests from labour unions who fear more competition would lead to job losses and drive wages downwards. Other opponents fear that the agreement could lead to a loss of sovereignty as Costa Rica would be required to defer to a multinational arbitration panel in the event of a trade dispute. On the other side of the debate, the business community has been demanding that the government send the agreement to the assembly, saying that the seemingly never-ending delay could cost Costa Rica lost business opportunities and foreign investment.

CAFTA would immediately eliminate duties on more than half the value of U.S. farm exports to the region, expand IP protections and open telecommunications and other markets. It would also eliminate tariffs on 80% of U.S. exports of consumer and industrial goods in signatory countries, with remaining tariffs phased out over 10 years. While the government of President Oscar Arias supports CAFTA-DR, the groundswell of public opinion would appear to indicate that most are against more free trade, and opinion polls have shown that less than 40% of voters would support the agreement.

Link here.


Rising to a record high immediately after the central bank hiked interest rates, China’s booming stock market has entered a battle of wills with the government – a battle that it may well lose. Millions of Chinese investors, trading on mobile phones or in brokerage halls around the country, shrugged off the central bank’s monetary tightening, which was partly designed to prevent the market from overheating. Instead, investors pushed up stocks in massive turnover that was about 10 times year-ago levels.

The Shanghai Composite Index opened down 3% but quickly rebounded to climb as much as 1.3%, hitting a record intra-day high. It ended the day up 1%. That means authorities are likely to take stronger steps in coming weeks to restrain the market and drive out speculative money, analysts and fund managers believe. They think the government may want stocks to pull back 10 or 20% in the next few months to let air out of the bubble – and that a further rise of 10% would almost certainly produce harsh official action. The monetary tightening was the latest in a series of efforts this month to restrain the market, which is up over 50% this year after a 130%leap in 2006.

Central bank governor Zhou Xiaochuan said he was concerned by a stock bubble and would monitor asset prices. “The problem with the stock market is not only valuations. People are leaving their jobs, using their pensions, selling their houses to speculate in stocks. That is really dangerous,” said Zheng Weigang, analyst at Shanghai Securities.

By brushing aside the central bank’s tightening, the market has sent policy makers a challenge that they cannot afford to ignore if they want to maintain credibility, analysts said. In 1996, when the index jumped as much as 145 percent, the government halted the bull run and sent stocks into a tailspin by using the People’s Daily, the Communist Party’s mouthpiece, to warn in an editorial against “excessive speculation”. This time, authorities are unlikely to resort to such measures, partly because they have become more committed to free markets and more sensitive to public opinion.

After deciding this month to let institutions buy stocks overseas, China could take more steps to divert investment funds out of the country – though this would likely have little impact, since with the yuan appreciating, few individual Chinese investors are interested in sending money abroad. Instead, authorities may tighten the noose on funds entering the stock market by slowing regulatory approvals for new mutual funds. Regulators cooperate much more closely with central government policymakers in China than they do abroad.

A determined crackdown on banks could deter the illicit use of loans for stock investment, while central government authorities could press state-owned firms and local officials around the country to stop investing surplus funds in equities. A crackdown on corruption linked to the real estate market in Shanghai last year prompted money to be pulled out of the city’s red-hot property market. A similar effort could conceivably cool speculation in stocks. Authorities may also move toward introducing a capital gains tax for stocks. Even a hint at such a tax by a senior official in Beijing might send the market down steeply.

“Investors putting new money to work in China’s stock markets ignore the adage ‘Don’t fight the central bank,’” global investment bank ING said in a report, warning that future pull-backs could unsettle risky markets globally.

Link here.


Kuwait over the weekend removed its currency peg to the U.S. dollar, throwing plans for a Gulf currency union by 2010 into doubt and raising the prospect that other oil-producing states might abandon long-held dollar pegs. Sheikh Salem Abdelaziz Al Sabah, governor of the Central Bank of Kuwait, told the official Kuwait news agency that the decision had been made owing to the “detrimental effects of the pegging system to the national economy.”

Since late last year, Kuwaiti officials have hinted that the country would revert to a basket of currencies to prevent the sliding dollar increasing the cost of imports, which has stoked inflation to more than 4%, double the historic average. This has encouraged speculators to plough billions of dollars into the dinar over the past few months, betting that the central bank would allow the dinar to appreciate. The dinar traded up 0.4% as the central bank replaced the peg with a basket of undisclosed currencies. The central bank had allowed the currency to vary up to 3.5% from the peg, but the dinar had been at the top end of the approved trading band for a year owing to the continuing weakness of the dollar and the strength of Kuwait’s oil-driven economy.

The dollar is expected to make up about 75-80% of the new basket. Kuwait dropped its currency basket in 2003, adopting a dollar peg as part of the Gulf Co-operation Council countries’ drive to create a unified economic block with a single currency by 2010. But doubts over the ability of the GCC economies to harmonize have arisen, with Oman saying it would not meet the convergence criteria.

Kuwait’s move may come as a surprise to other GCC states, such as Saudi Arabia and Bahrain, which have been repeating their commitment to the peg in recent weeks, saying that any revaluation should be agreed collectively by the GCC. Simon Williams, an economist with HSBC in Dubai, did not believe other GCC states – Saudi Arabia, the U.A.E., Bahrain, Qatar and Oman – would follow suit on revaluation quickly, as these countries have clung to dollar pegs since the early 1980s. But they are studying the move as an option to mitigate dollar weakness.

Link here.


Non-U.S. casinos now outnumber those in the U.S.

A report published yesterday by Big Five accounting firm Ernst & Young has revealed that non-U.S. casinos now outnumber those in the United States. According to E&Y, a wave of capital flowing into the gaming sector is fuelling massive growth in casino and other gaming properties worldwide.

Ernst & Young’s annual Gaming Bulletin (now on its 25th edition) reported that the gaming industry – fuelled by billions in new capital for development, mergers and acquisitions – has undergone a transformation in the last year, creating a truly global gaming industry. “In the last year, we have seen Macau surpass Las Vegas as the leading gaming center in the world, and we have seen the rest of the world surpass North America in terms of total number of gaming properties,” explained Cameron Cartmell, director of betting and gaming at Ernst & Young in London. “We’ve also seen a strong flow of capital into the gaming sector in the U.S. and witnessed the steady expansion of the North American gaming businesses abroad through mergers and acquisitions as well as the emergence of new markets in Europe and Asia.”

The report showed that while the U.S. is still the largest individual gaming market with 1,496 casino and gaming properties, the rest of the world has now overtaken North America in terms of casino expansion, with 1,822 properties. Much of the growth in the gaming sector has come in Asia, where Macau has been a major success story, with 23% annual growth last year, and with $6.9 billion in annual revenue in 2006 now surpassing the Las Vegas strip ($6.7 billion). Further growth in the region is anticipated in the next 12 to 24 months, with Singapore projected to open its first gaming properties in 2009, and Japan discussing whether to lift a longtime ban on casinos.

Other regions that saw significant growth in their gaming sectors in 2006 included South America – where Argentina, with 79 casinos has more gaming activity than any other country in the region – and Africa, where South Africa dominates with 44 casinos and 37,599 slots. The report predicts that other emerging nations such as Russia and India may also see strong future expansion of their gaming sectors in the next few years, though both markets currently have certain restrictions in place.

Even in more mature markets, such as the UK, which has had sports betting, slot machines and other gaming outlets for many years, pending legislation will result in the controlled expansion of the casino sector, including one for a regional super casino in Manchester. “Increasingly, sovereign nations and municipalities are viewing gaming as a catalyst for tourism, their entertainment industries and economic development,” concluded Cartmell.

Link here.


The government of Antigua and Barbuda is reportedly preparing to file a claim for compensation against the U.S., stemming from the latter’s ban on internet gaming – a move which has caused a major loss of earnings for the tiny Caribbean jurisdiction.

Mark Mendel, Antigua’s legal counsel in its long-running trade dispute with the U.S. concerning access to that country’s e-gaming market, said in an interview that filing a claim for compensation would be “one route” that Antigua would consider, but with no precedent for such a claim, he conceded that the value of any claim would be a “massive unknown”.

John Ashe, Antigua’s Ambassador to the U.N., was more forthright, telling the WTO’s dispute settlement body that claims for compensatory adjustments were “a matter of economic self-interest. ... But we also believe it is important that the process is made as difficult as possible for the United States.”

The U.S. decision to withdraw from one of its WTO commitments after it finally lost its battle with Antigua and Barbuda over online gaming has provoked a storm of outrage and concern. Earlier this month, it emerged that the U.S. had decided to sidestep a ruling by a WTO dispute resolution panel in favour of Antigua by simply rescinding one of its services agreements. “We did not intend and do not intend to have gambling as part of our services agreement,” stated Deputy U.S. Trade Representative John K. Veroneau, in an announcement that shocked many observers. “What we are doing is just clarifying our commitments.”

The WTO treaty allows a country to withdraw commitments to open its services market to foreign investors. However, the U.S. could potentially have to renegotiate with any of the other 149 member countries if they raise to objections to its decision. Member countries affected by the U.S. ban on offshore online gaming firms may also have a case to claim compensation from the U.S. government.

In the case of Antigua and Barbuda, compensation may be calculated based on loss of income for its 32 registered online casinos. According to the government, income has fallen to $130 million a year from $1 billion among the jurisdiction’s online casinos in 2000, when earlier U.S. restrictions on online gaming were imposed.

As far as Washington is concerned however, its legal manoeuvre effectively ends the case, and it declined to challenge the official adoption of the internet gambling ruling by the WTO dispute panel. The U.S. also argues that it is exempt from negotiating compensation to governments because internet gambling was never explicitly mentioned in the negotiations of the early 1990s. But according to Mendel, rules allowing U.S.-based companies to continue to offer online services in the country while offshore firms are barred amounts to nothing more than “blatant trade protectionism. ... The American defense was predicated on their theory that internet gambling was worse than gambling in bricks and mortar shops. If they believed that, they would eliminate all remote gambling in America. They have not done that.”

While the tiny Caribbean country is within its rights to apply for trade sanctions against the U.S., the relatively minute flows of trade between the two means that such an action would be likely to have very little bearing on Washington’s stance on the issue. Nonethless, Mendel said that Antigua may target telecoms and intellectual property rights. “That’s a way we can possibly fight back,” he surmised.

Link here.



House Ways and Means Committee Chairman Charles B. Rangel has announced that the Committee will hold a hearing this week on the IRS’s use of private debt collection companies to collect federal income taxes. Witnesses at the hearing, scheduled for May 23, will include representatives of the IRS, National Taxpayer Advocate, U.S. Government Accounting Office, National Treasury Employees Union, and contractors involved in the collection of federal income taxes.

On March 22, 2007, Committee Chairman Rangel, a long-standing and vocal opponent of the scheme which began last year, launched an investigation into the IRS’s use of private debt collection companies citing complaints from taxpayers, instances of harassment and violations of law, and the inability of taxpayers to hold the Federal government liable for the actions of a collection contractor. Further, Rangel urged the Commissioner not to proceed with awarding additional contracts.

The Committee will focus on a number of issues including whether, (1) federal income tax collection is a fundamental governmental function and, as such, should not be contracted to the private sector as a profit-making venture. (2) The IRS can collect federal income taxes more efficiently and effectively than private debt collection companies. (3) Taxpayers are subject to confusion, questionable private debt collection company tactics, harassment, and abuse due to the use of private debt collectors. (4) Adequate options are available to the IRS to address uncollected taxes in the accounts receivable inventory. (5) The program is ready for expansion and new private debt collection contracts should be awarded in the coming months. And (6) Internal Revenue Code section 6306, authorizing the IRS to enter into contracts with debt collection companies for the purpose of collecting federal income taxes, should be repealed.

“The IRS use of private companies to collect federal income taxes is an affront to the integrity our tax system,"”remarked Rangel in announcing the hearing. “The outsourcing of IRS tax collection to the private sector carries an unacceptably large risk that taxpayer rights will be trampled and their personal identities stolen. It is unacceptable that taxpayers are footing the bill for a program that pays private companies up to a 25% bounty when the IRS can do the same job for pennies on the dollar.”

Section 6306 allows for the IRS to pay a commission of up to 25% of amounts collected. Last year, the IRS awarded contracts to three debt collection companies. After six months, the IRS renewed contracts for two of the companies. The IRS intends to award additional contracts in late 2007. The use of private debt collectors for federal income tax purposes continues to be controversial. The IRS Taxpayer Advocate, various consumer interest groups, IRS employees, and others have expressed concern that the use of private companies to collect federal taxes is inappropriate and that the tax law provision should be repealed. Others, including private debt collection companies and members of Congress, have argued that the private debt collectors collect money that would go uncollected.

Writing in a “Dear Colleague” letter to his fellow Senators last month, Sen. Chuck Grassley, ranking member of the Senate Finance Committee, argued that the IRS’s own collection infrastructure is better set up for placing liens and garnishing wages than making initial phone calls to delinquent taxpayers to set up a payment plan. Contrary to the images of thuggish collection agents conjured by opponents, Grassley said that the private debt collection program consists of having contractors making basic phone calls to taxpayers and claimed that opponents of the scheme have put together “an amazing campaign of misinformation.”

While Grassley acknowledged that the “tough cops” of the IRS were better equipped to go after serious cases of tax evasion, he said that the small, newer debts, which make up a large percentage of delinquent taxes, are best obtained by a private companies using modern outbound call systems and empowered only to “find, call and convince.q‘

Link here.


The IRS has announced that it has reached a settlement with the law firm of Sidley Austin LLP, the successor firm of the merger in 2001 between Sidley & Austin and Brown & Wood LLP, which has paid a civil tax shelter promoter penalty of $39.4 million. The penalty stems from the firm’s promotion of abusive tax shelters and a failure to comply with tax shelter registration requirements. However, the U.S. government has said that it decided not to prosecute the firm because tax shelter work had primarily been carried out by a single person between 1996 and 2003, former partner and tax lawyer Raymond J. Ruble. Ruble faces criminal charges along with several former employees of big four accountant KPMG in a separate case.

Link here.


The extent of the government’s losses as a result of the ongoing tax credits fiasco may be much more severe than first thought, according to new figures, which show that the government overpaid £1.7 billion in tax credits in 2005-6, bringing the grand total of overpayments since the scheme was introduced in 2004 to £5.7 billion.

The government is already writing off almost £2 billion as irrecoverable. However, according to new research by the Liberal Democrat Party, an additional £3.6 billion has been lost through the tax credit system due to fraud, the vast majority of which is never likely to be recovered. The Lib Dems say that this brings the true total of tax credit losses to £9 billion, of which £5 billion will have to be written off by the government.

“The Treasury is supposed to be the guardian of public money, but it has presided over waste on a monumental scale,” commented Liberal Democrat Shadow Work and Pensions Secretary, David Laws. “One pound out of every £5 paid out by (Chancellor of the Exchequer) Gordon Brown in tax credits has been overpaid. Not only has the taxpayer lost out, but the government is now trying to claw back money from people on very low incomes – even when it was government mistakes which led to errors. The existing system is both wasteful and grossly unfair. For all his talk about ‘listening and learning’, Gordon Brown has so far failed to implement the majority of the Parliamentary Ombudsman’s recommendations on tax credits which were made two years ago.”

Much of the blame for the system’s failings was initially placed at the door of EDS, the American IT systems firm contracted to build the tax credits computer system. However, according to Edward Leigh, Chairman of the Public Accounts Committee, government attempts to improve the system have been woefully ineffective in the intervening four years.

Link here.


Swiss Communications Minister Moritz Leuenberger has suggested a “tax on information” to help bridge the digital divide between wealthy countries with good communication infrastructure and poor countries where most of the population have no access to modern communications. Leuenberger revealed his proposal to a U.N. meeting.

“Today more than half the world’s population do not even have a telephone and four out of five people don’t have access to the internet,” Leuenberger told the conference. “They are cut off from information and any possibility of exchanging information, training or improving themselves. ... If we don’t want these people to leave their countries, we must do something to ensure that the gap does not grow wider between those who surf the internet via high-speed ADSL and those who have to walk ten kilometres to the nearest phone box.”

Leuenberger speculated that such a tax could be raised on information content which is paid for and computers, although he stressed that there would be exemptions for low-cost providers. Revenues raised from the levy would then be spent on internet development educational initiatives in countries with poor telecommunications infrastructure.

Links here and here.


The Oxford University Center for Business Taxation has announced the appointment of over 40 International Research Fellows. The Fellows, who comprise some of the world’s best researchers in business taxation, are all leading academics in their fields and bring research expertise in economics, law and accounting to the Centre. They include professors from Harvard, MIT, Chicago, Michigan, University of California Berkeley, U.C. San Diego, Toronto, Copenhagen, Munich, Paris, Tilburg, Vienna, Monash, Melbourne, Sydney and other leading universities.

Professor Michael Devereux, Director of the Oxford center commented, “In bringing together this prestigious international group of academics, the Center will benefit from their unique expertise and will welcome their involvement in our research activities and their contribution to policy debates. The new Fellows will be regular and frequent visitors to the Center, and their research on business taxation will be published by the Center as Working Papers and in other forms. The Working Paper series will become an important central source for the best research on business taxation from around the world.”

The Oxford University Center for Business Taxation was opened in 2005. The center is tasked with examining the approach to the taxation of business activities in the UK and evaluating the effects of the present structure of taxation on the business sector, public finances, international competitiveness and the wider economy. It also addresses policy options that take account of the international dimension to business activity, the interaction between different tax systems and the global influences on policy formulation.

The brainchild of Dr Christopher Wales, Managing Director of Goldman Sachs and a former Member of the Council of Economic Advisers at HM Treasury, the Center works with the UK multinational business community and government, the E.C., the OECD and other academic research centers both inside and outside the UK.

Link here.


The Commissioners of the Australian, Canadian, UK and U.S. tax administrations have announced plans to open a second Joint International Tax Shelter Information Center (JITSIC) office in London UK, in Spring 2007. Japan has also accepted an invitation to join JITSIC. The Commissioners agreed that exchanging information in real-time is making a big difference to the complex task of tracking tax avoidance and abusive cross-border transactions. JITSIC members have identified and challenged highly artificial arrangements including:

The Commissioners have also made plans for the future development of JITSIC, along with measured expansion to cover Asia in addition to North America and Europe. This will broaden the focus of its activities, further sharing best practice on risk assessment and other key areas of interest, particularly increasing the transparency of cross-border transactions in order to create a level playing field for taxpayers who voluntarily comply with their tax obligations.

Link here.
Business struggling with worldwide wave of tax regulation – link.



For the headquarters of more than 14,000 companies, Ugland House is a quiet place. A few lawyers, accountants and secretaries wander into the 5-story building each weekday morning, but by midafternoon the black marble lobby is about as busy as a bank on Sunday. Ugland House is what is known as an “address of convenience” for many of the 70,000 U.S. and other foreign companies, limited partnerships and trusts that are based in the Cayman Islands.

“All offshore jurisdictions do is facilitate and ameliorate the conduct of global business,” said Gus Pope, managing partner of law firm Maples & Calder, which occupies Ugland House and represents nonresident clients. But in recent months, these “offshore” operations of U.S. companies have been under renewed scrutiny in Congress, where some lawmakers say the U.S. Treasury is losing millions of potential tax dollars.

Many U.S. firms have subsidiaries registered in the Cayman Islands. Big energy players have local subsidiaries. So do hotelier Marriott International, aerospace giant Boeing and food producers Sara Lee and Coca-Cola. Most U.S. companies say they situate corporate units offshore for strategic, financial and tax reasons, and they make no attempt to hide them. But a lingering taint from days when small islands were the refuge of tax evaders means that “anything that happens here is looked at more closely, because of the image of offshore,” said Andy Stepaniuk, a Canadian and chairman of the Cayman chapter of the Alternative Investment Management Association. He is also a partner with the local unit of KPMG International.

In all, the 70,000 entities here have $1.4 trillion in assets in this “tax neutral” venue, if not so many employees. Most of them comprise only a post office box and a figurehead from a local law firm or consulting firm to represent them. By registering a subsidiary there and making use of the islands’ profit-reporting loopholes, U.S. companies can reduce their tax burden from the 35% the IRS levies on onshore profits to, in many instances, nothing. Cayman collects neither personal nor business taxes.

Cayman authorities and industry analysts contend that in today’s interconnected financial world, U.S. corporations with international business are compelled to move offshore to compete with companies from less tax-burdened countries. But shifting political winds in Washington are threatening to stanch the flow of taxable business offshore. With their Stop Tax Haven Abuse Act submitted in February, Democratic Sens. Carl Levin of Michigan and Barack Obama of Illinois and Republican Sen. Norm Coleman of Minnesota want to label the Cayman Islands and 33 other territories or countries as “offshore secrecy jurisdictions” where U.S. citizens’ financial activity would be automatically suspect.

The Cayman Islands, one of dozens of small venues that have transformed themselves into international financial centers, has grown over the last 20 years from a dodgy domicile for money launderers and tax evaders to the world’s 5th-largest banking center and the global leader in mutual and hedge funds. Consultants, auditors and analysts there accuse tax-hunting politicians of shortsightedness and misconceptions about offshore activity and its effects on developed economies like that of the U.S. In a world where 60% of global trade occurs within multinational firms and financing deals blend capital from a multitude of sources, U.S. activity cannot be sorted out for tax purposes from that of other countries, contended Mr. Pope.

18 of the 34 countries and overseas territories targeted by the Senate bill are in the Caribbean. Some, like the Cayman Islands and Bermuda, are under British rule. Hong Kong, Switzerland, Singapore and EU member Luxembourg are also on the secrecy list. Such a branding could inflict diplomatic as well as financial damage on U.S. allies, warn industry analysts such as Brett Wolf of Complinet, which provides information and software for financial services.

Pope acknowledges that the mood in Washington seems to portend a backlash against offshore operations. Tolerance of and support for expatriated financial activity have always been cyclical, he said. Cayman government officials see the U.S. political designs on offshore operations as an antiquated view of a financial world that operates in cyberspace, not in buildings. Those familiar with U.S. politics recognize that they may be confronting an issue often driven as much by emotion as by economics.

Pope recalls the public uproar triggered five years ago when Stanley Works tried to move its headquarters to Bermuda to save $30 million a year in taxes. The Connecticut-based toolmaker abandoned the move under pressure from tax reform advocates and had to cut 1,000 jobs a few months later when its share value fell by 12%.

Marriott registers dozens of subsidiaries offshore because the hotel chain’s business is global, and “operating a development office or the like in the general area where we are pursuing business just makes sense,” said a spokesman. Whether targeting offshore profits for U.S. taxation is justified or not, Eduardo Silva, president of the Cayman Islands Bankers’ Association, said he doubted that the effort would reap much reward. “Almost all the business in Cayman that originates from the United States is from American corporations and banks that I am sure pay their taxes,” Silva said, estimating the number of individual accounts as a fraction of 1% and an even lesser proportion of assets. “Cayman is not a jurisdiction used by individual taxpayers to conceal funds.”

Link here.


Offshore operations of U.S. companies and investors are coming under greater scrutiny in Congress, where some lawmakers say the U.S. Treasury is losing billions of dollars in untapped tax revenue. The fresh legislative effort seeks to stem the increasing illicit flow of taxable funds abroad. Lawmakers from both parties assert the rapid growth of hedge funds and other complex financial instruments in today’s global economic setting have allowed more rich Americans to underpay their federal taxes. Such evasions, they say, put added pressure on the federal deficit, swollen by rising military spending, and place an undue burden on honest taxpayers.

Under the proposed Stop Tax Haven Abuse Act, Sens. Carl Levin, Barack Obama and Norm Coleman have labeled 34 countries or territories as “offshore secrecy jurisdictions”. Under their bill, the IRS would gain several powerful tools to scrutinize the offshore financial dealings of U.S. citizens. Similar legislation, introduced in the House earlier this month, has 40 co-sponsors, all Democrats. Neither Levin nor his fellow sponsors are members of the Senate Finance Committee, which has jurisdiction. But judging by their comments at a May 3 hearing, both Sens. Max Baucus, the committee chairman, and Chuck Grassley, its ranking Republican member, favor a crackdown.

At the hearing, Baucus cited the case of “two brothers from Texas [who] set up 58 separate trusts at a shell corporation, sheltering tens of millions of dollars in assets on which they avoided paying taxes.” He was referring to Sam and Charles Wyly. A 2006 report by the Senate Permanent Subcommittee on Investigations said the billionaire brothers had transferred $190 million worth of stock options and warrants to shell firms owned by offshore trusts. The trusts benefited their families when the offshore firms exercised the options and warrants. The Wylys paid no taxes on the gains, generated from their holdings on the Isle of Man, a tax shelter in the Irish Sea.

In April, the investment services arm of Bank of America paid a $3 million fine to the National Association of Securities Dealers to settle charges that the bank failed to comply with its own anti-money laundering rules in its handling of the Wyly brothers’ offshore accounts. It was the largest such penalty ever paid by a financial institution. The Wylys have not been charged with any wrongdoing.

Wary Treasury officials and pro-trade lobbyists fear such a crackdown could trigger an adverse financial backlash. Testifying before the Baucus-led panel, John Harrington, acting international tax counsel for the Treasury Department, warned against overreacting, “especially in a way that hinders legitimate cross-border trade and investment activities, which are so critical to U.S. businesses and U.S. jobs.”

The legislation would increase penalties on tax shelter promoters, close offshore tax loopholes, empower the Treasury to act against foreign jurisdictions that impede U.S. tax enforcement and bar the U.S. Trade and Patent Office from issuing patents on devices designed to avoid tax liability. It would also give the IRS more time to pursue cases that would otherwise fall under the current 3-year statute of limitations.

Link here.

Channel Islands defend reputation in Washington.

Senators Frank Walker and Mike Torode, the respective leaders of Jersey and Guernsey, have submitted statements to the U.S. Senate defending their reputation as legitimate, well regulated and well respected offshore finance centres. The statements were submitted to the Senate Finance Committee Hearing, which was convened to discuss offshore tax evasion as a result of bills that have been introduced seeking to restrict the use of offshore tax havens to inappropriately avoid Federal taxation.

“Jersey is a long standing international finance center providing a wide range of financial and professional services and in compliance with international standards,” Walker said in his statement. “It is no part of Jersey’s policy to assist directly or indirectly the evasion of taxes properly payable in other jurisdictions. Such business is actively discouraged.” Senator Walker drew the Committee’s attention to the fact that Jersey has entered into a tax information exchange agreement with the U.S., and has a well recognized good relationship with the U.S. administration on financial crime matters generally. He has emphasised Jersey’s determination to strengthen this relationship. “Our good name and reputation is of huge importance to us,” he stated.

14 miles from the coast of France and 85 miles from the coast of England, Jersey is an island of 45 square miles in area with a population of nearly 90,000 people. The Island’s economy traditionally has depended on agriculture and tourism, but latterly it has become increasingly dependent on the provision of a wide range of financial and professional services on a worldwide basis. However, Jersey is not the only offshore jurisdiction to have attracted unwanted attention from U.S. legislators as they seek to close the “tax gap” between legally owed and paid taxes. One bill would include Jersey and Guernsey in an initial list of “offshore secrecy jurisdictions”.

In a similarly-worded statement, Mike Torode, Walker’s counterpart in Guernsey, said that it was and important opportunity for Guernsey to “set the record straight. ... I made it very clear that we are in no way a so-called ‘tax haven’ but a responsible international finance centre maintaining the highest regulatory standards and that a Tax Information Exchange Agreement has been in place with the United States since 2002,” he said. “This is particularly relevant, given that the hearing highlighted information exchange as being a key solution in dealing with the problem. It appears that the ‘tax haven’ label has been taken from an OECD list published in 2000 which is now out of date as Guernsey was declared a co-operative jurisdiction by the OECD in 2002.”

Link here.


There is a quiet revolution happenning in traditional Swiss banks, which for seven generations catered to the very wealthy from Geneva. Switzerland is known for its banks, global giants-UBS and Credit Suisse. But it is the smaller, more discreet banks that are changing the most these days.

Pictet a small bank, for example, once limited its investments to stocks and bonds, heavy on the later. But it now has $10 billion of its clients’ assets in private equity and $15 billion in hedge funds. From Geneva, Pictet and other private banks have transformed this secretive Alpine cloister of “little” neighborhood banks into a more aggressive haven for the global elite.

For generations, Europe’s wealthy journeyed through mountains and valleys to quietly stash their money with Switzerland’s bankers, famed for taking their secrets to the grave. Now the Swiss can be found throughout the world, selling more sophisticated investment vehicles to attract high-net-worth individuals, mostly multimillionaires. They are even working with institutional clients. This has helped Switzerland amass global banking assets under management of SFr6.9 trillion, or $5.5 trillion, in 2005, making Switzerland the 3rd-largest asset manager in the world, after the U.S. and UK.

The E.U. and the OECD have pressured Switzerland to loosen its bank secrecy. Several countries, including Italy and Belgium, have lured back untaxed assets held abroad by decreeing an amnesty for tax evasion. But that is not the biggest challenge.

As Swiss bankers penetrate markets abroad, they are facing like-minded competitors from elsewhere in the world. Dubai and Singapore have cultivated sophisticated private banking hubs, offering discreet financial services and a tax haven aimed at luring away wealthy clients. And just as the Swiss have moved overseas, foreign banks like Citibank have flocked to Switzerland. Geneva, once a sleepy lakeshore town, now has branches of 100 foreign banks. Only 350 Swiss banks survive today, down from 550 a decade ago.

Link here.


Extent to which other states must recognize the creditor protections has not been tested.

On May 10, Tennessee Governor Phil Bredesen signed into law the “Tennessee Investment Services Act”, which will become effective on July 1. The legislation creates a new era of trust and creditor’s rights law in Tennessee and replaces law that has been in place since the founding of Tennessee. Tennessee becomes only the 9th state to enact legislation permitting the creation of self-created (self-settled) asset protection trusts, joining Alaska, Delaware, Missouri, Nevada, Oklahoma, Rhode Island, South Dakota and Utah.

Under prior law, if an individual created a trust under which he is a beneficiary, the assets of the trust were subject to the claims of his creditors. As a result, an individual could not retain control of his or her assets and ensure their availability for future needs while simultaneously insulating them from claims. The new law allows this protection by the creation of a self-settled, asset protection trust referred to as an “Investment Services Trust” (IST). An IST is an irrevocable trust into which an individual (the “settlor”) transfers assets while retaining one or more of the following rights:

The settlor may not serve as the trustee of the IST. The trustee must be either an individual residing in Tennessee or a corporate trustee who is authorized to conduct business in Tennessee. At least some portion of the assets of the IST must be administered in Tennessee. At the creation of an IST, the settlor is required to provide an affidavit stating, among other things, that by creating the trust he does not intend to defraud a creditor and that he does not have any pending or threatened court action against him other than those identified in the affidavit. The IST does not provide asset protection for assets transferred to it until four years after the transfer. At that time, the settlor’s creditors are prevented from seizing the assets of the IST to satisfy claims against the settlor. There are three additional limitations on the protection afforded by an IST:

The new legislation also extends the period for which any trust can exist from essentially 90 years to 360 years, joining the ranks of states such as Delaware, South Dakota, Nevada, Alaska and Florida that similarly either have eliminated this limitation totally or extended it significantly. This will permit an individual to place property in trust to ensure assets are available to benefit not only his children and grandchildren but also the next 10 generations of his descendants. If combined with an allocation of the individual’s generation skipping transfer tax exemption, this also will allow those assets to benefit each generation without the payment of any estate or gift taxes.

The Tennessee Investment Services Act provides an asset protection opportunity for individuals who are concerned about losing their assets to unforeseen creditors without the complexity of offshore trusts [Ed: To our minds this Tennessee arrangement is far more complex, but is nevertheless interesting.] and the unknown limitations of asset protection trusts under the laws of other states that permit them. Creating an IST requires adherence to a number of statutory and equitable constraints as well as a thorough understanding of gift, estate and inheritance tax law and creditor protection law. An IST presents a solution for asset protection planning while still retaining the ability to manage the assets and economically benefit from them.

Link here.


Two months after an ailing Ramona Pesock granted her second husband her power of attorney, he used it to transfer her Coudersport, Pennsylvania house into his own name. When she died 11 months later, in March 2002, her son from her first marriage, Randall Metcalf, insisted she had meant to leave the house to him. By the time a state appeals court ruled in October 2005 that the husband never had the power to give away Ramona’s property, the house was in foreclosure. “Everything was flushed down the toilet,” says the son’s attorney, Jeffrey Leber.

Horror stories like these have prompted many states to rewrite their laws on financial powers of attorney. And more are likely to do so soon, spurred on by the National Conference of Commissioners on Uniform State Laws, which published a new model financial power of attorney law last fall – its first such rewrite in 20 years. The new model has already been adopted by New Mexico and introduced in several other state legislatures.

The suggested new law clarifies the murky process, with the aim of heading off disputes and also making the law more uniform across states. As a grantor under the model law you must specify in advance exactly which powers you mean to give away by checking boxes to indicate whether you want the power holder to be able to make decisions about, for example, taxes, litigation and business operations. A special section of boxes marked “Caution” in boldface, highlights certain powers that, if given away, “could significantly reduce your property or change how your property is distributed at your death.” Among them are making gifts, changing beneficiaries (say, on your life insurance or IRA) and retitling bank accounts as joint accounts. Ironically, Pennsylvania adopted a law requiring specific gifting authority back in 1999, well before Pesock signed over power to her husband. Unfortunately, her attorney used the old, vague form.

Is your power up to date? Check now. Too many otherwise diligent folks treat powers as an afterthought – just another paper to be signed when updating a will or estate plan. That is a mistake. “There is not a more powerful piece of paper you can sign,” says Robert Clofine, a lawyer in York, Pennsylvania.

Typically, you sign one form for financial decisions and one or more for health care decisions, even if you give the same person power for both purposes. Usually, the financial power kicks in immediately. But you can also sign a power that takes effect only if you are incapacitated. This “springing” power requires your agent to get a doctor to certify you are out of it. That is usually better than having no form at all, in which case a court has to appoint a guardian. You can also sign a power for a limited purpose or period – say, if you are off hiking in Tibet while the sale of your house is closing.

If your state has changed or changes its law, an old power grant will still be valid, but it might not be interpreted the way you intended. Moreover, banks or other institutions sometimes balk at accepting outdated documents. 18 states now have a suggested form, which makes it easier to check whether yours is the latest. You can usually get forms from a state’s attorney general or bar association. The financial-planning tool kit at cch.com also provides links. Only 12 states currently honor out-of-state forms. Another trap that the model law likely will not end is that your brokerage firm or bank may demand you fill out a separate power of attorney using its in-house form.

Of course, just as important as having the right form is picking an agent you can trust – something no law can improve. Still, warns Chicago estate lawyer John Brooks, “even well-meaning agents get themselves in trouble. It is like giving a monkey a machine gun.” While the power to make gifts can be abused, e.g., do not be too hasty to deny it to your agent. At present the first $2 million you pass on to heirs is free of federal estate tax. But you can give $12,000 a year to as many recipients as you like without eating into that $2 million. If you have lots of children, grandchildren or other heirs, your agent could transfer hundreds of thousands of dollars out of your estate in the last few years of your life, saving your heirs a bundle. Moreover, some states tax smaller estates, and yet do not limit deathbed transfers. An agent in one of those states might wisely make a big premortem gift on your behalf.

A practical way around this dilemma? Typically, you name a primary agent and a backup agent (say, your eldest child and your second eldest). Specify that your primary agent can act individually in most cases but must act jointly with the backup agent to make a gift or sell property. Both would need to sign the deed to sell your house and give away the proceeds.

Another trouble spot is mingling of assets. Say your agent, the eldest of your children, decides, for convenience, to put his name, as well as yours, on your bank accounts. If he runs into financial problems, his creditors could grab your money. And any joint accounts will not be part of the estate, cutting out siblings and creating other problems. So require your agent to sign a form agreeing to keep your assets separate from his and to keep a record of what he does on your behalf (the model law has an optional form to do this).

Do you need to pay a lawyer to update your power? If your state has a standard form and your assets and family relationships are simple, you might do it yourself. For more complex situations – say a family business or children from multiple marriages – you will want professional help and likely a customized form.

Link here.



A new EU law obliging travelers to declare cash comes into force in one month’s time. It is being introduced to help combat money laundering, says the UK’s HMRC. Starting June 15, people who are either entering the EU from a non-EU country, or are traveling from an EU to a non-EU country and are carrying €10,000 or more (or the equivalent in other currencies) will be required to declare the cash to at the place of their departure from, or arrival in, the EU. In the case of the UK, the rules will be enforced by HMRC.

Forms on which to make the declaration will be available at ports or airports and will also be downloadable from the HMRC internet site. Travelers could face a penalty of up to £5,000 if they fail to comply with the obligation to declare, or provide incorrect or incomplete information. “Cash” not only means currency notes and coins but also bankers’ drafts and cheqks of any kind (including travelers’ checks).

The declaration form will be produced with a carbon backed top copy so as to allow travellers to have a duplicate, which officers of HMRC may ask them to produce as evidence of having made a declaration. HMRC officers will not detain properly declared cash if they have no reason to doubt its legitimacy. However, cash may be seized under the Proceeds of Crime Act 2002 if an officer has reasonable grounds to suspect that it is either the proceeds of, or is intended for use in, unlawful conduct.

Link here.


A University of Denver student who spent the night in jail will get $8,500 under a settlement announced this week by the American Civil Liberties Union of Colorado. Officers will also be trained that it is OK for citizens to ask officers for their ID.

ACLU attorney Taylor Pendergrass says Evan Herzoff filmed the arrest of an individual April 8, 2006 when Officer Jeffrey Morgan asked him for his ID. He was told he was free to go and that is when Herzoff asked Morgan for his business card. Herzoff was arrested on suspicion of trespassing, handcuffed and jailed. The charge was later dropped and police launched an internal investigation following a complaint. An independent police monitor says the officer was disciplined but could not release details.

Link here.


A lawyer trying to get an Internet writer to testify and turn over notes for a court case says Web bloggers should not have the same rights as mainstream reporters. Attorney William McCorriston, in a lawsuit brought by landowner James Pflueger over the failure of the Kaloko Dam, claims that Malia Zimmerman of Hawaiireporter.com is a blogger who is not entitled to withhold her sources of information.

But Zimmerman, an editor and reporter for the Web site, says she is a legitimate journalist, not just some hack who offers half-baked commentary on the news of the day. “Any journalist who gives their word that they will protect somebody’s information or keep them in confidence, you have to abide by that,” Zimmerman said. “It’s not the medium you publish in, it is what you do with that information.”

Hawaii Circuit Court Judge Gary Chang has ordered Zimmerman to submit to questioning under oath by McCorriston, likely in June. She can refuse to answer questions, but she must explain her reasons for doing so, and the judge would later rule on whether she is justified. Hawaii does not have a journalist shield law like those enacted in 31 states to protect reporters’ rights to keep their sources confidential. That means there will be two issues for Chang to decide: Whether Zimmerman is a bona fide journalist, and whether reporters have a qualified privilege to refuse providing confidential information to lawyers in a civil case.

“It seems to me that if a blogger is a journalist, everyone can produce a blog and never be subject to a subpoena,” McCorriston said. “Are all bloggers journalists? It is a question that has never been answered anywhere.” The case could drag on for years if Chang’s decisions are appealed to the Hawaii Supreme Court.

Link here.


Unborn babies judged to be at most risk of social exclusion and turning to criminality are to be targeted in a controversial new scheme to be promoted by Downing Street. In an effort to intervene as early as possible in troubled families, first-time mothers identified just 16 weeks after conception will be given intensive weekly support from midwives and health visitors until the unborn child reaches two years old. Tony Blair will make clear the government is prepared to single out babies still in the womb to break cycles of deprivation and behavior.

The Nurse Family Partnership program is the most striking attempt yet to preempt problems. Supporters of the policy say the risk of stigmatizing unborn infants as potential future victims or troublemakers is outweighed by the advantages of helping poor families build on the aspirations they have for their children. Under the program, which has been copied from the U.S., young, first-time mothers will continue to have weekly or fortnightly visits until the child is two – far more than the few postnatal visits generally on offer. The support includes help with giving up smoking or drug use in pregnancy, followed by a focus on bonding with the new baby, understanding behavior such as crying, and encouraging a mother to develop her skills and resources to be a good parent. The program is voluntary and the intention is to capitalize on the so-called “magic moment” when parents are receptive to support for themselves and their baby.

In the U.S., three large trials have seen consistently positive results, including higher IQ levels and language development in children, lower levels of abuse, neglect and child injuries in families, and improvements in the antenatal health and job prospects of mothers. Proponents of the scheme also point to the long-term cost savings, estimated at almost $25,000 (£12,500) by the time a child is 30.

Link here.


A federal prosecutor in the German state of Hesse has announced plans to seek 3-month prison terms for a mother and father who homeschool their 6 children, even though the family already has paid fines for violating the nation’s Hitler-era homeschooling ban and made plans to move. The news comes from the Netzwork-Bildungsfreiheit, a German homeschool advocacy group, just days after court officials confirmed a teen in another German state who was taken to a psychiatric hospital because she was homeschooled has been returned to her family.

Joerg Grosseleumern, a spokesman for the German advocacy group, said a prosecutor, unsatisfied with fines the family already has paid, is demanding the 90-day terms in custody for Juergen and Rosemarie Dudek. He said that is possible because in the state of Hesse, a family’s failure to follow the mandatory school attendance laws violates not only administrative regulations, but the criminal code. “It is embarrassing the German officials put parents into jail whose children are well educated and where the family is in good order,” he wrote. “We personally know the Dudeks as such a family.” He cited a report from a local newspaper that confirmed the prosecutor, Herwig Muller, is appealing the verdict of fines against the Dudeks. Muller also said he will not allow probation for the parents of six children.

The newspaper reporter, Harald Sagawe, said the parents were fined because “they did not send their children to school, for religious reasons.” Jurden Dudek told the newspaper he is horrified by the idea the prosecutor wants to see him and his wife behind bars. “It is a terrible thing, to lock up a family that has not done anyone any harm,” he said. Arno Meissner, the chief of the government’s local education department, said he will enforce the mandatory school attendance law against the family as soon as he can, and he said he resented the judge's interference in administrative processes.

Practical Homeschool Magazine has noted one of the first acts by Hitler when he moved into power was to create the governmental Ministry of Education and give it control of all schools, and school-related issues. In 1937, Hitler said, “The Youth of today is ever the people of tomorrow. For this reason we have set before ourselves the task of inoculating our youth with the spirit of this community of the people at a very early age, at an age when human beings are still unperverted and therefore unspoiled. This Reich stands, and it is building itself up for the future, upon its youth. And this new Reich will give its youth to no one, but will itself take youth and give to youth its own education and its own upbringing.”

Officials with the Home School Legal Defense Association, the preeminent homeschool advocacy organization in the world, are actively involved in a number of cases. Estimates are that there are about 400 homeschool families in Germany – virtually all of them either forced into hiding or in court.

Link here.



Trials are on the verge of extinction. They have been replaced by settlements and plea deals, by mediations and arbitrations and by decisions from judges based only on lawyers’ written submissions. Federal courts conducted about 3,600 trials in civil cases last year, down from 5,800 in 1962. That is not an enormous drop – until you consider that the number of cases has quintupled in the meantime. In percentage terms, only 1.3% of federal civil cases ended in trials last year, down from 11.5% in 1962.

The trends in criminal cases and in the state courts are broadly similar, though not always quite as striking. But it is beyond dispute that even as the number of lawyers has grown twice as fast as the population and even as the number of lawsuits has exploded, actual trials have become quite rare. Instead of hearing testimony, ruling on objections and instructing jurors on the law, judges spend most of their time supervising the exchange of information, deciding pretrial motions and dealing with settlements and plea bargains.

There is, of course, nothing wrong with settlements, at least when they are the product of reasoned and sensible compromise between evenly matched adversaries. But trials are not disappearing simply because more cases are being settled. Instead, they are increasingly being replaced by summary judgments, in which judges evaluate evidence submitted to them on paper.

“During the last years of the 20th century, summary judgment in the federal courts moved from a small fraction of dispositions by trial to a magnitude several times greater than the number of trials,” Marc Galanter, who teaches law at the University of Wisconsin and the London School of Economics and Political Science, wrote last year in The Journal of Dispute Resolution. “Summary judgments are being asked for in about 17 percent of cases and granted in about 9 percent,” he elaborated in an interview. That is a big jump from 1960, when no more than 1.8 % of federal civil cases ended in summary judgment. “We have moved in a way to a more European way of decision-making, by looking at the court file rather than through encounters with living witnesses whose testimony is tested by cross-examination.”

In criminal cases, the vast majority of prosecutions end in plea bargains. In an article called “Vanishing Trials, Vanishing Juries, Vanishing Constitution” in the Suffolk University Law Review last year, a federal judge questioned the fairness of the choices confronting many criminal defendants. Those who have the temerity to “request the jury trial guaranteed them under the U.S. Constitution,” wrote the judge, William G. Young of the Federal District Court in Boston, face “savage sentences” that can be five times as long as those meted out to defendants who plead guilty and cooperate with the government.

The movement away from jury trials is not just a societal reallocation of resources or a policy choice. Rather, as Judge Young put it, it represents a disavowal of “the most stunning and successful experiment in direct popular sovereignty in all history.” Indeed, juries were central to the framers of the Constitution, who guaranteed the right to a jury trial in criminal cases, and to the drafters of the Bill of Rights, who referred to juries in the Fifth, Sixth and Seventh Amendments. Jury trials may be expensive and time-consuming, but the jury, local and populist, is a counterweight to central authority and is as important an element in the constitutional balance as the two houses of Congress, the three branches of government and the federal system itself.

In an article titled “Why Summary Judgment Is Unconstitutional”, published last month in the Virginia Law Review, Suja A. Thomas, a law professor at the University of Cincinnati, makes the perfectly plausible argument that the procedure violates the Seventh Amendment, which reserves the job of determining the facts in civil cases to juries. When judges decide summary judgment motions, Professor Thomas wrote, they intrude on that job. The theory of summary judgment is that judges may rule for one side or the other only after finding that no “genuine” issues of “material” fact are in dispute. They must determine, as the Supreme Court has put it, whether “a reasonable jury could return a verdict” for the party defending against a motion for summary judgment. All of that pushes judges right up to and sometimes across the constitutional line of determining the facts for themselves.

In 2004, in the process of revitalizing the role of the jury in criminal cases, Supreme Court Justice Antonin Scalia wrote that there were good arguments for “leaving justice entirely in the hands of professionals.” But that is not the theory of the Constitution, he continued, which enshrined “the common-law ideal of limited state power accomplished by strict division of authority between judge and jury.”

I was on jury duty last week, in a state criminal court in Manhattan. During the orientation, a court officer, with mixed pride and hyperbole, said his was the busiest courthouse in America. I never saw so much as the inside of a courtroom. After a couple of days of milling around in an assembly room with more than 100 other potential jurors, the State of New York thanked us for our service and sent us home.

Link here.


The BoNY as dismissed as “totally without merit” a claim by the Russian government for $22.5 billion in damages resulting from a prior money-laundering case involving a former BoNY vice-president. According to reports, the claim, filed by Vladimir Zubkov, deputy head of the Russian customs service in Moscow, relates to unpaid taxes on money taken out of Russia via an illegal scheme facilitated by the bank more than 10 years ago.

While the case, investigated by the FBI nd the U.S. tax authorities, closed in November 2005 with BoNY admitting criminal conduct and paying a $38 million settlement, it is thought that the new claim may be just one of the first of a new wave of attacks against transactions which occurred under the presidency of Boris Yeltsin. As a result of the first investigation, two Russian-born American residents, were sentenced to five years probation last year after they admitted laundering about $7 billion through the bank, avoiding Russian taxes in the process. Former BNY vice president Lucy Edwards and her husband Peter Berlin, reportedly facilitated the crime by opening an account in 1996. They also pleaded guilty and received a sentence of six months of house arrest, plus fines totalling $725,000.

A Russian customs service lawyer has confirmed that the $22.5 billion claim is related to the money laundering activities which took place through the account opened by Berlin and Edwards. Meanwhile, BoNY has issued a strongly-worded rebuttal of the claims, which it described as bordering on “frivolous”.

Link here.
Share prices are exploding in Shanghai – link.


In an unconventional request, some users of Linux and other open-source software are inviting Microsoft to sue them. The users have put their names on a public wiki as a way of protesting Microsoft’s recent claims that Linux and other open-source software infringe on at least 235 of its patents. They have listed the open-source operating systems and software they use, along with frequently snarky comments.

Microsoft maintains it has no immediate plans to sue, although it is encouraging companies to license its intellectual property. Open-source advocates on the list want Microsoft to prove that it has valid patent claims against Linux. Microsoft has been evasive about details, saying broadly that the patents involve the Linux kernel and user interface, as well as the OpenOffice productivity suite and other open-source applications, including e-mail programs.

The list had more than 250 people on it as of Tuesday morning. “I use Gentoo Linux and exclusively FOSS (free and open-source software) tools to write experimental speech and natural language processing prototypes,” wrote Sean Jensen, of London. “And for music. And other fun stuff. No, Microsoft, you did not invent any of this. It ain’t yours, it ain’t mine, it ain’t theirs. It’s ours. All of ours.”

Joe Grigg of Kalamazoo, Michigan, wrote that he has used the Ubuntu and Vector Linux distributions since Windows XP’s security left him “sickened”. Emrah Ünal, who listed his locale as Turkey and Finland, wrote, “As a Linux user for nine years, I believe I deserve to be sued. There’s no escape from justice.”

Link here.



Under today’s government-controlled paper-money standards, the world’s major economies have embarked upon an unprecedented expansion of credit, starting in the early 1980s. As credit growth has been outstripping economies’ rise in output, total debt levels in percent of gross domestic product (GDP) have increased strongly.

Take, for instance, the U.S. Total debt rose from 142% of GDP at the beginning of the 1960s to nearly 331% at the end of 2006. Excluding the domestic financial sector – which expanded from 5.6% to 105% – the debt ratio increased from 136% to 226%. U.S. Treasury yields increased strongly from the 1960s until around the early 1980s. Since then, rates have been trending downwards. At the end of 2006 they had returned to levels seen last in the middle of the 1960s. Total U.S. debt costs in percent of GDP, calculated on the basis of the aforementioned interest rates, stood between 15 and 19% at the end of 2006, roughly the same level seen at the end of the 1970s – even though the debt ratio had more than doubled since then. Needless to say, the decline in interest rates can be held responsible for this result. Between 1980 and 2006 annual average GDP growth was around 3.0%, whereas real rates stood between 3% (using the 3-months rate) and 6.1% (using the average corporate bond yield). Such a result would suggest that a growing share of the productive sector’s current income has been used for paying interest.

To be sure, the increase in debt-to-GDP ratios over time, accompanied by declining market yields, can actually be observed in all major currency areas, not only in the U.S. In any case, such a finding must raise the question about the sustainability of the ongoing credit expansion process. Taking a look at the mainstream economic literature, an economy’s debt-to-GDP ratio increase might be explained by two factors.

First, there is “financial deepening” – the level of financial intermediation rises as the economy develops, and, as a result, the debt-to-GDP ratio increases. From this viewpoint, growing debt ratios may be seen to be economically trouble-free. Second, there is the issue of “excessive credit expansion” – borrowers simply take on too much credit, and this spells danger as rising debt ratios indicate that borrowers will default (sooner or later).

Against this backdrop the crucial question is, where is the borderline between a “good” and “bad” rise in debt-to-GDP ratios? To Austrian economists the ratios spell danger. They maintain that today’s government-controlled paper-money systems have decoupled credit expansion from the economies’ productive capacities. “Circulation credit” feeds a “credit boom” that is doomed to end in severe economic, social and political crisis. Austrians fear that the collapse of the credit boom will lead to the destruction of the currency through a deliberate policy of (hyper-)inflation, destroying the free-market order.

In contrast, today’s mainstream monetary economics shows relatively little interest in dealing with the issue of the economically sustainable credit supply. If anything, it focuses on the potential consequences that the collapse of a credit boom might entail – such as recession and deflation as witnessed in, for instance, Japan in the early 1990s or, most traumatically, in the period of the “Great Depression”, 1929-1933.

The rest of this article elaborates on causes and consequences of the ongoing increase in credit supply and debt-to-GDP ratios. It begins by showing what the Austrian Monetary Theory of the Trade Cycle has to say about this issue (II). Then, the sustainability of rising debt-to-GDP ratio will be briefly discussed (III) and the economic rationale for the widely preferred increase in credit supply examined (IV). In this context, the emergence of credit derivative markets shall be put into perspective (V). Finally, after taking a brief look at the value of money during and after the “Great Depression” (VI).

The article concludes with outlining the Austrian recommendation for returning to free market money (VII). Seeking to prevent the final crisis – which would most likely entail a debasing of the currency – Ludwig von Mises concluded, “The alternative is only whether the crisis should come sooner as the result of a voluntary abandonment of further credit expansion, or later as a final and total catastrophe of the currency system involved.” Being fully aware of the dark side of the credit boom – that is its socially destructive ramifications - Mises argued for returning to free-market money, which he saw as the only monetary regime that would allow preserving the ideal of the free society.

Link here.


Good for Andrew Sullivan. The conservative super-blogger who writes the Daily Dish has not joined the right-wing pundits who want to kick libertarian Rep. Ron Paul out of the GOP presidential debates – or out of the Republican Party altogether. In fact, Sullivan is openly praising the 9-term Texas congressman and medical doctor and urging him to stay in the race. Sullivan contends, rightly, that Paul has been the best thing about the GOP’s otherwise ideologically predictable TV debates so far – mainly because Paul is the only one on stage who truly believes in individual liberty and actually believes everything he says.

It was Paul’s exchange with Rudy Giuliani in South Carolina over the causes of 9-11 that enraged conservative pundits. Paul, who voted against the war in Iraq and wants troops brought home ASAP, merely said what any CIA agent or regular Time magazine reader knows to be 96% true: The attacks of 9-11 were “blowback” from 50 years of America’s vile interventionist foreign policy in the Middle East. Throwing a fit, Giuliani called Paul’s notion an “absurd explanation” and demanded that Paul withdraw the statement that America had “invited” 9/11. (Paul never used the word “invited”.) Giuliani’s explanation for 9-11 was the familiar Father Bush fairy tale: Fundamentalist Islamist terrorists attacked us because they hate our freedoms, our wealth, our immoral culture and our failure to publicly stone Paris Hilton to death.

In part because of his tough, albeit childish, response, Giuliani was declared the night’s big winner by many in the mainstream and conservative media. Paul was subsequently called a crackpot, a member of the left-wing “I hate America” crowd and a relic of 1930s isolationism. Paul does not pretend to be a modern Republican but an old-fashioned libertarian one who puts the Constitution and freedom before politics and party. He knows he is not going to be running against Hillary next fall. And because of the trouble he is causing his philosophically lost and troubled party, he will be lucky if he is allowed to appear in future debates.

As Sullivan wrote, the GOP’s “apparatchiks” are scared of Dr. Paul. “We have a real phenomenon here, because someone has to stand up for what conservatism once stood for. Whether you agree with him or not ... he has already elevated the debates by injecting into them a legitimate, if now suppressed, strain of conservatism that is actually deeper in this country than the neoconservative aggression that now captures the party elite and has trapped the U.S. in the Iraq nightmare.”

Paul’s unwavering pronouncements against unconstitutional foreign wars and for less government and more freedom at home sound quaint, alien or hopelessly naive in the Era of Big Government. But as he proved last week in South Carolina, Paul’s brave, modest mission to be a subversive, principled, libertarian presence among the career flip-floppers, pragmatists and statists at the Republican debates is working – maybe too well for his own good.

Link here.
Why Ron Paul’s answer terrifies them – link.
The real reasons why they hate us – link.
Guilty Blue Pleasure – link.

Ron Paul, on Patriotism

Before the U.S. House of Representatives, May 22, 2007

Madam Speaker, for some, patriotism is the last refuge of a scoundrel. For others, it means dissent against a government’s abuse of the people’s rights.

I have never met a politician in Washington or any American, for that matter, who chose to be called unpatriotic. Nor have I met anyone who did not believe he wholeheartedly supported our troops, wherever they may be.

What I have heard all too frequently from various individuals are sharp accusations that, because their political opponents disagree with them on the need for foreign military entanglements, they were unpatriotic, un-American evildoers deserving contempt.

The original American patriots were those individuals brave enough to resist with force the oppressive power of King George. I accept the definition of patriotism as that effort to resist oppressive state power. ...

Link heere.


Al Gore still says he has no plans to run for president, but his latest book, The Assault On Reason, is so searingly critical of the Bush administration it is hard to discern what his plans may be. On the one hand, Gore has written an un-nostalgic look back at the previous six years that lays out his case as to how the world might look today had the chads fallen another way – a world where U.S. troops would not be fighting in Iraq, Abu Ghraib would just be a town’s name and the nation would have been better prepared for Hurricane Katrina, global warming, and, yes, perhaps even Sept. 11.

On the other hand, The Assault On Reason is an assault on President Bush, 308 pages of professorially rendered, liberal red meat that shuns the cautious language employed by any politician standing to the right of Rep. Dennis Kucinich, D-Ohio, and the left of Rep. Tom Tancredo, R-Colorado. “I am not a candidate and this is not a political book, this is not a candidate book,” Gore told Diane Sawyer on “Good Morning America”. “It’s about that there are cracks in the foundation of American democracy that have to be fixed.”

In the book, Gore is accusatory, passionate, and angry. He begins discussing the president by accusing him of sharing President Richard Nixon’s unprincipled hunger for power – and the book proceeds to get less complimentary from there. While Gore stops short of flatly calling for the impeachment of Bush and Vice President Dick Cheney, he certainly gives the impression that in his view such a move would be well deserved. He calls the president a lawbreaker, a liar and a man with the blood of thousands of innocent lives on his hands. Most of Gore’s ire stems from, not surprisingly, the war in Iraq, a war that Gore opposed from the beginning. Bush, he writes, “has exposed Americans abroad and Americans in every U.S. town and city to a greater danger of attack because of his arrogance and willfulness. ... History will surely judge America’s decision to invade and occupy (Iraq) as a decision that was not only tragic but absurd.”

Even if Gore opts not to run for president in 2008, this book may serve to drive presidential candidates, including Senators Hillary Clinton and Barack Obama, and former Sen. John Edwards, even further to the left, both in rhetoric and substance. Gore accuses his former colleagues on Capitol Hill of complicity with what he sees as nefarious deeds committed by the Bush administration. The book opens with Gore wondering why Senate Democrats were so silent during the debate before going to war in Iraq and toward the end faults them for being so silent about the administration’s warrantless surveillance program. He does not assail any Democrats by name. Bush, however, he names. Over and over.

Gore argues that the president does not need the enhanced domestic surveillance powers he has sought and received, often in secret, but that the competent use of the information already available would have been sufficient. Such as, for instance, the fact that 9-11 terrorists Nawaf Alhazmi and Khalid Almidhar were already on a State Department/INS watch list. He does not flatly state that 9-11 would not have occurred during a Gore administration. But, he writes, “Whenever power is unchecked and unaccountable, it almost inevitably leads to mistakes and abuses. In the absence of rigorous accountability, incompetence flourishes.” Then, using a study from the Markle Foundation, Gore shows how better and quicker analysis – not the increased data sought by the Bush administration – would have led to other hijackers. Salem Alhazmi, then Mohammed Atta and Marwan al Shehhi. And so on. But instead, Gore writes, incompetence rules the day and Bush has pushed for Orwellian powers a la 1984.

Gore says the nation, indeed the world, is at a fork in the road. Gore calls for the U.S. to rejoin the international community and lead the war on crises involving global warming, water, terrorism and pandemics such as HIV/AIDS. He calls for a repeal of the Patriot Act, and for the Bush administration to disclose all of its interrogation policies. He wants more transparency in political TV commercials and an expediting of the shift from television toward the Internet as a method of communication.

Link here.


Something is wrong with the United States. I think most of us have noticed it. There is a mortal rot in the country, made manifest by many little rots that are hard to integrate mentally yet are, I think, somehow related. The change is grave, accelerating, probably irreversible, and fascinating. Things are not as they were.

The U.S. is the most hated country on the planet, followed by, to the extent that there is a distinction, Israel. So far as I know, there are no other contenders. You can say “Who cares?” as many will say, or “I would ratherh be feared than loved.” All very droll. Still, it is an interesting datum. No country ever lives up to its own PR, but there was a time when America was widely admired. Now, almost universally, it is seen as a rogue state. And is.

This carries a price. The U.S. consulate in Guadalajara, Mexico is part fortress, part prison, with barriers and cameras and bars and rentacops, and they take away a woman’s lipstick if she is going to enter. Maybe a country that fears lipstick needs to think. The French consulate around the corner is wide open, like all others that I know of. The French, Chinese, Japanese and so on are not hated.

The U.S. government now lives in its own, strange, insulated world. The U.S. is the most militarily aggressive country on the planet, followed closely by Israel. I am aware of no other contenders. Some of this combativeness is obvious – attacking Iraq for no good reason, occupying Afghanistan, threatening Syria and Iran, attacking Lebanon by proxy, bombing Somalia, putting troops in the Philippines to hunt Moslems. The U.S. is also looking for trouble with Venezuela, threatening North Korea, moving to “contain” China (Doesn’t a container need to be bigger than its contents?), embargoing Cuba, pushing into Central Asia, increasing the military budget, and pushing NATO ever closer to Russia. (How stupid can you get? Very. Stay tuned.) And the Pentagon now has Africom, African Command. Africa is now America’s business.

Powerful domestic hostilities grip the U.S. Maybe you have to be outside of it really to see it. You can go for – well, five years and counting in Mexico – without hearing angry talk about this or that group. In America, women hate men and men are getting sick of American women. Blacks hate whites hate Hispanics. “Affirmative action” engenders intense hostility that does not go away. It is not the normal friction found in any country. It is serious antagonism quashed by federal force. And the black-white-brown thing has very real potential for getting nasty. This we do not talk about.

A curious state of fear prevails in America, but it is a governmental creation, a calculated manipulative Disneyland. Perhaps soon we will have Terror Mouse. Recently I was in Washington. Everywhere there were the artificialities of fear. The steel pop-up barriers in the roads, the stop’em-bombs steel poles on sidewalks, the endless warnings to report suspicious behavior on loudspeakers in the subway. The searches of everything, the metal-detecting doorways even on buildings of county governments, of schools. And of course the confiscation of shampoo at the airport. This is nuts.

People entering the U.S. are bullied. Any country has the right to determine who enters. Fine. If you do not want them to enter, don’t give them visas. If you issue a visa, try to be courteous. Violeta had a visa, issued by the consulate, both times when we went to the U.S. Still she got bullied by the border Nazis. It was ugly. I am obviously not a Mexican, but I get the same hostile questioning as to where I am going, why I was in Mexico, and so on. It is none of their business where I go in my country. Or should not be, but there are no limitations on governmental powers now.

America was not like this. Now it is. Compare this with the real world. I land in Beijing – evil commie Beijing, right? Maybe 20 seconds to see whether my visa was valid, clonk of stamp, thank you, no baggage search, into a taxi. Vi and I land in Paris, en route to Italy. Glance at passport, yep, it is a passport, no stamp, no nothing, on we go. Italy did not even look at our passports. Grown-ups. The U.S. is a hell of a country. Been there, done that, loved it. In two weeks in D.C. with Violeta, although she is clearly not American, she was everywhere, always, treated with perfect courtesy and friendliness. Americans really are good folk. The government is not. It is the gravest problem we face, both internationally and domestically.

The Constitution really is going away, or has gone. It never did work as well as it should have, but few things human ever do. Habeas corpus is dead, right to an attorney, congressional right to declare war – not even worth listing the list. Joe iPod in the burbs does not care because it does not affect him. Yet. Get them Ay-rabs, ain’t no draft, plenty sushi. Urg.

The increasing, detailed, intrusive regulation of life, the national desire for control, control, control. Everything is the business of some form of government. Want to paint your shutters? The condo association will not let you. Let dogs in your bar? Never. Decide who to sell your house to? Racial matter. Own a dog? Shot card, pooper-scooper, leash, gotta be spayed, etc. Have a bar for men only, women only, whites or blacks only? Here come the feds. What is not controlled by government is controlled by the crypto-vindictive mob rule of political correctness. This was not always in the American character. Add the continuing presence of police in the schools, the arrest in handcuffs of children of seven, the expulsions for drawing a picture of a soldier with a gun. Something very twisted is going on.

How much of the public knows what is happening, or even knows that something is happening? I do not know. But I don’t think that it is going to go away. In ten years it will be an entirely different place with the same name. Almost is now.

Link here.


Do unto others ... Thou shalt not kill Buy low, sell high. Never give a sucker an even break. Values count. In the end, they are all you have.

But if you could know what the future would bring, why would you bother with values? Let us say you found a stock with a low price, superb management, great margins, no debt, and a product that was catnip to consumers. You would want to buy it, right? Because it would represent a real value to you. But if you could read next year’s paper, you would not bother. You would simply look to see which stock ran up the most in the last 12 months. You would not care about values. And in your god-like state, you would not have to bother to do unto others as you would have them do unto you, either. You could do whatever you wanted, because you would know how it would all turn out.

Remember, that is what the gods themselves did. They were always getting up to mischief – turning people into animals to punish them, turning themselves into animals so they could ravish a few nymphs ... generally behaving badly, but apparently having a good time at it. They did it because they were gods. They could get away with it. Buy low, sell high? Nah. I will just buy what will make me richest. Never give a sucker an even break? I will just look into the future and see what the sucker can do for me.

Gods can get away with murder. But we humans really cannot know what will happen. And even if we could take a guess, we would not know what to make of it. Is it good? Or is it bad? Who can know God’s Own Plan except God himself?

That is why we humble Daily Reckoners stick to reckoning values. We can guess about the direction of things. We can amuse ourselves with our theories, overpower our opponents with our arguments, and impress each other with our logic. But in the end, we have to stick with values. Or we are lost.

Link here.
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