Wealth International, Limited

Offshore News Digest for Week of June 18, 2007

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

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



All throughout my life, when things have gotten a little too difficult for me, when I feel the world on my shoulders, I have always been able to escape to a good place where I can find light and safety. That place is my imagination. There, I have always found safe harbor in a world of make-believe where I can imagine myself floating on the clouds, or dancing on the moon, or even talking to animals in their language. Yes, my feet may be tethered to Earth, but my spirit can soar with help from my imagination. I have come to regard myself as an escape artist.

Generally, when we think of escape artists, Harry Houdini comes to mind – he is submerged in a water tank and bound with chains he must break before he runs out of oxygen and drowns. But there are other kinds of escape artists, too – including you and me. I believe deeply that each of us is a little like Houdini, capable of freeing ourselves from the shackles we wear. Each of us has the inherent power to transport ourselves out of our straitjacketed misery into a better world. The way to do so is to sit quietly for a little while, try to shut off the world, and enter a new one of our own making.

Through our imaginations we build castles in the sky, climb tall mountains, and soar with eagles. I first discovered my imagination as a boy growing up in a family beset by many emotional and financial problems. That was also the way it was for me a few years ago when I needed to find hope in dealing with illness among several of my family members and in coping with a daily 4-hour commute to my job. These problems seemed at the time to be sucking the life out of me. As I rode to work I would look out the windows of the train and see ugly telephone poles and worn shacks whirling past me and wonder if this was all there was to life. To find a positive answer – actually to find some peace of mind – I would escape in my imagination and insist I was seeing instead a tropical paradise or flying in the sky with the birds or swimming with dolphins. I started writing these thoughts down and eventually they became notes for a book of interactive exercises to transform the things that were bothering me into something better. Tell me, name one person who has not needed to become an escape artist some time?

I began thinking about escape artists as people who refuse to give into the negative and choose instead to think positively. They insist on having hope in their lives. Writing about such escape artists became my way of finding a chink of light in a dark place and also reminding myself of all the things that make life worth living.

So, who are these escape artists? For example, I wrote, “Escape artists search for butterflies in unexpected places; they know these creatures are waiting to be discovered.” Then I went a step further, and asked myself, “This is the wish I will make next time I see a butterfly” and left some blank space to fill in with a response. I decided to place a question prompt after each example of what an escape artists does with the thought that a reader, in trying to come up with a response to the question, would free her or his own mind.

I also asked myself, “The movie scene or painting that I have always wanted to step into is: ______” (You can write your own answer). Or, “Escape Artists know they can discover the wonders of the universe in a tiny library,” and with this thought came this question prompt: “The book tht opened the world to me: ______.”

I hope you get the point by now. Try hard, very hard to think of all the things that give you pleasure in life now or which you hope will give you pleasure in the future. Make a list of them, and tuck this list into your wallet so that you can look at these good things from time to time, maybe on those days when your boss in driving you crazy with nutty deadlines or you are sitting in a doctor’s office worried about your health. Try to remember that escape artists do not sit back and allow life to hurt them. Instead, first by dreams and then by will and work, they shape their lives into something better. The best way to escape is to journey within one’s soul and heart to discover what one feels and wants.

Link here.


You cannot pick up a newspaper in Belize City these days without reading a story about some one-man art show. Nor can you watch television without seeing a notice of a new exhibition or an interview with an artist who just ended his show. It is a good sign. It means Belize is enjoying a new wave of prosperity. When a country suffers hard times, people do not have the money to buy tickets to a play, or a book of poetry, or a delightful watercolor for the living room wall. When a society experiences good times, there is a renaissance in the arts. People have the money and the time to devote to cultural activities.

Prosperity is now back in Belize. It has been a long time coming. The last time was almost a century ago. It began about 1895 as mahogany and logwood prices began to rise and probably reached its peak about 1910. The people of Belize reacted to it like a thirsty man with a tall glass of cool, clear water. They drank deep and often. New homes were built with long wide verandas and all that charming fretwork which we later called gingerbread. Old houses were remodeled and painted. Hofius and Hildebrandt imported spanking new saddles and bridles and the horses on the streets were sleek and handsome. Young Henry Melhado and his brother Barney brought in the finest liquors, wines, and beers from Paris, London, and New York.

There was an awakening of the senses for the finer things of life, as well. At this time there was no television, no motion pictures, and no radio. People entertained themselves. On Regent Street, at Number 9, according to the late Guy Norman Fred Nord, the great gabled white house was the premises of the Colonial Club. There was a reading library where its members could find the best books from England and the newspapers from New York and London, which came regularly on the weekly steamers from New Orleans and Mobile. The Belize Literary and Debating Society held its meetings there also, where thinking men assembled to discuss the burning issues of the day.

Plays were produced, elocution contests held, and essays were written and read to admiring audiences at the schools and churches. Mr. A.E. Morlan, one-time U.S. Consul in Belize, and now a watchmaker and jeweler did a brisk trade in musical instruments, sheet music, and stage makeup kits. A number of orchestras were formed as well as marching bands. Chamber groups met weekly to play Bach, Beethoven, and Brahms. And newspapers published glowing editorials proclaiming that Belize had reached its Golden Age.

In 1911 the Royal Navy ordered a huge supply of mahogany to refurbish the fleet. There seemed to be no end to the good times. But in 1912 there was a curious hesitation in the market and then prices for wood began to fall. Perhaps no one in Belize understood what was happening. They were still optimistic. Wait till next season was the word on the streets and in the offices. The next season was no better. Then in 1914 it was plain that the market would not recover. Europe was gearing up for war. World War I began in August and no one in England was thinking about mahogany furniture. The people of Belize slid gracefully – and in a high state of patriotism – into poverty. It was to last, with little relief, for the best part of the next 75 years.

For more than a century thinking men in Belize had urged agricultural development as essential for prosperity. Little had been done, but following Hurricane Janet in 1955 in Orange Walk and Corozal the sugar industry began to make a comeback. Following Hurricane Hattie in 1961, British insurance companies paid $20 million in claims and the British Government provided another $20 million in aid. This was an astronomical sum for poor, tired Belize. With this “seed money” Belize started slowly and painfully to pull itself out of the depression and onto the road of prosperity.

Good times had eluded the people of Belize for more than two generations, but today we are riding on a rising tide of prosperity. A golden harvest of sugar, citrus, and bananas, together with tourism and land development, put Belize and Belizeans on the verge of another “Golden Age”. The smart horses and carriages of 1910 have been replaced by thousands of motor vehicles. On the tide of tourists, developers, and land speculators there have come to Belize a few artists, discovering the charm and beauty of Belize. These men and women elect to stay here to live and create. They come from many places, but Belize has captivated them all.

If Belize’s second golden age continues unabated for the future, many more artists from home and abroad will blossom and flower in the unique environment of this beautiful jewel of ours.

Link here.


The Bahamas hopes to foster a greater trading and cooperative arrangement with the U.S. through its participation in the CARICOM and U.S. Conference on the Caribbean, Deputy Prime Minister and Minister of Foreign Affairs Brent Symonette said. Prime Minister Hubert Ingraham and Minister Symonette, along with Advisor to the Office of the Prime Minister Joshua Sears and Cabinet Secretary Wendell Major traveled to Washington to participate in the 3-day conference aimed at enhancing and strengthening the quality of the relationship between CARICOM and the U.S. Minister Symonette pointed out that economic regionalism, as well as the growth of good governance in the region, security, counter terrorism and counter narcotics were among issues discussed in that meeting.

Regarding the strengthening of trade relations with regional and CARICOM countries, and the broadening of trade and business opportunities for Bahamians, Minister Symonette indicated that the FNM government’s plan to eliminate exchange control is a key step in achieving these objectives. “One of the things investors in the Bahamas are always concerned about is the ability to transfer their funds back to their country of origin,” he noted. “The steps toward the elimination of exchange control are gradually a way to making sure that Bahamians can invest overseas and that residents overseas can invest in The Bahamas. Under the FNM and successive governments you have seen a liberalization of exchange controls for many Bahamians. At present, we will not liberalize the capital inflow but that will come over time as we deal with the issue of foreign exchange reserves.”

Citing the importance of discussions on the financial services sectors of CARICOM countries during the Conference, the Foreign Affairs Minister also pointed to what continues to be a growing concern in the region, the economic effect of deportees from the U.S. “Obviously the deportees are a serious issue because we have very little control over when the U.S deports persons to The Bahamas,” Minister Symonette said. “The whole question the Caribbean is facing now is reintegrating those peoples into our societies and making that sure that the cost of repatriation is not onerous on both sides.” He said that there are a significant number of Bahamian nationals being deported from the U.S. to The Bahamas for a variety of reasons.

Link here.


Has online retailing entered the Dot Calm era?

Since the inception of the Web, online commerce has enjoyed hypergrowth, with annual sales increasing more than 25% over all, and far more rapidly in many categories. But in the last year, growth has slowed sharply in major sectors like books, tickets and office supplies. Growth in online sales has also dropped dramatically in diverse categories like health and beauty products, computer peripherals and pet supplies. Analysts say it is a turning point and growth will continue to slow through the decade.

The reaction to the trend is apparent at Dell, which many had regarded as having mastered the science of selling computers online, but is now putting its PCs in Wal-Mart stores. Expedia has almost tripled the number of travel ticketing kiosks it puts in hotel lobbies and other places that attract tourists.

The slowdown is a result of several forces. Sales on the Internet are expected to reach $116 billion this year, or 5% of all retail sales, making it harder to maintain the same high growth rates. At the same time, consumers seem to be experiencing Internet fatigue and are changing their buying habits.

Internet commerce is still growing at a pace that traditional merchants would envy. But online sales are not growing as fast as they were even 18 months ago. Forrester Research, a market research company, projects that online book sales will rise 11% this year, compared with nearly 40% last year. Forrester says that sales growth is pulling back in 18 of the 24 categories it measures. Jupiter Research, another market research firm, says the growth rate has peaked. It projects that overall online sales growth will slow to 9% a year by the end of the decade from as much as 25% in 2004. Early financial results from e-commerce companies bear out the trend.

The turning point comes as most adult Americans, and many of their children, are already shopping online. Analysts project that by 2011, online sales will account for nearly 7% of overall retail sales, though categories like computer hardware and software generate more than 40% of their sales on the Internet. There are other factors at work as well, including a push by companies like Apple, Starbucks and the big shopping malls to make the in-store experience more compelling.

Nancy F. Koehn, a professor at Harvard Business School who studies retailing and consumer habits, said that the leveling off of e-commerce reflected the practical and psychological limitations of shopping online. She said that as physical stores have made the in-person buying experience more pleasurable, online stores have continued to give shoppers a blasé experience. In addition, online shopping, because it involves a computer, feels like work. “It’s not like you go onto Amazon and think: ‘I’m a little depressed. I’ll go onto this site and get transported,’ ” she said, noting that online shopping is more a chore than an escape.

Ms. Koehn and others say that online shopping is running into practical problems, too. For one, Ms. Koehn noted, online sellers have been steadily raising their shipping fees to bolster profits or make up for their low prices. In response, a so-called clicks-and-bricks hybrid model is emerging. Borders, for example, recently revamped its Web site to allow users to reserve books online and pick them up in the store. Similar services were started by companies like Best Buy and Sears. Other retailers are working to follow suit. Barnes & Noble recently upgraded its site to include online book clubs, reader forums and interviews with authors. The company hopes the changes will make the online world feel more like the offline one.

Consumers are generally not committed to one form of buying over the other. Maggie Hake, 21, a recent college graduate heading to Africa in the fall to join the Peace Corps, said that when she needs to buy something for her Macintosh computer, she prefers visiting a store. Ms. Hake does like shopping online for certain things, particularly shoes, which are hard to find in her size. “I also buy textbooks online. They’re cheaper,” she said.

John Morgan, an economics professor from the Haas School of Business at the University of California, Berkeley, said he expected online commerce to continue to increase, partly because it remains less than 1% of the overall economy. “There is still a lot of head room for people to grow,” he said.

Link here.


Sending money to a faraway friend or relative may someday be as easy as typing out a text message on your cellphone. Anam, a Dublin-based company that has specialized in new styles of cellphone messages, this week begins offering a service they say could revolutionize money transfers.

The service allows users to choose a name from their mobile phone address book, type in “cash” with the amount to be sent and press “send” for a transfer to be made from their bank account to another person’s bank account. An automated system calls the sender to confirm the person and amount being sent and, if confirmed, a text message is sent to inform the recipient that the money is on its way. While such a service could be useful for anyone who has run short of cash while sharing a restaurant bill, the real target group for Anam is immigrant workers who send money home. A study by the World Bank estimates that overseas workers from developing countries sent more than $72.3 billion back to their home countries in 2001.

“Our system is intended to allow people to cut back on trips to money transfer outlets,” said Jote Bassi, the marketing director of Anam. “This system offers tremendous convenience, and there is no reason why the operators and banks involved could not undercut the current channels for money transferring.”

Using technology to ease international money transfers has been a dream for many and become a business for some. Custom House, the Canada-based Web site, has created a specialized service able to charge significantly less than traditional banks or Western Union since it has no physical outlets. But there are many hurdles along the way. Any system that sends money across borders needs to deal with regulations set up to restrict money laundering and the financing of terrorism.

For Anam’s system to work, the company needs mobile telephone network operators to buy the system and banks that agree to cooperate. The operators must install Anam’s technology, and the banks must be open to integrating the system with their own money-transfer methods. Anam’s sales pitch to network operators is that by offering the value-added service of money transfers, mobile phone customers will be less likely to switch their phone company.

For all the technical marvels that companies may develop, however, the greatest challenge faced by anyone trying to offer money-transfer services are not related to technology, said Christophe Uzurea, a Hong Kong-based analyst in banking advisory services at the research firm Gartner. “The first challenge is not technology, it is the very human building of relationships with banks,” Uzurea said. “Banks are very much aware of the need to create new services, but they are notoriously difficult to sign up on a new and untested system.”

In addition to services being developed by those already serving the immigrant populations, Internet-based money-transfer companies like Paypal are already developing impressive systems, Uzurea said. The real challenge arises on the ground level, however, Uzurea said. “When you target immigrant populations, it is extremely difficult to reach them and convince them to trust your new service,” Uzurea said. “These are usually people who do not really trust banks in the first place.”

Link here.


Online financial bookmaker, BetsForTraders has opened its global headquarters in Douglas, Isle of Man. BetsForTraders offers fixed odds betting on stocks, stock indices and foreign exchange via a real-time web dealing interface, to a predominantly European and Asian client base. The company’s senior management recently moved to the Island from New York City to pursue the private equity funded venture, having decided that the Island was by far the leading offshore jurisdiction for e-business. With backgrounds in Hedge Fund Management and Computer Science the founders focused their jurisdiction selection on local laws, taxation and level of workforce education.

Joe Paterson, company spokesman stated, “We found that the solid banking industry in the Isle of Man provided a fantastic recruitment ground for administrative, payments and help-desk staff. ... The Isle of Man tax regime empowers us to hedge the risk that we accumulate in the course of business. If we located the Company in a jurisdiction where tax was payable on trading gains then our hedges would be rendered ineffective. We would have to hand over a large chunk of the money we earn in the markets to offset our client’s gains to the tax man. ... Our clients are intelligent people, many of whom make a lot of money in the markets, they demand good odds and we are pleased to be in a position to offer them.”

Having settled in to running the business from the Island, BetsForTraders now plans to expand its product offering with a new range of bets on commodity prices and international interest rates. Trinitas Capital (IoM) Ltd., operators of BetsForTraders, is privately owned.

Link here.


London is #2, Seoul #3, and Tokyo #4. Asuncion, Paraguay is in last place.

Moscow is the world’s most expensive city for expatriates for the second consecutive year, according to the latest Cost of Living Survey from Mercer Human Resource Consulting. London is in 2nd position, climbing three places since last year. Seoul moves down one place in the ranking to take 3rd place, followed by Tokyo in 4th. Asuncion in Paraguay is the least expensive city for the 5th year running.

Mercer’s annual Cost of Living Survey covers 143 cities across six continents, and measures the comparative cost of over 200 items in each location, including housing, transport, food, clothing, household goods and entertainment. It is the world’s most comprehensive cost of living survey and is used to help multinational companies and governments determine compensation allowances for their expatriate employees.

Europe dominated the top 50, placing 30 cities on the list and capturing six spots in the top ten. Strong currencies helped push most European cities higher for 2007. Africa placed five cities in the top 50, with Douala, Cameroon on top with a rank of 24. Four of the African cities climbed in the rankings, while Lagos, Nigeria dropped from 31 to 37.

Four cities in the Middle East were in the top 50 for 2007, lead by Tel Aviv, Israel in 17th place. Istanbul, Turkey took the biggest drop in the top 50, from 15th to 38th. Eight Asian cities were on the top 50 list, led by Seoul and Tokyo. The biggest mover was Taipei, Taiwan which dropped from 28th to 48th. Only two U.S. cities made the list (New York# 15, Los Angeles #42) thanks to the weak U.S. dollar. No Canadian or Latin American cities were in the top 50. In Australasia, Sydney was the lone representative in the top 50, placing 19th.

Link here.


San Marino is reinventing itself as modern financial center, its central bank head said, trying to overcome a dubious reputation earned through its once opaque banking system. The country of 30,000 people wants to regain ground against stronger rivals such as Luxembourg, Ireland, Switzerland or Liechtenstein, now that proximity and a monetary union with Italy are no longer enough to attract investors. “Our aim is to expand outside our borders, otherwise we will remain constrained,” said Antonio Valentini, chairman of San Marino’s central bank, adding he hoped to see mutual funds launched as one measure.

The Most Serene Republic of San Marino, which claims to be the world’s oldest, is a landlocked state inside Italy, whose pledge to secrecy and lenient taxation have acted as a magnet for funds from nearby regions since the 1970s. In 2005, it introduced a central bank to oversee its financial sector, and last year approved rules to pave the way for the introduction of hedge and mutual funds that could compete with similar funds in Ireland and Luxembourg. Mutual funds firms would be taxed 12%, in line with Luxembourg and Ireland, while individuals would have zero taxation on their gains, tax experts said.

The changes are part of an ambitious 5-pronged action plan launched 6 years ago with the aim of extracting more value from the financial sector, which already accounts for nearly 20% of the country’s economy. “[San Marino] did not have at the time a strong financial institution in compliance with the world’s best practice that could govern the system with credibility and authority,” Valentini said in an interview.

Link here.



The goal here is to provide a comprehensive checklist of information for the U.S. person to consider prior to accepting an assignment outside the U.S. This article is not intended 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.

The Foreign Earned Income Exclusion: Effective January 1, 2006 as amended by IRC §515 of the Tax Increase Prevention and Reconciliation Act of 2005 (TIPRA), prior to this date the first $80,000 earned overseas was excluded from U.S. taxation, with the next dollar earned overseas treated as though it were the first dollar of income and taxed at the very lowest tax bracket. The new law provides for “stacking”, which results in the next dollar of income taxed at a much higher marginal rate of tax, as though it were the $82,401st dollar of income earned. Therefore this “stacking” feature assumes that the excluded income is actually present for tax calculation purposes, effectively using the tax bracket to where it would have been taxed had it actually been present pushing you into an initially higher starting tax bracket.

Housing Exclusion and Housing Deduction: Effective January 1, 2006 as amended by IRC §515 of TIPRA, this new law provides for two changes regarding the HE and HD:

(1) the new base (deductible) representing the amount that needs to be exceeded before any qualified housing costs are excluded or deducted, effective January 1, 2006 has risen from $32.59 per day or $11,894 for a full 365 days to $36.12 per day or $13,184 for a full 365 days, representing 16% of the amount of the FEIE or $82,400 (for 2006).

(2) Further TIPRA has placed an overall effective cap on the total qualified housing costs eligible for consideration for either the HE or HD, at 30% of the FEIE of $82,400 or $11,536 (30% * $82,400 = $24,720, less $13,184). This cap had not previously existed.

Further to the ratification of TIPRA, the IRS issued IRS Notice 2006-87- which allows for certain cities (of 52 countries worldwide) with very high housing costs a higher overall exclusion cap, effectively overriding the 30% limitation on the FEIE of $24,720.

Link here.


The U.S. Justice Department erred last year and cited the wrong law in a binding plea agreement with telecommunication entrepreneur Walter Anderson, the largest known tax evader in U.S. history. That mistake made it impossible for the government to recover between $100 million and $175 million, U.S. District Judge Paul L. Friedman said in March.

Prosecutors urged him to reconsider, but Friedman reluctantly concluded that his hands were tied. “The court is not free to read something into a contract that is not there or to interpret uncertain language in the government’s favor,” Friedman said. Although prosecutors described the error as “a typo” – typographical error – and not “something that the court should be getting wrapped up about,” Friedman said he could do nothing else. He said he would have worked around the problem by ordering Anderson to repay the money as part of his probation. But prosecutors omitted any discussion of probation, a common element of plea deals, from Anderson’s paperwork.

Friedman sentenced Anderson in March to nine years in prison and ordered him to repay $23 million to the District of Columbia but ordered no restitution to the federal government. Prosecutors have promised that the IRS, the government’s tax collectors, would sue Anderson in civil court to try to recover the money. That would require a new round of litigation in a court that does not wield the threat of more jail time. Prosecutors have said that Anderson has money stashed away in accounts around the world, a claim Anderson denied in court.

Link here.


The IRS has announced the issue of its Spring Statistics of Income Bulletin which includes data on high-income individual income tax returns, taxpayers reporting noncash contributions, qualified zone academy bonds, international boycott reports and S corporations and, for the first time in 20 years, farm proprietorship returns.

The bulletin shows that for tax year 2004, there were 3,021,435 individual income tax returns filed with adjusted gross income (AGI) of $200,000 or more and 3,067,602 returns with expanded income of $200,000 or more. For tax year 2004, there were 25.3 million individual taxpayers who itemized deductions and reported a deduction for noncash charitable contributions. Those taxpayers reported $43.4 billion in deductions for these noncash contributions. Individuals whose total noncash charitable deductions on Form 1040 Schedule A exceed $500 are required to report these donations in detail on Form 8283. A total of 6.6 million individuals – about 26% of those who reported noncash charitable contributions – filed Form 8283. These individuals reported noncash contributions valued at almost $37.2 billion, or nearly 86% of all noncash contributions.

The number of farm proprietorship returns declined between tax years 1998 and 2004. For tax year 2004, some 1.4 million farm proprietorship returns, or 70% of the total, had a farm net loss. Gross farm income reported on sole proprietorship returns totaled $93.3 billion for tax year 1998, and increased 8.3% to $101.0 billion in 2004. Total farm expenses grew even more during this period, by 12.9%, from $101.2 billion in 1998 to $114.3 billion in 2004.

The Bulletin’s last article takes a look at the dominance of the wholesale and retail trade division among S corporations since 1959. For tax year 2004, some 45 years after the creation of S corporations, wholesale and retail represented the largest portion of total receipts, total deductions, portfolio income, total net income (less deficit) and total assets.

Link here.


House Democrats are proposing a “surtax” on America’s wealthiest households as a solution to the growing problem of the Alternative Minimum Tax. One version of the Democrat plans would see a 4.3% surtax applied to household income of more than $500,000. This would raise sufficient revenues to allow AMT to be abolished for taxpayers earning less than $250,000 per year, while households with income of between $250,000 and $500,000 would see their tax bill reduced. The surtax would affect about 1 million wealthy families, but the proposals would lower taxes for about 90 million other taxpayers, according to Democrat aides.

Link here.


Deduction substantially exceeding fair market value of the property is claimed.

The Senate’s senior tax writers have written to Treasury Secretary Henry Paulson regarding a type of abusive tax transaction involving the contribution of noncash property to tax-exempt organizations. Finance Committee Chairman Max Baucus and Ranking Republican Chuck Grassley said that they are seeking information on the entities employing this “abusive tax shelter” and clarification of the response of the IRS.

The transaction in question involves the contribution of non-cash property to a charity and the claiming of a charitable deduction in an amount that substantially exceeds the true fair market value of the property. According to the Senators, the IRS has indicated knowledge of the abusive tax tactic, but has not yet determined whether to make it a listed tax shelter transaction. “I am not satisfied that enough is being done quickly enough to stop this abusive transaction,” explained Baucus.

“We are troubled by organizations that benefit from tax exempt status taking advantage of this privilege by aiding and abetting abusive tax transactions that allow others to avoid paying tax," the Senators wrote. “We believe that the IRS needs to give serious consideration to imposing Section 4965 penalties on these charities as well as revoking the exempt status of those charities that knew or had reason to know about their participation in these transactions.” In general, the penalties and taxes of Section 4965 are triggered when a tax exempt entity is a party to a prohibited tax shelter transaction – which is defined as either a listed transaction or a prohibited transaction.

Link here.


The IRS has released for comment and discussion a significantly revised draft Form 990, the annual return required to be filed by tax-exempt organizations to report information about their operations. The redesign of Form 990 is based on the three guiding principles enhancing transparency to provide the IRS and the public with a realistic picture of the organization, promoting compliance by accurately reflecting the organization’s operations so the IRS may efficiently assess the risk of noncompliance, and minimizing the burden on filing organizations.

“Most organizations should not experience a change in burden,” stated Lois G. Lerner, director of the IRS’s Exempt Organizations division. “However, those with complicated compensation arrangements, related entity structures and activities that raise compliance concerns may have to spend more time providing meaningful information to the public.” In releasing this redesigned form, the IRS said it is soliciting comments, especially in connection with the goals of increased transparency of information and use as a compliance tool. The comment period lasts until September 14.

Link here.


No longer needed, now that Sweden has abolished its estate tax.

The U.S. Treasury Department has announced that on June 7, 2007 the U.S. delivered to the Government of Sweden a notice of termination of the tax treaty between the two countries with respect to estates, inheritances, and gifts. The notice of termination provides that the treaty will cease to have effect as of January 1, 2008. At the time the treaty was signed, Sweden maintained a tax on inheritances and gifts. Sweden has since abolished this tax, and as such, the treaty is no longer needed to prevent double taxation with respect to taxes on estates, inheritances and gifts.

The abolition of these taxes marks a major step down the road towards center-right Prime Minister Fredrik Reinfeldt’s goal of liberalizing Sweden’s economy by reducing taxes and the welfare state. The coalition has talked about cutting income, corporate and property taxes by about SKR60 billion. These cuts would be financed in part by paring down unemployment and sickness benefits. The coalition has also expressed its intention to make the labour force more flexible by allowing companies to hire and fire workers more easily, and by removing certain state benefits, which it argues act as a disincentive to work.

Reinfeldt has also pledged to axe Sweden’s wealth tax. Sweden remains one of only four countries in the OECD that levy such a tax on wealth, and the government has blamed the existence of the levy for contributing to high levels of capital flight and low levels of investment and entrepreneurship.

Link here.


Paymaster General, Dawn Primarolo has announced the publication of a joint HM Treasury and HM Revenue and Customs discussion document on reforming the taxation of foreign profits of companies. The document follows a commitment made in the 2007 Budget to consult on this issue in the context of maintaining the overall competitiveness of the UK.

One of the issues which business representatives identified as needing reform was the tax treatment of foreign profits, particularly the taxation of foreign dividends and the UK’s Controlled Foreign Companies (CFC) regime. The government has held informal discussions with representatives of multinational businesses, in which there was mutual recognition that the current system for taxing foreign profits may no longer be as suitable as it once was for either business or government.

The government is proposing a package of structural reforms, intended to modernize and create a more straightforward regime for taxing foreign profits. The aim is to achieve a balanced, broadly revenue-neutral package that meets the needs of both business and government, the Treasury said. The discussion document issued on Thursday suggests the following package of reforms:

Link here.


Elizabeth Mary Matthews was sentenced to 5 1/2 years at Bristol Crown Court last week, after fraudulently obtaining repayments of VAT of more than £4 million. In a trial lasting 12 weeks, the court heard how, during the period from 1999 to 2002, Matthews had manipulated the business affairs of her group of companies, the Peakviewing Transatlantic Group, to obtain repayments of VAT to which she was not entitled, which she then used to prop up the finances of her business.

Miss Matthews was arrested in November 2001. Her group of companies went into liquidation at the end of 2002. The rights to the films which were produced have been transferred to a company registered in Holland, Peakviewing Beings BV.

In sentencing, Judge Lambert said that Matthews was, “Smitten with life as a film producer and continued driving on the business when it should have been abandoned. ... You have ruined and disgraced yourself. A result of ambition giving way to obsession.” Judge Lambert also commended the HM Revenue & Customs officers for “the exemplary manner above and beyond the call of duty” in which they had handled this case.

Link here.



These days, it is impossible to keep your wealth a secret from the U.S. government. At least it is impossible to do so legally. But that is no reason to abandon the idea of financial privacy. Even if you have absolutely nothing to hide, you should still keep your wealth as private as possible for your own asset protection. And while the most private arrangements are “offshore”, you can achieve a surprising degree of financial privacy by properly configuring your domestic assets.

Apart from simply wanting to keep prying identity thieves or greedy relatives away from your money, why might you want to do this? Mainly, to avoid lawsuits. When a lawyer is sizing you up to determine whether to sue you on behalf of a prospective client, the most important thing he or she wants to know is if you have “recoverable assets”. In most cases, no recoverable assets means no lawsuit, especially if the lawyer is working on a contingency basis.

My friend Bill – not his real name – is a private investigator and asset recovery specialist. And when it comes to finding your money, experts like Bill know exactly where to look. They are the ones who rely on to collect judgments, and to size up potential lawsuit targets.

In his career, Bill has successfully collected millions of dollars for his clients. But, there are some assets that are much easier for him to research, much less recover, than others. If you are interested in keeping your financial affairs private, understanding which assets are easiest for an investigator like Bill to discover gives you an important starting point about what investments to avoid.

What happens if you are sued and lose.

Say that you have a successful medical practice in Phoenix, Arizona, where I live. You are sued by a patient and lose, and suffer a judgment that exceeds your malpractice coverage by $1 million. The lawyer representing your patient has Bill on retainer.

Since you live in Phoenix, presumably, you have a bank account there. That is very easy for Bill to find, and to attach the balance to help satisfy the judgment. You probably have a safety deposit box in Phoenix as well. That is also easy for Bill to find, and obtain a court order to seize the contents to help satisfy the judgment.

Likewise, you may own a home in your own name somewhere in the Phoenix area. Again, this is very easy to find, and through a court-ordered auction, to attach the equity above Arizona’s homestead limit of $150,000. You may have a securities account with a broker in Phoenix as well. If you do, Bill can find that – and attach it to your judgment – very easily.

How to make your assets “less recoverable” domestically.

What if you do not have a bank account in Phoenix, or anywhere in Arizona, and you do not own a safety deposit box in that state? Instead, you use a bank in New York, and keep only a small account in Arizona. Bill can probably find the New York account, but it will take some digging. And some investigators are not savvy enough to find it. Likewise with your domestic investments. If you set up a securities account in another state, Bill will have a much tougher time finding it, because he will not know where to look.

Next, say that you have taken the precaution of using a legal structure to house your wealth, e.g., you set up a limited liability company (LLC) to hold your bank accounts and securities accounts, and that you keep them out of state. That makes these assets even more difficult for Bill to find, especially if you do not appoint yourself as the “managing member” of the LLC.

Even if Bill does find the LLC, in most cases, the best he can hope for is to obtain what is called a “charging order” against it once a judgment is rendered against you. That gives the judgment creditor the right to any future distributions to you from the LLC, up to the amount of the judgment, but does not obligate the LLC to make a distribution. [Ed: See this W.I.L. article on LLCs for more details.]

Take Your assets offshore, far beyond your average P.I.’s reach.

Going a step further, say that you have a bank account in your name or the name of an entity outside the U.S. In that event, Bill is looking for a needle in a haystack. While he says there are ways he can obtain information about foreign accounts, he has to have some clues about where to look – at the least, the name of the bank, and ideally, an account number as well. Moreover, Bill says it is difficult for him to get his hands on the forms submitted to the government that would have this information on them – Treasury Form TD F 90-22.1 in particular.

And if he does find your foreign accounts? It is almost impossible for a private party in the U.S. to enforce a U.S. judgment abroad. And while a creditor might be able to obtain a court order requiring you to repatriate the assets from abroad, such orders are not easy to obtain, according to Bill. And, while it is possible to enforce such an order with a contempt of court citation (including possible incarceration), such citations are very rarely granted. Moreover, if you hold those accounts through an entity such as an offshore LLC, they are even more difficult to seize.

The three levels of privacy and protection for your assets.

Suffice it to say that multiple lines of defense to protect your privacy, and your assets, are your best strategy. The first line might be to keep your bank accounts and securities accounts in another state, and to avoid having a local safety deposit box. The second line might be to keep them out of your name, preferably in an entity that provides asset protection (such as a LLC). A third line of defense could be to keep the assets offshore.

If you are truly at a high risk of being sued, you may want to make it even more difficult for private investigators to discover, much less recover, your assets. Here are a few ideas:

Whatever strategies you use to protect your assets, the time to act is before there are any clouds on the horizon. That means, act right now before your sued, or threatened with suit. Remember. If you have recoverable assets in plain sight, Bill – or one of his competitors in the P.I. business – will find them.

Link here.


Claim that corporations are masquerading as partnerships.

Senators Max Baucus (D-Montana) and Chuck Grassley (R-Iowa), Chairman and Ranking Republican Member of the Senate Finance Committee, have introduced legislation that would tax as corporations all publicly traded partnerships that directly or indirectly derive income from investment adviser or asset management services. The initiative is aimed at private equity and hedge funds, which derive most of their income directly or indirectly from investment adviser or asset management services, but which then pay investment taxes at 15% rather than income tax at rates of up to 35%.

“The nature of investment vehicles is changing right before our eyes, and the tax code must keep up with the times,” stated Baucus. “Creative new structures for investment vehicles may blur the lines for the tax treatment of income. We must make the law clear and apply the law fairly, or risk the erosion of our corporate tax base. If a publicly traded partnership makes its money by providing financial services, that active business should be taxed as a corporation.”

“A hallmark of corporate status is access to the capital markets,” said Grassley. “It is unfair to allow a publicly traded company to act like a corporation but not pay corporate tax, contrary to the intent of the tax code. ... If left unaddressed, the tax concerns presented by the public offerings of investment managers, like private equity and hedge fund management firms, could fundamentally erode the corporate tax base.”

Corporations and their shareholders are subject to two levels of tax. Corporations pay taxes, and shareholders pay taxes on distributions received from the corporations. In contrast, partnerships and their partners are subject to only one level of tax. Partners are taxed on their distributive shares of income.

Baucus and Grassley have pointed out that Congress became concerned as far back as 1987 that some partnerships with interests traded on public exchanges were essentially operating as corporations, but avoiding corporate tax. In response to these concerns, Congress updated the law to generally tax publicly traded partnerships as corporations. An exception to that general rule exempts publicly traded partnerships from corporate taxation if they can demonstrate that at least 90% of their income is passive – for instance, from dividends, interest, or royalties rather than the provision of services. But today, new structuring of investment vehicles may make it possible for partnerships to argue that their income is passive, when it is actually produced by actively providing financial services.

Link here.


The Global Tax Justice Network says some Pacific nations could be given financial assistance to help them adjust from being tax havens. The network’s co-ordinator, John Christensen, has welcomed proposed legislative changes to U.S. tax laws that would pave the way for sanctions against nations providing tax havens. The U.S. senate is currently considering the Stop Tax Haven Abuse Bill which would penalise citizens using offshore banking systems as tax havens.

Mr. Christensen says some Pacific countries like Nauru have removed their offshore banking services. But he says others continuing to provide such services need to realize this system only helps a select few rich people while poor people pay more tax. “Our network is pushing also for the smaller islands that need funds to adjust away from being tax havens to be given compensation so that they can develop new development strategies. But I think they now need to re-think what they are doing. I would like to see the powerful nations that are cracking down on this to recognize that some of the weaker islands and the smaller islands will need help.”

Link here.


The Chinese government is said to be examining the issue of offshore tax avoidance, after releasing figures showing that the bulk of investment by Chinese-based companies is flowing to low-tax financial centers. A clampdown on the offshore activities of Chinese enterprises may come after data released by the Ministry of Commerce of China showed that between January and May 2007, Hong Kong topped the capital investment table, followed by the British Virgin Islands, Japan, South Korea, Singapore, the U.S.A., the Cayman Islands, Samoa, Taiwan and Mauritius. The report stated that the figures reflect the actual amount of foreign capital invested in the various jurisdictions, which accounts for 86% of China’s total foreign capital.

China is currently in the process of overhauling its tax laws, in part to reduce the incentive for domestic companies to “round trip” offshore in order to qualify for generous tax incentives currently afforded to foreign-backed enterprises based in China. At present, domestic firms must pay corporate tax at a rate of 33%, but foreign-owned firms can reduce their rate through various tax breaks down to as low as 13% in some cases. By round tripping, where Chinese groups set up shelf companies in Hong Kong and elsewhere, domestic firms can use them as mainland investment vehicles in order to qualify for “foreign” rates of tax. This practice has inflated China’s foreign direct investment figures for years.

The global debate over whether offshore financial centers facilitate international tax avoidance has once again been brought to center stage after U.S. lawmakers decided to focus on the Cayman Islands in their bid to close the “tax gap” between what is legitimately owed and what is actually paid by U.S. corporate and individual taxpayers. Senator Max Baucus, who is leading the charge, accused US companies who register in the Cayman Islands of “setting up shop at the beach just to avoid their tax obligations.”

In their defence, leaders of offshore financial centers say that they are a vital cog in the wheel of international finance, and that they adhere to stricter regulatory regimes than practiced in many large onshore countries. “[We] have absolutely nothing to hide” Cayman Islands Leader Kurt Tibbets stated recently, in response to the U.S. Senators’ request, which has been widely ridiculed as a piece of political grandstanding.

Link here.


Thailand’s Revenue Department has launched a crackdown on companies which transfer profits to offshore tax havens using artificial pricing. Deputy director-general Satit Rangkasiri said many large and medium-sized corporations had used tax-haven countries to inaccurately declare taxable income.

Mr. Satit gave an example of an exporter whose product had a price of Bt140 apiece, but who exported to a low-tax country at a price of only Bt100, allowing the difference of Bt40 to be taxed at a low rate before re-export at the market price of Bt140. Mr. Satit said such practices were against the Thai tax code and would be subject to penalties if discovered. Tax officials have the authority to assess higher tax payments on exporters found to be manipulating their income streams.

Tax officials said they were monitoring closely the activities of four large business and tax consultancies and another two smaller firms that assist Thai companies in setting up offshore tax vehicles. Thai transfer pricing rules were fairly primitive before new guidelines were introduced last year. “Market price” was previously not defined. Now it is specifically defined as “a price, service fee or interest that would be agreed in good faith between independent parties when transferring property, performing services or lending money commercially ...”

The guidelines include three permitted valuation methods: Comparable Uncontrolled Price Method, Resale Price Method, and Cost Plus Method. The Revenue Department may now investigate whether the parties to a transaction are related parties and may use the permitted valuation methods to establish an arm’s-length price. However, there is little information so far on how the Department will apply the rules in practice, or on what negotiating mechanisms will be available in disputed cases.

Link here.


The New Zealand authorities are moving to shut down tax schemes involving leases on overseas assets that result in a loss of revenue for the New Zealand government, Finance Minister Michael Cullen and Revenue Minister Peter Dunne announced. “The arrangements in question enable New Zealand parties to claim depreciation deductions for assets in which they have no economic interest that are leased to parties overseas who are not subject to New Zealand tax rules,” they explained.

Under these schemes, the New Zealand party purchases the overseas asset and leases it back to the original owner, who continues to use it and to bear all the economic risks of ownership. “The only economic benefits of the transaction are the tax deductions, which are shared between the two parties. This is against the intent of the law,” the ministers observed. “In these transactions the leases are structured in such a way that they are classified as operating leases for tax purposes, even though they are, in substance, finance leases, which have different tax rules. Under an operating lease the New Zealand lessor can claim the deductions, whereas under a finance lease it is the lessee who claims the deductions.”

To stop the spread of the scheme, the ministers stated that once enacted, the new laws will have effect from June 20. The Ministers concluded, “The government is making these changes to protect its fiscal position in relation to leases to parties overseas. We will consider wider changes to the finance lease rules, if necessary, to prevent further arrangements of this type arising in relation to domestic arrangements and, of course, the changes will not preclude Inland Revenue considering compliance action in relation to arrangements of this nature that it has identified.”

Link here.



Banks started monitoring sidewalk action around their ATMs years ago. Google is now aiming to cover what Citibank missed. By mounting 360º, multilens cameras on roving cars, Google will bring ATM-caliber security to your driveway – whether you like it or not. Neither you nor Washington can stop Google. And too many people like it just fine the way it is. From here on out, nobody and nothing is private when it is out in public.

Google’s cameras are in fact almost beside the point. A Webcam on your neighbor’s windowsill can put your back yard on the Web, around the clock. Google’s YouTube can do driveways, too, and plenty of ordinary folk enjoy keeping an eye on their neighbors. Many neighbors are grateful that they do. So are the police. They routinely seek and get access to banks’ digital archives for their first view of purse snatchers, rapists and terrorists. And you can bet the National Security Agency is spending billions on technology to comb through the torrents of private video that are already coursing across the public Web.

If you think you have got a constitutional right to privacy, you are dead wrong. The search-and-seizure clauses of the Fourth Amendment protect you from the police, not from your neighbor. The First Amendment, by contrast, gives your neighbor a near absolute right to use digital gadgets to engage in digital speech – ask any pornographer. And nothing in the Constitution bars the FBI from logging on to the Web to enjoy YouTube and pizza along with the rest of us. The feds cannot actively enlist us in certain kinds of snooping. But they sure can sit back and enjoy Google’s show. In any event, the tiny trickles of video from Google’s cameras are already dwarfed by private feeds from billions of little-guy cameras. The Supreme Court is not going to trim the First Amendment just because your neighbor can now compete with NBC.

You do have some power to stop others from making a buck out of your name and face. Paris Hilton can stop people from plastering her face on coffee mugs without her say-so. But she cannot stop the paparazzi from zooming in as she stretches her way into the backseat of a limo. The First Amendment protects everyone’s right to ogle in public spaces, turn the ogling into “speech” and publish it via “the press”, which includes radios and wires. Muckrakers, tabloids and wire services have been doing this since the days of Gutenberg and Marconi. Now your neighbor and Google have at their disposal a “press” that is a billion times faster and more capacious than anything imagined when the Bill of Rights was ratified in 1791.

So the police state of the future will be created and defined democratically, community by community. In their gated enclaves the wealthy will use deeds, contracts and covenants to police snoopy neighbors as strictly as they police lawn ornaments and gaudy paint schemes. The managers of urban co-ops, condos and rental apartments will do much the same inside their buildings, and residents will have to rely on hats, wigs and sunglasses to get in and out unobserved. The hardest place to hide will be in the suburbs. But Google probably will not bother sending its cruisers there very often.

The people who are really going to hate this post-Orwellian world are those who think that they alone have the special expertise needed to decide where free speech ends and privacy begins. That boundary will no longer be prescribed from the top down, through Olympian pronouncements from the Supreme Court. The Constitution made us free enough to develop and democratize free-speech technologies so cheap and powerful they can now be controlled only by property rights and local culture. The ACLU may fume, but the authors of the Bill of Rights can rest in peace.

Link here.


TorrentSpy, a popular BitTorrent search engine, was ordered on May 29 by a federal judge in the Central District of California in Los Angeles to create logs detailing users’ activities on the site. The judge, Jacqueline Chooljian, however, granted a stay of the order to allow TorrentSpy to file an appeal.

TorrentSpy has promised in its privacy policy never to track visitors without their consent. “It is likely that TorrentSpy would turn off access to the U.S. before tracking its users,” Rothken said. “If this order were allowed to stand, it would mean that Web sites can be required by discovery judges to track what their users do even if their privacy policy says otherwise.”

The Motion Picture Association of America, which represents top Hollywood film studios, sued TorrentSpy and a host of others in February 2006 as part of a sweep against file-sharing companies. According to the MPAA, the search engine was sued for allegedly making it easier to download pirated files.

The court’s decision could have a chilling effect on e-commerce and digital entertainment sites, said Fred von Lohmann, an attorney with the Electronic Frontier Foundation, calling the ruling “unprecedented”. EFF, which advocates for the public in digital rights’ cases, is still reviewing the court’s decision, but von Lohmann calls what he has seen so far a “troubling court order”. This is believed to be the first time a judge has ordered a defendant to log visitor activity and then hand over the information to the plaintiff.

Link here.


The FBI is contacting more than one million PC owners who have had their computers hijacked by cyber-criminals. The initiative is part of an ongoing project to thwart the use of hijacked home computers, or zombies, as launch platforms for hi-tech crimes. The FBI has found networks of zombie computers being used to spread spam, steal IDs and attack websites. The agency said the zombies or bots were “a growing threat to national security.”

The FBI has been trying to tackle networks of zombies for some time as part of an initiative it has dubbed Operation Bot Roast. This operation recently passed a significant milestone as it racked up more than one million individually identifiable computers known to be part of one bot net or another. The FBI said that part of the operation involved notifying people who owned PCs it knew were part of zombie or bot networks. In this way it said it expected to find more evidence of how they are being used by criminals. “The majority of victims are not even aware that their computer has been compromised or their personal information exploited,” said James Finch, assistant director of the FBI’s Cyber Division.

Many people fall victim by opening an attachment on an e-mail message containing a virus or by visiting a booby-trapped webpage. Many hi-tech criminals are now trying to subvert innocent webpages to act as proxies for their malicious programs. Once hijacked, PCs can be used to send out spam, spread spyware, or as repositories for illegal content such as pirated movies or pornography. Those in charge of botnets, called botherders, can have tens of thousands of machines under their control. Operation Bot Roast has resulted in the arrest of three people known to have used bot nets for criminal ends.

In a statement about Operation Bot Roast the FBI urged PC users to practice good computer security which includes using regularly updated anti-virus software and installing a firewall. For those without basic protections, anti-virus companies such as F Secure, Trend Micro, Kaspersky Labs and many others offer online scanning services that can help spot infections. The FBI said it was difficult for people to know if their machine was part of a botnet, but telltale signs include the machine running slowly an e-mail outbox full of mail a user did not send, or receiving an e-mail saying they are sending spam.

Link here.


A federal court has upheld a multi-billion dollar class action against SWIFT, the international bank clearinghouse, for secretly sharing customers’ bank records with the U.S. government in violation of bank privacy laws. Lawyers announced that Chief Judge James F. Holderman of U.S. District Court in Chicago refused this week to dismiss claims that SWIFT’s disclosure of millions of bank records to the government violated the federal Right to Financial Privacy Act and the Fourth Amendment.

In his 20-page opinion, Judge Holderman rejected SWIFT’s defense that it acted in good faith by relying on government subpoenas. Any claim to “unfettered government access to the bank records of private citizens” is “constitutionally problematic”, the court said. Judge Holderman noted reports that “SWIFT officials were aware that their disclosures were legally suspect, but they nevertheless continued to supply database information to the U.S. government.”

Plaintiffs Ian Walker and Stephen Kruse filed the massive class action last June, seeking billions in federal privacy damages, after the New York Times reported the administration had been requesting, and receiving, customer financial records from SWIFT without judicial authorization and limited Congressional oversight. The plaintiffs are represented by Chicago attorney Steven Schwarz and New Jersey attorneys Bruce Afran, and Carl Mayer. The three are also among the leaders in the pending NSA phone records suit in San Francisco.

“The SWIFT program is another example of reckless disregard for the Constitution and values that make us who we are as a nation,” Schwarz said in response to Judge Holderman’s ruling. “As Benjamin Franklin said, ‘those who would give up essential liberty to purchase a little temporary safety deserve neither liberty nor safety.’”

SWIFT, the Society for Worldwide Interbank Financial Telecommunication, based in Brussels, is the nerve center of the global banking industry and routes about $6 trillion daily between banks, brokerages, stock exchanges and other institutions. The complaint charges SWIFT with disclosing its entire database to the U.S. Government without subpoena or court authority. “SWIFT faces billions in damages after this week’s ruling,” Mayer said. “Federal bank privacy laws provide for $100 in damages for each illegal disclosure of customer records.”

SWIFT’s actions have been widely condemned overseas by privacy watchdogs in Europe and the EU, where some regulators have declared SWIFT’s conduct to be in violation of their countries’ privacy laws.

Link here.



For American Express, membership begins with ... Colombian drug lucre, a black market in pesos and a passel of federal agents. It could end with the largest money laundering penalty ever imposed on a U.S. financial institution. In its most recent 10-Q, Amex disclosed a big misstep at its American Express Bank International. It was reserving $60 million to deal with regulatory and legal matters related to money laundering, and it was cooperating with the Justice Department. “That’s our investigation,” says a senior official at the Drug Enforcement Administration. “It involves black market exchange accounts.”

Cocaine exporters have gotten quite creative in moving money across borders. One technique involves finding a businessman in Colombia who needs dollars to purchase imported goods – cigarettes, say. The cigarette importer, using a middleman, buys access to the dollars, paying with pesos that eventually wind up in the hands of the drug lords. The importer then uses the dollars to pay the invoice of a tobacco wholesaler in the U.S. Sometimes financial institutions get entangled in these peso-dollar trades. Sometimes they get caught.

The Amex case grew out of a DEA investigation that has already ensnared BankAtlantic Bancorp, a small bank in Fort Lauderdale, Florida. The sting went after Colombian drug and money brokers and resulted in the arrest of 55 people, as well as the seizure of 36 bank accounts from Colombia. Posing as money launderers, DEA agents picked up bags of cash from the bad guys at hotels and parking lots and sent the funds into the U.S. financial system after getting wire transfer instructions from money brokers. The feds noted that “more than $50 million in suspicious transactions were conducted through certain accounts at BankAtlantic.” BankAtlantic paid a $10 million penalty last year.

Amex decided to help the feds after receiving subpoenas in 2004 relating to anti-money-laundering compliance programs. Not the first time American Express Bank International has had a run-in with drug money. In 1994 the unit paid a $7 million penalty and forfeited $25 million of dirty money to settle a laundering case involving cash from the Juan Garcia Abrego drug gang in Mexico. Two bank employees were convicted of bank fraud and money laundering. The unit has now reportedly been put up for sale, along with the rest of Amexco’s private banking operations.

Link here.


The Swiss Federal Council has adopted a draft dispatch on the implementation of the revised FATF (Financial Action Task Force) Recommendations. The draft, which extends the scope of application of the Anti-Money Laundering Act (MLA) to the fight against terrorist financing, contains several measures which aim to improve the effectiveness of the Swiss system to combating money laundering and terrorist financing, and in general terms are intended to reinforce the protection of Switzerland’s financial center to prevent it from being misused.

According to the Swiss Department of Finance, consideration was given in the draft to ensuring that the administrative burden on financial intermediaries and authorities is kept to a reasonable level, and that the regulatory framework is not extended excessively.

The FATF is a key body in the international fight against money laundering and terrorist financing. Its 49 Recommendations constitute an internationally recognized standard to which a country is obliged to adhere in order to be seen to effectively combat money laundering and terrorist financing. Switzerland has been actively involved in the work of the FATF from the beginning and has contributed to defining its standards. For the first time since its creation, the FATF in 2003 completely revised its Recommendations to adapt them to new forms of criminality in the areas of money laundering and terrorist financing.

With the present proposal, the main shortcomings in the Swiss system identified by the FATF will be rectified, the government has said. As a result, Swiss regulations should to a large extent be in conformity with the revised FATF Recommendations on the issues of substance.

Link here.


The U.S. Supreme Court ruled last week that real estate tax claims asserted by New York City against the governments of India and Mongolia can proceed to trial in district court, despite the opposition of both the U.S. government and the foreign governments involved.

The case involves the City’s efforts to collect over $18 million in property taxes on buildings that those countries use to house staff of their U.N. missions. Corporation Counsel Michael A. Cardozo personally argued the case in Washington, D.C.

In its opinion today, written by Justice Clarence Thomas, the Supreme Court decided that U.S. courts have jurisdiction to hear and resolve the dispute between the City and two sovereign nations. However, it is now up to the district court to decide whether India and Mongolia actually owe the taxes.

“This is a critical decision for the rule of law,” said Cardozo. “Without this ruling, the City had no other legal avenue under which it could obtain recourse. The justices took a proactive, groundbreaking stand in upholding the City’s argument. Now India and Mongolia, as well as other countries, know the City ‘means business’ in pursuing appropriate taxes that are owed.”

“The City seeks taxes for non-diplomatic uses; in this case, housing for foreign government personnel who use City services daily,” added Bradford Billet, Deputy Commissioner, NYC Commission. “These countries do receive an exemption for the property actually used for diplomatic purposes.” The City argued that its claims should be heard, because they fall within a federal law (the Foreign Sovereign Immunities Act) that provides certain exceptions to the immunity from lawsuits typically granted foreign countries under international and domestic law. Both lower courts that initially heard the case and the U.S. Court of Appeals upheld the City’s argument and decided that the courts did have jurisdiction to hear the case. The Court wrote that, “Property ownership is not an inherently sovereign function,” and therefore, this dispute is subject to the jurisdiction of U.S. courts.

Link here.

“Pandora’s Box” feared after justices let New York sue foreign governments.

Think you have a tax problem? A Supreme Court ruling this week could leave Uncle Sam, and American taxpayers, liable for untold millions on U.S. diplomatic properties abroad. While New York City celebrates the decision allowing it to sue foreign governments for more than $100 million in back property taxes, the State Department is bracing for retaliation overseas. The fear is that governments will take similar measures against the U.S., which maintains the world’s largest diplomatic presence with more than 3,500 buildings. Many of them could be subject to taxation by local authorities and lawsuits to recover money owed.

More broadly, the finding could also jeopardize traditional rights and privileges that date back to ancient Greece and are enshrined in international treaties, notably the Vienna Convention, which grants immunity from most civil and criminal prosecutions to diplomats on foreign soil. The court’s 7-2 ruling chipped away at some of those immunities by finding that New York has jurisdiction to sue the governments of India and Mongolia for nearly $20 million – more than $41 million with interest – in property taxes local authorities say are owed on residences at the countries’ U.N. diplomatic missions in Manhattan. Officials in New York now say they will use the decision to go after other governments they accuse of refusing to pay property taxes, and millions more in unpaid parking tickets.

Privately, one senior department official said it could open a “Pandora’s Box” of ills for the U.S. abroad. Such concerns were expressed in a legal brief filed with the Supreme Court on behalf of India and Mongolia by the Departments of State and Justice. A ruling for New York “is likely to have adverse consequences for the nation’s foreign policy, including retaliatory measures taken against the United States,” it said, noting that a ruling for New York would create the perception that the U.S. is not upholding its international obligations. The brief noted that one unnamed country has already blocked the proposed purchase of a U.S. diplomatic property because of the situation in New York. The departments predicted that the United Nations might sue the U.S. at the International Court of Justice in The Hague.

Link here.


The Bush administration cannot use new anti-terrorism laws to keep U.S. residents locked up indefinitely without charging them, said a divided federal appeals court. The ruling was a harsh rebuke of one of the central tools the administration believes it has to combat terror. “To sanction such presidential authority to order the military to seize and indefinitely detain civilians," Judge Diana Gribbon Motz wrote, “even if the President calls them ‘enemy combatants,’ would have disastrous consequences for the Constitution – and the country. ... We refuse to recognize a claim to power, that would so alter the constitutional foundations of our Republic.”

In the 2-1 decision, the 4th U.S. Circuit Court of Appeals panel found that the federal Military Commissions Act does not strip Ali al-Marri, a legal U.S. resident, of his constitutional rights to challenge his accusers in court. It ruled the government must allow al-Marri to be released from military detention.

This ruling draws a clear line in the sand on one of George W. Bush’s most egregious abuses of the illegitimate power he was given (by the courts) in 2000: his self-proclaimed, arbitrary, unchecked right to designate anyone he pleases an “enemy combatant” and keep them locked up indefinitely in military detention. Now it seems certain that the case will reach the Supreme Court, and we will have a clear-cut answer at last. Are we still a semblance of a Republic, where our liberties are inalienable – or is our freedom simply the “gift” of an autocrat (elected or otherwise), who can bestow it or take it away at his own will?

Now comes the scary part, the ascent of the case to the Supreme Court. For although Bush has let a few honest conservative jurists slip into the system – largely by accident or through inattention, no doubt – he has taken special pains in placing rock-ribbed loyalists on the Supreme Court, even elevating one of them, the dim time-server John Roberts, to the role of Chief Justice. It is almost certain that Roberts and his fellow Bush creation, Samuel Alito, will vote for the Boss when the case comes before them. Likewise, the ludicrous and sinister Clarence Thomas – a creation of Bush I, who obviously took cynical delight in foisting this resentful, underqualified, ideological hack on the nation – will toe the family line, as he did in rewarding Little Georgie the presidency in 2000. The irony is that the case may hinge on the genuinely disturbed mind of Antonin Scalia, who has occasionally shown an independent bent on these Constitutional questions.

Although the ruling is most welcome, it is a tragedy that we have come to this point at all ... that a federal court has been forced to consider the “question” of whether a president has the arbitrary power to stick people in military dungeons without charges for as long as he likes. Why should this even be a question, a matter for debate? And these cases involving the incarceration of Bush’s Terror War captives still do not address the even more sinister power that the Bush Administration has claimed, and acted upon: The power to kill anyone it arbitrarily declares an enemy of the state. Bush has even devolved this authority to lower-ranking agents in the field, giving them, literally, a license to kill.

We have supp’d full with horrors, and there are more to come. But the appeals court ruling is still a draught of clean water – some relief from the witch’s brew we have been forced to drink for so long.

Link here.


FBI agents have seized money in bank accounts belonging to Frank Apodaca, president and CEO of Access HealthSource and president of its parent company, the nationally traded Precis Inc., stated a lawsuit filed by a credit union. The lawsuit filed by GECU is asking for a federal court to determine whether Apodaca or the U.S. government is entitled to $75,937 in an account that was not seized. GECU has frozen the account. “Each of the defendants – United States of America and Frank B. Apodaca – are claiming entitlement to the funds,” the lawsuit stated.

According to the lawsuit, an FBI agent on May 21 served a seizure warrant to GECU for four specified accounts belonging to Apodaca. The amount of money in the accounts was handed over and payable to the U.S. marshal. The lawsuit, filed May 25, names both Apodaca and the U.S. government as defendants. The credit union is asking that each defendant be restrained from any action against GECU for recovery of the unseized $75,937, and that the court determine who is entitled to the money.

The seizure at GECU occurred May 21, the day FBI agents seized the two luxury vehicles and a motorcycle at Apodaca’s Upper Valley home. The seizures are part of a criminal investigation that has been tied to the National Center for Employment of the Disabled, now called ReadyOne, and businesses associated with the nonprofit. NCED, a nonprofit, at one time owned Access. After an El Paso Times story was published in 2005, another federal agency began investigating the nonprofit and found that it was in violation of labor requirements.

The FBI investigation leading to the seizure of Apodaca’s belongings has also resulted in former county chief of staff John Travis Ketner’s admitting to federal authorities that he was involved in a conspiracy to defraud the county. Last week, Ketner pleaded guilty to two counts of conspiracy to commit mail fraud, one count of conspiracy to commit wire fraud and one count of conspiracy to commit bribery. The charges against Ketner describe how county officials allegedly sought bribes from vendors, received secret campaign donations, met in a bathroom and at restaurants, and broke into a computer in an attempt to rig court cases.

Link here.


Who is Paris Hilton? I do not care. But I cannot avoid seeing her name and pictures all over the news because of her latest brush with the law. Now it may be, and almost certainly is, true that she is a nonentity whose only claim to fame is that – she’s famous !! – thanks to plenty of money to spend on publicists, personal representatives, and other flunkies, whose sole purpose is to put her in the news and keep her there.

What makes her worth talking about, therefore, is not her accomplishments, which, to my admittedly scant knowledge, are non-existent. It is her encounters with the justice system that justify writing about her, because it illustrates the nature of that system beautifully. She was arrested last September, and found to have a blood alcohol of 0.08 – the minimum level that justifies arrest. The original charge of Driving Under the Influence was later reduced to Alcohol Related Reckless Driving. She was placed on probation, fined about $1500, and her driving license was suspended for four months. Subsequently she was stopped by police three times and charged with driving with a suspended license. She failed to attend an alcohol education class ordered by the judge. After being caught for the fourth time driving with a suspended license, she has been sentenced to 45 days in jail.

To my knowledge, Ms. Hilton injured no one while behind the wheel, and damaged no one’s property. The only complaints against her have been brought by the state. There seems to be a consensus that her jail time serves her right, for thumbing her nose at the law. But what is the law all about? If she had injured or killed someone, or destroyed someone’s property, the law would property be brought to bear upon her. But she has done nothing like that. The only injured party is the state, which is responding to her ignoring its demands by placing her in jail. And the jail sentence is unusual, as I understand it, because most “offenders” with similar sentences have them reduced, or serve in work release, or home confinement with an ankle-bracelet. Her punishment, in other words, is only partly related to her “crime”, and partly to teaching a lesson to others who might attach insufficient importance to the huffings and puffings of a judge.

The state, claiming to be the servant of the public, demands to be served by the public. It has rights, which it has given itself, and which you dare not ignore. Doing so is an offense punishable by imprisonment. Its rules are the “law” because it says they are. It can determine how much alcohol in your blood qualifies you as a criminal. It can make driving your automobile without its permission (i.e., license) a crime. (Of course, it charges you for that license, just as it charges you for a license for your car.) You may challenge that authority, in which case you may find yourself in a court owned and operated by your adversary, operating under your adversary’s rules, with a judge in the pay of ... guess whom?

Do we still call this government by the people, for the people, and of the people? Not if our eyes are open, and we are conscious. Rather, we have government by, for, and of government itself. And don’t forget it, or you could end up in jail, too!

Link here.

Trouble at the Prosecutorial Hilton and the Two Americas

While the Duke Non-Rape, Non-Kidnapping, and Non-Sexual Assault Case has resulted in the ouster of the miscreant Michael B. Nifong from his prosecutorial office in Durham, North Carolina, on the other side of the country it seems that the spirit of Nifongism lives on. Furthermore, if justice truly is going to be served – and this Nifong case has placed prosecutors on notice – then either a prosecutor or his wife is going to have to share a cell with the recently-jailed Paris Hilton.

Now, even with The Nifong Show playing at full tilt in North Carolina, nothing has captured the public’s attention more than the Paris Hilton affair in Los Angeles. Yes, please spare me the “she broke the law and must pay the consequences” nonsense. I suspect that had her name been Paris Jones, she would have spent almost no time in jail, and perhaps none at all. However, since she was driving with a revoked license, perhaps Ms. Hilton might want to change her name to Michelle Delgadillo, the wife of the prosecutor who went after Hilton, Rocky Delgadillo. It seems that Ms. Delgadillo has a similar driving record to the errant Paris.

One can be sure that Ms. Delgadillo is not going to have to worry about spending several weeks in a cell or having to be humiliated in front of a judge. After all, she is not Paris Hilton, and in this land of Two Americas, anyone who might have been born with a silver or even gold spoon by definition is an Enemy of the People.

Link here.


Australian food critics were left spluttering into their napkins after a court decided that an unfavorable review of a Sydney restaurant was defamatory, opening the way for the owners to claim damages. The critics said the decision could lead to reviewers of theater, music, literature and art fearing to speak their minds in case they are sued.

The case centers on a review of Coco Roco restaurant published in the Sydney Morning Herald newspaper in 2003. Matthew Evans, then the newspaper’s chief food critic, dined at the restaurant twice and was not impressed. He said the flavor of oysters soaked in limoncello “jangled like a car crash” and that a sherry scented apricot white sauce that accompanied steak was a “wretched garnish” that he scraped off. Awarding the restaurant nine points out of 20, he concluded that “more than half the dishes I’ve tried at Coco Roco are simply unpalatable,” and that the food was overpriced.

Coco Roco closed three months after the review and the owners, who had spent more than A$3 million (£1.3 million) refitting the restaurant, blamed it on the reviewer, saying that customers had been put off by Evans’s words. In the latest ruling the high court of New South Wales found that the review was an attack on the restaurant as a business. “Business capacity and reputation are different from personal reputation,” the judgment said. “Harm to the former can be, as here, inflicted more directly and narrowly than harm to a person’s reputation.”

The Herald’s current chief restaurant critic, Simon Thomsen, said the judgment meant that now “anything short of hagiography will be defamatory.” Veteran food critic Leo Schofield said the ruling set a bad precedent. “If a poor review leads to diminished returns at the box office of the theatre are we now going to say that it is due to the review and not to the quality of the work?” he asked. David Griffiths, executive chef at one of Sydney’s best restaurants, said it was laughable to suggest that one bad review could close a restaurant.

Further hearings will be held so that the newspaper can put forward its defence and for the court to decide if the owners of Coco Roco are entitled to damages. The court’s decision comes after a jury in Belfast upheld a restaurant owner’s claim that a review in the Irish News was defamatory and awarded him £25,000 this year.

Link here.



Kevin R.C. Gutzman has just released The Politically Incorrect Guide to the Constitution. For what my opinion is worth, this is one of the most important books of the past 25 years. There is absolutely nothing like it, anywhere.

PIGC is not another of the toothless and forgettable laments about the death of the Constitution at the hands of activist judges that we read from time to time from the right-wing pundit class, though of course Gutzman decries both of these things. This is a far more sweeping, much more fundamentally devastating indictment of the Supreme Court, of the “legal training” that raises up ever more people to perpetuate its record of dishonesty and usurpation, and of the American regime at large – which rests on the legal fictions Gutzman shreds in his book.

To those who weep over the Constitution’s neglect these past 50 or 100 years, Gutzman shows that defiance of that document has gone on from the beginning, starting in the 1790s. An expert on colonial and early republican Virginia, Gutzman knows the Virginia ratifying convention inside and out. He knows the promises made to the people, and the assurances that Virginia’s ratifiers inserted into that state’s ratification instrument. And he shows that Jefferson and his allies were faithful to those principles and promises, and that the so-called Federalists and their present-day apologists (which includes just about everybody) were not.

The five or ten lines from The Federalist that Straussians and other centralizers cite on behalf of their nationalist reading of the Constitution are also dealt with. Gutzman, in fact, is the Straussians’ worst nightmare. Their interpretation of the nature of the American union does not survive Gutzman’s study.

John Marshall, U.S. Chief Justice from 1801 to 1835, comes in for some serious scholarly thrashing as well. Marshall is all too typically held up as an idol before conservatives and even libertarians, and he remains a central icon of early American history. For Gutzman, Marshall is an outright opponent – and a dishonest one at that – of the legal principles on which the people of the states were promised their new government would be based. Where else can you find such an iconoclastic portrayal? (The inconsistent James Madison, too, winds up with his share of bruises.)

Gutzman also treats a great many politically incorrect subjects from a constitutional perspective. If you happen to have a thing for being told the truth rather than lies, you will read and cheer. It is going to be fun to watch the so-called constitutional lawyers try to attack Gutzman’s book. And try they will – of that you can be sure. But Gutzman, who holds a law degree as well as a Ph.D. in history, is uniquely positioned to parry any such attacks – unlike his opponents he actually knows early American history, not just a string of unfounded Supreme Court decisions purporting to be “constitutional law”.

An expert on both history and law, Gutzman has some choice words for the way law is taught today: “American law students are almost universally subjected to the case method. Their texts are collections of judicial opinions, or in a few cases of statutes, with absolutely no historical context ... In short, if the judges make a particular false assertion about the Constitution in numerous cases, students reading those opinions have no way of recognizing that assertion’s falsity. They are provided no tools for analyzing judges’ claims – only with scads of the opinions incorporating those claims.” This is one reason, Gutzman says, that “legal training should not be confused with an education.”

Now there will always be some libertarians who, missing the point, will insist that they do not care about the Constitution, and by extension about a groundbreaking book like this. All they care about is liberty, regardless of the words of any Constitution, which they do not consider binding anyway. My purpose is not to disparage this point of view, which in large measure I myself share. I simply happen to find it significant that from the very beginning, politicians and judges, in order to justify their departure from the understanding of the Constitution that was peddled to the people at ratification time, employed arguments that were exactly the opposite of what they themselves had told Americans in order to get them to ratify the Constitution. This is obviously an important proselytizing point for libertarians, since it shows how governments and their “constitutions” really end up working. Gutzman’s book also provides a fascinating glimpse at how the state transforms institutional restraints on its growth into mandates for that growth. And it asks, if only implicitly, whether in the long run any piece of paper can really be a match for the state’s predatory instincts. I can hardly imagine a libertarian or a serious conservative who would not find these questions worth asking.

Although I was revisiting much familiar ground as I read this book, even I was shocked at how dishonest the federal courts have been over the years. And Gutzman just eviscerates all of it, slashing and burning everything in sight, and holding up the ludicrous series of fictions that pass for “constitutional law” to hilarious derision.

Gutzman is not supposed to do any of this, of course, since the continuation of the racket depends on popular ignorance. To the legal establishment he is like the man who shouts out in the middle of the show how the magician is really sawing the woman in half. Thankfully for him, it is impossible to dig up anything insensitive that Gutzman wrote a dozen years ago and, in the typical manner of commie agitprop, pretend it is relevant to assessing the merits of his book. The crazies might actually have to listen to what he is saying and address him on the merits of his case. That will be a first.

No such radically Jeffersonian overview of American constitutional history, from its colonial and revolutionary antecedents all the way to the present, has ever been written. Every American needs the information in this book. Naturally, the guardians of fashionable opinion certainly do not want them to have it, and neither does anyone in the political establishment. So what are you waiting for?

Link here.
Judicial review vs. constitutional government – link.
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