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PANAMA DURING THE RAINY SEASON
After reading many articles on moving to Panama, one item kept coming up. Rain. Living in Tucson, Arizona, one is not used to daily rain. It seemed wise then to visit during the rainiest part of the year, figuring if we liked it then, we would love it during dry season. What we did not count on was the cold. For three months prior to the trip I read all the information I could find on Panama. From my research, it seemed the Volcan area in the Chiriqui region would be ideal. Cool mountains, beautiful views and reasonable land. My daughter, son and I headed for Panama the end of September. Our trip’s purpose was to evaluate whether we would like to live in Panama, and if so, where.
We contacted the Hemingway Hideaway website and arranged with Bill to tour his listings of homes and the project started there, out of Volcan. He arranged for our pick up at the airport and our hotel stay in Panama. It was really nice to have someone meet us and take us through the traffic of the city ($20 charge). We stayed at the Sevilla Suites for $70 a night plus tax for a two bed room. We had our own refrigerator, stove, micro, dishes and sitting area. The hotel has a rooftop swimming pool, exercise room and a plentiful continental breakfast included in the rate. The first day it rained. This is what we expected. It did not rain hard like our Monsoons in Arizona. And it did not rain all day. We walked around the area, bought a bottle of Fresca for 25 cents and enjoyed watching the traffic and people along the way.
We made arrangements to be taken to the airport for our flight to David, where a rental car was waiting for us. We had written directions to the Bambito Hotel just out of Volcan. The drive up the mountain was awesome as everything was green – everywhere you looked more and more green. What a treat to Arizona folks! The farther up we drove the more flowers. Alongside roads, up hills, around streams – a visual delight. We spotted orchids growing up trees, and fence posts that sprout leaves! Pine trees were located in the same area as Banana trees. This seemed unreal.
Green meadows with dairy cows, horses galloping across grass covered fields. Swiss style chalets dotted the countryside. Farmers working in onion and carrot fields. Road side stands with a selection of vegetables as well as strawberries and citrus. We did notice everyone we saw was wearing boots. Several miles up the mountain it began to rain. It rained hard enough the wind shield wipers had to work hard to keep up. Then suddenly it stopped and we found ourselves in dense rain forest and low clouds.
Rounding a curve in the road, gasps came from my son and daughter. Sitting in the mist was a most beautiful site, the Bambito Hotel. Clipped green lawns, ponds with ducks, waterfalls, and flowers everywhere. We parked in the nearly empty parking lot. We had indeed come in the “off season”. We were ushered to our room, beautiful wood and rock everywhere decorating this quite magnificent hotel. The cold air prompted us to get jackets out of suitcases and begin to explore the grounds. Again flowers bloomed everywhere. As we explored we began to chill and returned to the hotel and drifted down to the large dining room for dinner. The prices are a bit high here and the food is good but in our opinion not quite up to the price, but no complaints. We had already learned that the written reports about most everyone speaking some English must have been written by someone taking the “first class” route in hotels, etc. Our experience was that very few had English and that was limited. Many had no English at all. But hand signals, smiles and laughter go a long way to get your message across. The Panama people are very gracious and accepting of our attempts to speak their language. In the evening we met with Bill Hemmingway to go over our schedule for the following day. We were all tired and due to the cold , asked for additional blankets and retired for the night.
Bill joined us for a cup of coffee the next morning and then we loaded into his 4x4 and headed up the mountain. One local family was selling their home and we toured the home before heading farther up.. The road was rough, but the scenery spectacular. When we got out to walk the new project site, it was downright cold. We had not thought this area would be so cool – after all it is the tropics. Pine trees, banana trees, citrus, and flowers everywhere. After looking at the possibilities in this area, Bill took us to his house, a beautiful structure that has evolved over the years. Gathering all our information, we headed back to the hotel. It was time to get warm (central heating and air conditioning is not used here but some have fireplaces to take off the chill) so we all crawled under the additional blankets and took a nap.
After our nap we did a little driving around and watching for the “se vende” (for sale) signs and making notes, it was back to the Bambito for a movie with Spanish subtitles, then a fantastic nights rest with only the sound of the rushing river water falling on rock outside. The next morning over breakfast we discussed what we had seen and experienced. None of us had expected to be so cold. We came to the conclusion that we needed to look further, that it was just too cold for us Arizona people, and after packing up we checked out and headed for Bouquete. It had rained and everything was wet but the return of rain held off till later in the day.
From David we headed north to Boquete and again the scenery was calming – green, vast, and prolific flowers everywhere. I had forgotten to print out the directions to the Isla Verde Hotel where we were booked. It took several passes through the village to find the hotel and by then it was simply pouring rain. Outside our window we could see flowers of every description and orange trees. Breakfast could be purchased but was not included with the room. We opted to fix our own. A trip to Rays Supermarket – a chain in Panama, was next. There we bought a several pound pineapple for 85 cents. In Arizona today Safeway has small, rather green and not very tasty ones for $3.99! Due to change in climate, rest, routine, etc. Mark had developed a sore throat. We stopped at the modern pharmacy and he was able to purchase what he needed for a fraction of the cost of what we pay in the states. They carry American brands for higher prices. We had spotted a Mexican restaurant on the way through Boquete, so headed for lunch there and really enjoyed the meal at reasonable prices. It was still raining – the owner had told us it rains 10 to 5 every day for 3+, mostly September to November and part of December. After lunch we went shopping to find gifts for those at home and post cards (which have yet to arrive 15 days later).
Mark did not sleep that night – dogs barking kept him awake. He is from a large city and is used to sirens and cars all night, but not dogs. Lisa and I slept well. We met Toby Braxton the next morning at. The sun was out and no rain so we were raring to go. Hoped to see some good developments, homes and get information from Toby about the area. She is a great wealth of ideas, practical data, and will find an answer for whatever you want to know. I would use her any time I go to that area of Panama – and her cost is reasonable, at $7-$8 per hour, and worth it. When Toby picked us up it was cloudy but not hot, nor cold, just comfortable. First we visited a beautiful 2 bedroom home in the gated community of Los Molinos. This is a very upscale area and the home was top notch and came with car and all furnishings for $270,000. Another already built home further down the road was not gated, but the 3-bedroom home was all one could ask for. The asking price was $250,000. We then looked at bare lots and land and one or two more already-built homes. Much to offer but not quite what we were looking for. Finished by early afternoon, we returned to our round house and bid Toby goodbye for the day.
After lunch, Mark went back to rest (since he did not sleep the night before) and Lisa and I checked email from home. Each little village or town has an internet cafe or even several. The cost is reasonable at 25 to 30 cents a half hour. It is very popular and you sometimes had a brief wait for a computer. More shopping, looking and back to rest before dinner. No barking dogs that night and everyone slept well.
Toby had made us an appointment with a lawyer in David to get the requirements for a tourist pensionado visa. This is the great visa you may have read about with all the discounts for a retired person. We headed for David and it began to rain. It rained nearly all day. It does not slow anything or anyone down. The closer to David, the heavier the traffic. They may not be aggressive in Panama, but they certainly are very assertive when behind the wheel. I decided I would not be driving in the cities, at least not for a long while. While waiting to meet Toby we went into a furniture store to see what the costs were. We were especially interested in finding a soft bed. A saleswoman found one under a brand I had never heard of, but reading the fine print on the label, it was made by Simmons. It was the memory foam type and ran $799 for a queen size. Much of the furniture was comparatively priced with those in the states and very modern and up to date. Some have their furniture made for their home and we will look into that during our next trip down. Toby arrived and we followed her through heavy traffic and a downpour to the lawyers office. Only a short wait and we met with a lovely lady with perfect English that gave us a run down of requirements for our visa. They have changed and those listed in the Panama Owners Manual are a bit outdated. The problem with books and manuals is they are nearly outdated as soon as published. So armed with our new information we said our good byes to Toby and headed for the airport to check in the car and fly back to Panama City. The lawyer did not charge for that meeting.
The check in for the car and for the flight went smoothly. Back on the ground in PC, our driver picked us up and took us back to the Seville for our last 3 nights. Different room, same hard bed – asked for the pillows again and checked our email from home. By now it had stopped raining and was very pleasant out. Back at the hotel after lunch and up to the pool we went and we had it to ourselves. It had gotten dark and the air was warm, smelled of BBQ from the bistro next door, and the lights of the skyline lit up the cloudy sky above us. A delightful way to relax. In PC you leave the air conditioner on all night and that made it a little uncomfortable for us that are not used to the noise and cold air.
The next two days we spent touring the canal and visiting Altos Del Maria, and had lunch with our host and driver, Erick Edwards, a transplanted American. Erick answered our questions, showed us what was available in Altos and was not a hard sell person. By the end of the day we decided to buy two lots in the development. With the cost of building and the lots we figure we can have a very nice and affordable home for around $100,000 or less. The second lot will be for a bigger home later, or to sell. Prices are going up rapidly and we felt fortunate to find what we wanted and just 90 minutes from the capitol. Close enough to catch a plane home, or do major shopping, but up in the mountains where it is cooler, less humidity, and very quiet.
After leaving Altos, we returned to the city to sign papers and say good bye to Erick. We learned some valuable things on this trip. You can get too cold in the tropics. The Panama people are extremely friendly and accommodating. Prices for taxis are super low (one taxi driver got lost for about an hour and charged under $2.00). Food that is not imported is very reasonable. Fresh fruit and vegetables can be downright cheap. Houses can be expensive or very reasonable depending on your requirements. It does rain a lot, but it is a tolerable rain. And the benefits for retirees are the best we have seen. A good trip, at a reasonable price, and we cannot wait to go again.Link here.
ANTIGUA AND BARBUDA READIES SANCTIONS AGAINST U.S.
The government of Antigua and Barbuda says that it is entitled to compensation of $3.4 billion from the U.S. to rectify the damage to its economy caused by the long-running e-gaming dispute between the two countries. If given the go-ahead by the WTO, Antiguan finance minister Errol Cort said in a statement that the compensation would take the form of withdrawing intellectual property protection for U.S. trademarks, patents and industrial designs.
“We feel we have no other choice in the matter, we have fought long and hard for fair access to the US market and have won at every stage of the WTO process,” said Cort. “Until such time as the United States is willing to work with us on achieving a reasonable solution to this trade dispute, we will continue to use every legitimate remedy available to protect the interests of our citizens.”
The WTO’s Dispute Settlement Body is set to review Antigua & Barbuda’s request at its July 24 sitting and decide whether such sanctions are reasonable. If approved the sanctions can be put into place immediately thereafter. However the U.S. also has the right to refer the issue to further arbitration and is expected to exercise this option, thus stringing out the protracted dispute for at least another three to four months, with the dispute panel’s decision not expected to come until the end of the year.
The dispute between the two countries began when the U.S. decided to block banks and credit card companies from processing payments made by U.S. residents to online gaming companies based offshore, citing both moral and security justifications. A huge proportion of the global e-gaming market was thus wiped out at a stroke for the 32-registered online casinos in Antigua & Barbuda, a move which also threatens the jurisdiction’s attempts to diversify its economy. According to the Antiguan 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.
The U.S. decision to withdraw from one of its WTO commitments after it finally lost its battle with Antigua and Barbuda provoked a storm of outrage and concern. Last month, it emerged that the U.S. had decided to sidestep the ruling by the WTO dispute resolution panel in favor 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.”
Last week, the EU increased the stakes in the case by saying it will seek compensation from the U.S. for any changes in its commitments, while Japan and India have already filed compensation requests with the trade organization because of Washington’s attempt to change the details of its obligations under GATS. However, even with the momentum of opinion in the dispute so clearly swinging away from the U.S., Cort is not optimistic that his threats of sanctions will carry any weight in Washington. “Unfortunately, there appear to be powerful interests in the United States that want to protect the domestic industry from competition. That is not only unfair and wrong, but contrary to the letter and spirit of the WTO agreements,” the finance minister said.Link here.
URUGUAY AGREES TO BECOME MEMBER OF BANCO DEL SUR
The Uruguayan government decided this week to be a member country of Banco del Sur, an alternative to international lending organizations such as World Bank and IMF. The organization has been promoted by Hugo Chávez since 1999. President Vázquez said, “No Mercosur countries can be left out of this project” despite that the “nature of the entity is not well defined as of yet.”
Economy Ministry Danilo Astori said, “The new bank must not come into any ‘contradictions’ with any other multinational organization such as the IMF.” Education and Culture Minister Jorge Broveto said that not taking part in this project would be a “stroke against regional integration.”
Some Argentine Banco del Sur staff members said the bank would start with $3 billion while figures as high as $7 billion were given. The Central Bank of Uruguay is anxiously but cautiously expecting the creation of the new regional bank. A lot of expectation also exists among central banks of other countries involved, which express having only very general information, except that no central banks will use any funds for Banco del Sur. “The money must come from the governments.”Link here.
FORMER SOVIET DISSIDENT WARNS OF EU DICTATORSHIP
Calls the EU a “monster” that must be destroyed before it develops into a fullfledged totalitarian state
Vladimir Bukovksy, the 63-year old former Soviet dissident, fears that the EU is on its way to becoming another Soviet Union. In a speech he delivered in Brussels last week Mr. Bukovsky called the EU a “monster” that must be destroyed, the sooner the better, before it develops into a fullfledged totalitarian state.
Mr. Bukovsky paid a visit to the European Parliament at the invitation of Fidesz, the Hungarian Civic Forum. Fidesz, a member of the European Christian Democrat group, had invited the former Soviet dissident over from England, where he lives, on the occasion of this year’s 50th anniversary of the 1956 Hungarian Uprising. After his morning meeting with the Hungarians, Mr. Bukovsky gave an afternoon speech in a Polish restaurant opposite the European Parliament, where he spoke at the invitation of the United Kingdom Independence Party, of which he is a patron.
In his speech Mr. Bukovsky referred to confidential documents from secret Soviet files which he was allowed to read in 1992. These documents confirm the existence of a “conspiracy” to turn the EU into a socialist organization. A transcript of the speach follows. The audio fragment (approx. 15 minutes) is here. A brief interview with Mr. Bukovsky also follows ( audio download link here).
Q: You were a very famous Soviet dissident and now you are drawing a parallel between the European Union and the Soviet Union. Can you explain this?
Vladimir Bukovsky: I am referrring to structures, to certain ideologies being instilled, to the plans, the direction, the inevitable expansion, the obliteration of nations, which was the purpose of the Soviet Union. Most people do not understand this. ... [W]e do because we were raised in the Soviet Union where we had to study the Soviet ideology in school and at university. The ultimate purpose of the Soviet Union was to create a new historic entity, the Soviet people, all around the globe. The same is true in the EU today. They are trying to create a new people. They call this people “Europeans”, whatever that means.
According to Communist doctrine as well as to many forms of Socialist thinking, the state, the national state, is supposed to wither away. In Russia, however, the opposite happened. Instead of withering away the Soviet state became a very powerful state, but the nationalities were obliterated. But when the time of the Soviet collapse came these suppressed feelings of national identity came bouncing back and they nearly destroyed the country. It was so frightening.
Q: But all these countries that joined the European Union did so voluntarily.
VB: No, they did not. Look at Denmark which voted against the Maastricht treaty twice. Look at Ireland [which voted against the Nice treaty]. Look at many other countries, they are under enormous pressure. It is almost blackmail. Switzerland was forced to vote five times in a referendum. All five times they have rejected it, but who knows what will happen the sixth time, the seventh time. It is always the same thing. It is a trick for idiots. The people have to vote in referendums until the people vote the way that is wanted. Then they have to stop voting. Why stop? Let us continue voting. The European Union is what Americans would call a shotgun marriage. ...
I think that the European Union, like the Soviet Union, cannot be democratized. Gorbachev tried to democratize it and it blew up. This kind of structure cannot be democratized. ... The European Parliament is elected on the basis of proportional representation, which is not true representation. And what does it vote on? The percentage of fat in yogurt, that kind of thing. It is ridiculous. It is given the task of the Supreme Soviet. The average MP can speak for six minutes per year in the Chamber. That is not a real parliament.Link here.
RENMINBI BONDS TO REINFORCE HONG KONG’S BANKING STATUS
The issue of renminbi-denominated bonds in Hong Kong, hopefully by the end of June, will maintain the city’s status as an international finance center and aid Mainland fiscal reform, Monetary Authority Chief Executive Joseph Yam says. In his latest “Viewpoint” article published on the authority’s website, Mr. Yam said it will be a small market to start with and secondary-market activity may be slow at first.
But he said Hong Kong’s financial system is now able to handle renminbi-denominated activities in two out of the three channels of financial intermediation – banking and debt. With the renminbi included alongside the Hong Kong dollar, the U.S. dollar and the euro, among the currencies the city’s financial infrastructure is able to handle, it will also be possible for the equity channel to follow suit, i.e., for share listing and trading to be denominated in renminbi, if there is demand.
Mr. Yam said exchange controls on the Mainland will gradually be removed and this may come faster than expected. Noting that the relaxation of capital outflow requires great emphasis on controllability, gradualism and keeping the initiative, he said Hong Kong will be the best place for controlled experiments.Link here.
IMF CONCLUDES ARTICLE IV CONSULTATION WITH UNITED STATES
Says the U.S. has done a good job managing its bubble economy, “but important challenges lie ahead.”
The IMF began by observing, “Fortunately for the global economy, the recent cooling of U.S. activity from the robust pace of recent years has coincided with a pick up in growth elsewhere. The U.S. slowdown has mainly reflected a drag from residential investment due to the ongoing housing market correction. Consumption, by contrast, has remained strong, supported by solid employment and wage growth.
“This resilience reflects the benefits of flexible markets backed by stable monetary policies and an improving fiscal position. Benign U.S. financial conditions have minimized spillovers elsewhere and, with global activity supported by faster growth in the Euro area and Asia, the U.S. current account deficit has stabilized, albeit at high levels.”
The report pointed to four key macroeconomic challenges facing the U.S., namely:
In conclusion, the IMF assessment stated that, “The U.S. economy continues to show remarkable dynamism and resilience, but important challenges lie ahead. This performance reflects important strengths, including high levels of flexibility and innovation in markets for goods, labor, and financial assets, as well as monetary stability and a strong recent fiscal performance. The commitment of policymakers to embrace globalization has ensured that these benefits are shared with the rest of the world. Even so, policymakers will need to come to grips with the need to maintain a robust financial system, eliminate the fiscal deficit, reform the tax system and, most importantly, make entitlement programs sustainable.”Link here.
GOVERNMENTS CLAWING BACK LOST CORPORATE TAX REVENUES BY INCREASING INDIRECT TAXES
Competition between countries to attract and keep foreign investment is continuing to drive down corporate tax rates across the world, although governments are clawing back revenues by increasing indirect taxes, which may require companies to shoulder greater compliance and accounting costs. This is according to KPMG’s corporate and indirect tax survey 2007, which, for the first time, tracks both corporate and indirect tax rate trends, shedding light on the way in which overall tax revenue calculations made by governments affect the relationship between tax authorities and business.
KPMG concludes that indirect taxes appear to be playing an increasingly important role in the revenue-gathering strategies of many countries around the world. This is a difficult policy for governments to follow, says the report, because the link between higher indirect taxes and higher prices is obvious to anyone who buys goods and services through higher prices, but the link between lower corporate tax rates and increased inward investment is less well understood. This has major implications for companies, their tax strategies and their accounting systems, the report noted.
Loughlin Hickey, Global Managing Partner of KPMG in the UK, observed, “There is a clear tendency among nations in competition to attract and keep inward investment, to reduce their corporate tax rates and seek to make up the shortfall with increases in indirect taxes. This is rather than relying solely on growth brought about by corporate investment to expand this tax base. These tactics suggest that as well as attracting new investment, retaining current investments is a success in itself.”
Hickey said that this was illustrated by Singapore, where Prime Minister Lee Hsien Loong had announced that a corporate tax cut would have to be paid for by an increase in GST. “If we bring down our corporate tax, every percentage point will cost us $400 million. It is big money,” Lee told the Singapore Parliament last year. “Therefore we must consider raising indirect taxes.” Prime Minister Lee then went on to announce in his 2007 budget a 2% cut in corporate tax to 18% and a 2% increase in GST to 7%.
Rates of GST, VAT, or its equivalent levy vary widely globally. The lowest rate – 3% – is found in Aruba, while the highest rates are found in Sweden, Denmark and Norway at 25%. The average EU VAT rate is 19.5%, vs. 10% for the Asia Pacific region and 14.2% in Latin America. However, KPMG says that it is difficult to draw direct comparisons between individual jurisdictions or regions because of the huge amount of special tax regimes and exceptions applied by many countries.
Across the OECD, the average rate of VAT/GST has held steady for the last six years, but the average corporate tax rate has drifted downwards from 31.4% to 27.8%. “So without changing rates, VAT/GST type taxes have become steadily more important as sources of revenue,” the study noted. The survey shows that corporate tax rates are continuing to fall worldwide, but there are signs that this trend is slowing. Globally, average rates have decreased from 27.2% last year to 26.8% this year – significantly less than the major reductions seen in the late 1990s and early 2000s. “It would be interesting to conclude that corporate tax rates have reached their natural low points,” noted Loughlin Hickey, “but it is clear that corporate tax rates in Europe are still being driven down, even as indirect taxes remain high.”Link here.
U.S. HOUSE DEMOCRAT TAX BILL TARGETS PRIVATE EQUITY, HEDGE FUNDS
House Democrats have introduced legislation that would ensure that investment fund managers who take a share of fund profits as compensation for investment management services – known as “carried interest” – would be taxed at an appropriate ordinary income tax rate. Currently, the managers of private investment partnerships are able to receive compensation for these services at the much lower 15% capital gains tax rate rather than the ordinary income tax rate, by virtue of their fund’s partnership structure.
“Congress must ensure that our tax code is fair. We have to be sure that the lower capital gains tax rate is not being inappropriately substituted for the tax rate on wages and earnings,” explained Rep. Sander Levin (D - Michigan), who introduced the bill along with 12 other Democrat members of the Ways and Means Committee. “Investment fund employees should not pay a lower rate of tax on their compensation for services than other Americans. These investment managers are being paid to provide a service to their limited partners and fairness requires they be taxed at the rates applicable to service income just as any other American worker.”
The legislation clarifies that any income received from a partnership, capital or otherwise, in compensation for services is ordinary income for tax purposes. As a result, the managers of investment partnerships who receive carried interest as compensation would pay regular income tax rates rather than capital gains rates on that compensation. The capital gains rate would continue to apply to the extent that the managers’ income represents a reasonable return on capital that they have actually invested in the partnership. The Ways and Means Committee is scheduled to hold a hearing on the issue of tax fairness in July.
Senators Max Baucus (D-Montana) and Chuck Grassley (R-Iowa), Chairman and Ranking Republican Member of the Senate Finance Committee, have introduced similar legislation in the Senate. “The nature of investment vehicles is changing right before our eyes, and the tax code must keep up with the times,” Baucus explained in introducing the Senate bill. “If a publicly traded partnership makes its money by providing financial services, that active business should be taxed as a corporation.”Link here.
WARREN BUFFETT WANTS RICH TO PAY MORE TAX
Warren Buffett, perhaps the most successful investors of modern times and one of the world’s wealthiest men, has spoken out against the U.S. tax system which allows him to pay proportionately less of his multi-million dollar annual income in taxes than his cleaning lady. Addressing attendees at the $4,600-a-place fund-raising dinner for the Hilary Clinton presidential campaign, Buffett, who runs investment group Berkshire Hathaway and is reputedly worth $52 billion, told the 600 Wall Street bankers and money managers that, “[We] pay a lower part of our income in taxes than our receptionists do, or our cleaning ladies, for that matter. If you are in the luckiest 1 per cent of humanity, you owe it to the rest of humanity to think about the other 99 per cent.”
According to Buffett, he makes no use of tax shelters to mitigate his tax liability, but still managed to pay an average tax rate of 17.7% on his $46 million income last year. By comparison, his secretary, who earned $60,000, paid tax at 30%. Buffett’s comment are likely to strengthen the hand of legislators who are clamoring to address the issue of wealth inequality on both sides of the Atlantic by increasing tax on the well-off, particularly highly-paid fund managers.
Although Buffett has not publicly endorsed Hilary Clinton as the Democrat nominee for President, he said that she was “the person to run the country.” However, he indicated that he would also support Sen. Barack Obama (D-Illinois) in a similar fund raising venture. In a speech to the Manchester School of Technology in New Hampshire last month, Clinton announced that, if elected to the White House, she would remove tax breaks for large corporations and roll back tax cuts passed under the Bush administration which benefit the wealthy as part of a catchily titled “Nine Point Plan”.
Asked why he would not support the Republicans, Buffett responded that it was because they are more inclined to express the view, “I am making $80 million a year – God must have intended me to have a lower tax rate.” He also criticized the Republican campaign to repeal the estate tax, which raises about $30 billion per year in revenues, arguing that it would benefit only 12,000 of America’s richest families, while effectively raising the tax burden on the rest of America. “You could take that $30 billion and give $1,000 to 30 million poor families. Or should you favour the 12,000 estates and make 30 million families pay an extra $1,000?” he asked.Link here.
UK OFFSHORE AMNESTY REGISTRATION DEADLINE PASSES
Last minute registration rush by offshore bank account holders reported, but overall response disappoints HMRC.
HM Revenue and Customs saw a last minute rush of offshore bank account holders attempting to register with the department ahead of last week’s deadline for partial amnesty, but the tax authority will still be left to sift through hundreds of thousands of bank accounts belonging to suspected evaders who have chosen to remain anonymous. More than 45,000 individuals came forward in the run up to the deadline for registering for the Offshore Disclosure Facility, which passed at midnight last Thursday, representing a 10-fold increase over the last two weeks of the scheme. It is estimated that a total of 60,000 individuals came forward before the deadline.
Under the ODF, undisclosed tax liabilities will be subject to a maximum penalty of 10% of the outstanding tax (in addition to paying the total tax and interest due). Outside of the ODF, penalties of at least 30% and possibly as much as 100% can be imposed. The figures represent a dramatic improvement to what was looking to be a failed initiative by HMRC – earlier in the month that only about 4,300 people had notified the tax department since the scheme was announced in April. Dave Hartnett, the HMRC’s director-general, said that the department’s phones had been “ringing off the hook” in the final days of the amnesty.
The amnesty is expected to net the Treasury between £750 million and £1 billion in unpaid tax, but the final number of registrations remain small compared to the total number of people suspected of holding undeclared money in offshore accounts. Before the amnesty expired, HMRC sent out 200,000 letters warning that penalties “will be much higher than under the disclosure arrangements” and tax investigators are set to begin trawling through records of about 400,000 accounts passed onto them by banks.
“It is quite amazing how few people have come forward,” Adrian Huston, a former inspector of taxes and an accountant, told BBC News. “The HMRC is going to be disappointed in this response. We will see a lot of tax investigations, hundreds of thousands possibly.” High profile evaders, such as celebrities, are expected to be first in HMRC’s sights as it attempts to make a public example of those hiding money offshore. Tax advisors KPMG expect these investigations to commence around the middle of July. However, in many cases, it may be some time before they are actually contacted – possibly up to five years.Link here.
Banks to blame for poor UK tax amnesty take-up, says adviser.
After a mere 12% of UK residents with offshore bank accounts owned up to HMRC, Alan McCann, director of tax at UK Top 30 accountancy and advisory firm DTE, says that most of the 400,000 UK investors affected did not know about the offer until after the June 22 deadline.
HMRC had forced a number of top banks, including Barclays, HSBC, HBOS, Royal Bank of Scotland and Lloyds TSB to disgorge details of their customers’ offshore accounts, and had left it to the banks to left it to the banks to tell their customers about the amnesty. But just a week before the amnesty was due to expire, alarmed by the poor take-up, HMRC sent an emergency letter to half of the targeted 400,000. Eventually just 50,000 people took advantage of the amnesty, which capped penalties at 10% of any unpaid tax, leaving the Treasury with the onerous and costly task of pursuing the remaining 350,000, many of whom no doubt live in foreign countries.
However, McCann is warning the thousands of people who have not come forward that ultimately there is no escape. “HMRC has the names and account numbers of all 400,000 investors potentially affected. They will sift their way through the entire pile, even if it takes years, and they will certainly go after the people they believe haven’t made a disclosure,” he said. “If you need to make such a disclosure, you should do so as soon as possible. The situation will not be as good as the amnesty, but it will be better than sticking your head in the sand and being held to account several months, or even years down the line.”
“From the public’s point of view, this is a costly fiasco,” continues McCann. “HMRC will have to divert enormous resources into resolving this huge issue. There could be thousands of tax investigations and hundreds of prosecutions – all paid for by the tax payer.”
McCann says that many account-holders may have been daunted by the sheer size of settlement amounts. “Any disclosure must include details of the interest paid on funds held offshore, as well as consideration with regard to information on where the funds came from in the first place. Where an incomplete disclosure is made the taxpayer may be open to prosecution. Disclosures must covers all types of UK taxes, potentially going back 20 years. Full interest will be charged on unpaid tax. Anyone with any concerns about the case should contact a professional adviser.”Link here.
BRITISH HEDGE FUND MANAGER DENIES RUSSIAN TAX CHARGES
Russians allege that there was more to fund transaction than met the eye.
British investment fund manager William Browder has issued a public denial of tax evasion charges leveled against his fund by the Russian authorities, dismissing them as a political act aimed at “discrediting” his company. In an interview with the Financial Times, Browder, who runs Hermitage Capital, Russia’s largest foreign portfolio investment fund, commented, “This so-called tax allegation is completely fabricated and has nothing to do with any real taxes or violations.”
Browder is currently excluded from Russia for reasons of “national security”, but many observers believe that his fervent support of shareholder rights and exposure of corruption in some of Russia’s largest companies led to his expulsion from the country in November 2005. Browder’s attempts to re-enter Russia have so far failed, and he believes that the tax charges are an attempt by the Russian authorities to discredit both himself and Hermitage, to ensure that his visa application is refused.
The charges center on a dividend payment to a Cypriot-registered firm by Kameya, a Russian company advised by Hermitage Capital. According to the Russian Interior Ministry, Kameya failed to pay the correct amount of tax on the dividend, paid to the controlling shareholder of the Cypriot firm in May 2006. Under the Russia-Cyprus tax treaty, companies in Cyprus with investments in Russia that exceed $100,000 can withhold 5% of taxes on dividends, as opposed to the normal 15% for other foreign investors. The company has said that the correct amount of tax was paid on the dividend, but the Russian authorities are insisting that Kameya should have withheld 15% rather than 5%, and that therefore it owes the government some $22 million in back taxes.
The Russian authorities are of the view that there are stronger links between Hermitage and Kameya than that of a client relationship, but Hermitage has insisted that it is “completely independent” from Kameya and that it has no case to answer. Browder told the FT that Kameya was 100%-owned by a Cyprus company, which itself was fully owned by an unnamed international institutional investor, and that Hermitage had “no beneficial or ownership interests whatsoever in Kameya, the Cyprus company or the international institutional investor.” Hermitage has pointed out that the charges have, unusually, come from the Interior Ministry rather than the tax service, which “never had an issue” with the transaction in question.Link here.
MEXICO’S LONG-AWAITED TAX REFORM PLAN PRESENTED
Last week, President Felipe Calderon of Mexico, through his Minister of Finance, presented a fiscal reform package to the Mexican Congress. The reforms propose a flat tax on business income, a 2% tax on monthly cash bank deposits of more than 20,000 pesos ($1,850), and a 20% levy on gaming, as the administration attempts to raise the revenues it need to address poverty and social inequality, and reduce its dependence on oil revenues. Under the business tax plans, a flat rate of 19% will be phased in, but companies will have the option of paying the flat tax or their income tax.
Calderon hopes the reforms will tempt small cash-in-hand businesses into the tax system to help achieve the government’s target of increasing tax collection as a percentage of the Mexican economy, which currently stands at 10% – one of the lowest in the Americas – by about 3%. Approximately 40% of Mexico’s revenues are collected in taxes paid by the state oil monopoly Petroleos Mexicanos.
The reforms package has however, shied away from introducing value-added tax on food and medical supplies for fear that such measures would be seen hitting the poor the hardest. A similar proposal helped to bring down former president Vicente Fox. The reforms also seek to ensure a more effective and transparent way of exercising public resources. Greater fiscal freedom will be granted to state and local authorities in an attempt to boost revenue streams. The reforms propose to close loopholes, create a more equitable system, reward punctual contributors, and simplify the calculation and payment of taxes for small businesses.
The government seeks to have the tax bill approved by September, when it must submit the 2008 federal budget. If approved by Congress, the government claims that its tax revenues will increase by 30% by 2012. However, although the ruling National Action Party has a majority, it will still need the support of opposition parties to get all the proposed measures through the assembly.Link here.
GIBRALTAR PREPARES TO OVERHAUL CORPORATE TAX
Gibraltar, home of the world’s four largest online gaming companies, is preparing to make sweeping reforms to its corporate tax regime. The reforms are expected to impact the way online gaming and other foreign companies are taxed. Chief minister Peter Caruana said Gibraltar was on the brink of replacing its current exempt foreign company regime with a low tax rate for all businesses based on the peninsula.
The exempt foreign company regime offered foreign companies a 0% corporation tax rate, while local companies paid a rate of 35%. This system was challenged by the EU, which argued that it was a breach of EU state aid rules by the UK and Gibraltar. Gibraltar eventually agreed to phase out exempt company status by 2010. Caruana said the territory was planning to introduce a low tax rate for all companies based in Gibraltar within the next 18 months. Gaming giants such as FTSE listed PartyGaming and 888 Holdings have enjoyed exempt-company status, but will soon be required to pay a higher rate of tax when the exempt company regime is closed.
However, Caruana promised that Gibraltar remained committed to a low corporate tax rate that would remain attractive to large online gaming groups and other foreign companies. “We are moving away from zero tax to low tax. An internationally competitive tax rate is an important attraction for business. Our philosophy remains that a low tax rate encourages investment and delivers wealth,” Caruana said.
But the new tax rate is yet to be confirmed as Gibraltar is still facing EU opposition to its attempts to establish a corporate tax system that differs from that of the UK. Gibraltar’s case is now before the European Court of First Instance, which is to release a judgment on whether Gibraltar’s links with the UK mean it cannot set its own tax policy. A ruling is expected in September or October this year. James Tipping, director of Gibraltar’s Finance Center, thought highly the Rock’s chances of victory because of a similar case involving the Azores and Portugal. In the Azores case, the European Court of Justice ruled that although the Azores was an integral part of Portugal’s economy, it remained an autonomous jurisdiction and should be allowed to have a separate tax regime to that of Portugal. Should Gibraltar win its case as predicted, the new tax rate is likely to match the rates set in other EU jurisdictions, such as Ireland and Malta.Link here.
MAURITIUS BRINGS FORWARD FLAT CORPORATE AND PERSONAL INCOME TAX
Deputy Prime Minister and Minister of Finance and Economic Development, Rama Sithanen has announced the introduction of a flat corporate income tax, as the government strives to create conditions for “robust, sustained and inclusive growth” while opening the economy, facilitating business, and accelerating the transition to global competitiveness. Sithanen told Parliament that the new budget focuses on achieving full employment, improving the standards of living of the whole nation, and putting the country back on the road to prosperity.
Central to attaining this goal is the reduction of corporate tax to a flat rate of 15%, a measure which has been brought forward by two years to July 1, 2007. This flat rate will also apply for personal income tax. Initially, the government had planned to reduce corporate tax in stages, starting with a cut in the top rate to 22.5% last year, to 20% this year and to 15% by 2009. However, according to Sithanen, “Timeliness is of the essence and we have to act decisively right now to boost investment and growth.”
In a bid to simplify the tax system and attract the creation of more business, many exemptions have been overhauled, and the numerous deductions in the old tax system have been consolidated into new income exemption thresholds, with the number of tax bands reduced to just two. “Because of its numerous tax breaks and exemptions, the system had become very complex and offered vast opportunities for abuse and tax avoidance. It led to inequity and inefficiency and was biased against small enterprises. It was also hindering the emergence of a fully-integrated and competitive economy,” said Sithanen. “We now have a new system that is much fairer and transparent. ... We also have a system that is now geared towards rewarding effort and entrepreneurship.”
The latest budget introduces a special levy on the banking sector. This includes a 0.5% tax on turnover and a 1.7% tax on profits. For the first year of application of the levy, in 2007-08, the amount payable will be 30% of the formula. This measure is estimated to yield R75 million ($2.4 million) in 2007-08 and R260 million subsequently. “The banking sector is known to be especially flourishing and profitable and has the capacity to pay,” Sithanen stated. “I expect that most banks would still have a relatively lower tax liability even after payment of the levy. Appropriate safeguards will be laid down in the Finance Bill to ensure that this proposal does not unduly affect small banks.” Sithanen also announced an impending review of business licence fees which is expected to raise more revenue for the government.
To attract more expats, foreigners working in Mauritius for at least 3 years and with a minimum basic salary of R150,000 will be eligible for Permanent Resident Permits, and will be allowed to purchase property. The maximum number of days allowed for a business visa is being increased from 90 to 180 days. A Short Term Residence Permit of up to 9 months, renewable once for a maximum of period of three months, will be granted to foreigners who have to work in Mauritius for less than a year.Link here.
Mauritius accelerates move to flat tax.
With the world’s list of flat tax nations growing every year, the pressure to adopt good tax policy is becoming more powerful. The latest example comes from the Indian Ocean. Mauritius already had adopted a flat tax, with the new system scheduled to go into effect in 2009. But tax competition is leading the government to implement the pro-growth system even sooner.Link here.
Mauritius to revamp financial services laws.
In his Budget speech to Parliament last week, Mauritius Deputy Prime Minister and Minister of Finance Ramakrishna Sithanen proposed comprehensive reform of the jurisdiction’s financial services laws, to ensure that Mauritius keeps pace with global trends. “The Financial Services Bill will provide an enhanced integrated framework for both domestic and global business and pave the way for a revamped fee structure for all licensees,” he stated.
The legislation proposes a comprehensive framework for Collective Investment Schemes which should encourage the setting up of more funds, both domestic and global, including Real Estate Investment Trusts and Foundations. According to Sithanen, the appropriate legislation will be amended to allow for the development of alternative financial services such as Islamic financial services, a fast growing new sector with big export potential.Link here.
IMPROPERLY FROZEN BANK ACCOUNTS PLAGUE NEW YORK DEPOSITORS
Life was bad enough for Nick Nicoloff when steel beams crashed down on him four years ago. That left the 45-year-old construction superintendent permanently disabled, receiving workers’ compensation at just a fraction of his salary. It got worse last year when 30-year-old debts he thought he had paid years ago came back to haunt him. Suddenly, his bank accounts were frozen, locked up by a court order obtained by an out-of-town collections agency with a record of consumer complaints.
State and federal laws say creditors cannot seize government payments such as Social Security or workers’ compensation, but that does not stop agencies from tying up the money. That can leave the elderly, poor or disabled unable to buy food or pay rent. A bill to provide more protection passed the New York Assembly last week and is pending in the State Senate.
It might have helped Nicoloff. When he was prevented from getting at his money, he was forced to beg his parents to help him pay child support and other bills, while he fought with the collector for six months. “Everything I’ve ever saved in my life, I’ve had to sell because I had no money,” he said. He is one of many Western New Yorkers among other Americans whose bank accounts are frozen by debt collectors, even though they contain fixed-income government payments exempt from seizure. They cannot withdraw money, and their checks bounce.
With no procedure to prevent such actions, Nicoloff and others often are left penniless for weeks or even months before they can prove they are protected or the lien against them expires. They even may lose their medical coverage if, because of their income, they also owe payments to Medicaid. And it can happen more than once. Nicole R. Blackwell, staff paralegal at Legal Services for the Elderly, Disabled or Disadvantaged of Western New York, typically sees about three such cases a week. “They’re not able to buy groceries. They’re being evicted because they can’t pay their rent.”
To compound matters, banks also charge their customers legal processing fees averaging about $100, but sometimes reaching $200, when accounts are frozen or when they are released. Customers also incur bounced check fees. And while some banks will refund the legal fees if the customers eventually prove the accounts should not have been restrained, that practice is not consistent. That is a big loss for someone getting $600 a month.
Under current law, money “exempt” from seizure includes payments for Social Security retirement, Social Security disability, other disability, Supplemental Security Income, public and private pensions, alimony, child support, public assistance, veterans benefits, workers’ compensation, unemployment benefits and Railroad Retirement benefits. But the law does not prohibit freezing bank accounts containing such money. Creditors, therefore, can get a default judgment against the debtor and a court order to restrain the accounts in case they do hold money that can be used to satisfy the debt. The debtor then must prove to the creditor or court that the money is exempt.
The problem, while not new, has worsened in recent years, as more government payments are sent electronically by direct deposit. But that means the money is more susceptible to creditors’ tactics. And since the transfer of money is automatic, recipients cannot just stop it or not deposit a check in the bank once they learn their account is frozen. Adding to that is the rapid growth of the debt-buying industry, in which third-party law firms and affiliated collections agencies purchase old debt for pennies on the dollar, hoping to profit handsomely by recouping even a portion of it. If a collector can get a person to agree to make even one small payment on an old debt like Nicoloff’s – effectively “acknowledging” what they owe – the statute of limitations on the debt is restarted for another six years, and it becomes valuable again. Freezing an account can provide that leverage.
In New York State, laws empower the creditor’s lawyer as an officer of the court. That means the attorney can send electronic notices en masse to every bank to freeze any accounts belonging to a debtor. Once the banks receive a notice, they say their hands are tied. They say determining which money is exempt after it is “commingled” with other money is too difficult. Some advocates reject that argument, saying banks today can easily see if the money is exempt because electronic transfers show the money came from a government source.Link here.
THINK ASSET LOCATION, NOT JUST ALLOCATION, TO MAXIMIXE AFTER-TAX RETURNS
You are familiar with asset allocation, right? It is the process of spreading your money among different types of stocks and bonds so you benefit from exposure to a variety of different asset classes. A variation on that concept goes by the name “asset location”. As in asset allocation, you are spreading your money around, except instead of diversifying by asset class, you are divvying up your investments between taxable and tax-advantaged accounts to get the most favorable tax treatment.
The idea is that by doing this you can increase the amount of money after taxes that you end up with in retirement. Indeed, a 2004 paper on asset location concluded that by putting investments in the wrong accounts some investors may be giving up 15% or more in potential retirement wealth.
So how do you practice asset location? The basic principle is fairly simple. To the extent possible, you want to devote investments that generate regular income or frequent capital gains to tax-advantaged accounts like 401(k)s or IRAs where they will not be immediately taxed. That way all of the gain can compound, increasing your eventual after-tax return. Investments that throw off fewer regular gains – or gains that are taxed at more favorable rates – can go into taxable accounts since the tax hit on these investments is less severe.
As a practical matter, this means that bonds, whose interest payments are taxed at ordinary income rates as high as 35%, generally belong in tax-advantaged accounts. If you own stock funds that trade a lot and generate lots of realized short-term capital gains – which are also taxed at ordinary income rates – they should also typically go into tax-advantaged accounts (although, frankly, I am wary of most funds that do rapid-fire trading).
Investments like index funds, tax-managed funds and tax-efficient stock funds that deliver most of their gains in share-price appreciation, conversely, should go into taxable accounts. (Ditto for individual stocks that pay no dividends.) These investments tend to throw off little in the way of regular realized capital gains. Most of their returns come in the form of a rising share price, which means you postpone recognizing a gain (and paying taxes on it) until you sell. And if you hold the shares longer than a year, you will also be taxed at the more favorable capital gains tax rate, which maxes out at 15%.
Stocks that pay “qualified” dividends that get capital gains tax treatment, as well as mutual funds that hold such stocks, should also be held to the extent possible in taxable accounts. The dividends these investments generate are taxed no higher than 15% in taxable accounts. If you hold them in a tax-deferred account like a 401(k) or traditional deductible IRA, those dividends would be taxed at ordinary income rates that could be as high as 35%, since all gains withdrawn from 401(k)s and traditional IRAs are taxed as ordinary income.
While I think asset location is a worthwhile pursuit, I do not think you need to be a fanatic about it. I still say the most important things you must do to assure a successful retirement are save on a regular basis and get your asset allocation right. But if you do those things and improve your asset location as well, you can look forward to an even more comfortable retirement.Link here.
NORDIC STATES WARN OF “DEFENSIVE MEASURES” AGAINST OFFSHORE JURISDICTIONS
You will cooperate!
While welcoming progress made in negotiations to conclude tax information exchange arrangements with a number of offshore jurisdictions, Nordic Finance Ministers have agreed that they may have to consider “possible defensive measures” against uncooperative governments. In a statement, the Norden group, which includes the governments of Denmark, Iceland, Finland, Norway and Sweden, observed that ongoing regional and global integration has created an international financial system virtually without border controls, and to be able to enforce various domestic laws, countries are today dependent on other countries’ willingness to share information.
“This is particularly true in the tax area,” the statement said. “Unless an increasing number of countries begin to cooperate in sharing tax information, noncompliance with national tax laws will soon become an urgent global problem. It is therefore critical that all countries work towards establishing an international financial system which is based on transparency and effective exchange of information in tax matters.” The Nordic countries started joint negotiations in July 2006 to conclude TIEAs with jurisdictions that have made a commitment to apply the OECD standards on transparency and exchange of information in the tax area.
The Nordic Finance Ministers said they welcomed “substantial progress” made in the ongoing negotiations with Aruba, Isle of Man, Jersey and the Netherlands Antilles. Other negotiations are shortly due to commence with Bermuda, British Virgin Islands, Cayman Islands and Guernsey. Most jurisdictions contacted by the Nordic countries have “reacted positively” to concluding such arrangements, the statement noted. However, “in order not to disadvantage the jurisdictions that participate in the global efforts to combat international tax evasion, the Nordic Finance Ministers agree that at some stage they will have to consider possible defensive measures against uncooperative jurisdictions.”Link here.
SWITZERLAND – A STERLING WORLD REPUTATION
I am writing to you today from beautiful Zurich, Switzerland, home of the sinister “gnomes of Zurich”, to Harold Wilson. In 1956, Wilson, then member of UK’s Labour Party opposition, claimed these “gnomes of Zurich” triggered the speculation that caused the devaluation of the venerable British pound sterling. It is a great tribute to the power of Switzerland that the financiers in just one Swiss city could cause the mighty British pound to falter.
For all its financial clout, Switzerland is a small, landlocked country in the middle of Europe, albeit with a long, distinguished and sometimes controversial history that has made it today’s leading world financial center. At various times “Switzerland” or “Swiss” has been regarded as synonymous with high finance. The Swiss franc has long been probably the world’s safest haven currency against the storms of currency fluctuations.
A private Swiss bank account, the infamous “numbered account”, in fiction and in film, was said to be the safest place in the world to store treasure or stash loot. That is because of the 1935 Swiss bank secrecy law. Today Switzerland is still one of the most powerful financial centers in the world, highly important for investment funds, private banking, annuities and insurance, and it is estimated to hold one-third of the world’s private wealth. Switzerland also consistently ranks high on quality of life indices, including high per capita income. No wonder that over 3,600 of the world’s wealthiest expatriates call Switzerland home.
Switzerland has maintained an independence that is envied and criticized, staying neutral through two World Wars. It became the headquarters of international organizations like the Red Cross, the World Trade Organization (WTO), as well as the European headquarters of the U.N., but it resisted joining the U.N. until 2002. It is surrounded by members of the E.U., but has refused to join, and with good reasons.
Financial services are one of the major sectors of the economy, contributing about 6% of all jobs. Of Switzerland’s 3.2 million workers, according to government figures, about 190,000 are employed directly in finance. At the moment, I am working on another new book to be entitled Swiss Money Secrets . Look for it later this year.Link here.
SAN MARINO BANKS SEEK TO POLISH SHADY IMAGE
Residents from the seaside resort of Rimini on Italy’s Adriatic coast quietly admit that a short drive to nearby microstate San Marino has allowed many to hide cash from the taxman for decades. Landlocked inside Italy, the dwarf nation of 30,000 people has earned a reputation of turning a blind eye to ill-gained money and allowing fake companies to launder the cash.
But the heyday of tax-hopping and stashing away dodgy money may be over as the Most Serene Republic of San Marino is carrying out a quiet financial revolution – with the intent of leaving some bad habits behind. “If we have to give up dodgy money we will,” said Secretary of State for Finance Stefano Macina. “Those who come here to organize a tricky business or bring funds from the Mafia will be at risk.”
A global crackdown by watchdogs makes criminal money a risky business for banks, while wealthy clients at the same time are no longer happy sitting on a pile of undeclared cash, looking for legal ways to lower tax and boost returns.
There are no checks at the border of this idyllic, hill-top stronghold of bank secrecy and anyone can walk into a bank and open an anonymous account with few questions asked. Such habits meant that criminal organizations like the Mafia turn to the mini-republic for money laundering, according to experts like Pierluigi Vigna, a former chief prosecutor of Rimini.
Fearing it would be cut out from competing in the global marketplace, San Marino began a complete overhaul of its financial system six years ago that sent a buzz across the medieval steps of its sleepy streets. “Two years ago we just were not presentable,” said Antonio Valentini, the chairman of the central bank of San Marino, which says it is the world’s oldest republic. It then created an independent central bank charged with watching its financial sector, and the OECD has removed it from a black-list for tax havens that includes Andorra, Liechtenstein and MonacoLink here.
GLOBAL WEALTH MANAGEMENT INDUSTRY SURFS WAVE OF PROSPERITY
The global wealth management industry has continued to surf the wave of prosperity, delivering a 14% median increase in assets under management in base currency terms, according to the Private Banking Benchmark 2007 from consultancy, Scorpio Partnership. This asset growth, driven by the global equity markets and net new money, has combined with improved efficiencies to fuel an impressive median growth of 24% in operating profits across the industry, the study said.
The Private Banking Benchmark 2007 is Scorpio Partnership’s 6th study of the international private banking and high net worth wealth management industry. This year it covers a record 180 private banking entities, managing a total of $10.8 trillion of assets. The Benchmark is a unique study of both the global wealth management market and the performance and characteristics of individual wealth managers.
Sebastian Dovey, managing partner at Scorpio Partnership, stated, “The pace of growth has been sustained in 2006 in terms of both assets and profits, and for organisations of all shapes and sizes. However, this global dynamism masks a contrasting landscape within the industry. There is a feeling that there is easy money to make at the moment, but our research shows that long-term successes are only built on sensible strategies, successful hires and, most crucially, a constant focus on clients.”
The Benchmark 2007 clearly illustrates how fragmented the private banking and wealth management industry is. While the top 10 banks manage some 63% of the total assets of the Benchmark banks, they manage less than 20% of the estimated high net worth assets, according to market research data. The question that remains to be addressed through the Benchmark process is what proportion of the remaining 80% of high net worth assets is within the reach of the wealth management industry.
There is some uncertainty about how long the party is going to last, however. “One of the long-term indicators of success for a private bank is the capacity to attract investments from new and existing clients. However, there is a strong correlation between assets under management and global market indices, and this will eventually test the stickiness of these assets. If the asset management capability of a private bank is so closely correlated to the indices, then when the markets eventually turn south, clients will not necessarily see private banks as the safest option,” cautioned Ted Wilson, consultant at Scorpio Partnership.Link here.
SUCCESS OF U.S. TAX HAVENS BILL DOUBTED
The Bahamas and similar offshore financial centers may be able to breathe a little easier after CARICOM has received an “assurance” that the Stop Tax Havens Abuse Bill will likely not bear fruit. It was one of the issues that Heads of Government of the Caribbean Community discussed with members of the House Committee on Foreign Affairs and the Ways and Means Committee on a recent trek to Capitol Hill. The Senate bill came against the backdrop that there is an estimated $345 billion in unpaid taxes each year in the U.S. owed by individuals, corporations, and other organizations. According to the latest estimate out of that $345 billion, offshore tax haven abuses account for as much as $100 billion.
But some Caribbean leaders and members of the financial services sector maintain that the bill unfairly targets the region and could mean disaster for the offshore financial services sector. Financial services is the number two industry for The Bahamas, which is named in the bill as a target along with 33 other jurisdictions. “We were given the assurance that the bill that is currently written, the experts have all agreed that it is inadequate for what is required and that the positions in relation to the Caribbean which are deleterious to the Caribbean interest would not, in their judgment, see the light of day,” CARICOM Chairman Prime Minister Dr. Ralph Gonsalves said after the meeting with U.S. Congressmen.Link here.
“REAL ID” REBELLION IS REALLY BOILING OVER
In late February, the Department of Homeland Security (DHS) handed down 160-plus pages of regulations related to the Real ID Act of 2005. This has not deterred the growing rebellion in the states, more of whom have either passed specific legislation declining to implement Real ID, resolutions calling for the repeal of the Real ID Act by Congress, or both. So far, 15 states have said “No” (although several look willing to bend if the federal government pays for it, or adds features to protect citizens’ privacy).
On June 13, 2007, South Carolina joined this group. I was among those invited to the public gathering at a local DMV where Governor Mark Sanford enthusiastically signed into law our bill S.449 which “provide[s] that the state [of South Carolina] shall not participate in the implementation of the federal Real ID Act.” We became the 16th state to opt out with what is very likely the strongest anti-ID measure to date.
10 more states have bills opposing Real ID that have passed in one house but not the other. New Hampshire has a bill now passed in both houses and awaits only the governor’s signature. The state where opposition to Real ID actually began may have become the 17th to opt out by the time this appears. As of this writing 10 more states have either introduced or are contemplating introducing anti-Real ID legislation or resolutions.
Count ‘em: That is 37 of 50 states where there is, has been, or in the near future might be significant action against the Real ID Act of 2005. The groups aligned against Real ID, moreover, span the political spectrum. I do not think there is another federal scheme out there that has the hard-left Southern Poverty Law Center and the pro-secession League of the South on the same side of the fence (not for the same reasons, obviously!). Real ID is opposed by a long list of professional organizations and advocacy groups, including Departments of Motor Vehicles across the country. This is no surprise. Every driver’s license will have to be replaced if Real ID goes into effect. DMVs will be caught right in the middle.
On March 1, 2007 DHS handed down its latest regulations related to Real ID under the title, Notice of Proposed Rulemaking (NPRM) for the Real ID Act. According to NRPM, everyone must be in compliance by May 10, 2013. That is, unless Congress changes the law, which would end this fiasco at least for now. A bill introduced by Patrick Leahy (D-Vermont) would repeal the Real ID Act. This bill has yet to make it out of committee. Strictly speaking, there is nothing in the Real ID Act that compels a state to comply. It merely spells out the consequences of noncompliance. Final DHS rules will almost certainly contain instructions for compliant states on what to do to verify information from citizens of noncompliant ones.
Small wonder. The anti-Real ID rebellion is boiling over. Most people, when they learn what Real ID is, want nothing to do with it. Many now even know to ask where the Constitution authorizes the federal government to do this. My February article garnered close to two hundred emails from irate readers telling me they would refuse to get the Real ID regardless of what their state legislators did. Now, over half of the states in these United States, plus plenty of private citizens, are on a possible collision course with Rome on the Potomac over Real ID. The $23 billion question, who will blink first – the states and citizens groups, united against Real ID, or the federal government?
One reason our national elites are desperately trying to keep SB1348 alive – that is the amnesty-for-illegal-aliens bill – is that it incorporates an Employment Eligibility Verification System that pulls what amounts to Real ID in the back door through an equally stringent national identification system to be administered by DHS through employment. This bill threatens severe penalties on the citizens of noncompliant states, through the simple expedient of making it harder if not impossible to obtain legal work without the requisite federally approved proof of identity. Eventually – as DHS and its handlers tighten down the screws to coerce compliance – those who refuse to obtain the federal ID will simply be forced out of the above-ground workforce.
We should begin sketching some scenarios of what could happen, and preparing for what could be a rough ride. What happens when states (or private citizens groups) do not back down? Will federal authorities, e.g., refuse to allow their citizens to fly, thus threatening a lot of economic activity as well as the financial viability of air travel into the affected locations? The feds could begin withholding highway money from noncompliant states.
To begin summing up, we were told that Real ID happened because all but one of the terrorists who allegedly committed the 9-11 attacks had obtained and used fraudulent documents to board the planes. We are also told that Real ID will keep illegal aliens from obtaining and using fraudulent identification to obtain driver’s licenses, employment, or for other purposes.
For starters, there was an attempt to give Americans a national ID card back in the late 1990s. It was buried as a stealth measure deep in one of the omnibus legislative packages Bill Clinton signed, and would have gone into effect in fall 2000. After grassroots protests erupted, the measure was repealed. This was before 9-11, of course. So much for the idea that the Real ID Act of 2005 is about fighting terrorism.
Common sense ought to tell us that a country does not fight a real “war on terrorism” with its borders wide open. Which is why many of us have concluded that the “war on terrorism” is fraudulent – a scare tactic aimed at persuading us to progressively relinquish our freedoms to the central government. The official line appears to run something like, “We will keep you safe, if you give us more power.” More and more Americans are not buying it, and with the mounting evidence of mass deception within our government and cooperation on the part of greedy corporations, the ad hominem rebuke that we should take off our tinfoil hats has worn thin.
Nor is Real ID about immigration control. If our government really had a policy aimed at stopping the colonization of our country, our politicians would secure our borders. They would enforce existing immigration laws, and would cease and desist all efforts to pass legislation that will only ensure the eventual arrival of more illegals, as all previous amnesty bills (e.g., the one in 1986) have done.
This conflicts with the super-elite’s agenda for a borderless North America and, ultimately, a borderless global-corporatism of one consolidated political system, one global economy, and one global new-age religion: A world where there will be no financially independent middle class and where individuals will be controlled through technology and information consolidation. The super-elites of today ultimately wish upon us a world in which every individual is “chipped” with a unique identifier and literally cannot buy or sell without it. Filmmaker Aaron Russo (America: Freedom to Fascism) reports that he was told this openly by Nicholas Rockefeller. Dissent will be easy to deal with in such a world. Simply turn off the identifier, something that can be done by remote, in principle from anywhere.
This last, of course, is what this is really all about. Total control, over a population that accepts control and will not dissent. We either face this while there is still time, or else. Real ID is a crucial stepping stone along the path to total enslavement. States and private citizens who stand firm against Real ID are doing the right thing, and should be encouraged as much as possible. By stopping Real ID and supporting maverick Republicans like Ron Paul we keep alive hope, even if just barely.Link here.
BUYING BEER, GRANDPA? YOU WILL BE CARDED
Tennessee to require mandatory ID from all – yes, all – for beer purchases.
Tennessee is set to become the first state in the nation to require carding of anyone, without exception, who buys beer for off-premises consumption. The law, designed to curb underage drinking, takes effect July 1. It will expire after one year to give lawmakers and vendors a chance to review its effectiveness. The legislation does not apply to the sale of wine and liquor purchases or to beer sales at restaurants and bars.
Jarron Springer, president of the Tennessee Grocers and Convenience Store Association, has embraced the new law, saying it will make Tennessee a national leader on the issue of underage drinking. Although older customers who are obviously of legal age to buy beer could be put out by the requirement, Springer hopes they will cooperate with clerks. Many stores have already begun carding everyone who buys beer.
John Kelly, chief operating officer for Roadrunner Markets, implemented the policy last year. Carding everyone makes it less likely that a clerk mistakenly sells beer to someone who is underage, he said, and regular customers quickly got used to having to show an ID. Most now arrive at the counter with their identification in hand. Along with mandatory carding, the new law also establishes a voluntary Responsible Vendor Program in which retailers who have their clerks undergo a training course will face lesser penalties for underage sales than nonparticipating vendors.Link here.
WHY YOU WILL NOT SEE A DISBARMENT LIKE MIKE NIFONG’S AGAIN
Now that justice has prevailed in the Duke rape case, with the nice innocent boys exonerated and the prosecutor who hounded them disbarred, it is tempting to chalk the whole incident up to an unusual and terrible mistake – a zany allegation taken too seriously by a run-amok prosecutor. It would be pretty to think that Nifong’s humbling suggests that our system of justice works well, harshly punishing the few rogue prosecutors who subvert the legal process. But this is simply not true.
Prosecutors almost never face public censure or disbarment for their actions. In fact, it took a perfect storm of powerful defendants, a rapt public, and demonstrable factual innocence to produce the outcome that ended Mr. Nifong’s career. And because only a handful of prosecutors will ever face the sort of adversaries Nifong did or come close to the sort of scrutiny the former DA endured, the Duke fiasco will make little difference in how criminal law is practiced in courthouses around the country. Regardless of Nifong’s sanction, the drama leaves prosecutorial misconduct commonplace, unseen, uncorrected, and unpunished.
As Angela Davis explains in her book Arbitrary Justice: The Power of the American Prosecutor, young prosecutors too often see their goal as winning rather than doing justice. The culture of their offices and the adversarial nature of the criminal justice system push them in this direction. Over time, they move further toward, and eventually across, the line separating fair play from systemic manipulation. How often this actually happens is hard to say. Because more than 90% of the criminal cases result in pleas, most instances of prosecutorial misconduct never even come to light. Nonetheless, in the rollicking back and forth of a normal state trial, it is a rare case in which problems involving the withholding of potentially exculpatory evidence (as Nifong was accused of doing) do not arise. In most of these instances, a judge deals with late disclosure by adjourning the trial to give the defense more time to respond, or by issuing an ineffectual reprimand. This is not exactly remedying the problem.
The same prosecutors who at first so vigorously defended Nifong’s conduct became vocal proponents of a severe sanction. Joshua Marquis of the National District Attorney’s Association has worried over the undermining of prosecutorial authority, due to the “Nifong effect”. Wendy Murphy, a former sex-crimes prosecutor, has also recently edged away from the former DA. What once played as reasonable conduct is now portrayed as the misdeeds of an outlier. A simple calculus explains the shift. If Nifong’s conduct is commonplace, then the whole system is corrupt. If other DAs do what he did, then we have to face up to how widespread and corrosive prosecutorial misconduct really is – a discussion Marquis and Murphy and other prosecutors would strongly prefer to avoid.
Though the Duke case has been spun from the outset as a parable about race, it has always been far more about class, access, and power. From the beginning, the three boys had extraordinary legal talent, unusual political access, and significant press savvy. With a steady stream of exculpatory evidence and investigative triumphs that would have eluded all but the wealthiest of defendants, the defense team mounted an extremely well-funded and successful public campaign, exerting tremendous pressure on Nifong and other state officials. In the end, the Duke defendants orchestrated Mr. Nifong’s downfall and also won an outcome almost unheard of in our criminal justice system – a pretrial exoneration.
The disbarment of Mike Nifong, and the civil suit or even criminal charges that are almost sure to follow, might seem a pleasing end to a sad saga. And yet Nifong is a scapegoat. Despite their terrifying power to ruin lives, prosecutors are afforded almost unparalleled discretion to do their jobs and extraordinary deference from the courts. As a result, serious sanctions for prosecutorial misdeeds are virtually unheard of. This makes it highly unlikely that Nifong’s comeuppance will deter aggressive prosecutors. Instead, his punishment will be seen for what it is: a freakish anomaly.Link here.
BUSH’S TYRANNY THWARTED – FOR NOW
The news media seemed too preoccupied with Paris Hilton’s detention to notice, but a U.S. appeals court last week struck a major blow for liberty. A 3-judge panel of the U.S. Fourth Circuit Court of Appeals ruled that the Bush administration may not declare a U.S. resident, whether a citizen or not, an “enemy combatant”, throw him in a military prison, and hold him without charge indefinitely – all without judicial review. Try him in the civilian courts or let him go, the judges said. This double affirmation of habeas corpus and defendants’ rights is a stunning setback for President Bush’s attempt to assert autocratic powers under cover of his “war on terror”.
The government alleges that Ali Saleh Kahlah al-Marri, a married student at Bradley University in Peoria, Illinois, and a citizen of Qatar (a country with which the administration is not at war), is an al-Qaeda “sleeper agent” who volunteered for a “martyr mission” in the U.S. He was initially charged with criminal possession of credit-card numbers and making false statements to the FBI and on bank forms. But when he asked the court to suppress evidence on grounds that he had been tortured, the administration moved to dismiss the charges, declared him an “enemy combatant”, and put him a naval brig.
“Even assuming the truth of the Government’s allegations, the President lacks power to order the military to seize and indefinitely detain al-Marri,” Judge Diana Gribbon Motz wrote in the 2-1 majority opinion. “If the Government accurately describes al-Marri’s conduct, he has committed grave crimes. But we have found no authority for holding that the evidence offered by the Government affords a basis for treating al-Marri as an enemy combatant, or as anything other than a civilian.”
The decision is important because the Military Commissions Act, passed last year, purported to abolish habeas corpus for “aliens”. The court said, however, that this provision applies not to civilians living in the U.S., but only to detainees at Guantanamo Bay, Cuba, who were apprehended in Afghanistan and other foreign locations. Thus, unfortunately, the status of the mere suspects at Guantanamo was left unchanged. But the ruling is important nonetheless.
“Congress,” the court said, “sought ... to preserve the rights of aliens like al-Marri, lawfully residing within the country with substantial, voluntary connections to the United States, for whom Congress recognized that the Constitution protected the writ of habeas corpus.” Thus al-Marri cannot be an enemy combatant, and the Bush administration has no constitutional or statutory power to declare him one. That is no small matter.
The importance of the centuries-old, hard-won principle of habeas corpus as a bulwark against tyranny cannot be exaggerated. What good is a bill of rights if those whom the government imprisons may not publicly contest their detention? The absence of habeas corpus is a defining characteristic of despotism. The Bush administration will ask the full appeals court to hear the case, and whatever happens there, it will most likely go to the U.S. Supreme Court, where anything is possible. We can only hope the appeal will fail.Link here.
U.S. TO EASE SMALL BANK MONEY LAUNDERING OVERSIGHT
U.S. authorities said they are adopting a risk-based approach to policing banks’ compliance with money laundering regulations, a step giving some relief to small banks with little or no international business. U.S. small community banks have complained for years that costly regulatory examinations should differ from those at big banks.
Federal banking officials said the risk-based approach will begin with next year’s bank examination cycle. However, they provided little detail on which bank activities might be relaxed or targeted in federal examinations. Banking and law enforcement authorities at the Financial Crimes Enforcement Network (FinCen) are developing new standards to administer the federal Bank Secrecy Act and anti-money laundering laws.
Treasury Secretary Henry Paulson called the changes “a common sense approach” to make law enforcement more efficient. The Independent Community Bankers of America industry group applauded the move, saying the changes would reduce the “disproportional regulatory burden facing community banks.”
FinCen also said it has been working to more narrowly define so-called money services businesses, which currently offer cash checking and money transfers. Last year, an IRS official told Congress that a failure to better regulate money service stores might drive those businesses underground and allow them to evade anti-money laundering efforts.
Separately, FinCen said it issued a final rule exempting casinos from having to report currency transactions reports, required for transactions involving $10,000 or more, on jackpots from slot machines and video lottery terminals. The exemption also applies to currency inserted into electronic gaming devices. FinCen said the casino industry sought relief from these requirements because these jackpots result in a significant percentage of currency transaction reports.Link here.
BUSH’S SECRET WAR ON AMERICA
Florian von Donnersmarck’s haunting film The Lives of Others is a warning to us all. It shows how the East German secret police, the Stasi, went about their deadly work of spying on 17 million citizens. It is a stretch, but not impossible, to see the U.S. President, George Bush, as the new Erich Honecker, the dictator of East Germany from 1971 until the Berlin Wall came down in 1989.
Apart from lying, politicians tend to be overly fond of running other people’s lives. The events of September 11, 2001, gave Bush the excuse to procure absurd legal advice that, as commander-in-chief in a war on a high-order abstraction, terrorism, he has the power to do what he liked with the lives of millions at home and abroad. He soon signed a secret executive order instructing the National Security Agency’s 30,000 operatives to spy without a warrant on U.S. citizens. Whatever certain lawyers or judges might say, this was plainly unlawful under the Fourth Amendment (1791) to the U.S. constitution.
The unlawful violations of people’s security remained hidden for more than four years until The New York Times revealed them in December 2005. Bush periodically renewed the order and the former attorney-general John Ashcroft had to certify it was legal, but James Comey supervised a reevaluation soon after he became deputy attorney-general in December 2003. A week before the next renewal, due on March 11, 2004, Comey, Ashcroft and the FBI director, Robert Mueller, agreed that the spying was illegal, but Ashcroft was shortly in intensive care with gall-bladder pancreatitis. His wife, Janet, banned all visitors and telephone calls. Comey, now the acting attorney-general, told the White House on March 9 that he would not certify that the spying was legal.
The reaction of Bush and his people, as revealed by Comey’s jaw-dropping evidence to the Senate Judiciary Committee on May 15 this year, put commentators in mind of the scene in The Godfather in which Al Pacino saves the hospitalized Marlon Brando from being whacked by his enemies. Not long before 8:00 pm on March 10, 2004, Bush telephoned Janet Ashcroft at the hospital to say his legal adviser, Alberto (“Seedy”) Gonzales, and Bush’s chief-of-staff, Andrew Card, were on their way to see Ashcroft. Janet Ashcroft got a warning to Comey, who was being driven home by his FBI security detail. He understood that Bush was making “an end run” round him to get Ashcroft to sign. Speeding to the hospital with the siren on and the lights flashing, Comey told two of his lawyers to go there. Mueller said he would join the resistance.
At the hospital, the towering two-meter tall Comey “literally ran up the stairs.” Ashcroft’s room was dark. Comey tried to see if he “could focus on what was happening and it wasn't clear to me that he could. He seemed pretty bad off.” Contacted by Comey, Mueller “instructed the FBI agents present not to allow me to be removed from the room under any circumstances.” Comey sat in an armchair to the left of Ashcroft’s bed. His officers, Jack Goldsmith and Patrick Philbin, stood behind him. Janet Ashcroft held her husband’s arm. “And,” Comey said, “we waited.”
Minutes later, Gonzales, carrying an envelope, and Card arrived. Ignoring the phalanx, Gonzales told Ashcroft he was there “to seek his approval” for the renewal. “Attorney-General Ashcroft then stunned me,” said Comey. “He lifted his head off the pillow and in very strong terms expressed his view of the matter, rich in both substance and fact ... and then laid his head back down on the pillow, seemed spent, and said to them, ‘But that doesn’t matter, because I’m not the attorney-general ... There is the attorney-general,’ and he pointed to me.”
Gonzales and Card turned and left, but Card soon after called Comey and “demanded that I come to the White House immediately.” Comey said he “would not meet with him without a witness present.” Bush alone renewed the order on March 11, but the following day Comey and then Mueller told him that they and other Justice Department officers, probably including Ashcroft, were ready to resign on the issue.
Bush understood what that portended. In October 1973, he was 27 and a drunk but he was involved in Republican politics and he knew that impeachment bills followed president Richard Nixon’s Saturday night massacre of Justice Department lawyers. Bush told Mueller to tell Comey to put the spying on a proper legal footing. It is a pity that Bush did not mulishly persist. The resignations would have revealed the illegal surveillance and it is probable that even John Kerry would have become president eight months later and that the war in Iraq would be over.Link here.
BYE, BYE, MISS AMERICAN EMPIRE
Or, the sweet smell of secession.
In the wake of George W. Bush’s reelection in 2004, frustrated liberals talked secession back to within hailing distance of the margins of national debate – a place it had not occupied since 1861. With their praise of self-rule and the devolution of power, they sounded not unlike many conservatives had in the days before Bush & Cheney & Limbaugh wedded the American Right to the American Empire. While certain proponents of the renascent secessionism were motivated by spite or pixilated by whimsy or driven by the simple-minded belief that the U.S. can be divided into blue and red, others argued with cogency and passion for a disunionist position that bordered on the, well, seditious.
Emphasizing both culture (“Now that slavery is taken care of, I am for letting the South form its own nation,” said Democratic operative Bob Beckel) and economics (Democratic pundit Lawrence O’Donnell noted that “ninety percent of the red states are welfare clients of the federal government”), writing in forums of neoliberalism (Slate) and paleoliberalism (The Nation), liberals helped to disinter a body of thought that had been buried at Appomattox. Three years later, the corpse has legs.
Secession is the next radical idea poised to enter mainstream discourse – or at least the realm of the conceivable. You cannot bloat a modest republic into a crapulent empire without sparking one hell of a centrifugal reaction. And the prospect of breaking away from a union once consecrated to liberty and justice but now degenerating into imperial putrefaction will only grow in appeal as we go marching with our Patriot Acts and National Security Strategies through Iraq, Iran, and all the frightful signposts on our road to nowhere.
These movements are, in the main, hopeful and creative (if utopian) responses to the Current Mess engulfing our land. They are the political antidote to the disease of giantism. We are a nation born in secession, after all, and of rebellion against faraway rulers. Ruptures, crackups, and the splintering of overlarge states into polities of more manageable size, closer to the human scale, are as American as runaway slaves and draft resisters.
Yeah, sure, I know: breaking away is impossible. Quixotic. Hopeless. So was dancing on the Berlin Wall. In its latest incarnation, secession has something of a greenish cast. It is reaching its fullest flower in Vermont, and if the idea of breaking away from the United States has not yet proven as exportable as, say, Vermont Teddy Bears or Cherry Garcia, give it time.Link here.
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