Offshore News Digest for Week of July 23, 2007

GLOBAL LIVING & BUSINESS

OUR EXPERIENCE IN SETTING UP IN PANAMA

It was early in 2003 that the thoughts and discussions about starting a new life matured into a decision. What was not clear, was where? Costa Rica had been the initial location until I came across an article in an investment magazine – If you think of Costa Rica, have you thought of Panama?

We had not, but I managed to persuade my partner to travel to Costa Rica via Panama. What did we know about the place? Very little. I had a vision of Panama City as a dilapidated South American town in an equally undeveloped country. Were we in for a pleasant surprise! Surfing the Internet we found a great deal of information on the country and its culture along with a proeprty developer in the Bocas del Toro archipelago. Convinced we were on to a good thing we boarded a flight that brought us to Panama city in June 2003. We stayed a few days in the city, which actually reminded me of Singapore in style and architecture. The glass and steel towers, banking and insurance companies – if it had not have been for the buses we would not have known that we were truly in Central America. It was incredibly clean. We visited a park in Casco Viejo, old part of Panama City, and not an empty coke bottle to be seen. Unbelievable.

To Bocas del Toro.

A few days after our arrival, we boarded the flight to Bocas del Toro, a one hour affair at the ridiculous cost of $62.00 one-way. We were ready to go property hunting. Next morning we headed off in a boat towards the Alimirante bay and visited a property that seemed encouraging. There was a peninsula for sale and while we looked at it we fell in love with the place. The price mentioned did take us by some surprise, but then comparing it with what we knew in the old world it seemed a steal! When we looked at the proposal a bit closer it became obvious that one could turn this area into a farm and that the whole deal offered three levels of protection:

1. We could definitely calculate on an appreciation of the property, it being seafront and in an outstandingly pretty area. This was not that important, since I planned to live there and not trade the land for something else.
2. The land offered was an ideal place to invest in a reforestation project, i.e., hardwoods such as teak. Although one would be looking at a longer term investment, about 15 years, it was definitely something worth considering.
3. It was suggested that growing Noni plants could quickly generate an income, though this posed more questions than it answered. Morinda citrifolia, commonly known as Great morinda or Indian Mulberry, is called Noni, which is its Hawaiian name. It is a small shrub or tree native to South East Asia which reaches maturity in about 18 months and then yields between 4-8kg of fruit every month throughout the year. That, plus its popularity when juiced, gives it good cash crop status.

The climate was hot and humid. We spent some time in the mountains and went to a little village called Bocquete in the foothills of the volcano Mount Baru. When I found out that the temperature there ranged between 24º to 26º Celsius (75º to 79º F) every day of the year my decision was easy. If I felt it was getting too hot in Bocas the hills were only a 4-hour bus ride away! Hence we decided to invest in our peninsula.

The visa.

There are many ways of getting a residents visa, and thus a Panamanian ID card. We applied for ours on the basis of our investment in the country (an investor’s visa). This was achieved by 2005 using the services of a good lawyer. I would advise you to get a lawyer in that field. It can be expensive, but well worth the money. I had to show proof of investment in the form of a letter from the bank. Any bank where you hold an investment will provide, though one of the conditions is that the funds are held in a fixed time deposit for 12 months. I had to have a Panamanian health check, which includes a blood test and HIV test. As I was not part of the Panamanian health system I was charged full price for all my tests ... $38.50!

I am a far too impatient individual, to simply sit and let the good times roll, so my thought of a business to supplement my pension income was crucial. Apart from the idea of the Eco resort, the teak plantation offered a good long term investment. Once you own a property, you do need a land management company which will organize everything, from planting the teak trees to the maintenance of the farm. This is also called reforestation, which the government looks at very favorably. It truly then becomes a simple matter of paying for the maintenance and sitting back and letting the trees grow. Much of the maintenance is done by locals, hence the cost is low.

It is important to find a good management company that you can trust, particualraly in the beginning when you cannot be in Panama full time. The teak farm became a reality quite quickly. The Noni plantation did too, though the market for this fruit was nowhere near as buoyant as was initially thought. One issue was that the processing plants are all near Panama City and not in the vicinity of Bocas, hence transport eats up much of a possible profit margin. Also it would appear that the market in Europe never reached the level of the USA and may already have peaked. So the Noni proposition may not be as great as we thought but the other two protections work well, i.e., the appreciation and the hardwood farm.

We then went to work on the Eco resort plan with a top level architect in Panama City. Once the basic concept was developed we were confronted with the governmental requirements, of which the environmental impact study appeared one of the most important documents. It took all of one year to have it complete and submitted to the authorities. Then the speed of work by the government becomes evident. Things simply take longer than in the Western World. It is an attitude one has to accept and live with. You can accelerate the process if you are willing to grease the right palms, but I had made it clear from the very beginning that I was not going down that path.

A common thread in our endeavors is that we work with true professionals. They may not be the cheapest you can find but they get the job done. Nevertheless it is proving good practice to be in Panama about every three months. Things advance better if the involved professionals know you are coming to check on progress. The ultimate question that remains is, would we do it again if we knew what we know today? The answer is a simple, but resounding Yes!

SAN CARLOS DE BARILOCHE, ARGENTINA IS A GREAT PLACE TO RETIRE

A crash in the Argentine economy in 2001 created political instability for awhile. To get hard currency into the treasury a lot of the real estate in the San Martin to Bariloche to El Bolson area was sold to foreigners. Property was priced in dollars (that should have been a hint). Now that the “Crisis” is over, Argentina wants their real estate back. They have stopped granting titles to Americans. The law now requires a minimum of 2 years permanent residency (which follows 2-3 years of temporary residency) to apply for title (to a foreigner). But they are denying title to Americans no matter what their status.

The Real Estate agencies still say “No Problem. You can buy whatever you want.” If you buy a house or even a lot, you will lose all or most of your money. (This applies to the Bariloche area. There are other regions of Argetnina without such restrictions on foreigners buying property.) If your retirement plans are formulated around buying a house immediately think Chile, which has simple, legal, access to a registered title. Americans can buy real estate with a passport and a Chilean government issued “Rut” number. Scenery that would cost millions of dollars in Argentina is available in Chile for a lot less.

However, for me and many others Bariloche Argentina is the place I want to live. I will pay rent happily waiting (and hoping) someday things will change. A home is more than a house and a city is more than a collection of buildings and streets. There is an ambiance to Bariloche that goes past the hospitality and the snazzy architecture. There is an energy here at the meeting place of land and Lago. The mountains surrounding the landward side of town are barren, stark and impressive. The mountains along the Lake and on the other side are as wild as any you will ever see. The backdrop is stunning with streets appearing to end in the lake. This is the heart of Argentina. As an American, you compromise your plans, follow their rules, and get to live in a very special place. To me it is worth it.

No one wants to be socially isolated. For many potential expats the fear of being cut off in a country where you do not speak the language keeps people home. When you buy a new car, suddenly you notice every passing car of the same make or model. Similarly, travelers and expats notice other foreigners. Hearing someone speak English can start a conversation. The fact is, you will meet more (and more interesting) Americans in Bariloche than you will in your routine in the States. The beauty and exciting activities like chairlift rides to mountain tops create a naturally romantic atmosphere. Surrounded by people having a good time is ideal for forming friendships and romance. People used to take a cruise for a chance at romance. Bariloche provides the same atmosphere in a hundred ways and places.

San Carlos de Bariloche is the future home of many Americans. Escapees and retirees are settling into long-term rentals all around the Lakes District. With crime and religious conflicts leading to anti-immigrant backlash in Europe, many expats from the States and European countries are moving towards the Lakes District. Bariloche, already a sophisticated little city, becomes a richer place for the newcomers. The restrictions on owning property are healthy attempts to control and regulate the population growth, and maintain diversity. Americans will come, play by the new rules, to enjoy living in Bariloche.

WTO TO RULE ON ANTIGUA AND BARBUDA’S COMPENSATION CLAIM AGAINST U.S.

A WTO Dispute Resolution Panel is set to begin examining Antigua and Barbuda’s case for compensation from the U.S., in respect of the latter’s illegal restrictions on the online gaming industry. According to reports, the WTO announced that it would begin arbitrating on the protracted dispute in response to a request sent by the U.S. government on the previous day, which outlined its objection to Antigua’s $3.4 billion compensation demand, labeling it as “patently excessive”. The U.S. government argued that the amount sought is several times higher than Antigua & Barbuda’s GDP.

Antigua and Barbuda, a tiny twin-island federation in the Caribbean, is seeking restitution from the U.S. because of new laws there which prohibit banks and credit card companies from processing transactions between American gamblers and online gaming sites based offshore, which the WTO has ruled are in breach of global trade rules. Although small geographically, Antigua & Barbuda has grown to become one of the largest offshore gaming domiciles, and its government argues that the U.S. ban has effectively shut down a large component of its economy.

It is said that America accounts for some 80% of the global e-gaming market, and 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. If given the go-ahead by the WTO, Antiguan finance minister Errol Cort has said that the compensation would take the form of withdrawing intellectual property protection for U.S. trademarks, patents and industrial designs. The arbitration concerning the level of compensation is expected to take around two months.

BELIZE INVESTOR GUIDE LAUNCHED

The Belize Trade and Investment Development Service (BELTRAIDE) has announced the launching of Belize’s Investor Manual. According to the government of Belize, the Investor Manual will function as an investor-friendly tool to attract, inform, and assist local and international investors in establishing a business in Belize. The manual provides a guide to policies and procedures required to establish a sustainable, viable, and legally transparent enterprise within the country. The manual is presented in two parts:

• Part 1 – Belize: The Natural Niche, Profile of Belize, Procedures for Establishing a Business, Priority Sectors for Investment, Investment Requirements.
• Part 2 – Support Agencies, Statistics, Forms.

BELTRAIDE continues to actively participate in the development of the business community and productive sectors through its three “Strategic Areas”: Marketing, Enterprise Development, and Investment, and its five “Operational Functions”: Capacity Building, Information, Promotion, One Stop Shop, and Business Facilitation.

LUCK BE AN INVESTOR IN MACAU

Recently, Las Vegas Casino magnate Steve Wynn commented that investing in Macau “is the safest bet on Earth.” This comes from the man who made billions transforming the Las Vegas strip. Wynn’s new Macau Casino and Resort opened in September 2006. In just the first 117 days of operation, this monster casino raked in some $61 million in business! Each slot machine at the Wynn Macau pulls in about $400 per day on average – more than double the average take from slots on the Vegas Strip.

Several months ago, I wrote about how the local thirst for gambling has transformed tiny Macau into the world’s fastest growing gaming destination (“What Happened in Vegas Didn’t Stay in Vegas: It Moved to China”). This thriving island-municipality is strategically located just off the coast of China’s booming Guangdong province. From Hong Kong, you can hop aboard any number of ferry operators for the one hour cruise to Macau. There are more than 100 million people within a three hour drive and more than 1 billion people who live within an easy plane flight of Macau. Talk about location!

According to research by Deutsche Bank, revenue in the Macau casino market may grow 25% a year over the next five years. The average casino win per table per day in Macau is $22,000, compared with $2,600 in New Jersey’s Atlantic City, and $2,200 in Las Vegas. They added another “0” to the house take.

Where to place your bets.

From its humble beginnings as a Portugese colony and sleepy fishing village, Macau has come a long way baby. Over 30 years ago Stanley Ho, who Forbes magazine ranks as one of the richest men in Asia, was granted the exclusive concession to begin transforming the island into a gambling meca. When the Chinese took control several years ago, the decided to spruce up Macau and model it more after Las Vegas – a true international gaming AND entertainment destination. Since then, some of Vegas’s leading developers have invested in new properties here, and today Macau is booming.

Recently, Playboy Enterprises (ticker symbol PLA) announced plans for a 40,000 square foot “entertainment” complex. When it is finished, it will be Asia’s first Playboy Club since the Manila location closed in 1991. Gambling in Macau’s Playboy Club may be a bit ... distracting, given the ever present bunny-suited cocktail waitresses, but no doubt management is counting on that!

Las Vegas Sands Corp (LVS) plans to open its 10.5 million square foot Venetian Macao Resort – which reportedly will have twice the retail shopping space as the huge Las Vegas Venetian. Kirk Kerkorian’s MGM Mirage (MGM) and Sir Richard Branson of Virgin Group fame are considering big investments in Macau.

For his part, Steve Wynn is backing his assessment of Macau’s potential as the safest bet on Earth with his wallet. In 2009, Wynn Resorts (WYNN) plans to open an all-new $1 billion 600-room casino resort. For those thinking of investing in Macau’s booming casino industry, several of the firms that either have entertainment properties up and running in Macau, or should soon be in operation there, are publicly traded companies.

There is even a way to bet on Macau (aside from being at the tables that is) alongside Stanley Ho, one of Asia’s most astute investors, through his Hong Kong listed holding company. Place your bets folks!

THE MOST UNDERVALUED CURRENCIES IN THE WORLD ARE FOUND IN ASIA

Over the last 12 months, my colleague Jack Crooks and I have staunchly agreed that Asia’s currencies are hugely undervalued. And at some point in the not-too-distant future, the Asian bloc will muster some big gains versus the U.S. dollar and even the euro. The latest foreign exchange reserves statistics in Asia once again confirm this forecast. Asia’s reserves reached a staggering $3.52 trillion in June, an increase of $57.7 billion over May. Any way you measure these numbers, they are simply awesome and point to a major revaluation in the future versus most world currencies.

What is even more compelling is how cheap these currencies have become over the last five years versus the almighty euro, British pound and even the Brazilian real, one of the top-performing global currencies since 2003. Asia’s currencies have declined vis-à-vis all three currencies over the last several years and are absolutely cheap when measured against not just against the U.S. dollar, but versus most currencies in Europe and parts of Latin America. The cheapest of these regional units remains the Japanese yen, a principle funding currency for the carry-trade since this global economic expansion began in late 2002.

The Japanese yen is still trading at an all-time low versus the euro – massively oversold vs. the European single currency and trading at a 20-year versus a basket of major currencies. At some point, the yen will commence a historical rally that will simultaneously flush out the carry-trade. In my book, investors looking to hedge their portfolios from market chaos might want to buy yen as portfolio insurance. When this trend reverses, it will yield enormous profits as most other financial assets decline at the same time.

OFFSHORE HUBS LURE ISLAMIC FINANCE BUSINESS

There are growing signs that offshore banking hubs are increasingly competing with each other to attract Islamic finance business especially as registration domiciles for Islamic capital markets products such as sukuk (Islamic bonds), trusts, and special purpose vehicles (SPVs); for asset management products such as equities, real estate and private equity funds; and allied services such as custodian and administration.

However, the offshore hub of Cayman Islands has recently gone one step further in gaining the edge over its rivals by introducing dual language – Arabic and English – registration and issuance of certification. The Arabic language facility for Cayman Islands offerings is specifically aimed at the Islamic finance market. This means that Arab banks or that matter any other aiming a product at the Arab world, can now structure offshore international investment and other products in their mother tongue of Arabic.

Rival offshore hubs in the Islamic finance space include Bahrain, Labuan in Malaysia, Luxembourg, Dublin in Ireland, Isle of Man, the Channel Islands, British Virgin Islands, the Dubai International Financial center (DIFC), and the Bahamas. However, the Cayman Islands government claims that its offshore incentives are among the best, if not the best, in the world. Deborah Drummond, Deputy Financial Secretary (Financial Services) of Cayman Islands government, stressed that “this customization of our registry service for a market of growing importance to us is an indication of our commitment to innovation and quality, and we look forward to expertly catering to Islamic finance structures for the long-term.”

Other offshore hubs such as Jersey are taking another route to gain a competitive advantage in Islamic finance. Local firms are opening offices in the Gulf Cooperation Council (GCC) countries and also acquiring proven structuring skills and expertise in this respect. For instance, earlier this year, Jersey-based Volaw Trust Company, which has years of experience in structuring and administering Shariah-compliant investment and fiduciary product structures, working with a network of Shariah scholars, opened an office in Dubai, to “help consolidate its already strong position in the Middle East” and its “expertise in dealing with Shariah-compliant financial structures for collective investment funds, property financing structures and family estate planning purposes.”

World’s first Islamic trust provider to launch in Dubai.

DIFC Investments and Dubai Islamic Bank (DIB) have announced that they have initiated a project to establish “Waqf Trust Services”, the first Islamic trust services provider in the world exclusively offering sharia-compliant trust services, which will operate from the Dubai International Financial Center (DIFC).

The company, which is awaiting approval from the Dubai Financial Services Authority (DFSA), is set to operate within the guidelines of the “Trust Law of 2005”, enacted by Sheikh Mohammed Bin Rashid Al Maktoum, Vice President and Prime Minister of the UAE, Ruler of Dubai and President of the DIFC. The law is primarily intended to ensure the proper succession and preservation of lineage, while allowing families to manage their wealth in such a way as to guarantee the rightful disbursement of their inheritance and maintain a strict adherence to Sharia’a guidelines.

Waqf Trust Services will offer a diverse array of trust services for both corporate and individual clients, primarily encompassing the provision of tools to assist clients in the protection of assets, succession planning and the preservation of family wealth.

Dubai Islamic Bank was established in 1975 and is the world’s first fully fledged Islamic bank. It currently offers a wide range of Sharia’a-compliant products and services, including retail, corporate and investment banking, within the UAE and internationally across Bahrain, Egypt, Sudan, Lebanon, Pakistan, Iran, Turkey, Ireland, Bosnia, the Bahamas, and the Cayman Islands.

TAXES

HOUSE TAX WRITERS VOTE TO REPEAL PRIVATE TAX DEBT COLLECTION

The U.S. House Ways and Means Committee has voted to approve new legislation repealing the use of private debt collection companies to collect federal income taxes. The Committee, which has jurisdiction over tax legislation, approved the Tax Collection Responsibility Act of 2007 by a vote of 23 to 18. Most Democrats have been strongly opposed to the initiative to outsource the collection of tax debts to private companies. They argue that private debt collectors are violating taxpayer privacy laws, harassing taxpayers, and collecting debt more expensively than IRS agents.

Earlier in the year, the Committee held hearings investigating the use of private debt collectors to collect Federal tax revenues. During the hearing, witnesses – including then IRS Commissioner Mark Everson – concluded that the IRS could collect unpaid federal taxes more efficiently than private debt collectors, the Democrats have claimed.

“The private debt collection program is an insult to the American taxpayer and our Federal tax system,” argued Oversight Subcommittee Chairman John Lewis (D-Georgia). “The collection of taxes is a core government function. It is the Internal Revenue Service’s mission. We found that, in addition to taxpayer harassment, this program wastes tax dollars by paying a bounty up to 24% to the debt collectors. We were told by the IRS Commissioner that IRS employees could do the job more efficiently for less money. Enough is enough, we must stand up for taxpayers and we must stand up for IRS employees by ending this program.”

Supporters of the scheme, such as Sen. Chuck Grassley (R-Iowa), say that contrary to the images of thuggish collection agents conjured by opponents, the private debt collection program merely consists of having contractors making basic phone calls to taxpayers. Grassley has said that that opponents of the scheme have put together “an amazing campaign of misinformation” and argues that the “tough cops” of the IRS were better equipped to go after serious cases of tax evasion, while small, newer debts, which make up a large percentage of delinquent taxes, are best obtained by a private companies using modern outbound call systems and empowered only to “find, call and convince.”

ALTERNATIVE MINIMUM TAX PENALTY RELIEF BILL INTRODUCED IN SENATE

Sen. Chuck Grassley, ranking member of the Committee on Finance, has introduced new legislation which proposes to excuse many millions of taxpayers from calculating their taxes under the Alternative Minimum Tax system. Under the AMT Penalty Reduction Act of 2007, in computing tax for purposes of the penalties in the tax code dealing with estimated tax, a taxpayer would be permitted to disregard the AMT if the individual was not liable for the AMT for the preceding tax year.

“Right now millions of Americans don’t know whether they should be paying an estimated tax because Congress hasn’t passed Alternative Minimum Tax relief,” Grassley said in a floor statement. “By law, many of these taxpayers should be paying estimated tax right now based on the fact that as the law is today, they are subject to the AMT. So if you didn’t have to pay AMT last year we aren’t going to penalize you if you don’t file estimated taxes for AMT this year.”

Grassley, a long-time advocate of total AMT repeal, last month called the system that was originally intended to catch 155 of America’s wealthiest taxpayers “a complete policy failure” which threatens to consume 23 million taxpayers this year, while still allowing the wealthiest taxpayers to reduce their tax liabilities to zero through various deductions and exemptions. House Democrats are reportedly planning to propose a “surtax” on wealthy individuals to pay for the removal of AMT on the increasing number of middle income taxpayers now caught in the system’s trap. However, Grassley is firmly of the view that Congress should not be trying to replace revenues that were never intended to be collected.

IRS AGENT INDICTED ON MONEY LAUNDERING CHARGES

A 29-year veteran IRS agent has been indicted on money laundering charges for allegedly conspiring with a suspected drug dealer to buy a BMW for him. On July 6, 2005, Evelyn Millen, 49, of Detroit helped LeMauro Coleman buy five cashier’s checks and four money orders worth $40,000 that were structured to avoid federal reporting rules on cash transactions, according to U.S. Attorney Stephen Murphy. The money came from Coleman’s drug sales and was used to pay off a $65,000 BMW 745i that Millen purchased two years earlier but allowed Coleman to drive, the government contends.

In the indictment, Coleman, 28, also was charged with possession with intent to distribute heroin. If convicted, Millen could face up to 20 years in prison. Coleman could receive an additional five to 40 years on the drug charge.

HOUSE OF LORDS RULES IN FAVOR OF ARCTIC SYSTEMS

Small businesses across the U.K. breath a sigh of relief.

Thousands of small family-run business across the UK breathed a sigh of relief after a panel of Law Lords came down on the side of Arctic Systems in a long-running tax dispute, leaving HM Revenue and Customs with no recourse to appeal. The House of Lords ruling brings an end to a 7-year ordeal for Geoff and Diana Jones, the husband and wife team behind the small IT consulting firm Arctic Systems Ltd, who have been fighting a £42,000 tax bill imposed on them by the then Inland Revenue, after tax inspectors called into question the way in which the Jones remunerated themselves through the company to save tax.

HMRC was defeated in the Court of Appeal late last year and was not granted leave to appeal to the House of Lords, yet the tax department successfully petitioned the Lords to contest the Court of Appeal’s ruling.

HMRC argued that Mr. Jones’s actions in setting up the company allowing his wife to subscribe for a share and the general arrangements all constituted a settlement. Under S660A Taxes Act 1988 the income of a settlement can be treated as that of the settlor (i.e., Mr Jones) in some cases, though not if the settlement was an outright gift to a spouse, unless the property given is “wholly or substantially a right to income.”

Arctic Systems, equally owned by Mr. and Mrs. Jones, had a turnover of £91,000 for the year, derived from Mr Jones’s activities. Mr. Jones drew a salary of £7,000, while his wife drew a salary for administrative work of £4,000, for which she worked approximately four hours per week. After expenses and corporation tax, the couple shared the remaining £60,000 equally in dividends. As a consequence, the couple paid less tax and national insurance contributions on their income because they took dividends rather than salaries, and a significant portion went to Mrs. Jones to use up her lower tax rates.

Although all five Law Lords disagreed with the Court of Appeal, which ruled that no settlement had taken place, they nonetheless rejected HMRC’s appeal on the basis that, although there was a “settlement” for the purposes of S660, it fell within the exemption provided for an outright gift between spouses. The settlements legislation therefore does not apply to companies jointly owned by married couples and civil partners and structured in this way.

The case has ramifications for tens of thousands of businesses structured in a similar way to Arctic Systems, which were bracing themselves for higher tax bills had the Law Lords ruled in favor of HMRC. “Thousands of businesses have literally been saved from bankruptcy by the House of Lords,” announced David Kilshaw, head of private client advisory at KPMG. However, Kilshaw also pointed out that Mr. and Mrs. Jones won because of the particular way that they had structured their company, i.e., because Mrs. Jones had an actual share in Arctic Systems with real rights. “Couples running businesses together need to check that they have appropriate arrangements in place or they may find that they still have high tax bills,” he cautioned.

“In addition it is important to note that, the Arctic Systems case looked at the situation where a husband and wife were running an actual company but many couples run businesses in a partnership structure,” Kilshaw added. “The judgment is far less helpful to them and HMRC may now turn their attention to family partnerships. It is vital that each partner has an interest in the capital of the partnership and not just a share in the profits.”

Dividends are taxed at an effective rate of 25%, whereas the top rate of income tax is 40% plus a one percent national insurance charge. Thus, receiving dividend payments rather than salary can result in a 16% tax saving. However, there remains the danger that the government will skirt the ruling by simply changing the legislation in this area.

BRITISH TAX REFORM PLANS COULD AFFECT IRELAND

The British government’s plans to reform its corporate tax regime could hit Ireland’s financial services industry, according to a leading international tax expert, Richard Murphy, director of Britain-based consultancy Tax Research. Under the proposals, British firms will no longer be taxed by the British government on dividends paid to them by foreign subsidiaries. However, only subsidiaries which carry out activities with real economic substance can avail of the exemption.

Murphy said that the measures, which are designed to deter British multinationals from moving their operations overseas, will hit low tax regimes such as Ireland. “I think that some of the financial operations of UK firms in Ireland will fail this test such as those companies that don’t employ anyone. I think the Treasury will target those in particular,” he said. “At the moment, it is very common for British companies to stack up their reserves in Ireland for tax reasons, which will be a much less attractive option if these proposals are passed.”

According to the official text of the proposals, the British measures are designed to ensure that “multinational groups cannot artificially locate profits by, for example, divorcing them from genuine activity, or embedding them artificially in the otherwise low-value business activity of a group subsidiary.” Matheson Ormsby Prentice and a lecturer in Revenue Law at UCD, said that it was too early to say what affect, if any, the measures will have on Ireland, and that it was important to remember that the proposals would not become law until 2009 at the earliest.

AUSTRALIA’S OFFSHORE TAX EVASION NET WIDENS

The Tax Office is widening its probe into offshore tax evasion, preparing to write to 1000 taxpayers it suspects have used offshore credit or debit cards to access concealed income. Reduced penalties and, in some cases, immunity from criminal prosecution will be offered to those who come forward first and admit to concealing income or assets to avoid paying tax.

Having secured a guilty plea from high profile music entrepreneur Glenn Wheatley to three charges of tax evasion under the so-called Project Wickenby, the ATO’s attention has now broadened to the thousand more Australians suspected of offshore tax fraud. Tax havens targeted include Jersey, Guernsey and the Isle of Man. Letters have already been sent through financial institutions to Australian customers with financial links to Vanuatu. “There is nothing wrong with holding an offshore account or investing overseas, as long as you pay any Australian tax due,” Tax commissioner Michael D’Ascenzo said.

The chief executive of Taxpayers Australia, Tony Greco, said participants in offshore tax evasion were likely to be wealthy individuals. Possession of a credit card from an offshore haven was often a sign that a person had shifted money there and was trying to draw down on it, he said. Mr. Greco said the offer of reduced penalties represented a trade-off between wanting to fully prosecute people engaging in tax fraud and wanting to curb the cost to the public purse. “Given that they [the Tax Office] have got a few scalps I think it is actually a wise move to give people an incentive to ‘fess up’,” he said.

Meanwhile, the campaign to clean up the tax affairs of Australia’s corporate chieftains continues, with a new focus on executives and directors who are paid shares in addition to their base salary. Audits had revealed a high level of “potential discrepancies” in taxes paid on these shares, Mr. D’Ascenzo said, with about one in three executives who get these packages suspected of not paying enough tax.

Share packages can also come in the form of “options” or “rights” to buy shares at a later date. Taxes can be paid on these packages “upfront” or at a later date when the shares are sold. “The key message is that rights and options provided as part of the remuneration package by the employer are income assessable to the individual,” Mr. D’Ascenzo said.

Outlining priorities for the new financial year, Mr. D’Ascenzo said an increasingly global economy had made assessing income a more difficult task. “With larger trade and financial flows we are entering what some commentators have characterised as an era of ‘banking without borders’,” he said. Two out of five large businesses operating in Australia were foreign-owned, he said, muddying the transparency of business tax affairs.

OECD REMOVES LIBERIA FROM LIST OF “UNCOOPERATIVE TAX HAVENS”

The OECD has announced the removal of Liberia from its List of Uncooperative Tax Havens, following Liberia’s commitment to implement a program to improve transparency and establish effective exchange of information in tax matters. Liberia joins 33 other jurisdictions that have made similar commitments in relation to the OECD’s work to curb harmful tax practices. Four jurisdictions remain on the OECD List of Uncooperative Tax Havens, published in April 2002 – Andorra, Liechtenstein, the Marshall Islands and Monaco.

OECD Secretary-General Angel Gurría welcomed Liberia’s commitment, and said the OECD would be ready to assist Liberia as it takes forward reforms in the tax area. “Liberia’s commitment to the standards of transparency and effective exchange of information in tax matters will contribute to enhancing its reputation in the international community, which will be beneficial to its long-term development,” he said.

In its announcement, the OECD said that its work in favor of transparency and effective exchange of information in tax matters is designed to enable countries to enforce their tax laws fully and fairly.

ASSET PROTECTION / LEGAL STRUCTURES

“TO SERVE AND PROTECT” ... AND CONFISCATE YOUR WEALTH

Since the founding of the American republic, federal and state laws have allowed authorities to confiscate property from individuals who were NOT guilty of a crime, and indeed, are never accused of one. It only needs to be reasonably assumed that the property was involved in a crime. This concept of “guilty property” is known as “civil forfeiture”.

Today, the federal government uses civil forfeiture laws to confiscate billions of dollars of property each year. Property allegedly purchased with the proceeds of or “facilitating” criminal offenses committed under nearly 300 separate federal statutes may be forfeited. State and local forfeiture laws rake in billions more in additional revenues.

Civil forfeiture in U.S. law began in 1789, the same year that the Constitution was ratified. Congress enacted a series of statutes that authorized the confiscation of ships or their cargoes for failing to pay customs duties and engaging in piracy. Later these statutes were used to confiscate ships involved in slave trade. Since then, civil forfeiture laws have expanded to encompass not only ships and their cargoes, but to property connected to hundreds of federal offenses. These laws have been repeatedly upheld by the Supreme Court, which as early as 1827 declared that “guilty property” could be confiscated, even from individuals entirely innocent of any wrongdoing. In 1996, the Supreme Court upheld the same principle, affirming a Michigan statute allowing the civil forfeiture of any property involved in a crime, regardless of the owner’s culpability, or lack thereof.

Since 1984, federal civil forfeiture laws have permitted seizing agencies to retain the assets they confiscate. And under the federal “equitable sharing program”, state and local police authorities may confiscate assets under federal laws that permit them to retain up to 80% of the seized property’s value. This procedure bypasses state laws that provide a constitutional barrier against the confiscation of property without a criminal conviction. It also gets around the state laws that require forfeited assets to be used for purposes other than law enforcement, like education. Direct disbursement of forfeited revenues to law enforcement agencies badly distorts law enforcement priorities. But in 1989, the Supreme Court declared that the government has a legitimate financial interest in maximizing forfeiture to raise revenue.

Civil forfeiture laws also provide the government with unique procedural advantages. A seizure or asset freeze is authorized in an ex parte hearing (without the defendant or defendant’s lawyer being present) before a judge, magistrate or administrator. Except when real property is involved, the property owners need not be informed of this hearing, and thus may not attend it, much less contest the seizure. Civil forfeiture can also proceed without an arrest, never mind criminal conviction, of the property owner. One study estimates that 80% of civil forfeitures do not result in criminal conviction, while another study estimates that 90% of civil forfeitures are uncontested by the property owners.

Imagine that your son and his friends are having a friendly game of poker in your basement, while you are away from home. If that game violates a state or local anti-gambling ordinance, police may be able to “arrest” your house and then confiscate it, even though you knew nothing about the illegal activity. If your teenager borrows your car and uses it to transport any quantity of illegal drugs – even a single “joint” – it can be confiscated. And since property, not life or limb, is at issue, the government does not need to prove its case beyond a reasonable doubt.

Law enforcement agencies nationwide have become increasingly dependent on forfeited assets to supplement their budgets. And they are not hesitant to use extreme measures to get “their” money. In one terrifying incident in 2004, sheriff’s deputies in Campbell County, Tennessee tortured a criminal suspect until he agreed to sign a statement agreeing to turn over his assets to the county. They did not realize that the suspect’s wife was secretly recording the incident. While torture may not be an everyday occurrence in civil forfeiture cases, there are thousands of documented abuses of the procedure.

Such incidents should come as no surprise. Civil forfeiture creates a conflict of interest in which police must choose between two contradictory strategies. Either they reduce crime or generate revenue. Given that confiscating assets is more lucrative – and safer – than chasing possibly violent criminals, it is not surprising that the revenue generation model is increasingly being followed by law enforcement agencies nationwide.

And this is just the tip of the iceberg. Under the USA PATRIOT Act, civil forfeiture can occur in a secret hearing, in which you have no right to present your side of the story. The government can even offer evidence that would otherwise be inadmissible if a court finds that complying with the Federal Rules of Evidence would jeopardize national security, and deems the evidence “reliable”. Thanks to federal judges who seal the records of the pending cases, America knows little about these forfeitures, which in many cases have nothing to do with terrorism.

Still worse, civil forfeitures under the International Emergency Economic Powers Act occur in a secret administrative hearing, with the victim having no opportunity to contest the decision in court. In 2006, the Supreme Court upheld this procedure.

What you can do to “serve and protect” your assets.

What can be done? The just course of action would be to abolish civil forfeiture in all of its vile forms. Short of that outcome, banning secret forfeitures and requiring all evidence offered in civil forfeiture proceedings to be subject to the Federal Rules of Evidence would be a good start. Another crucial reform would be to prohibit seizing agencies from retaining the assets they confiscate. And all seizing agencies should be subject to an annual outside audit to determine exactly what they have done with the funds they have confiscated.

Until then, the best thing you can do is keep your assets as far away from any possible civil forfeiture. A good place to start is by housing part of your wealth offshore. For one thing, offshore investments avoid the U.S. asset tracking network that permits investigators to easily identify a potential defendant’s assets. They also make it more difficult to recover, as most countries will not enforce U.S. civil forfeiture laws.

If you have been the victim of a civil forfeiture, an excellent source of information is the non-profit organization Forfeiture Endangers American Rights.

WELCOME TO LONDON, THE ONSHORE TAX HAVEN

London, the great global financial center, has another claim to fame. It has become the fastest growing destination for international tax avoiders. The world’s super-rich and an elite cadre of financiers working in the Square Mile are increasingly using non-domicile tax status to sidestep paying tax on their fortunes. Thanks to 208-year-old laws designed to ensure British colonialists kept their overseas income intact, billionaires are now flocking to London in rapidly increasing numbers.

Those benefiting from non-dom status have rocketed over the last five years. The Treasury confirmed that 112,000 individuals indicated non-dom status in their self-assessment returns in the tax year to April 2005, a 74% increase over 2002’s figures. And tax experts confirm that there has been a dramatic surge in claimants in recent months – prompted, ironically, by a Treasury and Inland Revenue crackdown on UK citizens holding offshore accounts.

In March, the Revenue offered an amnesty to Brits avoiding tax offshore. The deal was simple. To escape an investigation, those with money in tax havens would agree to pay backdated tax plus a smaller fine than they would otherwise have been liable for. But rather than recouping hundreds of millions of pounds in extra tax through the amnesty, the Treasury faces the prospect of losing millions. “People are telling the Revenue that they meant to sign non-dom forms – that not filling them in was an oversight. The amnesty is pushing people further offshore,” says one tax expert. The result is that there are more people claiming non-domicile status, putting their money out of reach of the taxman for at least 20 years (the length of time for which the status applies).

The other factor leading to the increase in non-dom numbers is growing interest from overseas investors in the London property market. Unlike UK citizens, non-doms escape tax on income from property or capital gains. It is not only the international jet set who claim non-dom status – it is also available to some of the most powerful figures in the City. Talking to fund managers and traders, a picture emerges of a culture in which administrators provide the infrastructure to ensure Square Mile professionals are fast-tracked through the system.

Admits a senior City fund manager, “My understanding is that it is reasonably prevalent in the City. To be honest, it is seen as one reason why London has continued to be successful as a venue for high-value employees who can be located anywhere in the world. I think it’s why a lot of businesses like to be based in London ...”

That may be, but the Treasury admitted to The Observer earlier this year that no economic assessment of the benefit non-doms bring to the UK economy has been undertaken. The Treasury has, however, worked out how much money the UK is missing out on as a result of non-dom status, but has blocked the paper’s attempt to get that figure. The Treasury has just three people working on its ongoing review of non-dom rules. The review was launched in 2001 and has failed to reach any conclusions.

Non-dom status is self-assessed. Forms are easy to download from the web and there are just 19 questions. One tax expert says it is easy to convince the Revenue that a claimant is based overseas, whether it is through a relative or a series of overseas investments. In addition, the Revenue makes very few checks on status. Many senior City figures qualify for non-dom tax exemptions, including Dominic Murphy, the UK boss of private equity giant KKR. And it is widely thought that the Chancellor’s City adviser Sir Ronald Cohen and a large collection of Labour Party donors do too.

New Chancellor Alistair Darling made it clear that nothing must harm the international pre-eminence of the City and he warned against “knee jerk” reactions to calls to amend the regulations, though he did not totally rule out reform. The issue is causing increasing international concern as governments struggle to collect tax. An international taskforce is now set to probe the UK regime and the use of tax havens. Other critics say the non-dom rule is harmful because it widens the gap between rich and poor, which has increased sharply in the last 10 years. In addition, it is a source of resentment within the City. Two employees can be paid the same amount of money gross, but take home vastly different salaries as a result of the rules.

HMRC declares zero tolerance for spurious non-dimiciled claims.

Advisers have warned those planning to claim non-domiciled status in order to avoid the offshore bank account crackdown that they face an uphill struggle. The warning follows comments from HM Revenue & Customs that it would not tolerate disingenuous non-domiciled claims as way of avoiding the amnesty.

“Where we suddenly see non-domiciled applications from people in their forties, fifties and sixties who have never claimed to be non-doms before, we are going to take a very hard look at them and challenge applications in the civil courts if we have to,” an HMRC spokesman said.

Bill Dodwell, head of tax policy at Deloitte, said people suddenly claiming non-domiciled status would find it very difficult to do so if challenged by HMRC. “It is very hard to argue that you are not domiciled if you have UK nationality and have spent many years here. It is difficult to lose your domiciled status. It is a matter of fact. You can’t simply put in an application form and suddenly become non-domiciled,” Dodwell said.

Dodwell said the recent Robert Gaines-Cooper case, where it was ruled by the special commissioners that businessman Gaines-Cooper could not claim domicile status in Seychelles, as he was still inextricably linked to the UK, had set the benchmark for others attempting to claim non-dom status. Gaines-Cooper had set up as many as 100 businesses around the world, but was told he would be treated as domiciled in England for tax purposes. “He never did wholly reject England nor, indeed, that small part of it located in Berkshire and Oxfordshire, where he had so many ties and connections. On the contrary, he felt its pull upon his affections and interests all his days,” the commissioners said.

HMRC’s determination to prevent people from skirting its offshore bank account amnesty drive follows suggestions that the number of requests for non-domiciled status has surged recently as taxpayers rush to claim non-dom status, which will exempt them from paying tax on foreign income. This would allow them to avoid having to disclose the details of money held in offshore bank accounts to HMRC.

PRIVACY

BEST FREE ANONYMOUS WEB SURFING SERVICES

There are lots of reasons folks have for wanting to surf anonymously, ranging from simple paranoia to possibly being murdered by a malevolent foreign government. Whatever the reasons, commercial services that offer anonymity are doing real well. However one of the best services, JAP, is totally free. In fact JAP is perhaps a little too good. That is why the German Police insisted in 2004 that a backdoor be put into the product to allow interception of child pornographers. This was done but subsequently removed as a result of court action by JAP.

An alternative to JAP is a system called Tor. It not only allows anonymous browsing but anonymous P2P, email, IM, and IRC chat as well. Given the U.S. Navy origin of Tor, the suspicion arises that this system may indeed have a permanent backdoor. However the source code is now publicly available so that suspicion can perhaps be set aside. More worrying was a raid by German police in September 2006 involving the seizing of some Tor servers in that country. Again, pedophiles were the supposed target, but who really knows.

Whatever, both JAP and Tor offer a level of secrecy that is better than many commercial systems though not watertight. However expect your surfing to slow down as you will be relayed through a chain of servers particularly with Tor which has been ground to a near standstill by BitTorrent users seeking to hide from the RIAA.

A recent development is the release of the XeroBank Browser, previously called TorPark, a special version of the Firefox browser that has been configured to work with the free Tor anonymizing service and run directly from a USB flash drive. You just plug in your USB stick to any PC with a USB port and Firefox V2 is automatically launched, set up for secure and private surfing. The most obvious application is internet cafes, public terminals or indeed any PC including your own where you do not want to leave any trace of your private surfing activities. Moreover, TorPark creates a secure encrypted connection between the PC you are using and the first Tor server. This allows you to safely transmit information without fear of interception. This makes it ideal for surfing on open Wi-Fi networks.

HOMELAND SECURITY SEES LASERS, HEART SENSORS IN THE FUTURE OF ANTI-TERROR SCREENING

The cutting-edge tech folks at Homeland Security do not like screening lines that have X-ray machines any more than you do. They see X-rays as something shoe salesmen used to use measure your foot size. X-rays are not sexy. Lasers are cooler. Add some machine learning and you might get close to cool enough for these guys.

That is why the Advanced Research Project Agency (HSARPA) wants to build a system that fuses information from remote eye, heart, breath and brain sensors and lasar radar to decide if you are a terrorist before letting you on that flight to Las Vegas. The fuser will be the brains of the Future Attribute Screening Technology Project. And HSARPA wants the fuser to be a wicked smart learner. The group is so intent on bringing on the future, it is currently soliciting information from outside groups in hopes of making it show up faster.

Persons involved in or planning to be involved in possible malicious or deceitful acts will show various behavioral or physiological abnormalities. Though these signs can, at times, be detected by trained observers, they often go undetected and even when detected, are not quantified in any measurable way. Quantifiable inputs may include cardiovascular, respiration, infrared, lidar (lasar radar), video, audio, eye tracking as well as other promising technology capable of providing behavioral indicators. The goal is to take the individual outputs of the distinct sensors and combine them into a decision matrix in order to provide a single decision.

So that is it fliers and Super Bowl goers. DHS has seen the future of security and it is a world where you get to keep your shoes on through security if you think pure thoughts and breathe like a yogi. Or at least, pure enough thoughts to fly under the lidar. That is, until the lidar learns to get lower.

THEY CAN SEE WHAT YOU ARE TYPING ... AT ALL TIMES

Over the last few years, there has been an explosion in the use of keyloggers. Keyloggers are software or hardware that captures your keystrokes, stores them and sends the captured data to a third party through your Internet connection. Creepy, huh? Keyloggers can also store and transmit additional information, such as your screen images.

No one knows the number of PCs that are compromised with keyloggers, but experts warn the problem is growing exponentially. Computer security firm McAfee estimates the number of keylogger-infected PCs has grown by 250% since 2004. Another survey showed that 17% of PCs in corporate environments were infested with keyloggers.

If your PC is infected with keylogging software, or if a keylogging device is secretly installed, everything you type is recorded. That includes your emails, chatroom activity, instant messages, Web addresses and Internet searches. Even emails or documents you create and later discard are saved. Most compromised PCs are infected with software keyloggers. You just have to visit a website, open an infected file, or click on a pop-up ad that contains “active” content such as ActiveX, Java Applets and your PC can be compromised.

Hardware keyloggers are not as common, because someone needs to actually install the device on your PC. There are three main types: inline devices attached to your keyboard cable, devices installed inside a keyboard, and replacement keyboards that contain a built-in key logger. Law enforcement agencies apparently use hardware keyloggers much more frequently than software keyloggers, presumably because they are impossible to detect with anti-virus or anti-spyware software. In a recent case, agents from the Drug Enforcement Administration used a hardware keylogger to retrieve passphrases for PGP (a popular encryption program) and Hushmail (a secure email service).

Fortunately, you can protect yourself from keyloggers by taking some fairly basic precautions:

• Keep your anti-virus software up-to-date.
• Use a program such as Lavasoft to regularly scan your PC for keyloggers and other “spyware”.
• Use a firewall such as ZoneAlarm to monitor outgoing traffic from your PC. If you see a program trying to communicate with the Internet that you do not recognize, investigate further to make certain it is not a keylogging program or other spyware
• Visually inspect your keyboard and its connection to your PC. If you have any reason to suspect that it might be compromised, buy a new keyboard. They are very economical.

THE STALKER IN YOUR POCKET

For most of a century, nosey people, both professional and amateur, have used microphones and cameras to listen to and watch unsuspecting targets. In recent years, the miniaturization of electronics has enabled these devices to be hidden. Extreme drops in price have made spy electronics available to anyone, even creepy stalker types. The only remaining challenge is placement. If anyone wants to capture the juicy tidbits, they have got to have a microphone or camera in the right place at the right time.

Enter the camera phone, a dream come true for not just spies but a new breed of “cell phone stalkers.” Camera phones contain all the necessary ingredients for completely invasive stalking – a microphone, camera, personal data on the user, location information, a chat and call history ... you name it. And victims carry them everywhere they go. All that is missing is the software that lets stalkers take control. This new software, called snoopware, does just that. Snoopware, both legal and illegal, enables stalkers to secretly seize control of a phone’s electronics to listen, watch and spy on their victims.

Welcome to the creepy new world of cell phone stalking. Although cell phone stalking is new, there is already plenty of bad information, urban legends and false beliefs about it in circulation. I am going to sort all this out for you, tell you about what is possible and how to protect yourself (it is easier than you think).

Snoopware is on the rise, mostly because of the increasing sophistication of phones. They are like mini-PCs. Most snoopware attacks have taken place in Europe and Asia, but they are coming to America. Security experts estimate that there are more than 400 types of snoopware (most of them variants of a few major snoopware programs), and that figure may top 1,000 by the end of the year. Your typical new snoopware program might enable someone to listen to phone calls and read e-mail and text messages, or steal contacts and other data. Some snoopware can use your phone’s microphone to listen, even when the phone is supposedly “off”. Other programs can capture images from a camera phone’s camera.

Snoopware is the kind of software used by the government to eavesdrop on gangsters and terrorists. But snoopware is not the only way to stalk via cell phone. Most carriers offer a “skip passcode” feature that lets you turn off voice mail password-checking when you call from your cell phone. But because carriers use Caller ID to verify the phone, cell phones “spoofing” another phone’s number can get in, enabling hackers to access your voice mail and other features without ever knowing the password.

Semilegitimate snoopware programs called Mobile Spy from Retina-X Studios and FlexiSpy from Vervata run invisibly and upload text messages and phone logs to an online server. They can also upload location information. The companies target concerned parents, suspicious spouses and distrustful bosses, but obviously a malicious hacker could use them for cell phone stalking. Sounds bad. But be aware that these programs require physical access to the phone for installation, and they are easy to detect. The security software companies generally consider these applications as malware, and alert users to their presence.

The best cure is prevention. Do not allow strangers to gain access to your phone. Like any other kind of software, snoopware does not install itself. The leading methods for installation are physical access installation, where the user installs by clicking on an attachment or link, or via Bluetooth. By preventing potential stalkers from touching your phone, never clicking on e-mail attachments or links from strangers, and turning off Bluetooth autodiscovery, you will keep snoopware off your phone.

The fact is, snoopware hacks are dangerous only if you are unaware of them. Once you suspect someone is using your cell phone to spy on you, it is trivially easy to stop them:

• Buy an anti-malware application. These products find not just the shadowy, hacker snoopware programs, but the legal ones, too.
• Turn on passwords for voice mail access.
• Downgrade your cell phone. Snoopware works only on the most advanced phones.
• Switch carriers. If the company cannot shut down the hacker, switch to another carrier.
• Buy an anonymous prepaid phone. The last-ditch solution (just before going without a cell phone) is to buy a prepaid phone from 7-Eleven or a similar store. This provides not only the benefits of a low-tech cell phone and a new carrier, but greater anonymity.

BRAINLESS BUREAUCRATS AND THE MOTHER OF ALL PASSPORT FIASCOS

The so-called “Western Hemisphere Travel Initiative” (WHTI) is the brainchild of faceless (and, it would seem brainless) bureaucrats in the U.S. Department of Homeland Security. These worthies spend billions of Americans’ tax dollars with the professed goal of catching terrorists, but they display the common and practical sense of a two-year-old.

In a nutshell, the WHTI required all American citizens to present a valid passport when flying home to the U.S. from Canada, Mexico, the Caribbean, and Bermuda, after January 23, 2007. (In January 2008 the projected plan was that a passport would be required to leave and return to the U.S. by all modes of transportation.) We have been warning for months that these rigid requirements would result in a massive passport mess. We also said that, given the unreasonable time frame, this imminent fiasco was beyond immediate solution. In recent weeks, thousands of frustrated, angry Americans lined up at passport offices all across the country, and the U.S. State Department mails were clogged with piles of passport applications submitted months ago. So the helpful government finally did something.

The “something” was to allow a piece of paper showing one had applied for a passport to be accepted as a passport on reentry. Those caught in the passport trap were instructed to go to the State Department Internet website and fill in a form, then print it out and use it as an interim passport. Too bad if you did not have a computer or a printer. Last week the U.S. House of Representatives took the matter into its own hands and voted to delay implementation of WHTI until at least June 2009. The Senate is expected to follow and approve this.

If there is still any question whether the Big Brother government was using these Draconian passports as control documents, this passport fiasco is stark proof. No longer is a U.S. passport a document for free travel. It is a means for government to watch you and catalog your every move in and out of the country. The supposed objective of this bureaucratic nightmare is to catch terrorists. But the odds of achieving this objective by mandating a new passport initiative are slim at best. If fact, forcing millions of Americans to buy costly passports for visits to countries where previously a picture ID or driver’s license was sufficient, falls into the stupid category of “do something” politics. However unreasonable, the government must appear to be “doing something.”

The 9-11 terrorist attacks are being used by the U.S. government and many other nations, to tighten formerly easy visa rules for foreign travelers for reasons far beyond anti-terrorism. Soon all Americans and visitors to America may be forced to have digital, biometric passports with detailed personal and physical information readable by computers. The E.U. and the U.K. are adopting similar passport standards.

The U.S. and other governments want to use passports as the major means of proof of individual identity, both of their own citizens, and for visitors from abroad. And these high-tech passports, complete with electronic transmitter RFIDs, may contain everything from your DNA to your blood type and scans of your irises. Hooked to official computers, these biometric informers will track your every movement. And they also may be turned into national ID cards to record and control your domestic activity.

This entire fiasco makes it clear that Americans should obtain a second passport. I dislike saying it, but the time has come when being identified as an American is not just a threat from foreign sources, but a threat from your own government. I am the author of a book on the subject of dual citizenship and second passports, and as such, my advice is to consider obtaining a second passport now, while you still can. That second, non-U.S. document may allow you to break free from unreasonable government surveillance and snooping and to preserve what is left of your personal and financial privacy.

LAW

BUSH AND COMPANY ARE THE PEOPLE OUR FOUNDING FATHERS WARNED US ABOUT

George W. Bush is the imperial president that James Madison and other founders of this republic warned us about. He lied the nation into precisely the “foreign entanglements” that George Washington feared would destroy the experiment in representative government, and he has championed a spurious notion of security over individual liberty, thus eschewing the alarms of Thomas Jefferson as to the deprivation of the inalienable rights of free citizens. But most important, he has used the sledgehammer of war to obliterate the separation of powers enshrined in the U.S. Constitution.

With the “war on terror”, Bush has asserted the right of the president to wage war anywhere and for any length of time, at his whim, because the “terrorists” will always provide a convenient shadowy target. Just the “continual warfare” that Madison warned of in justifying the primary role of Congress in initiating and continuing to finance a war – the very issue now at stake in Bush’s battle with Congress.

In his Political Observations, written years before he served as 4th president of the U.S., Madison went on to underscore the dangers of an imperial presidency bloated by war fever. “In war,” Madison wrote in 1795, at a time when the young republic still faced its share of dangerous enemies, “the discretionary power of the Executive is extended ... and all the means of seducing the minds are added to those of subduing the force, of the people.” How remarkably prescient of Madison to anticipate the specter of our current King George imperiously undermining Congress’s attempts to end the Iraq war. When the prime author of the U.S. Constitution explained why that document grants Congress – not the president – the exclusive power to declare and fund wars, Madison wrote, “A delegation of such powers [to the president] would have struck, not only at the fabric of our Constitution, but at the foundation of all well organized and well checked governments.”

Because “[n]o nation could preserve its freedom in the midst of continual warfare,” Madison urged that the constitutional separation of powers he had codified be respected. “The separation of the power of raising armies from the power of commanding them is intended to prevent the raising of armies for the sake of commanding them,” he wrote. That last sentence perfectly describes the threat of what President Dwight Eisenhower, 165 years later, would describe as the “military-industrial complex”, a permanent war economy feeding off a permanent state of insecurity.

The collapse of the Soviet Union deprived the military profiteers and their handsomely-rewarded cheerleaders in the government of a raison d’être for the massive war economy supposedly created in response to it. Fortunately for them, Bush found in the 9-11 attack an excuse to make war even more profitable and longer-lasting. The war on Iraq, which the president’s 9-11 Commission concluded never had anything to do with the terrorist assault, nonetheless has transferred many hundreds of billions in taxpayer dollars into the military economy. And when Congress seeks to exercise its power to control the budget, this president asserts that this will not govern his conduct of the war.

Bush originally settled for a loosely worded resolution supporting his use of military power if Iraq failed to comply with U.N. mandates. This was justified by the White House as a means of strengthening the U.N. in holding Iraq accountable for its WMD arsenal, but then Bush invaded Iraq after U.N. inspectors on the ground discovered that Iraq had no WMD. Bush betrayed Congress, which in turn betrayed the American people – just as Madison feared when he wrote: “Of all the enemies to public liberty war is, perhaps, the most to be dreaded, because it compromises and develops the germ of every other.”

PATRIOT ABUSE

When the USA Patriot Act was being reauthorized in 2005, Attorney General Alberto R. Gonzales claimed that not one single abuse of the “national security letters” provision had been reported. It must have been his poor memory. What else would explain why he did not mention the reports that described abuses and mismanagement of NSLs – which we now discover were in his possession before his testimony?

I was one of four library colleagues who challenged an NSL in the courts around the time of its reauthorization. We were under a gag order because of the nondisclosure provision of the NSL section of the Patriot Act. This happened even though a judge with high-level security clearance had declared that there was no risk in identifying us as recipients of an NSL. We were therefore not allowed to testify to Congress about our experience with the letters – which seek information, without court review, on people like library users.

It is more than irksome to now discover that the attorney general was giving Congress false information – at the same time that we recipients of NSLs were not allowed to express our concerns. My colleagues and I were lucky to have our gag order lifted eventually, with the help of lawyers from the American Civil Liberties Union, after the federal District Court found constitutional problems with that section of the Patriot Act. Unfortunately, we were prohibited from speaking to the public – or even to our U.S. senators and representatives – until after the Patriot Act was reauthorized.

A gag order is very difficult to deal with. A person cannot tell her family or friends she has received a demand from the government to turn in information on another person. Whether you agree with the security-letter provision or not, receiving such a letter is an emotionally wrenching experience. And if the government requires you to compromise your professional and personal ethics, it can be an intensely disturbing experience. You feel trapped in a world that others like you may inhabit, but you cannot reach outside of that world to find out.

Reportedly hundreds of thousands of security letters have been sent out. The recipients remain gagged and can never speak about their experience, under threat of a 5-year prison sentence. They can never describe the scope and nature of the information they give to the FBI. Therefore, it is laughable to assume that no abuse has been made of the security-letter provision. The secrecy under which the provision is administered guarantees a lack of oversight.

I do not believe the FBI is to blame for its reported mismanagement of NSLs. The Patriot Act does not effectively address court and congressional oversight. It follows that abuse and mismanagement are practically a given.

U.S. CLARIFIES ANTI-MONEY LAUNDERING ENFORCEMENT RULES

After 17 million suspicous activity and currency transaction reports filed in 2006, reporting requirements are questioned.

U.S. regulators issued guidance to clarify when banks will be slapped with cease-and-desist orders for failing to report possible money laundering transactions. Banks and credit unions must have proper internal controls, independent testing of anti-money laundering programs, a program coordinator and a staff training program. A cease-and-desist order could be issued if they fail to establish and maintain a reasonably designed program or correct a previous problem, regulators said.

U.S. banks have complained about requirements that trigger numerous reports for various transactions, saying that it takes money, hours and staff training to comply with federal anti-money laundering rules. Institutions are required to file several reports with regulators, including the Treasury Department’s Financial Crimes Enforcement Network (FinCEN), if they detect certain violations or suspicious transactions. Those include suspicious activity reports and currency transaction reports for transactions involving $10,000 or more in cash.

House Financial Services Committee Chairman Barney Frank (D-Massachusetts), and the panel’s top Republican, Spencer Bachus, asked congressional investigators to review FinCEN reporting requirements. They questioned the effectiveness of federal reporting requirements, which resulted in 17 million suspicious activity and currency transaction reports in fiscal 2006. Frank and Bachus want the Government Accountability Office to review FinCEN’s mission and find out to what extent banks are filing documents with regulators “defensively” to avoid potential sanctions from federal examiners.

OPINION & ANALYSIS

COMPASSION VS. COERCION: GOOD VS. EVIL

How odd that government, an institution run entirely on the basis of coercion – which is to say, on the basis of violence, both threatened and real – presents itself, whenever possible, as a tool of compassion. This mismatch between government’s actual methods and its supposed goals reveals two things: first, that much of what governments do is not what people want (thus the need for coercion) and, second, that what people DO want is a more emotionally healthy and compassionate, and thus less coercive, world. It should be obvious, but clearly is not for most people, that using force and violence to bring about a world of love and compassion is counterproductive and doomed to fail.

A single (if complex) misunderstanding allows the power elite to present coercive government programs as “compassionate”. This misunderstanding is powerful because it has genetic foundations from the distant past, when mankind lived in small groups – very small by today’s standards. Our cousins the bonobos, chimpanzees, and other primates still live as we once did, in small bands where each individual knows and has connections with every other. Only humans create massive nations with millions of anonymous citizens, “governed” from afar by power-hungry strangers who enforce their artificial laws via men with guns.

In a small group – a family, a hunter-gatherer band, or even a small village – the social dynamics of our primate ancestors continue to serve us well, as long as group members have a reasonable level of emotional health. Even when levels of emotional health are too low for good results, keeping group size small at least limits the negative results to a relatively few victims. But presidents and kings are not fathers or village elders, and the actual dynamics of such artificial leadership positions are unhealthy and harmful in the extreme. What works well among small groups of people who grew up with one another does not work in our modern mega-states, or even in a large town. This makes emotional health – the foundation of compassion for others – even more critical in large, modern societies. Without widespread emotional health, the coercion wielded by a government can rapidly become a nightmare. This has happened repeatedly in history, and continues to happen in the present day.

Evil, as I see it, is the end result of infants and newborns (and even “preborns”) being made repressed, unfeeling, and angry by a childhood, and then a lifetime, of pain. In short, evil is people hurt so badly that they, in turn, hurt others needlessly. Coercion is a major tool in that process. Coercion hurts people, and when you hurt enough people badly enough, you plant the seeds of callous and even purposefully hurtful behavior in them. Creating entire societies run, at their core, by “leaders” who enforce their will coercively cannot help but create massive, widespread emotional damage.

Pretending that the coercion is “God’s will” does not help. Pretending that the emperor IS a god does not help. Pretending that the coercion is being used for the “good of the proletariat” does not help. Pretending that an elected politician is expressing “the will of the people” does not help either, any more than gang-rape is positive because the rapists outnumber the victim. Using coercion is evil, except in self-defense, when our ancient instincts prompt us to fight back, protecting ourselves and our loved ones. The essentially evil nature of initiated coercion is why coercion is a legal crime in most jurisdictions. Coercion is repugnant to human beings by definition.

Americans have long acknowledged that truth with the saying, “He who governments best, governs least.” Henry David Thoreau took the sentiment to its logical (and compassionate) conclusion in Civil Disobedience: “That government is best which governs not at all.” What decent person would argue with that? Using force and violence against our neighbors is no way to love them.

YOU GOTTA HAVE HOPE

An impending family reunion has made me ponder what sort of America – and what sort of world – my generation and yours will be leaving them. Even though I live in hope, to be brutally honest, the picture is bleak. During a photo opportunity at a 1988 grocers’ convention in Orlando, Florida, then-President George H.W. Bush (the first) reportedly was “amazed” at encountering supermarket barcode scanners, supposedly for the first time.

His Democrat opponents seized upon this minor incident. They claimed it was evidence that the President was out of touch with the lives of average Americans. It was not too long afterwards that the once popular President, for a time riding high in the polls after the Gulf War victory, lost reelection by a plurality to a fellow named Bill Clinton, mainly because of the maverick third party candidate Ross Perot.

This long ago incident came to mind because I just got through listening to an hour long NPR radio broadcast including military and strategy “experts” about the war in Iraq and what should be done about the current military “surge” strategy and the Iraqi government, such as it is. I marveled at what I heard as one proponent of the war and two opponents chatted away as though the war was some theoretical exercise being carried out on some far away alien planet.

I have often wondered if all the politicians and pundits in Washington, from the White House to Capitol Hill, really are totally out of touch with what the American people think and want. It seems to me, Americans want a definite end to our participation in this senseless religious civil war in a faraway nation that seems incapable of managing its own affairs. Whatever your personal view of the war in Iraq, none of us can trivialize the great dangers and death war entails in this modern age. Dangers for the many brave American, British and other allied men and women who have been on the front lines for over four years. Dangers and death for the civilian population of Iraq. And the real possibility of unforeseen dangers for our own future and that of our children.

However much we may disagree with government policies, we are unified when it comes to wishing well for and supporting the soldiers, sailors, airmen and women who have been commanded into military action. But at some point this war has to stop. It has been said that “truth is the first casualty of war.” In this war Americans’ liberty and freedom also have suffered terribly. We may never regain our constitutional system that has been stripped of due process, habeus corpus, the right to counsel, the right to face one’s accusers and the right to be charged or released.

Is it any wonder that Americans and those in other nations think that media, government and politicians lie? Is it any wonder many do not vote? And do these politicians and the media really think we are as dumb as their patronizing treatment of us suggests? I cannot predict when, but I must hope that there will come a day of reckoning for these political PT Barnums who think we are all suckers. But I must confess that the current crop of potential presidents impresses me as so many political pygmies maneuvering for personal power.

I leave you with a quotation from the late Pope John XXIII who told us, “Consult not your fears but your hopes and dreams. Think not about your frustrations, but about your unfulfilled potential. Concern yourself not with what you tried and failed in, but with what is still possible for you to do.”

BREAKFAST WITH BIN LADEN

Sorry, I forgot to be scared.

It has been an interesting month. I have been breakfasting with Osama bin Laden rather often lately. I can hardly open my morning paper nowadays without reading about al Qaeda. Apparently, there are al Qaeda cells all over London, al Qaeda cells being smuggled into the American heartland across the Rio Grande via Mexican traffickers, al Qaeda cells on the plane and al Qaeda cells in the doctor’s surgery. Truly, Osama is the busiest fear-monger’s mascot alive today.

We are told that al Qaeda is back in business, having rebuilt its operational capabilities to pre-9/11 levels, at least according to a classified draft report from the National Counterterrorism Center leaked to the Associated Press last week. The “secret” report, entitled “Al-Qaeda better positioned to strike the West”, emerged, like so many previous leaks, at a time when the Bush Administration finds it convenient to distract the public with worry about terrorism.

The reported al Qaeda resurrection might sound like bad news for the Bushies – proof that their so-called “war on terror” was ill conceived and has been badly bungled from the start. And of course it is that, but it can also serve as fodder for their own propaganda, so long as they keep the right spin on it.

It is a simple matter of accentuating the positive – of steering away from issues of competence, and toward the healing political balm of mass public fear. Because, when it comes to incompetence, the Bush Administration’s failure to contain al Qaeda is but an amuse-bouche, easily forgotten amid the lavish banquet of failure laid out from New Orleans to Baghdad.

With Iraq spiralling into anarchy, the White House struggling to keep its numerous high crimes and misdemeanours hidden from Congress, and Heckuva-Job Bushy’s approval rating in the toilet, it is time for the Administration to “run home to Momma,” i.e., to fear-mongering, and welcome the old bin-Laden bogeyman to the stage. And, man, that guy is everywhere these days. He is blowing up everything that moves in Iraq. He is setting fire to cars in Glasgow. He is swimming the Rio Grande. He is all over the map. Hell, he is at my breakfast table right now, in fact.

Bush is betting that Americans will once again be too frightened to think critically, as they have proven themselves generally to be since 9-11. Whether there is now finally enough evidence of the Administration’s unfitness to govern to sustain this traditionally winning strategy remains to be seen. It is a pity to consider that the boldest strategy one can attribute to a president might be nothing more than a risky propaganda campaign, but there it is. Having failed at virtually everything they set out to do, the Bushies are back doing the only thing that they do well: sowing fear.

Can Osama keep Bush afloat?

Bush has been deliberately conflating the real al Qaeda based in Pakistan with a sectarian crew called “al Qaeda in Iraq” (AQI). Every time AQI strikes, Bush calls it an al Qaeda strike. The fiction he is encouraging is that the U.S. really is fighting Osama in Iraq. White House flack Tony Snow summed it all up, explaining to sceptics that, “When somebody tries to argue that al Qaeda in Iraq is not a key part of the problem, it creates a basis for saying, well, you need to go someplace else.”

So the Administration has admitted it. People have got to be told that the U.S. is fighting Osama in Iraq (where he is not), or they might expect him to be fought in Pakistan (where he is). It is clear that the Bushies have no intention of fighting the real al Qaeda management team, who are official guests of the nation of Pakistan and will not be going away any time soon. We will be stuck with Osama & Co. for some time to come, that is for sure.

But how serious are the threats? Does AQI have any plan to widen its sphere of violence? Does Osama’s al Qaeda network intend to attack the USA again? Are the two outfits really willing to work together? Bush wants us to believe all of those things, and he is getting some support from the report by the National Counterterrorism Center (NCC), recently leaked to the Associated Press. Interestingly, the NCC report says, “[the real] al-Qaeda will probably seek to leverage the contacts and capabilities of al-Qaeda in Iraq (AQI), its most visible and capable affiliate, and the only one known to have expressed a desire to attack the homeland.”

Forget for a minute the Goebbels-ish harmonics of a phrase like “the homeland” in a document of this sort. We seem to have a contradiction here. Consider Bush’s political needs: the real al Qaeda simply has got to be hot to attack the Fatherland. How else can the Administration justify the Iraq war, its illegal mass eavesdropping, its so-called “Patriot” Act, its mass scouring and preservation of our personal details in government databases, its vast budgets for dubious “counterterrorist” programs and gadgets, its unconstitutional military kangaroo courts, its rendition program, its torture policies, and its secret prisons?

That is an awfully heavy load to put on Osama’s shoulders, so he had better be poised to strike at any moment. But the report says al Qaeda will “probably seek” to involve AQI as a proxy force against U.S. targets. And AQI is said to be the only al Qaeda affiliate willing to do this.

Not all that fear-inspiring, is it? Especially when you consider how much the Bushies have got riding on the notion that Osama is ready to lash out again. Mass illegal wiretaps? Osama. Suspending Habeas Corpus? Osama. Secret prisons? Osama. “Enhanced interrogation techniques”? Osama. National security letters? Osama. Hundreds of billions wasted on dubious law-enforcement, intelligence, and defence schemes? Osama. National ID cards? Osama. Fingerprinting tourists? Osama. Oh, and the Iraq war does matter after all, because there is a violent outfit over there with “al Qaeda” in its name. Yep, Osama.

Bush’s vehement assertions of intimate links between AQI and the real al Qaeda lack any hard evidence to back them. It is a pity for the Bushies, because now that the senseless bloodletting caused by American forces, both directly and indirectly, has far exceeded that perpetrated by Saddam Hussein, Bush needs a monster in Iraq considerably worse than the late dictator. Indeed, at this point, he needs a monster worse than himself. Naturally, bin Laden’s al Qaeda would fit the requirement. Unfortunately, there appears to be scant evidence of its involvement.

What about the NCC report’s claim that the real al Qaeda has rebuilt itself, and can now operate pretty much as it did before 9-11. And this ought to be enough to scare everyone, except for a very important piece of missing data – an indication that bin Laden actually wishes to attack the USA. Most readers have heard of the infamous 2001 Presidential Daily Briefing entitled “Bin Laden Determined to Strike Inside the U.S.” That must have been based on actual evidence, because it was not terribly long before bin Laden did strike. But the NCC report’s title is Al Qaeda better positioned to strike the West, which says nothing about intent.

We can be confident that if the report contained any concrete talk of al Qaeda’s intent to strike, that would certainly have been the lead. So here again, there appears to be no solid reason to be afraid that Osama is going to attack the USA. Everyone assumes that he wants to because he already did it once, and because he says hateful things about Westerners. But actually, he might not have much motive for staging an encore. I should think, as far as the USA is concerned, it is pretty much “Mission Accomplished” for al Qaeda. America has been on a remarkably self-destructive path since 9-11, and I think Osama would regard this with glowing satisfaction. I cannot see why he would strike the U.S. again, as the damage from his first effort is both spectacular and ongoing, and is being carried out by the Americans themselves.

For all the recent talk about al Qaeda, clearly, the U.S. threat horizon looks the same as it has since 9-11. That is, pretty vague, and populated by wannabes. This was summed up perfectly two weeks ago by U.S. Homeland Security Secretary Michael Chertoff, who claimed to have “a gut feeling” that a major terrorist attack is coming to America this summer. In other words, there is no evidence of an impending attack, or even of a feasible plan for one, but the Administration would be most grateful if Americans were to remain too preoccupied with fear to question their Masters in Washington.

Sleazy though the fear gesture is, I think Bush will get away with it. And this brings up an interesting question: How do the Bushies continue to fail spectacularly at everything they promised to accomplish after 9-11, without being brought to account? In a recent column entitled “All the President’s Enablers”, Paul Krugman got it completely wrong. His thesis was that Washington careerists, Administration loyalists, and Congressional sympathizers are primarily responsible for keeping Bush insulated from the consequences of his misapprehensions and errors – indeed, even from knowledge of them.

I say rubbish. The press has been the worst culprit in “enabling” the erosion of sane U.S. domestic and foreign policy in the wake of 9-11. From that day, the entire American print and TV news corps resigned en masse, and took new assignments as dealers in unfiltered government propaganda. Yes, the Bushies asked for the war, and yes, Congress authorized it, but the mainstream news industry enabled it. They literally sold it.

The USA is stuck in Iraq, mired in a hopeless struggle against armed, violent people who were not their enemies four years ago, and it is all because the American press did not have the courage to research the Administration’s claims. They did not seek because they did not want to find. They did not want to learn the truth, because they knew that they would not have the courage to speak the truth if ever emerged, inconveniently, before their eyes. If they had encountered the truth, they would have had to experience their own cowardice for not telling it. So they simply did not ask.

They said they felt an obligation to encourage the American people to come together as they grieved for the atrocities of 9-11. I say rubbish. This is no different from the reason why journalists in repressive dictatorships keep silent. In the end, it boils down to two words: “I’m afraid.” Certainly, when the threat is a bullet in the back of the head, being afraid is no disgrace. But when the threat is merely being called unpatriotic, or insensitive, the disgrace is, or should be, worse than any self-respecting adult would ever invite.

What do we call people who sow fear, hoping to intimidate the public with threats of violence to advance their own interests? What is the word I am looking for? Yes, that is right. We call them terrorists. The Bush Administration certainly qualifies as a terrorist organization. It has played the fear card for political advantage so many times, it is virtually impossible to cite an instance when they did not exaggerate the threats facing Americans today.

But what about organizations with an economic rather than a political motive? News organizations want to sell papers and attract viewers – and fear sells. If public anxiety is encouraged through deliberate distortions and exaggerations, as the mainstream media have been doing shamelessly since 9-11, is that not pushing the envelope? When the UK media inflates the nitwits behind the recent car “bomb” fiasco into al-Qaeda operatives, have we not just been manipulated by fear in the political realm? And is that not pretty much the standard definition of terrorism?

I will confess it. I go down the pub and drink with colleagues in the press. So, yeah, I party with terrorists a few times a week, and I breakfast with bin Laden almost every day. It is a wonder I am not in a cell down at Gitmo.