Wealth International, Limited

Offshore News Digest for Week of September 10, 2007

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


With the increased globalization of businesses, rapid growth of new economies, and ever decreasing air fares, more people than ever before are taking up roots and moving overseas in search of a new life. We look at some of the most popular expat destinations around the world and see how they compare.


People’s perceptions of London tend to vary widely. Some see a hectic dog-eat-dog environment, some see opportunities to make their name, fortune or both, others are simply drawn by the capital’s heritage, history and reputation as both a top party destination and the gateway to the rest of western Europe. Whichever, thousands line up each year to give it their best shot.

While the work permit system is designed to protect British workers, in reality most sectors are open to expatriates who have either secured a job in advance or belong to one of the visa categories that allow them to enter the UK and then look for work. Some professions, such as teaching and social work, are constantly struggling with staff shortages so any qualified person stands a good chance of finding work in these areas.

These employment and cultural positives come with a hefty price tag. According to the Economist Intelligence Unit, London is the 7th most expensive city in the world. Residential rents in London are notoriously high – the average one bed flat costs around £1,000 per month – and trend is slightly upward.

New York

The epicenter of global trends, a media and publishing hub, the core for the financial industry, the greatest city on earth and certainly up there with the most expensive. But the cost of living in NYC is high and seems to always be creeping ever higher. Manhattan is often seen as a desirable neighborhood, but it is worth considering the boroughs since the gentrification process sweeping the city is turning certain areas into gems. Certain areas of Brooklyn are already surpassing parts of Manhattan in terms of property prices and general standards of living.

You will need a job that pays well if you want to keep up – but getting and staying there is not easy. Immigration law in the U.S. has grown into a daunting body of law. It is not for the faint of heart, but with some perseverance and a lot of patience, you will learn to navigate the system, as millions of others before you.

Once employed in New York, you will most likely find that the job you worked so hard to get looks after you pretty well. But be aware that New Yorkers generally spend over half their salary on rent and then a large proportion on dinner and going out. Take this as par for the course. Rents in New York City only seem to go in one direction – up.


Singapore offers a taste of Asia in a clean, modern and safe environment. Life here moves at a bit more of a “tropical” pace than that of Japan and China, but still offers plenty of buzz and excitement. And on the whole life can be quite comfortable for the traditional expat with the services of a maid, a large, modern residence with all the facilities, and a commute that probably will not exceed 15 minutes. Salaries may not be as high as they once were but taxes remain low and entrepreneurs will love the excitement that comes with being in the fastest growing economic region in the world. It has a vibrant, international business environment and provides excellent opportunities for regional exposure and career advancement.

It is fairly common for expat employment contracts to include an accommodation allowance, providing you with a set amount of money to put towards the rent at a residence of your choice. It is unlikely your contract will specify your accommodation unless the contract is a short-term one, in which case your employer may arrange a hotel suite or serviced apartment for you. If not, be aware that landlords have been increasing rents by 5-10% since 2006.

Hong Kong

Hong Kong is an exotic, attractive and exciting destination and seldom do people pass up the opportunity to move here. It is surprisingly rich in cultural and scenic gems. With a city so dense, a territory so mountainous and a coastline so indented, a modest 1000 square kilometers can provide an incredible number of attractions. You can have a lifestyle that is a good mix of both East and West, and Hong Kong is one of the few places in Asia where people stay on and make it their permanent home, happily and contentedly.

The Asian Financial Crisis of 1997 took its toll as companies downsized and expatriate packages changed, but now, as the economy is picking up, expanding housing allowances and generous relocation packages are making a comeback. It is home to many international companies, because of its sound legal and financial infrastructure, low tax, reasonably stable government and its geographic location. Foreigners and locals have worked side by side for close to two centuries, with big rewards and few frustrations. But be aware that housing in Hong Kong is extremely expensive, whether buying or renting, making even London look like a cheap alternative.


Sydney has a near-perfect climate, economic robustness, democratic political and legal systems, significant arts and entertainment, and third generation communications. No wonder it is one of the world’s most popular draws for migrants. Living and working standards are among the best on earth and Sydney regularly appears near the top of the Economist Intelligence Unit’s survey of the world’s most liveable cities.

Expats from more affluent nations might balk at the modest salaries: entry-level assistant store managers earn about £15,000 ($30,000), while corporate lawyers with five years’ experience get about £57,000. However, as Sydney becomes more desperate for skilled workers it is becoming an employee’s market. The cost of living is generally low for staples such as food, public transport, taxis, and domestic flights, but residents bemoan tax rates and property prices. A good 2-bedroom apartment in the sought-after eastern suburbs will cost at least £900 a month to rent. Mortgage repayments on the same place could be twice as high.


The meteoric growth of Dubai has not gone unnoticed, and each year thousands of expats arrive to claim a slice of the action. The sun shines almost every day of the year, the shopping, leisure, sporting and entertainment facilities are excellent, and best of all, the salaries are tax-free.

However, with Dubai’s dizzying growth and rising popularity, the expat experience has changed in recent years. Whereas once it was easy for an expat to walk into any job, nowadays more competition means that employers can be more choosy. And with so many candidates from all over the world who have equal qualifications and experience looking for a slice of the action, salaries are dropping. The cost of living is on the up too, with rents in particular seeing huge increases over the past couple of years. Prices for apartments match and even outstrip London (although you will likely get access to a pool and gym) and you have to buy an entire year’s rent in advance. To make it worthwhile you may need to hold out for a good expat package with housing, schooling, and medical expenses all included, but these are becoming rare. Jobs in certain industries (such as real estate, engineering and construction) are likely to be much more available in the UAE due to the continued efforts to establish Dubai as a tourist and business center. Summers are ridiculously hot.

Link here.


Many of whom fail to open up an offshore financial account.

According to a recent study from Isle of Man savings bank Alliance & Leicester International, almost a third of expatriates move overseas to land the jobs they want, and the expatriate community is becoming more diverse than ever. 40% are relocating to destinations such as the Middle East, Australia and the USA to further their careers. More recently, expatriate communities as far as Africa, Singapore, Thailand and Russia have been growing.

Even though workers are relocating to more diverse locations, their lifestyle choices and financial habits remain similar. The research revealed that today’s expat has lived abroad for between one and five years (46%) yet 70% do not set up an offshore savings account immediately they relocate. And despite relocating in a bid to further their careers and earn better wages, expats are failing to save their hard earned cash in the best way.

Simon Hull, Managing Director of Alliance & Leicester International comments, “Although in today’s diverse society there is no such thing as a ‘typical’ expat, people consistently fail to open an offshore savings account when moving abroad. With reliable internet access now widely available in most countries, expat workers can safely and easily find the best ways to save their wages.”

Link here.


Panama has gained a phenomenal reputation over the last 24 months, and for those on the ground, its been a fantastic ride. Economic growth is hovering around 8% (vs. the U.S.’s feeble 0.6% annualized rate that has been most recently reported). International rating agencies such as S&P, Credit Suisse, and Merrill Lynch have all rated the economic growth outlook as strong. The Canal expansion project passed its referendum, and foreign investment is flowing in from China, Japan, North America, Europe, and the Middle East. Tourism is growing at double digits, among the fastest in the region. Flights to Panama from the United States are frequently sold out.

The government is devoting resources to some much needed infrastructure and public works projects. A-list celebrities have visited and bought property. Famed international speculator Doug Casey has even called Panama “the western hemisphere’s Dubai”, an accolade that underscores its investor-friendly government. The flow of personal wealth into Panama is astounding. Years ago, the place for wealthy Latinos was Miami. Today, due to a variety of geopolitical reasons, that migration has shifted to Panama. As the wealth shifts south, the sophistication, class, amenities, and luxury of Panama City is rising. If I were to compare Panama to a business, I would say it would be similar to Google, right before it went public in 2004.

Many readers have made the short journey to Panama, perhaps multiple times, and noticed that real estate prices are certainly not what they used to be. This is true. But aggregate prices are still a comparative bargain. Miami and Costa Rica are both at least twice the price. Nicaragua is cheaper, and while it is a beautiful country, the infrastructure and sophistication are lacking. More importantly, though, if one considers long-term trends, migration patterns have barely scratched the surface of what Panama could actually be. Consider key markets:

By 2011, current housing permits show that approximately 11,000 units are scheduled to come available. The number may seem high at first glance, but considering the long-term demographic potential and the current numbers that reinforce that model, 11,000 may be far too few.

Prices of condominiums in Panama City have been bid up to dizzying levels over the last year because of baseless speculation and irresponsible developers. With only a 10% down payment, buyers could secure as many condos as they wanted with the expectation of being able to “flip” their investment to new buyers at a $50,000 premium. These flippers have been so overzealous in buying out entire projects that they are pushing prices up without end user buyers. Hey buddy, the State of Florida called, it wants its real estate crash back.

Finally the banks have wised up and are now required 30% down payments. Naturally, the additional 20% weeds out speculators. Prices in the city are now running $2,000 to $3,500 per square meter, significantly higher than $800 to $1000 only 2 years ago. We can thank the speculators for that.

But a new trend has emerged – suburban living. Think about it. Do you really want to be smack-dab in the middle of Panama City? If you have never negotiated the traffic at rush hour, you might want to try it before you buy your retirement condo. Noise, pollution, overcrowding are problems in all big cities, and Panama City is no different.

Suburban living is an unfamiliar concept to Panamanians, unlike with foreigners. A few foreigners have tried buying small parcels of land near the city and building a home, only to find out that dealing with the government, permitting, subcontracting, and getting utility infrastructure established are all far too expensive, stressful, and time-consuming. There are a handful of turnkey developments located within a 30-minute drive to Panama City that would be excellent alternatives to the busy, noisy, expensive city-life.

Link here.


In a previous article I discussed the ten things I love about Montevideo. I had thought it would be logical to follow with my list of ten things I hate about Uruguay. But there is nothing I hate about Uruguay. Besides, I think it would be impolite of me to make such a list about a country I want to make my home. So I decided instead to write about things I find puzzling about Uruguay. By puzzling I mean I do not clearly understand the cause or how other countries have managed to overcome these issues. I am sure there are must be good explanations for these things, so feel free to write in to share your insight. Here are five things I find puzzling about Uruguay:

  1. Tourism. Revenue from tourism and related services represents more that 30% of the Uruguayan economy. Given that fact, I would have expected the tourism industry to be efficient and service-oriented, but it is not. Here are a few examples based on our recent 4-week vacation in Uruguay: Many restaurants do not accept credit cards, anything other than local currency. Making reservations at hotels and cabañas through email or online can take several days to yield a response. Most hotels require upfront payment in dollars, in cash. Tourism information booths are often closed or when open insufficiently staffed with under-trained attendants. Businesses often do not follow the hours of operation posted outside.
  2. Cash. Cash is still king in Uruguay. Transactions involving large sums of money are often done in cash. For example, renting a home, buying a used car often requires cash, and in many cases dollars. Most small businesses do not accept credit cards or checks.
  3. Bureaucracy. The inefficiency of bureaucracy is pervasive and seems to be ingrained in the culture or mind set. The cost to society must be huge, yet it lives on.
  4. Computers and internet sites. Most small and medium sized businesses have little or no internet presence. E-mail is still seldom used as a business tool. Most government agencies and small businesses use computers only as an office tool, rather than as a tool to streamline operations and increase productivity.
  5. College education. A modern economy needs all kinds of skills that fall outside what is offered in the typical college degrees in Uruguay. It seems that by providing free higher education the government provides incentives for training in fields for which there is little or no internal job market and fuels emigration. As it is structured, the system appears very counterproductive.

I do not know enough about the underlying economics and politics to put the pieces together. I recognize that many factors may be at play including demographics, the impact of the 2002 recession, alternative markets, politics, corruption, government policies, etc. However, other countries in the region have or are overcoming similar challenges and obstacles.

Link here.


If you are a U.S. person lucky (or smart) enough to live in a country that either has territorial-based income tax or does not tax foreign investment income, you still might be caught in a conundrum. This just happened here in Uruguay last month when Uruguay imposed a personal income tax, but excluded foreign investment income from the new tax. This created a tax conundrum for U.S. persons:

The upshot was noted by one of our correspondents in this way: If you take income as earnings, the USA will give you an exemption but then Uruguay will require payment. If you take it as a dividend, UY will give you a break but then the USA will want their cut.

Fortunately, there is a way around this problem.

If you set up a limited liability company (LLC) and you are the sole owner, you can file IRS form 8832 and elect to have it considered a “disregarded entity” for U.S. tax purposes. Have that company “earn” the money (and take advantage of the U.S. earned income exclusion), and then have that same company pay you a dividend from outside Uruguay so that it is tax-free investment income here. There are other solutions, depending upon size, but this is the simplest.

Link here.


Seek to curb the ability of hedge fund managers to defer offshore compensation.

U.S. Representative Rahm Emanuel (D-Illinois), a member of the House Ways and Means Committee, announced his intention to introduce legislation to curb the ability of hedge fund managers to defer unlimited amounts of offshore compensation. “Hedge fund managers and average Americans should be treated equally when it comes to the taxation of deferred income,” said Emanuel.

Most Americans can defer income through a 401(k) and an Individual Retirement Account (IRA). In 2007, an individual can defer up to $15,500 in income into a 401(k), or similar account, and an additional $4,000 in an IRA. U.S.-based hedge fund managers who operate offshore investment funds usually arrange that their fees and profits-related compensation can be deferred within the funds’ offshore assets, meaning that they are not liable to U.S. taxation until and unless they are remitted to the U.S. or into the hands of the managers.

Democrats say that this is inequitable. Others point out that the hedge fund managers would simply leave if their tax advantages were removed, and that any U.S.-based manager of an offshore corporation, hedge fund or not, has equivalent treatment. Corporations frequently point out to Congress that it is only the existence of “offshore” that permits them to compete with foreign companies that are not hobbled by rules as complex and punishing as those of the U.S. tax code.

Hedge fund managers, like private equity managers, attract plenty of attention because of their high earnings, especially in an election year. According to an annual ranking of the top 25 hedge fund earners by Institutional Investor’s Alpha magazine in 2006, the average amount they earned was $570 million. In total the top 25 earned a combined $14 billion. Emanuel’s bill would:

If Emanuel’s bill passes his Committee, it is likely to be incorporated in a portmanteau tax bill being prepared by Rep. Charles Rangel (D-New York), chairman of the House tax panel, who has said he plans to hold hearings delving into the offshore-deferral issue.

Link here.


Representative Sander Levin (D-Michigan) has introduced legislation designed to tempt tax-exempt entities to invest directly in U.S.-based hedge funds rather than routing their investments offshore. The bill seeks to amend the IRC to provide that indebtedness incurred by a partnership in acquiring securities and commodities is not treated as acquisition indebtedness by organizations which are limited partners for the purposes of the unrelated business income tax.

Under current law, tax-exempt entities that invest in hedge funds are subject to unrelated business income tax (UBIT), due to the debt incurred by the fund. The debt-financed income rules were created decades ago to address a separate issue, but Levin says they have forced tax-exempt investors to channel their investments in hedge funds through offshore “blocker” corporations.

“[T]his bill will fix a problem that unfairly forces our pension funds, universities and foundations offshore to make certain investments,” said Levin. “These rules were never meant to apply to this kind of investment, and we should allow these institutions to bring their investments home.”

The bill would create an exception to the debt-finance income rules that would allow all tax-exempt entities to invest directly in onshore hedge funds without being subject to UBIT. The bill is modeled on the exception to these rules that currently allows pension funds and universities to invest in debt-financed real estate. However, this exception would be available to all tax-exempt entities, including foundations.

Link here.


Senate Finance Committee Chairman Max Baucus (D-Montana) has called on the IRS to make better use of information reporting documents in order to collect more of the $345 billion “tax gap” – the gulf between Federal taxes legally owed and those actually collected each year.

A Treasury Inspector General for Tax Administration (TIGTA) report released on September 11 found that in tax year 2004, the IRS failed to match almost 4 million income statements to tax returns, allowing individuals to underreport their income or avoid filing tax returns altogether. The report also recommended tax law changes that would allow employers to validate employees’ Social Security numbers, a provision Baucus supported in 2006.

The TIGTA investigation found that mismatched statements accounted for $150 billion in earnings in 2004. TIGTA used automated data systems already in place at the IRS to match up 50% of the statements in the audit. Recommendations to use automated data systems already in place to research, investigate, and resolve miscellaneous document cases was an element also included in the Treasury Department’s plan to reduce the tax gap, delivered to the Finance Committee at Baucus’s request in August of this year.

In addition, the TIGTA report advised that the Treasury pursue tax law changes that would give employers the ability to use IRS databases to validate Social Security Numbers provided by job applicants.

Link here.


One of the five remaining defendants in the KPMG tax fraud case has pleaded guilty and agreed to cooperate with the U.S. government against the other defendants due to stand trial next month. David Makov, a former investment advisor who did not work for KPMG, entered a guilty plea to one count of conspiracy to commit tax fraud. In a statement read out in the in the federal district court in Manhattan, Makov also implicated three other defendants, John Larson, Robert Pfaff and R.J. Ruble. Makov also agreed to pay a $10 million penalty as part of the plea agreement, and is scheduled to be sentenced at a later date.

Makov’s plea is expected to strengthen the government’s case against the three men, as well as against Deutsche Bank, which it suspects of assisting in the creation of dubious tax shelters. Deutsche Bank, however, was not named in the court proceedings.

The government’s pursuit of what has been billed as the largest criminal case in U.S. legal history was rather embarrassingly derailed in July, when Judge Lewis Kaplan of the Manhattan federal district court dismissed charges against 13 of the 18 defendants (all but two of which were former KPMG employees), ruling that the government had denied them their constitutional right to counsel by pressuring their former employer to cut off payment of legal fees. While Judge Kaplan stated that his ruling had been made “with the greatest reluctance,” he decided that the Justice Department had “foreclosed these defendants from presenting the defenses they wished to present and, in some cases, even deprived them of counsel of their choice. ... This is intolerable in a society that holds itself out to the world as a paragon of justice.”

The former KPMG employees and the two other defendants were accused of helping to deprive the Treasury of some $2.5 billion in tax revenues by selling illegal tax shelters to wealthy clients, such as Bond Linked Issue Premium Structure, or Blips, which helped these clients create huge paper losses. During this week’s hearing, Makov described his involvement in crafting and selling the Blips strategies to clients. He told the judge that the creation of “paper losses and large fees for the participants, including myself was the sole purpose of these transactions.”

Makov is the second defendant to change his plea to guilty in the case. In March 2006, David Rivkin, a San Diego partner in KPMG’s “innovative strategies” group, told Judge Kaplan that he was pleading guilty to one count of tax evasion and one count of conspiracy. In August 2005, KPMG agreed to pay $456 million in penalties to cover former clients who participated in the tax shelters, which also included strategies known as Flip, Opis and Short Option Strategy.

Link here.

U.S. may level new tax shelter charges against Ernst and Young employees.

U.S. prosecutors are reportedly preparing to file a new indictment in connection with a case against former and current partners of the accounting firm Ernst and Young as part of an ongoing investigation into the sale of questionable tax shelters. The government has stressed that E&Y itself is not under investigation.

According to an indictment unsealed in the U.S. District Court in Manhattan in May 2007, between 1998 and 2004 the defendants and their co-conspirators concocted and marketed tax shelter transactions to be used by wealthy individuals with taxable income generally in excess of $10 or $20 million, to eliminate or reduce the taxes they would have to pay the IRS.

The indictment charges four individuals in 8 separate counts, including conspiracy to defraud the IRS, tax evasion, making false statements to the IRS, and impeding and impairing the lawful functioning of the IRS. All four individuals allegedly worked in a group set up by E&Y in 1998 to develop tax shelters, which was first named VIPER (Value Ideas Produce Extraordinary Results), and later renamed SISG (Strategic Individual Solutions Group).

Prosecutors say that the conspirators also sought to deceive the IRS about the legality of those shelters, and the circumstances under which the shelters were marketed and sold to clients. These shelters were said to include CDS (Contingent Deferred Swap), COBRA (Currency Options Bring Reward Alternatives), CDS Add-On, and PICO (Personal Investment Corporation).

Link here.


Or, another low tax jurisdiction.

According to Bermuda’s Royal Gazette, Wilhelm Zeller, CEO of Hannover Re, one of the world’s largest reinsurance companies, told a press conference at a reinsurance gathering that the $5.5 billion firm is considering moving from its present base in Germany, although he apparently ruled out a switch to Bermuda, which has seen a rise in incorporations recently.

“For us, the ideal location, from a fiscal point of view, would be Ireland,” Zeller stated, although he added that setting up headquarters in Dublin could be costly. While Ireland’s low 12.5% corporate tax and location within the EU is a big draw for reinsurance and other companies, Bermuda’s 0% rate of tax has lured many insurance companies to incorporate in the jurisdiction from high-tax countries like the UK.

Last year, Lloyds of London underwriting firms Hiscox and Omega set up companies in Bermuda, citing the UK’s the 30% income tax and its burdensome regulation. They were swiftly followed in January 2007 by another Lloyds firm, Hardy Underwriting plc. Bermuda recorded a 3-year high for reinsurance company incorporations during 2006, with an almost 10% increase in the number of new reinsurance companies incorporated in the jurisdiction over 2005, according to the Bermuda Monetary Authority.

A total of 82 new reinsurers were established in Bermuda in 2006. The majority of these new companies were large, highly capitalized reinsurers. Captive insurance companies also formed a significant proportion of the new incorporations. The 82 new Bermuda incorporations for 2006 compare favorably with figures recorded by other jurisdictions such as Vermont, which had 37, South Carolina with 29, and the Cayman Islands with 50.

Link here.


The European Court of Human Rights in Strasbourg will hear an appeal by two elderly British sisters who claim that they should be given the same legal rights as same-sex couples with regard to inheritance tax in the UK. UK inheritance tax laws allow property to be passed onto a spouse or civil partner without them incurring IHT. However, the law does not extend such rights to siblings, meaning that either Joyce Burden, 88, or her sister Sybil, 80, who have lived together since birth on their family-owned farm, will be faced with an inheritance tax bill on their £875 thousand house when the other dies.

Each sister has made a will leaving all her property to the other, and this would effectively mean that the Treasury will collect IHT twice on the same house when both sisters have passed away. [Ed: Evidently the sisters have not been informed about trusts, foundations, etc., which could accomplish the avoiding of double taxation.]

The Burdens previously took their case to the European Court of Human Rights, but, in December 2006, the court rejected their arguments in a tightly contested verdict, with the 7-judge panel voting 4-3 against the sisters. However, the slim majority verdict means that the sisters still have a fighting change of convincing the 17-member Grand Jury of overturning the original decision when the court rehears the case.

The four-judge majority opinion, which included the British representative, stated that, “In the circumstances of the case, the Court found that the United Kingdom could not be said to have exceeded the wide margin of appreciation afforded to it and that the difference of treatment for the purposes of the grant of inheritance tax exemptions was reasonably and objectively justified.” Judge Pavlovschi, from Moldova, in her dissenting opinion, argued that such a situation was “fundamentally unfair”.

Currently, inheritance tax in the UK is charged at a rate of 40% above a threshold of £300,000 in the 2007-08 tax year. Spouses are exempted from IHT on each other’s estate, as are same-sex partners who have registered under the Civil Partnership Act. However, an attempt by the House of Lords to insert an amendment into the legislation including family members over the age of 30 who have lived together for more than 12 years within the exemption was rejected by the House of Commons.

Link here.


The European trade union movement has denounced flat taxes as “contrary to the European social model” and has called on the government of Bulgaria, which recently entered the EU, to scrap plans for one of the lowest flat taxes in the EU. In a statement issued this week, the European Trade Union Confederation (ETUC) claimed that flat taxes put welfare systems under strain, increase poverty and do not not bring about higher rates of investment.

At a joint press conference earlier this week in Sofia, ETUC Deputy General Secretary Reiner Hoffmann suggested that flat taxes are “in clear contradiction to the principles of the European Social Model. ... From experience in other EU Member States there is no evidence that flat taxes improve competitiveness, but on the other hand they will put welfare systems and public services under pressure,” he said. “Only countries with decent and graduated tax systems, like those in Scandinavia for example, will meet the Lisbon targets of economic competitiveness, social cohesion and environmental sustainability.”

In August, the Bulgarian government revealed plans for a flat tax on personal incomes as a way to simplify the tax system and increase compliance rates. The government has said that the 10% flat tax will be introduced in October. It will replace a system within which income tax rates vary from 20% to 24%, but which also contains many concessions. “The introduction of the flat tax is expected to generate bigger financial resources for the budget and ‘bring to light’ the incomes,” Prime Minister Sergei Stanishev has said.

Finance Minister Plamen Oresharski told the Trud daily in an interview that the new system would also put an end to tax concessions. “The philosophy of taxation is either charging a high tax rate accompanied by numerous concessions and preferences or a low tax rate without any tax-free minimums or deduction of inherent expenses from the taxable amount,” he explained.

Flat taxes are becoming a favoured fiscal tool for governments seeing to improve rates of investment, and free market economists argue that they boost growth, efficiency, and competitiveness. A report issued recently by the Center for Freedom and Prosperity Foundation suggested that Iceland’s low-rate 18% corporate income tax, and 10% flat tax on capital income had done just that.

Estonia is another frequently cited example of successful flat tax reforms, with free marketeers noting how the Baltic state has been transformed from a moribund ex-Soviet satellite into one of the most successful economies in the region, in little more than a decade. When Mart Laar, former Estonian Prime Minister, took power in 1992, inflation in Estonia was over 1,000%, the economy was falling at a rate of 30%, unemployment was over 30%, 95% of the economy was state-owned, and 92% of Estonian trade was dependent on Russia. By 2005, inflation had stabilized at 4%, unemployment had fallen to below 10%, and GDP was estimated to have grown by a robust 7.4% in 2005.

Link here.


Canada’s opposition Liberal Party are developing new plans to alleviate the tax burden on income trusts, in preparation for the possibility of an early general election later this year. According to Liberal finance spokesman John McCallum the party would, if elected, replace a controversial 31.5% tax on income trust distributions brought in by the present Conservative government with a reduced 10% tax on all income trust distributions, which would be refundable to Canadian residents.

The Liberals are also said to be exploring the idea of a “toll” on companies converting into trusts, to reduce the number of trust conversions undertaken purely for tax reasons. The party is also considering banning certain sectors from forming trusts, such as federally regulated industries, including banks, telephone companies, railways and airlines. This represents a shift in the Liberals’ thinking on the issue. Initially, they favored lifting all restrictions on the income trust sector.

The income trust distribution tax was devised largely without consultation and announced without warning on October 31, 2006. While companies that had converted to trusts before the announcement have until 2011 before the new tax regime comes into force, new conversions immediately fall under the new regime, and several corporations with well-advanced plans towards converting to trust status have been forced to rethink their strategies.

Link here.


Mexican lawmakers have passed a key part of a tax reform package that will introduce a minimum flat tax on business, but with a sting in the tail: a new tax on large share deals on the stock exchange. The finance committee of the lower house of the Mexican assembly announced that it had approved the proposal for a minimum corporate tax of 16.5% in 2008, rising to 17% in 2009 and 17.5% in 2010. This was a central plank of President Felipe Calderon’s tax reforms, designed to increase tax revenues as a share of the economy and decrease the size of the “black” economy.

However, also approved by the finance committee was a proposal to removed tax exemptions on stock sales that involve a change of control of a company, or the sale of more than 10% of a company’s stock in a 12-month period. It is thought that this measure has come in response to a public outcry over the tax-free sale of Banamex bank to Citigroup in 2001, which was debated in last year’s Mexican presidential election campaign.

Other features of the tax bill approved by the committee included a 2% monthly tax on bank accounts containing more than 25,000 pesos ($2,250), refundable when account holders pay their federal income taxes. Calderon hopes the reforms will reduce the size of Mexico’s cash-in-hand economy and help achieve the government’s target of increasing tax collection as a percentage of the Mexican economy, which currently stands at 10% – one of the lowest in the Americas – by about 3%. Approximately 40% of Mexico’s revenues are collected in taxes paid by the state oil monopoly, Petroleos Mexicanos.

Link here.


As expected, Malaysian Prime Minister Abdullah Ahmad Badawi announced another 1% cut in the rate of corporate tax in the Malaysian government budget last week. In addition, he announced a slew of other tax measures designed to boost investment, notably in the area of Islamic finance.

In July, Second Finance Minister Nor Mohamed Yakcop revealed that the government would press ahead with its corporate tax cutting program, shaving an additional percentage point off of the rate in 2009 to 25%, a pledge that Abdullah duly delivered on in his budget speech. This continues a rolling program of corporate tax cuts announced last year by the Prime Minister, which has seen the rate fall by 1% to 27% this year, and will bring about a further 1% cut next year.

Abdullah also announced a generous package of tax breaks for the investment industry in an attempt to consolidate and build upon Malaysia’s position as one of the leading centers for Islamic finance. As a result of the budget measures, fund management companies will be given income tax exemption on all fees received for Islamic fund management activities until the 2016 year of assessment.

The Prime Minister disappointed individual taxpayers who were hoping for a cut in the 28% top rate of income tax by leaving income taxes on hold. This surprised analysts, who expected Abdullah to include such a populist measure in the budget ahead of impending elections, which could be held at the end of this year, or early next year.

Link here.


A senior finance ministry official has indicated that the Taiwanese government is keen to cut the country’s rate of corporate tax to attract more investment, but suggested that this is unlikely to take effect until 2009 at the earliest. Chang Sheng-ford announced that the 25% corporate tax rate could be cut to 16.5% or lower, but revealed that this would not happen until the Statute for Upgrading Industries has expired in 2009. This statute was promulgated in 1990. A cut in corporate tax to 16.5% would put Taiwan on a par with Hong Kong, perhaps the most successful economy in the region.

A corporate tax cut could be included in a tax reform package being considered by Taiwan’s Council for Economic Planning and Development, which aims to improve the business environment. Such a plan is widely supported by the business community and could be announced later this year. However, the plan is unlikely to gain legislative approval before the end of 2009.

Under tax reforms enacted last year, businesses and certain individuals in Taiwan are subject to a minimum tax, which was brought in to stop widespread tax avoidance. The “Alternative Minimum Tax” requires companies to pay a 10% tax on earnings of more than NT$2 million ($61,000) and individuals to pay a 20% tax on annual income exceeding NT$8 million. The Ministry had to fend off criticism which suggested that the AMT would lead to a reduction in foreign investment in Taiwan, pointing out that the tax would only affect about 0.7% of Taiwan’s 600,000 companies and only around 15,000, or only 0.2% of individual taxpayers.

Link here.


“The markets are in a period of transition," said George W. Bush in his speech from the Rose Garden on Friday, August 31. “[But] America’s overall economy will remain strong enough to weather any turbulence,” he added – and to prove it, the commander in chief just put the credit of the entire U.S. nation on the line.

Underwriting the $100 billion in subprime real estate losses forecast by his top monetary wonk, Ben Bernanke at the Federal Reserve, Dubya is in effect doing what many small-town U.S. banks did during the early stages of the 1930s Depression. Put all the money where passersby will see it, right there in the front window, just to prove that the money exists. That way, or so the logic runs, anxious depositors will see their money is still there ... and they will wait a while longer before forming a queue to empty your bank in a panic.

The big difference this time – besides the sheer size of Dubya’s bailout – is that Washington is putting America’s credit out front, rather than hard cash. The U.S. government does not have any cash to put on display. It owes the best part of $9 trillion already. Now George W. Bush is going to add the cost of subprime debt defaults on top, bailing out this summer’s crop of late-paying home buyers and underwriting the next two years – or more – of refinancing.

What is an investor to do when the government meddles so deep in the markets? Stocks leapt and the dollar slid back as news of Bush’s pork-barrel pledge spread. But during the credit market turmoil of August 2007, professional money managers had fled into the apparent “safety” of U.S. government debt. And U.S. bond prices fell sharply as the promise of fresh Treasury debt to fund Bush’s bailout became clear. The credit put on display in the Rose Garden is merely the credit of the U.S. government itself. And that credit only exists for as long as U.S. Treasury bonds find a bid at auction.

It is a bold move, to be sure. Bill Gross, head of Pimco, the world’s biggest bond fund, taunted Dubya’s man-of-action self-image, telling him to step into the subprime disaster: “Write some checks, bail ‘em out.” Larry Summers of Harvard University joined the chorus, too. “Now ... is not the time for the authorities to get religion and discourage the provision of credit,” he wrote in the Financial Times. We can only guess at the phone call that Ben Bernanke took from the West Wing midweek. “The government has got a role to play,” they must have agreed – a line Dubya repeated on August 31. And in dredging up credit to bail out the U.S. economy, the Decider’s 3-pronged plan is going to spear bondholders three times over.

  1. The Federal Housing Administration is going to guarantee loans for delinquent U.S. borrowers. Set up during the Great Depression, the agency already acts to insure mortgages for low- and middle-income borrowers. Now anyone more than 90 days behind with their payments will get government-supported finance at lower, more favorable lending rates. In other words, Washington is going to stall foreclosures by lending money to distressed debtors.
  2. Bush is going to ask Congress to suspend a U.S. tax provision that penalizes borrowers who lose their homes to repossession or who try to reduce the size of their loan by refinancing. Meaning that the government is going to cut its own tax receipts.
  3. The U.S. government will identify home buyers at risk of defaulting between now and 2009. For them, it will create “more favorable” loans, working with private lenders and insurers to reduce rates in the market and reverse the move away from higher-risk borrowers. Meaning that Washington is going to underwrite the next two years of subprime refinancing, actively seeking out defaults before they happen.

That means more new government-funded loans still. Because if the private banking sector cannot raise funds to keep subprime U.S. consumers in credit, then the U.S. Treasury will. Or so Dubya and Wall Street believe. But the last time America’s credit rating came into crisis – during the late ‘70s – inflation ate both equity and fixed-income investors alive. Gold, on the other hand, rose by 510% for dollar-based buyers. The metal rose five times over against the British pound too, and spot gold prices gained more than 370% for German investors. Japanese gold buyers made four times their money inside three years.

Of course, past performance is no guarantee of the future. But spot gold prices just closed in August up more than 4% from the end of last year, to record only the 11th month ever to top $650 per ounce. Six of those months have come in 2007 – and the global bid for gold only looks set to grow stronger as the panic of August slips into September.

Global demand for physical gold rose by 19% between April-June, according to the World Gold Council’s data. China’s gold demand surged by nearly one-third, says a Reuters report, while Turkey’s gold imports could set a new record and gold buying in the Middle East is set to rise as tourism grows. “We are seeing a very significant restocking process going on in the markets, primarily for India, as we are heading to the heavy festival season,” says Andy Montano, a director at ScotiaMocatta, the bullion bank, in Toronto.

Or perhaps foreign buyers will choose U.S. Treasury bonds instead of gold. Nothing is certain, not even the looming inflation due from record-high wheat prices and resurgent crude oil. And besides, George W. Bush just put the entire credit of the U.S. nation right there, out front in the shop window, for the whole world to see.

The gambit did not always stave off a run on the bank in the 1930s. But you never know. It might work this time. For a while.

Link here.
Gold regains its luster – link.


Could the U.S. government confiscate gold again?

In light of the bearish news affecting financial markets recently and the calls to pile into gold – which is generally considered a countercyclical asset and inflation hedge – a reader recently asked when the other shoe might drop. He meant if gold prices started rising too quickly, would the government not just outlaw gold and precious metal ownership, as it did in 1933?

That kind of stuff cannot happen in this day and age, can it?! True, we are not talking about just any commodity. The welfare statists and banking elite have a peculiar hatred for the metal, and today, they are joined by the environmentalists. Heck, all socialists hate the doggone thing. But they are the minority. Unlike 1933, most people are indifferent to it, as they are also indifferent to the long story of the fight for liberty and the progress of civilization seen through the precious metals as their circulation progressively widened its course through history. Indeed, this story, some thousands of years old, had abruptly ended only a few short decades ago.

If one could readily read this history in a gold bar, scarcely a whimper would exist past 1933, and 1971 would be the “end of history” as we knew it. Money is now paper, based on the full faith and credit of government, and only the winners get to write history – thus, gold has no utility and exacts a large social cost. In fact, reckon the winners, the only reason that central banks have not sold all of their gold reserves yet is to prevent harm from coming to those backward countries still dependent on gold mining. Thus, gold’s value is artificially buoyed by the central bank gold agreement, they say.

Not surprisingly, most people would decry gold’s monetary value while at the same time complaining about the general rise in prices and the many other side effects of an unhinged monetary system – which are typically attributed to the mysterious workings of the capitalist system instead. Yet those basic positions, unenlightened as they may be, happen to form the views of most politicians and central bankers, as well as the vast majority of people. And they alone constitute reason enough not to worry about confiscation, not at these prices.

Still, the question should be considered before investing in gold.

On Monday, March 5, 1933, investors woke up to this headline on the front page of The New York Times: “ROOSEVELT ORDERS 4-DAY BANK HOLIDAY, PUTS EMBARGO ON GOLD, CALLS CONGRESS”. From that point forward until 1975, anyone owning gold coin or bullion in the U.S. could be fined up to $10,000 (in 1933 currency) and imprisoned for up to 10 years, or both! Since it was unconstitutional to tell Americans they could not own something, especially money, FDR had to resort to a wartime emergency measure – the Trading With the Enemy Act – to check Congress.

Gold was an integral part of the monetary system back in the day. It was money. It did, in fact, prevent the central bank from providing liquidity to the markets at a critical moment for the inflation-induced boom, apparently making life difficult for millions of paupers. It interfered with the supposed need for a lender of last resort. Since reserves were gold, not paper, and could not be created out of thin air as today, the destruction of confidence in the banking system led to a credit crunch that proceeded to wipe out most of the stock market’s wealth in that era. That is, the gold standard prevented the central bank from doing its job!

Conventional wisdom blames the gold standard for “dramatic fall[s] in aggregate demand” leading to a “series of long depressions,” though, apparently, not a slowdown in actual production. This reasoning relies on the then-popular Keynesian explanation for the business cycle, rooted in the consumption paradigm, which assumes that consumption drives as well as delimits growth. The gold standard allegedly kept interest rates artificially high to begin with, but an overheating in final demand would force prices and interest rates up too much, resulting in a contraction in demand. The gold standard was also blamed for forcing wages and prices generally lower, especially in some sectors, like agriculture.

None of these contradictory objections hold water today. Keynes has long been discredited. More satisfactory explanations for the business cycle and the phenomenon of interest have survived. We found that cheap money does not eliminate poverty, and that despite eliminating the gold standard, the boom-bust cycle still occurs to this day. We have also discovered that the Depression was brought on by the effects of monetary expansion, the manipulation of credit and interest, and progressive era government interventions that hampered the economy (capitalism) and lengthened the Depression.

The real reason that the gold standard was abandoned was not because gold hoarders and foreign exchange speculators held the fate of the economy at ransom, or because it technically failed. The gold standard was done away with because it stood in the way of inflation and big government so we could have the world we have today – easy money, illusory prosperity, boom-bust, war, empire, and welfarism. Today, of course, it is difficult to blame gold for any of these shortcomings. The financial chicanery produced by central banks lay bare. Except they still write history.

Can they do it again?

Technically, yes. The president today has wider powers than ever. But circumstances do not favor it, and there are many obstacles.

First, at this precrisis gold price, such an act would simply hasten an actual crisis. It risks suddenly increasing the importance of gold in the public eye, while undermining confidence in the boom. Moreover, gold investors can probably also rely on the practically universal axiom that governments will always react to a crisis rather than preempt it – usually because they are the fundamental cause. Those few bankers and politicians who do understand and fear a realization of the value of gold are still likely overconfident in their ability to whip gold bugs with simple propaganda. They probably will not even raise their eyebrows until gold prices reach far beyond $1,000.

Then there is the question of why the government repealed its restrictions on gold ownership in the mid-‘70s, when gold prices had quintupled, and why there was no reconfiscation when gold quadrupled again in the late ‘70s, when people lined up at their banks to buy gold each payday?

One answer is precedent. The world now knows what it did not in 1933 – that it did not work anyway. But no gold standard stands in the way of the central bank’s monetary machinations today. Gold is not an integral part of the monetary system. Neither is gold money any longer. If it were, you could use it to buy a pair of sneakers at Target. So why pick on a scapegoat that has already been pushed over the cliff?

The only way gold could be blamed today is if it started to rise so fast that it began to unnerve the financial markets and caused yields to rise. You might see headlines such as, “The Ghost of the Gold Standard Haunts Wall Street”, “Gold Hoarding Causes So-and-So”, “Gold Speculators Hold Economy for Ransom”, and so on. Personally, I do not think they could prove that the increase in gold prices caused anything more than the increase in any commodity price. The key fact is that gold was outlawed in 1933 specifically because it was money and restricted the ability of the Fed to inflate. It was an obstacle to inflation.

But the idea faces other hurdles, too. The gold mining industry is still troubled, and the act would incite backlash from developing nations that rely on it, as well as from bleeding-heart liberals lobbying to subsidize those nation-states.

Moreover, it is doubtful that prohibition would be effective, due to technological factors, especially if the abolition of ownership was not a universal policy agreed to by all countries and central banks. Politically, given the current rift between both political parties in the U.S. that otherwise could not be more similar, some Americans believe that the act would make only fodder for another partisan squaring-off.

Still, despite these hurdles, concerns about gold and wealth confiscation are readily understandable in light of the increased looting of the government for subsidies and handouts today. Bastiat could not have found a more fitting example of a situation matching his metaphor of the state as a fictional entity where everyone is indeed living at the expense of everyone else. Consequently, the investment reality is that owning anything is “fraught with risk” in this day when politicians move the line between private and public property around like it was a skipping rope.

The prudent course is to diversify. Own some gold bullion, some coin collectibles (which were not outlawed in 1933, though coins were), and some mining equities, but also own other sound assets that will hold their value better than a Fed Note.

The precious metals are chiefly simple inflation hedges today – one class of many – and, historically, not even the best. I am bullish on gold here not because I hope that one day gold will be money again, but because I am convinced its monetary value will become widely recognized again in future. Notwithstanding, such a realization of value takes time, and gold would be at much higher prices before it became important enough to outlaw. At least there should be enough time to see it coming.

Link here.


“Everyone, it seems, is preparing for a coming wave of new bankruptcy filings,” noted a recent article in The New York Times. According to Robert Sheehan, the managing partner of the law firm of Skadden, Arps, Slate, Meagher & Flom, there is a tsunami coming in the bankruptcy arena. Mr. Sheehan made his comment before the recent stock market gyrations of the past couple of weeks, but he was merely looking ahead to what he apparently views, in his legal opinion, as the inevitable outcome of what has been going on in the U.S. economy these past several years.

The NYT article to which I am referring profiled an attorney named Richard Levin, who practices primarily in the field of bankruptcy law. Among his other accomplishments, Mr. Levin served from 1975-1978 as counsel to the U.S. House Judiciary Committee, where he helped to draft much of the present U.S. Bankruptcy Code. Mr. Levin has had a distinguished career in the bankruptcy field and was recently hired away from Skadden Arps, where he had been a partner for a decade, to join the old-line New York firm of Cravath, Swaine & Moore. This is symbolic, if not significant.

In a profile published on July 25, the authoritative Dow Jones’ Daily Bankruptcy Review described Cravath as “the ultimate go-to firm,” and further noted that Cravath “has perhaps the most demanding hiring standards” of any New York law firm. So it says something loud and clear that Cravath is hiring the guy who literally “wrote the book” for modern bankruptcy practice in the U.S., to include drafting the 1978 amendments to the U.S. Bankruptcy Code. Combine this with the fact that Cravath previously had no significant bankruptcy practice in recent decades, although many of its attorneys have appeared often in the bankruptcy courts of many federal and foreign venues and jurisdictions. But it is fair to say that Cravath was not known lately as a “bankruptcy firm” in any respect. Rather, Cravath focused much of its large-caliber legal effort on what is called “transactional” work, such as putting together large merger and acquisition deals, or dealing with matters before the U.S. SEC and similar foreign entities. The blue chip client list of the white-shoe Cravath law firm includes such powerhouse organizations as IBM, Xerox, Merck, Novartis, the board of directors of TXU, Credit Suisse and the Carlyle Group.

The NYT article noted that “Cravath’s move, in the words of one bankruptcy lawyer in New York, was ‘a continental shift,’ a recognition by an old-line firm, however belatedly, that bankruptcy had moved beyond the days when it was the purview of collection lawyers chasing debtors to the courthouse.” The point is that within the past decade, many law firms like Cravath did not offer bankruptcy services to their clients. (There are lots of client-conflict issues, among other reasons.) Top-line firms likely would have referred the bankruptcy work out to other firms.

But things change. Bankruptcy has become a serious, and certainly respectable, form of law practice now, and can be a large moneymaking part of a major law firm. A few lawyers recently cracked the psychologically important mark of charging over $1,000 per hour. And the bankruptcy judges seem to approve the fees, too. So let us put 2 and 2 together. Large mainline, white-shoe law firms are building up their bankruptcy practices because they expect a lot of that kind of “debtor-chasing” business to come through the doors in the near future and pay out big fees. And what else does the future hold?

First, let us catch up to the present. During the past few years, there has been a major change in corporate reorganizations. Prompted by the availability of easy – if not cheap – credit, many companies have loaded themselves up with debt. The debt was used for everything from making acquisitions and alliances to paying bonuses to managers to buying back stock options and outstanding shares. (On rare occasions, U.S. firms even use the borrowed money to build a new plant or factory, or to buy new equipment. Really, it has been known to happen.)

Much of this new debt was then repackaged by the loan underwriters into other forms of financial instruments and flipped, sold and resold down the line to a myriad of buyers who may or may not have understood the nature of the risks they were assuming. There are few ironclad guarantees in this world, but I can almost surely guarantee you that when the loans go bad and the time comes to litigate over who is not getting repaid, the jilted creditors will deny up and down at depositions that they understood the nature of the risks. They will claim, with straight faces, that they were lied to, misled, defrauded.

When the god of insolvency enters upon the stage and drops his thunderbolts upon these deeply indebted firms and they “breach a material covenant,” as the saying goes, they often wind up attempting a financial workout or visiting the clerk’s office of a U.S. bankruptcy court to file their petition and the critical first day motions. And just so you know, filing for bankruptcy is not something that you do when you have “no money.” It actually requires quite a bit of money for a business corporation to operate successfully in bankruptcy. Thus, strange as it seems, it helps to file for bankruptcy with money in the bank and receivables coming in (called “cash collateral”), or at least some sort of backup lender who is bold enough and willing to fund your operations after the bankruptcy petition is filed.

So welcome to the future, where the smartest of the smart law firm money is betting that many more business firms will be visiting the bankruptcy courts of the land. But how do these law firms think that they will get paid? In many ways, hedge funds and private equity firms have turned the corporate bankruptcy process into another form of return-driven market. Among other things, these cash-rich entities have come to view the bankruptcy process as a marketplace for assets they can try to purchase at distressed prices. For this reason alone (and there are others), the presence of hedge funds and private equity firms has significantly transformed the process of bankruptcy. They have brought new money to the table, and deep pockets.

But in a world where you have debtors in possession of bankrupt corporations, and creditors getting stiffed up and down the line, and lawyers and related professionals charging large fees, and deep-pocketed buyers waiting at the fringes to buy assets or participate in recovery plans, you will have many new and previously unexplored legal issues. Professor Douglas Baird of the University of Chicago Law School recently noted that “We are about to go into a period of bankruptcy history where there are going to be lots and lots and lots of really unclear issues.”

That sounds to me like a lot of unclear issues, and a lot of headaches for people who are standing too close to the coming bankruptcy tsunami. And that is why you as investors should stay away from indebted companies with poor cash flow. We congratulate Mr. Levin on the flattering report about him in the Times and wish him well at his new job. But we would prefer to read about Mr. Levin’s exploits in the pages of the newspaper and not own shares in companies on whose behalf, or against whom, he is litigating in bankruptcy court.

Link here.


Hedge funds’ presence in Caymans was form, not substance, rules judge.

The liquidators of Bear Stearns’s two Cayman-based bankrupt hedge funds have appealed last month’s ruling in the U.S. Bankruptcy Court in Manhattan, which denied their request to liquidate in the Cayman Islands rather than in the U.S.

The liquidators are appealing the decision by Judge Burton R. Lifland, which denied the shuttered funds’ Chapter 15 request, which covers cross-border liquidations. Chapter 15 protection would have allowed the hedge funds to liquidate in the Cayman Islands while giving the funds a higher degree of protection from creditors in the U.S. But according to Judge Lifland, the funds did not have enough of a presence in the Cayman Islands to justify their Chapter 15 request.

“There are no employees or managers in the Cayman Islands, the investment manager for the funds is located in New York, the administrator that runs the back-office operation of the funds is in the U.S. along with the funds’ books and records,” Lifland wrote in his ruling. However, Lifland granted Bear Stearns 30 days to refile its request before investors are entitled to seize assets.

The two hedge funds in question, the Bear Stearns High-Grade Structured Credit Strategies Master Fund and the Bear Stearns High-Grade Structured Credit Strategies Enhanced Leverage Master Fund, invested heavily in collateralized loans backed by sub-prime mortgages. A large percentage of the funds’ assets, most of which are in the U.S., had been repossessed by secured creditors, including Merrill Lynch and Bear Sterns itself, during the period before their bankruptcy. According to Reuters, the Bear Stearns funds once controlled around $10 billion in assets.

Link here.


The Swiss Association of Trust Companies is being officially launched on September 11 in Zurich and on September 12 in Geneva, in a bid “to encourage the professional and ethical development of an industry in full expansion in Switzerland.” The trust business is witnessing rapid growth in Switzerland, having more than doubled in size over the past five years. In 2007, as well, Switzerland ratified the Hague Convention on the Law Applicable to Trusts and their Recognition.

The primary objective of the association is to encourage the growth of the trust industry while upholding a high standard of quality, integrity, and professionalism. SATC has already enacted its bylaws and a code of ethics and conduct that members undertake to observe. It also aims to encourage the federal bodies to develop a set of specific rules applicable to trust companies that complements the existing regulations under the Swiss anti-money laundering regulations, drawing inspiration from SATC’s professional qualification criteria for membership and from the principles contained in its code of ethics and conduct. SATC will therefore also act as a partner for dialogue with the Swiss government.

The project for founding this association was conceived almost two years ago by two of the Swiss branches of the Society of Trust and Estate Practitioners. STEP, which brings together more than 700 individual members within Switzerland, is particularly focused on professional training and development for the trust professionals making up its membership. SATC intends to complement STEP and plans to unite trust companies of a sound reputation operating in Switzerland.

According to Kecia Barkawi-Hauser, President of SATC, Switzerland is a very favorable market for trusts. “The status Switzerland enjoys as an international financial market, the proximity to private banks, internationally renowned management and investment companies, along with the resulting synergies, all represent a major asset for the growth of the trust industry in this country. Furthermore, Switzerland benefits from an extremely qualified, multilingual and multicultural workforce that proves particularly valuable to trust activities. In this context, SATC will provide trust companies in Switzerland with an industry association devoted to best standards.”

Link here.


XPlite is program that will allow you to uninstall parts of XP that do not show up in the Add/Remove section in Control Panel (what XP should have done from the beginning). Its predecessor, 98lite, was renowned for the ability to strip a system down to conserve, what was then, valuable disk space. With the proliferation of large hard drives, space is no longer an issue for many of us, with the exception of laptops.

XP installs way too much stuff for many of us. You have heard the cries of the flame warriors in the forums and message boards, “bloatware, bloatware!” Well, one man’s bloat is another man’s feature (or so Apple tells us ). However, these flame warriors do have a point. We should be able to remove the parts we do not want. Removing unneeded and unwanted portions of XP has 3 obvious advantages: security, hard drive space savings, and control.

I cleaned my drive and ran Speed Disk. Then I made a Norton Ghost image and prepared to run the program. You do not need to install XPlite, it is an executable (.exe) file that will run from any drive/partition. Excellent! Initiate the application and then click “Next”. This takes you to the WFP (Windows File Protection) box. In order to make many of the changes, disabling this is necessary. You will do so and reboot, and click “Next” again. Let me stress something now, DO NOT FORGET to turn WFP back on! DO NOT uninstall stuff you know nothing about, or you will be sorry. What you choose to get rid of will depend on personal preferences and needs. Rather than list every one for you, here is a screen shot of the whole thing.

Everything is pretty straight forward. I choose what options I wanted to uninstall and clicked “Next”. I am not exactly sure why but I was asked for my XP CD during the process, no biggie. I rebooted and then turned WFP back on. I then rebooted into Safe mode and cleaned the drive again, rebooted and ran Norton Speed Disk. Checking the error logs, no errors have happened as a result of using XPlite (even after 2 days of use).

From the components I choose to remove, I gained approximately 230MB of hard drive space. The makers of the program state that it is possible to make XP itself take up under 350MB if you completely strip it down.

I had a theory that stripping some of the “features” from XP would make it faster. However, I am at a loss as to what benchmark I could use to produce reliable results in benchmarking the OS against the changes made. My conclusions:

  1. Does it deliver as advertised? Absolutely.
  2. Does uninstalling components with XPlite cause problems? After 2 days of use I encountered no problems.
  3. What do you gain by using XPlite? Security, hard drive space, and control.

While the uninstall components menu does offer a small explanation of what each Windows “feature” is, it is rather limited. I would like to see a more detailed explanation of the “feature” and possible problems with uninstalling that “feature”. They do have a small database of problems up, but I would like to see more.

I stopped giving out “awards” here some time ago. I will just tell you what I think about XPlite. It is a tweakers dream come true. A professional looking application, it delivers on the promise “Windows your way”. Not only useful in the home environment, it should strongly be considered as a solution by IT folks as well. I love this program and will continue to use it. Next time you see some flame warrior whining about XP’s bloat, just post a link to XPlite. In a nutshell, it simply delivers.

Review here.


The freedom to travel of more than 100,000 Americans placed on “watch” and “no fly” lists is being restricted by the Bush-Cheney regime. Citizens who have done no more than criticize the president are being banned from airline flights, harassed at airports, strip searched, roughed up and even imprisoned, feminist author and political activist Naomi Wolf reports in her new book, The End of America.

“Making it more difficult for people out of favor with the state to travel back and forth across borders is a classic part of the fascist playbook,” Wolf says. She noticed starting in 2002 that “almost every time I sought to board a domestic airline flight, I was called aside by the Transportation Security Administration(TSA) and given a more thorough search.” During one preboarding search, a TSA agent told her “You’re on the list” and Wolf learned it is not a list of suspected terrorists but of journalists, academics, activists, and politicians “who have criticized the White House.”

Some of this hassling has made headlines, such as when Senator Edward Kennedy was detained five times in East Coast airports in March, 2004, suggesting no person, however prominent, is safe from Bush nastiness. Nicolas Maduro, Venezuela’s foreign minister, said he was detained at Kennedy airport by officers who “threatened and shoved” him. And that was mild. Maher Arar, a Canadian software consultant was detained at Kennedy and “rendered” to Syria where he was imprisoned for more than a year by goons that beat him with a heavy metal cable.

After the Canadian furor over Ararwts illegal kidnapping and torture, he was eventually released as he had zero ties to terrorists. Yet the Bush gang refused to concede error, refused to provide documents or witnesses to Canadian investigators, and claimed last January it had “secret information” that justified keeping Arar on the watch list, Wolf noted.

Over and again, the Bush gang claims it can prove terrible crimes about suspects but, like the men imprisoned at Guantanamo, it repeatedly turns out to have “conspiracy” zilch in its briefcase rather than hard proof of actual misdeeds. Yet it goes on punishing hundreds of suspects with solitary confinement and worse without ever bringing them to trial. Globally, the number of such detainees is in the tens of thousands. Stalin would have understood.

Apparently, favorite targets of the Bush tyranny are peace activists like Jan Adams and Rebecca Gordon, detained at the San Francisco airport; a political leader such as Nancy Oden, of the Green Party, prevented from flying from Maine to Chicago; King Downing and David Fathi, both of the American Civil Liberties Union and both detained (proves ACLU’s case about Bush, eh?); and Constitutional scholar Walter F. Murphy, of Princeton University, who had attacked the illegalities of the Bush regime. He was put on notice his luggage would be ransacked.

Wolf traces the “watch list” back to a 2003 directive from Bush to his intelligence agencies to identify people “thought to have terrorist intentions or contacts.” After the list was given to the airlines, CBS-TV’s 60 Minutes got a copy. The list was 540 pages long and there were 75,000 names on it of people to be taken aside for extra screening.

The more stringent “no fly” list has 45,000 names on it, Wolf reports. Prior to 9-11, the list had just 16 names, but 44,984 suspects were quickly manufactured to justify the creation of the vast airport security apparatus at God knows what cost to American taxpayers.

Author Wolf notes that dictatorships from Hitler’s Germany to Pinochet’s Chile have employed arbitrary arrests to harass critics. Bush’s airport detention policies are more of the same. As Wolf writes, “being free means that you can’t be detained arbitrarily.” Somebody ring the fire bell!

Link here.


Minnesota authorities have missed a court-imposed deadline for turning over the source code for a breath-testing machine at the heart of a a high-profile dispute that recently made it to the state’s Supreme Court. That means now there is a greater chance that charges could be dropped against third-degree DUI defendant Dale Lee Underdahl.

The next step is a court hearing scheduled for September 19, Underdahl’s attorney, Jeffrey Sheridan, said. At the hearing, Sheridan is expected to ask the judge to throw out any evidence the state had obtained using the the Intoxilyzer 5000EN. If the judge agrees, at least the charge that his client was driving with a blood alcohol concentration above the legal limit of 0.08 would likely be dismissed. Sheridan had predicted last month that the Minnesota state public safety commissioner would not supply him with the source code to the device, as ordered by the Minnesota Supreme Court, by the August 17 deadline.

Minnesota Department of Public Safety representatives declined to comment on the case. Sheridan said the government has made no legal filings explaining why it did not comply with the deadline. The state has previously argued it is not entitled to the code because of its confidential, copyrighted and proprietary nature. But the Minnesota Supreme Court in July concluded that language in the contract between the device’s manufacturer, Kentucky-based CMI, and the state indicates the source code belongs by extension to Minnesota. The justices suggested the state must do whatever it takes to enforce that contract, even if it means, for example, suing CMI.

CMI, which bills itself as a leading maker of alcohol-testing equipment, says law enforcement agencies in 40 states and in Canada use its products. Its resistance to giving up its code, however, has already led to charges being thrown out or blunted in recent cases in other states.

Link here.


A classic 1984 essay by Bob Black skewers more than a few sacred cows.

My target is what most libertarians have in common – with each other, and with their ostensible enemies. Libertarians serve the state all the better because they declaim against it. At bottom, they want what it wants. But you cannot want what the state wants without wanting the state, for what the state wants is the conditions in which it flourishes. My (unfriendly) approach to modern society is to regard it as an integrated totality. Silly doctrinaire theories which regard the state as a parasitic excrescence on society cannot explain its centuries-long persistence, its ongoing encroachment upon what was previously market terrain, or its acceptance by the overwhelming majority of people including its demonstrable victims.

A far more plausible theory is that the state and (at least) this form of society have a symbiotic (however sordid) interdependence, that the state and such institutions as the market and the nuclear family are, in several ways, modes of hierarchy and control. Their articulation is not always harmonious (herein of turf-fights) but they share a common interest in consigning their conflicts to elite or expert resolution. To demonize state authoritarianism while ignoring identical albeit contract-consecrated subservient arrangements in the large-scale corporations which control the world economy is fetishism at its worst. And yet (to quote the most vociferous of radical libertarians, Professor Murray Rothbard) there is nothing un-libertarian about “organization, hierarchy, wage-work, granting of funds by libertarian millionaires, and a libertarian party.” Indeed. That is why libertarianism is just conservatism with a rationalist/positivist veneer.

Libertarians render a service to the state which only they can provide. For all their complaints about its illicit extensions they concede, in their lucid moments, that the state rules far more by consent than by coercion – which is to say, on present-state “libertarian” terms the state does not rule at all, it merely carries out the tacit or explicit terms of its contracts. If it seems contradictory to say that coercion is consensual, the contradiction is in the world, not in the expression, and cannot adequately be rendered except by dialectical discourse. One-dimensional syllogistics cannot do justice to a world largely lacking in the virtue. If your language lacks poetry and paradox, it is unequal to the task of accounting for actuality. Otherwise anything radically new is literally unspeakable. The scholastic “A = A” logic created by the Catholic Church which the libertarians inherited, unquestioned, from the Randites is just as constrictively conservative as the Newspeak of 1984.

The state commands, for the most part, only because it commands popular support. It is (and should be) an embarrassment to libertarians that the state rules with mass support – including, for all practical purposes, theirs.

Libertarians reinforce acquiescent attitudes by diverting discontents which are generalized (or tending that way) and focusing them on particular features and functions of the state which they are the first to insist are expendable! Thus they turn potential revolutionaries into repairmen. Constructive criticism is really the subtlest sort of praise. If the libertarians succeed in relieving the state of its exiguous activities, they just might be its salvation. No longer will reverence for authority be eroded by the prevalent official ineptitude. The more the state does, the more it does badly. Surely one reason for the common man’s aversion to Communism is his reluctance to see the entire economy run like the Post Office. The state tries to turn its soldiers and policemen into objects of veneration and respect, but uniforms lose a lot of their mystique when you see them on park rangers and garbage men.

The ideals and institutions of authority tend to cluster together, both subjectively and objectively. You may recall Edward Gibbon’s remark about the eternal alliance of Throne and Altar. Disaffection from received dogmas has a tendency to spread. If there is any future for freedom, it depends on this. Unless and until alienation recognizes itself, all the guns the libertarians cherish will be useless against the state.

You might object that what I have said may apply to the minarchist majority of libertarians, but not to the self-styled anarchists among them. Not so. ... Both camps call for partial or complete privatization of state functions but neither questions the functions themselves. They do not denounce what the state does, they just object to who is doing it. This is why the people most victimized by the state display the least interest in libertarianism. Those on the receiving end of coercion do not quibble over their coercers’ credentials. If you cannot pay or do not want to, you don’t much care if your deprivation is called larceny or taxation or restitution or rent. If you like to control your own time, you distinguish employment from enslavement only in degree and duration. An ideology which outdoes all others (with the possible exception of Marxism) in its exaltation of the work ethic can only be a brake on anti-authoritarian orientations, even if it does make the trains run on time.

My second argument, related to the first, is that the libertarian phobia as to the state reflects and reproduces a profound misunderstanding of the operative forces which make for social control in the modern world. If – and this is a big “if,” especially where bourgeois libertarians are concerned – what you want is to maximize individual autonomy, then it is quite clear that the state is the least of the phenomena which stands in your way. ...

If one looks at the world without prejudice but with an eye to maximizing freedom, the major coercive institution is not the state, it is work. Libertarians who with a straight face call for the abolition of the state nonetheless look on anti-work attitudes with horror. The idea of abolishing work is, of course, an affront to common sense. But then so is the idea of abolishing the state. If a referendum were held among libertarians which posed as options the abolition of work with retention of the state, or abolition of the state with retention of work, does anyone doubt the outcome?

Libertarians are into linear reasoning and quantitative analysis. If they applied these methods to test their own prescriptions they would be in for a shock. ... This is not to say that the state is not just as unsavory as the libertarians say it is. But it does suggest that the state is important, not so much for the direct duress it inflicts on convicts and conscripts, for instance, as for its indirect back-up of employers who regiment employees, shopkeepers who arrest shoplifters, and parents who paternalize children. In these classrooms, the lesson of submission is learned. Of course, there are always a few freaks like anarcho-capitalists or Catholic anarchists, but they are just exceptions to the rule of rule. ...

Even if you think everything I have said about work, such as the possibility of its abolition, is visionary nonsense, the anti-liberty implications of its prevalence would still hold good. The time of your life is the one commodity you can sell but never buy back. Murray Rothbard thinks egalitarianism is a revolt against nature, but his day is 24 hours long, just like everybody else’s. If you spend most of your waking life taking orders or kissing ass, if you get habituated to hierarchy, you will become passive-aggressive, sado-masochistic, servile and stupefied, and you will carry that load into every aspect of the balance of your life. Incapable of living a life of liberty, you will settle for one of its ideological representations, like libertarianism. You cannot treat values like workers, hiring and firing them at will and assigning each a place in an imposed division of labor. The taste for freedom and pleasure cannot be compartmentalized.

Libertarians complain that the state is parasitic, an excrescence on society. They think it is like a tumor you could cut out, leaving the patient just as he was, only healthier. They have been mystified by their own metaphors. Like the market, the state is an activity, not an entity. The only way to abolish the state is to change the way of life it forms a part of. That way of life, if you call that living, revolves around work and takes in bureaucracy, moralism, schooling, money, and more. Libertarians are conservatives because they avowedly want to maintain most of this mess and so unwittingly perpetuate the rest of the racket. But they are bad conservatives because they have forgotten the reality of institutional and ideological interconnection which was the original insight of the historical conservatives. Entirely out of touch with the real currents of contemporary resistance, they denounce practical opposition to the system as “nihilism”, “Luddism”, and other big words they do not understand. A glance at the world confirms that their utopian capitalism just cannot compete with the state. With enemies like libertarians, the state does not need friends.

Link here.


September 11, 2001, has become an exceptionally memorable date, and a great deal more, for Americans. Not simply the date on which the infamous terrorist attacks took place and the great World Trade Center towers collapsed with horrific loss of innocent life, 9-11 has become a compelling ideological symbol as only a few other dates in our history, such as July 4, 1776, and December 7, 1941, have become. A visual representation of the burning skyscrapers brings a plethora of associations instantly to mind and triggers a suite of strong emotions.

Any symbol of such tremendous evocative potency invites exploitation, and each anniversary of that terrible day brings us an abundance of efforts to place its symbolic power in the service of various exploiters. The news media, of course, use the remembrance of 9-11 to attract consumers to their broadcasts and printed materials, and hence to gain advertising revenue. In the U.S., everything memorable becomes an article of commerce in some fashion, and 9-11 is no exception. Many of these commercial offerings are maudlin or otherwise in bad taste, to be sure, but in this country no one is shocked when sellers market tasteless products successfully, and anyone who does not fancy the goods may simply decline to consume them.

Far more troubling and much more dangerous, however, is the state’s exploitation of 9-11. During the past six years, 9-11 has often served as an all-purpose instrument in the state’s propaganda kit. For the Bush administration, it has provided the answer to every critical question about foreign and defense policies, among other things. If we challenge the wisdom, legality, or morality of the U.S. invasions and occupations of Afghanistan and Iraq, the government’s spokesmen and supporters throw 9-11 in our face. If we criticize the enormous run-up in spending for military purposes and for “homeland security”, much of it obvious political pork that contributes nothing to the public’s safety, the response to our criticism is that the people dare not risk another 9-11. If we express doubts about the wildly ambitious and morally presumptuous U.S. foreign policy of global hegemony, we are told that 9-11 changed everything. If we object to the government’s multifaceted assault on our civil liberties, the president stridently declares that everything being done is necessary to prevent another 9-11. If we wave our copy of the Constitution and express doubts about the president’s claim of overriding power as a “unitary executive”, the government’s lawyers assert that since 9-11 the nation has been “at war”, and hence the president’s constitutional power as commander-in-chief trumps everything else.

Although 9-11 has served as an “open sesame” for the government’s seizures of power, revenue, and liberties during the past six years, its potency is waning with the passage of time, and eventually it will no longer measure up as a “daily special” on the government’s menu of irresistible dishes. Not many Americans today feel an emotional rush at the mention of December 7, and even the news media have more or less abandoned their ritual anniversary remembrance of the infamous “surprise attack” that caused a large majority of the populace to switch instantly from opposing to favoring war in 1941. This attenuation of the date’s symbolic potency hardly matters, because December 7 served its intended purposes extremely well more than 60 years ago, and the consequences, for better or worse, have become irretrievably embedded in the course of world history.

Recalling December 7, however, reminds us that eventually we may awaken to discover that 9-11, like Pearl Harbor, was not exactly as the government represented it to be. From the very beginning, the Roosevelt administration described the Japanese strikes on U.S. military bases in Hawaii and elsewhere in the Pacific region as “sneak attacks” launched by a cunning and deceitful enemy without provocation, catching the somnolent commanders completely unaware in Honolulu and the Philippines. Anyone who has dipped into the serious literature on World War II, however, understands that this official line is utter humbug. The facts have been sufficiently exposed for anyone who cares to transcend the myth.

Unbiased scholars appreciate, e.g., that the U.S. government systematically goaded the Japanese Empire with a series of increasingly stringent economic-warfare measures, eventually placing the Japanese in a natural-resources chokehold from which their only means of escape, apart from war, was acceptance of a U.S. ultimatum that struck at the very heart of their foreign-policy commitments and their sense of honor.

Moreover, because U.S., British, and Dutch cryptographers, who shared information with one another, had broken the Japanese diplomatic and naval codes, officials in Washington had ample warning that the Japanese were moving toward an attack in the Pacific that included Pearl Harbor. General Walter Short and Admiral Husband Kimmel, the commanders in Hawaii, were consciously set up and made scapegoats for a devastating attack that the U.S. government deliberately provoked and knew was coming – an acceptable price, Roosevelt and his top advisers believed, for gaining the public’s approval of U.S. entry into the war in Europe, to assist the British – and the government subsequently conducted a far-reaching cover-up of what its leaders had known and what they had done prior to the attack.

Everyone with any critical sense understands that like the attack on Pearl Harbor in its immediate aftermath, the attacks of 9-11 have thus far left many unanswered questions. No one should be surprised if 20 or 30 years hence, information has surfaced that completely controverts the government’s current story of what it knew and did not know, and what it did and did not do, prior to the attacks. Certainly everyone with a serious nonpartisan interest in the matter already knows that the attackers did not carry out their murderous plan simply because “they hate our freedoms.” More than 50 years of U.S. government interventions in the political and economic affairs of the Middle East did much to sow the seeds of 9-11, even if those interventions did not foreordain the 2001 attacks in every detail.

No one needs to wait 20 or 30 years, however, to understand how the government has exploited 9-11 at every turn to provide a knock-down justification of its irresponsible (and sometimes criminal) political, legal, military, and fiscal actions. For the Bush administration, no mistakes are ever made, because no matter what the government chooses to do and no matter how disastrously that action works out in practice, it is always alleged to rest on the same purportedly unimpeachable foundation – 9-11.

Link here.
Top 10 reasons for a new 9-11 investigation – link.
The war on individual liberty – link.
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