Wealth International, Limited (trustprofessionals.com) : Where There’s W.I.L., There’s A Way

W.I.L. Offshore News Digest for Week of March 31, 2008

This Week’s Entries : This week’s W.I.L. Finance Digest is here.


Hundreds of citizens of Germany, Britain and other countries have now been outed as tax evaders by a disgruntled and greedy ex-employee of a Liechtenstein bank. The information revealed nothing truly new in the abstract, but with so many names exposed at once it has been a propaganda coup for the anti-tax haven, anti-secrecy forces. And they mean to maintain their momentum, including an attempt to weaken the secrecy laws of the tax havens. What the ultimate effect will be cannot yet be ascertained.

LONDON and BERLIN -- Nearly two decades after taking the helm of Deutsche Post, Klaus Zumwinkel had transformed Germany's national postal service into a global mail and logistics giant with annual revenues of €66 billion ($102 billion) -- more than double those of FedEx. A director on the boards of Morgan Stanley, Deutsche Telekom, and Lufthansa, he was one of Germany's most prominent executives. Then, on February 14, he surrendered to police amid suspicion that he evaded €1 million in taxes. The next day, he resigned, becoming the first to fall in a massive probe that has broadened to nine other countries.

But even as Germany conducts its biggest tax-evasion probe ever, experts warn that technological advances and opaque banking practices are making it easier for individuals to stash trillions of dollars a year in havens such as Liechtenstein, Monaco, and Luxembourg.

"In this new, more globalized, integrated world, where you can go on to the Internet and open a secret offshore bank account in eight minutes, it is getting easier for a wider spectrum of the population to hide assets offshore and more difficult for tax authorities to follow the financial trail," says Grace Perez-Navarro, deputy director at the tax unit of the OECD in Paris.

This is an exageration by someone who can be expected to play up the "problems" of secrecy. "Quick" (as in "eight minutes") and "secret" in practice do not mix when it comes to opening an offshore financial account.

The OECD and the EU have led the way in tackling tax evasion, and countries such as Ireland, Italy, and the Netherlands have all reported minor successes or launched new initiatives in recent months. The German probe, based on a list of 1,400 alleged tax cheats provided on CD by a paid informant, has yielded more than 300 suspects and $47 million in recovered taxes.

German tax inspectors are expected to launch a new round of raids shortly, and Spain, Britain, Australia, and the U.S. are conducting their own investigations -- some based on the same informant. Liechtenstein, which has identified the informant as Heinrich Kieber, a former employee for a subsidiary of the royal family's bank, LGT, has contested the legality of the information. Germany's domestic intelligence services paid a reported $7.5 million to obtain and verify the lists, $6.2 million of which was pocketed by the informant.

The Tax Justice Network (TJN), a coalition of campaigners opposed to tax havens, put the amount of personal wealth held offshore at $11.5 trillion -- more than four times the total U.S. national budget for 2007. The OECD posits a more conservative figure: $5 trillion to $7 trillion. In total, TJN estimates that the world's exchequers are deprived of at least $250 billion a year. Britain reckons its annual income-tax shortfall is $40 billion, Germany $30 billion, and the U.S. as much as $100 billion a year.

From the Tax Justice Network's website: "With so much tax revenue lost due to international evasion and avoidance, governments are forced [emphasis added] to either reduce public spending and/or increase taxation on less mobile small companies or poorer individuals." So by the TJN's reckoning, governments provide all this good stuff -- one gathers they think that government public spending is good by definition -- and need ample access to all our pockets to fund it. This tells you about all you need to know about the TJN.

"Tax havens have declared war on honest taxpayers," says U.S. Sen. Carl Levin (D-Michigan), who along with Sen. Barack Obama (D-Illinois) is co-sponsoring the "Stop the Tax Haven Act," introduced last year. "What this [German scandal] demonstrates again is that tax-haven abuses are a worldwide problem."

They might be a problem for governments, just not for those involuntarily exploited by governments. But Sen. Levin speaks for us all, so he presumes.

It may also have unsettled some tax dodgers. Mr. Zumwinkel was the most high-profile of more than 160 suspects to be netted, and more than 150 have voluntarily come forward. Since then, dozens of Dutch nationals have also volunteered information about their savings. And there could be more: Last week, German newspaper Die Welt reported that a former employee of a Swiss bank offered to sell German officials files listing more than 30,000 account holders.

Copycat thefts of and offers to sell confidential client information are to be expected going forward. The main wonder is why more of this did not occur previously. Now banks and other financial institutions will have to seriously think through the issue of access to such information. The old numbered Swiss bank accounts are an idea that

Britain, meanwhile, has written to 5,000 citizens believed to have offshore accounts warning them to disclose details of their savings, after an earlier initiative recovered $800 million. Ireland recently recovered almost €1 billion in an investigation, while an Italian tax amnesty raked in €84 billion, according to the OECD.

Tax experts say it is perfectly legitimate to bank offshore for a number of reasons such as lower costs or lighter regulation. "What needs to be made clear is that there is nothing illegal about holding bank accounts in Liechtenstein and wanting secrecy as long as you pay the right amount of tax in your own jurisdiction," says Chas Roy-Chowdhury, head of taxation at Britain's Association of Chartered Certified Accountants.

He says part of the objection is that smaller jurisdictions can afford attractive, low tax rates that result in "capital flight" from bigger countries. "Governments should open themselves up to the wind of global competition and accept that they need to run efficiently to keep tax rates low."

Ms. Perez-Navarro insists that it is "excessive" banking secrecy -- and not the competitive tax regimes -- that governments are objecting to. The OECD has fostered a range of international agreements to share information on bank accounts, which has increased cooperation from formally secretive havens such as Bermuda and Switzerland.

Perez-Navarro adds that individuals should have the right to a certain banking confidentiality, but that when investigators want to see numbers they should be handed over. "It's all about establishing a balance between the individual right to privacy and the law-enforcement need for information," she says.

"When investigators want to see numbers" covers a multitude of sins. If a government has a specific request for information about a party suspected of what would be considered a crime by both governments, then there is generally little resistance to supplying the information. This corresponds to the Fourth Ammendment to the Constitution of the United States, regarding the issuance of warrants: "... no Warrants shall issue, but upon probably cause ... and particularly describing the place to be searched, and the person or things to be searched."

But this is not what Ms. Perez-Navarro is looking for. When tax investigators "want to see numbers," they want the bank to open its books and let them peruse through the books at leisure, i.e., go on a fishing trip. The U.S. has long granted the IRS carte blanche for investigating tax evasion domestically, the Constitution be damned. The tax collectors of the world would like nothing better than to have the same power worldwide.

Countries such as Liechtenstein, Luxembourg, and Switzerland have long cited their banking secrecy laws to avoid tackling tax evasion, say experts. The three nations "cooperate on any other crime: drugs, traffic violation, prostitution, weapons dealing, everything," says Caspar Von Hausenschild, a former banker who sits on the board of the German branch of Transparency International. "But there is no cooperation on tax evasion and tax avoidance. This is a scandal that has been discussed in Brussels over the last 20 years, but finance officials have never been able to close any loopholes."

Transparency International is a self-styled "global civil society organization leading the fight against corruption." How this is consistent with funneling more revenues to governments -- if we are to take the German board member's objection to tax evasion and avoidance at face value -- requires some explaining, in our opinion.

In recent weeks, German Chancellor Angela Merkel has met with Prime Minister Otmar Haslar of Liechtenstein and Prince Albert of Monaco, demanding they overhaul their banking sectors and begin complying with European tax disclosure requirements. German officials are also lobbying the EU to rewrite tax-evasion legislation to target countries with strict banking-secrecy laws.

"I think that these countries, and that includes Luxembourg, with a scandal like Liechtenstein, will probably come under somewhat more pressure to abolish their bank secrecy rules," says Frederic Feyten, a tax expert at the law firm of Oostvogels Pfister Feyten in Luxembourg.

Yes, one always expects more pressure. The European Savings Tax Directive agreement was effected after a years-long protracted battle. For the high-tax countries to ask for more appeasement from the tax haven countries who agreed to greater disclosure so soon smacks of a "What's ours is ours, what's yours is negotiable" mentality -- completely consistent with government's canonical behavior of stealth encroachment into new domains and expansion of its reach.

Mr. Feyten also says Brussels should recast its 2005 savings tax directive, which requires EU countries to report foreign money in their bank accounts. Austria and Luxembourg, and non-EU Switzerland, have a special agreement whereby they do not disclose account holders in exchange for charging them a withholding tax -- now 25% -- which would be split between the country where the account is held and the country where the account holder is from. Liechtenstein also charges a withholding tax, but doesn't share that revenue.

European finance ministers earlier this month also backed calls for reform. Austria and Luxembourg resisted. John Christensen, director of TJN and former economic adviser to the government in the reforming tax haven of Jersey, says the tax directive generates only small change. The problem, he says, is that wealthy individuals who bank offshore do not open easily traceable accounts. "They'll set up ... a trust in Luxembourg that owns a company registered in Jersey that has a bank account in the Cayman Islands," he says. "The EU Savings Directive will not catch that."

The Directive only applies to physical persons at this point -- see this commentary. It is not as if a long chain of structures is needed to avoid its reporting or withholding rules. Additionally, as has been pointed out by many, clamping down of secrecy within Europe will just encourage more people to look to Asia. It would be surprising if the Asian offshore financial centers have not seen some increase in business already strictly due to past and possible future loss of privacy in the European centers.

Germany is also considering its own unilateral action against tax havens, such as new regulations requiring German banks to declare wire transfers received from Liechtenstein and a surcharge on those transfers. "That's quite a penalty which would deter legitimate and illegitimate business, but Germany may feel a blunt instrument is necessary to deal with an uncooperative tax haven," says the OECD's Perez-Navarro.


Warns that anyone challenging the Swiss banking secrecy laws “will break their teeth” on them.

Swiss finance minister Hans Rudolf Merz makes it clear in no uncertain terms that banking secrecy in the country is not up for debate, no matter what publicity campaigns may be mounted by those opposing it. Banking secrecy is crucial to the country's international financial position and central to the country's value system, he says -- in case anyone misunderstands.

Hans Rudolf Merz used an emergency debate in Switzerland's Parliament ... to defend the country's competitive position as a business location. Merz said that Swiss major banks were naturally concerned about the international crisis in financial markets.

He hailed Switzerland's role in helping to maintain international financial stability in good times and in bad, in particular through its active cooperation with the International Monetary Fund and the Financial Stability Forum. The finance minister said that UBS and other leading banks had a good working relationship with the Swiss federal authorities and central bank. He rejected calls by MPs for direct government intervention, saying it would not guarantee against future losses. ...

Merz touched on the controversy surrounding investigations into tax evasion by German and other nationals with secret bank accounts in Liechtenstein. He stressed that discussions with the European Union over the Swiss banking secret were unrelated to the hundreds of raids conducted by the German authorities after they paid for stolen data on secret bank accountants held by foreign nationals in Liechtenstein.

The EU has argued that the Swiss corporate tax regulations impair a free exchange of goods and services between Switzerland and the EU in breach of the 1972 Free Trade Agreement's ban on state aid. Swiss Parliament has refused to negotiate the matter with the EU, but agreed to a dialogue to encourage mutual understanding. Merz claimed that Switzerland's competitive position as an international business base of choice was at risk and called it vital that the position was not only held but if possible improved. ...

Merz claimed that no requests for assistance had been received from the German authorities related directly to the ongoing investigations into tax evasion. He said he did no know whether the German authorities had acted within German law by paying an informer for stolen data, but called the move "unusual" under anyone else's legislation when used against friendly neighboring states.

"The sovereignty of each state, however -- in particular with reference to its tax legislation -- has to be respected,” Merz said. He mounted a strong defence of Switzerland's right to provide a well-regulated financial system with "an internationally competitive tax burden." ... "Switzerland is, however, no tax haven. Individuals and legal entities are taxed in our country in accordance with the law and economic efficiency," Merz said. "The banking secrecy was and is not absolute. It is framed by regulations designed to prevent possible abuse, such as breaches of personal data protection, money laundering, corruption and terrorism," he added.

The finance minister claimed that Switzerland was at the forefront of the international fight against cross-border financial crime and had developed sound procedures allowing for the exchange of banking information with the relevant foreign authorities. He rejected claims that the Swiss banking secret was the cause of tax evasion in other countries, but said these were usually motivated by economic, fiscal or private reasons.

On the subject of cross-border interest yields, Merz said that Switzerland had agreed to pass on a withholding tax of 15% to the country of origin of taxpayers, a figure that will increase to 35% from 2011. ... "With the interest taxation agreement the European Union accepted in response that Switzerland keeps its past practice to the banking secrecy," he said.

Merz added that Switzerland's political and economic stability, modern financial infrastructure and highly qualified workforce also contributed to its attractiveness, but that the banking secrecy was not just crucial to the country's international financial position but central to the country's value system.

"One thing I can tell you now: you will break your teeth on the Swiss banking secret as it is not open to debate. At the same time, however, we will take all necessary measure to further enhance the integrity of the Swiss financial system. In this respect Switzerland will also initiate and continue international cooperation where necessary," Merz said.

He called it unacceptable that certain foreign authorities had mounted a media campaign against Switzerland, portraying the country as a tax oasis that had to be laid dry, without seeking direct communication. "The truth is that in Switzerland all individuals and legal entities pay tax according to the law, that our rules and legislation comply with international standards, that we are bound by international agreements including a gradual increase in the amount of withholding tax on interest yields for EU taxpayers," Merz concluded.


The Swiss Money Laundering Reporting Office reported receiving a significant increase in suspicious activity reports in 2007 vs. 2006. Interesting details include that the banking sector reported a big increase due to investment scams. Also, SARs from money transmitters and other payment services are of lower quality, in that a smaller percentage result in followups by law enforcement agencies, due to the transmitters gathering relatively little information on its users and therefore having to base their suspicions on relatively small amounts of information.

The Swiss Money Laundering Reporting Office (MROS) has announced that, after a 3-year slump, the volume of suspicious activity reports (SARs) has regained momentum, with SARs from the banking sector having reached a record high in 2007. In 2007, MROS received a total of 795 SARs (up from 619 in 2006), which amounted to a 28.4% increase over last year's figure. It is also the 3rd highest reporting volume observed since 1998, the year when MROS began gathering statistics on incoming SARs.

The rise in reporting volume is mainly attributed to the increase in the number of SARs received from the banking sector (up 37%), particularly those relating to investment fraud. According to MROS, with 2007 a good year for financial activities and the stock market, scam artists were given more opportunities to dupe trusting investors with unrealistic offers of quick and easy gains. These activities triggered SARs from banks, which suspected money laundering.

In 2007, the total asset value of incoming SARs also increased by nearly 13% to around CHF921 million ($902 million) from around CHF816 million in 2006. This increase was again mainly due to the greater influx of SARs from the banking sector, made possible by the fact that the bank's professional money laundering specialists now have efficient monitoring systems at their disposal.

There was also a surge in the number of voluntary SARs submitted, the level of which rose 110% in 2007, compared with 2006. This has been put down to the fact that more voluntary SARs are being sent to MROS rather than to law enforcement agencies directly, which has boosted the voluntary SAR figure in the MROS statistics.

At present, the Swiss Criminal Code still gives financial intermediaries the choice between submitting voluntary SARs to MROS or to law enforcement agencies. Mandatory SARs submitted by virtue of Art. 9 of the Anti-Money Laundering Act, however, must always be sent to MROS.

Here again there was a noticeable increase in the number of mandatory SARs: up 11% from the banking sector and up 5.8% from all other financial intermediary categories combined. Once again, the payment services sector was the second largest contributor of SARs (29% of all incoming SARs came from this category), which influenced the reporting volume in the MROS statistics.

As in the previous reporting year, most of the SARs from the payment services sector came from the so-called "money transmitters" (68% of all SARs received from the payment services sector).

As in the previous reporting year, MROS received fewer SARs relating to suspected terrorist financing. A total of six SARs were submitted, amounting to 0.03% (around CHF233,000) of the total asset value of all incoming SARs.

The quality of SARs submitted in 2007 was high, enabling MROS to forward a large proportion (around 79%) of incoming SARs to law enforcement agencies. However, the quality varied greatly among the various financial intermediary categories: while nearly 91% of SARs from the banking sector could be forwarded, the same was true for only about 52% of SARs from the payment services sector.

The smaller percentage of forwarded SARs was mainly due to the large proportion of SARs from the so-called "money transmitters", a subgroup of the payment services sector that gathers very little information about its customers, and therefore tends to generate lower quality SARs.


Liechtenstein shows it will cooperate in reponding to legitimate inquiries concerning real crimes, as opposed to fishing trips from foreign tax authorities.

The authorities in Liechtenstein are reportedly cooperating with their Spanish counterparts in an investigation into the whereabouts of assets hidden by the Spanish terrorist organization Eta. Spanish daily El Pais reported that Liechtenstein has agreed to a request from Spanish "super-judge" Baltasar Garzon to block bank accounts located in the jurisdiction belonging to suspected members of Eta. The authorities in Liechtenstein have also agreed to a request for information regarding the opening of the bank accounts, transactions, and amounts transferred in from Spain and France.

It is understood that the request was made after a bank in Vaduz tipped off the Spanish authorities that it may have received funds from senior members of the Eta, the Basque separatist group. According to the report, the Spanish judge believes that Liechtenstein has become the principal destination for proceeds gained from extortion rackets operated by Eta.

Judge Garzon has made a name for himself over the last 20 years for his high-profile investigations into terrorist organisations, governments and former rulers. His previous campaigns led to the freezing of assets belonging to the former dictator of Chile, General Augustus Pinochet, in Bermuda in 2001, although he failed in his bid to have Pinochet extradited to Spain from the UK, where he was staying at the time. He also headed an inquiry into alleged tax evasion by a Spanish television company part-owned by then Italian Prime Minister, Silvio Berlusconi.


Another case where the effectiveness of a foreign trust in protecting assets is put to the question is in the news. If you are the beneficiary of a trust it is of course absolutely in line for the trustee to arrange that you do indeed benefit from the trust assets by making periodic payouts. In most cases the beneficiary is a reasonable party for the trustee to consult vis-a-vis payout timing and amounts. If the trust is irrevocable and the payouts are completely at the discretion of the trustee, then obviously you want to make sure the trustee is a person of integrity, and also is someone who understands certain subtleties about the beneficiary's needs -- and eccentricities.

In the example at hand, a woman beneficiary of an offshore trust apparently needs a trust payout to avoid going to jail. The trustee says he "does not recognize orders of foreign courts" and is refusing to supply the funds. Case-specific facts aside, this may in theory be exemplary behavior on the part of the trustee, but if you are sitting in jail this victory for the asset-protecting strength of the trust arrangement has its practical limits. The court may not be able to grab the assets that benefit you, but if they grab your body instead then what?

After spending more than two years on the lam, Merry Morris is in the Palm Beach County [Florida] Jail, where she could remain indefinitely unless she pays her ex-husband $1.8 million for violating their postnuptial agreement. In one of the most bizarre and complex divorce cases in recent memory, the 53-year-old former Boca Raton resident is in jail for violating court orders demanding that she pay up.

However, she claims she cannot pay because all of her money is in an irrevocable trust in the Cook Islands. The trustee in the Polynesian island nation adamantly refuses to release the cash, saying he does not recognize orders of foreign courts.

"She is really between a rock and a hard place," her attorney Jeffrey Wasserman said last week. "I've spoken with the trustee, and he is not releasing the money. He is not going to obey court orders from the U.S. and he is not going to take direction from her if it is based on the court order."

The trustee sounds like some borg from Star Trek whose programmers failed to take into account the nonlinear complexities of life: IF "foreign court order" THEN "ignore". They forgot to add: AND NOT("foreign court has kidnapped the beneficiary") to the IF condition.

Attorney Jeff Fisher, who represents Morris's ex-husband and wrote the unorthodox provision that helped put Morris behind bars, said he doubts Morris is helpless. The trustee who has given her money to buy cars, clothes and trips to exotic locales surely would give her the cash she needs to get out of jail, he said.

One might well infer that the funding for some (most?) of these expenditures was supplied in direct response to a request from Ms. Morris. Fine, to a point. But is she now refusing to make a request for the money to save her from jail? Or, is the trustee deciding that any such request is made under duress and should not be honored? Again, this may be by the book in theory. But if a pattern of request followed by consistently acceding to the request has persisted over time, even an impartial observer can be forgiven if they conclude that the beneficiary effectively controls distributions from the trust.

This brings up the so-called "Doctrine of Disbelief", introduced here in a somewhat different context. Is the whole arrangement, viewed in its entirety, credible? If the court decides not, it becomes a standoff between the court and the defendant. If the defendant is incarcerated it is not a battle between equals. Nor, given this, should one expect the court to grant the believability benefit of the doubt to the defendant.

Leland Morris takes no joy in seeing his ex-wife locked up, he said. "He does not need the money. He does not want the money," Fisher said of his client, who moved to Boca Raton from New York after making millions in the real estate industry. "He has consistently made it known that the money she owes can be paid at a substantial discount -- not to him but to his children -- contingent on her getting mental health treatment."

Wasserman agreed that negotiations are under way. But, he said, so far the money Leland Morris is demanding is more than Merry Morris is willing or able to pay. The real problem, Fisher said, is that Merry Morris has repeatedly thumbed her nose at the judicial system, which is why she is spending 120 days in jail -- a week of which was spent in solitary confinement after she was accused of assaulting a guard.

When you start hearing about "willingness to pay" or "thumbing her nose at the judicial system" (never mind assaulting a guard) then the quirks of the case look like they are the effective dominant factors in play. Nevertheless, in principle the battle between the Morrises illustrates the practical limits of the protection an offshore trust can supply.

The convoluted case began before the couple divorced in 2001. Fearing his wife would flee with their son and daughter, Leland Morris asked Fisher to craft a fail-safe for him. In exchange for allowing him to be primary custodian for the children, he agreed to give her a $1.5 million bonus on top of the divorce settlement. But there was a catch: If she contested any part of the postnuptial agreement, she would have to repay the bonus.

Two years later, she accused Leland of violating the agreement and asked that it be modified to accommodate her lifestyle. Circuit Judge Jeffrey Colbath ruled that her complaints constituted a challenge of the agreement. He ordered her to repay the $1.5 million and cover the $300,000 her ex-husband had accumulated in attorney fees. When she refused to pay, Colbath held her in contempt.

With 20-20 hindsight, Mr. Morris should have had the agreement include that the $1.5 million collateral be kept in an easier to grab location, or that the $1.5 million be paid out, e.g., once the younger child reached age 18.

Meanwhile, in an attempt to collect the money, Fisher filed a lawsuit to force her to sell her home to pay part of the money. After the suit was filed, Fisher said she borrowed about $450,000 against the house. Circuit Judge Jonathan Gerber ordered her to return the money. When she did not, he held her in criminal contempt. When she refused to appear in court to explain why she was disobeying his order, he slapped her with two additional criminal contempt charges and issued warrants for her arrest.

Note that extracting the $450k and secreting it away after the judgement is clearly an instance of fraudulent conveyance -- a criminal offense.

She avoided arrest by going underground, refusing to divulge where she was living. Then, in a surprise move in January, she appeared at the county jail, saying she wanted to turn herself in. ... Gerber sentenced her to 120 days in jail for not obeying his order to return the money she borrowed against the house. In April, he is to consider what punishment, if any, she will receive for not appearing in court.

Circuit Judge Amy Smith, who inherited the divorce case from Colbath, is to decide what punishment Morris will receive for not repaying the $1.8 million. Until she pays, it is likely she will remain in jail.

Like other judges who have considered cases involving money squirreled away in offshore accounts, Gerber said he believes Morris can get her hands on the money in the Cook Islands. "You have been living somehow, some way over the last two years in different places around the world, one of them being Barcelona, Spain, and (have been) able to access that money when you have requested it," he said.

Again, the "Doctrine of Disbelief" and the question of just how much actual discretion the trustee exercised is raised. The courts are inclined to the view of "use it or lose it," i.e., if it has not been used in the past then we assume it will not be used in the future, when it comes to that kind of discretion.

Wasserman and Fisher, both seasoned and respected divorce lawyers, said it is one of the strangest cases they have handled. At one point, it was considered by the Florida Supreme Court. While two justices questioned whether the payback provision was even legal, they declined to rule on the case because Merry Morris was a fugitive.

The Morris children, who were the basis for the special clause, are barely an issue in the case any longer. At 18, their son is an adult and cannot be ordered to spend time with his mother. Though the daughter is only 16, she, too, for all practical purposes is beyond the reach of the court, Wasserman said. "This is sad," Wasserman said. "This is really, truly very sad."

Fisher agreed. But, he said, it is of Morris's own making. "Our system, it is dispute resolution. If the loser does not do what the court orders them to do, then the courts' ability to resolve disputes disappears," he said. "It just does."

One would not expect a lawyer -- an officer of the court -- to consider the fact that alternative dispute resolution mechanisms to a government enforced monopoly might be preferable.


Another "high yield income program" claims a crop of "small-time investors".

Quebec's financial watchdog has charged three people with securities infractions for selling offshore investments in which small-time investors in Montreal's Canadian-Italian community lost at least $15 million.

Five years after the collapse of Eurovision Financial Services Ltd., the Autorité des marchés financiers charged the three ... with helping Eurovision and several related firms to sell promissory notes without a prospectus as required by law and with acting as securities brokers without registration. Edward Ronald Greeley, a West Island mutual-fund and insurance adviser, faces 12 counts of helping Eurovision peddle offshore promissory notes without a prospectus and acting as an unregistered securities adviser. The AMF is seeking a fine of $72,000 from Greeley if convicted on the charges. ...

Greeley is a former business partner of Montreal investment adviser Rocco Di Stefano. Last month, the AMF charged Di Stefano with 46 counts under the Securities Act of selling losing investment notes in a series of companies, including Eurovision and Vision. He faces $414,000 in fines.

Eurovision president Armando Ferrucci and his business partner Victor Lacroix left Montreal in early 2004, leaving scores of small investors mostly in Montreal's and Laval's Italian-Canadian communities holding worthless investment notes and millions of dollars in losses.

Most of that money supposedly went to offshore investments managed by Eurovision, a company registered on the Caribbean island of Anguilla, or Vision, registered in the Bahamas. But a petition putting Eurovision into bankruptcy alleged Ferrucci was actually operating what is known as a Ponzi scheme -- paying investors with money collected from new investors -- until the whole scam collapsed in 2003.

Ferrucci and Lacroix were convicted in October of securities offences involving the sale of notes issued by companies affiliated with another scandal-plagued firm -- Mount Real Corp. Ferrucci was convicted on 48 counts of aiding Mount Real companies in offering promissory notes without a prospectus and acting as a broker without being registered with the AMF. He was fined $288,000. Lacroix was convicted on 26 counts of the same offences and fined $156,000.


Barbados is a favorite offshore jurisdication for Canadians, in no small part due to certain reciprocal tax agreements between the two nations. Naturally, when people actually take advantage of these tax breaks and save real money, the tax agency does not like it. So, apparently stealthily, Canada's Revenue Agency and politicians are conspiring to get rid of the breaks under the radar.

Assuming the claims that the businesses being set up under the bilateral tax agreements are real businesses creating real jobs and wealth, this would be a typical counterproductive move by tax bureaucrats. What else is new?

A Canadian attorney has spilled the beans on a harsh Canadian tax net that could ensnare Barbados-Canada business. Lorne Saltman, a tax lawyer, said Canada was creating a complex tax policy "that is not clear, [is] contradictory, [and] very uncertain for Canadian individuals who want to use, for non-tax reasons, foreign trusts or foreign collected undertakings." He noted that the initiatives were intended to prevent perceived abuse of tax arrangements by Canadians.

Speaking with Barbados Business Authority after making a presentation at a forum organized by the Society of Trust and Estate Practitioners (STEP) ... Lorne said in Barbados's case "the emphasis has to be on the long term relationship between the two countries that has particularly benefited Barbados and Canada; [with] Canada [being] able to use this financial offshore center to reduce cost of capital."

He urged Barbados to promote itself as a "beneficial jurisdiction; one that isn't abusing the Canadian tax system but is actually helping to create jobs and wealth in Canada by making Canadian companies more competitive internationally."

The tax expert said the United States may be backing Canada's move to stamp out acts like "double dipping where Canadian multi-nationals are not only getting to deduct interest in Canada when they borrow money from a Canadian bank but they are also able to create offshore deductions from one affiliate carrying on business in a high-rate jurisdiction to another affiliate, such as in Barbados, carrying on business in a low rate jurisdiction."

Canada's direct foreign investment to Barbados exceeds CAN$66 million per annum and Saltman argued that "Canadian multinationals that have real businesses in Barbados are not abusive and should not be attacked."


The U.S. has identified the U.K. as "a jurisdiction of primary concern" with regards to money laundering. In as much as London is big financial center, like New York, this is probably a legitimate assessment. The report is interesting in the detail of its assertions.

Britain should tighten controls on the gambling industry and monitor the activities of wealthy foreigners to combat money laundering, according to a report by the U.S. State Department. The annual International Narcotics Control Strategy Report identified Britain as "a jurisdiction of primary concern" and said that despite improved anti-money-laundering laws and regulations, at least £15 billion of criminal profits is processed through Britain each year.

Washington specifically called on Britain to pay greater attention to the activities of "politically exposed persons" -- individuals connected to foreign regimes -- who hold investments or who have bought expensive property in London and the South East. The most wealthy criminals, the report stated, were increasingly "purchasing high-value assets to disguise illegally obtained money."

The State Department questioned whether British legislation, which was supposed to tighten the monitoring of suspicious transactions, may have helped money launderers by abandoning controls on assets held overseas. ...

The U.S. findings echo concern among senior police that the fight against organised crime is not a priority for the Government. The subject merited only a passing mention in the Prime Minister's national security statement this week. According to the U.S., Britain is a favorite place for money launderers, alongside Afghanistan, the Cayman Islands, Cyprus, Liechtenstein, Pakistan and the United Arab Eimrates. The report also names Guernsey, Jersey and the Isle of Man as money-laundering destinations. Other developed countries, including Italy, France and the U.S. itself are also identified.

Detailing specific concerns in Britain, the State Department reported that tighter regulation of the financial industry has led to criminals moving their proceeds physically or via money transfer services. The report said: "Although narcotics are still a major source of illegal proceeds for money laundering, the proceeds of other offences, such as financial fraud and the smuggling of people and goods, have become increasingly important.

"The past few years have witnessed the movement of cash placement away from high street banks and main-stream financial institutions as these entities have tightened their controls and increased their vigilance. The use of bureaux de change, cash smugglers and traditional gatekeepers (including solicitors and accountants) to move and launder criminal proceeds has been increasing since 2002."

The report cites analysis by the Serious Organized Crime Agency which estimates that £15 billion is laundered through Britain. But that analysis is already said to be out of date. The U.S. report added: "Businesses that are particularly attractive to criminals are those with high cash turnovers and those involved in overseas trading.

"Illicit cash is consolidated in the UK and then moved overseas where it can more readily enter the legitimate financial system, either directly or by means such as purchasing property. Cash can be smuggled in several ways: it can be transported by courier, freight or post and moved through the various points of exit. Cash-smuggling techniques are adaptable; smugglers can easily change techniques if they suspect law enforcement is targeting a particular route or method.

"Because cash is the mainstay of the drugs trade, traffickers make extensive use of money transmission agents, cash smuggling and 'underground banking' to remove cash from the UK. Heroin proceeds from the UK are often laundered through Dubai en route to traffickers in Pakistan and Turkey. Cocaine proceeds are repatriated to South America via Jamaica and Panama."

The report said that tighter banking rules led to criminals creating "cash-smuggling operations to move large sums of sterling out of the country".

It is believed that the bulk of the £32 million still missing from the 2006 Securitas raid was taken out of the country in suitcases packed with cash.


Zimbabwe's travails under dictator Robert Mugabe are well-known. The only thing keeping the Zimbabwean economy marginally functional are remittances from Zimbabwean expatriates. Lacking a domestic currency that serves as an effective transaction medium, never mind a reliable store of value, the country's economy is totally reliant on black market operators in the currency market. Without them, Zimbabwe would become a total barter economy -- as opposed to the partial barter economy which it undoubtedly already is.

On a typical workday, Lovemore Vambe will make dozens of clandestine phone calls that lead to a handful of illegal transactions. He will conspire with colleagues, sidestep police or bribe them if necessary, and come home in the evening with a few dollars in his pocket. That is enough to make the rent and keep his eldest child in boarding school. In Zimbabwe's free-falling economy, the slight, mustachioed 31-year-old holds a rare steady job: He is a money dealer on Harare's thriving black market, helping Zimbabweans trade foreign currency for their increasingly worthless local cash.

With inflation estimated at 200,000% -- easily the highest in the world -- Zimbabwe's currency is barely worth the paper it is printed on. (The largest Zimbabwean note, 10 million dollars, cannot buy more than a couple of sodas.) Foreign currency runs this economy now, mainly the U.S. dollar and the South African rand, nearly all of it traded on the black market.

The government of longtime President Robert Mugabe, who faces a critical reelection test on Saturday, has pegged the exchange rate at $1 to 30,000 Zimbabwean dollars. But the currency is losing value at such head-spinning speed that on the streets of Harare, one U.S. greenback will soon fetch about 2,000 times that. Since no one can afford to do business at the official rate, Vambe says the thousands of informal dealers have become Zimbabwe's lifeline.

"If you want Zim dollars, you have to buy it on the parallel market," said Vambe, seated on an overstuffed sofa in the comfortable suburban home he shares with his wife and three children. "The banks don't allow you to pull out more than 500 a day," he said, meaning 500 million Zimbabwean dollars, the six zeroes on the end being essentially meaningless in a figure that equates to less than $10. "And that is when they have cash. Me, I can always find cash for a customer."

But he has to hustle. Even though the police regularly crack down on the illegal trade, in a country where nine in 10 people do not hold regular jobs, money-dealing is a rare chance to make a buck and is therefore highly competitive. In a good week, Vambe can make $100 in commissions, more than enough to cover the month's rent.

Zimbabwe's economy began failing a decade ago after Mugabe launched a politically motivated land reform scheme that bankrupted the farm sector, the country's main source of income. Now, remittances from Zimbabweans living overseas drive the economy, pumping as much as $1 billion in foreign currency into the country each year, nearly all of it coming through the black market. "There is absolutely no way that the economy could function without the inflows of money via the black market," said Tony Hawkins, a leading independent economist in Harare.

Finding money on the streets is easy, Hawkins said, because the government prints so much of it. With Mugabe facing a close election race, Hawkins believes that the Reserve Bank of Zimbabwe has dumped more than 1.5 quadrillion dollars onto the market over the past month, "to buy votes for the ruling party in one way or another," he said.


Meet the super-rich, the dysfunctional class threatening American values.

Very short-term focus with no thought for long-term consequences ... sociopathic ignorance of social norms and the effect of one's actions on others ... dependence on handouts from Washington, D.C. Sounds like a description of an enclave in the desperately poor section of some American city, right? It turns out it is not such a bad characterization of Wall Street's super rich overclass as well, as this provocative piece in Slate from business columnist Daniel Gross explains.

For decades, social scientists, policy wonks, and politicians have studied and debated what has come to be known as the "culture of poverty." The consensus: A group of Americans is set apart from the mainstream by geography, class, and income. Its members adhere to norms that do not apply to the rest of society and engage in self-destructive behavior that imposes significant costs on the nation at large. The culture of poverty has made for potent politics (remember Ronald Reagan's fictitious welfare queen?) and spawned best-selling polemics from the right (Charles Murray) to the left (Jonathan Kozol).

We do not hear as much about the culture of poverty these days. Perhaps it is because the market turmoil is making us all feel a little poorer. Or perhaps it is because a highly visible group is now exhibiting all the outward appearances of the underclass: the overclass. Forget welfare queens and the culture of poverty. Think Wall Street kings and the culture of affluence.

Wall Street types do not live in ghettos, barrios, or the hollows of Appalachia, but they do inhabit environments that are sealed off socially from the rest of the world -- the Hamptons on Long Island; Manhattan's Fifth Avenue; Greenwich, Connecticut. Because they rarely interact with people of middle-class means (save the odd doctor, lawyer, or interior designer), they have become woefully out of touch with the solid bourgeois values that made America great.

In the underclass, unmarried, young fathers do not take responsibility for their children. In the overclass, twice-married, middle-aged Wall Street daddies do not own up to the consequences of their insane financial miscues. Wall Street titans are almost incapable of seeing the problem with taking 9-figure payouts in years in which their stocks plummet. "There is just a total disconnect between the compensation and the responsibility for their actions," says William Cohan, a former Lazard banker turned author.

In his book The Age of Abundance, libertarian author Brink Lindsey boils down the difference between the desperately poor and the blissfully rich to an ability to focus on the long term. "Members of the underclass operate within such narrow time horizons and circles of trust that their lives are plagued by chronic chaos and dysfunction," he says. By contrast, elites are well-organized long-term thinkers. Riiiiight. "Modern Wall Street is a system," says Charles Morris -- a former Chase banker and author of The Trillion Dollar Meltdown -- "that rewards crazy risk-taking in the short term without regard for the long-term consequences."

Critics point to a pervasive sense of victimhood in the underclass. But listen to what Bear Stearns CEO Alan Schwartz told the troops after his firm succumbed to wounds that were almost entirely self-inflicted. "We here are a collective victim of violence," he said. Yep, just another case of the Man keeping the Man down.

Conservative critics constantly carp that the culture of poverty has encouraged a sense of dependency on Washington. Of course, in recent months, the bureaucracy -- the Federal Reserve, the Federal Housing Authority, Fannie Mae, and Freddie Mac -- has generally ignored the struggles of poor homeowners. Yet it vaulted into action to save the bankers from their own disastrous bets. When Bear Stearns, the nation's 5th-largest investment bank, approached insolvency, the Feds orchestrated JPMorgan's acquisition of it.

In 1993, the late Sen. Daniel Patrick Moynihan coined the term "defining deviancy down." The prevalence of bad behavior in the underclass, he argued, caused institutions to lower standards and expectations, which effectively socialized the costs of dysfunction. Today, the Federal Reserve is "defining solvency down." In recent weeks, the Fed has responded to Wall Street's crisis by systematically lowering the standards of what it would accept as collateral for loans. (Historically, only government bonds or bonds backed by Fannie Mae and Freddie Mac were good enough.) But as part of the Bear Stearns deal, it agreed to lend $30 billion against assets of dubious provenance. And guess who bears the risk if that $30 billion cannot be paid back? You and me. If write-downs continue, rumor has it, the Fed might start accepting sports memorabilia, Beanie Babies, and Pokemon card collections as collateral.

There are important differences between the underclass and the overclass, notes Susan Mayer, dean of the University of Chicago's Harris School of Public Policy Studies. The overclass is better connected, and it can cause more damage. "Poor inner-city kids selling drugs to suburban kids can harm people," Mayer says. "But financial markets can bring thousands and thousands of people to ruin."

The pernicious culture of affluence merits further study. When self-proclaimed rogue sociologist Sudhir Venkatesh sought to learn about the culture of poverty, he hung out in Chicago's notorious Robert Taylor Homes and befriended drug dealers. The tale is chronicled in his fascinating book Gang Leader for a Day. If he really wants to understand the workings of a dysfunctional class that's threatening American values and taxing national resources, Venkatesh, who teaches at Columbia, should move into a co-op on the Upper East Side and get a job on Morgan Stanley's trading desk. He can call his next book Hedge-Fund Manager for a Day.

Plenty of short-sighted, extravagent behavior can be observed in other socioeconomic classes as well. Buying a house for no money down and expecting to get rich is just a minor league version of taking home a huge paycheck for inferior performance. Taking out a loan collateralized by the inflated nominal value of one's home equity in order to fund the purchase of some neat new gadgets does not exactly demonstrate considered long-term prudence.

We are inclined to look to John Maynard Keynes in seeking to explain all this behavior: "There is no subtler, no surer way to overturn the existing basis of society to than to debauch the currency. The process engages all the hidden forces of economic law on the side of destruction, and does it in a manner, which not one man in a million is able to diagnose." (Most so-called Keynesians these days do not seem to have much of an issue with currency debauchment.)


World War II is consistently trotted out as an example of why America must resist tyranny at all costs, preemptively even, and cannot possibly just mind its own business by pursuing a noninterventionist -- characterized as "pacifist"/isolationist by detractors -- foreign policy. Every twopenny dictator is a potential "Hitler", and all that implies. The memory of the War is also cherished by worshippers of the state who remember fondly the centralization of power and the alignment behind a "great cause" it engendered.

So anyone who challenges "The Good War" is an immediate target for the War's keepers of the flame. Nicholson Baker is the latest challenger of note, in his book Human Smoke. Pat Buchanan, who will soon be following Mr. Baker with a book of his own that pursues a similar thesis, uses the book as a launching pad to ask a series of pointed, largely rhetorical, questions. Buchanon's questions certainly call into question the gratuitous use of the adjective "good" when used to describe World War II. But they do not challenge as effectively a perhaps more relevant question: Was the war necessary? His book should make for interesting reading -- and controversy.

"Yes, it was a good war," writes Richard Cohen in his column challenging the thesis of pacifist Nicholson Baker in his new book, Human Smoke, that World War II produced more evil than good.

Baker's compelling work, which uses press clips and quotes of Axis and Allied leaders as they plunged into the great cataclysm, is a virtual diary of the days leading up to World War II. Riveting to this writer was that Baker uses some of the same episodes, sources and quotes as this author in my own book out in May, Churchill, Hitler and ‘The Unnecessary War’.

On some points, Cohen is on sold ground. There are things worth fighting for: God and country, family and freedom. Martyrs have ever inspired men. And to some evils pacifism is no answer. Resistance, even unto death, may be required of a man. But when one declares a war that produced Hiroshima and the Holocaust a "Good War," it raises a question: good for whom?

Britain declared war on September 3, 1939, to preserve Poland. For six years, Poland was occupied by Nazi and Soviet armies and SS and NKVD killers. At war's end, the Polish dead were estimated at 6 million. A third of Poland had been torn away by Stalin, and Nazis had used the country for the infamous camps of Treblinka and Auschwitz. 15,000 Polish officers had been massacred at places like Katyn. The Home Army that rose in Warsaw at the urging of the Red Army in 1944 had been annihilated, as the Red Army watched from the other side of the Vistula. When the British celebrated V-E day in May 1945, Poland began 44 years of tyranny under the satraps of Stalin, Khrushchev and Brezhnev. Was World War II "a good war" for the Poles?

Was it a good war for Lithuania, Latvia and Estonia, overrun by Stalin's army in June 1940, whose people saw their leaders murdered or deported to the Gulag never to return? Was it a good war for the Finns who lost Karelia and thousands of brave men dead in the Winter War?

Was it a good war for Hungarians, Czechs, Yugoslavs, Rumanians and Albanians who ended up behind the Iron Curtain? In Hungary, it was hard to find a women or girl over 10 who had not been raped by the "liberators" of the Red Army. Was it a good war for the 13 million German civilians ethnically cleansed from Central Europe and the 2 million who died in the exodus? Was it a good war for the French, who surrendered after six weeks of fighting in 1940 and had to be liberated by the Americans and British after four years of Vichy collaboration?

And how good a war was it for the British? They went to war for Poland, but Winston Churchill abandoned Poland to Stalin. Defeated in Norway, France, Greece, Crete and the western desert, they endured until America came in and joined in the liberation of Western Europe. Yet, at war's end in 1945, Britain was bled and bankrupt, and the great cause of Churchill's life, preserving his beloved empire, was lost. Because of the "Good War" Britain would never be great again.

And were the means used by the Allies, the terror bombing of Japanese and German cities, killing hundreds of thousands of women and children, perhaps millions, the marks of a "good war"?

Cohen contends that the evil of the Holocaust makes it a "good war." But the destruction of the Jews of Europe was a consequence of this war, not a cause. As for the Japanese atrocities like the Rape of Nanking, they were indeed horrific.

If the war was supposed to save the Jews of Europe, it was of course an utter failure. Nor is it apparent that saving the Jews was anywhere near the top of the Allies' priorities.

But America's smashing of Japan led not to freedom for China, but four years of civil war followed by 30 years of Maoist madness in which 30 million Chinese perished.

For America, the war was Pearl Harbor and Midway, Anzio and Iwo Jima, Normandy and Bastogne, days of glory leading to triumph and the American Century.

But for Joseph Stalin, it was also a good war. From his pact with Adolf Hitler he annexed parts of Finland and Rumania, and three Baltic republics. His armies stood in Berlin, Prague and Vienna. His agents were vying for power in Rome and Paris. His ally was installed in North Korea. His protege, Mao, was about to bring China into his empire. But it was not so good a war for the inmates of Kolyma or the Russian POWs returned to Stalin in Truman's Operation Keelhaul.

Is a war that replaces Hitler's domination of Europe with Stalin's and Japan's rule in China with Mao's a "good war"? We had to stop the killers, says Cohen. But who were the greater killers: Hitler or Stalin, Tojo or Mao Zedong?

Can a war in which 50 million perished and the Christian continent was destroyed, half of it enslaved, a war that has advanced the death of Western civilization, be truly celebrated as a "good war"?


Repairing some of the worst Bush administration screw-ups.

Bruce Fein, constitutional lawyer and chairman of the American Freedom Agenda, has a laundry list of suggestions for Bush's successor in order that some semblance of constitutional checks and balances, traditional civil liberties, and moral dignity be restored. In doing so, he conveniently catalogs the worst abuses of the Bush regime.

President George W. Bush's successor should renounce his monarchy. It betters the instruction of King George III, which provoked the Declaration of Independence. Among other things, the 44th president of the United States should do the following promptly upon taking office: Transfer the impending trials of six "high-value" al-Qaida detainees before Spanish Inquisition-like military commissions to civilian courts; repudiate President Bush's kidnappings, secret imprisonments, and maltreatments of suspected al-Qaida supporters abroad on his say-so alone -- a page from Hobbes' state of nature; denounce signing statements that declare the president's intent to disregard provisions of bills he has signed into law because he disputes their constitutionality; and end the snobbish custom of former government Brahmins preening in their honorifics after leaving office. The Founding Fathers prohibited titles of nobility to encourage a nonhierarchical culture that honors equality before the law.

Robert Draper recounts in Dead Certain: The Presidency of George W. Bush an alarming averment by the current occupant of the White House. Without blushing, Mr. Bush insisted to his biographer: "You can't learn lessons by reading. Or at least I couldn't." Here is a to-do list for his successor:

Put an end to the imperial presidency. President Bush has usurped what Gen. Washington and the Founding Fathers reprehended: unchecked power that sacrifices fundamental liberties to trust in the president. To paraphrase Lord Acton, absolute power corrupts absolutely. Just ask President Bush's kidnap-and-torture victims, including Khaled El-Masri, Abu Omar, or Maher Arar. The Constitution's marquee is checks and balances, a system predicated upon a suspicion of human nature. James Madison sermonized in The Federalist No. 51: "If men were angels, no government would be necessary. If angels were to govern men, neither external nor internal controls on government would be necessary."

To restore the constitutional equilibrium envisioned by the Founding Fathers, the next presidential inaugural should enumerate the following particulars.

End the "war on terror" as a legal paradigm. International terrorists are criminals, not warriors. The next president should see to it that terrorists will be captured, interrogated, prosecuted, and punished according to civilian law. The United States is not at war with international terrorism. The next president should ensure that we do not brandish the weapons of war in lieu of traditional law enforcement against international terrorists.

If the conflict of the U.S. with international terrorism amounts to a war, then this nation is permanently at war -- a condition the Founding Fathers insisted was irreconcilable with freedom. War crowns the president with monumental powers and sweeping secrecy. It tends to gratify popular bigotries and encourages a conflation of any dissent with treason. Remember the imprisonment of Eugene Debs; the concentration camps for 120,000 Japanese-Americans; the burglary of the office of Lewis Fielding, Daniel Ellsberg's psychiatrist; and President Bush's water-boarding and warrantless spying on American citizens in criminal contravention of the Foreign Intelligence Surveillance Act of 1978. The next president must recognize the fundamental dangers of a permanent state of war and the granting of infinite power as commander in chief.

Abolish military commissions. Under the new president, military commissions should be promptly abolished. No citizen or noncitizen should be detained without charges as an unlawful enemy combatant. No detainee in the custody of the U.S. should ever again be denied an opportunity to challenge the factual or legal basis for his detention before an impartial judge in habeas corpus proceedings. The Classified Information Procedures Act of 1980 should be employed to prosecute terrorists without compromising national security. Ramzi Yousef, Zacarias Moussaoui, and Jose Padilla -- among other accused terrorists -- all have been successfully prosecuted under CIPA. Existing criminal conspiracy law should be employed to thwart terrorist plots in their pre-embryonic stages. Although we seem to have forgotten this fact of late, the criminal law is both forward- and backward-looking.

Withdraw all U.S. troops from foreign countries. The Declaration of Independence explains that the purpose of government is to secure unalienable rights of life, liberty, and the pursuit of happiness. The U.S. was not created to build an empire, to aggrandize government, or to purge the planet of nondemocratic regimes. Accordingly, the next president should announce that we are withdrawing all U.S. troops from foreign countries and that, hereinafter, all the nation's military resources will be devoted to building missile, electronic, and other defenses against potential foreign attacks. The U.S. lacks the wisdom necessary to spin modern democratic gold from centuries of despotic flax by military force or otherwise. Iraq and Afghanistan are clear proof. Further, the U.S. has no moral responsibility for the destiny of persons outside its jurisdiction who pay no taxes to support the government and pledge no allegiance to the republic.

Restore both oversight and transparency. No president is infallible. Executive-branch decisions or policies made without congressional vetting or oversight are prone to staggering mistakes -- for example, the Bay of Pigs, the Vietnam War, or post-Saddam Iraq. Endogamous [inbred] thinking is as foolhardy as endogamous marriages. And secrecy, moreover, breeds lawlessness, maladministration, and abuses. Sunshine is the best disinfectant. The next president must restore the tools of judicial and congressional oversight that have been eroded if not obliterated in the past eight years.

Cabin the scope of executive privilege. The next president must end the practice of invoking executive privilege to shield confidential presidential communications or advice from any examination by Congress absent an illicit legislative purpose, including exposure for the sake of political embarrassment. The next president should not defend the expansive claims of executive privilege of President Bush used to justify the nonappearances of former White House Counsel Harriet Miers and Chief of Staff Joshua Bolten before the House judiciary committee in the investigation of the firings of nine U.S. attorneys. The next president should initiate criminal prosecutions of the two for contempt of the House of Representatives.

Restore the role of warrants under FISA. The next president must immediately agree to go back to collecting foreign intelligence in conformity with the individualized warrant provisions of FISA. He or she should not seek an extension of the Protect America Act -- which authorizes group warrants akin to general writs of assistance, which were anathema to the Founding Fathers and prohibited by the Fourth Amendment. We have yet to be provided any evidence that FISA handicaps the president's collection of foreign intelligence any more than do congressional restrictions on breaking and entering homes, opening mail, or torture. FISA functioned without complaint from any president for more than two decades before President Bush determined, in secret, to defy it in the aftermath of 9/11. And at this very moment, the president is operating under the old FISA law because the Protect America Act has not been extended with no proof of heightened danger to the nation. The next president should also convene a grand jury to determine whether the government participants, in flouting FISA, should be criminally prosecuted -- including President Bush and Vice President Dick Cheney. If the rule of law means anything, it means that occupants of the highest offices must turn square constitutional corners.

Restore the state secrets privilege to ensure justice to victims of constitutional misconduct. This doctrine is a rule of evidence fashioned by the courts, not a constitutional requirement. The Bush administration has successfully invoked the state secrets privilege to deny a remedy for victims of its own constitutional wrongdoing, for example, the kidnapping, imprisonment, and maltreatment of Khaled El-Masri. When he sued the culpable unnamed CIA operatives, his case was dismissed because the identities of the constitutional scofflaws were a state secret, a ruling more Kafkaesque than Kafka. The new president should submit legislation that would require a default judgment in favor of victims of unconstitutional conduct if the state secrets privilege is invoked by the president to deny the plaintiffs a fair opportunity to prove their claims.

Torture should be categorically renounced. President Bush has hedged on whether he would torture suspected al-Qaida detainees in hopes of extracting intelligence. There is no evidence that torture works. The Defense Department and the FBI renounce water-boarding, and intelligence veterans concur that information derived from torture is worthless. Moreover, if the U.S. tortures, the risk of torture to our own captured soldiers climbs exponentially. The new president should categorically renounce torture. It cannot be justified pragmatically. And no civilized nation stoops to imitate the savagery of its enemies.

The ultimate stewards of the Constitution are We the People. Grover Cleveland amplified this in his first inaugural address: "Every citizen owes to the country a vigilant watch and close scrutiny of its public servants and a fair and reasonable estimate of their fidelity and usefulness. Thus is the people's will impressed upon the whole framework of our civil polity -- and this is the price of our liberty and the inspiration of our faith in the Republic."


It seems the U.S. "liberal" press, including those favorite whipping boys of the right-wing noise-o-sphere, the New York Times and Washington Post, have given the Republican leadership a virtual absolute free pass since the Bush administration came into power. As Salon writer Glenn Greenwalt puts it: "Every day, it becomes more difficult to blame George Bush, Dick Cheney and comrades for their seven years (and counting) of crimes, corruption and destruction of our political values. ... [If] the political press in this country basically ignored all of that and blathered on about Obama's bowling score and how he eats chocolate, would you not also conclude that you could do anything you want, without limits, and know there will be no consequences? What would be the incentive to stop doing all of that?"

In the past two weeks, the following events transpired. A Department of Justice memo, authored by John Yoo, was released which authorized torture and presidential lawbreaking. It was revealed that the Bush administration declared the Fourth Amendment of the Bill of Rights to be inapplicable to "domestic military operations" within the U.S. The U.S. Attorney General appears to have fabricated a key event leading to the 9/11 attacks and made patently false statements about surveillance laws and related lawsuits. Barack Obama went bowling in Pennsylvania and had a low score.

Here are the number of times, according to NEXIS, that various topics have been mentioned in the media over the past thirty days: And as Eric Boehlert documents, even Iraq -- that little 5-year U.S. occupation with no end in sight -- has been virtually written out of the media narrative in favor of mindless, stupid, vapid chatter of the type referenced above. ...

"Media critic" Howie Kurtz in the Washington Post today [April 5] devoted pages of his column to Obama's bowling and eating habits and how that shows he is not a regular guy but an Arrogant Elitist, compiling an endless string of similar chatter about this from Karl Rove, Maureen Dowd, Walter Shapiro and Ann Althouse. Bloomberg's Margaret Carlson devoted her whole column this week to arguing that, along with Wright, Obama's bowling was his biggest mistake, a "real doozy."

Obama's bowling has provided almost a full week of programming on MSNBC. Gail Collins, in The New York Times, today observed that Obama went bowling "with disastrous consequences." And, as always, they take their personality-based fixations from the Right, who have been promoting the Obama is an Arrogant, Exotic, Elitist Freak narrative for some time. In a typically cliched and slimy article, Time's Joe Klein this week explored what the headline called Obama's "Patriotism Problem," where we learn that "this is a chronic disease among Democrats, who tend to talk more about what's wrong with America than what's right." He trotted it all out -- the bowling, the lapel pin, Obama's angry, America-hating wife, "his Islamic-sounding name."

Needless to say, these serious and accomplished political journalists are only focusing on these stupid and trivial matters because this is what the Regular Folk care about. They speak for the Regular People, and what the Regular People care about is not Iraq or the looming recession or health care or lobbyist control of our government or anything that would strain the brain of these reporters. What those nice little Regular Folk care about is whether Obama is Regular Folk just like them, whether he can bowl and wants to gorge himself with junk food.

Our nation's coddled, insulated journalist class reaches these conclusions about what Regular Folk think using the most self-referential, self-absorbed thought process imaginable. The proof that the Regular People are interested in these things is that ... the journalists themselves chatter about it endlessly. In Great American Hypocrites, I described the process as follows in the context of examining the three-week-long media obsession with John Edwards' haircut (to the exclusion of a whole array of revelations about what the government was doing or planning to do) and how they justified that coverage:
Most certainly, the press will pretend to be above it all ("this is not something that we, the sophisticated political journalists, care about, of course"). But they yammer about Drudge-promoted gossip endlessly, and then insist that their own chattering is proof that it is an important story that people care about. And because they conclude that "people" (i.e., them) are concerned with the story, they keep chirping about it, which in turn fuels their belief that the story is important. It is an endless loop of self-referential narcissism -- whatever they endlessly sputter is what "the people" care about, and therefore they must keep harping on it, because their chatter is proof of its importance.
They do not need Drudge to rule their world any longer because they are Matt Drudge now.

Every day, it becomes more difficult to blame George Bush, Dick Cheney and comrades for their seven years (and counting) of crimes, corruption and destruction of our political values. Think about it this way: if you were a high government official and watched as -- all in a couple of weeks time -- it is revealed, right out in the open, that you suspended the Fourth Amendment, authorized torture, proclaimed yourself empowered to break the law, and sent the nation's top law enforcement officer to lie blatantly about how and why the 9/11 attacks happened so that you could acquire still more unchecked spying power and get rid of lawsuits that would expose what you did, and the political press in this country basically ignored all of that and blathered on about Obama's bowling score and how he eats chocolate, would you not also conclude that you could do anything you want, without limits, and know there will be no consequences? What would be the incentive to stop doing all of that?

UPDATE: One other point to note about all of this is that these fixations are as skewed as they are vapid. Barack Obama is an exotic elitist freak because he went to Harvard Law School and made $1 million from his book. Hillary Clinton cannot possibly have any connection to the Regular Folk because her husband, who grew up dirt poor, became quite wealthy after being President. John Kerry was completely removed from the concerns of the Regular People because his second wife was rich.

By contrast, George W. Bush was a down-home, salt-of-the-earth Man of the People despite being the grandson of a U.S. Senator, the son of a President (who greatly magnified his riches in his post-presidency), and the by-product of an extremely wealthy, coddled life. Ronald Reagan was pure Americana despite spending most of his adult life as a very wealthy Hollywood actor (and converting his post-presidency into far greater riches still). And John McCain is as Regular a Guy as it gets, even though he dumped his first wife (the mother of his three children) after she was disfigured and disabled by a near-fatal car accident so that he could marry his much younger, much prettier, and extremely wealthy heiress-mistress, whose family riches then launched his political career and sustained a life of luxury for almost three decades (that is how McCain's rustic "Sedona cabin" -- i.e., his sprawling compound -- came to be).

It would be bad enough if our political press were obsessed with such trivialities. The fact that they do so in such a Republican-leader-worshiping manner makes it only that much worse, particularly given that it is this dynamic, more than anything else, that determines the outcome of our elections.


With the failure of Ron Paul's presidential candidacy as a candidacy, the question now is whether it was more successful as a mainstream movement -- or at least starting one. And if there now is more mainstream support for the idea and practice of liberty, how to keep up the momentum? According to Thomas Woods, author of 33 Questions About American History You're Not Supposed to Ask and The Politically Incorrect Guide to American History, Ron Paul's new book shows that "anybody who thought Ron Paul's moment was over is sorely mistaken. He is just getting started."

Woods writes that modern-day freedom movement grandfather Murray Rothbard asserted that in order to make progress toward liberty, the state's benign facade has to be ripped away. The people must be made to understand that this institution which they have been taught to worship, to use Ron Paul's own words, instead threatens their liberties, squanders their resources on needless wars, destroys the value of their dollar, and spews forth endless propaganda about how indispensable it is and how lost we would all be without it. This is the book Murray was waiting for, writes Woods.

Whatever your expectations for Ron Paul's book The Revolution: A Manifesto, I can say with confidence that they have been exceeded. By a mile. Ron Paul has produced the kind of book that changes the person who reads it. It is one of the most persuasively argued and beautifully written defenses of the free society I have ever encountered. No president, no presidential candidate, indeed no American politician has ever written anything like this. But that is such faint praise, and such an unjust understatement, that I almost regret uttering it.

From the first page of this book to the last, Ron Paul tells his fellow Americans things that -- if the usual political and media fare we are offered is any indication -- they are not supposed to hear. As I have said in another context, Ron Paul's The Revolution: A Manifesto is, to the establishment, rather like the man who shouts out in the middle of the show how the magician is really sawing the woman in half.

What does it cover? Oh, just the Constitution, war, terrorism, the economy, trade, civil liberties, the war on drugs, the dollar, gold, abortion, executive orders, taxation, the housing bubble, the Federal Reserve, education, health care, the environment, conservatism, entitlements, foreign aid, regulation, and presidential war powers.

In order to make progress toward liberty, economist and libertarian Murray Rothbard used to say, the benign facade of the state has to be dramatically torn down. The people must be made to understand that this institution, which they have been taught to venerate since elementary school as the expression of the popular will, is ripping them off. Well, this is the book Murray was waiting for.

After describing the income tax as merely a species of forced labor, for example, Dr. Paul concludes: "Strip away the civics-class platitudes about 'contributions' to 'society', which are mere obfuscations designed to engineer the people's consent to the system, and that is what the income tax amounts to." The word "exploited" appears several times in the book -- to refer to government's treatment of its subject population. He likewise writes, after having shown how the so-called distribution effects of inflation hurt the middle class and the working poor, that "the average person is silently robbed through this invisible means, and usually doesn't understand what exactly is happening to him. And almost no one in the political establishment has an incentive to tell him."

One of the things that frustrated me most during 2007 was the way Ron Paul's enemies employed predictable "anti-American" and "appeasement" rhetoric against his foreign policy views. Dr. Paul gets the last laugh here: His chapter on foreign policy is the most persuasive short statement of the non-interventionist position I have ever read. It turns the tables completely: suddenly it is the neoconservatives who are on the defensive, and Ron Paul the knowledgeable and wise statesman steering his country to safety. As a former neocon myself -- who knew my enthusiasm for this book would elicit that awful confession? -- I can confidently say that I would have changed my mind a lot sooner if I had been exposed to arguments like these.

It is also a little unusual for an American presidential candidate to refer to and quote from Alexis de Tocqueville, Frederic Bastiat, Thomas Aquinas, Robert Nozick, Thomas Jefferson, James Madison, George Washington, John Adams, Daniel Webster, John Quincy Adams, Henry Clay, Russell Kirk, Richard Weaver, William Graham Sumner, Ludwig von Mises, and other figures of comparable renown. Now trust me that I am not doing this book justice, but here is a sample of its style and content.

On the conservative movement:
A substantial portion of the conservative movement has become a parody of its former self. Once home to distinguished intellectuals and men of letters, it now tolerates and even encourages anti-intellectualism and jingoism that would have embarrassed earlier generations of conservative thinkers.
On blowback:
The question [CIA bin Laden expert Michael] Scheuer and I are asking is not who is morally responsible for terrorism -- only a fool would place the moral responsibility for terrorism on anyone other than the terrorists themselves. The question we are asking is less doltish and more serious: given that a hyper-interventionist foreign policy is very likely to lead to this kind of blowback, are we still sure we want such a foreign policy? ... I have [n]ever said or believed that Americans had it coming on 9/11, or that the attacks were justified, or any of this other nonsense. The point is a simple one: when our government meddles around the world, it can stir up hornets' nests and thereby jeopardize the safety of the American people. That's just common sense. But hardly anyone in our government dares to level with the American people about our fiasco of a foreign policy.
On the idea of a "living" Constitution:
A "living" Constitution is just the thing any government would be delighted to have, for whenever the people complain that their Constitution has been violated, the government can trot out its judges to inform the people that they've simply misunderstood: the Constitution, you see, has merely evolved with the times. Thus, as in Orwell's Animal Farm, "no animal shall sleep in a bed" becomes "no animal shall sleep in a bed with sheets," "no animal shall drink alcohol" becomes "no animal shall drink alcohol to excess," and "no animal shall kill any other animal" becomes "no animal shall kill any other animal without cause."
On civil liberties:
We have allowed the president to abduct an American citizen on American soil, declare him an "enemy combatant" (a charge the accused has no power to contest, which is rendered by the president in secret and is unreviewable), detain him indefinitely, deny him legal counsel, and subject him to inhumane treatment ... Have we been so blinded by propaganda that we have forgotten basic American principles, and legal guarantees that extend back to our British forbears eight centuries ago? ... Claims that these powers will be exercised only against the bad guys are not worth listening to.
On propaganda:
Toward the end of 2007, Senator Jeff Sessions declared, "Some people in this chamber love the Constitution more than they love the safety of this nation. We should all send President Bush a letter thanking him for protecting us." What kind of sheep must politicians take Americans for if they expect them to fall for creepy propaganda like this? ...
On Iraq:
The leadership of al Qaeda hoped to lure us into a "desert Vietnam," an enormously expensive war that would deplete our resources and help their own recruitment by stirring up the locals against us. And that is just what happened. The war's ultimate cost is being estimated in the trillions. The dollar is collapsing. And more terrorists are being created. According to a study by the Global Research in International Affairs Center in Herzliya, Israel, the vast bulk of the foreign fighters in Iraq are people who had never been involved in terrorist activity before but have been radicalized by the U.S. presence in Iraq -- the second-holiest place in Islam.

The terrorists, in short, have played us like a fiddle.
On the Federal Reserve:
Even if the Fed chairman really possessed the singular genius our media and politicians regularly ascribe to him, what if things have reached a point at which the Fed simply cannot stop the collapse? What if economic law, which the Fed can no more defy than it can repeal the law of gravity, is about to hit the Fed and the American people like a tidal wave, before which little rate cuts here and there are like the tiny umbrella Wile E. Coyote puts over his head to protect himself from falling boulders?
This book will change minds. Of that I am absolutely certain. That is why our chief task right now is getting it into people's hands. This is the next major grassroots mission: thinking up creative ways to distribute this book, in the process making it an unavoidable part of current-day political discourse. Nothing would be more satisfying than to disrupt the lead-up to the establishment's November bore-a-thon with -- gasp -- a discussion of things that actually matter, aimed at the non-catatonic segment of the population. ...

The prospect that by means of this book hundreds of thousands, perhaps even millions, of Americans may be exposed to these ideas -- which this book explains and defends more compellingly than any other book of its length I have ever read -- is among the happiest and most exciting developments I can recall in years. I would say more about the book's potential, but everything I write comes out like a cliche. This time, though, believe the cliches. Ron Paul has taken the gloves off, and the result is a thing of beauty.

Toward the very end, Dr. Paul writes:
Ours is not a fated existence, for nowhere is our destiny etched in stone. In the final analysis, the last line of defense of freedom and the Constitution consists of the people themselves. If the people want to be free, if they want to lift themselves out from underneath a state apparatus that threatens their liberties, squanders their resources on needless wars, destroys the value of their dollar, and spews forth endless propaganda about how indispensable it is and how lost we would all be without it, there is no force that can stop them.
... The Revolution: A Manifesto makes one thing abundantly clear: anybody who thought Ron Paul's moment was over is sorely mistaken. He is just getting started.