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ETERNAL CITY, CHRONIC TROUBLE
May 10, 2008
A little more grist for the "Is America the new Rome?" mill, courtesy of the inimitable Bill Bonner.
No modern government policy is so stupid that the Romans did not think of it first.
A visitor to the Eternal City, even if he has been many times before, feels his jaw drop and his pulse rise. The city is still a magnificent ruin ... a vast memento mori recalling every absurdity and corruption known to man. Here we begin ab ovo, as the Romans used to say -- with the egg.
At the far end of the Largo di Torre Argentina, for example, is the spot where Julius Caesar's body was ventilated. Poor Julius. His wife warned him. His soothsayer warned him. Even his friends warned him that something was up. Still, the man who had conquered Gaul and brought Vercingetorix back to Rome in chains, and then triumphed in the civil war against one of Rome's greatest generals, Pompey, dismissed his guards and walked into a cheap ambush by politicians, one of whom was probably his own son. ... But that is the amazing thing about the Romans and modern man too. Even when the traps are as obvious as bailouts and Baghdad, they sashay right in.
And over there ... at the Domus Aurea, was Nero's golden palace; a place that saw such debauches as to make Britain's royals -- perhaps with the exception of that ancient Edward -- seem like archangels. Nero's mother was Caligula's sister, with whom she an "inappropriate relationship." She plotted against Caligula, and when he was out of the way, married her uncle, Claudius. She poisoned Claudius ... and his son, Britannicus, too, so that her own son from a previous marriage -- Nero -- could become Emperor. Then, fearing that she was losing her grip on her son, she seduced him. But by that time, he was so deep into carnality with slaves, senators' wives and castrated boys, that her motherly charms could not hold him. So, she tried to kill him. He beat her to the punch, sending his soldiers to skewer her. ...
Our beat is money, not history. But today we pick through Rome's huge trash pile to try to learn something.
Everything started to go wrong in the time of Marcus Aurelius, say most historians. Soldiers returning from the Parthian war brought the first major plague epidemic with them. There was a revolt in Egypt. And Germanic tribes pushed across the Danube and the Rhine.
But the real problem began much, much earlier, practically ab ovo. From the very beginning, the Romans picked fights with the neighbors. The small colony had a shortage of females, so the Romans carried off the women of a nearby tribe. ... From there, one local tribe after another was subdued. And each successful campaign elevated the power and wealth of Rome and led, like antipasto to primo platti, to the next campaign.
As a business model, Rome's strategy was obviously flawed. Like a credit bubble, it required constant expansion. Still it was nice in the beginning. The early days of the Roman Empire were like the early days of the British Empire or the American Hegemony. Expansion opened up new markets and brought in new supplies of raw materials at better prices. Not only was there booty; there were also slaves.
Nothing fails like success. The slaves had an effect on the domestic labor market of the time not unlike Chinese and Indian peasants on today's labor rates. The price of free labor fell. Another familiar consequence was an increase in speculation and what we would call "financialization" of the economy. Instead of farming themselves, ambitious Romans outsourced, setting up huge agricultural estates all over the empire, which were operated by slaves. This had a further effect of lowering prices on farm products. Small, independent landowners could not compete. They went to the cities. Or, they joined the army.
Eventually, Roman expansion reached its limits under Trajan. Then, the military machine gradually changed from a profit-making institution manned by Romans, to an expensive peace-keeping force staffed largely by barbarians. Worse, the clattering of chains was no more to be heard in the Delian slave market. Now the problems really began. The government had begun distributing free bread, in order to keep the urban mobs quiet, a program similar to today's tax rebate checks. Already, under Augustus, one in five people in Rome depended on the "dole".
Then, Rome's balance of trade grew increasingly negative. This gave rise to something else that will be familiar to us: inflation. Nero took 10% of the silver out of the denarius. Then, under Marcus Aurelius, it was down to 75%. Finally, by the third century, the denarius was made of brass, with a silver coating. Consumer prices soared. Diocletian's solution was very similar to what Richard Nixon would do many years later -- The Edict of Prices, a system of price controls.
With no more slaves shuffling into the city, Rome turned to its remaining small farmers. First, it subsidized the farmers -- with the "alimenta" -- like our own crop support programs. Then, desperate for food, it requisitioned grain and cattle from them directly ... and forced the farmers to stay with their land, like serfs. The farmers' situation became so miserable they began to sell themselves into slavery. This traffic became so heavy that the government banned the practice in 368 AD.
Modern politicians and central bankers have nothing on their ancient forebears. Bailouts ... monetary stimulus ... subsidies ... giveaways -- the Romans had a solution for every problem. And every solution brought new problems ... until the weight of them crushed the whole empire.
COME HOME, CONSERVATIVES! – TO THE ANTIWAR CONSERVATIVE MOVEMENT
May 7, 2008
Under Consideration: Bill Kauffman, Ain’t My America: The Long, Noble History of Anti-War Conservatism and Middle-American Anti-Imperialism.
Thomas E. Woods, Jr., bestselling author of seven books, including 33 Questions About American History You're Not Supposed to Ask and The Politically Incorrect Guide to American History reviews Bill Kauffman's latest book. We featured a review of Kauffman's now second most recent book, Look Homeward, America: In Search of Reactionary Radicals and Front-Porch Anarchists, here.
Winston Churchill once described the Soviet Union as the only country in the world with an unpredictable past. It was an impressive racket, really, in which the official version of history changed in accordance with the political demands of the present. If something in the past discomfited the regime and its propaganda, then it never happened, or happened quite differently.
In our own country, teachers and ordinary citizens alike are expected to conform to the Official Version of our history. Book publishers, to be sure, do not conspire behind closed doors to come up with ways to enslave the American people to their government. But suppose they did, and American history textbooks were written for the express purpose of turning American students into zombies who mindlessly repeated government propaganda and believed the state existed to protect the common good. How would the books be any different?
For a maverick historian, though, an ossified Official History has a silver lining: He can make a career out of exposing and correcting it, or filling in the gaps that court historians choose to ignore. Until Bill Watkins's 2004 volume Reclaiming the American Revolution, for instance, there had not been a single book on the Virginia and Kentucky Resolutions of 1798 in a hundred years -- as scores of studies of every bit of useless trivia lined the shelves.
Bill Kauffman has filled another such gap in delightful and dramatic style with Ain't My America: The Long, Noble History of Anti-War Conservatism and Middle-American Anti-Imperialism. Kauffman's book joins only a handful of titles on this interesting and important subject, including Justin Raimondo's excellent Reclaiming the American Right: The Lost Legacy of the Conservative Movement (which is being re-released with additional material this month), Justus Doenecke's Not to the Swift: The Old Isolationists in the Cold War Era, and Ronald Radosh's Prophets on the Right: Profiles of Conservative Critics of American Globalism. (Radosh, now a neoconservative, has doubtless repudiated this useful book, which is further indication of its worth.)
The figures and organizations Kauffman profiles do not fit into the received version of American history, in which only "leftists" who "hate America" might object to spending trillions of dollars feeding imperial ambition. The conservative John Randolph of Roanoke, who opposed the War of 1812, and Alexander Stephens, the Confederate vice president who had earlier opposed war with Mexico, are just two of the people discussed in Ain't My America who refuse to fit themselves into the proper categories.
A strange omission from this book is the War Between the States, for if violently suppressing the peaceful secession of sovereign states does not smack of imperialism -- especially in the context of the nation-building nineteenth century -- then nothing does. The depiction of that war as glorious and righteous is a central ingredient in the current regime's flattering portrayal of itself, and in the civic religion taught in the institutions of propaganda to which some still entrust their young. Robert E. Lee made the connection explicit, predicting that the "consolidation of the states into one vast republic" would produce an entity that was "sure to be aggressive abroad and despotic at home." This should have been perfect grist for Kauffman's mill.
This is not quite fair. We have only just started the book ourselves, but on page 16, discussing the opposition to Thomas Jefferson's Louisiana Purchase: "The spirit of separation, condemned by New Englanders with bombast and cannonblast threescore years later, was fanned by her representatives in the wake of the Purchase. The [bilious] Federalist Timothy Pickering, who despised 'the Moonshine philosopher of Monticello,' dreamed of a northern confederacy, 'exempt from the corrupt and corrupting influence and oppression of the aristocratic Democrats of the South.'"
The cross-ideological American Anti-Imperialist League, formed in the wake of the American acquisition of (among other territory) the Philippines following the Spanish-American War, is right up Kauffman's alley. ... Now once in a while the anti-imperialists are taken to task for their alleged lack of racial enlightenment (the pro-war forces, of course, being their usual models of toleration). This description of the anti-imperialists is not even accurate in the first place; Moorfield Storey, a leader of the NAACP, is one of many obvious counter-examples. But Kauffman, who is able to put such matters into perspective, suggests that mass murder may actually be a worse crime than racial insensitivity: "If neither side distinguished itself by the elevated moral standards of the twenty-first century, when all men are brothers and peace rules our planet, at least the anti-imperialists wanted to leave the Filipinos alone rather than conquer and slaughter them."
Along the same lines Kauffman cites Sen. James K. Vardaman of Mississippi, who like most Americans at the time believed neither in integration nor racial equality but who sacrificed his career for the cause of peace as Woodrow Wilson was pushing his country into the Great War. His friends tried in vain to persuade him to support the president, but he would not budge. Losing his Senate seat was as nothing, he said, compared to the lives and liberties that Americans would lose if the country entered the war. In 1918 he was defeated for re-election by Democrat Pat Harrison—who, by the way, was pro-war and pro-segregation. (Wilson himself was not exactly known as a champion of the oppressed black man, but is still ranked among the "near great" presidents; taking the country to war evidently covers a multitude of sins.)
Vardaman, says Kauffman, "understood that standing athwart the empire would destroy his career." How easy it would have been "to trim, to temporize, to dissemble, to quietly slip out of the peace camp and vote for Death. But to his eternal credit, he did not." As he left the Senate, Vardaman called on the nations of the world to abolish conscription and to establish national referenda to decide on war. ...
But if that proposal held more potential peril than promise, opponents of the warfare state in the 1930s possessed equal parts cleverness, cynicism, and dark humor. Kauffman reminds us of the Veterans of Future Wars, a group organized at Princeton University in 1936 that went on to boast 584 chapters around the country. Then there was the Association of Gold Star Mothers of Future Veterans, born at Vassar College, as well as the Foreign Correspondents of Future Wars, established at the City College of New York. This latter group proposed "to establish training courses for members of the association in the writing of atrocity stories and garbled war dispatches for patriotic purposes." If only our own opposition to war and propaganda could be half as inspired.
Thanks to Ron Paul's campaign the term "Taft Republican" is being tossed around once again, and Kauffman reintroduces us to the Ohio senator. Taft, known in his day as Mr. Republican, declared on the Senate floor in January 1951 that "the principal purpose of the foreign policy of the United States is to maintain the liberty of our people. ... Its purpose is not to reform the entire world or spread sweetness and light and economic prosperity to peoples who have lived and worked out their own salvation for centuries, according to their customs, and to the best of their abilities." Taft identified the second goal of American foreign policy as peace. Writes Kauffman: "Liberty and peace; with those two words, [Taft] had placed himself as far outside postwar discourse as one could reasonably stand."
We are also treated to a sympathetic account of the anti-militarist side of Russell Kirk, whose seminal work The Conservative Mind became a revered text in the conservative canon. Among other things, Kirk was a staunch opponent of the first Persian Gulf War, writing privately to a friend that George H.W. Bush should be strung up on the White House lawn for war crimes. His lectures at the Heritage Foundation in the early 1990s decrying war and militarism were allowed, no doubt, only because the aging Kirk was considered too iconic not to be granted respect. Those speeches would never be permitted today, it hardly need be said, with war and bankruptcy now the most urgent conservative goals. Kirk, who had earlier dismissed libertarians as "chirping sectaries," praised them in the 1990s for having an "understanding of foreign policy that the elder Robert Taft represented." ...
For whatever reason, Ron Paul barely registers in Ain't My America -- perhaps because, compared to the others featured here, he is already relatively well known. Kauffman instead interviews Congressman Jimmy Duncan (R-Tennessee), who agrees with the Texas congressman that there was nothing conservative about the Iraq war. Duncan also has the crazy idea that the U.S. government might engage in too much military spending: "My goodness, we're spending as much as all other countries of the world combined on defense spending -- and they always want more." This alone makes Duncan a "liberal," according to the automatons.
Kauffman's writing style is a perfect medium for transmitting the flavor of these times and the character of these men. The old republic practically courses through his veins, and the words flow effortlessly from his pen -- even if they happen to be words like amaranthine, mephitic, esurient, and nepenthe. [As we commented in the 2-11 Digest posting, Kauffman's love of flowery words gets the best of him sometimes.] At times an understandable exasperation comes through. Thus: "War effaces and perverts everything that traditionalist conservatives profess. Every damn thing, from motherhood to the country church. And yet postwar conservatives, and especially the scowling ninnies of the Bush Right, revere war above all other values. It trumps the First Amendment; it razes the home; it decks the decalogue. And they don't care."
Nor do most Americans, if their voting patterns and apathy are any indication. "The American Century, alas, did not belong to the likes of Moorfield Storey, Murray Rothbard, or Russell Kirk," Kauffman laments. "But the American soul does."
I agree, or at least I want to. Ours is a great anti-colonial tradition, and our founders cautioned us about the perils of war and entangling alliances. Charles Pinckney warned his countrymen that global ambition was incompatible with republicanism. And the feisty individualism, the aversion to propaganda, and the plain-speaking common sense of the conservatives who populate Bill Kauffman's book have a distinctly American flavor.
Yet one nagging argument just will not go away: If this truly is the American soul, someone must have forgotten to tell the American people. William James, aghast at the colonial occupation of the Philippines that followed the Spanish-American War, declared that the U.S. had "puked up its ancient soul ... in five minutes." That soul, such as it is, has been sold time and again. And not to particularly high bidders, either. What people possessed of an antiwar, anti-imperial soul, that wishes only to do justice and pursue the ordinary things of life, could have been led into an immoral absurdity like the Iraq war?
With very rare exceptions, Kauffman observes, the American people have never really been presented with a choice for or against the empire. All too true -- but are the people really blameless here? Some of their stupid electoral decisions may be the result of an ignorance for which they are not entirely responsible, but what remotely educated or even half-conscious living being could consider John McCain a fit candidate for anything?
I am not entirely sure why the old America is so unpopular, though part of the reason is that few Americans have been allowed to discover it. When they do, many want to recover it. That is why, if I were looking to transform a neoconservative into a normal human being, Ain't My America would be one of the first books I would hand him in my proselytizing mission.
THE LONG NIGHT
May 10, 2008
Charley Reese warns where the systematic disregard for the rule of law and the aggregation of power into the U.S. Executive branch's hands will lead.
Have you ever wondered how human beings can be so cruel? And how cruelty crosses all the boundaries -- national, racial and ethnic? I have. Rereading an autobiography published in 1941 by a communist agent reminded me of the dark side of human nature.
The book, Out of the Night, was written -- under the pseudonym "Jan Valtin" -- by a German who lived through the chaos of the collapse of the Weimar Republic and the rise of Nazism. Broken by Gestapo torture, he ended up being pursued by both the Nazi and the communist manhunters and killers.
Murders by these two forms of socialism are measured in the millions during the 20th century. That alone should warn all people off any form of collectivism, because all of those millions, in the minds of their killers, were sacrificed "for the greater good." They -- flesh-and-blood individual human beings -- were all murdered in the name of an abstraction, a stupid theory of how society should be organized. I doubt if the head thugs on both sides actually believed the theories. What they really believed in was power over their fellow man.
If you look at the French Revolution and the Bolshevik Revolution, the message is clear: Intellectuals and the common people can produce a blood bath. Latching on to some "ism" for justification, their greed for power and desire for revenge can run amok. Butchering women and children because they were born into the "wrong" class is surely insane.
In our time, when people are saying we must sacrifice liberty for security, that scrapping the Constitution is necessary to win the "war" against terrorism, I would suggest that you take your choice of genocides in the past 100 years and remind yourself what happens when people buy into the false proposition that the end justifies the means. People who preach that are always more interested in the means than in any end.
The only safe environment for a human being is under a weak government with very restricted powers. Normal people do not need much to be happy -- food, shelter, dignity and freedom from marauders. They need a rule of law that applies to everyone equally and at all times and in all circumstances. In established societies, legislators should meet rarely -- perhaps once every two or three years -- because a continuing cascade of new laws will eventually drown freedom.
The Founding Fathers, whether through luck, wisdom or divine guidance, gave us an almost perfect form of government, and we have been busy ever since trying to take it apart. Human beings are dangerous predators and cannot be trusted with power over their fellows. Many Americans have forgotten that the power of government comes out of the barrel of a gun. Governments coerce; they do not persuade.
There are people living among us at this very moment capable of the cruelty so evident in the Holocaust. All they are waiting for is the opportunity. No greater opportunity exists than when a government enlists such people and says whatever you do is now justified for the sake of the "greater good."
Who would have guessed that George W. Bush, who seemed to be a genial good old boy, would turn out to be a tyrant, launching wars of aggression, arresting and confining people without charges or access to a lawyer, condoning torture and lying to the American people? A government that can without trial destroy you by simply putting on a list your name or the name of an organization with which you are associated is a tyranny. A government that invades other countries and that feels free to murder people in any country it chooses is a tyranny.
Americans are on the edge of a long night. We had better wake up and step back before it is too late.
LAND OF THE FREE?
May 12, 2008
Liberty in America is not quite as revered as its leaders pretend.
The headline question is a standard rhetorical lead-in by libertarians, anarchists, and certain leftists when they are the receiving end of arbitrary power. Their answers is most cases would be "Not very." When The Economist and Freedom House, a middle-of-the-road advocate for worldwide freedom, ask the same question that is something else again. While expectedly restained in their words compared to what one usually reads on these pages, they are nevertheless unmistakeably critical of road the U.S. and the Bush administration have traveled over this century. Let us hope they are correct in the faith expressed in America's capacity for self-correction.
No other country puts as much emphasis on "freedom" as the United States. Patrick Henry demanded "liberty or death". The national anthem calls America "the land of the free". Great reformers from Abraham Lincoln to Martin Luther King have urged America to live up to its ideal of "freedom". When a group of French Americanophiles wanted to flatter the U.S., they sent the Statue of Liberty.
And no other country boasts as much about its mission to give freedom to the rest of the world. Woodrow Wilson thought that he had a God-given duty to bring liberty to mankind. George Bush regards his foreign policy as a crusade for freedom -- "the right and hope of all humanity".
But how good is America at living up to its own ideals? A new study by Freedom House tries to answer this question. The fact that Freedom House has devoted so much attention to the U.S. is significant in its own right. Founded in 1941 by a group of Americans who were worried about the advance of fascism, Freedom House is now the world's leading watchdog of liberty. The fact that "Today's American: How Free?" is such a thorough piece of work makes it doubly significant.
The judicious tone of "How Free?" will undoubtedly disappoint leftists. Freedom House bends over backwards to give the authorities the benefit of the doubt. Other countries have recalibrated the balance between freedom and security in the face of terrorists who want to inflict mass casualties on civilians. America's recent sins, however, are minor compared with those of its past. Newspapers have published highly sensitive information without reprisals. Congress and the courts have repeatedly stepped in to restore a more desirable constitutional balance.
But the verdict on the Bush years is nevertheless sharp. "How Free?" not only details and condemns the administration's familiar sins, from Guantanamo to extraordinary rendition to warrantless wiretapping. It reminds readers of its aversion to open government. The number of documents classified as secret has jumped from 8.7 million in 2001 to 14.2 million in 2005 -- a 60% increase over three years. Decade-old information has been reclassified. Researchers report that it is much more difficult and time-consuming to obtain information under the Freedom of Information Act.
Government whistleblowers have repeatedly been punished or fired -- even when they have been trying to expose threats to national security that their bosses preferred to overlook. Richard Levernier had his security clearance revoked for revealing that some of the country's nuclear facilities were not properly secured. Border security agents have been punished for pointing out that the border is inadequately monitored, and airport baggage-handlers and security people for pointing to weaknesses in the security system. The Office of Special Counsel, which was established to enforce laws designed to protect the rights of such people, is widely regarded as "inept and even hostile to whistleblowers".
"How Free?" also has some hard things to say about America's criminal-justice system. The incarceration rate exploded from 1.39 per 1,000 in 1980 to 7.5 in 2006, driven, among other things, by the war on drugs. America now has one of the highest rates of imprisonment in the world: 5.6 million Americans, or one in every 37 adults, has spent time behind bars. Even though prison-building is one of the country's great growth industries, overcrowding is endemic, with federal prisons operating at 131% of capacity. America is also one of the few countries to ban felons and, in some states, ex-felons from voting. At any one time 4 million Americans -- one in every 50 adults -- is disenfranchised because of past criminal convictions. This includes 1. million blacks, or 14% of the black male population.
Freedom House's strictures are, if anything, too soft. America insists on criminalizing victimless crimes such as prostitution. Last week Deborah Jeane Palfrey, the so-called DC Madam, committed suicide. The government had thrown the book at her, including racketeering and mail fraud, because it really wished to penalize the arranging of assignations between consenting adults. In her suicide note to her mother she wrote that she could not "live the next six-to-eight years behind bars for what you and I have both come to regard as this 'modern-day lynching'."
The American legal system also seems to have lost any sense of proportion. Christopher Ratte, a professor of archaeology, recently tried to buy his 7-year-old son a bottle of lemonade at a baseball game. He was handed a bottle of Mike's Hard Lemonade, an alcoholic drink, by mistake. Officials noticed the boy sipping the drink and immediately whisked him off to hospital. He was fine. But the family was condemned to legal hell. The police at first put the 7-year-old into a foster home and a judge ruled that he could go home only if his father moved out. It took several days of legal wrangling to reunite the family.
This is not just the legal system. This is the whole bureaucratic mentality that makes any rule violation a major offense. Every 2-bit worker in some position of responsibility and power becomes a potential Torquemada. This cultural shift is reflected in the legal system.
"How Free?" repeatedly argues, even as it dredges through the most depressing material, that the American system has proved admirably self-correcting. The response of civil-liberties advocates has been swift and dogged. The Supreme Court has forced the administration to extend the Geneva conventions to inmates in Guantánamo and other military prisons. Congress has reined in warrantless wiretapping. The press has repeatedly published leaked material.
This is perhaps a little optimistic -- the courts have been slow and Congress half-hearted. But nevertheless the self-correction is now entering a higher gear. All the current presidential candidates, Democratic and Republican alike, have condemned torture and rendition and declared their desire to close Guantanamo. Freedom House's new publication will be an important contribution to this process of self-correction.
TAX TREATMENT TEMPTS BUSINESSES TO CHANGE COUNTRIES
May 12, 2008
The headline would warrant a nomination for the "Keen Grasp of the Obvious" award of the month, except that so many tax policy makers act as if they are oblivious to it. Or have acted. With a recent flood of relocation announcements, national governments are paying attention.
When Halliburton moved its headquarters from Houston to Dubai last year, the oil services group provoked a political storm. Despite assurances that the company was not seeking to avoid tax or scrutiny, the move was lambasted by Democrats as an example of corporate greed. Senator Hillary Clinton led the attack, denouncing the move as "disgraceful".
On the other side of the Atlantic, the spotlight is also on corporate defections after two big UK companies said last month they were shifting to Ireland for tax reasons. Others have also hinted at leaving. When United Business Media, a trade publisher, announced the move of its headquarters to Ireland, Vince Cable, the Liberal Democrats' Treasury affairs spokesman, criticized this as "blatant tax avoidance".
Politicians fear loss of jobs and tax revenues when companies move their headquarters. But their moral indignation cuts little ice with multinationals whose ties with their home countries have diminished because of international expansion and cross-border mergers.
Over the last decade, 6% of multinationals have relocated, partly for tax reasons, according to research from Oxford University's Centre for Business Taxation. Companies competing with rivals based in lower-tax regimes are under pressure to cut their tax bills. Moreover, they are being wooed as never before by small countries keen to attract skilled jobs or create a larger tax base.
UBS, the investment bank, predicts a "gradual erosion of governments' ability to tax". When Shire, the UK pharmaceutical company, announced its move to low-tax Ireland last month, Amit Kara, director of UBS, said: "This is the kind of tax competition we should expect. The pressure will remain on countries such as the UK to continue lowering corporation tax especially for the fleet-footed. The tax burden may shift to smaller companies."
At first sight, there is little reason for governments to panic about the threat of shifting headquarters. Companies will still pay tax on the factories, sales and other profitable activities in the countries where they operate. But finance ministries fear that migrating companies will find new ways to strip the tax base of the countries where they operate. Academic research published last year showed that foreign-owned manufacturers in Europe paid less than half as much tax as domestically owned businesses.
A very interesting statistic, and not really surprising. When a company has operations in multiple jurisdictions it is only a matter of time before it starts to look at ways to take advantage of the situation vis-a-vis reducing taxes.
Julian Alworth, an associate fellow at Oxford's Saïd Business School, sees fiscal reasons as dominant in determining relocations. He told a recent conference: "When you look at why companies are moving headquarters, it is often to reduce the liability in the country where their headquarters are located and where they have their operations." He cited a controversial attempt by Stanley Works, the U.S. tool manufacturer, to move its headquarters to Bermuda in 2002, which was ditched after a political outcry.
The suspicions of finance ministries are also aroused by the mobility of the income that companies derive from intellectual property or financing operations. Many big countries attempt to trap this income in their tax net using anti-avoidance rules. By moving to a more lenient regime, companies hope to escape these restrictions.
Boasting an attractive tax regime for intellectual property has become part of the marketing pitch for countries wanting to attract foreign corporations, particularly the regional European headquarters of U.S. multinationals. Kraft, Google, Electronic Arts and Yahoo have all recently switched their European headquarters from the UK to Switzerland. eBay, Amazon and Microsoft have moved to Luxembourg. The Netherlands boasts names such as Cisco Systems, Nike and Starbucks.
As multinationals become more skillful at managing their intellectual property, there are tax as well as commercial advantages. By holding brands and patents in low-tax countries and charging other subsidiaries for their use, profits are lowered in high-tax countries.
W.I.L. first described this tactic (see here) almost 10 years ago, and it has been going on for a lot longer than that. Companies are finally implementing the idea en masse.
Unsurprisingly, these shifts of intellectual capital are unpopular with many tax authorities. Two years ago, Mark Everson, former commissioner of the U.S. Internal Revenue Service, warned that the increasing transfer of intangibles was a "high-risk compliance concern", adding: "Taxpayers, especially in the high technology and pharmaceutical industries, are shifting profits offshore."
"High-risk compliance concern" nothing. It is an outright loss of taxable profits concern!
The small, low-tax countries that encourage profit-shifting of this sort are also criticized. Ireland's success at attracting knowledge-based companies is seen as overly aggressive by some rival governments. Arnauld Montebourg, a French politician, last year accused low-tax Switzerland of "predatory practices". The Netherlands -- which attracted Ikea from Sweden and Gucci from Italy -- was lambasted for its approach to taxing mobile income by the Amsterdam-based Center for Research on Multinational Corporations, a non-profit research group. "All the empirical evidence indicates that the Netherlands is a tax haven," it said.
These criticisms are shrugged off by tax competition advocates, who believe tax competitiveness encourages investment. But resentment from larger rivals poses risks for small countries eager for foreign business. One of the worst fears of Ireland's politicians is that the republic will be arm-twisted into adopting the European Commission's proposals for a common method of computing corporate taxes. When Christine Lagarde, French finance minister, said last month that France would push this concept forward in its European Union presidency, Bertie Ahern, the outgoing Irish prime minister, dismissed it as a "daft" idea.
Big countries are meanwhile strengthening their defences. In the U.S., the IRS is fighting the migration of intellectual property, inflicting tax demands running into billions of dollars on pharmaceutical companies. Germany has just reinforced its rules on the transfer of assets to foreign companies. The UK has proposed tightening its anti-avoidance rules by taxing the worldwide "passive" income of companies with UK headquarters.
These measures have a "Fool me once, shame on you. Fool me twice, shame on me" quality to them. Sure, you can nail companies the first time. Then they adjust. Companies will make darn sure that the assets are not born in, nor ever set foot in, Germany or the U.S. Then what is there left to tax the next time around? Of course, that is in the future -- not a time frame governments are known for paying much attention to.
But the problem is that these tougher regimes impose a hefty compliance burden on companies and expose them to the risk of double taxation. In the UK, the complexities of the proposed anti-avoidance system have exasperated big businesses already disenchanted with Britain's tax regime. Richard Lambert, director-general of the CBI, the British employers' federation, says companies "are seriously concerned about the high level and rising complexity of taxation in the UK and are increasingly prepared to vote with their feet".
Shire said it was leaving to "help protect the group's tax position". UBM said its long-term interests would be helped by Ireland's "less complex system of taxation". But nobody can confidently predict whether this trickle will become a flood. There are some powerful factors that deter companies from migrating, including the prospect of capital gains tax bills and the threat of reputational damage.
Also, for all the criticism of Britain's tax regime, it has an enduring appeal for some multinationals because of its generous treatment of interest costs and payments to shareholders. Barclays, Britain's 3rd-largest bank, thought hard about moving its tax domicile when it tried to acquire ABN Amro last year but calculated that its shareholders would be better off if it stayed in Britain.
Nonetheless, more big companies are considering leaving the UK. International Power, WPP, AstraZeneca and GSK have all hinted that the matter is under review. A few years ago, this could have been viewed as saber-rattling. But a big barrier to migration has recently been lifted: companies are no longer required to have a UK base to be included in the FTSE index.
Nor can the government rely on exit taxes to stem the tide. Unlike the U.S., which has tried to devise laws to keep companies on American soil, European governments are under pressure to remove barriers to movement within the single market.
In Britain, the threat of an exodus has sparked a debate about how policymakers should respond. Insurers are lobbying the Treasury for concessions to stem migrations to Bermuda. Deloitte, the professional services company, has argued for a special tax rate on mobile income such as trademarks. Another radical option being discussed is imposing a minimum tax for multinationals on their UK profits, as an alternative to stringent anti-avoidance measures.
The Treasury has an awkward dilemma. It depends on corporate taxpayers for 1/10 of its revenue. It does not want to make overly generous concessions. Nor does it wish to single out specific sectors or types of income for concessions, which might create new loopholes for avoidance.
So far, the Treasury's focus has been on making the tax regime more attractive for multinationals by exempting foreign profits from tax. This move could help stop corporate migrations, were it not accompanied by tougher anti-avoidance rules. One of the main reasons why DaimlerChrysler based itself in Germany rather than the U.S. after its 1998 merger (subsequently unwound) was that Germany exempted foreign profits from tax.
The UK has also promised to cut the corporation tax further, following a 2 percentage point fall to 28% this year. Gordon Brown last week told business leaders that one of his aims as prime minister was "to reduce corporation tax even further when we can afford to do so". Some businesses are clamoring for radical cuts. A recent CBI taskforce called for the corporation tax rate to fall, over time, to 18%.
A view sometimes aired in government is that large countries such as the UK should be more sanguine about losing the headquarters of big domestic businesses and focus on attracting "real business" into the country, regardless of who owns or controls it. Genuine investment goes to countries where it can be deployed. Tax is far less important in these considerations than proximity to markets, infrastructure and the availability of skilled staff.
Yet if countries such as Britain become reconciled to losing headquarters to lower-tax rivals, they will pay a price. As well as shedding well-paid jobs and advisory work, they risk a decline in influence and investment as decision-makers go elsewhere. When world-leading businesses uproot themselves, more is at stake than national pride.
TOP UBS BANKER DETAINED IN U.S.
May 12, 2008
UBS, the largest Swiss bank, is already reeling from huge writedowns of its holdings of U.S. subprime mortgages (see "How Mania Psychology Trumped Swiss Banking"). Now one of its top officers has been detained by U.S. federal government authorities as part of an investigation of whether UBS helped its American customers evade taxes. He was quickly release, but forbiden to leave the U.S. while the investigation continues.
This would appear to be unusually aggressive behavior on the part of the U.S., perhaps emboldened by the revelations falling out from the Liechtenstein bank data theft scandal. However, it is in line with past arrests of British executives of online gambing companies that illegally (according to U.S. laws) continued to service U.S. customers.
A top banker at UBS has been "briefly detained" by the U.S. authorities investigating whether the Swiss bank helped its American customers evade tax. The bank confirmed ... that the U.S. department of justice (DoJ) is carrying out the investigation.
It refused to name the banker but the Financial Times identified him as Martin Liechti, head of UBS's wealth management operations in North and South America. Wealth management is the core of UBS's private banking operations and Liechti is believed to have been held during a visit to Miami last month. The Financial Times said that he had been held as a "material witness" and is to stay in the U.S. while talks with the DoJ continue. It was unclear why he was in the U.S. ... the paper added.
The DoJ is investigating investment advice UBS gave its U.S. private banking clients between 2000 and 2007 while the main financial regulator, the SEC, is also investigating whether employees of the Swiss bank failed to register with it as required. German prosecutors clamping down on thousands of rich Germans using trusts in Liechtenstein and Switzerland are also investigating the bank over suspicions it helped clients evade taxes.
The latest revelation is yet another blow for the reputation of UBS which [reported] it had lost a record Sfr11.54 billion [apx. $11 billion] in the first quarter and would axe 5,500 jobs, including 2,600 in its stricken investment banking division. It has been forced to write down Sfr37 billion in assets.
FUJITSU RELEASES FULLY-ENCRYPTED HARD DISK DRIVE
May 14, 2008
This product from Fujitsu looks like a breakthrough in enabling one to automatically and efficiently secure the contents of one's PC hard disk drive. A steady stream of news items about stolen or misplaced notebooks containing intimate personal data means this product and future competitors should have a large market.
Fujitsu, a maker of hard disk drives (HDDs) and a variety of electronics ... announced its new hard drive that features full encryption with 256-bit AES key, something never before seen in consumer class of devices. ... [T]he new product sports high performance and capacity./
256-bit AES encryption is sufficiently strong that the the U.S. National Security Agency (NSA) has declared: "The design and strength of all key lengths of the AES algorithm (i.e., 128, 192 and 256) are sufficient to protect classified information up to the SECRET level. TOP SECRET information will require use of either the 192 or 256 key lengths." The largest successful publicly-known brute force attack has been against a 64-bit length key with a simpler structure than AES. In short, the Fujitsu drive has very strong encryption protection.
Fujitsu MHZ2 CJ-series of hard disk drives in 2.5" form-factor offer 80GB, 120GB, 160GB, 250GB and 320GB capacities, and are designed for Serial ATA-150/300 interface. The HDDs sport 7200rpm motor, 16MB cache and declare average read seek time of 10.5ms and average write seek time of 12.5ms.
The main feature of the Fujitsu MHZ2 CJ family of hard disk drives is 256-bit AES encryption. The drives implement the AES hardware encryption directly into the processor chip of the hard disk drive, resulting in more robust security and faster system performance than software-based encryption. Even though Fujitsu is not the first to introduce AES-encrypted HDDs, competing solutions from companies like Seagate Technologies offer 128-bit long keys.
The built-in AES automatically encrypts all data when storing it on the hard disk drive and decrypts the data when read. All data stored on the hard disk drive can be erased instantly, in less than a second, using the advanced secure erase feature that erases the key itself.
The new hard drives from Fujitsu will be useful for public institutions and companies that handle large amounts of personal and other confidential data, this dramatically lowers the time and cost involved in wiping clean the hard drives of computers that are disposed of or reused.
While fully-encrypted hard disk drives substantially lower [anyone's] ability to access the data without permission, even when personal computer itself is stolen, the PC should still be vigorously protected against attacks from the Internet whose ultimate goal may be stealing or corrupting data.
With the instant-erase feature one can envision attacks that try to erase the encryption key and effectively destroy all the data on the hard drive.
CREATE YOUR OWN TROPICAL PARADISE
May 20, 2008
David Schnittlich dreamed of retiring to the Caribbean. So he bought his favorite restaurant there and became Mango Dave.
This is a great story, courtesy of Forbes, of a man who pursued the proverbial fantasy of moving to a tropical island. Although not without its downsides, like hurricanes and a higher cost of living, it has been worth it -- so declares "Mango Dave".
David Schnittlich spends most of his nights mingling with customers at Mango's Seaside Grill, the open-air beachside restaurant he owns in Anguilla. The 65-year-old New Jersey native is one of those rare people who lives out a lifelong dream. Schnittlich says since moving to the island 13 years ago, he has also shed 50 pounds and overcome diabetes, gout and stress. "I'm sure I'll live longer," he says.
While tens of thousands of Americans with warm-weather fantasies migrate to Florida and Arizona every year, a number opt for exotic destinations. Like Schnittlich, many buy businesses for fun and profit once they arrive and are glad they did. Except that it is not all fun. Along the way, Schnittlich has lived through traumatic changes to his personal life, severed decades-long financial ties and weathered the worst Mother Nature could throw at him.
The Northeasterner was drawn to Anguilla by the idyllic tropical scenery, English-speaking population, safety and laid-back atmosphere. The 16-by-3-mile British Overseas Territory is home to 12,000 people and an intimate getaway for the rich and famous. Its airport's only direct flights are to other Caribbean islands, and no cruise ships make port calls. Most visitors either fly in with their own planes or take a 20-minute ferry ride from nearby St. Martin.
Despite, or because of, its difficulty of access, Anguilla has more than its share of the Caribbean's 5-star resorts ... It also has pristine beaches and gourmet restaurants. Several resorts are under construction, but the island remains largely undeveloped. The only traffic jams are caused by wandering goats.
Schnittlich saw Anguilla featured in 1989 on TV's Lifestyles of the Rich and Famous. [Ah yes ... the '80s] The following day he booked a trip with his wife, Carol. Five years and several visits later Schnittlich liquidated Philmour's, an upscale clothing store in northern New Jersey that his father had opened in 1947, and spent a month traveling the Caribbean while considering a move there
One evening he was sitting in Mango's, his favorite Anguillan restaurant, when the chef mentioned he was trying to sell the place and move to the U.S. so he could be near his daughter while she attended school. "I realized it was the opportunity of a lifetime," Schnittlich says. "I couldn't just retire and live down here. I needed something to do."
The next day Schnittlich handed the owner a nonrefundable deposit for $50,000, 20% of the asking price. They sealed the deal with a handshake. Then came the hard part. After returning to New Jersey, Schnittlich took three weeks to summon the courage to tell his wife about his decision to become an Anguillan restaurateur. "She laughed, but not for long," he recalls. "She thought it was a stupid idea and said I was going through male menopause. She told me to get therapy."
Undeterred, Schnittlich arranged for the previous owner to run Mango's for three months so he could sell off most of his U.S. assets. Schnittlich sold his 4-bedroom home in East Hampton, cars and several rental properties in the Hamptons. He kept one for home visits. Schnittlich's partner bought his 50% stake in Goldberg's, a 14-store New Jersey bagel chain.
In late June 1995 Schnittlich paid the balance of the restaurant tab. His $250,000 bought him a wobbly structure with 13 dining tables and cooking gear. Its best asset was the name Mango's Seaside Grill, one of Anguilla's best-known eateries. Schnittlich sank another $75,000 into new furniture, lighting and flooring.
Eleven days shy of Mango's scheduled reopening, he was in the U.S. on personal business on September 5, 1995, when he heard that a giant storm was barreling down on the Leeward Islands. Hurricane Louis was a Category Five monster with 180 mph winds and 25-foot waves. Two days later Schnittlich chartered a small plane to Anguilla. Mango's was in ruins. "The only thing left was the toilet," says Schnittlich, who cried for hours on the beach. It took the island weeks to restore water, power and phone service.
He still chokes up at the memory, but Schnittlich now sees the experience as a blessing in disguise. He had had the foresight to buy property insurance, and he used it to build a more modern Mango's, with 36 tables. Schnittlich also expanded his menu and his wine list, from 24 to 550 vintages. Reopened in January 1996, the restaurant quickly recaptured its buzz.
Five years into their Anguillan adventure, Schnittlich's wife of 22 years returned to the U.S. and later filed for divorce."My dream came true, but it became her nightmare," he recalls. Tough as the breakup was, Schnittlich says it did not make sense for either his wife or him to remain perpetually unhappy. Today he is in love with running a restaurant that draws glitterati like Robert De Niro, Al Gore and the Clintons ...
Although Schnittlich had acted quickly when he heard Mango's was on the market, it had two ingredients his business experience told him were key: an established clientele and a solid reputation. Nor did it hurt that expenses are reasonable. Schnittlich, who owns his building, pays $78,000 annually for the beachfront acre on which it sits, plus $13,000 for insurance.
Schnittlich's biggest headache is labor. When some employees called in sick early on, he got stuck serving meals and clearing tables himself. [Sounds like managing a restaurant all right.] These days he pads his shifts with 20% extra workers to avoid having to pitch in. He has also managed to lure and keep a talented chef who graduated from the Johnson & Wales' College of Culinary Arts in Providence, Rhode Island, by offering him 20% of the restaurant.
More than anything, Schnittlich attributes Mango's success to keeping things local. "If we don't catch it, we don't serve it," he says. That may be true of the fish, but he still has to import wine, dry goods and meat from Miami. Mango's revenues have increased from $350,000 to $1.5 million a year under Schnittlich, and it is solidly profitable. He closes the business and visits the U.S. between July and September -- hurricane season.
Schnittlich is still a U.S. citizen, which means that, even though Anguilla has no income tax, he is on the hook to Uncle Sam. That includes paying the U.S. self-employment tax -- 15.3% on his first $102,000 and 2.9% above that.
There are some tax benefits for Americans living overseas. Nonresidents get to exclude up to $87,600 of income earned outside of the U.S., if they spend at least 330 days every 12 months abroad. Schnittlich does not qualify.
"Islands are nice, but the cost of living may be higher than you expect," warns Leonard Levin, head of the international tax practice at New York City accounting firm Weiser LLP. "Do your homework," he says, "before you go."
Mere details in the greater scheme of things, insists Schnittlich, who is now known locally as Mango Dave. "I'm a better person now than I used to be, inside and outside," he says. "I used to work 20 hours a day running multiple businesses in New Jersey. Now I only work 4 hours a day."
TAX SHELTERS 2.0
May 20, 2008
Bad tax ideas, like viruses, tend to mutate and claim new victims.
It has been amazing us for 30 years what people will do to "shelter" income, up to and including dumping their money down the drain for the sake of getting a current deduction. Peter Lynch has ironically noted that people will spend more time figuring out what new refrigerator to buy than they will selecting a stock. That seems to go doubly for tax shelters, where mistakes are far less easy to reverse than a stock purchase.
If you need a reminder that money does not buy happiness, consider the sad case of Henry T. Nicholas III. The billionaire cofounder of Broadcom has made the news lately over a nasty child-custody battle, a stock-options-backdating scandal in which he has been identified as an unindicted potential co-conspirator, allegations of drug use and the indictment of the former manager of his family holding company for hiding cash transactions. Nicholas checked into the Betty Ford Center in April.
One Nicholas nightmare that has gone unnoticed is his fight with the Internal Revenue Service over whether his family can claim $290 million in tax losses from a $6 million investment in junk Asian debt and securities.
The ploy -- which the IRS calls a "distressed asset/debt," or DAD, shelter -- was sold to Nicholas and other tech high rollers in 2001 by Chenery Associates and MyCFO, a financial advice firm backed by Netscape cofounder James H. Clark and venture capitalist John Doerr. Three years later Congress changed the tax code to bar partnerships from being used to transfer foreign losses to U.S. taxpayers. Even though that law does not apply retroactively to Nicholas's 2001 shelters, the IRS sent his family's partnerships notices declaring them illegitimate economic shams. In March the partnerships filed five lawsuits challenging the IRS's denial of their losses and its imposition of penalties
You might think that congressional action, vigorous enforcement and complications like Nicholas's would have killed off DAD and the rest of the tax shelter racket. But that would be to underestimate the tenacity of shelter salesmen and the greed and gullibility of their marks. Instead, like shelters that garnered unwanted attention in the past, DAD has mutated -- in its case into DAT, or the "distressed asset trust," which replaces partnerships with trusts to transfer losses.
In general, expect the IRS to focus the substance of the arrangement rather than the formal legal setup. If the trust here functions like a partnership vis-a-vis risks and payouts to the trust parties, then the IRS can be expected to deem the old law to apply to the new setup.
"Once you find one type of tax shelter and list it [as abusive], you will get a creative accountant, tax lawyer or other type of promotional salesperson tweaking the shelter," says Nathan J. Hochman, head of the Department of Justice's Tax Division.
All this comes on the heels of the government's efforts earlier this decade to squash tax shelters. It indicted lawyers and accountants, extracted $456 million in fines, penalties and restitution from KPMG and squeezed billions in back taxes, interest and penalties from individual shelter users.
KPMG is no longer cold-calling shelter prospects. Yet smaller firms, independent CPAs, lawyers and insurance salesmen continue to flog new -- and old -- shelter mutations to business owners and the successfully self-employed. "After all the enforcement, I'm surprised at the level of tax shelter activity that's still out there," says Ian Comisky, a partner at Blank Rome in Philadelphia who defends taxpayers in civil and criminal cases.
Court records indicate the IRS is investigating whether John E. Rogers, a Chicago partner in law firm Seyfarth Shaw LLP, promoted DAD and later DAT to dozens of investors nationwide. The government asserts in court papers that Rogers's clients claimed $223 million in dubious losses from Brazilian consumer debt in the three years through 2005. Rogers defends the deals as legit and accuses the IRS of harassment. Seyfarth Shaw wrote a 104-page opinion before the 2004 law change saying the shelters would "more likely than not" withstand IRS and judicial scrutiny. The firm declined comment
Jay D. Adkisson, an attorney who has tracked offshore tax schemes for a decade, says that since the IRS crackdown, lawyers and CPAs appear to have become even more central to selling such schemes. "Offshore promoters have become more sophisticated in what they do," he says. "People think, 'If my lawyer showed it to me, it's okay.' But if something involves offshore, get a second opinion."
When it comes to reducing taxes, we agree.
Beware: Sanctions have been ratcheted up for shelter buyers. Congress created a mandatory $100,000 penalty four years ago for any individual who fails to disclose on his tax return that he participated in a transaction that is the same as, or substantially similar to [emphasis added], one the IRS has listed as abusive. A corporation, including one used in an individual's tax shelter, faces a mandatory $200,000 penalty for not disclosing a listed transaction.
Even banned shelters are still being touted. The IRS listed the "abusive Roth IRA" five years ago. In this deal, promoters encourage clients to shelter huge business profits in Roth IRAs, rather than stick to the $5,000 or $6,000 limit for contributions. In February the Justice Department sued two former Grant Thornton partners seeking to enjoin them from promoting the abusive Roth, among other shelters. A lawyer for one defends all the strategies as proper and "used by national accounting firms." But Grant Thornton says it asked both men to leave in 2001 because it disapproved of the shelters.
Meanwhile, the bad idea has spread. The IRS says it is now investigating two dozen promoters of what it believes may be abusive Roth IRAs or similar questionable transactions.
- Stay onshore.
- Do not pay outsize fees.
- Do not do deals with your own IRA.
- Get a second opinion.
- Be wary of a tax loss bigger than your investment.
Not surprisingly, we think this goes a bit too far, at least with the first "tip". But the basic points about knowing what you are doing and paying attention to substance are certainly well taken.
SEC BUSTS (ANOTHER) INTERNET HYIP SCAM
May 25, 2008
It looks like the high yield investment program scams are never going to stop coming. (We have never heard of one that is legitimate.) They "promise" some monthly return that if extrapolated out 5-10 years would result in the program investors owning title to every asset in the universe.
If something is too good to be true, it usually is not. A fortiori, if something cannot be possible, it is impossible.
The Securities and Exchange Commission obtained an emergency court order freezing the assets of an alleged perpetrator of an internet Ponzi scheme that reaped $72 million from 3,000 investors in the United States and 30 foreign countries ...
From December 2005 until at least November 2007, Gregory McKnight of Swartz Creek, Michigan, and his company, Legisi Holdings LLC, which the SEC said is a shell holding company chartered in Nevis in the West Indies, sold unregistered securities through a website promising to pay as much as 15% interest per month. Nevis is a bank-secrecy haven, the SEC said.
The court order was issued May 5 by the U.S. District Court in Detroit. The amount of assets frozen, though in the millions of dollars, was not specified in the SEC’s complaint.
Of the $72 million he raised from investors, Mr. McKnight invested only about $33 million, while using $27.5 million to pay off earlier investors and $2.2 million to pay for his personal expenses and to make payments to relatives.
The SEC is seeking unspecific civil penalties from Mr. McKnight and his company.
"McKnight lured investors from around the globe into investing by claiming on his website that the Legisi program was legitimate and unlike other scams and high yield investment programs that you see on the Internet," Merri Jo Gillette, regional director of the SEC's Chicago office, said in a press release. "In fact, McKnight's Legisi program was just that, a scam from beginning to end," she said.
Another line of thinking to pursue is this: If someone could actually earn 15% a month, then after two years your assets will be up 28-fold. Now obviously if such a brilliant opportunity existed, it would surely be available only to a select few. Why would you be among the so-favored?
KEEP YOU SAFE IS A VIRTUAL ONLINE “SAFE-DEPOSIT BOX”
May 19, 2008
Keep You Safe is an "online safe-deposit box" service that has recently come to our attention. It definitely looks like a potentially useful one. Using your password, any uploads to to your KYS account are automatically encrypted. Only someone who has the password can obtain access to your account and view any documents you have stored there. The free service gives you 2.5MB on online storage space, while the $4/month service gives you 500MB. As the later is paid for using a credit card, the fact that you have a KYS account could be easily discovered or confirmed.
This article is from Linux.com, hence the emphasis is on the open source software behind the Keep You Safe service. Among the open source applications are the numerous custom applications that KYS founder, Eric Wolbrom, and his partner built to encrypt and store clients' data. Fairly amazing in and of itself, this also, not merely coincidentally, makes the whole service more secure -- so Wolbrom believes.
Personal data safety is big business lately. There are a variety of ways to protect your identity or keep your personal information from the prying eyes of dishonest people, but Eric Wolbrom has what he believes is a unique service. Keep You Safe makes it possible for subscribers to store all their personal data securely in a virtual online "safe-deposit box," and share the key with someone they trust. When Wolbrom, a self-described "security geek," finally had the chance to launch Keep You Safe, he knew that building it on Linux, Apache, MySQL, and PHP (LAMP) was the best way to keep his customers' data secure.
Keep You Safe was born of Wolbrom's interest in business disaster recovery and his own personal data security. Wolbrom learned his lessons from his grandfather, who escaped from Poland early in World War II, Wolbrom says. "He drilled it into my head that you always had to be prepared to run." Wolbrom's background is in business continuity and disaster recovery planning. "We do this for businesses, but why don't we do it for our personal data?" he asks. Wolbrom calls it "personal disaster recovery."
"Being a security geek, I had always created these text files that would keep the family numbers together, and then use one of the encryption tools of the day to encrypt it, and put it out on the Net." Wolbrom said he could never resist discussing the topic with his business continuity clients. "Have you ever thought of doing for your personal data what you are doing with your business information?" he would ask them. "I wrote this little how-to article for a client." From there, it was only a matter of time before Keep You Safe was born.
Keep You Safe gives clients the ability to either store records in text format on its servers, or to scan and upload copies of documents. Wolbrom says almost every technology that Keep You Safe is built on is open source, including the numerous custom applications he and his partner built to encrypt and store clients' data. Everything sits on top of a classic LAMP architecture: Red Hat Enterprise Linux, Apache, MySQL, and PHP. That is because open source is more secure than proprietary code, Wolbrom says. "I look at this like this: There is an old adage that security through obscurity is not security at all. If I am building something and I make it completely obscured, someone will find the holes in it and will be able to hack that thing. Windows is completely closed and people are constantly reverse-engineering it. With open source you have thousands upon thousands of people looking at the code. If we have lots of people looking, we are always going to find the bugs before they become an issue."
In keeping with that belief in transparency, the company provides a white paper (PDF) that explains the security process for passwords and logins, data encryption, data transport, network firewalls, patches, and backups. ...
Your login password is hashed using SHA-512, and is compared with the hash on file. The U.S. Government has approved SHA-512 for all applications using Secure Hash Algorithms. The uploaded files themselves are encrypted using AES-256, which, as discussed in a posting last week, is very strong encryption indeed.
In using the service, we notice that a decrypted copy of an online document you choose to view ("open") is stored in the Windows Temp folder. If the Temp folder is configured to reside on a RAM Disk then the contents will be wiped out every time you reboot. If the Temp folder is somewhere on your hard disk there is a small but non-zero risk that past files once stored there could be read.
Wolbrom highly recommends using open source to launch any kind of online business. "It is going to give you the lowest expense-to-deliverable ratio that you are ever going to find. And that is the key thing about open source -- it is just so much less expensive to build anything. It is one of the biggest benefits."
There has been some debate among the W.I.L. staff members about just how secure the Keep You Safe service is. A "whois" search on keepyousafe.com reveals that the domain was registered with GoDaddy.com and the company is a New York LLC. The server is presumably located in the U.S. One must assume that if "they" were really out to get you, some kind of password interception program could be installed on the server. Of course, first the existence of the account would have to be known to do this. The service would be more interesting still if it were based in, to pick a random example, Panama -- where W.I.L.'s site server is (nonrandomly) located. Since Keep You Safe has kindly used open source programs, this would be routine to implement -- in principle, if not in practice.
A final note: This service uses single key encryption. The same key is used to encrypt and decrypt data. If you want to allow access to your account by another person this means you need to use a secure method to convey the password to him or her. Regular email is not secure, for example. (See the W.I.L. educational offering apropos this subject, "Secure Email Communication with PGP".) Just as you would not send a duplicate of your home's front door key to someone taped to a postcard, you have to devote some care to this link in the security chain.
OFFSHORE BANKING: IS IT A LEGITIMATE OPTION?
May 26, 2008
This is an excellent introduction to offshore banking from online investment newsletter NuWire Investor. They do not warn you that an offshore bank account of any size (over $10,000 in value at any point) does not provide much privacy, as its existence must be reported to the U.S. Treasury. They do succinctly cover the major reasons people go offshore: asset protection, privacy, and insulation from home country financial system troubles -- as W.I.L. has been advocating from its inception.
Offshore banking often conjures up visions of corrupt executives avoiding taxation or drug dealers and other unsavory characters using offshore accounts to keep their dubious dealings hidden. But this is not necessarily the case. Certainly some people use offshore bank accounts in unethical ways, just as there are those who abuse loopholes in tax laws or engage in corrupt foreclosure rescue scams, but having an offshore bank account does not immediately brand someone a criminal. In fact, offshore banking can potentially be beneficial for investors looking to protect their assets, run a business while maintaining anonymity or avoid unreliable banking systems at home.
Offshore banks are often, but not always, located in countries providing no-tax or low-tax environments, known as tax havens. The term "offshore bank" simply refers to a bank located in a country other than the one in which the account holder resides.
Many people may legitimately open an offshore bank account. "It's surprising how most people think [tax evasion] is the number one motivation, but I'd say 80 to 90 percent of people who call are interested in protecting their assets from lawsuits or some other threat. Or they just want the privacy of banking [offshore]," Doug Booth, a paralegal with Offshore Legal, a law firm based in Panama, said.
W.I.L. has been recommending going offshore for such reasons all along. The cited percentage is interesting, even if it is not rigorously derived. Under "some other threat" we would be more direct, and say "from your home country's rapacious government."
Wealthy businesspeople who want to get involved with a project and remain anonymous may choose to do so through an offshore corporation because of the privacy it offers. And diminishing confidence in the local economy may also be encouraging U.S. residents to move their money offshore.
Except that the privacy afforded by an offshore corporation is hardly absolute, as we discuss further below.
"As of late we've been getting a lot of people coming along who are very upset with the American banking system ... and they want to move their money to another system," Booth said.
We have been highlighting this as the #1 reason for going offshore for several years now -- see this page in Introduction to International Asset Protection
The primary benefits of an offshore bank account are privacy and asset protection. Account holders can create offshore corporations, open accounts in its name and make deposits and withdrawals through the corporation, which can make it virtually impossible for the account to be connected with the depositor. The IRS considers foreign corporations to be a legitimate way to use offshore bank accounts, as long as the corporation is used for "valid business purposes."
Looking through the rhetoric and at the rules themselves, a valid business purpose in the IRS's eyes would be a business that does actual buying and selling of goods or services. Income held by Controlled Foreign Corporations that is purely passive in nature (details are in the regulations) is passed directly on to the shareholders for tax purposes. And in any case, foreign corporations are not great privacy vehicles when directly held by U.S. shareholders. See this W.I.L. publication for more details.
Swiss bank accounts have become so well known that Switzerland is likely the first place to spring to mind when thinking of offshore banking, but many jurisdictions offer such services. Countries such as Panama, Bermuda, Costa Rica and the Cayman Islands are all used for offshore banking. When selecting a bank at which to open an offshore account, there are several things investors should bear in mind. Being able to do online banking and to send and receive wire transfers are critical when conducting one's affairs from abroad. Booth also advises considering whether one prefers a multinational bank or a local bank.
"A multinational bank has the stability and power behind it and has a lot of conveniences. But ... if pressure is applied you never really know if they are going to hold up, given that they are located onshore as well. Multinational banks have $20 to $80 billion in assets. Banks only in Panama are around the $1 billion mark. They are smaller banks ... but you get the security of knowing no one can pressure them," Booth said.
Our thoughts exactly.
Offshore bank accounts are not for everyone. "It's not as convenient as banking down the street," Booth said. "You can't pay your North American bills from your [offshore] bank account; you need to wire the money in to pay bills, or use a card to pay for them.
Investors considering putting their money into an offshore account should carefully weigh the pros and cons, as well as potential legal issues, before deciding whether or not it is the right decision for them and their money. Diverting and concealing income into offshore accounts to avoid taxation in the U.S. is considered an abuse of offshore banking. Taxpayers and promoters of illegitimate offshore arrangements could be subject to civil and/or criminal penalties, according to the IRS.
Promoters such as the ex-UBS banker who was indicted by the U.S. earlier this month. See posting here.
"We specifically don't encourage people to come offshore for tax-related matters," Booth said. "Panama has been a privacy jurisdiction for a long time. It is built right into the culture, so it is an authentic privacy jurisdiction and a lot of people ... take advantage of that. There are several sectors we do not take: Gambling, pornography and pharmacy. Those areas we don't even touch."
When considering opening an offshore bank account, it is vital that investors select a law firm in the country of choice to ensure that everything is taken care of in a thorough and legal fashion. In Panama, for example, Booth warns of so-called company mills. These mills churn out offshore companies, but are not always reliable. "The real problem with dealing with those people is you lose your attorney client privilege," he said. "That means someone ... has your information and is not held by attorney client privilege. All the security in the world is not going to protect you if the person talks."
As the Liechtenstein bank data theft incident, which has been prominent in offshore news and conversation this year, shows, your agent being forced to talk is not the only issue. You also want to know he will not be bribed into turning over your vital details.
Investors need to thoroughly research available options, as well as the legality of the course they wish to pursue, before deciding whether or not offshore banking is the right choice. Attorneys and accountants can provide critical counsel during the process, and investors should be as well-advised as possible before making any decisions.
U.S. OFFSHORE ACCOUNT HOLDERS BITE THEIR NAILS
May 26, 2008
Repercussions continue from the theft of client data from a Liechtenstein bank, and its subsequent route through Germany to, among other countries, the U.S. It has put the fear of God in all offshore financial account holders who were relying on secrecy to avoid expose of tax evasion or failure to report an offshore account, whether or not they hold accounts in Liechtenstein. The whole affair has further revealed what already should have been obvious: relying on secrecy alone is a very weak strategy for obscuring that which you wish to avoid having discovered.
The newly advertised chink in the secrecy armor -- disgruntled, or greedy and amoral, ex-employees of financial institutions -- is only the latest one. Countries and financial institutions have always been given to caving over time, if the pressure is kept up long enough. Similar to what environmentalists say when fighting developers, the government seeking information only has to win once while the person trying to protect themself has to keep on winning forever. That alone should militate against relying on secrecy and for coming up with a backup component to one's strategy.
As government officials intensify a multinational crackdown on offshore bank accounts, many wealthy Americans who use them to illegally shield income are facing a difficult decision: whether to turn themselves in -- and if so, how.
"People are having trouble sleeping at night," says Charles Rettig, a tax lawyer at Hochman, Salkin, Rettig, Toscher & Perez in Beverly Hills, California. "They don't want to go to prison."
Lawyers advising tax dodgers are saying their clients are struggling to decide among several alternatives. They can confess and plead for mercy. They can quietly file amended tax returns, pay up, make other required disclosures and hope overworked government prosecutors will not follow up. Or they could choose to do nothing and pray their names will not turn up.
Tax dodgers are facing these stark choices as major cracks emerge in what once appeared to be an impenetrable wall of secrecy surrounding bank accounts in such well-known havens as Liechtenstein and Switzerland. While officials have launched many similar campaigns in the past, their latest efforts are attracting widespread attention because they are coming from so many different directions.
"Nothing is secret anymore," says Cono Namorato, a lawyer at Caplin & Drysdale in Washington and a former official at the IRS and the Justice Department. "No individual should take any comfort in relying on any country's so-called bank-secrecy laws."
Last week, the U.S. charged a former UBS AG banker and a Liechtenstein consultant with helping clients avoid taxes. One name already has surfaced: California real-estate developer Igor Olenicoff, who pleaded guilty late last year to filing a false 2002 tax return. U.S. officials are expected to press UBS, a large Swiss financial-services company, to disclose the names of wealthy Americans who may have used its services to evade taxes.
Since UBS is a money center bank with an major presence in the USA, the U.S. has plenty of assets and personel it can hold hostage as leverage with UBS. Be sure your offshore provider has no legal or physical presence within your home country, wherever that may be.
The U.S. and other countries are also probing Liechtenstein's role as a haven for tax cheats. The IRS has confirmed it is investigating more than 100 U.S. taxpayers in connection with accounts in Liechtenstein. Those names have not been made public. Joining the U.S. in the investigation are Australia, Canada, France, Italy, New Zealand, Sweden and the United Kingdom, the IRS said.
Once the Liechtenstein bank ex-employee sold client data to Germany, the data was passed on to the U.S. and the other countries mentioned. For some reason, no low-tax countries showed up asking for a list of their citizens who might have been bank clients.
If you have an offshore account with unreported income, you "should definitely be worried," says Mr. Rettig, who represents a number of clients with such accounts. And if you have an account in Liechtenstein, you should "lawyer up immediately."
Offshore tax evasion costs an estimated $100 billion in lost revenue each year, said Sen. Carl Levin (D-Michigan), the chairman of the U.S. Senate Permanent Subcommittee on Investigations, which has launched its own probe. He has introduced legislation designed to combat offshore secrecy and end the use of havens by Americans dodging taxes. A staffer confirms the investigation has begun but declines to elaborate.
IRS officials also are turning up the heat. "Combating offshore tax avoidance and evasion are high priorities for the IRS," says IRS Commissioner Doug Shulman. "Recent events show there is no safe hiding place for the proceeds of tax avoidance and evasion. Anyone with hidden income and gains would be well-advised to make a prompt and complete disclosure to the IRS."
A law enacted late in 2006 authorized the IRS to pay sharply higher rewards to informants in cases involving large amounts of money. In some cases, the reward can be as high as 30% of whatever the IRS collects. Officials say valuable tips already have poured in because of this law.
"Some clients are very concerned," says Bryan Skarlatos, a lawyer at Kostelanetz & Fink in New York and chairman of the American Bar Association tax section's committee on civil and criminal tax penalties. While there still are some "bank-secrecy jurisdictions," he says, "none of them are as safe as they used to be, and none are ironclad."
In some cases, Mr. Skarlatos is talking to IRS officials about arranging for clients to come in from the cold, confess and arrange full payment -- in the hopes that prosecutors won't bring criminal charges. But he and other lawyers agree this "voluntary disclosure" approach isn't always the best choice.
Here are the pros and cons of several options -- short of fleeing the country altogether -- facing scofflaws:
• The ostrich approach. Bury your head in the sand and hope the storm clouds will blow away without your being caught. This might work if you're reasonably confident your name won't be discovered. But lawyers say the odds of getting caught have grown rapidly because of the growing number of nations pursuing tax cheats and the increased willingness among them to swap information.
"There are some people who are just brazen and think the government will never locate them," says Mr. Rettig, the tax attorney. But "doing nothing and hoping to not be located is not a viable option. Their confidence is misplaced. The issue is when the government will locate them, not whether. And when they are discovered, the house of bricks will literally fall on the person." Ostriches also risk getting hit with very stiff penalties -- and possible criminal sanctions -- just for failing to report foreign financial accounts.
• Make amends quietly. Another option is to file amended returns, using Form 1040X. Some lawyers suggest filing several years of amended returns all at once, while others prefer to send each year's return separately.
Whatever the case, one lawyer says the amended-return approach is usually the best idea because filing and paying everything owed often can help ward off criminal prosecution, especially if the authorities were previously unaware that the client had done anything wrong. But it's certainly not a risk-free approach since the client is admitting that a previous tax return was erroneous, says Mr. Skarlatos.
• Surrender outright. Some people have hired experienced tax lawyers to test the waters with the IRS, initially on an anonymous basis, to see what might happen if they turn themselves in and pay everything they owe -- in the hopes of avoiding jail. This is sometimes known as a "noisy disclosure," as opposed to the quieter approach of filing amended returns and hoping for the best.
"Most of our clients decide to opt for a formal or 'noisy' voluntary disclosure, notwithstanding its complexity, because they want the comfort of sleeping well at night at the conclusion of the process without worrying about future IRS actions," says Mark Matthews, a lawyer at Morgan, Lewis & Bockius in Washington and a former official at the IRS and Justice Department.
But some people are not eligible. Among them are those with "illegal source" income, such as money from bribes or securities fraud. A voluntary disclosure "probably makes sense" for someone who has "only legal sources of income, is not under audit or investigation and whose noncompliance is not likely to be imminently discovered" and who is "prepared to pay or make arrangements" to pay what they owe, Mr. Matthews says.
As one New York lawyer puts it, the IRS is more sympathetic to people who have seen the light, rather than the light seeing them.
An IRS spokesman cautions that a voluntary disclosure "will not automatically guarantee immunity from prosecution," but it "may result in prosecution not being recommended."
EUROPE, U.S. BATTLE SWISS BANK SECRECY
May 28, 2008
After fighting Switzerland's banking secrecy laws for decades, European finance ministers are about to receive support from the United States. Investigations into major Swiss bank UBS and a proposed law against tax havens are ratcheting up pressure against the system.
We recall during our adolescence seeing a made-for-TV movie titled "The Birdmen", where some allied prisoners in a German POW camp high in the Alps were constructing a glider in order to help one important prisoner escape to Switzerland and freedom -- a mere 12 miles (or some small number of that order) away. (We recall it being a pretty decent movie, by our then young mind's standards. And goodness gracious, there is a fan website devoted to the movie!) Then as now, Switzerland stood out as a symbol backed with substance -- an island of relative freedom surrounded by state-sponsored aggressors against freedom.
Now the war is being fought with words and economic pressure rather than bullets and bombs, but Switzerland's relative isolation is no less stark. Again the surrounding Continental nations, with a few small exceptions, are ganging up on them -- this time with help from the U.K. and the U.S. as well. Rather than occupy the Swiss territory, the anti-Swiss cabal means to achieve an economic occupation of sorts by having the Swiss hobble their world-class financial sector, which constitutes 15% of the country's GDP, in order to serve the aims of the cabal.
The German publication Spiegel (which translates to "mirror") has published a significant article on the efforts to break Switzerland's financial secrecy laws. We will cover it in two parts, this week and next.
Martin Liechti, a senior executive with the private banking division of major Swiss bank UBS, worked through his business appointments in New York with his usual efficiency. A subsequent trip to the Bahamas for a meeting in late April was also pure routine. In the Caribbean paradise, Liechti was scheduled to attend a supervisory board meeting of UBS (Bahamas) Ltd., and to take a closer look at the options for doing business with America's super-rich, including parking their money in Swiss trust accounts. But Liechti, a man known for his abrasive manner, never arrived in the Bahamas. U.S. officials abruptly ended his trip when he was about to change planes in Miami. Since then, Liechti has been barred from leaving the country because the American authorities are investigating his employer for allegedly helping clients to evade taxes.
Liechti's former colleague Bradley Birkenfeld, as well as Mario Staggl, an executive with a trust company in Liechtenstein, are under indictment for allegedly helping American billionaire Igor Olenicoff evade taxes. According to the indictment, a fortune of about $200 million (€129 million) was sheltered from tax authorities "in secret bank accounts in Switzerland and Liechtenstein." Prosecutors allege that Staggl's attorney in Gibraltar even helped Olenicoff hide the details of his ownership of a "147-foot yacht."
The accused are alleged to have forged special forms that Swiss banks use to report their U.S. customers' capital gains to the ... IRS. Both Birkenfeld and Staggl have declined to comment on the charges.
Last week we speculated about what the UBS employees had done that was obviously illegal, versus what the IRS might have objected to for being overly aggressive. It looks like they clearly stepped over the line. Forging forms would be illegal in Switzerland, never mind the U.S.
"UBS is walking a thin line. On the one hand, it has to show a willingness to cooperate. On the other, it is trying to protect its customers' banking secrets," says Robert Heim, an attorney in New York and a former investigator with the US Securities and Exchange Commission. "The Justice Department will urge the two to cooperate. The more information they provide, the less severe their penalties will be." He expects that their testimony will soon lead to further indictments and arrests. "This is a very bad development for UBS."
According to Heim, the U.S. is by no means the only place where Swiss high finance and the country's banking secrecy laws are coming under growing pressure. Foreign authorities around the globe are increasingly taking sharper action against tax evaders. Swiss financial institutions, often in tandem with partners in Liechtenstein, play a central role in helping the ultra-rich avoid paying billions in taxes.
An almost unimaginable fortune of more than €3 trillion ($4.7 trillion) is currently sitting in Swiss bank accounts. The discreet Swiss allow vast amounts of money to disappear into trusts, offshore companies and bank accounts, money that is often protected by Switzerland's banking secrecy laws.
Looks like it is time to let the smearing begin. No distinction is made between those attempting to hide ill-gotten gains and those who are taking legitimate measures to protect their assets and privacy. When someone makes an investment in a non-public company, does that money "disappear" into the company? This lack of differentiation is what you expect from the mainstream press -- in the pockets of and scribes for the state and its backers.
Because of these laws, foreign officials on the hunt for untaxed riches are often forced to end their quests at the Swiss border -- to the anger and dismay of the world's finance ministers, and others. Rudolf Elmer, a controversial former executive with the private bank Julius Bar, condemned the dubious methods employed by Switzerland's financial institutions at a press conference in Berlin last week. He sharply attacked his native Switzerland, accusing it of engaging in "criminal support of economic crime."
Many politicians agree. The most recent challenge comes from French Finance Minister Eric Woerth, who plans to dry up the profit sources of Alpine "tax robbers," as he announced in a recent interview. The Frenchman has called for an initiative against tax havens and wants Switzerland to guarantee "maximum transparency and the exchange of information."
Woerth also plans to examine the black list of the OECD because, as he claims, many countries have only been removed from the list thanks to "vague promises." Woerth says that he has already discussed the matter with German officials.
One man he can count on as an ally in his campaign against tax havens is German Finance Minister Peer Steinbruck. The Germans are especially fond of parking their untaxed assets in foreign tax shelters. According to a study based on data from DSTG, the German national tax collectors' union, and the Bundesbank, Germany's central bank, close to €500 billion ($775 billion) in untaxed German assets are in foreign tax shelters, with fully 1/3 of that amount on deposit in accounts in banks in Swiss cities like Geneva, Zürich and Lugano.
Former German Finance Minister Hans Eichel is a vocal critic of Switzerland's special status, and he is fond of appearing on Switzerland's prime-time television talk shows, where he sharply attacks Swiss banking secrecy. "A person who receives stolen goods is no better than a thief," he says.
Which would mean all governments are no better than thieves. Government employees are not known for their keen senses of irony.
Nevertheless, Eichel's comments are greeted with complete incomprehension. Despite the rallying cries of Eichel -- a member of Germany's center-left Social Democratic Party -- such as "tax evasion is committing theft against the people," the majority of Swiss continue to support banking secrecy.
One of the system's strongest advocates is a senior executive with Switzerland's oldest private bank. For Konrad Hummler, a partner in Wegelin & Co., German tax evasion is a legitimate defense by citizens attempting to "partially escape the current grasp of the administrators of a disastrous social welfare state and its fiscal policies."
"Swiss-style saving outside the system" is something to which not only the wealthy, but also productive small and mid-sized businesses are entitled. "These people must be protected," says Hummler.
Banking secrecy as an act of humanitarian compassion? More than anything, Switzerland's system of banking secrecy amounts to a very good business. It is considered the most controversial model of success in the history of global high finance. In past decades, the banking secrecy that is protected by law in Switzerland has acted like a magnet, drawing in trillions of euros and contributing to the meteoric rise of the small Alpine country's financial sector.
That the Swiss have done well by doing good cannot be denied.
Once insignificant boutique banks transformed themselves into banking industry giants. Despite suffering record losses as a result of [their willing participation in] the U.S. subprime mortgage [mania] crisis, banks like UBS and Credit Suisse are still seen as top choices for portfolio managers. The entire industry makes up 15% of Switzerland's GDP. "It makes us fat, but impotent," top banker Hans J. Bär complained a few years ago in his memoirs.
From small and mid-sized businesses to athletes to actors, everyone values the Swiss authorities' policy of refusing to respond to inquiries from foreign tax investigators. Those seeking a place to park untaxed income have nothing to fear in Switzerland. Their account information is kept under lock and key because tax evasion is not considered a criminal offence in the country. Foreign governments can only expect assistance from the Swiss when it comes to tax fraud, such as when their tax authorities are deceived with falsified documents like bogus company accounts.
Which the accused UBS executives apparently did.
A recent incident at Credit Suisse illustrated how routine and matter-of-fact it is for Swiss banks to help their foreign clients avoid paying taxes. Because of embezzlement of customer money, one of the bank's customer advisors was summoned to appear in court in Zurich and divulge his employer's practices. At the bank's offices on downtown Zurich's posh Paradeplatz square, the defendant and his coworkers helped manage the assets of customers living in Germany, including a wealthy, elderly woman. According to the indictment, house visits with the client were as much a part of Credit Suisse's service as "tax optimization." The banker allegedly deposited the proceeds of real estate sales as cash into trust accounts, in an attempt to "make it impossible to trace the source of the funds," the prosecutor writes.
Naturally, the Zurich court refused to overrule the country's banking secrecy laws. The names and addresses of the injured parties were not divulged -- neither in the indictment nor in the courtroom.
To be continued next week ...
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