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The EU Money-Laundering White ListTHE NEW GLOBAL HUNT FOR TAX CHEATS
By forming multinational investigative teams, the IRS and other tax collectors are cracking down on evaders and giving new meaning to globalization.
Spiegel has followed up its article on the battle against Swiss secrecy, "Europe, US Battle Swiss Bank Secrecy" -- covered in Offshore News Digest here and here -- with an article covering the increasingly effective multinational initiatives by tax agencies to uncover evasion. The agencies are collaborating with each other, and are successfully pressuring tax havens to cough up information on clients.
We at W.I.L. have always advised against relying on secrecy for any part of your asset protection strategy. Now it is getting to the point where secrecy is meandering towards endangered species status.
Government authorities from Australia to the U.S. are hunting big game together. Their prey? Wealthy tax evaders -- as well as the asset managers, banks, and accountants who help prosperous people conceal cash in offshore bank accounts. For decades, globalization has afforded an edge to tax cheats. Now it is working for the tax cops, too.
Buoyed by new multinational investigative teams, agreements with banks to open once-secret records, tougher penalties for cheats and third parties, and a thirst for billions of dollars in recoverable revenue, the new globe-spanning tax man has got the world's mega-rich worried they could run afoul of the mounting crackdown.
With so much money at stake, it is no wonder the U.S. Internal Revenue Service, Germany's Bundesministerium der Finanzen, Britain's Her Majesty's Revenue & Customs, and other international colleagues are eager to nab wealthy tax evaders. Almost $6 trillion is estimated to be hidden from tax authorities across the globe -- Germany's central bank suggests $775 billion in German assets alone have been secreted out of the country. In the U.S., the IRS reckons $295 billion of potential tax revenue goes uncollected -- much of it because of underreported income. With governmental budgets strained everywhere, leaders are eager to mop up those missing payments.
A Collaborative Effort
To close this "tax gap," U.S. investigators and their comrades overseas are cooperating as never before. Since the September 11 terrorist attacks, tracking money movements has become a priority. In response, law enforcement and banks have started to share more information about possible tax evaders. Governments also realize they have a lot to gain from stiffer penalties that return more money to underfilled coffers. ...
Cross-border collaboration has become a buzzword in global law enforcement circles. Under an OECD-negotiated treaty, 19 countries, including states as diverse as the U.S., Italy, and Azerbaijan now can prosecute tax evaders within their jurisdictions on behalf of other signatory countries. The European Union passed a similar law in 2000, while Brazil, India, and South Africa began cooperating with each other to identify suspect transactions in 2006. Their targets typically conceal assets in the roughly 40 nations generally seen as tax havens, which are analyzed routinely by international organizations such as the OECD and the International Monetary Fund.
These days, an investigator following a lead need not even cross a border for help from his international colleagues: He or she merely has to walk down the hallway. Since 2004 tax shelter sleuths from five countries -- the U.S., Britain, Australia, Japan, and Canada -- have shared work space, tactics, and information in a joint office at IRS headquarters in Washington. The success of the operation led to its expansion last year, including the opening of a London-based outpost at HMRC.
The physical setup of this so-called Joint International Tax Shelter Information Center reflects the sensitivity of the work. Each member of the unit -- which is physically separated from the rest of the IRS -- has a separate, closed office, allowing for confidential communication with counterparts back home, as well as discreet one-on-one conversations with local colleagues and the IRS. "The office space is configured in a manner that reflects the critical need to protect the privacy of taxpayer information," according to an IRS spokesman.
The IRS argues that such cooperation is essential in a world of globalized money flows. "Cross-border migration of capital and people has made this a more integrated world, and the IRS is working closely with other national tax administrators to ensure that we have a global view of our work," says the top tax official in the U.S., IRS Commissioner Douglas Shulman. This close work with other tax authorities, he adds, has allowed the IRS and its equivalents in other nations to achieve "a new level of cooperation in identifying, developing, and sharing leads on abusive tax transactions and schemes."
Such cooperation will only increase as governments clamp down on tax evasion, says Daniel Feingold, senior partner at Britain-based global tax consultancy Strategic Tax Planning. "There's a definite push for this sort of thing," he says.
Squeezing Tax Havens
All of this has put the squeeze on tax havens such as Liechtenstein and Andorra that have long-held traditions and laws supporting no-questions-asked banking for wealthy clients. "The number of countries safe for this activity is dwindling," says Beverly Hills-based tax lawyer Edward Robbins Jr., a former assistant U.S. attorney who oversaw tax prosecutions in California. "There aren't that many left, frankly."
For decades, banks in places such as Switzerland have flourished by offering seemingly ideal havens from the tax man. Switzerland's code of silence, for instance, goes back at least 200 years. And during World War II, Nazis and Jews alike made use of Swiss bankers' discretion. Since then so have corporations and non-governmental organizations -- as well as drug traffickers and corrupt dictators.
Yet even this Alpine paradise has conceded to mounting international pressure. Most major Swiss banks have signed up with the U.S. to be "qualified intermediaries." The system gives the IRS access to any account containing U.S. securities and requires the filing of tax and other forms with the U.S. that identify clients and balances -- not exactly the image of tight-lipped discretion portrayed in movies such as The Spanish Prisoner and The Bourne Identity. Even the Swiss government admits to a disconnect between tradition and current reality. "Swiss banking secrecy is in no way absolute," cautions the Swiss embassy's Web site.
We suspect that the Swiss banks becoming qualified intermediaries are those with a physical and/or legal presence in the U.S. For many reasons besides privacy, it makes sense to avoid such financial institutions. They can far more easily be pressured into releasing information and assets, or compromising their stated principles, than those with no presence in the client's home country.
Often under pressure, other tax havens have followed suit. Agreements with traditional ports-of-call for evaders like Malta and Bermuda have aided the IRS and its international counterparts. Now tax collectors do not even have to pick their way through complicated avoidance schemes: They can make a case against alleged tax cheats simply by catching missing or falsified paperwork.
Elaborate Web
Here is how it works. For years, a bank client with any kind of interest in an overseas account valued at more than $10,000 has had to file a special form with the IRS disclosing that fact. But to avoid taxation, he might not file the form, or might underreport the value of the account on his tax return. More deviously, he might conceal transactions in an elaborate web of trusts and holding companies. Now, thanks to more international sharing of data, the IRS may find out about the account anyway -- from the bank itself.
Failing to report an overseas financial account under your control when its value (ever) exceeds $10,000 has always been unwise, in our opinion.
The recent high-profile indictment of former UBS banker Brad Birkenfeld [see posting immediately below] shows just how tough the authorities are getting. Birkenfeld's wealthy client, Igor Olenicoff, has pleaded guilty to filing false tax returns and agreed to pay $52 million in back taxes. Both Olenicoff and Birkenfeld, who was born in Boston and lives in Switzerland, are believed to be cooperating in a continuing investigation that began with the discovery of $200 million allegedly concealed in European tax havens on behalf of Olenicoff, a Russian émigré-turned-California real estate developer.
As a result of that probe, the extended arm of U.S. law may reach not just other clients of Birkenfeld (and those of an alleged collaborator in Liechtenstein named Mario Staggl, who specializes in the intricacies of tax havens and trusts) but also other employees of UBS. "This is not an isolated incident," says David Schwedel, a Florida entrepreneur who is now an investment partner of Birkenfeld's. "He won't be the last banker called in for questioning. There will be a lot of bankers called into this. They're going after others at UBS and any US individuals involved with the bank."
Alerted About the Risks
Kevin Packman, a Miami lawyer who represents taxpayers running afoul of the IRS, says he is amazed that even sophisticated CPAs with major corporate and individual clients seem unaware of the international push against money held offshore. Tax lawyers around the world tell of clients -- often expatriates -- who are becoming increasingly worried about being ensnared in the tightening net, thanks to publicity surrounding tax avoidance test cases in Europe and the U.S.
One lawyer tells of trying to alert a client in Argentina about the risks of failing to disclose information to authorities in the client's home country. Even so, the client persisted in wanting to keep income under wraps. But tax lawyers and wealth managers from Basel to Boston say the risks of doing so are rising. "It's obvious that there's a growing intolerance of tax avoidance in the Western world," says Ted Wilson, a senior consultant at Scorpio Partnership, a London-based strategic consultancy to those who advise wealthy clients.
Of course, when the cat is in Zurich or Malta, the mice will find other havens. Asset managers, tax lawyers, and investigators tell BusinessWeek that wealthy evaders are taking a closer look at new frontiers for concealment. One such nation is the Republic of Vanuatu, a tiny, tax-free South Pacific archipelago 1,000 miles from Australia. Local officials even promote their tax haven status to potential clients. "Attractions for the foreign investor" include "extensive secrecy protections," according to a Vanuatu business and taxation guide.
Vanuatu is a haven that has yet to prove itself in our eyes. More interesting will be how rising Asian economies and offshore financial centers such as Singapore and Hong Kong deal with a rising level of interested customers. They have not shown any great welcome mat to proceeds from money laundering, but turning over tax evaders to their home countries is another matter.
Wealthy individuals looking to evade taxes likely will always find ways to circumvent the law. Yet as enforcement finds new ways to share information, the number of prosecutions is expected to rise. That has put pressure on well-known tax havens, such as Liechtenstein, either to shape up or face the full brunt of global tax authorities. In fact, there are signs things are already changing. Says Strategic Tax Planning's Feingold: These days, "among experienced practitioners, no one would ever use Liechtenstein."
Ex-UBS Banker Birkenfeld, Prosecutors Talked for Year
Interesting details from the indictment of former UBS banker Bradley Birkenfeld cited in the Spiegel article above. An interesting fillip in the story is that while Birkenfeld is disclosing information on ex-clients in order to reduce his punishment at the hands of the U.S., that same action would get him prosecuted by the Swiss if he were to go back there.
Bradley Birkenfeld, the former UBS AG banker set to plead guilty for his role in a tax evasion scheme, has talked for more than a year with federal prosecutors as they probe whether the bank helped wealthy Americans conceal income.
Liechtenstein banker Mario Staggl and Birkenfeld, both 43, were charged in an indictment unsealed May 13 with helping billionaire real estate developer Igor Olenicoff evade U.S. taxes on $200 million in assets hidden in Liechtenstein and Switzerland. Birkenfeld, who worked in Zurich-based UBS's private banking unit, is to plead guilty next week, prosecutors said.
"Birkenfeld has been talking to the government for a period that well exceeds a year," Assistant U.S. Attorney Jeffrey Neiman said at Birkenfeld's bond hearing May 13 in Fort Lauderdale, Florida, federal court, according to a transcript. The former banker is cooperating in the prosecution of Staggl.
Olenicoff, chief executive officer of Olen Properties Corp., pleaded guilty December 12 in Santa Ana, California, federal court to filing a false tax return. He was sentenced April 14 to two years probation and agreed to pay $52 million in back taxes, penalties and interest.
UBS, the world's biggest money manager for wealthy clients, has said it is cooperating with the probe of its services to U.S. clients from 2000 to 2007. Birkenfeld, who left the bank in 2006, later provided offshore banking services to U.S. clients through another Swiss company with offices in Miami, according to his indictment. ...
"Things with Mr. Birkenfeld have progressed much faster than anyone ever expected, and he has been somewhat cooperative with the government," Assistant U.S. Attorney Jeffrey Kay said at the bond hearing, according to the court transcript.
Birkenfeld, a U.S. citizen who lived in Switzerland for 13 years, was arrested May 7, according to court records. Authorities detained him after he flew into Boston's Logan International Airport for a high school reunion, Neiman said. Onorato said he tried to work out an immunity agreement. "We lost that battle," the defense lawyer said.
Birkenfeld "knew coming into Logan last week that he was going to get arrested, and it wasn't any surprise to him," Neiman told U.S. Magistrate Judge Barry Seltzer at the May 13 hearing. Since arriving there, Birkenfeld "reached an agreement in principle to cooperate" with prosecutors, Onorato said.
UBS has said a senior bank employee was "briefly detained" by U.S. authorities as a "material witness." The Financial Times reported that the employee was Martin Liechti, head of UBS's international wealth management business for the Americas. He was detained by federal authorities in April, according to the bond hearing transcript.
At that hearing, Onorato said Birkenfeld "knew that he provided Mr. Liechti's name" to U.S. authorities, and "he knew that there was a substantial chance that he would be caught up in the net."
Last week, U.S. Attorney R. Alexander Acosta in Miami said Birkenfeld agreed to plead guilty on June 9 in Fort Lauderdale. The judge "will ask for a full confession," according to an entry on the court's docket.
Staggl, a co-founder of Liechtenstein-based New Haven Trust Co., allegedly "devised, marketed and implemented tax evasion schemes" for U.S. clients, prosecutors said in the indictment. ... Staggl attorney Andreas Schurti in Liechtenstein said it is "certainly wrong" for prosecutors to say his client helped wealthy Americans evade taxes.
"We are completely convinced that it is not correct," Schurti said in an interview. He added that Staggl, though considered a fugitive by U.S. authorities, goes to work every day at New Haven Trust in Liechtenstein. "He is fed up with stories. What Mr. Birkenfeld does is not that interesting."
Onorato, Birkenfeld's lawyer, said at the May court hearing that his client is "violating Swiss law by talking about his private clients," adding that "the Swiss would prosecute him if he were to go back there."
Neiman said the government is "having difficulty getting records from Switzerland and identifying the true U.S. clients," as well as the amount of money they had offshore.
At the bond hearing, Onorato argued that his client was not a flight risk, saying Birkenfeld would not return to his $1 million house near the Matterhorn in Zermatt, Switzerland, or his apartment in Geneva, where he drove a BMW worth $50,000. Seltzer set bail including a $2 million bond from Birkenfeld's father, a neurosurgeon, and a brother, a lawyer. The judge also required Birkenfeld to wear an electronic monitoring device and remain at his brother's home in Boston under house arrest.
The indictment accused Birkenfeld and Staggl of helping Olenicoff use nominee entities and phony companies to hide assets. Birkenfeld and Staggl went to the U.S. to pitch tax evasion schemes, claiming "Swiss and Liechtenstein bank secrecy was impenetrable," according to the indictment.
The two men allegedly told Olenicoff to destroy offshore banking records and use Swiss credit cards that they said would not be discovered by U.S. authorities, according to the indictment. At the bond hearing, Neiman said Birkenfeld set up "sham entities" for a series of clients, including one who defrauded the U.S. of $7 million. Neiman said that was "far and away his largest client" in the U.S.
During a discussion of Birkenfeld's assets, Onorato said his client held shares valued at about $700,000 in a small stock in a U.S. account. Birkenfeld also held $1.5 million of the same stock in a Liechtenstein trust controlled by Staggl, the lawyer said.
"Birkenfeld has been directed to have no contact with Mr. Staggl," Onorato told the judge. "He has not been in touch with him and he does not have access to those funds." ...
The case is U.S. v. Birkenfeld and Staggl, 08-cr-60099, U.S. District Court for the Southern District of Florida (Fort Lauderdale).
WITH U.S. IN SLUMP, DUAL CITIZENSHIP IN EU COUNTRIES ATTRACTS AMERICANS
The evidence about the increased number of American's applying to become dual citizens is largely anecdotal so far, but is also convincing. This article focuses on people applying for citizenship in EU countries. Motivations reported vary: economic opportunity, a kinder and gentler lifestyle, flexibility, and as a backstop in case things deteriorate further in the U.S. The idea that greater economic opportunities may lie outside the U.S. is fairly new, and will probably be with us for a while -- perhaps generations.
While the thresholds for citizenship are lenient in some cases, many people will not qualify. In that case, the remaining option is to acquire economic citizenship.
For millions of Europeans who braved the Atlantic Ocean for a glimpse of the Statue of Liberty and dreams of a lavish life, there was little thought of ever emigrating back. Yet for a new generation of Americans of European descent, the Old Country is becoming a new country full of promise and opportunity.
The creation of the European Union and its thriving economy is very appealing for Americans in a global economy. "With an EU passport, I can live and work in 27 countries," said Suzanne Mulvehill of Lake Worth, Florida. "With a U.S. passport, I can live and work in one."
Americans can claim citizenship in any of the 27 European countries that are in the EU based on the nationality of their parents, or in some cases, grandparents and great-grandparents. Citizenship in one of those countries allows you to live and work in any EU nation.
Since the United States does not keep statistics on dual citizens, it is impossible to know exactly how many people have applied for citizenship in Europe. But it is estimated that more than 40 million Americans are eligible for dual citizenship, and a growing number of Americans want to try their luck elsewhere.
"I have to say that over the past few years, calls I never would have received before have been made to the office," said Sam Levine, an immigration attorney in Palm Beach Gardens. "It's not like a tidal wave, but it's certainly more substantial, and it's remarkable."
He is receiving calls from people like Mulvehill, executive director of the Emotional Institute, a Lake Worth-based company that trains entrepreneurs. Mulvehill's mother was born in Romania, which became a member of the European Union last year. She is obtaining Romanian citizenship, which she estimates will have taken about three years, a ton of paperwork, $750 in fees and a trip to the Romanian consulate in Washington. But once she receives the passport, probably early next year, she'll be able settle anywhere in the EU.
"I recognized for the first time in my life that being American had limits," Mulvehill said, "and that if I really wanted to become what I call a global citizen, then I needed to tap into all my resources to expand my ability to serve entrepreneurs not just in Lake Worth, which is one town, and not just in Florida or in America or North America, but on the globe."
Globalization is a word on the mind of Lauren Berg, a recent college graduate from Michigan who is obtaining Greek citizenship based on her grandfather. She plans to move to Paris, brush up on her French and engross herself in the European business world.
"It's definitely a really good thing to have on your résumé with business going so global," Berg said. "I probably never would have done it if it wasn't for the EU, but at the same time I've always been extremely proud of my Greek heritage."
But not everyone is so excited about this increasing trend. "I understand the impulse: You can get a better deal over there," said Stanley Renshon, a professor at the City University of New York and former president of the International Society of Political Psychology. "Whether it's good for the American national community is quite a different question."
Renshon belongs to a faction of immigration experts that believes dual citizenship diminishes the American identity. "The devaluation of American citizenship for the sake of comparative advantage strikes me as fairly self-centered," Renshon said.
Self-centered people. The horror! The horror!
Dual citizenship became a major issue during the War of 1812, when the British military tried recruiting, and in some cases forcing, British-born American citizens to fight on Britain's side.
For years, being a dual citizen was seen as unpatriotic, and until 1967 it was possible for the United States to revoke American citizenship for people who voted in foreign elections. But in the 1967 Afroyim vs. Rusk decision, Supreme Court justices ruled 5-4 that it was unconstitutional to bar dual citizenship.
"It was the high point of the 1960s and individual rights," said Noah Pickus, the associate director of the Kenan Institute for Ethics at Duke University. "So the notion that you could take a citizenship away from somebody would seem to violate the basic notion of individual choice."
Today, immigrants who become American citizens have to swear that they renounce their previous citizenship, but it is more of a symbolic gesture, and Renshon said it is actually difficult to renounce a citizenship.
One of the biggest advocates of dual citizenship is Temple University professor and author Peter Spiro, who believes that defining one's identity by his citizenship is a thing of the past. "There are really no harms caused by individuals having additional citizenship these days," Spiro said. "It's the wave of the future, because more and more people are going to have it. It's going to multiply on an exponential basis going forward."
And as the value of the euro -- the currency shared by 15 EU countries -- rises and America's economy slumps, it is an attractive alternative for Amber Alfano, a recent University of Florida graduate who is becoming an Italian citizen like her father.
"I'm doing it as an exit strategy of sorts," Alfano said. "I like knowing that I have another place to go if things get even worse here, or if I just get tired of running on the American mouse wheel. "My dad was actually the one who put a bug in my ear about the whole citizenship thing. He said that Europeans are more interested in the quality of life than the quantity, and that it was a good place to have and raise children because of the way their social systems work. I don't care much about the child-rearing part, but I would gladly trade in some of my material possessions for a little flat, a scooter and more vacation."
Levine, the Palm Beach Gardens immigration attorney, was born in Canada and has received calls from people also interested in obtaining Canadian citizenship. He also understands the European appeal. He said he is proud to be an American and proud of what the U.S. has accomplished on a global scale in the last century but that there are some advantages to living elsewhere. "You have to look at things like how hard people work here and how little vacation time people get here," Levine said. "A lot of people who live in Europe might not make same amount of money as Americans, but in some senses it's a kinder, more gentle lifestyle."
When Alfano went to fill out her paperwork at the Italian consulate in Coral Gables, she said "the waiting room was full of second- and third-generation Americans (of Italian descent) picking up passports."
Pickus said he has heard stories of parents getting their children European citizenship as an 18th birthday present -- "We didn't get you a car, but we got you an Italian citizenship."
Some, like seasonal Vero Beach resident Tony Monaco, who has been trying to get Italian citizenship based on his grandfather, bought property in Italy and learned that taxes would be much lower if he was a citizen.
For those who are moving for the EU economic boom, Hudson Institute senior fellow John Fonte -- one of the nation's leading immigration experts and critics of dual citizenship -- warns that it might not last. "I think it's a short-term phenomenon," Fonte said. "I don't think the European economy in the long run will do that well because it's a heavy socialist welfare state in most of the countries."
Mulvehill, the Lake Worth entrepreneur trainer, taught a course at Lynn University and encouraged her students to obtain dual citizenship if they were eligible. "Expand your possibilities. If you can get citizenship, why not?" she said. "The world is a bigger place than America. Look at what technology has done, creating a global economy. That, in my opinion, is what has created this phenomenon."
Every country has its own process for obtaining citizenship. Ireland, Italy and Greece are among the most lenient in terms of letting an individual claim citizenship not just from a parent but from a grandparent or possibly a great-grandparent.
Even in countries that allow an individual only to claim descent based on a parent, in many cases the new citizen can pass the citizenship on to his child. Eric Hammerle, a Vero Beach resident whose father was born in Germany, said it was easy for him and his 16-year-old son Nick to become German citizens.
They acquired the necessary documents -- birth, marriage and death certificates -- and took them to the German consulate in Miami. "The whole process took about 20 minutes," Hammerle said. "They read over the documents, came back and said, 'Congratulations, Germany has two new citizens.' It was a fee of $85."
Dual citizenship criteria
Ireland: Automatically grants citizenship to the child of an Irish-born citizen. A person can also claim descent based on a grandparent or great-grandparent as long as a grandparent had also claimed descent on or before the date of the person's birth.
Italy: For those born after 1948, citizenship is granted if their father or mother was a citizen at the time of the applicant's birth. Citizenship is also granted under these conditions:
Father is an American and the paternal grandfather was a citizen at the time of the father's birth.
If born after 1948, when the mother is American and the maternal grandfather was an Italian citizen at the time of the mother's birth.
Paternal or maternal grandfather was born in America and the paternal great-grandfather was an Italian citizen at the time of the grandparent's birth.
United Kingdom: Descent based on a grandparent allowable only in exceptional cases.
Greece: Native-born parent or grandparent.
Latvia: Native-born parent.
Cyprus: Father was a citizen.
Holland, Finland, Germany and Norway: Applicant must have been born in wedlock with one parent a citizen, or he can claim descent based only on the mother.
All other European Union countries: A parent was a citizen of the given country. People who cannot claim descent can apply after living in the country for a certain number of years.
There will be infinite post-mortems on the signficance of this vote. Ireland was the only EU member that had to put approval of the EU Lisbon treaty up for popular vote. Ratification of the treaty required unanimous approval of all members. Needless to say, the centralizers, including all the major political parties of Ireland, put enormous pressure on Ireland to get with the program (see this previous posting in OS Digest). Ireland voted "No" by a small but definite majority.
Irish Prime Minister Brian Cowen faced an embarrassing defeat on Friday, when it emerged that Irish voters had rejected the Lisbon Treaty in the referendum on the matter held the previous day. Although Ireland has benefited significantly from its membership of the European Union, a fact that supporters of the Treaty were keen to stress, increasing unemployment, the somewhat unceremonious departure of Bertie Ahern as Prime Minister earlier this year, and concerns regarding the impact on the Irish economy and way of life of greater integration into the machinery of the EU are all thought to have played a part in the "No" vote.
All eyes were on the Republic on Thursday, as it was the only EU member to call a referendum on the Treaty, which was drawn up to replace the EU constitution rejected by France and the Netherlands in 2005. Although EC President, Jose Manuel Barroso had reportedly stated that there was no "Plan B", it is possible that the Treaty could go ahead, if a legal accommodation can be reached with Ireland on the matter.
CHANNEL ISLANDS, ISLE OF MAN LEFT OFF EU’S MONEY-LAUNDERING “WHITE LIST”
Caymans, British Virgin Islands effectively blacklisted.
The EU recently released its "white list" of non-EU "countries considered to have money-laundering legislation equivalent to that of EU countries." The list includes noteworthy bastions of virtue such as Russia, Argentina, and Mexico -- not to mention perpetual whipping boy Switzerland -- but not the headlined British crown dependencies, which were placed on an "intermediate" list of financial centers which "may" meet compliance regulations. (The complete list may be found here.) The three Crown dependencies claim there is nothing left for them to do to meet the alleged EU standards. Moreover, the IMF will produce its own "white list" next year, which is expected to give the Crown dependencies a clean bill of health.
The Crown dependencies claim that there is some politics involved in the slight, which is about as controversial as saying some praying is going on at a church. Guernsey finance minister Charles Parkinson allows that "obviously some countries in the EU loathe the idea that any tax haven could be respectable."
Maybe. But it is not clear to us that they should be interpreting their omission from the list as seriously as they do. All white list members are countries. None are dependencies. And UK-based "tax and corporate accountability" Richard Murphy has an even stonger rebuttal, albeit one with an anti-tax haven, pro-government slant, which we cover below.
A row has broken out between the Channel Islands and the European Union over a decision to leave the tax havens off a 'white list' of countries deemed to have satisfactory controls against money-laundering.
Jersey, Guernsey and the Isle of Man have been placed by the EU on an "intermediate" list of financial centres which "may" meet compliance regulations, angering the three Crown dependencies which claim they have done everything possible to put their houses in order. British overseas territories including the Cayman Islands and British Virgin Islands have been excluded altogether, meaning they are effectively blacklisted.
Guernsey's finance minister Charles Parkinson claims the decision to leave the islands off the list was a "political" one, following claims from some financiers that other EU countries did not welcome competition from tax havens. "I am sure that there is no reason why we shouldn't be approved but obviously some countries in the EU loathe the idea that any tax haven could be respectable."
The Crown dependencies have for years been working to shake off their image as depositories for the proceeds of crime. In the past they were favored by criminals and shady businessmen because of the "no questions asked" culture of their banks, which protected their clients' accounts from scrutiny, but the islands now insist they are squeaky clean.
The islands' economies are founded on their financial services industries, with Jersey, Guernsey and the Isle of Man holding an estimated £500 billion on deposit between them. There are 35,000 companies registered in Jersey, which has a population of just 90,000.
The islands remain attractive to companies and individuals because they charge much lower rates of tax than the UK (income tax in Jersey is a flat rate of 20%) but they claim to have rooted out problems with money-laundering by working with the UK Treasury to implement strict compliance rules and by setting up regulatory bodies which are independent of the state.
Peter Neville, director-general of the Guernsey Financial Services Commission, said: "Unfortunately, politics, rather than fairness, plays a large part in this. "The UK has confirmed it considers Guernsey does meet the required standards in relation to anti-money laundering and countering the funding of terrorism."
The EU's draft list of approved countries, which was published on the Treasury website, allows companies operating in EU countries the option of waiving some of the checks they would normally carry out on financial transactions carried out with companies abroad to ensure they did not involve the proceeds of crime.
Compiled by the EU committee on the prevention of money laundering and terrorist financing, the list comprises 13 countries considered to have money-laundering legislation equivalent to that of EU countries. Controversially, it includes Russia, which has a checkered history of financial regulation.
The list states that the Crown dependencies, which are not part of the EU, may be considered to have equivalent standards to member states, without specifically approving them. The islands are expected to lobby the EU for inclusion on the list after the International Monetary Fund produces its own "white list" next year, which is expected to give the Crown dependencies a clean bill of health.
The EU Money-Laundering White List
Richard Murphy is a member of the rabidly anti-tax haven Tax Justice Network. From TJN's "About TJN" page:
"TJN is an independent organization dedicated to high-level research, analysis and advocacy in the field of tax and regulation. We work to map, analyse and explain the role of taxation and the harmful impacts of tax evasion, tax avoidance, tax competition and tax havens. Our objective is to encourage reform at the global and national levels."
Not much more can be added to that self-incrimination (the disdain for tax competition, a very healthy force, is a giveaway) -- except that their implicit self-characterization as independent, analytical, and objective is, well, erroneous. Which makes the "high-level" part inaccurate as well. We have a case study for a sins of omission class. A more honest self-description would add the sentence:
"We are an organization of santamonious know-it-alls who think government is an inherently righteous institution that can do no wrong; any fair (by our standards) tax is a good tax. People cannot be trusted to run their own lives and take care of their own needs, so everyone is lucky to have people like us around to support and justify those who will whether the ignoramuses want it or not. Kudos to us."
In effect, this is the philosophy of the average welfare state apologist, but less honest. Reference H.L. Mencken: "The urge to save humanity is almost always a false front for the urge to rule." Or Thomas Jefferson: "If we can prevent the government from wasting the labors of the people under the pretense of caring for them, they will be happy."
Having said this, Murphy's points about the British Overseas Territories below are not entirely invalid, if one ignores the context. But the pass he gives to the white list countries is either disingenuous or naive. The big boys are subject to the same pressures and corruptions. They are just more obfuscated by all the random noise that accompanies mass. The distinction he draws between the OSTs and the countries sanctified by inclusion of the white list highlight his (and TJN's) bias in bold.
I note that while I was away there was some comment on the UK's overseas tax haven territories not making it to the EU's "white list" of locations with equivalent money laundering standards to the UK despite places like Russia doing so.
I am not at all surprised. Places like Argentina, Australia, Brazil, Canada, Hong Kong, Japan, Mexico, New Zealand, The Russian Federation, Singapore, Switzerland, South Africa and the U.S. are big enough to enforce, at least with some success, the rules they have on money laundering. That is because the places are big enough for the people regulated and the law enforcers to be sufficiently distinct to ensure that one group can exist in society independent of the other, and so maintain an objective status.
I question whether that is possible in the French overseas territories, the Dutch overseas territories and the UK Crown Dependencies, even though I note each has been given equivalence status. I seriously doubt that this is possible in the Crown Dependencies, for example, and would suggest that the obvious political pressure put on those investigating child abuse in Jersey is clear evidence of the corrupted culture of that place, for example.
The characterization of the white-listee government employees may be how it is supposed to work in theory: the tireless and ever-vigilant watchman who ceaselessly and selflessly looks out for the people's best interests, and all that happy stuff. In practice it is hard to distinguish it from a criminal organization that systematically brainwashes people into accepting it as legitimate -- an institutionalized mass elicitation of the Stockholm Syndrome. It walks like a duck and quacks like a duck. It is reasonable to conclude that it's a duck.
OK, we will spare you. Rather than rehash basic principles and work from there, let us just take a look at Transparency International's "Corruption Perceptions Index 2007". (TI figured prominently in a story we covered last week.) Where is Russia? Gee, #143. Argentina? #105. Meanwhile, Saint Vincent and the Grenadines, which Murphy does not specifically insult but which is small enough to qualify under his criteria for jurisdictions worthy of disapprobation, is ranked at #30, tied with Israel and Qatar. The U.S. itself is #20. TI does not rank non-sovereign dependencies, so direct comparison is impossible. We imagine they would all rank higher than #143. (In "The Ballad of Irving," a song about "the 142nd fastest gun in the west," the lyrics inform us that "A hundred and forty-one could draw faster than he, But Irving was looking for one forty-three." Irving, we found him for you!) Of course we are presuming that corruption and a lax attitude towards money-laundering are correlated. But maybe that is just us.
It is impossible for there to be effective money laundering controls in the Overseas Territories. The NAO report on them published last year is proof of that. As they say:
Capacity limitations in the offshore financial sector have limited Territories' ability to investigate suspicious activity reports, and, in the case of the Turks and Caicos Islands, Anguilla and Montserrat, resources are below the critical mass necessary to keep up with increasingly sophisticated international standards and products in offshore financial services.
The "proof" sure is compelling. Not. Who needs a lynch mob when you have the Tax Justice Network? If the big boys are so darn concerned, they could always fund the egregiously dormant investigations, and/or whatever it takes to become compliant with the sophisticated standards (and products, which evidently is important too). By the way, how many investigated SARs actually lead to the discovery of true crimes?
Note, none are excepted from this comment, including Cayman and Bermuda. The evidence is now abundantly clear: the UK cannot allow these places to continue as acknowledged centers of world crime. When will it take action to shut them down?
Yes, kill them all and let God sort them out. Acknowledged centers of world crime? How about designated, by the EU, because they do not live up to the EU's standards, which are mostly driven by the member crime syndicates' ... er ... governments' agenda to safeguard their revenue sources and maintain political control. Self-righteousness useful idiots for the elite, let me introduce you to Mr. Murphy. Oh, I see. You are already acquainted ...
BAD NEWS FOR LAWYERS, BUT GOOD NEWS FOR TAXPAYERS
Lower UK corporate tax rates might increase the total tax take in the long term.
The article author, a tax lawyer, advocates the obvious in theory, but hard to get politicians to consider, idea that lowering corporate tax rates might actually raise the amount of taxes paid by corporations.
The so-called Laffer Curve, which derives from the simple observation that both 0% and 100% tax rates will raise no tax revenue, and thus increased rates must result in lower revenues at some point between the two extremes, was embraced by the Reagan administration "supply side" economists as an justification for cutting marginal tax rates. The cuts may have contributed to the post-1982 U.S. economic boom, but that is basically impossible to prove. (We suspect the Federal Reserve deserves much of the credit, so to speak, but that the growth was not soundly based, as is only now becoming evident.)
More to the point, with "tax competition" among countries -- so hated by the OECD and the Tax Justice Network (see posting immediately above) -- so vigorous currently, tax rate cuts may be required just to keep companies from relocating to friendlier corporate tax climates. As relocation becomes easier and more acceptable due to "globalization," politicians will have to adapt.
How much should big companies mitigate their tax liabilities -- both legally and morally? The controversy over Tesco's tax structuring techniques involving sale and leaseback arrangements with offshore companies highlights a practice increasingly common among large companies. The revelations triggered an outcry about the behavior of large multinational companies. Some even argued that Tesco should ignore such lawful tax planning opportunities and simply volunteer 30% of its profits in corporation tax out of a sense of social responsibility.
The classic statement by Judge Learned Hand on this matter comes readily to mind: "Over and over again courts have said that there is nothing sinister in so arranging one's affairs as to keep taxes as low as possible. Everybody does so, rich or poor; and all do right, for nobody owes any public duty to pay more than the law demands: taxes are enforced exactions, not voluntary contributions. To demand more in the name of morals is mere cant."
At the heart of the debate is the question of the morality of such attempts to lessen tax liabilities within the law. Critics argue that as companies derive benefits from the social infrastructure that the tax system pays for (in particular education, healthcare and transport), they should be willing contributors to the maintenance of those services. Yet with an employer's national insurance contributions at 12.8% of total payroll, levied irrespective of whether a company is profitable or not, companies may well feel that their social responsibilities have been discharged.
At the other extreme is the view that minimizing a company's tax liability within the confines of the law should be regarded as a duty to shareholders. This is becoming a significant issue for UK boards of directors constantly under pressure to deliver returns to shareholders that are as high as possible. As corporation tax reduces the net return, companies naturally will seek to organize their affairs in order to minimize this cost. On this view, corporation tax is just an overhead like any other. Exploiting loopholes in UK tax legislation, therefore, becomes another way of reducing overhead. And in some cases, tax-driven migration out of the UK is seen as a way of increasing returns to shareholders.
Multinational companies have the freedom to organize their tax affairs so as to keep their group-wide effective rates of tax as low as possible. This is often not a question of clever tax avoidance schemes, but more a question of choosing tax-friendly locations in which to do business.
Corporate reorganizations will often involve leaving a high-tax jurisdiction in search of friendlier fiscal climes. The UK's 28% corporation tax looks unappealing in the face of effective rates of less than 10% in Switzerland or 12.5% in Ireland.
What the Chancellor of the Exchequer should be concerned about is the overall tax take and how to secure it. In this sense, the publicity over Tesco should serve as a timely reminder that the boards of public companies have a duty to deliver returns. Fiscal altruism serves only to diminish those returns.
High rates of corporation tax spawn ingenious tax-planning schemes and, in some cases, the migration of taxpayers. So it is worth considering the seemingly counterintuitive idea that lowering corporation tax rates in fact might help to secure the tax base in the long run.
One only needs to look at the economic performance of Ireland over the past decade where a corporation tax rate of less than half that of the UK produced a huge amount of inward investment, generating highly skilled employment which, in turn, significantly increased the overall tax take of the Irish exchequer. It is worth noting that employment taxes represent the majority of the tax base in Britain, whereas corporation tax accounts for only 10% of the total.
Politicians should never forget that you first need income and profits to obtain tax receipts. They should remember that in the modern global economy, corporate taxpayers are no longer captive. If the price is too high they will shop elsewhere.
Lowering corporation tax rates might actually result in a net increase in the tax take as a result of increased inward investment. It would certainly result in fewer migrations and probably less interest in complex tax avoidance products. That might be bad news for tax accountants and lawyers, but not a bad result for the taxpayer.
IRS CRACKS DOWN ON PREPAID FORWARD CONTRACTS
Another chapter from the form vs. substance books. The IRS is maintaining that, previous "guidance" notwithstanding, when one engages in a transaction which fully insulates you against capital losses in an investment going forward, you have sold the asset for tax purposes. There can be alot of fuzziness in applying the concept in practice, but putting all one's eggs in the "they will let this one pass" basket is never wise.
The IRS is pursuing the billionaire businessman Philip Anschutz for $143.6 million in back taxes resulting from a disputed transaction, as part of a wider crackdown by the agency against questionable transactions carried out by executives to avoid or defer income tax.
The Wall Street Journal reported that the dispute has its origins in a complex deal Anschutz struck in 2000 and 2001 involving shares that he owned in Union Pacific Corp. and Anadarko Petroleum Corp, worth around $429 million, which allowed him to defer capital gains tax while protecting him against losses in the event of a fall in the share price.
According to the WSJ, which cited filings in the U.S. Tax Court, Anschutz is arguing that because the sales were not technically completed for tax purposes, they did not trigger a taxable event, and that therefore he does not owe the capital gains tax which the IRS says is due.
It is understood that Anschutz, ranked by Forbes as the 41st wealthiest man in America, used a technique to mitigate tax on the sale of large chunks of shares known as a variable pre-paid forward contract. Under this arrangement, an executive agrees to turn over his shares to an investment bank on a specific future date, and loans the bank the same amount of stock in exchange for cash up front, as much as 80% of the shares' fair market value.
In 2003, the IRS issued guidance stating that pre-paid contracts did not immediately trigger tax, and as a result they became a popular method for company founders and executives to defer paying capital gains tax. The WSJ report named a number of executives at high-profile companies such as Costco and Starbucks who have taken advantage of such arrangements in the past.
This looks like a lesson in treating "guidance" as the equivalent of a definitive statement, but governments cannot be trusted to not change the rules after the fact in any case.
However, in 2006 the IRS backtracked on its guidance and began questioning the validity of these deals as part of a wider crackdown on executive pay. Then, in February 2008, the agency issued an advisory to its agents declaring that some versions of these prepaid forward contracts should trigger immediate taxes.
Tax lawyers are expecting the IRS to take up several similar cases. "The IRS is definitely focused on these types of transactions and I would anticipate seeing more of these types of cases in the future," Bryan Skarlatos, an attorney at tax dispute specialist Kostelanetz & Fink LLP in New York, was quoted as observing by the WSJ.
U.S. SUPREME COURT NARROWS MONEY-LAUNDERING LAW
Like conspiracy, money-laundering is a convenient catchall accusation that prosecutors can add to a laundry list of charges. Some guy is caught running a penny ante poker game -- a trivial crime -- and then is charged with money-laundering when he deposits the house take in a bank. The sentences from being found guilty are severe enough that many defendants are willing to plea-bargain, thus adding to the prosecutors' success ratio.
These Supreme Court rulings might reign in that tendency a tiny bit, but otherwise do not do much to slow down the state juggernaut.
The Supreme Court narrowed the application of the federal money-laundering statute, ruling for criminal defendants in two cases in which prosecutors had employed broad definitions of two of the law's major provisions. The two rulings are likely to crimp the government's ability to bring money-laundering cases, although not necessarily to the degree that an initial reading of either might suggest.
The Money Laundering Control Act, enacted in 1986, is a powerful prosecutorial tool, with conviction carrying a prison sentence of up to 20 years. Money-laundering counts are often added to charges for other crimes with less severe sentences, like the charge for running an illegal gambling operation at issue in one of the two cases. The other case was an appeal by a courier who tried to drive across the Texas-Mexico border with $81,000 in cash, proceeds of a marijuana transaction, clumsily concealed in his Volkswagen Beetle.
The question in both cases was the proper scope of the law's definitions of money laundering.
At issue in the gambling case, which concerned a long-running illegal lottery that operated in bars and restaurants in northwestern Indiana, was a section of the law defining money laundering as a financial transaction that "represents the proceeds of some form of unlawful activity."
Not even questioned, of course, is whether the "crime" was worthy of the name in the first place. Calling an unlicensed lottery a crime is particularly hypocritical, as most states run lotteries which give participants lousier deals than they get from illegal ones -- which, come to think of it, can be said about all state services.
The question was whether "proceeds" referred to the total receipts of the activity or only the net profits. The man accused of running the operation, Efrain Santos, was charged with money laundering based on the payments he made to his runners, collectors and winners. He argued that these payments were made from his receipts, not his profits, and so could not be prosecuted as money laundering. The United States Court of Appeals for the Seventh Circuit, in Chicago, agreed and granted Mr. Santos a writ of habeas corpus, overturning his conviction.
By a vote of 5 to 4, the Supreme Court agreed. The decision, United States v. Santos, No. 06-1005, produced an unusual lineup, with two of the most conservative justices on one side and two on the other.
Justice Antonin Scalia wrote the main opinion, which was joined by Justices Clarence Thomas, David H. Souter and Ruth Bader Ginsburg. Justice John Paul Stevens agreed with the result but not with Justice Scalia's reasoning, adding an important limitation that is likely to minimize the decision's impact.
Justice Samuel A. Alito Jr., a former federal prosecutor, filed a spirited dissenting opinion that was signed by Chief Justice John G. Roberts Jr. and by Justices Anthony M. Kennedy and Stephen G. Breyer.
Justice Scalia's opinion said that as a matter of dictionary definitions, "proceeds" can mean either "receipts" or "profits." Since Congress did not specify what it meant, the statute was ambiguous, he said, adding, "We interpret ambiguous criminal statutes in favor of defendants, not prosecutors."
Justice Alito objected that settling on profits as the correct definition "introduces pointless and difficult problems of proof." Further, he said, it was contrary to Congress's obvious intention to prevent criminal enterprises from enjoying the fruits of their illegal activities, regardless of whether prosecutors could prove that each activity earned a profit.
Justice Stevens, in his separate opinion, essentially split the difference. "Proceeds" need not have the same definition in every context covered by the statute, he said. He agreed that prosecutors should not be able to treat the simple expense of running a "stand-alone gambling venture" as a separate money-laundering offense. That would be "tantamount to double jeopardy," he said.
But Justice Stevens said Congress clearly intended the money-laundering statute to capture "gross revenues from the sale of contraband and the operation of organized crime syndicates involving such sales." So in prosecuting these major crimes, he said, prosecutors need not limit themselves to the operation's profits.
One might think they could just ask the Congressman who introduced the bill. Too simple.
This case was argued on October 3, meaning that it was the oldest undecided case on the court's calendar by more than two months, and making it the subject of much speculation.
The release of the opinion solved the mystery. The arguments before the court in October produced only eight decisions, and this was Justice Scalia's second opinion, leaving Justices Alito and Breyer with none. No justice is ever assigned a second opinion from a sitting while others remain unassigned, so it is obvious that the sides switched in midstream. Justice Alito, initially assigned to write for the court, lost his majority along the way, probably due to the decision by Justice Stevens to join the judgment holding that the conviction of Mr. Santos was improper.
The court was unanimous in the second money-laundering case decided on Monday, with an opinion by Justice Thomas. The question in the case, Cuellar v. United States, No. 06-1456, was the scope of the foreign-transportation portion of the statute. Did it violate the statute simply to conceal cash while crossing the border, as the courier, Regalado Cuellar, was convicted of doing?
Rejecting this definition, the court held that the secrecy must be part of a larger "design" to disguise the source or nature of the money. Since the government did not prove that Mr. Cuellar had such a motivation, Justice Thomas said, his conviction, which the federal appeals court in New Orleans had upheld, must be reversed.
The government won one aspect of this case, however. The court rejected Mr. Cuellar's further argument that the prosecution had to prove that he had intended to create "the appearance of legitimate wealth."
Clearly this second case involved attempted smuggling, or something like that, and the court ruled logically -- for a change.
HONG KONG COMMENCES SECOND CRIMINAL TRIAL FOR INSIDER DEALING
Hong Kong has had an anti-insider trading law for corporate insiders since 2003. After being in effect for five years, the Hong Kong equivalent to the U.S. SEC has instituted only the second criminal prosecution for breaking the law. The alleged violation is unusual: The news of the bankruptcy of a major customer of the Hong Kong company was known, but the significance of the bankruptcy was not. Once the company announced the extent of their writeoff, the stock dropped 20%. The financial VP had dumped his shares in front of the announcement.
The Hong Kong Securities and Futures Commission has commenced criminal proceedings against Hung Lai Mei Vicky for alleged insider dealing in the shares of Sino Golf Holdings Limited, marking the second criminal prosecution for insider dealing since the inception of the Securities and Futures Ordinance in 2003. ... The SFC alleges that Hung, a finance manager of Sino Golf, sold 180,000 shares in Sino Golf in December 2004 while in possession of relevant information.
Hung is alleged to have known that Huffy Corporation, a major corporate client of Sino Golf, had filed for Chapter 11 bankruptcy in the USA and that Sino Golf would therefore need to make a bad debt provision which would have a material effect on its financial position.
Huffy Corporation was a USA-based corporation engaged in the manufacturing and trading of golf equipments, bags and accessories. Huffy was one of the top five customers of Sino Golf Manufacturing Company Limited, a wholly owned subsidiary of Sino Golf Holdings Limited.
On 20th October 2004, Huffy filed for bankruptcy protection in USA and notified Sino Golf on 21st October 2004. Although Huffy's bankruptcy was publicly known in the USA, the SFC will allege that the connection between Huffy's financial position and Sino Golf's financial position was not publicly known in Hong Kong.
A Chapter 11 bankruptcy protection in USA is an attempt by a company to stay in business while a bankruptcy court supervises the reorganization of the company's contractual and debt obligations. The court can grant complete or partial relief from most of the company's debts and contracts and obligations, so that the company can make a fresh start of business.
Upon filing for Chapter 11 bankruptcy protection, creditors are not allowed to attempt to collect previously incurred debts owed to others by the company except through the bankruptcy court.
Sino Golf announced its financial results on 18th April 2005 which included a substantial bad debt provision of HKD9.5 million and recorded a 35% drop in net profit. The market reacted negatively to the news and the share price of Sino Golf dropped by 22.7% from HKD1.10 on 18th April 2005 to close at HKD0.85 on 19th April 2005.
An entrepreneur is finding out just how difficult it is to protect privacy.
Once your name is out there on the Web it is well nigh impossible to get it off. No experienced surfer should be surprised to discover that is the case. And now an entrepreneur who has every incentive to disprove the idea is finding out that that is exactly the case.
If you think Web users have given up on privacy, take a look at Michael Fertik's e-mail inbox. "I have a restraining order on my brother and he is tracking me down. I keep getting death threats. I believe he is finding my information online. Can I hide my phone number and addresses?"
"I am a corrections officer and I want all my information off the Internet ... especially my address. Can you help me?"
These messages came from customers of MyPrivacy, a subscription service Fertik launched last fall to help people pull their details out of the hands of companies that package personal data and sell it on the Web. For $5 a month he offers his subscribers a list of sites where their identifying details are hung out for all to see, and when possible, gives them the option to have them erased.
The problem: MyPrivacy still does not work. Fertik's ambitious program has been stonewalled by many of the data businesses it has sought to deal with and has hardly put a dent in the piles of personal information about his customers that are available on the Web. As of now the project has only shown how hard it is to keep from strangers data as basic as a phone number or an address.
The Web is populated by people-focused search engines like Intelius, Peoplefinders or US Search that peddle personal data: the value of your house, criminal records, salary information and employment history.
A correlary listing to the article, "In Pictures: Companies That Profit From Your Data," is worth glancing at.
Fertik, a 29-year-old graduate of Harvard Law, has built his career challenging the notion that online privacy is a lost cause. In October 2006 he founded ReputationDefender, a company that charges $10 a month to monitor references to its subscribers found on blogs and other sites. ReputationDefender also offers to remove or hide negative content about customers. The service sends friendly requests to offending sites, refers customers to lawyers and creates innocuous blogs and social networking pages to pad Google search results.
In its first year and a half ReputationDefender has seen modest success: The company has grown to 55 employees and took in $2 million of revenue last year. "For every business action there's an equal and opposite reaction," he says. "The business action going on now is the eviscerating exposure of all your stuff, both public and private. People want to regain control of their online identities."
The idea for MyPrivacy came to Fertik two years ago. He began poking around the online data-aggregation companies that collect personal information from public documents such as tax forms, housing documents and criminal records. He says he also traced some data to more private sources like warranty cards and magazine subscriptions.
Fertik counts 230 sites that offer personal information to Web users. Half of them, he says, take requests to opt-out. He saw an opportunity to create a one-stop opt-out shop. As proof of concept, Fertik points to the national do-not-call list, which includes 73% of U.S. households. "You can't get 73% of Americans to do anything except pay taxes and drink Coke," he says. "This is not a niche."
Taking advantage of companies' opt-out offers, however, has been complicated. ...
There is not much in the statute books to protect people who value their privacy. A lot of states have moved their motor vehicle records out of sight, but home ownership and voter registration are wide open. ...
What Fertik wants may be impossible. Many data brokers lack any opt-out policy. There are plenty of other sites, says Petersen, that lack the ethics or resources to honor them. Fertik's cloak of invisibility? "It's not a realistic goal," says [Edward] Petersen [founder of Intelius, one of the Web's largest collections of background-check data].
Bill Kauffman, author of the newly published Ain't My America: The Long, Noble History of Antiwar Conservatism and Middle American Anti-Imperialism (see this posting), continues and amplifies the major theme from that book.
As do many, Kauffman sees the parsing of the American (and undoubtedly world) political universe into a simplistic left-to-right spectrum as supernaturally unenlightening. Indeed it seems to stop thought in its tracks, which is just fine with those defending the status quo. In Ain't My America and his previous books, he has expended considerable effort in showing the common ground between such "far left" figures as Eugene McCarthy and George McGovern, and libertarians and old-style conservatives. The signal common characteristic was opposition to foreign wars and empire, but there was a philosophical orientation towards decentralization behind that.
Here, Kauffman roots out the worthy elements of the "New Left" of the 1960s -- that part which provided a positive alternative to the "imperialists, depersonalizers, and warmakers" without going down the elitist, Marxist-Leninist, anti-American path. Provocatively, he concludes that the false schism between the so-called left and so-called right in the late '60s is ripe for mending, that "the seeds planted by the New Left ... maybe they are ready to flower."
The recent (and ongoing) Ron Paul campaign brought under its "big tent" a diverse array of lifestyles and political viewpoints, united by a distrust of centralized power and an aversion to war. Kauffman does not mention this, but there is heartening evidence there and elsewhere that something is going on.
The ghosts of 1968 are haunting Barack Obama, which is tremendously unfair, I say as his contemporary, given that our cohort spent the Chicago Democratic Convention sticking baseball cards in our bicycle spokes rather than pelting Mayor Daley's finest with porcine epithets. But guilt by association is ironclad in these days when American political discourse is controlled by hall monitors and tattletales. Obama's friendship -- acquaintance? -- with Bill Ayers and Bernardine Dohrn is about to get extended play as the Republicans contrast Obama's Weatherfriends with their nominee's stint in the Hanoi Hilton.
By his own account, John McCain lived in North Vietnamese captivity longer than anywhere else in his itinerant life. This displacement and the resultant military-brat pathologies on display in McCain will go unexploited by the Democrats, whose nominee-in-waiting and maid-of-dishonor are just as placeless as Carpetbag John. And besides, the entire political class of Washington has all the indigenous flavor of the Crystal City Metro station. It would never occur to an attack-ad maker that there was anything wrong with rootlessness.
If Obama bears the standard, the revolutionary posturing of Bill ("kill your parents") Ayers and Bernardine ("bring the war home") Dohrn will serve as the figure of speech of '68 in Republican minds. Prepare for another [brain dead] episode in what Gore Vidal calls the United States of Amnesia. But I say to hell with Ayers and Dohrn. Let us remember the other New Left -- a humane, decentralist, thoroughly American New Left that regarded socialism as "a way to bury social problems under a federal bureaucracy," in the words of Carl Oglesby, president of Students for a Democratic Society in 1965-66 and a key figure in its Middle American wing, which extended from independent anti-imperialist liberals to trans-Mississippi "Prairie Power" radicals. ("Texas anarchists," sneered the elite East Coast-schooled red-diaper babies at the hell-raising directional state college Prairie Power kids.)
As Old Right historian Leonard Liggio wrote in 1970, "Since there was little official SDS ideology, and what there was was populist and libertarian, it was attractive to the large numbers of American students who were growing conscious of their opposition to the educational factory system, the bureaucracy, the draft and the war." This libertarian Middle American tendency faded as humorless Marxists and violent fanatics a la Ayers and Dohrn blew SDS apart. But even as it decomposed, the New Left was an olio of old-fashioned American rebellion, a naive idealization of Third World revolutionaries and the bomb-happy Marxism of groups such as Weatherman. The sager figures in the New Left, however, rejected television, IBM, nomadic corporate culture, and the Cold War -- all profoundly anti-conservative forces -- and I wonder just what is so "Left" about that?
The Port Huron Statement, the 1962 manifesto of SDS, was drawn up in large part by the Michigan Catholic baseball fan Tom Hayden. The statement is a mixed bag: denunciations of racial bigotry, bureaucracy, and the militarization of American life bump into simultaneous calls for national healthcare and an expanded welfare state. Yet the Port Huron Statement, and SDS, emphasized the core principle of decentralization, of breaking overly large institutions and even cities down to a more human scale, "based on the vision of man as master of his machines and his society."
"We oppose the depersonalization that reduces human beings to the status of things," declared the authors. The line might have been written by another Michigan lad, Russell Kirk of Mecosta. Kirk was no New Leftist, though he did later befriend -- and in 1976 voted for -- Eugene McCarthy, the peace candidate of the 1968 Democratic primaries, the distributist-inclined Catholic intellectual who befuddled his conventional liberal supporters with talk of a salutary "depersonalizing" of the presidency, of reducing that office to its constitutional dimensions, shorn of the accreted cult of personality.
Left and Right mostly hurled anathemas at each other in 1968, but not always, and the rare friendly exchanges over the phantom barriers were rich with promise -- a promise fulfilled, in a way, one year later, in the 1969 New York City mayoralty campaign of Norman Mailer, who campaigned as a "left conservative" on a platform of power to the neighborhoods.
But SDS president Carl Oglesby was the New Left figure who first saw the potential of a Left-Right linkage. Oglesby was the son of rural working-class Southerners who had joined the diaspora North, where his father worked in an Akron rubber factory. Said dad to his radical son: "Damn it, you ought to get yourself a real job where you can settle down and take care of your family and quit all this unpatriotic horsesh*t." Carl did not follow his father's advice, but just hearing it mattered.
Oglesby was a playwright -- he had written a well-received work on the Hatfield-McCoy feud -- toiling within the military-industrial complex at Bendix Aerospace Systems when, fresh off the composition of an anti-Vietnam War position paper, he was elected president of SDS in June 1965. He was, at once, both more radical and more conservative than Hayden and the organization's leftist activists. As he writes in his recent memoir, Ravens in the Storm, "I believed that America's 'small-r' republicans would also have to get engaged if the antiwar cause were to have the least chance of succeeding."
Taking up his predecessor Paul Potter's challenge to "name the system," Oglesby made his own name with a November 1965 speech in Washington in which he fingered "corporate liberalism" as the "system that creates and sustains the war in Vietnam." He named names: not Goldwater or Kirk but Truman, Eisenhower, Kennedy, Bundy, McNamara, Rusk, Lodge, and Goldberg.
Through Professor Richard Schaull of Princeton Theological Seminary, Oglesby was introduced to the writings of Murray Rothbard, the antimilitarist libertarian economist whose long and winding yet somehow consistent road had taken him from anti-New Deal isolationist Robert Taft supporter into friendship with the quasi-pacifist Nebraska Republican Congressman Howard Buffett (father of a much less interesting man) then over to the League of (Adlai) Stevensonian Democrats and, by 1968, into tentative comradeship with the anarchist factions of the New Left. While other young radicals read Marcuse or Fanon, Carl Oglesby dug Murray Rothbard.
In his essay "Vietnamese Crucible," published in the 1967 volume Containment and Change, Oglesby rejected the "socialist radical, the corporatist conservative, and the welfare-state liberal" and challenged the New Left to embrace "American democratic populism" and "the American libertarian right."
Invoking Senator Taft, Gen. Douglas MacArthur, Congressman Buffett, and Saturday Evening Post writer Garet Garrett, among other stalwarts of the Old Right, he asked, "Why have the traditional opponents of big, militarized, central authoritarian government now joined forces with such a government's boldest advocates?" What in the name of Thomas Jefferson were conservatives doing holding the bag for Robert Strange McNamara?
After explicating the Old Right to a readership that must have been, at the least, nonplussed, Oglesby connected the dots:
"This style of political thought, rootedly American, is carried forward today by the Negro freedom movement and the student movement against Great Society-Free World imperialism. That these movements are called leftist means nothing. They are of the grain of American humanist individualism and voluntaristic associational action; and it is only through them that the libertarian tradition is activated and kept alive. In a strong sense, the Old Right and the New Left are morally and politically coordinate."
Oglesby did not predict an alliance; he merely pointed out the kinship of dissenters. Whether the twain would ever meet was another matter. (They might have met, come to think of it, via Mark Twain, in the character of anti-imperialist Tom Sawyer.)
"The New Left," warned Oglesby, "can lose itself in the imported left-wing debates of the thirties, wondering what it ought to say about technocracy and Stalin." ... "The libertarian right," Oglesby continued, "can remain hypnotically charmed by the authoritarian imperialists whose only ultimate love is Power, the subhuman brownshirted power of the jingo state militant, the state rampant, the iron state possessed of its own clanking glory." Well, yes, that and the need to kiss the rings of foundation presidents who doled out the money on which the organized Right became just as dependent as any puling beggar from the National Welfare Rights Organization. (Among those captivated by this essay was a former Goldwater Girl named Hillary Rodham, who became friendly, for a while, with Oglesby. Alas, she entered her own crucible and came out mistress of the iron-maiden state.)
The Marxists and conventional leftists within SDS had no idea what to make of this stirring call for a prison break from the Left-Right Bastille. ... Oglesby understood, as that landmark druggy paean to youth culture and the pioneer virtues Easy Rider had it, that for all their surface differences and rote hostility, the hippies and rednecks, the small farmers and shaggy communards, were on the same side: that of liberty, of locally based community, of independence from the war machine. Billy Joe Smythe, LeRoy Washington, and Luis Chavez were as one to McGeorge Bundy: interchangeable body-bag fillers. Hello, Big Muddy; Hello, Fodder ...
Oglesby was in '68, and remains today, an admirer of Bobby Kennedy as the only pol who might have gathered the dispossessed in a hopeful democratic movement. Scoff if you will -- he is used to it. ...
Oglesby was drummed out of SDS in a 1969 star-chamber trial. A nag named Arlene Eisen Bergman arraigned him for being "trapped in our early, bourgeois stage" and for not progressing into "a Marxist-Leninist perspective." Oglesby's sins, as enumerated by Bergman, included "that bizarre last chapter in your book ... where you actually propose an alliance with what you call, let's see, 'principled conservatives.'"
"SDS is not trying to reach the readers of Life magazine," Dohrn shouted at Oglesby. Carl was expelled; he went on to record two fine albums of folk-Beat Americana, and one supposes that his vision came closest to being realized in the music of Bob Dylan, the Minnesota-bred Goldwater-admiring scourge of the masters of war who wrote in the liner notes to his 1993 album World Gone Wrong: "give me a thousand acres of tractable land & all the gang members that exist & you'll see the Authentic alternative lifestyle, the Agrarian one."
What Oglesby called the "freewheeling participatory democracy" of SDS was dynamited by the likes of Ayers and Dohrn, representatives of the very worst of the anti-American Left, who have settled into their sixties in comfortable prosperity while Carl Oglesby, lacking inherited wealth, battles illness as best he can. Life ain't fair. The cheerleaders and the rich boys always win, don't they?
Black Panther Eldridge Cleaver asked Oglesby to run as his vice-presidential candidate on the 1968 Peace and Freedom Party ticket. Carl, in a hiccup of realpolitik, said no. But there had been common concerns. Cleaver had sharply assayed the demise of federalism:
There aren't any more state governments. We have these honorary pigs like Mayor Alioto ... presiding over the distribution of a lot of federal funds. He's plugged into one gigantic system, one octopus spanning the continent from one end to the other, reaching its tentacles all around the world, in everybody's pocket and around everybody's neck. We have just one octopus. A beast with his head wherever LBJ might be tonight.
Yes, the Panthers were thugs, the least imaginative of them had been infected with the Marxist-Leninist virus, and Cleaver committed some horrendous crimes. But the Panthers, unlike John McCain, came from neighborhoods, and the best of them were groping toward a Marcus Garvey-Malcolm X philosophy of community self-reliance. You have also got to admit that they were solid on Second Amendment issues. (Lynn Scarlett and I interviewed Cleaver for Reason in 1985. His place was easy to find: it was the only front porch in his Berkeley neighborhood flying an American flag.)
Okay, so maybe Eldridge isn't your cup of hallucinatory nutmeg tea. What about the only other 1968 general election presidential candidate worth a look: Gov. George Wallace of the right-wing American Independent Party?
If you can get beyond Wallace's reprehensible race-baiting, which soon gave way to active courtship of black voters, certain of his policies overlapped with the humane Left. He proposed decentralizing industries because "I don't think God meant people to be all jammed up in cities. No courtesy, no time, no room -- that's all you get in cities." He called for removing the tax exemption from foundations and emitted a class-war cry -- "the rednecks are coming" -- that frightened the hell out of New York Times readers and William F. Buckley Jr., who called him a "country and western Marxist." Read Wallace and tell me if this isn't also the spirit of the New Left:
The biggest domestic issue for 1968? I'll tell you. It's people -- our fine American people, living their own lives, buying their own homes, educating their children, running their own farms, working the way they like to work, and not having the bureaucrats and intellectual morons trying to manage everything for them. It's a matter of trusting the people to make their own decisions.
One of the few journalists who heard Wallace in '68 was Pete Hamill, who wrote in the New Left monthly Ramparts that "Wallace and the black and radical militants ... share some common ground: local control of schools and institutions, a desire to radically change America, a violent distrust of the power structure and the establishment. In this year's election, the only one of the three major candidates who is a true radical is Wallace."
George Wallace and the New Left despised each other: "fascist" and "dirty beatniks" were about as sophisticated as the badinage got. Only a hopeless romantic -- and what other kind is there? -- would ponder the cross-pollinating possibilities: Creedence Clearwater Revival playing "Fortunate Son" at Wallace rallies or the Guvnah's supporters -- Chill Wills, Walter Brennan, George "Goober" Lindsay -- joining Phil Ochs in the chorus of "I Ain't Marching Anymore" at a rally outside the Opelika draft board.
Sigh. Maybe the closest we got to this sort of hybrid was the flat-out racist Asa Carter, who penned Wallace's disgraceful 1962 "segregation now, segregation tomorrow, segregation forever" inaugural address and later wrote, under the name Forrest Carter, the novel Gone To Texas, which became the Clint Eastwood masterpiece The Outlaw Josey Wales.
Compared to Humphrey and Nixon, George Wallace was the peacenik in the '68 race. (Apologies to the aborted Cleaver-Oglesby ticket.) If the Vietnam War was not winnable within 90 days of his taking office, Wallace pledged an immediate withdrawal of U.S. troops. As his aides told Pete Hamill about Vietnam, "The hell with it."
Wallace also called foreign-aid money "poured down a rat hole" and demanded that European and Asian allies pay more for their defense. The relative prudence of the Alabama governor's foreign policy was obscured by his disastrous selection of Gen. Curtis "bomb them back into the Stone Age" LeMay as his running mate. LeMay thought himself a "moderate Republican," which may have been true: the most hawkish figure in American politics in 1968, after all, was that moderate Republican and Picasso-collecting warmongering New York governor, Nelson Rockefeller. (Oh, what might have been: before LeMay, Wallace reportedly had asked Colonel Sanders, Mr. Kentucky Fried Chicken, to join the ticket. Extra crispy chicken or extra crispy Vietnamese children: therein lies the Sanders-LeMay difference.)
Maybe "the Devil's got a Wallace sticker on the back of his car," as the Drive-By Truckers sing, but old George sure had trust-fund Weatherboy Billy Ayers's number: "It's the damn rich who turn Communist. You ever see a poor Communist?"
Wallace traditionally ran strong primary campaigns in Wisconsin, stronghold of Upper Midwest populism, but as he was running in '68, the state was losing one of its great patriots, William Appleman Williams, the favorite historian of the Middle American New Left. Williams was from Atlantic, Iowa -- legend has it, says Paul Buhle, coauthor of an excellent biography of Williams, that the highway sign welcoming visitors to Atlantic bore "the Jeffersonian motto 'The Government Which Governs Least, Governs Best.'" ...
I recently asked Williams's biographer Buhle, a Madison SDSer, publisher of the New Left journal Radical America, and editor of the recent Students for a Democratic Society: A Graphic History, about the prospects for cashing in on the missed chances of 1968. "The spirit at large in the U.S. now reminds me more of the later 1960s New Left/Old Right dialogue or encounter than anything since then," he says. "Consequently, I find myself more in dialogue with old-fashioned conservatives than I have been, and I suspect that this is widely true."
The Bush wars have brought together anti-imperialists of Left and Right, but their coalescence is being forged not so much overseas as in our backyards. A "wonderful example," says Buhle, "is conservation, small-town life, and the bird population. All kinds of conservatives and small-town Republicans find themselves fending off new demands for exploitation of public resources (threats to water supplies and such)." Farmers markets are another meeting ground, he notes, as the organic and Eat Local and community-supported agriculture movements introduce folks who look homeward rather than into Baghdad suns.
Left? Right? What difference does it make? The model organic farm in my neck of the woods, a truly inspiring extended-family venture, was begun by a former college hockey player and active member of the New York State Conservative Party. I know greens, right-to-lifers, NRA members, and just plain apolitical farmers who are relocalizing life, brightening their little corner of the world in their daily acts.
The imperialists, the depersonalizers, the warmakers -- a Biblical 40 years have passed since 1968, and they are with us still. But look around and you will see that the seeds planted by the New Left have not all fallen on hard ground. I think maybe they are ready to flower.
SHORT TAKES
Mauritius Revamps Legal Sector to Lure Global Firms
Mauritius is on the verge of overhauling its legal sector in a bid to entice international firms to set up shop in the jurisdiction and to raise its financial services profile. Denton Wilde Sapte, which has targeted the Mauritian offshore industry since 2005 through its association with local firm BLC Chambers, could be one of the first international firms to take advantage of the imminent changes. ...
Under the new rules international firms will also be able to set up standalone offices, where they have at least two lawyers in situ. However, they will still have to maintain associations with Mauritian lawyers. This was an olive branch extended to the local legal community, which felt threatened by a possible flood of foreign lawyers, according to Shyamal Jeewolall, a Mauritian-born associate in Norton Rose's Paris office.
BLC tax lawyer Jason Harel said he was not envious of international firms and played down the possibility of a rush into the market. "International law firms are welcome to come to Mauritius. It would raise the profile of the jurisdiction. But for the time being I can't see any firms doing it. Mauritius doesn't have a high volume of English law work," he said.
St. Kitts & Nevis Parliament to Strengthen Legislation to Combat Money Laundering, Terrorism
Lawmakers in St. Kitts/Nevis are meeting today to approve legislation aimed at ensuring the Federation's legal, law enforcement, financial and regulatory regimes are in compliance with international standards and increasing financial transparency within certain key institutions within the Federation. ...
The Financial Services Commission (Amendment) Bill increases the efficiency of the Financial Services Commission by endowing the commission with powers to impose sanctions on financial institutions that are acting in a manner that violates safe prudential practices as set out in the Proceeds of Crime Act, the Anti-money Laundering Regulations, the Anti-Terrorism Act or similar legislation.
The amendment to the Financial Services Intelligent Unit Act will expand the jurisdiction of the unit to encompass the financing of terrorist activities and will enable the unit to liaise with competent authorities and agencies in combating the financing of terrorism in addition to the collaboration that is now done with money laundering intelligence agencies. ...
The amendment to the Anti-Terrorism Act corrects an omission in the original bill by providing for the mental element of the offence of engaging in money laundering for terrorist purposes. While the original provision spoke to the act of committing the offence, there was no provision at the time as to the particular knowledge that an accused person would need to possess in order to be found criminally liable.
Another amendment introduces an alternative to forfeiture where forfeiture of property seized from terrorist activities is not possible.
South Korea Plans to Cut Corporate Taxes to Spur Economy
South Korea plans to lower corporate taxes earlier than scheduled in a bid to spur economic growth by bolstering investment and helping create more jobs ... The Ministry of Strategy and Finance said that it will cut the maximum corporate tax rate from the current 25% to 22% this year and trim it further to 20% by the end of 2010.
The tax-cut timetable is two years ahead of the initial schedule. The minimum tax rates will also be lowered from 13% to 10%, the ministry said
Dubai Wants VAT Rate Set at 3%, as It Transitions from “Tax Haven” to “Tax Regime”
Dubai Customs has recommended a rate of 3% for the VAT the UAE would introduce next year as part of a Gulf initiative. ... This will mark the country's exit from a perceived "tax-free" haven to a tax regime. Although the country is yet to formally launch direct tax, its residents have been paying indirect taxes in the form of fees, surcharges, and road tolls, etc.
Dubai Customs director-general Ahmad Butti Ahmad said the UAE is likely to be the first country of the Gulf Cooperation Council to introduce the tax on goods and services. "VAT makes sense for Gulf states diversifying into sectors like tourism, hospitality and financial services," Ahmad said at a media briefing on Sunday night, and described it as "the best tax system" for boosting the UAE economy.
Australian Taxation Office to Target Stock Investors and Landloads
The ATO will target sharemarket investors and landlords come tax time, after uncovering $125 million in undeclared interest and dividends last year and $50 million in unreported capital gains ...
The ATO said it would also look into more than $13 billion in employee work expenses that have been made, and executive salary packaging. The value of work expense claims has increased at double the rate of inflation, by 8%. Small businesses would also be investigated over their employer obligations, assets sales, investments and offshore loans, according to the paper.
ATO second commissioner Jennie Granger said the ATO would increase its investigations into executives and directors who make more than $1 million a year to cover those who work for private and foreign companies. ... [T]he ATO had raised $20 million in extra tax from its review of 175 executives, with the most common adjustment stemming from share and options schemes.
Ms. Granger said the federal investigation of offshore tax evasion called Operation Wickenby had returned $117 million in extra tax liabilities, a probe into bank accounts held in Liechtenstein brought in $50 million, and accounts held in Vanuatu yielded $90 million in allegedly false deductions.
Ms. Granger said the ATO had received a disappointing response from its calls for taxpayers with overseas bank account to come forward in July. "It was a hint that should not have been ignored because this work is now stepping up," she said.
U.S. Travelers Not Needing Visas Will Be Required to Register Upon Entry
Travelers who do not need visas to enter the United States will be required to register online with the U.S. government at least three days before they visit, a security regulation set to begin next year. ... Required online registration will begin in January and will be valid for a two-year period.
Those needing to register will be travelers from the 27 countries whose citizens are not required to obtain visas for U.S. entry. The counties include those in most of western Europe as well as Andorra, Australia, Brunei, Japan, New Zealand and Singapore. Eight other countries -- the Czech Republic, Hungary and South Korea among them -- are expected to be admitted to the visa waiver program.
When the Homeland Security Department began discussing the online registration rule last year, European businesses worried that business travel could be impeded.
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