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

W.I.L. Offshore News Digest for Week of November 24, 2008

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

HOW THE DOMINICAN REPUBLIC LOOKS FROM THE ROSE OF SHARON ORPHANAGE

The Dominican Republic has become an increasingly popular expat destination and features a growing tourism industry. Here, a visitor describes choosing to travel beyond the capital city of Santo Domingo and the country's wonderful beaches and finding a life -- or so we presume, given the author's current vocation compared to the previous life she describes.

For years, one of the finest jewels of the Caribbean, the Dominican Republic, was veiled in the commercial shadow of its big brother, Puerto Rico. During the past 30 years Internet use has grown, information has become one of the most marketable commodities, and the click of a mouse can send one to the other side of the world. As the tourism industry has moved into the virtual realm, the Dominican Republic has emerged as king of pristine beaches, economical resorts, and great baseball players. Today, tourism is one of the fastest-growing industries in the Dominican Republic. Officials at Berlin's 4th International Tourism Bourse, one of the world's most celebrated travel trade shows, announced that over 26 million travelers have visited the Dominican Republic in the last 10 years. The majority of these 26 million visitors have flocked to tourist-oriented locations such as Santo Domingo, Puerto Plata, and Punta Cana. While the capital city and the celebrated beaches of the Dominican Republic are unquestionably sight-worthy, traveling to some of the less commercialized Dominican cities can provide one with a rich, authentic travel experience that he or she will never forget.

San Juan de la Maguana is the capital city of San Juan, a province located in the western part of the Dominican Republic. Although San Juan de la Maguana is only 3 1/2 hours away from the capital city, visitors will feel as if they are far removed from the modern metropolis of Santo Domingo. The natural setting of the city is truly picturesque. Lush, green mountains stretch upward to kiss the brilliant blue sky and create a natural border for the province as well as for the eye. The San Juan valley is one of the leading producers of agricultural exports in the Dominican. Thus, those who venture outside of the city will encounter flowing fields of rice and beans wherever they look. Although several successful Santo Domingo businesspersons make their second home in San Juan de la Maguana, the town is not an affluent one. Devastating poverty can be found in barrios all around the edge of the city, and beggars are a common sight.

There are no words to describe the effect that seeing a true barrio for the first time has upon a traveler from an affluent first-world nation. Children run through the dirt roads barefoot and sometimes naked, entire families live in a single-room stick hut and sleep on the same mattress, and trash and waste line the streets. Residents are sometimes malnourished and clean water is a luxury that almost no one can afford. Haphazard power lines jerry-rigged by enterprising residents hoping to find power during one of the many power-outages are strung across the barrios, and many a visitor has marveled at the fact that these power lines even work at all. The poverty found in the barrios around San Juan can overwhelm travelers and make them feel guilty about the 3-bedroom home and 2-car garage they have left behind.

I strongly advise that visitors to the barrios take a moment to look beyond the deficiencies that can be perceived by so many first-world eyes and examine the reasons that those they consider to be "less-fortunate" have found to smile. Children will eagerly rush to cling to the hands of any visitor they encounter, adults will bring out plastic patio chairs and invite guests to make themselves at home. Proud housewives sweep dirt floors on a daily basis and maintain a dignity far greater than many can even begin to comprehend. The residents of the barrios have struggled in life, but the smiles on their faces, their overwhelming generosity, and the gentle demeanors that one will encounter betray a secret that is all but unknown to those of us who live in first world nations. Travelers are sure to encounter many a broad smile borne of hope and immense faith. Best of all, any North American traveler with European features will be overjoyed that, in a world in which Americans are often viewed in a negative light, he or she will be greeted with ecstatic cries of, "Mira el Americano!" and the entire town will rush to make his or her acquaintance.

Just outside of San Juan de la Maguana lies the Orfanato la Rosa en el Desierto, an orphanage that is run by a U.S.-based mission organization, Full Gospel World Ministries. The Orfanato la Rosa en el Desierto is home to 45 boys and five girls whose charm and innocence is enough to give joy to the most cantankerous of individuals. The children are intelligent, eager-to-learn, and loving beyond question. They love to practice English with those who visit and they need only see a face once to remember the name. Best of all, the love and understanding that the orphanage directors attempt to foster in the environment of their establishment is evident in the actions of the children. They are keen to help each other and share what they have. I once helped a boy with a group craft project only to watch him give his creation to a disabled boy sitting next to him without a second thought. In that moment, I came to understand the insignificance of material wealth; the children who I had once perceived to have nothing have all of the riches imaginable. The unfortunate one was not the children at the Orfanato la Rosa en el Desierto, but I. At the time, I was living alone in a city where I had few friends and no relatives and working at a job that I abhorred but was afraid to leave because I was convinced that accomplishment was measured by income. I arrived at the Orfanato la Rosa en el Desierto convinced of the superiority of my privileged lifestyle, and I left humbled by 50 children who understood what living means in a way that I had yet to discover.

As awe-inspiring as the children at the Orfanato la Rosa en el Desierto are, they have not quite reached the level of sainthood. The saying "boys will be boys" applies universally, and these children are no exception. One of their favorite pastimes is to chase tarantulas out of their holes using sticks and allow them to crawl all over their shoulders the way snake-handlers do with pythons and boa constrictors. During one trip, I became acquainted with a very special little boy of about five years. Every time I asked his name, he would duck his head shyly and flash a mischievous smile, so I took to calling him my "No-Name Friend." During snack time that day, he returned for four cups of Kool-Aid in less than 10 minutes. I was busy marveling at his capacity to drink his Kool-Aid so quickly when I noticed pink rivulets dripping down the tip of his nose. My little friend had been ducking around the corner and pouring his Kool-Aid over the top of his head so that he could return to me with his winning, impish smile, and hold out his empty cup for more. The same little boy trailed behind me as I went outside to play volleyball and managed to drive his bicycle directly into the path of the ball every time it came my way. To this day, I still do not know his name, but I can assure you that I would recognize the smile of that little rogue anywhere!

The people of San Juan de la Maguana and especially the children at the Orfanato la Rosa en el Desierto have many gifts to share with the traveler who wishes to experience the Dominican Republic not as a tourist, but as the guest of an entire rural community. Those who wish to experience San Juan de la Maguana from the Orfanato la Rosa en el Desierto can travel with Guaitiao, an organization that is dedicated to designing travel-service programs that foster authentic travel experiences, interpersonal relationships, and individual growth. Participants in a Guaitiao program will stay at a small, local hotel in San Juan and will dine at various local restaurants. They will share their talents with the residents of the orphanage as well as at other locations around San Juan and get to know the countryside from an incredibly unique perspective. At night, they will take part in various cultural activities that are tailored to make them a part of the San Juan community. Examples of these activities include Spanish lessons given by a local teacher, merengue classes with local students, a baseball game with the residents and staff at the Orfanato la Rosa en el Desierto, and an evening to meet with local artists. Participants will not only have the opportunity to live in and serve the community that they are visiting, but they will also have the occasion to allow the community to serve them. Service is not an act of selfless giving; rather, it is a reciprocal act. Those who serve must learn to accept the fact that inevitably, they will receive more than they give.

OFFSHORE CENTERS CONFIDENT OF DEALING WITH PRESSURE ON THEIR ACTIVITIES

Several confident-sounding representatives of European offshore center financial institutions say that the widespread anticipatory dread of an Obama administration led crackdown on offshore havens is unjustified. They have heard it all many times before and while some details change, the foundations of their business models end up withstanding the assaults.

As a spokesman for the Swiss Bankers Association puts it: "We have always managed to deal with different American administrations, no matter what their political agenda is, and reach a balanced agreement on issues on banking secrecy and our status as an offshore center."

This year's exposés -- notably the revalations that followed the theft and sale of a Liechtenstein bank's client data -- and accompanying publicity do appear to represent and prefigure more intense efforts in the governments' perputual war on privacy and moving assets abroad. Aligned against this is the indubitable financial interests of the various offshore centers, who stand to lose a fair portion of their economic wellbeing if they make a concession too far. That their diplomatic skills in this arena are well-honed is also beyond dispute. So the voice of experience certainly deserves some heed, and we reserve the right to later say "Brave words, but ..."

Europe's offshore centers might be feeling the first cold winds of a renewed crackdown on their activities with the incoming Obama administration, but are confident they can withstand regulatory onslaught from governments talking tough on tax. They can also take some comfort from American commentators who say any crackdown may be bluster.

Thomas Sutter, a spokesman for the Swiss Bankers Association, which represents the interests of Swiss banks, said: "We have always managed to deal with different American administrations, no matter what their political agenda is, and reach a balanced agreement on issues on banking secrecy and our status as an offshore center.

"We don't expect there will be any difference in our relationship with the Obama administration." Sutter added that Switzerland has a history of success in negotiating bilateral agreements on tax with its European neighbors and the U.S.

He said: "We have a bilateral agreement with the European Union, working through the European savings tax directive and tax treaties with the U.S. We are quite prepared to draw up further treaties if need be. A balanced approach will always be negotiated."

Sutter said even the U.S. crackdown on UBS Wealth Management will not undermine Switzerland as a financial center. He said: "Switzerland will continue to be a thriving financial center with a well-regulated offshore business. We are not a tax haven."

Last week, U.S. federal prosecutors charged UBS's top global wealth management official Raoul Weil with conspiring with fellow bankers and wealthy clients to defraud the U.S. Government by evading taxes.

Switzerland is the world's biggest offshore financial center with approximately $1.5 trillion (€1.2 trillion) worth of offshore accounts deposited in the Alpine country.

Even smaller offshore centers in Europe appear not to be too worried about regulatory pressures.

Russell Clark, a partner in Guernsey-based law firm Carey Olsen, said: "We expect a challenging time ahead. But we can point out to the likes of the UK and the U.S. that offshore centers exist in their countries. The U.S. has Delaware, a mini-tax haven, and the UK has its resident non-domiciled tax advantages, even if they have been watered down recently.s

"Targeting offshore centers like us is an easy political point to make. But we have met our international obligations to such an extent that the International Monetary Fund applauded our efforts in improving transparency of our financial services sector when they were last here in 2003."

Switzerland and Guernsey last year found themselves on a blacklist of 34 offshore jurisdictions, and branded tax havens by the Obama co-sponsored Tax Haven Abuse Act.

Obama's support for tougher measures to deter tax havens has prompted media speculation that offshore financial centers are in for a tougher time now the 47-year-old Democrat has been elected President. Soon after his election, European media coverage was dominated by headlines such as "Obama backs crackdown on tax havens" and "Obama to demand end to Swiss banking secrecy."

Switzerland has also found itself on the sharp end of criticism from its northern neighbour Germany. Germany's Finance Minister Peer Steinbrück called for Switzerland to be placed on an OECD "blacklist" of uncooperative tax regimes. There are three countries on the OECD list -- Monaco, Liechtenstein and Andorra -- compared with 35 when it was drawn up in 2000.

Some U.S. commentators believe that as far as Obama is concerned, offshore centers are in for no more tough a time than they experienced under the Bush administration. JD Foster, a fellow in Washington-based conservative think-tank The Heritage Foundation, said: "There is likely to be a continuum of policy. Don't forget the Bush administration did a lot to deter tax evasion worldwide."

Foster said the current financial turmoil does not mean a crackdown on tax havens is inevitable. He said: "There is not a link. The financial turmoil is institutionally led and has very little to do with offshore financial centers. They cannot take the blame.

Joseph Field, a partner in private client law firm Withers's office in New York, said wealthy Americans are likely to be targeted. He said: "Americans who may hide money in offshore centers are certainly not in much of a position to come forward in opposition. ... I think the new President will be pretty busy with other issues for a while."

STORM CLOUDS OVER CARIBBEAN FINANCIAL SERVICES

The Caribbean nations better hang together, or they will end up hanging separately.

Brave words of the powerful European offshore financial centers above notwithstanding, Sir Ronald Sanders -- “a former Caribbean diplomat, now a corporate executive who publishes widely on small states in the international community” -- says their Caribbean counterparts have plenty to worry about and had better create a unified response to the depredations of the OECD bigwigs. Incorporated in this call is a useful summary of the major anti-offshore initiatives to date.

Ominous clouds are gathering around financial services in the Caribbean both offshore and onshore. The clouds are approaching from two directions the new U.S. government that will take office in January 2009, and the European Union's (EU) implementation of the Economic Partnership Agreement (EPA) that Caribbean countries have signed.

The Caribbean will well recall the blacklisting of many of their jurisdictions in 1998 by the Organization for Economic Cooperation and Development (OECD) -- known as the rich nations' club -- when it launched its so-called "harmful tax competition initiative" (HTCI). The OECD claimed the tax-revenue bases of its member states were being eroded by competition from 41 low taxing jurisdictions, some of them in the Caribbean.

Alongside the HTCI, the OECD's sister-organisation, the Financial Action Task Force (FATF), initiated its "Forty recommendations on money laundering" which it then unilaterally sought to impose on the world by naming countries that it said were "uncooperative" in the effort to curb money laundering. Of course, the so-called recommendations were not recommendations at all. They were rules that the OECD countries alone created. Eventually, the IMF, also controlled by the OECD countries, adopted the "recommendations" and now use them as part of the financial sector appraisal programmes of countries.

The OECD's HTCI initiative was widely seen as an attempt to kill the offshore financial services sector of the economies of developing states which had turned to such services as a means of diversifying their economies and easing their reliance on the exports of primary products or tourism. The financial services providers in some of these countries in the Caribbean, such as the British Virgin Islands, the Cayman Islands, the Bahamas and Bermuda, became very good at it and gave stiff competition to their rivals in the OECD nations.

In the end, the OECD set aside its HTCI blacklist but the intent behind it was never fully abandoned. The tactical withdrawal of the OECD from the HTCI owed much to the ability of the affected countries to argue their case vigorously in Commonwealth councils where OECD members -- Australia, Britain, Canada and New Zealand were present. Even though the major breakthrough was the decision of the [then] new U.S. administration of George W. Bush not to support the OECD initiative which was started with the full co-operation of Lawrence Summers, the treasury secretary of the previous Democratic Party government of president Bill Clinton.

Summers was part of the election campaign team of the Democratic President-elect of the United States, Barack Obama who is on record as being opposed to "tax havens". In February 2008, Obama co-sponsored a bill in the U.S. Senate with Carl Levin, the senator from Michigan, which names 13 Caribbean jurisdictions among those that could be listed by the treasury secretary as "uncooperative" and penalized. Among these countries are the four mentioned earlier and Anguilla, Antigua and Barbuda, Barbados, Belize, Dominica, Grenada, St. Lucia, St. Kitts/Nevis, and St. Vincent & the Grenadines.

Levin believes that the total loss to the U.S. Treasury from offshore tax evasion alone approaches US$100 billion per year and he wants, among other things, to give the Treasury authority to take special measures against foreign jurisdictions and financial institutions that impede U.S. tax enforcement. Exactly how the U.S. Treasury will establish that U.S. tax enforcement is being impeded is unclear, but given the past history of how these matters have been handled, the burden of proof may very well be imposed on the foreign jurisdictions and financial institutions not the U.S. Treasury.

In any event, a robust pan-Caribbean response is needed to the "Stop Tax Havens Abuse Act" as the Levin-Obama Bill is called. Some Caribbean countries have had the tendency to go it alone on these issues, in the belief that they are better able to negotiate themselves out of them. This problem is far too fundamental to the new Caribbean ideology of services as the saviour of their economies not to be tackled jointly.

The governments of Jamaica and Guyana have recently indicated that they wish to establish financial services, and legislation has been enacted to do so. In this connection, with almost all of its member states and associate member states being vulnerable to the U.S. Bill, the Secretariat of the Caribbean Community and Common Market (Caricom) might take the initiative to convene a group to start preparing a pan-Caribbean response.

The EU member states of the OECD -- France, Germany and Britain in particular -- were also hawks on the HTCI. In March this year, the 27 finance ministers of the EU announced their determination "to crack down on tax havens". And it is significant that the EU has sought to introduce into the EPAs, which it is negotiating with several developing countries, standards that have not been agreed in negotiations at the World Trade Organisation (WTO) on the General Agreement on Trade in Services (GATS). Among these "standards" are: the OECD's "Agreement on exchange of information on tax matters" and a requirement that note be taken of the "Ten key principles for information exchange" promulgated by the finance ministers of the G7 nations.

It is telling that no small state was invited to the G20 meeting held in Washington on 15 November, to consider the current global financial crisis, even though many of these countries operate financial services and have borne the brunt of OECD criticism over financial regulation and supervision. Without even acknowledging that the current crisis resulted from poor oversight in the U.S. particularly and some countries in Europe, the G20 communiqué stated: "Tax authorities, drawing upon the work of relevant bodies such as the (OECD), should continue efforts to promote tax information exchange. Lack of transparency and a failure to exchange tax information should be vigorously addressed."

Tax information exchange has nothing to do with the current global crisis, but the crisis is being used to again target the financial services of small countries.

Recognizing that the storm clouds are gathering, Caribbean countries should bolster their regulatory and supervisory systems so that they are beyond reproach, but they should also gear themselves for a downpour of new demands. They would do so better if they do it together.

UBS CLIENTS FIGHT SWISS PLAN TO TRANSFER BANK DATA

Swiss bank UBS has been turning over information on its U.S. branch U.S. citizen clients to the IRS. Those accounts, as is now obvious to everyone if was not before, were not truly "offshore" accounts. The U.S. just had to threaten to expropriate some UBS assets or arrest a few people and UBS inevitably caved.

A related but separate issue is now whether UBS will accede to requests for information on its Swiss bank branch U.S. clients. Under Swiss law such information can only be turned over if Swiss laws have been broken, and tax evasion is not a criminal offense in Switzerland. Moreover, they have strict standards for the quality of evidence produced against a specific client that is required before they give out the information. Vague assertions and wholesale "fishing trip" requests are not honored -- in theory. The rules are explained in more detail in this article.

The theory is getting put to the test on this whole UBS affair. The IRS is claiming that UBS is concealing the assets of about 17,000 U.S. clients, which in the IRS worldview makes these people guilty of tax evasion up front. Sifting through the claims and evidence, UBS has allegedly found some evidence of fraudulent use of legal entities (see this previous Offshore News Digest entry), and is preparing to give their data on those clients to the IRS. Whether this is throwing a couple of clients to the wolves to placate the U.S. or is by-the-book legitmate we do not yet know, but those clients are fighting the data extradition in the Swiss legal system. Stay tuned.

U.S. customers of bank giant UBS are readying to fight Switzerland's plans to allow Washington to peek into their Swiss-based accounts which could hurt the country's prized bank secrecy laws, their lawyers said.

UBS, the world's largest bank to the rich, is the target of a high-profile U.S. probe into whether the Swiss bank helped rich Americans evade taxes which the lawyers say is threatening the survival of Switzerland's offshore private banking industry.

Swiss lawyers Andreas Rued and Thomas Fingerhuth said Swiss tax authorities have informed their two clients, both U.S. citizens, they plan to divulge details of their UBS Swiss accounts to the United States due to evidence of tax fraud.

The lawyers will fight the move, which they say would allow Washington to access Swiss bank accounts without precise evidence of individual tax fraud, in a development that could expose Switzerland to similar requests by other countries.

The investigation adds pressure on UBS, which is struggling to rebuild its name after making more writedowns than any other bank in Europe in the credit crisis and whose shares plunged to a fresh all-time low on Tuesday (November 18) along with other bank stocks.

Rued told Reuters that Swiss tax authorities argue that his and other clients committed tax fraud when they put money in special purpose vehicles (SPVs) designed to exploit loopholes in the U.S. tax system, but he said these schemes were legal. "According to Swiss law this is not even tax evasion, it is tax planning," Rued said.

U.S. authorities have requested broad access to Swiss UBS accounts of U.S. clients as part of the tax probe. Last week they charged the UBS wealth management chief with conspiring to help U.S. clients hide $20 billion from the taxman.

Switzerland has a narrower definition of tax fraud than most jurisdictions and can ask Swiss banks for client data only when it has clear evidence that fraud was committed. Swiss Finance Minister Hans-Rudolf Merz has said the U.S. tax probe is no threat to the Alpine nation's treasured bank secrecy. Swiss banks hold about $2 trillion or nearly one third of the world's offshore assets.

Rued said he knew of 120 cases involving UBS's American clients pending. Swiss media have said Switzerland was looking into handing over data from 250 U.S. customers of UBS.

The U.S. Internal Revenue Service has said UBS is concealing the assets of about 17,000 U.S. clients. UBS has separately started to hand over data related to onshore U.S. accounts.

The Swiss Finance Ministry said last week it had not yet transferred any UBS bank account data to the U.S. ...

Fingerhuth, a partner with Swiss law firm Langvier, told Reuters Swiss authorities informed his client of the decision to hand over his bank account data to the United States 10 days ago. He plans to file against the decision in court.

Under Swiss law, clients have up to 30 days to appeal to the Swiss Federal Administrative court against a decision to hand over data to another jurisdiction. "If the decision is upheld in the Federal Administrative Court the consequences would be extremely severe since it would mean the end of offshore private banking in Switzerland," Rued also said.

UBS decided earlier this year to stop offering offshore Swiss accounts to U.S. citizens.

Switzerland's bank confidentiality goes back centuries but was codified in the early 1930s as Nazi Germany put pressure on the country to try and access assets of fleeing Jews.

It subsequently became associated with tax evasion as the rich of the world start pouring money into the Alpine state.

UBS SAYS IT IS FINDING “A LIMITED NUMBER OF” U.S. TAX FRAUD CASES

The U.S. is seeking the names of about 17,000 U.S. UBS clients. Swiss lawyers have said Switzerland is considering disclosing information on only a few hundred.

Whenever a Swiss bank discloses information on a U.S. client to the IRS, the U.S. government and its beneficiaries and sycophants routinely proclaim: “Swiss banking secrecy is dead! Forget about going offshore. Nothing left to see here, folks. Pay your taxes and move along.”

The Swiss then counter: “This was a specific case that violated our existing rules. Nothing has changed. Ignore that red, white and blue man behind the curtain. Let’s you and us talk.”

The widely publicized news that Swiss megabank UBS caved into demands to cough up all kinds of information on their (soon to be ex-) U.S. clients was for UBS U.S.-onshore clients. Their reponse to the IRS "fishing trip" requests for USB Swiss bank client information is that they will at most toss them a few reprobate minnows, and the minnows -- see immediately above -- are fighting even that. The UBS/Swiss tune sounds good, and is consistent with past events of the sort. Whether things are truly different this time awaits the development of events.

LUCERNE, Switzerland (Reuters) — UBS said ... it has discovered a few cases of tax fraud as part of a U.S. inquiry into whether it helped wealthy Americans dodge taxes through accounts in Switzerland.

"Our investigations have uncovered a limited number of cases of tax fraud under both U.S. and Swiss law," Chairman Peter Kurer told 2,400 shareholders gathered to vote on the bank raising 6 billion Swiss francs ($5 billion) with a convertible bond issue to the Swiss state.

Kurer, who took over in April, also said current and former top executives would give up SF70 million in bonuses they received after coming under fire for accepting fat salaries despite steering Switzerland's flagship bank into heavy losses.

He reiterated that UBS, one of the hardest-hit banks in the subprime turmoil, still aimed to make a profit in 2009, but stressed market conditions remained difficult. UBS made a small 3rd-quarter profit, mainly thanks to tax gains and accounting factors, but analysts expect it to take a new hit this quarter.

UBS is also under pressure from the U.S. tax investigation launched earlier this year, which led to the indictment of the bank's head of global wealth management this month and threatens to weaken Switzerland's precious banking secrecy laws.

But bank-client confidentiality, a pillar of Swiss banking, "is not there to protect cases of tax fraud," Kurer said, suggesting UBS could be ready to hand over some client details to U.S. authorities as part of a possible settlement.

The U.S. authorities are seeking the names of about 17,000 U.S. clients of UBS who have Swiss-based bank accounts. Swiss lawyers representing U.S. clients of UBS have said Switzerland is considering disclosing information on only a few hundred.

Kurer, who is trying to rebuild the bank's reputation after it was forced to write down about $49 billion on risky subprime assets, said UBS had taken broad measures to address its shortcomings, including aggressively reducing its balance sheet and overhauling its pay structure.

The chairman said he was personally replying to the many angry shareholders who had written to express their discontent with UBS, formerly an icon of Swiss banking whose stock used to be popular among Swiss retail investors.

Under the new pay system, the chairman will not get bonuses. Ex-Chairman Marcel Ospel, whose drive into investment banking many analysts blame for UBS's present woes, has also returned some of his pay, along with other executives.

"UBS is a leader in this regard," Kurer said, adding he was working on getting more bonuses waived or returned.

"Those who are responsible must be brought to court," said a 68-year-old UBS investor who lost much of his pension savings. "I have lost nearly all what I and my wife had saved up for later years. What am I going to do now.?"

Kurer gave no details on to what extent UBS was stemming client money withdrawals, which totaled a record $49 billion in the third quarter in its core wealth management business.

UBS said earlier this month the pace of client outflows had started to ease after the Swiss government announced its rescue package. The deal also allows UBS to hive off up to $60 billion of illiquid assets in a special central bank-controlled fund.

He said the Swiss government intervention -- including the SF6 billion of new capital the shareholders approved ... "has helped bolster confidence in UBS and the Swiss banking and financial services industry as a whole."

FROM BERMUDA TO THE ISLE OF MAN, THE TAXMAN IS CLOSING IN ON OFFSHORE TAX HAVENS

Here the experts, some legitimate and others soi-disant, weight in on how effective the OECD anti-offshore crusades will be. Discounting the wishful thinking on both the squeeze-‘em and the leave-them-alone sides, the entirely plausible consensus appears to be that life will get tougher. In the long run it will become a matter of whether there will be sufficient checks and balances to keep the Organization of High Taxer States from just saying: "Forget all the nice talk. Hand it over."

Appearing in the U.K.'s AccountancyAge, the article happens to have a short addendum about the opportunities for accountants in offshore financial centers. There are quite a few.

The UK government is halfway through a sweeping crackdown on UK citizens hiding their money in offshore bank accounts and the French and German governments have urged the nations in the Organization of Economic Cooperation and Development (OECD) to get tough with offshore tax havens.

In the U.S., Barack Obama has also talked about the need to clampdown on offshore tax centers, which have been estimated to cost the U.S. government at least $50 billion a year in lost tax revenues.

Offshore tax centers, buoyed by globalized finance and cross-border tax planning, have seen rapid growth over the past few decades. The big accounting firms have done well out of the expansion and expanded their offshore tax advice practices.

But is the offshore tax boom coming to an end? Some experts predict that the latest crackdowns by governments and tax authorities will undermine offshore tax centers and see their influence wane.

Richard Murphy, an offshore tax expert and director of Tax Research LLP, is a vocal critic of offshore tax havens. He reckons these tax havens and their advisory services will be caught in a pincer movement between the current economic crisis and further crackdowns from governments.

"The one plus side of the credit crunch is that it may give rise to the death throes of the tax havens," says Murphy. "No one who values free markets or who believes in democratic government should mourn their passing. They threaten the existence of both.

"Barack Obama has said he will close down tax havens. It is clear that the French have the same objective. The major countries in the world now realize that tax havens exist to undermine their regulatory regimes and for no other purpose."

The big accounting firms will come under increasing pressure to reduce their offshore tax practices, he adds. "You cannot expect places like the UK to license your activities, to offer you consulting contracts and to then go out of your way to destroy the UK government's revenue stream."

And we suppose you cannot expect to make an omelette without breaking a few eggs. We have encountered Murphy before. See here for our previous comments on him. Suffice it to say he is a first class useful idiot. But that is obvious, right?

Prem Sikka, professor of accounting at the University of Essex, also predicts tough times ahead for offshore tax havens. "My feeling is that the offshore world is increasingly going to be squeezed and that their secrecy is going to be eroded," he says. He adds that tax havens will face growing pressure to become more open from governments and trading blocs like the European Union. "Lots of countries are facing budgetary deficits and there is a limit on how much tax they can levy on individuals. [Governments] will hone in on tax avoidance and there is no way offshore centers can avoid this."

Tax experts are predictably more optimistic about the future of offshore tax centers. Government crackdowns on offshore tax avoidance schemes have made planning more difficult, they admit, but new rules open up new business opportunities.

Paul Hotchkiss, director, tax, at KPMG in the Isle of Man, says: "The offshore environment has been changing over the years. It adapts new solutions when legislative regimes come into play. An example of this is Protected Cell companies [investment schemes introduced in Guernsey in 1997]. They have been used for funds but now they are being used for Capital Gains Tax planning."

Recent changes to tax rules on non-domiciled UK residents also have the potential to increase demand for offshore advisory services.

Keeping pace with changing rules is not easy, but for tax advisers in offshore centers it can mean that day-to-day work is more varied.

"Every day is different," says Hotchkiss. "It's probably less restrictive than working in a larger practice where you may need to focus on one narrower area. ... You have to be adaptable and assimilate a wide range of knowledge and store this and find it. Very often you just can't do it all but you have to know where to look."

But how do the big accounting firms respond to criticism that they are undermining governments and regulators by working with offshore tax havens?

Firms are reluctant to speak on the record but privately argue that they work within complicated tax rules to offer rich individuals or multinational companies a chance to plan their finances more effectively, thereby minimizing their tax bills.

Tax experts stress that there is a crucial difference between giving advice on legal tax avoidance and illegal tax evasion often involving money laundering which has given offshore centers a bad reputation.

One senior tax partner at a Big Four accounting firm, who asks not to be named, plays down the importance of offshore practices to Big Four accounting firms, saying his firm's offshore practice is about the same size as its Bristol office.

Growth in offshore financial centers has slowed slightly over the past few years, he says. But he adds that rich investors and multinational companies will continue to use offshore centers for investment advice and to help them pay less tax.

The partner adds that there is room for governments to work more closely with accountants to crackdown on illegal offshore tax activity while allowing tax planning.

"It's not as if offshore [finance centers] are bad and onshore good. Of course the list of people evading tax in Liechtenstein bank accounts is absolutely appalling but offshore centers are an easy target," he says. "Plenty of people in the UK avoid paying tax."

A new life abroad?

Fancy swapping a rainy commute into work for a stroll along a pristine beach?

For accountants with the right qualifications and experience, working in an offshore financial center could prove a smart career move as well as a lifestyle change.

David Angel, director of Michael Page Offshore, part of recruitment consultancy Michael Page International, says there is good demand for chartered and certified accountants in offshore tax havens.

The most common accounting job vacancies in offshore centers pay the equivalent of around £40-60,000 per year, he says.

Accountants in offshore centers could work in a range of organizations, ranging from an accounting or law firm to a bank or insurance company. Promotion prospects offshore are often good, as the operations are usually smaller than the UK, meaning competition for promotion is usually less fierce.

"I have seen some rapid career progression of accountants [in offshore centers]," says Angel. "Twenty years ago going to [work] in the Cayman Islands was seen as a bit of a jolly but now it is seen as a legitimate move to gain international experience."

Accountants with experience in small offshore financial centers are also highly sought after by financial institutions in countries such as Dubai, Singapore and Switzerland, adds Angel.

Obama tax haven Act may threaten Channel Isles.

Another piece, this one short, on the whole War on Offshore Finance. "Expert" Richard Murphy of the Tax Research Network was quoted again (see above), saying the U.K. was likely to follow the U.S.'s lead in setting sanctions against uncooperative OFCs, i.e., those that insist on existing. "The implication is there will be less business going there," he gloats/hopes, talking about the Isle of Man.

A crackdown on offshore tax havens by Barack Obama could set a precedent for tougher rules on UK-controlled tax centres, such as the Isle of Man and Jersey, according to an offshore tax expert.

The U.S. Stop Tax Haven Abuse Bill is expected to be one of the first proposed laws that Obama signs in January. It aims to encourage offshore havens to work toward removing themselves from a "black list" compiled by the OECD. The black-listed countries are accused of lacking financial transparency and standing in the way of international efforts to combat money laundering and tax evasion.

Richard Murphy, tax campaigner at the Tax Research Network, said while the bill will not directly impact relations between the UK and offshore tax jurisdictions, it sets a precedent likely to be followed here.

"They [U.S.] take the lead and everyone joins in and says we want to introduce similar sanctions," he said. "The bill means it is going to be harder for people to use places like the Isle of Man. The implication is there will be less business going there."

European leaders have been discussing how to reform the European Union Savings Tax Directive as part of a drive to stop wealthy investors hiding their money in offshore tax havens to avoid paying tax.

Speaking at a tax conference last week Philip West, former head of international tax at the U.S. Treasury, said more pressure was needed to make offshore tax havens become more open.

BERMUDA UNDER U.K. MICROSCOPE

The U.K. is "reviewing" its overseas territories that serve as financial centers, of course with the notion of making sure the rules governing the relations between the territories and the mother country are fair-handed and sensible. As the late comedian George Gobel would have said: "Sure they are."

Actually, the U.K. government does have one half-legitimate point as far as it goes. A lot of British overseas depositors are expecting to be bailed out when their banks fail ... by the U.K. government. What the heck? Some of these people were undoubtedly expats whose routine financial arrangements got caught in the crossfire. But what do the ones who were going offshore seeking higher yields and more privacy expect? And did they bother looking at a map before making the move?

We have said it many times and thought it many times more: If you are not going to do your homework, just fork over 50% of your earnings to the government and go home. You will lose less money that way.

Bermuda's functioning as an international financial center is to be examined on behalf of the British Government. UK Chancellor of the Exchequer, or finance minister, Alistair Darling announced in his Pre-Budget Report ... that Britain will commission an independent review of all its territories that serve as financial centers. The review will focus on areas such as regulation and international co-operation, as well as financial crisis management and fiscal arrangements.

Finance Minister Paula Cox said ... that detailed terms of reference of the review had not yet been provided. She expressed confidence that the Island's regulation met global standards, while its banks and insurers were well capitalised and transparent.

In his report, Mr. Darling said the review had been prompted by the world financial crisis. "The recent financial turbulence has highlighted potential problems with Overseas Territories and Crown Dependencies, such as the Isle of Man and Channel Islands.

"They attract banking customers with lower taxes -- without contributing to the UK Exchequer. But at times of stress, depositors need to know who will compensate them.

"The British taxpayer cannot be expected to be the guarantor of last resort. So I have asked for a review of these regulatory arrangements, which will report to me in the spring."

Mr. Darling stressed: "The review will not consider changes to the UK's constitutional relationship. It will work with the crown dependencies and overseas territories to identify current and future opportunities, risks and mitigation strategies."

Territories likely to be reviewed include the British Virgin Islands, Gibraltar, Guernsey, Isle of Man, Jersey, Montserrat, and the Turks and Caicos Islands.

Minister Cox said: "In the wake of the recent G-20 meeting concerning the troubled global economic and financial system it is understandable that the UK would want to better understand the role of its Crown Dependencies and Overseas Territories in the global financial system. Bermuda is a well regulated, co-operative and transparent jurisdiction. The International Monetary Fund recently assessed Bermuda's supervisory regime for banking, insurance, trust business and investment business as being largely compliant with international standards.

"The terms of reference of the proposed review have not been articulated at this point and it is my understanding that the review will begin with the Crown Dependencies and will then extend to Overseas Territories as appropriate." In Bermuda, public authorities have assessed the vulnerabilities associated with the prevailing economic and financial conditions and have been proactive in addressing them.

"Our banking sector is well capitalized, the insurance sector has companies with strong balance sheets that generally have withstood the erosion of asset values in the poor investment climate and have absorbed the payment of claims arising from this year's storm season.

"Bermuda plays a crucial role in the global economy and our supervisory and regulatory regimes are aligned with the required global standards."

TAXING TIME FOR THE POOR AS RICH GET OFF SCOT FREE, SAYS SOCIALIST

VAT, sales, use taxes hit poor the hardest.

This short piece from the U.K.'s Socialist Worker is from a rather unusual source for these pages. When you discount the redistributionist rhetoric and suggestions you are left with the obvious conclusion that today's socialism is more for the rich than the poor.

The poor may not pay much in the way of income taxes but do get hit with VAT and other transaction and use taxes. Given the poor consume a much higher proportion of their income, the incidence of those taxes weighs much more heavily on them. The rich pay a nominally higher income tax rate, but "loopholes" and their ability to hire legal help mitigate this. Meanwhile they gain all manner of subsidies thanks to their ability to buy political connections.

The socialists are seemly reluctant to call a spade a spade for fear it will sully their brand name. The author hits a bull's eye in his conclusion: The allegedly labor friendly Labour party will not really be forcing their wealthy benefactors to pay more tax any time soon.

The article also contains, we presume inadvertently, a concise recipe book for how to start structuring offshore financial transactions in a potentially beneficial manner. It is like when a religion produces a list of sins, thereby giving those seeking thrills a starting point. The author rails against the techniques, like transfer pricing and loans from trusts, but these cannot be stamped out any more successfully than the drug trade.

Poor people pay too much tax, rich people pay too little, and really rich people and companies pay hardly any tax at all.

The poorest 20% of people lose nearly 40% of their total income in direct and indirect taxes, compared to 34.8% for the richest 20%. And that figure is for the rich who do pay tax.

Indirect taxation, such as VAT, hurts the poor most as workers spend a far higher proportion of their income on buying consumer goods. At every point in the tax system the rich do better. For instance, national insurance contributions paid on weekly incomes in excess of £770 are taxed at just 1%. The government admits that abolishing that limit would raise around £8.5 billion a year.

City firms used to cut their national insurance bill by paying staff bonuses in gold and antiques rather than cash. Once that was stopped, accountants set up trust funds to cut tax bills.

Salaries and bonuses are paid into an offshore trust. The trust then lends the cash, often interest-free, to the employee. There is no tax payable on a loan.

Rich individuals and companies use a myriad of mechanisms to avoid tax. Even though tax on profits is only 28%, corporations may be avoiding over £100 billion of taxes each year.

That is enough to double funding for the NHS, or to give every worker in the country £4,000. Or it could be used to abolish income tax for everyone who earns less than £34,000 a year.

One popular way of dodging tax is to register companies in offshore tax havens. This allows the rich to get away with paying minimal tax, if any.

Richard Branson's Virgin Group is based in the Caribbean, yet Virgin Rail gets a £500 million annual subsidy.

The most serious tax avoidance technique is transfer pricing, a dubious area where purchases and sales take place within the same company. Items are sold from high-tax countries to low ones, so cutting the amount of tax paid.

Many of the world's tax havens are British-run overseas territories, such as the Cayman Islands, Bermuda and British Virgin Islands, and crown dependencies such as Jersey, Guernsey and the Isle of Man.

The government is not just doing nothing about offshore tax scams -- it now owns some of the companies among them. All of the banks that Gordon Brown bailed out have offshore ways of avoiding tax.

The Royal Bank of Scotland owns at least 128 companies in tax havens. And Lloyds TSB, a bank that is in the process of taking over HBOS, has more than 100 firms in tax havens.

Brown will announce tax cuts that will inevitably mean the wealthy will do better. Most hard-pressed workers would simply see any cut in their income tax disappear into their debts and bills.

The one thing he will not do is force the wealthy to pay tax that could fund our services and save our jobs.

DUBAI PROPERTY BOOM GETS HIT BY FINANCIAL CRISIS

What the bubble giveth ...

The oil wealth-driven Dubai economy has been so hot recently that it was bound to scorch more than a few hands who tried to touch it. With oil prices off by 2/3 and easy credit gone for now -- with the disappearance of bubble conditions, in short -- suddenly Dubai is joining the rest of the world in witnessing property price declines. We will see the impact on the country's efforts to become a world-class offshore financial center. We imagine it will increase their resolve to develop alternatives to oil as a source of economic activity.

DUBAI, United Arab Emirates (AP) — This Arab Gulf boomtown -- so business-friendly it has been called "Dubai Inc." -- is suddenly getting a nasty taste of the global financial crisis. Housing prices are falling for the first time in years, and shares are plummeting.

One major property developer has begun laying off staff, and another is reviewing its recruiting needs. Others are scaling back ambitious growth plans as financing for both companies and homebuyers freezes up.

"What happens in Dubai is very linked to the financial crisis," Markus Giebel, chief executive of Dubai-based builder Deyaar Development Co., said in an interview at his office overlooking the sprawling city's skyscrapers ... "There is actually no way to swim against the stream. If the stream goes left, you had better swim with it."

Deyaar encapsulates the forces now buffeting Dubai's housing sector -- one of the key drivers of this city's wealth in recent years.

In April, the company's former CEO and other officials were detained amid allegations of financial impropriety -- an early salvo in a wider anti-corruption sweep. Analysts praised the crackdown, but it also rattled investors just as the global financial crisis was heating up. Deyaar's stock has fallen sharply since then. The company's shares ended the trading week Thursday at 78 fils (21 cents), down 74% from a year earlier.

Other real estate and banking shares are tumbling too. ... At the same time, Dubai developers -- like their counterparts in the West -- are finding it harder to raise funds. Deyaar has shelved recently announced plans to raise more than $1 billion through the sale of Islamic bonds and is paring its international growth plans from about 10 countries to about three, Giebel said.

Others are also scrambling to cope with a change of fortunes that appears to have caught many by surprise. Only last month, the industry was busy unveiling audacious new projects, including a tower about two-thirds of a mile (one kilometer) high.

At least for now, the good times appear to be over.

After years of unrelenting growth, home prices on the secondary market in Dubai fell by 4% from September to October, according to a report this week by HSBC Holdings PLC. Prices for high-end "villas," typically stand-alone houses, are down 19% and face "protracted weakness" if lending rules remain tight, analysts at the bank said.

The report provides hard evidence for what real estate agents have been saying privately for weeks: many would-be buyers are spooked, and those that want to buy face a tough time getting mortgages.

Mary Nicola, an economist at Standard Chartered Bank in Dubai, said there are two main factors putting pressure on housing prices -- tight credit markets and increasingly negative sentiment among investors globally.

As recently as a few months ago, speculators enticed by low borrowing rates and little money down helped drive the prices of unbuilt, or "off-plan," property up to the levels of finished developments, she said.

"Access to cheap credit led to an increase in borrowing and people were just going out and putting their assets in the property market," she said. People were able to put "minimum money down" and then flip the property "within days."

Over time, bank deposits failed to keep up with the rapid credit growth, pressuring local lenders. At the same time, credit markets were tightening up around the globe.

Now the city is bracing for what some fear could be a painful correction. Morgan Stanley predicted in August prices will drop 10% by 2010, possible more if the scenario worsens.

Emaar Properties, the UAE's leading publicly traded developer, said ... it is reevaluating its recruitment policies to ensure they meet the company's long-term interests. Also this week, privately held Damac Holding said it will cut 200 jobs, or 2.5% of its staff. The question now is whether the rest of the industry can adapt in time.

"It was an ever-growing market," Giebel said, suggesting that some developers may be unprepared to manage the shift to what could be a prolonged downturn. "Whether all of the companies are prepared for something like this ... I don't know. But very seldom do you have leaders who are good at both the good times and the bad times."

OBAMA AND PAULSON TO GIVE FREE ALCOHOL TO ALCOHOLICS

Another biting -- and pretty funny, if gallows humor suits you -- blog post from Craig Cantoni, whom we first introduced in these pages last week. Too bad he does not post more frequently.

Joining with Treasury Secretary Henry Paulson, President-elect Barack Obama has announced new hope and change for alcoholics.

"The federal government is going to give alcoholics all of the liquor they want," said Obama yesterday from his president-elect office, standing behind a lectern emblazoned with his president-elect seal of office. In a demonstration of bipartisan cooperation, a red-nosed Paulson stood unsteadily by his side, holding a pint of Jack Daniels in one hand and pint of Wild Turkey in the other.

"Here's to you, Barack baby," said Paulson as he took a swig from the Jack Daniels bottle.

Earlier, Obama had announced that as soon as he officially takes office and is the real chancellor instead of the de facto one, he was going to address the American addiction to debt and credit by giving Americans a stimulus package of more debt and credit.

Not to be outdone, the Bush administration announced that it was going to establish a consumer credit facility to finance credit cards, car loans, and mortgages. Americans should start receiving credit card solicitations within a week from the U.S. Treasury, which will issue them through its new subsidiary, Citibank. The cards will be financed by the Chinese government, which has a lot of money, due to a savings rate in China of almost 50%.

Some economists reacted negatively to the news, saying that easy money is what caused the housing bubble and subsequent financial meltdown in the first place. They have not been heard from since. There are rumors that Obama, borrowing a page from his idol FDR, has convinced the Bush administration to send the unpatriotic and disloyal economists to internment camps, as FDR did to Japanese Americans. Instead of building new camps in the desert, however, Obama plans to use the existing camp at Guantanamo once it is emptied of terrorists.

Mainstream reporters have been enthusiastically supporting Obama's economic plans, perhaps because they are mindful of how another Democrat icon, Woodrow Wilson, handled press criticism during the First World War: He threatened the press with imprisonment and actually jailed one recalcitrant editor for sedition under his Espionage Act. That might explain the media's double standard in characterizing Republicans as right-wing extremists who violate civil liberties but not characterizing Democrats the same way.

Of course, since 90% of Americans have been educated and reeducated in government schools under the tutelage of three million members of the National Education Association (aka teacher union), 90% of Americans only know the leftist version of history and economics.

Incidentally, the NEA, which supported Obama, has a list of recommended books on its website. At the top of the list is Rules for Radicals, the book by the Jewish-Russian anti-capitalist, Saul Alinsky, who was a mentor to Obama. The other books on the list are of the same genre. Books on liberty and free markets did not make the list.

Clueless Republican soccer moms and dads love their public schools, completely oblivious to the values, beliefs, and worldview brought into the classroom by the NEA. Fearing imprisonment at Guantanamo for disloyalty, the press has not connected the dots for the parents, especially the dot of Alinsky with the dot of the NEA with the dot of Obama.

Understanding that the economic policies of Obama et al will result in hyperinflation and the debasement of the dollar, self-educated Americans have been trying to buy gold coins, only to discover that the U.S. Mint and other mints have not kept up with demand, probably because their governments know that a shift to gold exposes the fact that they have been printing fiat money to hide their economic frauds.

Sigh! I need a stiff drink. Secretary Paulson, please pass the Wild Turkey.

GIZMO’S GUIDE TO SECURING YOUR PC

We have previously noted the website Gizmo's Tech Support Alert in our desultorily active Tech-News Highlights digest, on account of its thoughful choices for best ("Best-ever") Windows freeware applications. After an interval of the better part of this year we checked back in and were gratified to note the upgrade work that had occurred since our last visit. Besides some nice visual reformating, site users can now easily contribute comments. Many have constructive suggestions and alternatives to the chosen category best freeware winners. More generally, the site has evolved into a nice tech resource.

The "About this site" page explains the developments:

"This site is an evolutionary development of an earlier site where Gizmo created and maintained a highly popular list of the "46 Best-ever Freeware Utilities." Over time that list grew well beyond 46 and reached the point where it could not be maintained by one person.

The current wiki-style site relies on the contribution of dozens of volunteer editors who edit and moderate suggestions from thousands of site visitors. As a result the range of software covered is ever increasing and quality of the reviews ever improving. In a real sense this site has become the Wikipedia® for Freeware.

In addition to the freeware reviews there is a fairly extensive "How-to Guides and Tutorials" section on the site, which includes this one on the basics of securing your PC. Written by Ian "Gizmo" Richards himself, the article "lays out some simple steps you can take to ensure viruses, trojans, keyloggers and other nasties do not take control of your PC."

After spending years testing security products I have learned an important lesson. Don't get infected by malware.

In other words, put maximum effort into preventing infection rather than detecting and removing infection.

This statement may seem bland and unremarkable but there is more to it than you think.

The traditional way of adding additional protection.

Many people protect their PC's by using multiple signature scanners based on anti-viruses, anti-spywares, anti-trojans and anti-rootkits.

It is not as secure as many people think and for most folks, the cost is too high and the additional protection afforded too little.

The cost here is not so much financial though that is an issue, but rather the serious impact adding many security layers can have on the performance of your PC. There is also a cost in complexity. The more security programs you run the more chance they will either interfere with each other or with other programs.

Each additional layers you add increases your protection but by an incremental amount only. A good anti-virus program may offer 80% protection. Adding a good anti-spyware utility may increase this to 85%. The addition of an anti-trojan may take it to 88%.

This is because today's security products overlap in function much more than they used to. A modern anti-virus program will detect a lot of spyware while a modern spyware program will detect some viruses, worms and trojans as well.

Although the protection achieved only goes up incrementally with each layer added, the processing load on your PC will rise more or less in proportion to the number of layers. So adding an anti-spyware layer to your anti-virus layer will double the load on your PC. Adding in an anti-trojan as well may well triple it. So folks, while layering is a good thing we are faced here with a law of diminishing returns.

But that is not the only problem with the traditional layering approach to protection. If an aggressive malware program is allowed to run on your PC it may disable all your layers of protection rendering them useless. I have seen it happen many times and it is a frightening sight to see all your security programs icons disappear from the system tray

Thankfully some security programs resist termination by hostile agents but the majority do not. And even those that do resist may well prove vulnerable to new, more advanced termination methods yet to be developed by malware programmers.

My approach these days is simple: If you allow malware programs to run on your PC do not expect your security programs to fully protect you. If you are lucky they will but with security, you should not rely on luck. So how do you prevent infection?

Good Safe Computing Practices
  1. Ensure you keep Windows and MS Office (if you use it) completely up-to-date by applying the latest fixes from the Microsoft Update Service. Make sure the automatic update settings are Automatic (or at least not turned off).
  2. Make sure your other software products are also fully updated, particularly popular products like Firefox, Opera, Adobe Reader, Sun Java, Flash plug-ins and media players. The easiest way to do this is to use the free Secunia Software Inspector.
  3. Switch to alternative products if you can. Sometimes they are even better than the popular ones and less malware writers would target it since it is less popular. For example, Firefox or Opera instead of Internet Explorer, Foxit Reader instead of Adobe Reader, The KM Player instead of Quicktime/Windows Media Player and Open Office instead of Microsoft Office.
  4. Be careful where you surf. In particular stay away from sites offering commercial software serial numbers, keygens, other hacked material or adult-related content. Avoid accidentally wandering to hostile sites by installing McAfee Site Advisor, Linkscanner lite (does not work with Firefox 3 yet), WOT, Finjan SecureBrowsing or HauteSecure. They are free programs/plugins that append site security ratings to search engine listings and sites. You can also add the Netcraft toolbar for anti-phishing.
  5. Never click on email attachments from untrusted sources however tempting and attractive such attachments may seem. Similarly, never click on links in email from unknown correspondents.
  6. Never install programs unless you are fully confident they are clean. In particular, only download files from trusted sources and never install programs that friends give you on removable media unless you have verified that are clean by submitting them to free web based signature scanning services such as Jotti, Virus Total and optionally the behavioral analyzer Anubis.
  7. Have an inbound firewall in place. At the very least, make sure Windows Firewall is turned on. This would be enough for most people. If you are running Vista, you can use the free Vista Firewall Control to enhance the security and usability. Firewalls with outbound protection can also be used. Currently the best firewalls are Comodo Firewall Pro, Online Armor, ZoneAlarm Pro [the non-free commercial version] and Sunbelt Personal Firewall.
These measures can protect your PC from infection a great deal. However, sticking to these rules is not easy. It requires a level of discipline most users do not have. Who has not been tempted to open a funny PowerPoint email attachment or install a free game?

And it is not only a question of discipline. These days you can easily get infected simply by innocently surfing to a trusted web site that has been hacked or opening a "loaded" MS Office document. You need more protection that the basic security rules can provide.

Protection is better than cure.

The best way to increase your level of protection is to make sure that if a malware program sneaks its way on to your PC that it is never allowed to run on your PC in a normal Windows environment.

A normal Windows environment is a user account with full administrator rights. It is probably what you are using right now as it is the default setup in all recent versions of Windows up to but excluding, Windows Vista.

There are many ways you can keep malware well away from your normal Windows account. Here are four:
  1. Use a Windows limited user account for your daily work
  2. Run all high risk programs with limited rights
  3. Run all high risk programs with policy restrictions
  4. Run all high risk programs in a sandbox or virtual machine
Each method has its pros and cons so let us look at them individually:

Option 1: Use a Windows limited user account for your daily work.

Using a limited user account can be very effective in preventing malware infection as most malware products need full administrator rights to install themselves. In a limited account they just cannot get a foothold.

It is easy to set up a limited user account. Just go the Control Panel, select User Accounts and create a new user account as a limited user. Then sign in to this account for your normal computer work rather than the account you are currently using.

Setting up a limited account may be easy but using it can be a real pain. For example you will not be able to install most programs. You will not be able to update others. You will not be able to access any part of the PC other than your own documents and the shared documents area. Heck, you will not even be able to change the system date!

Some folks can work with these limitations or work-around them by swapping to a full privilege administrator account when they need to install programs or do other more advanced tasks. Others use the Windows "Run as" command and similar utilities to temporarily elevate their privileges when needed.

Most users though, find using a limited account to be simply too awkward and inconvenient. Sure. their computer is safe but that is little comfort if their PC is only barely usable.

That said using a limited account is an excellent solution for advanced users prepared to tolerate the inconvenience or ordinary users with basic computer needs. If Granny never does anything but check her mail and browse to newspaper sites to read the headlines than setting her up with a limited account is a good way to go. Do expect phone calls though; one day even Granny is going to need to do something that requires administrator privileges.

Option 2: Run all high risk programs with limited rights.

This is a more practical strategy. Run as a full administrator user but restrict the rights of all programs such as your browser and email client that can be sources of malware infection.

Getting this to work could be a complex business but thankfully there are some free utilities available that were written to perform this exact task.

The best known of these is DropMyRights. It allows users to easily create special versions of their browsers, email clients IM client, media player or other internet facing programs that run from a full administrator account but with the restricted rights of a Windows limited user.

It is a simple and neat solution that provides good protection from infection yet does not inconvenience the user in the same way as working from within a limited user account. I have written a practical guide to running programs using DropMyRights. You can find it here.

The approach however has some weaknesses perhaps the worst of which is downloaded files. Yes you are safe from infection while using a browser but if you run any files you download then you can easily be infected if those files contain embedded malware.

However, if you add Software Restriction Policies you restrict your computer even more so most malware will not be able to install. These two guides, here and here, are excellent instructions on how to set up Software Restriction Policies on your computer.

Option 3: Run all high risk programs with policy restrictions.

There is currently only one free program which does this: GesWall free. It is similar to programs like DropMyRights but it is more secure. It works by restricting what your internet applications can do to your computer.

Another option is to use DefenseWall. It is shareware but it is the leading product in policy restrictions and extremely good security if you can afford it.

The good thing about these two applications are that they require no user intervention. They are truly set-it-and-forget-it. They do not restrict the usablity of your whole computer (Option 1), they do not require the user spending time to configure the program (Option 2) and they do not create confusion or require manual sandboxing of applications (Option 4).

However, some users report signifcantly reduced internet connection speeds when running GesWall.

Option 4: Run all high risk programs in a sandbox or virtual machine.

The strange name "sandbox" derives from the Java world where it refers to the highly contained and restricted environment in which Java programs (applets) are allowed to run. They are allowed to "play in the sandbox" but not go outside it. The important point is that while running in the sandbox, the programs have no access to your real PC.

So it is with sandbox security programs. While browsing or engaging in any computer activity within the sandbox you are totally corralled off from your other parts of your PC. Any files you download are isolated to the sandbox. Similarly, any programs that are executed only do so within the sandbox and have no access to your normal files, the Windows operating system or indeed any other part of your PC.

That means that if you get infected by malware while using the sandbox your "real" computer is nor affected. Furthermore you can close the sandbox and all that is within it is erased including any infections, leaving your real PC in a pristine state.

Sandboxing is a great security solution for preventing infection. There are also some excellent sandboxing programs around including my favorite, the donationware utility "Sandboxie." It is very light on resources, provides very strong protection and has a well-supported form. Another alternative is SafeSpace. It is currently still in beta and development has slowed down significantly recently but in addition to virtualisation it also provides some policy restrictions and an anti-keylogger. The interface is also nicer than Sandboxie.

There are some downsides. Sandboxing creates a two-worlds view of your computer and this confuses some users. They could get it wrong and think they are surfing in the sandbox when they are not -- and then it is possible to become infected. This confusion is particularly evident with downloaded files. Files in the sandbox are not really permanently on your computer unless you deliberately move them from the sandbox to your real PC. If you shut the sandbox without moving them they will be lost forever. This two-worlds view is simply too confusing for some users. A confused user is an unsafe user.

Also, if users are not thinking, they could allow every alert, which would recover files to your real environment.

And like every single other security software, some malware can still break out of sandboxes.

There are other problems too. Sandboxing is only available for PCs running Windows 2000 and later. Furthermore sandboxing can create problems on some PCs. Indeed I have known PCs to seize up totally with a sandbox installed. Luckily though, this is not common.

Another option is Returnil Virtual System Personal Edition. It works by virtualising partitions (only the local drive). When you turn the protection on (this does not require a reboot), your whole partition is virtualized and all changes made to it are lost. When you want to turn the protection off you have to restart your PC. This sounds like a great idea and it is, but there are several drawbacks. One is that it is not very flexible, all your data will be lost too (unless you manually configure some files to be excluded, but this reduces the security). Another reason is that it can still be bypassed -- recently there have been several well-publicized malware exploits which can bypass its protection.

Virtual machines such as VMWare, Microsoft's Virtual PC and Sun's VirtualBox are similar to sandboxing but take the idea one step further by completely separating the virtual machine from the real PC at a conceptual level. Rather than have a sandbox as part of your real PC you have a virtual PC that is notionally fully distinct from your PC.

This difference aside, these virtualization models have a lot of similarities. Infections that are incurred in the virtual machine cannot affect the real PC. Similarly shutting down the virtual PC removes all trace of infection.

Unfortunately they also share the same user confusion: "Am I in my real PC or the virtual one?"

The greater separation provided by the virtual machine approach does offer more robust security model than sandboxing but it comes at a cost. Virtual machines consume a lot of memory and a have a fair degree of processing overhead compared to sandboxing. And moving between the real and virtual machines can be more awkward than with sandboxing. Like sandboxing virtualization can be troublesome on some PCs.

From a user's perspective sandboxing or partition virtualisation are more attractive options though IT professionals would probably prefer the greater flexibility and superior isolation offered by virtual machines. I have written a practical guide to surfing using a sandbox which you can find here.

Security-wise all three offer excellent protection from malware infection. The protection is so good that disciplined users do not need any other security products to protect them.

What about on-demand scanning?

OK I have come out heavily against running multiple active security products but what about passive security products like on-demand scanners?

An on-demand scan is one you manually initiate. It may be an anti-virus scanner, an anti-spyware scanner, a rootkit detector or a keylogger scanner.

I am all for on-demand scans as, unlike using products that employ active monitoring, they do not impose an on-going overhead on your computer. The only computer power they consume is while they are actually performing a scan.

Take for example a good anti-spyware scanner like the free version of SUPERAntiSpyware or the excellent free Panda Anti-rootkit detector. They consume no computer power unless you actually run the programs. And because they are not constantly running they are less inclined to cause any problems with other programs.

So by all means runs on-demand scans periodically: weekly, monthly whatever. They are a good backstop to your anti-virus program.

Conclusion

When it comes to today's aggressive malware programs, preventing malware from ever getting on your PC is a better strategy than trying to intercept it when it tries to run.

Make sure to use a blend of different technologies and products when you use security software, not just signature scanners. Remember, absolutely no product provides 100% protection.

You can prevent malware getting on your PC by combining safe computing practices with other techniques such as reducing the privileges of high risk programs, policy restriction progams, sandboxing and the use of virtual machines.

Reducing the privileges of high risk programs is a simple workable solution for most users. Policy restrictions offer greater security and usablity than reducing priviliges, but can slow down your internet connection speed drastically. Sandboxing, virtualization and policy restrictions offer a more complete solution but are not entirely free of practical problems. For those who can work with these problems, sandboxing, other virtualization solutions and policy restrictions offer the best way currently available to prevent malware installing itself on your PC.

With these elements in place the only active security software you really need are an inbound firewall (Windows Firewall will suffice), any good anti-virus program and a behavioral blocker. That said you can, indeed should, supplement these with periodic on-demand scans of your PC with a good anti-spyware product and a good rootkit detector. These on-demand products won't impose the on-going overhead you would incur with security software that uses active monitoring.

This set up is better security than other users who employ multiple layers of real-time signature scanners. Even better your PC will run much fast; a complete contrast to machines running multiple real-time security products.

None of this comes without cost. Defensive computing requires time and discipline. Users not prepared to put in the effort are advised to stay with a layering strategy using multiple security products.

For me, the days of running five or more active security software products on my PCs are over. So your Grandmother was right: An ounce of prevention is worth a pound of cure.

Related Topics

A couple of the commenters on the article offer their own extensive battle plans as well.


SHORT TAKES

UK Financial Services Authority fines both firm and employee for money laundering control failings.

The FSA leveled fairly serious fines, even after a 30% early bird discount for settling quickly, against a corporate advisory firm for various violations of anti-money laudering regulations. We hardly qualify as informed observers here, but some also look like violations of prudent business practices as well.

For the first time, the Financial Services Authority (FSA) has fined an individual employee for failing to comply with anti-money laundering regulations. Sindicatum Holding Limited (SHL), a financial services company based in Canary Wharf, was fined £49,000 last month for having inadequate anti-money laundering systems and controls in place for verifying and recording clients' identities. Its money laundering reporting officer, Michael Wheelhouse, was fined £17,500.

In an official statement, the FSA said it had taken into account the limited financial resources of the firm and its ability to pay when deciding upon the amount. But had Sindicatum not agreed to settle early, thus qualifying for a discount of 30%, the company's fine would have been £70,000. SHL has said it will not be referring the matter to tribunal.

Putting the fine into context, the FSA said Sindicatum's failures "occurred against a background of heightened public awareness" of the need for firms to maintain tighter client identity controls.

SHL is a corporate advisory firm with approximately 35 clients, predominately small and medium overseas corporates. While the FSA found it had adequate, externally produced handbooks on money laundering procedures, there was nothing in place to ensure those procedures were followed. The breaches occurred between October 2003 and September 2007 and relate to 13 of those clients.

For three clients, identification evidence was obtained at time of take-on; in once case not until four years' afterwards. The firm also accepted information concerning the directors, beneficial owners or controllers of five clients without checking them against independent sources. With respect to a further six corporate directors, no evidence was obtained to verify the particular individuals were in fact the directors, beneficial owners or controllers of the client. In two instances the firm's records showed that while identification had been verified the relevant documentation was missing from files, and in case the lost paperwork included only copy passports of the client's beneficial owners.

In the case of five clients, company and personal records were obtained in foreign languages, including Lithuanian, Hungarian, Russian and Czech. While SHL and its subsidiaries had staff that could understand these languages, the FSA was not satisfied these docuements were sufficiently understood.

Other notable fines for failing to comply with anti-money laundering regulations include the £750,000 the FSA levied against Royal Bank of Scotland in 2002 and the £1.25 million and £2.3 million against Northern Bank and Abbey in 2003.

The FSA did not find any evidence of money laundering at the Sindicatum Holdings.



Cyprus and Russia sign protocol on economic cooperation.

Amidst all the happy talk, nothing was said about whether Russia agreed to take Cyprus off its tax blacklist.

The Republic of Cyprus and the Russian Federation have signed a Protocol on Economic Cooperation to further existing ties of friendship between the two countries and to enhance cooperation in the finance, trade, industry, tourism, transport, health and education sectors.

The Protocol was signed by the Cyprus Minister of Finance Charilaos Stavrakis and the Russia Deputy Minister of Commerce and head of the Russian delegation, Stanislav Voskresenskiy, at the end of the 5th Summit of the Cyprus-Russia Intergovernmental Committee on Economic Cooperation.

Speaking after the signing of the Protocol, Stavrakis expressed satisfaction with the spirit of cooperation and understanding shown during the talks, noting that the Protocol will contribute to further enhancing economic and other relations between the two countries.

During the talks, the representatives of the two countries confirmed that there is room for improvement in existing as well as in new sectors, such as finance, banking, health services and energy.

Additionally, at the meeting Cypriot and Russian officials noted the favorable conditions to help increase trade transactions and enhance cooperation in commerce, investment, tourism and transport.

Panama captures boss of Colombian financial scheme.

Exposure of a Columbia-style high yield income program (HYIP) scam has led to serious repercussions. The massive and intricate fraud has generated correspondingly massive losses by victims, with some rioting when Columbia President Uribe closed down the storefronts of the organization and fellow-scammers. Characteristicly impossible interest rates of 100%+ make their usual appearance.

BOGOTA, Columbia (Reuters) — Panama captured and extradited the accused boss of a Colombian financial pyramid scheme that threatens investors with millions of dollars in losses, Colombian police said ...

The scheme is one of several in a growing financial scandal that has sparked riots as mostly poor investors try to recover their savings and analysts warn about the impact on Colombia's already slowing economy.

David Murcia, head of financial agency DMG, was caught in Panama as he tried to flee into Costa Rica. He was extradited to Colombia, where he and his directors face charges including money laundering and other financial crimes, police said.

"After such a massive fraud against thousands of our countrymen, this is a man who is a risk and we will keep him under very tight security," national police commander Gen. Oscar Naranjo told local radio.

President Alvaro Uribe's government has said it will help victims recover their losses and has declared a state of emergency over the crisis. Thousands have lost their savings on scams that promised high interest rates, real estate deals and debit cards to buy consumer goods.

Authorities are probing possible links between the finance agencies and Colombia's multibillion-dollar cocaine trade.

An attorney for DMG has said the company's managers were innocent and were ready to cooperate with the investigation.

Thousands of DMG depositors took to the streets this week to protest a decision by Uribe to shut the stores. At least two people were killed in riots last week when the bosses of other companies, which had promised up to 150% interest, started shutting their doors and disappearing with cash.

In Defense of Corporations, Tax Breaks, and Wal-Mart

Are all corporations -- privileges granted by the state, as liberty-oriented thinkers so often characterize them -- born in sin? J. H. Huebert and Walter Block argue no, giving us a taste of their forthcoming longer article.

Do big business and big government team up to rip you off? Of course they do. All the time. Unfortunately, Roderick Long has taken that important insight and, in a new essay for the Cato Institute, twisted it into a misguided attack on "corporate power," tax breaks, and Wal-Mart.

Let us set the record straight on the correct libertarian view of these matters.

Before we do, we should note that Roderick Long is a leading libertarian theoretician. He was for several years editor of the flagship libertarian publication, the Journal of Libertarian Studies, and did a wonderful job in that capacity. He has written the best short defense of the libertarian anarchist position ever written. And not only is he a pure libertarian, he has made important contributions to technical philosophy.

Still, with all due respect, we cannot agree with him on this occasion. Indeed, his importance as a libertarian philosopher makes his comments all the more alarming.

Long writes that "Corporate power depends crucially on government intervention in the marketplace."

But what does he mean by "corporate power"? A corporation is merely a group of individuals who have entered into a particular type of business relationship. The corporate form allows them to be known collectively by their business's name instead of their own names. And it allows them to enter into contracts under which they limit their own liability -- something which is perfectly legitimate under libertarianism. (Objectivist historian Robert Hessen has made this point well in his book, In Defense of the Corporation, and see our article, "Defending Corporations," forthcoming in the Cumberland Law Review.)

The corporation, therefore, has no power to speak of.

Instead, only the state has power.

And, yes, sometimes the state uses its power to confer benefits, direct and indirect, on corporations. It also uses its power to confer benefits on partnerships. And sole proprietorships. And individuals. There is nothing special or different about government privileges for corporations -- so why does Long single them out?

Maybe he just means that he does not believe big businesses would succeed but for the state -- he says as much elsewhere in the piece. If so, he should say so, because he appears to be attacking the corporate form in particular for reasons that are not clear.

In any event, his apparent view that big business needs the state to survive is unfounded. As it is, there are big businesses that do not benefit much from government and there are small businesses that benefit greatly from government. In a fully free market, undoubtedly, large and small businesses would both survive, succeed, and prosper. Long's assertions to the contrary are unfounded speculation.