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LIVING OFFSHORE? TAX DODGER, EVADER, UNPATRIOTIC AND MUCH WORSE!
Latest attacks on tax havens by President Obama clearly shows where things are are headed.
The Obama adminstration this week released a proposal that amounts to a major assault on everyone and everything that does business offshore. They trotted out all the usual clichés, like the address in the Cayman Islands that is headquarters to 18,000-odd corporations, yada yada yada. Under the guise of encouraging job creation in America there is a proposal to eliminate -- excuse us, "reform" -- the "loophole" that leaves offshore profits untaxed unless they are repatriated to the U.S. A stronger incentive to plain cut ties with the American parent would be harder to think up.
Under the "Getting Tough on Overseas Tax Havens" proposals we find:
The actual amounts that it is claimed these measures will raise, thereby lightening the burden of the U.S. taxpayer they claim to care so intensely about, is in the tens of billions of dollars. In other words, absolute chickenfeed when compared to the money being dumped down various financial and military boondoggle ratholes.
Now it appears that even the usual tax and spend crowd might find the part of the proposal to tax unrepatriated offshore profits a bit much. The legislators get big contributions from the corporations that would be taxed, so we would expect some resistance for that reason alone. See the Washington Post article post below. Objectors to the cracking down on individuals will undoubted be fewer in number. Obama reveals his dictatorial stripes just in making the proposal. The ultimate underlying agenda is control, not tax revenues.
This is going to be a long and ongoing battle. Sam Taliaferro in his Panama Investor Blog provides a convenient introduction and thought piece.
Tax dodgers, tax evaders, unpatriotic, criminal. These are just a few of your new labels if you live, work or just do business offshore, according to the U.S. President Obama and the IRS. Better spend some time reading this if you are planning or are already living outside your home country.
These latest attacks on tax havens by President Obama clearly shows where things are are headed. I am amazed at the speed of these changes.
Last week has seen a ramping up of the rhetoric against "tax havens". To the point where this week President Obama has taken the time to hold a press conference about this all important tax loophole that must be closed.
One wonders just where he finds the time and energy to deal with these issues when in the white house just over 100 days. After all, the economy is literally falling apart around him with unemployment skyrocketing and business closings coming daily. Then of course there is Iran, Pakistan, Russia, swine flu pandemic and a myriad of other urgent matters screaming for resolve. He has not even had time to make all his administration appointments, yet this one issue rates high enough to hold a press conference and many press releases emphasizing the importance of catching these potential tax cheats. One would be led to believe that just living in another country is illegal the way things have been presented. Who knows, maybe that is the ultimate plan.
But, looking at the numbers it just does not ad up. Here is what we learn from their "press releases." "$210 billion will be collect over the next 10 years" and they will employ 800 new IRS agents to hunt them down. That is the economic gain. At today's money $12 billion a year is less than one day's interest on the trillions of new money we have had to print to get us through just the next year. Even if we assume they are correct in their numbers, one has to wonder about all the hoopla made over such a small amount when there is a real potential downside.
Most of this is legal tax avoidance is done by large corporations who use offshore jurisdictions to incorporate in order to take advantage of lower taxes. They do this in a competitive global economy where they must sell all over the world and not just to America.
They, like companies from all countries take advantage of this legal means that is now going to be deemed illegal. To add fear, they use terms like dodging and evading which is not true as it is tax avoidance at this point, but then there would be no drama. Truth is, this kind of "evading" could be easily dealt with without the need to go "fishing" and force tax compliance and information exchange on small countries whose GDP depends greatly on offering these services.
When you look deeper you find they want to force these companies to move their operations back home in order to create more jobs in the U.S.A.. So now we have a move towards protectionism if they want all foreign workers eliminated and plants moved back to the U.S.A.. This may make workers happy who are losing their jobs in the U.S.A. but you can bet a tit for tat will ensue eliminating and foreign exports we now engage in. That will further decrease manufacturing for our existing plants. But hey, maybe that is part of the plan too.
Of course there may be a few tax evaders caught in the sweep, but throwing such a wide net is designed to intimidate and bring fear to anyone considering trying to hold on to any money that is needed by the government. It is designed to close a hole in the net that will surly grow as the producers find out just how unbearable the tax rates will be in the coming years. Remember, we have a very unfair redistribution of wealth taking place, and at the rate of spending and new programs coming, a more corrected redistribution will be necessary. Obviously there comes a breaking point where producers just give up and nothing gets done in any efficient manner. It is just a matter of time and your money. But, maybe that is part of the plan too.
But what about us expats? Are they out to get us too?
How does it affect the little guy who is just trying to protect his retirement income and living where there is a lower cost of living? Well, you may be demonized as a tax evader and tax dodger and of course you may be considered unpatriotic for not sticking it out at home and carrying your fair share of the burdens as your fellow countrymen are being forced to bare. but hey, you live in Paradise and unless you turn on the news you will not have to hear it.
You will need to be honest and report your ownership of any foreign entities and of course any bank accounts you have signing rights for. But keep this in mind. At this point the government can only tax you on income produced outside their control. If you are living off retirement income, the taxes are likely already paid. If you make a few points of interest income be sure to report it and stay legal. At this time there is nothing illegal about living, banking and doing business offshore. It is only illegal to not report income made from business transaction offshore.
If you are a resident of a foreign county it is unlikely they will force you to come back, but they can make it increasingly difficult to get out in the future should they decide to clamp down on capital movement out of the country.
There is one other thing that you should consider. The ownership of gold is both legal and until sold does not need to be recorded as profit or loss against income. This makes for another way to hold capital legally without having to divulge if not held in a foreign bank account.
Most of all, when you live outside the craziness of that world, these burdens quickly fall away, as you realize just how small you are are in this big world and believe me they are after much bigger fish than you.
For more insight into what is happening and possible light at the end of this dark tunnel, be sure to read Bob Bauman's take of this craziness below.
We will include excerpts from the Sovereign Society's Bauman's piece:
If one ever needed proof of his radical intentions, Obama yesterday made clear his leftist goals, including milking American taxpayers -- especially those he calls "rich" -- for all he can wring from them.
For just the rest of 2009, the government needs to borrow about $2 trillion. Long-term, Obama needs trillions more to finance his comprehensive program transplanting European-style socialism to America.
That includes government-run health uncare, federal control of education, handing over faltering auto companies to unions, selectively bailing out his Wall Street campaign contributors and buddies, nationalizing banks, confiscating private pension funds and stimulus for all. ...
Rahm Emanuel, the White House chief of staff, summed up Obama's goal: "Never let a serious crisis go to waste." Thus the President is using the recession as an excuse for big government ambitions that liberals have failed to achieve for decades. ...
At the White House Sec. Geithner noted that the G-20 group of high tax welfare countries had agreed to act against tax havens. "For years, we have talked about shutting down overseas tax havens," Obama said as he made a presumptuous and patently erroneous claim, "That is what our budget will finally do." (As if the President has some magical power, short of military action, to force independent nations to change their laws to satisfy his bloated budget needs). ...
At a time when business needs money to preserve and provide American jobs, Obama proposes to abolish existing tax breaks and tax deferrals for corporate offshore activity and to tax at the 35% rate, all U.S. corporate foreign business as if conducted within the U.S. For a better understanding of why Obama's plan is so damaging to the U.S. economy, I commend you to the views on this subject of my colleague, Mark Nestmann [see “80% of Big U.S. Corporations Have "Tax Haven" Subsidiaries? So What?”].
Americans who have offshore bank accounts, investments and other financial activity are, for the moment, still legal under U.S. laws.
But Obama's tax plans announced today echo the traditional IRS and U.S. Justice Department attitude that assumes any offshore financial activity by a U.S. person probably is illegal, illicit or both. The President displays a virulent prejudice against "offshore" that he apparently thinks is good politics.
In a way, Obama is heeding the philosophy of his fellow Chicagoan, Al Capone who said,: "They can't collect legal taxes from illegal money." Obama's tax plans do everything short of making it a federal crime for hitherto innocent Americans to bank, invest or to do business offshore.
Read at your leisure the full text of Obama's press release describing the horrors he has in store for Americans who dare to go offshore financially, especially the section entitled "Getting Tough on Overseas Tax Havens."
But one important point really should upset intelligent citizens -- Obama proposes to repeal the traditional, time honored legal presumption of innocence, specifically for those doing business offshore.
Instead, he proposes to make Americans who go offshore prove to the IRS, upon demand, that they are not engaged in tax evasion or any other crime. The White House said, "These presumptions will make it easier for the IRS to demand information and pursue cases against international tax evaders. This shifting of legal presumptions is a key component of the anti-tax haven legislation long championed by Senator Carl Levin." ...
The ritual truism is that if you comply with the law, you will have no problems. But who knows what compliance with this morass of new rules will require, both in legal advice and fulfillment costs?
One thing is certain. This will accelerate a trend already well underway -- more offshore banks, unwilling to become IRS vassals, will reject new American clients and terminate some of those who are current clients. ...
Oddly enough, Obama's radical political crusade against tax havens could produce unintended effects he and the IRS will not like.
Fact is there remain very important and useful roles for offshore financial activity by Americans -- much stronger asset protection, better investment possibilities, real, though now more tempered, financial privacy, tax deferred life insurance and annuities, offshore residence and second citizenship -- all providing physical and geographic distance between Obama's tax police and your assets.
U.S. persons who have bank accounts or who are active in established offshore tax havens, such as Switzerland or Panama, or those planning future activity, probably will not suffer from Obama's and the OECD's political attacks, as long as they follow the law. ...
The history of the last 10 years of anti-tax haven attacks has been marked by a welcome general offshore clean up and impressive tightening of offshore laws and rules.
The thrust of Obama's radical legislative proposals and the OECD's plans is curbing tax evasion. He and they have no real power to eliminate the tax advantages of independent offshore jurisdictions.
The general move toward greater scrutiny of tax havens undoubtedly will give pause to some, but it is unlikely to discourage those intelligent enough to understand and employ offshore's real advantages.
Obama Plan Would Crack Down on Individuals, Firms with Money Abroad
This Washington Post news item on the Obama anti-offshore plan touches on the plan's main points. The proposal to tax corporate overseas profits more heavily will be contentious. "Key Democrats were cool" to that part of the plan, we are told. We will see what it takes to buy off their resistance. Here is the full text of the press release announcing the plan.
President Obama yesterday (Monday, May 4) announced a major offensive against businesses and wealthy individuals who avoid U.S. taxes by parking cash overseas, a battle he said would be fought with new tax laws, new reporting requirements and an army of 800 new IRS agents.
During an event at the White House, Obama said his proposal would raise $210 billion over the next decade and make good on his campaign pledge to eliminate tax advantages for companies that ship jobs abroad.
"I want to see our companies remain the most competitive in the world. But the way to make sure that happens is not to reward our companies for moving jobs off our shores or transferring profits to overseas tax havens," Obama said, flanked by Treasury Secretary Timothy F. Geithner and IRS Commissioner Douglas Shulman.
The nation's largest business groups immediately assailed the proposal, arguing that it would subject them to far higher taxes than their foreign competitors must pay and ultimately endanger U.S. jobs. Key Democrats were cool to the plan, and said Obama's ideas should be considered as part of a broader effort to streamline the nation's complex corporate tax code.
"Further study is needed to assess the impact of this plan on U.S. businesses," Sen. Max Baucus (D-Montana), chairman of the Senate Finance Committee, which has jurisdiction over U.S. tax law, said in a written statement. "I want to make certain that our tax policies are fair and support the global competitiveness of U.S. businesses."
Yesterday's announcement offered the first details of a tax plan that was sketched out in the $3.4 trillion budget request that Obama sent to lawmakers earlier this year and that Congress approved last week. If the measures do not survive congressional scrutiny, the lost revenue would increase already-elevated deficit projections, unless lawmakers find money elsewhere.
What unmitigated tripe. One would expect no less from the top ruling class mouthpiece.
Obama said his plan could serve as "a down payment on the larger tax reform we need to make our tax system simpler and fairer."
The proposal takes aim at what corporate executives consider to be one of the most critical features of the U.S. tax code: permission to indefinitely defer paying U.S. taxes on income earned overseas.
Currently, U.S. companies can avoid paying taxes on foreign profits until they bring the money back home. So a U.S. company doing business in Ireland, for example, must pay the Irish tax of 12.5%, like every other company doing business in Ireland. But the U.S. firm would owe an additional 22.5% to the U.S. Treasury (the difference between Ireland's tax rate and the 35% U.S. tax rate) unless it reinvests the money overseas.
The United States is the last major economic power to tax the profits of locally headquartered companies if that income is earned abroad. Other nations, including most recently Japan and Britain, are moving to a territorial system that taxes only corporate profits earned within their borders.
Instead of following that trend, Obama proposes to move in the opposite direction. He argues that the current system gives tax breaks to U.S. multinationals at the expense of companies that operate solely on American soil. In 2004, the most recent year for which statistics are available, U.S. multinationals paid an effective U.S. tax rate of just 2.3% on $700 billion in foreign profits, according to the administration.
"It is a tax code that says you should pay lower taxes if you create a job in Bangalore, India, than if you create one in Buffalo, New York," the president said yesterday.
To level the playing field, Obama would bar firms from taking deductions for expenses that support their overseas investments until they pay U.S. taxes on the profits. He would also crack down on firms that overstate their foreign tax bills. And he would reverse a Clinton-era rule known as "check the box," which permits firms to more easily transfer cash between countries. In practice, Obama officials said, "check the box" has been used to shift income away from higher-tax countries and into tax havens such as Bermuda and the Cayman Islands, allowing firms to reduce their tax bills both at home and abroad.
Those provisions would take effect in 2011 and would raise about $190 billion by the end of the next decade. In return, Obama proposes to make permanent an existing tax credit for companies that spend money on domestic research and development programs, worth about $75 billion over the next decade.
Obama also proposes to crack down on wealthy people who evade taxes through offshore bank accounts, primarily by targeting financial institutions in tax-haven jurisdictions. That plan, which would net another $9 billion over the next decade, appears to have few opponents.
By contrast, more than 200 U.S. companies and trade groups have signed a letter asking congressional leaders to oppose Obama's proposal to limit their ability to defer U.S. tax payments. The letter, signed by Alcoa, General Electric, McDonald's and Microsoft, among others, warned that restricting the deferral rules would make it difficult to compete abroad.
The U.S. Chamber of Commerce also denounced Obama's plan. And John Castellani, president of the Business Roundtable, a coalition of the nation's largest firms, called it "the wrong proposal at the wrong time for the wrong reasons" that will "make us less competitive in the international marketplace, where, by last count, 95% of the world lives."
Rosanne Altshuler, co-director of the Tax Policy Center, a joint project of the Urban Institute and the Brookings Institution, said some of Obama's proposals have merit. But "the big question mark is whether limiting deferral will lead to more jobs in the U.S., and it is not clear to me that this is what will happen." Instead, Altshuler said, the result may be to create a tax advantage for U.S. firms to be acquired by foreign owners, an "unintended consequence" that "would probably be bad."
"There is a big difference between abusive tax avoidance and legitimate tax policy that recognizes the global economy," said Sen. Charles E. Grassley (Iowa), the senior Republican on the Senate Finance Committee. "To the extent the president continues on the road of cracking down on tax abuse, he can count on my support. But if he is using tax shelters as a stalking horse to raise taxes on corporations at the cost of U.S. jobs, he will lose me."
You have to work hard to come up with a tax-raising proposal to which the Brookings Institute and key anti-offshore Democrats take exception, but Obama's minions did it.
CRY ALL YOU WANT FOR AGENTINA
Today, Argentina is a mess. But it is an adulterated mess.
Bill Bonner weighs in from Argentina, which has gone through so many financial crises that they seem like the normal way of things down there. This may give them an advantage over those who are new to a true crisis.
We recall a meeting, back in the 1990s, with Mr. Carlos Menem.
"Can investors rely on Argentina's commitment to keep the dollar and the peso linked together?" we asked.
"Absolutely," replied Argentina's president. "We would never give up the peso-dollar link. It is too important to our economy. Without it foreign investors would leave and the economy would collapse."
Five years later, Argentina cut the peso loose from the dollar. Foreign investors fled and the economy collapsed.
What lesson can you draw from this narrow set of facts? If you say, "politicians cannot be trusted," you are merely stating an obvious, universal truth, like "public toilets stink." But do they stink more on the pampas than, say, in London or New York? That is the question before us.
We begin by posing other leading questions: Can investors depend on the money custodians north of the Rio Grande more than they could depend on those south of the Rio Plata? Why do people do things they ought not do -- because they are stupid or because they are just bad?
Today, Argentina is a mess. But it is an adulterated mess. The restaurants in Buenos Aires are still full. The beef is tasty. The women are pretty. The weather is nice. But so distrustful of Argentina's public finances are investors that you could earn as much as 70% yield on a peso bond -- the implied yield at today's heavily discounted prices. If everything goes according to plan, you will get your money. But the 70% yield is a measure of how often things do not go according to the plan. Investors here are used it. It is as if they got on a flight to São Paulo and ended up in Cordova or Brisbane. Or they turned on the hot water and got molasses.
It is these adulterations that make an investor's lot so treacherous. Argentina's main source of revenue is agriculture. Farmers are blessed by nature and cursed by politics. Nature gives them the richest, flattest, best-watered dirt in the world. With these advantages under their feet, a fair sun overhead, and a hugely expanding population around the world, agriculture on the pampas should be as easy as rolling tourists in Buenos Aires or selling stolen autos in the ghetto. Instead, the farmers go broke. Why? Math ... popular democracy. For every lonely hick on the pampas, there are 10 voters in the big city eager for other peoples' money. That is why farmers pay 40% export tax on their products to the feds in Buenos Aires and as much as 30% more to their local governments. By the time the tax collectors are finished with them, they are out of business.
But even at this level of public larceny, the feds are still faced with a crisis. The country does not have the problems of North America or England. It was spared the credit crunch by its own incompetence and the collective misjudgment of lenders all over the world. Instead of giving credit to people with little of it, they lent to people with too much. The problem here is not the credit crunch, it is a cash crunch. Local economists say the trouble will begin in late June when the government will not be able to pay salaries. Then, the country may enter another crisis -- similar to what it went through in the period of 1999 through 2002. In anticipation, the ruling husband and wife team, the Kirchners, have pushed the elections forward 4 months, hoping to be reelected before the voters catch on.
When a big guy in a dark alley says, "I don't want to hurt you ..." it is time to run. But the Argentine parliament offered a similar assurance to citizens in 2001. A law was passed guaranteeing that bank deposits would be protected.
A few days later, the bankers revealed that they lacked the funds necessary to keep up with depositors' withdrawals. Meanwhile, the government needed to refinance its debt ... but investors, growing wary, demanded higher and higher rates. In the end, depositors and lenders were hurt after all. The government froze bank accounts and defaulted on its foreign debt. By the time the accounts thawed out, the peso had been cut loose from the dollar and both lenders and savers had lost about 2/3 of their money.
There are times, we conclude, when despite the best of intentions, people do naughty things. Carlos Menem and Ferdnando De la Rua are probably no dumber or badder than Barack Obama and Gordon Brown. Both might have preferred not to freeze accounts or to devalue the peso. Likewise, Barack Obama and Gordon Brown might rather keep their currencies strong, reduce their fiscal deficits, honor their nations' commitments at home and abroad, and join the community of saints.
Maybe they will succeed in these things. But what trapped Menem and De La Rua was the relentless logic of debt and popular democracy. Mr. Menem fixed the peso by gluing it to the dollar. But there were other things that needed glue too. The urban voters, for example. They still needed their fixes of bread and circuses. And those cost money. Mr. De la Rua's deficits ran to 5% of GDP. The weight of them finally came down on the gauchos' necks like a guillotine. But 5% seems like a problem from another era. In France, the fiscal deficit for 2009 is expected to be over 8%. In Britain, it is nearly 10%. And in America, the feds' excess spending will equal 13% of GDP.
As far as we know, Mr. Obama speaks no Spanish. Whatever mischief is forced upon him, it will have to be declared in English.
THERE HAS NEVER BEEN A BETTER TIME TO BE AN EXPAT
Expats have never been healthier or safer.
Robin Pascoe runs ExpatExpert.com and has written several books on the subject of expatriation and relocation. Thanks to the internet and the global communications revolution, she says, it is easier to research a move abroad beforehand, develop contacts once you are there, and raise children abroad. What has not changed, in her experience, are attitudes towards financing organizational support for the mobile family. "The corporate jet still flies high while many families and accompanying spouses spiral into depression, substance abuse, and divorce."
Expats have had to and have been able to become more self-sufficient -- which is probably good given industry surveys that report almost 80% of postings fail because of the family's inability to adjust. In other words, the results did not constitute a resounding success story for the old support network. Hmmm. Reminds of the success rate of a certain ubiquitous institution ... oh, never mind.
On the many speaking tours she has made in over 20 years of covering the "global living beat," author Robin Pascoe says she is invariably asked the same questions over and over again by both expatriate families and the managers who oversee their relocations. But she reports that one question in particular stands out: Have things changed at all in the way organizations support moveable families?
It does not seem to matter if I am lecturing to rotational families living in Tokyo, Santiago, London, or Jerusalem. I always chuckle when I hear that perennial question.
It usually comes soon after the other universal standard asked by expatriate parents: When should we tell our children we are moving again?
My audiences always look perplexed, though, when my response to their question about change goes something like this: "Well, that all depends. What is the price of oil today?" Then, to add further confusion for the audience, in recent months I have added another query, "What is the U.S. dollar worth today?"
Those two questions, combined with my many years of assisting expatriates to succeed and thrive in their overseas adventures, allow me to reflect not only on what has changed, but more critically, what has not changed for families on the move.
I will explain why I use them as my measure in a moment. First, allow me to stress this good news which all of my own research, writing and travel has underscored for me: It has never been a better time to be an expat.
Ironically, I often have to work really hard to make my case for that. For example, when I am facing audiences worried about security issues (be it health-related or terrorism) I have to remind them that in the "old days" expats died all the time from lack of good drinking water, nasty mosquitoes, strange local diseases and bad health care.
Expats have never been healthier or safer, I tell people, and then suggest they turn off their television sets if they want to stop worrying about terrorists.
Bad things always happened in the past: We just did not know about it within minutes of an event, our fears enhanced by graphic images repeated again and again just to make sure we are good and terrified.
Thanks to the Internet, expatriates now go out to a new posting more informed than their predecessors about their host cultures. They can learn new languages, make new friends before arrival, see pictures of new schools and homes.
They can find a chat group, a playgroup, or a mentor in the time it takes to google a new place. Accompanying partners can start home-based businesses, telecommute to old jobs, or snag consulting contracts.
Raising children abroad has also become easier because of websites and in-country counseling services which help parents make informed choices about schools, the primary concern for any expatriate family.
Mobile phones allow pick-up times after activities to be carried off smoothly and parents can keep a closer eye on their children thanks to digital technology which does everything but implant them with a GPS chip, although some newer models of phones now have them.
And support remains a critical ingredient for family and assignment success, which is why I decided recently to conduct my own survey Family Matters! to hear how families themselves feel about it all.
What have not changed in my experience, are attitudes towards financing organizational support for the mobile family. The corporate jet still flies high while many families and accompanying spouses spiral into depression, substance abuse, and divorce.
Naturally, personal responsibility must always be front and center, but too many nasty situations I have seen have been the direct result of company indifference.
I use the price of oil or the exchange rate on the U.S. dollar as my shorthand codes for the amount of money which will be allotted to relocation support for families. If oil is up by the barrel, everyone is getting pre-departure training and language lessons.
Dollar down? That means cross-cultural training, a soft issue that costs money instead of generating it for a company, is the first item to be cut from mobility budgets. I have seen training offered and then taken away; housing allowances up, then down and then up again; language proficiency stressed as a plus and encouraged with allotments than taken away again.
I have seen it all come, go, come back again and go away yet again. Ask me about the price of oil tomorrow and I will probably have yet another answer.
In short, from the privileged position I have had to observe and report on trends in global, rotational-style living, while things may have improved at certain points, nothing has remained changed for long and the constant which never seems to change is that money spent on family support is not considered money well-spent despite all the evidence to the contrary.
Short term, reactive, attitudes prevail as the norm. Companies who do right by their families are the exception, not the rule. Expats I meet in the field say they now have the lowest of expectations of their organizations.
Broken promises (especially in the areas of spousal support) have led to broken marriages; children face gaps in their education if comprehensive management of their school years is not taken into account by the powers-that-be; and organizations are working many of their employees into early disability pensions as work-life balance in the global economy remains ephemeral as a goal and ignored, or worse, denied, as a challenge.
The growing addiction to 24/7 accessibility through incessant and unhealthy BlackBerry use does not seem to be setting off alarm bells anywhere either. Expats have had to become more self-sufficient which is not necessarily a bad thing if not for the fact that all the industry surveys report almost 80% of postings fail because of the family's inability to adjust.
Lack of support for the relocation is right up there as a reason for that failure. It is a testament to the resilience, flexibility, grace, and often downright courage of many expatriates and their families that they succeed in spite of the non-existence of any kind of support they receive and the lack of attention that, sadly, continues to be paid to their unique challenges.
If anyone has any ideas on how to change organizational attitudes, you know where to find me. I am still out there, over 20 years later, trying to change hearts and minds.
COCA-COLA, ORACLE, INTEL USE CAYMAN ISLANDS TO AVOID U.S. TAXES
Huge Shocker: Large Corporations Minimize Taxes Where They Can
Everyone’s favorite offshore whipping boy, the Cayman Islands, has once again been trotted out as an example of an offshore “tax scam.” It transpires that 1/4 of the 100 largest contractors with the U.S. federal government have subsidiaries in the Caymans. This is also true for a total of 378 U.S. publicly traded companies. Those companies willing to speak out in public admit that such setups are mostly for tax saving reasons.
So is that a “tax scam” or not? Not legally, given that all those companies are undoubtedly operating (mostly) within the law, taking advantage of whatever savings the U.S. tax code offers. We are more concerned about the funds being scooped up by those 100 largest federal contractors. The crime there is collecting the blood money in the first place. Using the tax code to minimize how much they give back is strictly secondary.
President Obama says he plans to end this “tax scam.” Good luck to him. The feds certainly have some leverage over their contractors. But those contractors are also heavy campaign contributors -- is is an axiom: receiver of government handouts == campaign contributor. Any attempt to tax the excess gains from that connection will be met with lobbying and then strong political resistance.
Ultimately the U.S. can squeeze a company to the extent the company has U.S. operations and sales, i.e., a U.S. physical and financial presence. Presumably those operations and subsidiaries can be levied using whatever formula Uncle Sam thinks he can get away with. But what about the non-U.S. operations? We question just how much corporations are willing to pay for the alleged privilege of being headquartered in the U.S. If the U.S. presses too hard in taxing unremitted profits from those operations -- and, for example, 85% of hard disk drive maker Seagate’s employees work outside the U.S. and over 70% of the company’s revenue comes from sales overseas -- the company will just change its physical headquarters, leaving the U.S. operations as a subsidiary and taking prestigious and high-paying jobs overseas. And that just is the most obvious legal restructuring an over-taxed company could undertake.
It remains to be seen how much of Obama’s, and other members of the other anti-offshore brigade’s, talk is just bluster. The scariest possibility is that he believes his own press clippings. Or has other agenda that override economics.
Seagate Technology, the world’s largest maker of hard disk drives, is headquartered in Scotts Valley, California. Yet the documents it files with the Securities and Exchange Commission list its address on South Church Street in George Town, the capital of the Cayman Islands.
Seagate is just one of the companies that may be affected by President Barack Obama's proposal yesterday (May 4) to raise about $190 billion over the next decade by outlawing techniques used by U.S. companies in offshore locations to avoid paying taxes. While the U.S. corporate tax rate is 35%, Seagate paid an effective tax rate of 5% in the year ended June 2008, according to data compiled by Bloomberg.
The Caymans have no corporate income tax for companies incorporated there. The Caribbean island has helped scores of U.S. companies, including Coca-Cola and Oracle, to legally avoid billions in tax payments to the U.S. government, says U.S. Senator Byron Dorgan.
"Our Main Street businesses are working hard during this economic downturn to pay their fair share of taxes," says Dorgan, 66, a North Dakota Democrat. "Some of the country's largest corporations are using these loopholes to avoid paying their fair share of taxes. It is my hope that the Congress will quickly take action to pull the plug on tax breaks that subsidize runaway plants that move U.S. jobs overseas."
One quarter of the 100 largest contractors with the U.S. federal government, including Altria Group Inc. and Tyco International Ltd. have had subsidiaries in the Caymans, according to a study by the Government Accountability Office. At least 10 of the 30 companies listed in the Dow Jones Industrial Average have had units with addresses in the Caymans.
As of November 2007, 378 U.S. publicly traded companies had at least one significant subsidiary in the Cayman Islands, a GAO study found. Altria, Tyco, Coke and Oracle still have subsidiaries in the Caymans, according to their most recent SEC filings. Seagate lists its headquarters in Grand Cayman.
One of the Dow 30 companies using offshore sites to reduce its U.S. taxes is Santa Clara, California-based Intel Corp., the world's largest chipmaker.
Intel's then vice president of tax, licensing and customs, Robert Perlman told the U.S. Senate Finance Committee in March 1999 that Intel would have been better off incorporating in the Cayman Islands when it was founded in 1968.
"Our tax code competitively disadvantages multinationals simply because the parent is a U.S. corporation," Perlman testified.
Intel spokesman Chuck Mulloy said yesterday his company is rethinking its tax strategy. "We are studying the Obama proposal," Mulloy said. "Particularly with taxes, the devil is in the details."
Seagate spokesman Brian Ziel said yesterday that his company incorporated in the Caymans to reduce its taxes. "The competitive benefits relate both to taxes saved on certain income earned outside of the United States and the ability to efficiently deploy assets around the globe to remain competitive," he said.
85% of Seagate's employees work outside the U.S. and more than 70% of the company's revenue comes from sales overseas, Ziel said. "Officially, our administrative headquarters is in the Caymans. That is how it is listed in our annual report."
Altria spokesman Bill Phelps said his company is in the process of dissolving its Cayman subsidiary. Coke spokeswoman Kerry Kerr said, "We do not comment on tax strategies, for competitive purposes."
Tyco's Paul Fitzhenry and Oracle spokeswoman Karen Tillman did not return calls requesting comment.
A 5-story office building on South Church Street in the Caymans serves as the official address for 18,857 corporations. That building, called Ugland House, is listed in SEC filings as Seagate's headquarters. About half those Cayman companies had billing addresses in the U.S., according to a 2008 GAO study.
President Obama referred to Ugland House yesterday. "On the campaign, I used to talk about the outrage of a building in the Cayman Islands that had over 12,000 businesses claim this building as their headquarters," Obama said. "And I have said before, either this is the largest building in the world or the largest tax scam. And I think the American people know which it is: The kind of tax scam that we need to end."
Maples and Calder, the law firm that occupies all of Ugland House in Grand Cayman, said Obama is mistaken.
"I am sorry to disappoint anyone, but our office is neither the largest building in the world nor a center of financial misconduct," said Charles Jennings, joint managing partner of Maples and Calder. "Having a registered office address in the Cayman Islands is driven by commercial considerations, not by tax avoidance. It allows companies to raise capital and conduct global business."
The firm, which provides services for the corporations that use its address, has incorporated more than 6,000 new companies over the past five years. Back in 2004, the building served as home to 12,748 companies using the same address in the Caymans, a British crown colony 150 miles south of Cuba.
Del Monte Fresh Produce Inc., whose corporate headquarters is in Coral Gables, Florida, lists another address -- Walker House on Mary Street in George Town, Grand Cayman -- in its SEC filings. That is around the corner from Ugland House.
Del Monte's effective tax rate for 2008 was 3%, up from 1% the year before. Del Monte spokeswoman Vidya Samsundar had no immediate comment on why the company is incorporated in the Caymans.
SINGAPORE PRESSURED ON BANK SECRECY; SET TO PUSH BACK
“Anyone who expects fast information about a foreigner with a bank account here will be disappointed.”
Singapore, “Asia’s Switzerland,” has benefited from the strong pressure being applied to Switzerland and other European offshore financial centers. For instance, a Singapore-based private banker reports that “At least $13 billion has landed here in the past few months, much more than the average of previous months, and a surprisingly high sum came from Europe. This money could be perfectly legal, but with the climate of fear in Europe many depositors want out. They want peace of mind.”
Singapore itself is hardly immune to the same pressures from the OECD-led high-tax cabal, but it presumably has a certain capacity to resist based, e.g., on being less economically integrated with Europe and the U.S. The $64 question is just how much resistance can it put up.
“Singapore will do whatever is necessary to avoid being in a blacklist,” says a Singapore attorney. So what will it take to perform that trick?
Right now Singapore is saying all the right things ... that its cooperation is contingent on “serious, documented suspicions of tax evasion and proof that the foreign authority requesting the information cannot get it directly from the foreign investor or deposit-holder.” We shall see.
An O.E.C.D. spokesman claims that O.E.C.D. rules “forbid ‘fishing expeditions’ for information” and are “designed to protect the confidentiality of the information exchanged.” Yeah, sure. We suppose the definition of “fishing trip” is flexible, and “designed” is not the same as “guaranteed.” One thing you can mail in is the demands for cooperation will never cease.
Singapore, which styles itself as Asia's Switzerland for offshore investors, is coming under pressure to open its books to Western authorities worried about money laundering and tax evasion.
The city-state is in the sights of U.S. and European authorities who are broadening their attack on bank secrecy beyond such current targets as Switzerland, Luxembourg, Liechtenstein and Andorra. The tax regimes in those countries came under intense scrutiny at last month's summit of the Group of 20 industrial and developing powers.
Singapore is willing to concede on some demands but is ready to fight moves it thinks would endanger the island's status as a mecca for overseas wealth, according to people familiar with the early talks. The authorities "will negotiate long and hard" with each country individually, said a person familiar with government thinking. “Singapore won’t scare away its affluent foreigners.”
The government "will be selective about whom it negotiates with and it will in no way give the impression that bank secrecy here will be compromised," this person said. "Bank secrecy is a matter of national interest for financial centers like Singapore. Anyone who expects fast information about a foreigner with a bank account here will be disappointed."
While no definitive action against Singapore is likely this year, pressure -- mainly from the U.S, France, Germany and the U.K. -- is increasing on countries that shield information about accounts held by multinational companies and rich offshore individuals.
Along with several European private-banking centers, Singapore last month found itself on an Organization for Economic Cooperation and Development "gray list" of 38 countries that have agreed to improve transparency standards but have not signed the necessary international accords.
To comply with the new OECD rules, Singapore will need to renegotiate many of the 60 double-taxation agreements it has with other countries.
At least US$300 billion of foreign cash is managed in Singapore, and that could double in the next five years, private bankers and wealth managers estimate. The vast majority of the money belongs to wealthy Indonesians, Malaysians, Chinese and other Asians.
Some 40 institutions offer private banking in Singapore. The industry grew rapidly along with Asian wealth in 2005 and 2006. Singapore encouraged Western banks to expand here, promoting the city-state as a financial center through corporate tax cuts and other business-friendly measures.
Now European negotiators are asking Singapore to hand over the names of Europeans who open accounts in the city-state, said a senior official in Europe. Singapore's Finance Ministry declined to comment.
A French Finance Ministry official said Paris is focusing first on getting full compliance on the OECD directives from European financial centers. But "as soon as that's done, there'll be surely some work to do" with other countries on the gray list, the official said.
Beyond the pressure from Europe, Singapore - a stalwart military ally of the U.S. - is particularly sensitive to pleas from Washington.
"Frankly, Singapore believes it can withstand the pressure from the E.U.," said the person familiar the Singapore government's thinking. "But pressure from the U.S. is a different matter. Washington can push very hard, the way they did with UBS."
Swiss giant UBS AG, hit by a U.S. tax-fraud investigation into services it offered to hundreds of wealthy American clients, agreed in February to pay a $780 million fine and disclose the identity of some clients.
For now, Singapore appears to be benefiting as the spotlight on European havens sends some investors fleeing.
"At least $13 billion has landed here in the past few months, much more than the average of previous months, and a surprisingly high sum came from Europe," said a private banker in Singapore. "This money could be perfectly legal, but with the climate of fear in Europe many depositors want out. They want peace of mind."
Such inflows to Singapore might not last, however, especially when the U.S. turns its attention to the island's tax practices.
In 2007, then-Senator Barack Obama cosponsored a bill to clamp down on tax havens, including Singapore on its "blacklist" of 34 "offshore secrecy jurisdictions." The bill failed under the Bush administration, but a stronger version, backed by the Obama administration, was reintroduced to the Democratic-controlled Congress in March.
The bill provides for "special measures," including trade sanctions, against countries that remain on the blacklist, although there is no timeframe set for passing the bill and the Treasury secretary would have the right to remove countries from the list.
"Singapore will do whatever is necessary to avoid being in a blacklist. In some way that will compromise bank secrecy," said Edmund Leow, a senior tax lawyer and principal with Baker & McKenzie.Wong & Leow in Singapore. Negotiations will be tough, he said, but "foreigners who keep their money here must feel that they are not at the mercy of tax authorities back in their countries."
Until now, Singapore has refused to give overseas authorities information on foreigners’ bank-deposit interest or investment gains -- on the ground that the government cannot gather this information under domestic tax law. The government this year plans to end this "domestic interest" restriction on the data it can provide, a Finance Ministry spokesman said.
But even then, the city-state will be willing to investigate income that is not taxed locally only if there are serious, documented suspicions of tax evasion and proof that the foreign authority requesting the information cannot get it directly from the foreign investor or deposit-holder, according to people familiar with the situation.
OECD rules, the ministry spokesman said, forbid "fishing expeditions" for information and are "designed to protect the confidentiality of the information exchanged."
YOU’VE GOT MAIL – FROM NIGERIA
An updated version of the Nigerian letter scam is making the rounds, and has already tricked 13,500 U.S. victims out of as much as $40.5 million.
The infamous Nigerian "419 fraud" involved a twist on the advance-fee scam. In the generic version of the scam, in exchange for receiving some large amount of money, e.g., you have supposedly "won", the "winner" (you) first must send the offerer a (relatively) small amount of money. Of course once the advance-fee had been sent the offerer disappears.
The Nigerian 419 version offered the victim a share of some pile of money with some hokey but colorful story behind it if he/she would allow his/her bank account to be used to spirit the money pile into the offerer's hands. Now in order to get the commission/cut the victim had to first send a small fee ... etc.
A corollary scam, not just originating in Nigeria by any means, involves the victim depositing a check in his/her account, and then the depositor asking for some proportion of it back soon thereafter. Taking advantage of the long lag times before a check finally and irrevocably clears -- which is far longer than the nominal period that banks intially post a check as having “cleared” -- the checks eventually prove to be fake or unbacked. The victim is then out the funds sent to the check writer.
In a version of the scam currently making the rounds the details change a bit but the basic schema is the same: The victim becomes a "payment officer" for an offshore firm, receives a check, is asked to resend some proportion of the check amount to another offshore firm with a residual being retained as a "commission," then eventually the original check bounces. The scammers allegedly have managed to find 13,500 victims and taken them for about $40 million.
The scammers' success rate from their email spam campaign is only an estimated 0.1%, which is indicative of both the fact that most people have at least some common sense and of the economics of spam: Since sending email is free and gathering huge lists of email addresses is cheap, one only needs a tiny hit rate to make the campaign economic. This is true whether the products are legitimate or not.
What also catches our eye here is something usually not commented on by warning articles, such as the one below from Barron's. That is that the whole idea of using one's domestic U.S. account for lots of incoming and outgoing offshore transactions is totally lame-brained. Even if such transactions were being made on behalf of entirely legitimate businesses, the pattern would attract so much scrutiny that any rational person would quickly decide to cut out the U.S.-account middleman and run everything offshore. And what if it turns out the business is not legitimate? The classic 419 scam offers always sound suspicious, so say by some bizarre happenstance one ends up a net gainer from the deal. Now you have helped launder the proceeds from a crime via means which are under extensive surveillance. Think about it.
If you are feeling left out because you have not been victimized by any of the recent swindles, take heart: An updated version of Nigerian letter scams is targeting you.
It started with snail-mail and quickly became e-mail, supposedly from the Nigerian Central Bank or the National Petroleum Corporation, claiming that $45 million was located overseas and, because of complicated currency laws, they could not repatriate the money directly. So, if you would allow that sum to pass through your bank account, they would allow you to keep 1/3 as commission. The scam, named after the clause in the Nigerian Criminal Code Act that outlaws it, is forever known as "419 fraud."
Now, the fraudsters are making the most of tough times by bombarding Americans with e-mail offers to help people get out of debt, refinance mortgages and earn extra money by working at home.
Variations on this e-mail -- stilted English and all (see a portion of one) -- are circulating in the millions. This one says that a textile company is receiving orders from North America, Australia and Europe and needs "payment officers" in those areas. All the company needs is help processing the payments -- via the payment officer's bank account.
The man behind these missives is a professional fraudster in Lagos who goes by the G-mail alias Macjon. He uses at least nine other aliases through Yahoo!, Virgin.net, Btinternet and Hotmail. He also uses the same address with other fictitious companies: Crain Willis & Son, Huaxiang Group, Jaku Jenkins & Son, United Asia Trading, Anthony Smith & Son, Union Materials, European Industrial Supplies, Imperial Fabrics London, and Assorted Food Conglomerate.
If you swallow Macjon's bait, you are automatically hired. Within a week, you receive a check made out to you for $3,200 to $4,800 from a car dealer in Nevada, an oil company in Texas or even the American Bar Association in Chicago. You are instructed to deposit it, wait until it clears, then wire 90% of it to someone designated by Macjon, usually in the Philippines. Your bank makes the money available within a few days, but invariably, once you have sent the 90%, Macjon's check bounces back as counterfeit.
Investigators in the U.K. who are tracking him note that, since December 1, 2008, Macjon has targeted 13.5 million Americans with the work-at-home e-mail scam. Investigators estimate his success rate at around 0.1%. That is 13,500 victims from whom he has stolen as much as $40.5 million.
Frighteningly, Macjon is merely one of about 100 modern-day 419ers plying the trade. He and the others buy American e-mail address lists from about a dozen U.S. based "lead sellers." In this case, it was Beginmarketing.com, based in Broomall, Pennsylvania. Prices are negotiable, but 5 million addresses can go for as little as a few hundred bucks. Beginmarketing also transmitted several million of the RM Fabrics' e-mails on behalf of Macjon. The man behind Beginmarketing, Michael Flores, denies any wrongdoing.
In fact, there are no requirements that lead sellers know their clients or, for that matter, care. The Federal Trade Commission, which might otherwise be able to do something about this, is a toothless tiger. It has a Website filled with warnings about e-mail fraud, but its protection is only for commercial messages to consumers. These messages do not fit that category, because they are not offering goods or services, says a spokesperson. The U.S. Secret Service, which used to aggressively track Nigerian scammers, no longer updates its database of 419 scam letters as regularly, owing to budgetary constraints and manpower issues. The Secret Service would -- and does -- arrest anyone sending fraudulent e-mails if it comes upon them. But it is not nearly as active in pursuing these cases as it once was.
Most lead sellers give lip service on their websites to propriety, stating that they refuse to sell through third parties or to deal with businesses that do not have a website. Yet they do business with Macjon, who pays through third parties and whose phony companies do not have websites.
Don Reid, an Australian who runs Apacheleads.com, purportedly out of North Carolina, admits to doing business with Macjon. Reached by phone in Australia, he says, "We don’t know who these people are."
Yet, on December 20, 2008, when someone signing e-mails "LeadGuy" at Apacheleads.com contacted Macjon, offering a 2-for-1 sale of lists, he demanded the following from the Nigerian: "You need to pay with Western Union, none of your stolen cards ... okay? Don’t ask me for any other payment method or for free samples. The answer is no on both. You tried to steal from me with a stolen card in the past, so we will only take Western Union from you."
Hearing that e-mail quoted, Reid mumbled, “I’m out of here,” and hung up.
TAXING A VIRTUAL PRESENCE
Internet users do not like paying for news or music. Why should they want to pay sales tax?
Under the U.S. Constitution, as interpreted by the court solons, an online retailer such as Amazon cannot be required to collect sales tax in a state unless it has some sort of legal nexus to the state. Amazon is headquartered in Seattle and has warehouses in Kansas, Kentucky and North Dakota. Ergo it is required to collect a sales tax on shipments to residents those four states. What about the other states?
States and competitors to online retailers have long fumed about the lost revenues or unfair advantages enjoyed by the later from not having to collect a sales tax, which, technically speaking, is actually paid by the purchaser and merely collected by the retailer. Now the state of New York has gotten its nose in under the tent.
New York argued that Amazon's “affiliates” -- those parties who via customized URLs collect commissions on sales referrals to Amazon -- were sales representatives, which was sufficient to constitute a legal nexus. New York's legislators -- surprise, surprise -- liked this interpretation of things. The law is being appealed, but the consensus of legal experts is that the courts are likely to uphold the law. Amazon started collecting the tax from New York sales, while retailer Overstock.com ended its affiliate program rather than collect the tax.
Internet buyers will not like paying the new tax, of course. On the margin one would expect some substitution from online to brick & mortar sales. In theory the same laws would apply to offshore retailers with affiliate marketing programs. Enforcement there would be another matter.
When online companies such as Amazon pioneered the automated sales commission system known as "affiliate marketing," were they being too clever for their own good? Amazon's brick-and-mortar competitors sure hope so. They have made the Web retailer's use of the technique Exhibit A in their efforts to end one of the small pleasures of online shopping by forcing Amazon to collect sales taxes.
Affiliate marketing is the practice by which a Web retailer pays a commission to smaller sites that send it business. When bloggers recommend a book to their readers and then provide a link to the volume on, say, Amazon, they become affiliate marketers and thereby receive a cut of the sales -- up to 15%.
Hover over one of these recommendation links, then look at the long URL at the bottom left of your browser. The seemingly random string of numbers and letters instructs Amazon's computer, telling it to credit the appropriate account if a sale gets made.
It is a win for all concerned. The Amazons of the world get customers without incurring marketing expenses. Small Web sites can pick up some pocket change to help defray expenses. (In sleazier regions of the Web, like gambling and porn, the amounts offered for referred business are substantial. That is why a large percentage of all spam e-mails are from aspiring affiliate marketers.)
Most Web retailers make it simple to sign up as an affiliate marketer. Amazon, a pioneer in the technique, has tens of thousands of them, dispersed in every part of the country. Which, when it comes to the sales tax issue, is precisely Amazon's problem.
Constitutional law holds that an online retailer such as Amazon cannot be required to collect sales tax in a state unless it has some sort of connection to the state, called a "nexus." Since Amazon's headquarters are in Seattle, it is required to collect a sales tax on shipments to residents of Washington. The same holds for Kansas, Kentucky and North Dakota, where Amazon has warehouses.
In the rest of the country Amazon shoppers can buy books and the like tax free. That has been a sore point for the kind of bookstores that you walk into. They have complained almost from the beginning that Amazon is getting an unfair competitive advantage by not having to collect the tax. The operative word here is "collect," as opposed to "pay," and the difference is key to the bookstores' arguments. One can make an argument that it would not be fair to require Amazon to pay a local sales tax when it gets no local benefit from the tax, such as police or fire protection. But the stores are not paying the tax; they are merely collecting it from shoppers.
That might seem like a distinction without a difference, but a "use tax" equal to the sales tax is owed by mail-order shoppers in places like California and New York who have not already paid through the vendor. Many states now have lines on their tax forms on which residents are supposed to confess to how much out-of-state shopping they have done.
The Supreme Court's definition of "nexus" is broad. A famous (for tax attorneys, at least) decision is the 1960 Scripto case, in which the court ruled that the Georgia penmaker could be required to collect sales taxes in Florida because of the independent contractors working as its part-time sales reps there. The court reached a similar conclusion in a 1987 case involving Tyler Pipe.
Now, with Web sales increasing and sales tax receipts plummeting in the recession, state and county tax officials are beginning to ask: What is an Internet affiliate, if not a part-time sales rep? And if it is a sales rep, can we make the parent company collect sales tax? New York's legislature took that tack last year, forcing Amazon to begin collecting New York sales tax. Retailer Overstock.com ended its affiliate program rather than collect the tax.
The New York law has so far been upheld in the courts, one reason that six other states are considering taking the same step. Appeals in New York are continuing, though tax law experts say the law seems to be on the side of the states.
The politics is another matter. Tax increases, especially in tough times, are never popular, and New York legislators got scathing notices for their move with Amazon. A new tax involving the Web is especially hard to swallow, since a culture of "free" has grown up along with the Web. Internet users don't like paying for news or for music; why should they want to pay sales tax?
They may well end up having no choice. Mail-order firms cannot offer the argument that keeping track of myriad tax rates and exemptions is an unfair burden on interstate commerce. If a computer can keep track of 10,000 affiliates, it can figure out whether caviar is exempt in California.
U.S. CONGRESSMAN INTRODUCES A NEW BILL TO LEGALIZE ONLINE GAMBLING
U.S. Representative Barney Frank has introduced a bill to allow online gambling to be legalized and regulated in the U.S. This would be a rational alternative compared to the “War on Online Gambling” approach taken by (so-called) conservatives in the past, which has been about as successful as all other prohibition attempts ... that is to say not very.
Frank's bill proposes safeguards against money laundering, identity theft and other misconduct. One might expect the Las Vegas casinos and the like to get into the online gambling business post-legalization, which would meet the offshore sites would be in for tougher competition than before.
They have already been burned once by Congress, but investors in online gambling companies stocks think Lady Luck is finally on their side now that Rep. Barney Frank is introducing a bill to propose that online gambling be legalized and regulated in the United States.
Getting the bill through the Senate will be the hardest part, according to Joe Kelly of the State College of Buffalo. But success could mean publicly traded firms outside the U.S. can re-enter the market after a 2006 law prohibiting online gambling by Americans booted them out.
Wednesday's (May 6) rally [in gaming stocks] surprised Nick Batram, an analyst with KBC Peel Hunt in London, since investors have known for some time that Frank would be tabling a bill this week. He said there were also wide-ranging views of how quickly a successful bill could become law, with estimates in the industry ranging from six months to six years
“A lot of people are saying the political balance in the U.S. has changed quite dramatically which gives pro-gaming a better chance,” he said. “But it is an extremely complex matter and people feel very strongly about it.” Anti-gaming lobby groups appear to have been stepping up their activities in the last few weeks, Batram added.
There have been four unsuccessful bills to legalize online gambling in the last session of Congress, but Frank's is the first being tabled under the Obama administration, giving it a better chance than past bills. Kelly of the State College of Buffalo says “prohibition” has proved unworkable because it only replaced publicly traded companies with those that do not answer to regulators.
Frank's bill will ... propose safeguards against compulsive and underage gambling, money laundering, fraud and identity theft, according to the Safe and Secure Internet Gambling Initiative, which says that Americans have wagered more than $100 billion annually with offshore Internet gambling operators in spite of the Unlawful Internet Gambling Enforcement Act of 2006.
Some of the most popular poker sites for Americans are FullTiltPoker.com and PokerStars, according to PokerScout.com. Publicly traded gambling firms like PartyGaming and 888 Holdings by contrast pulled out of the United States after the passing of the 2006 act.
But PartyGaming's shares probably will not reach the historic highs they once enjoyed before the outlaw act of 2006, even if online gambling in the U.S. is legalized. “It will be a challenge because it will be a different market, full of opportunity but full of much bigger competitors as well,” Batram said. While large, land-based casino operators like MGM Mirage have not entered the online gambling arena just yet, they might once the practice is legalized.
Online gambling made billionaires out of entrepreneurs like PartyGaming founder Anurag Dikshit (pronounced Dixit) and Bodog founder Calvin Ayre. While Dikshi has remained on the Forbes billionaires list for 2009, Ayre has dropped off. Both have carefully avoided coming into contact with American authorities.
Prudent practices on their parts.
AMERICA LIVES IN A FASCIST STATE, SAYS GERALD CELENTE
State-controlled capitalism is called fascism, and fascism has come to America in broad daylight. Mussolini would approve.
Gerald Celente, the founder of the Trends Research Institute and publisher of Trends Journal, is interviewed in -- of all places -- Russia Today. He diagnoses the corporate/government axis as "plain and simple fascism," and calls for a "revolution," details of which he promises are forthcoming.
"Fabian" is an adjective deriving from the Roman general Quintus Fabius Maximus, "the Delayer," who successfully wore down Carthaginian invader Hannibal via a war of attrition. George Washington was a student of Fabius's. The Fabian Society is a British intellectual movement whose purpose is to advance socialism via gradualist means, which often entails the use of subterfuge. The history of the American economy might be called "Fabian Facism," as government in concert with special interests have taken control of the economy one edict at a time. The strategy demands patience -- a willingness to gradually and relentlessly grind down the opposition.
Eventually the Romans were able to finally defeat Hannibal in a direct confrontation and win the war. It appears the forces of fascism are pressing for a similar final victory.
The merger of corporate and government powers in modern America is plain and simple fascism, believes Gerald Celente, the founder of the Trends Research Institute and publisher of Trends Journal.
Celente takes an in-depth look at what AIG and Goldman Sachs really are and the people behind them; explains the policies of the Obama’s administration, and the moral basis for a forthcoming new American Revolution.
Russia Today: I would like to begin by talking about the Treasury department. They have decided to extend bailout funds to a number of struggling life insurance policies. This is in addition to the auto industry and the banks. Do you think Americans are aware of what is going on?
Gerald Celente: They know about it, it is a new trend. America is going from what used to be the major capitalistic country in the world of free market -- a crusader -- into what Mussolini would have called fascism: the merger of state and corporate powers. So it is not socialism as people believe, it is socialism's egalitarianism. It is not communism where the state controls monopolies -- it is fascism, plain and simple. The merger of corporate and government powers. State-controlled capitalism is called fascism, and fascism has come to America in broad daylight. But they are feeding them it in little bits and pieces. First AIG was too big to fail. Mortgage companies Fannie Mae and Freddie Mac were too big to fail. Banks too big to fail and auto companies. And now we give money to the people that make the auto parts. And now there is talk about the technology companies, wanting their piece of the action. The merger of state and government is called fascism. Take it from Mussolini. He knew a thing or two about it.
What can Americans do if they are opposed to the road that government officials are bringing them down?
The people do not really have a choice, there is no ballot box. I am of Italian descent and I have heard enough of mafia stories for the rest of my life. If you want to look at a mafia, you can call it a republican and democratic party. And if you want to look at the two families, the heads of the mafia, all you have to do is to look at the Bushes and the Clintons. They have been running the show now for some 24 years. We heard about Obama who is going to bring in "change." A change you could believe in if he is dumb, stupid and blind. Look who he has brought in as his chief policy makers. Retreads from the old Clinton administration. It is a 2-headed 1-party system. So it is very difficult for the people to vote in a new administration that is not part of the old one.
Can you tell me one thing that you like about President Obama?
In the Trends Journal, the top trends of 2009, one of our trends was that people are going to be putting out "recession gardens." And now as we see the Obamas, they are planting their own garden, and that trend is taking hold. So he is doing that in positive ways, he is bringing an element of dignity back to society. Those are positives. But now let me look at whether it is true or hypocrisy. So, they are talking about planting their own gardens. And they are talking about buying local. Oh, all that is wonderful, but on the other side of the coin they are pushing genetically modified foods while they are eating organic. So it is like "let them eat Frankenfoods" -- this is the message. So I see hypocrisy at every level. When they show me truth and justice, and the real American way -- then I will believe.
If I revert to our previous interview, I asked you -- "what kind of revolution do you think would happen and when, and why would it happen?" and you said there would be a tax revolt. And now we are hearing more and more about these "tea parties." What do you make of that? Do you think that that is just the first action and many actions to follow from the American public?
There is going to be a lot more. This is just a beginning. As a Bronx boy, my saying is: "when people lose everything and they have nothing left to lose -- they lose it."
You are gonna start see people taking to the streets, like they do in other countries. People have had it, they are fed up. They cannot afford it anymore. Look at what is going on. Ten major states are raising taxes again as people are losing their jobs, income is going down, they are losing their pensions, they are losing their investments -- and the government is saying: more taxes, more taxes, more taxes ...
At the same time, what is happening is, on the top, they are changing the regulations so the thieves could steal more, just as they did with the new banking act. They call it mark-to-market. So it is now allowing them to do rather than putting the real loss of their assets -- the toxic assets that they are holding -- they are letting them make up what they want! Come up with fictitious numbers and you are going to start seeing "bank stocks going up again."
It is fake, and what they are doing is they are changing the regulations on the top so the big thieves could steal more, while they clamping down on the little people -- and the little people have had it.
These stimulus plans, both with former President Bush and with President Obama, were rushed through so quickly and you make a comparison to the way that the U.S. launched the War on Iraq with the same urgency of the plans.
They push it through so that people are kept off guard -- they put fear into the people's hearts. Remember the mushroom cloud that was going to explode if we did not do it very quickly with Iraq? And remember the financial system was going to collapse if we did not save AIG? And who ever knew the AIG was, to begin with?! "What's an AIG?! I've never heard of one before!" most people would say.
When the AIG plan was rushed through, the only person outside of the Federal Reserve and Washington to sit on that AIG bailout was Lloyd Blankfein, the CEO of Goldman Sachs. Goldman Sachs got $13 billion of taxpayer money so that they would not take the loss of the AIG bailout because they bet bad with AIG.
And who was the Treasury Secretary at the time? Former CEO of Goldman Sachs Henry Paulson. Oh, and who did Obama bring in to run AIG now for the government? Ed Liddy. And where is Ed Liddy from? Goldman Sachs. The fix is in, the game is rigged. Forget about calling this "government," Wall Street has hijacked Washington.
So now what?
We need a revolution. And we are going to talk about that more in the future. And we are going to be announcing our plans for the revolution in the coming weeks. And it is going to be much greater than the tea parties or the tax revolts.
My morality, the way I was raised, there are two things in the moral code that are against everything that I was taught. The first is that you do not kill innocent people, and the U.S. is involved in killing innocent people both in Iraq and Afghanistan. The facts speak for themselves. It has been proven that Saddam Hussein did not have weapons of mass destruction, nor ties to Al-Qaeda. Yet the U.S. is still waging war in Iraq. Number two, this whole thing about Afghanistan, taking over the country for whatever reasons, and the Russians know it even better than the Americans, and the English knew it before the Russians -- this has been going on and on. The Afghani people have done nothing to the Americans. And now President Obama has sent another 21,000 troops into Afghanistan. So, killing innocent people is against my morality.
The second part of the revolution, why we are calling for revolution is that we are getting robbed in broad daylight. The numbers and facts we have discussed speak for themselves. They are pick-pocketing the little people to pay off the big guys. This is against everything that has ever been taught to us in this country growing up as a free market society. It is fascism.
When somebody calls you a gloom-and-doomer, somebody that is scaring the public ... what is your response to that?
My response is suppose you go to a doctor as if you feel that something is really wrong with you and the doctor gives you a diagnosis and this diagnosis is maybe cancer. Do you call the doctor a gloom-and-doomer? It is the fact, people better grow up. The ship has hit the iceberg and it is sinking.
We are telling people, just as the doctor would tell a patient, "Look, there are ways out of it but first we have to recognize what the disease is. And then we are going to have to be very inventive about trying to attack it in a number of different ways. We could go through complementary medicine, we could go through traditional… we could even go through a combination of things." But you respect what the doctor is saying, and you do not call him a gloom-and-doomer. It is a childish response that people have that want to believe that they have a new leader, and that the new leader would lead them down the yellow brick road of happiness. Rather than understanding that there is nobody behind the curtain. It is the Wizard of Oz. They had better grow up; nobody is going to save them.
So, we put out the information, we are saying: "This is the direction things are going in. This is where we believe they are going to end up. Here are some strategies to consider so you do not go down with the ship."
WHY THE WEST IS BOYLE’D
The West still has no idea what kind of trouble it is in
Scottish singer Susan Boyle became an insta-celebrity by winning the British version of American Idol, which is basically a popularity contest. How good a singer is she, really? Not that good, according to David "Spengler" Goldman.
Meanwhile countless East Asia counterparts to Susan Boyle are working and training very hard as they fight their way to the top of the entertainment world. The filtering mechanism there is most decidedly not the acclaim of the masses. "Most of the up-and-coming East Asian concert artists have a keen sense of classical style, and some show deep insight into Western music."
Who would we expect to dominate the upper echelons of the music business in the longer term? To ask the question is to answer it. "Spengler" sees the whole story as a metaphor for the deeply entrenched problems faced by the West.
Singer Susan Boyle, our latest instant celebrity, reminds me of any number of singers I conducted in amateur renditions of the easier Schubert or Haydn masses, or the sort of matron who sings "Katti-Shaw" or "Buttercup" in the local Gilbert and Sullivan production. Musical talent springs up like grass, and engaging voices are a dollar a dozen. That Boyle has come to embody the triumph of ordinary people over obscurity, complete with invitations to appear on Oprah and Larry King, is disheartening. The popular audience in the West likes to validate its own mediocrity, and crowns stars-for-a-day.
"In a time of economic strife and stress, she came out of nowhere to make us smile and maybe even shed a congratulatory tear or two for someone who had finally fulfilled a life-long dream. Hey, we all have our dreams, right?" gushed Steve Rosen at the Kansas City Star newspaper on April 17, in a variation of a theme that has appeared in numberless versions in the media.
Meanwhile, in China, 60 million children are learning Western classical music under the gimlet gaze of strict teachers. East Asian singers, particularly Koreans, are working their way up the ranks of provincial opera companies, and every one of them sings better than Boyle. Who do you think is going to run the world 20 years from now? As the Italians say, we are bolliti, "boiled." Now we can spell it with a "y". I hate to always be the one to say this, but the hope is fatuous. No, you cannot.
There is an undercurrent of self-worship in the aptly-named American Idol and its British knockoff, which lifted Boyle to stardom. As I wrote some years ago (American Idolatry, August 29, 2006), at some time during the 20th century, the people of the West elected to identify with what is like them, rather than emulate what is above them.
Churlish resentment of high culture comes from the slacker's desire for reward with neither merit nor effort: The sort of artistic skill that requires years of discipline and sacrifice is a reproach to the indolence of the popular audience of the West. Better voices than Boyle's can be found in a thousand choirs and amateur theatricals, but the crowd has embraced this late-hatching Scottish songbird as a symbol of its own aspirations.
With no prejudice to Boyle, who seems amused rather than beguiled by her success, the fantasy-life of nations has consequences in the real world. In China, as I observed in a recent essay (China's six-to-one advantage over the US, December 2, 2008), nearly 40 million children study classical piano, and another 15 million or so learn to play stringed instruments. Nearly 60 million young Chinese in all are learning Western classical music, and learning it the hard way, under teachers who demand mastery of technique, paid by parents who have scraped together tuition and demand regular practice. 60 million is a big number, considering that there are only 30 million Americans aged five to 18. Of these, perhaps 5 or 6 million study piano, but few with the intensity of their Chinese counterparts.
A century ago, middle-class Western girls learned piano to make them more marriageable. Chinese children learn piano because their canny parents know that it will make them more likely to succeed academically, and make considerable sacrifices to pay for lessons. Of course, a few Chinese become concert artists. At the music conservatory on whose board I serve, the best instrumentalists usually are East Asian or Eastern European, with the occasional Israeli thrown in. Most of the up-and-coming East Asian concert artists have a keen sense of classical style, and some show deep insight into Western music.
As a Wall Street executive, I had many opportunities to compare Western and East Asian job candidates. Invariably the Chinese candidate would come in with a doctorate in a quantitative field, keen entrepreneurial instincts, and an exemplary work ethic. Usually he or she would wind up crunching numbers for an American frat boy who glad-handed the customers, earning a small fraction of the frat boy's pay. There were exceptions. The government trading desk of one of Wall Street's most successful shops was run by a Chinese woman who came to America to study ballet, and who played Mozart piano concertos with orchestra as a hobby. For the most part, though, the Chinese blended into the wallpaper and never had a chance at the big money.
Now the frat boys have less to do, for "salesmanship" has become a dirty word in the financial industry. The first trillionaires well might be entrepreneurs like Wang Chuan-fu of the battery company BYD, which might just launch the first successful mass-market electric car. The smartest Western kids went to business and law school, while Wang learned science at a provincial Chinese university.
Boyle's stardom might prompt a closer look at the little Scottish town of Blackburn in West Lothian whence she hails, and, more generally, the state of the formerly industrial towns of Britain's north. There is life after economic death, but it is not pleasant. Few places in the West are more disheartening. Young people have nothing to look forward to but a weekly Walpurgisnacht.
The local newspapers print thick advertising supplements about clubbing, which seems to be the mainstay of the local economy. On Friday or Saturday night, besotted boys and girls in extreme states of dishabille riot through whole quarters of ruined industrial towns. A good deal of Britain's working class is unemployable at any price, too lazy to move to London to take the jobs waiting tables or driving buses that bring Spaniards or Frenchmen to the British capital.
A generation of Americans learned the wrong jobs.
A generation of Americans learned the wrong jobs: selling real estate, processing mortgages, and selling cheap imports from China at shopping malls. The cleverest among them got business degrees and learned to trade derivatives. Their services will no longer be required. On paper, it is obvious what America needs to do. Its economy went into free fall because everyone cut back spending at the same time in response to the crash of asset prices. The aging Baby Boomers need to save for their retirement, or retire later, now that their home equity has vanished along with the contents of their 401(k) plans. The only way for everyone to save at the same time without crashing the economy is to export, just as China does.
That works well enough on paper, but what are Americans to export? Not electric cars, it would appear. Warren Buffett is not buying General Motors these days, but he did put down over $200 million for 1/10 of BYD, China's contender in the electric-car sweepstakes. China requires nuclear power plants -- it will install three a year for the next quarter-century -- but America shut down its nuclear industry some time ago. There is always Caterpillar, but the field of heavy earth-moving and construction equipment now is dominated by Japanese and German engineering, as a quick tour of the diggings for New York's Second Avenue Subway make clear. America cannot even provide the capital equipment for its own infrastructure projects, let alone for China's.
That Wall Street frat boys are in trouble is not a controversial statement. Top-of-the-market bubble behavior no longer is encouraged. Not long from now, they will be lucky to find employment getting coffee for a Chinese (or Indian) boss. The bubble accounted for so much of America's employment down the food chain, though, that many millions of American jobs may vanish. This is particularly painful for prospective pensioners who find themselves in need of employment, for just the sort of jobs that suit older people -- part-time retail work, for example, or real estate -- are the first to disappear. America might find itself with millions of indigent elderly.
If BYD's electric car takes the jackpot rather than General Motor's much-heralded "Volt", Detroit may never come back, and the American automobile industry may shrink to a skeletal remnant of itself, like Britain's. A number of American rustbelt cities, including Detroit and Cleveland, have shrunk to less than half of their peak population, but the same might be true for the suburban sprawl of parts of the Sunbelt.
The day is gone when a smile and a shoeshine will get you a shot at the American dream, but a smile and a song still will get you a chance at instant stardom. That is the message of hope that Susan Boyle bears to the beleaguered audience of the Anglo-Saxon world. In fact, her own little corner of Britain is living proof that hope may be entirely in vain. Whole parts of the industrial world never will come back. Nothing can resuscitate the north of Britain from industrial ruin, and portions of the United States appear likely to follow.
China's thrift, industry and diligence are qualities born of long experience with hard times. The terrible suffering of the 19th and 20th centuries left every Chinese parent with the conviction that the world shows no mercy to mediocrity. They have less tolerance for fantasy than their Western counterparts. Reality has intruded on their lives for generations to the point that they are ready to meet it head on. Enough of them devote their lives to making their children excel as to produce an army of hothouse wonders so large as to swamp whatever competition the West might send against them. If Westerners think the present recession is unpleasant, they cannot begin to imagine how the recovery will look, for it may occur entirely remote to them, on the other side of the world.
It is harder and harder to dismiss the awful thought that Americans, too, might require long experience with hard times to restore the sort of diligence that their Chinese counterparts learned at such a high price.
China has “canceled U.S. credit card,” says lawmaker.
China, wary of the troubled U.S. economy, has already "canceled America's credit card" by cutting down purchases of debt, a U.S. congressman said ...
China has the world's largest foreign reserves, believed to be mostly in dollars, along with around 800 billion dollars in US Treasury bonds, more than any other country. But Treasury Department data shows that investors in China have sharply curtailed their purchases of bonds in January and February.
Representative Mark Kirk, a member of the House Appropriations Committee and co-chair of a group of lawmakers promoting relations with Beijing, said China had "very legitimate" concerns about its investments.
"It would appear, quietly and with deference and politeness, that China has canceled America's credit card," Kirk told the Committee of 100, a Chinese-American group. "I am not sure too many people on Capitol Hill realize that this is now happening."
The Republican lawmaker said that China was justified in concerns about returns from finance giants Fannie Mae and Freddie Mac, which were bailed out by the U.S. government due to the financial crisis. Kirk said he was the first member of Congress to tour the Bureau of Public Debt, which trades bonds, and was alarmed at how much debt was being bought by the U.S. Federal Reserve due to absence of foreign investors.
"There will come a time where the lack of Chinese participation may have a significant impact," Kirk said. "We should track that, because up until last month they were the number one provider of currency to the United States and now they are gone."
With China's economy also hit by the global economic crisis, Premier Wen Jiabao has openly voiced concern about the status of his country's investments in the United States. China has also floated replacing the dollar as the key international currency with a basket of units bringing in the euro, sterling and yen.
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