Offshore News Digest for Week of March 5, 2001

IS THE US TREASURY DEPARTMENT POISED TO DISTANCE ITSELF FROM OECD BLACKLIST?

It seems that Treasury Secretary Paul O’Neill’s carefully balanced remarks made after the Palermo G7 summit on the subject of the OECD’s “unfair tax competition” initiative reflect a lively debate within the Treasury Department on the wisdom of continuing to support all aspects of the OECD's campaign.

As is the case with most national revenue-raising authorities, the permanent officials in the Treasury Dept are “slash-and-burn” taxation junkies, and are fully on board the OECD's fiscal juggernaut. During the Democrat administration which has just ended, they and their political masters shared the same agenda - but now they face an anti-tax right-wing administration, and they will not find it so easy to continue with international policies designed to protect the tax base in rich countries through a program of what has been called “fiscal colonialism” aimed at discomfiting the offshore tax havens.

In internal discussions, Treasury Secretary Paul O’Neill is said to have been sceptical about the OECD’s campaign. Treasury Secretaries, especially new ones, do not always find it easy to be aware of what is going on down in the engine room, and senior Republican legislators, as well as Washington lobbyists, have been making sure that the new Secretary is well aware of what is happening in his domain through a series of letters and active press coverage.

EU COMMISSION TO BOOST TAX COMPETITION

The European Commission is moving ahead with its mid- and long-term goal to converge EU corporate tax rates, the EU's internal market commissioner, Frits Bolkestein, told the Frankfurter Allgemeine Zeitung on Thursday.

To achieve this goal, the Commission plans to harmonize its basis for measuring corporate taxes in the European Union. This will make comparison of the effective tax rates among EU member states easier and thus increase the tax competition among them.

"Taxes should be raised on a similar basis," Mr. Bolkestein said. "Then we will see what happens to tax rates." Mr. Bolkestein, however, ruled out an immediate alignment of corporate tax rates. That is the domain of the member countries and their parliaments, he said.

"I will not dictate to Germany's parliament what corporate tax rates are to apply there," he said. But no one could object to a "moderate amount of tax competition," said the member of the Dutch liberal party, VVS.

Another group of EU commissioners headed by French EU Trade Commissioner Pascal Lamy want to go a step further and are calling for the EU to enact minimum tax guidelines.

The Commission plans to present its findings for discussion at the informal meeting of EU finance ministers in Malmo, Sweden, at the end of April.

PLOY INTIMIDATES UGANDA VOTERS?

The East African nation of Uganda will use face-recognition technology to reduce fraud in its upcoming presidential election, but one expert cautioned that the software could serve a more nefarious end.

Massachusetts-based Viisage Technology, Inc. announced Tuesday that it won a contract with the Ugandan government to scan the faces of its 10 million registered voters.

The technology works by comparing a photograph taken of voters at voter registration offices with a second taken at the polling booths, Viisage CEO Tom Colatosti said.

"This weeds out the people who are trying to vote twice," Colatosti said. "The face is converted into 128 vectors to measure the facial characteristics, including the slope of the nose, fullness of lips, and distance between the eyes."

It is the same technology used to scan the faces of fans at Super Bowl XXXV, where the software surreptitiously recorded the faces of everyone entering the stadium and compared them with criminal mugs in a police control room.

CHINA’S NEW “PURIFYING” SOFTWARE

The Ministry of Public Security has released new software designed to keep "cults, sex and violence" off the Internet in China, a police official said.

"The software, Internet Police 110, was released yesterday. It will prevent users from getting unhealthy information from foreign and domestic websites," he said. It was unclear whether installation of the program would be mandatory.

"I believe it will help purify China's Internet service," the official said of the software, named for the emergency police telephone number.

The software -- which comes in three versions for households, Internet cafes and schools -- can also monitor Web traffic and delete or block messages from sources deemed offensive, he said.

China routinely blocks Web sites of Western media outlets, human rights groups, the Falun Gong spiritual group, Tibetan exiles and other sources of information it deems politically sensitive or harmful.

China, which has embraced the Internet as a tool of commerce and education, issued a number of new regulations last year governing news, website content, chat rooms and e-mail.

In October, it published sweeping new regulations on Internet companies, limiting foreign investment and content, and requiring strict surveillance against "subversive" content.

But groups including dissidents and Falun Gong -- banned in China as an "evil cult" -- have used proxy addresses and other sophisticated methods to overcome Internet site blocks.

GLOBAL CRACKDOWN NEEDED

G8 ministers call for major fight against Internet crime.

Justice and interior ministers from the world’s leading industrialized nations are urging a global crackdown against crime and child pornography on the Internet.

THE GROUP OF EIGHT ministers said while the Internet had brought many benefits, the rise of hi-tech crime was worrying.

"We urge that a solution be found to locate and identify criminals who use network communications for illegal purposes," said a final statement after their meeting in Milan.

"We stress in particular the alarming expansion of child sexual exploitation...online," the statement said.

Japanese parliamentarians say their country is among the largest markets for child pornography, with a large chunk of Internet pornography produced there.

The G8 ministers welcomed Japan’s initiative to review the problem and to host the second World Congress Against Commercial Sexual Exploitation of Children in Yokohama in December.

The ministers expressed support for the Lyon group of experts on transnational organized crime, set up by the G8 in 1996 to cooperate against high-tech crime.

They also urged the finalization of a draft Council of Europe convention on cyber crime. The Council has been working for more than a decade on the treaty, which U.S. civil liberties groups have criticized as infringing individual privacy.

INTERNET BUSINESS BOOM FOR THE MAFIA

The group urged experts to set up a G8 database to allow countries to pool their resources on fighting crime on the Internet, which has opened borders and OPPORTUNITY for criminal groups such as the Sicilian Mafia.

The ministers also discussed illegal migration, human trafficking and xenophobia.

Italian Interior Minister Enzo Bianco said the EU needed a common border police to combat illegal immigration and called for more cooperation with the migrants’ home countries and transit countries.

Immigration, racism and xenophobia have become increasingly emotive issues as the rise of the far right in Europe sits uncomfortably with waves of would-be immigrants fleeing oppression or seeking a better life.

The Milan meeting, which also touched on drug trafficking and money laundering, urged the implementation of an ambitious U.N. treaty against organized crime signed in Palermo last year.

The G8: Russia, Britain, Canada, France, Germany, Italy, Japan and the United States, holds a summit in Genoa in July.

AUSTRALIANS PROSECUTE HACKERS AS TERRORISTS

Australians are in favor of the British Government's recent move to broaden the definition of terrorism to include computer hacking and believe cyber-terrorists should be prosecuted accordingly, according to a ZDNet survey.

Hackers have become terrorists under U.K. law following the passage of The Terrorism Act 2000, which recognises the new threat from cyber-terrorists for the first time.

Under the Act, the definition of terrorism includes those actions that "seriously interfere with or seriously disrupt an electronic system" and only when they are "designed to influence the government or to intimidate the public," ZDNet U.K. reported.

Over half of 600 Australian ZDNet readers questioned in a recent survey said they thought that Australia should follow the U.K.'s lead and catch out computer hackers.

However, civil liberties group Electronic Frontiers Australia (EFA) said it would be concerned about the way in which any such legislation would be written.

The problem lies in the definition of what's hacking and what's cracking, according to EFA executive director Irene Graham said.

"We [EFA] support the view that there needs to be legislation in place that makes interfering with other people's Web sites illegal," Graham said. "At the end of the day it really comes down to intent."

EFA said it supports the view that cracking is illegal where its done with malicious intent as distinct from well intentioned hacking - where people are testing to see if certain systems are secure.

"Any such legislation in Australia would have to be carefully drafted so it didn't have unintended consequences," Graham said.

AUSTRALIA GOES STARK RAVING MAD OVER NET CENSORSHIP

The South Australia Parliament is pushing an Internet censorship bill that will make it an offence for anyone to post any information deemed offensive to children anywhere on the Internet. And it's the police that get to decide what is and isn't offensive.

In what is clearly politicians gone barking mad, fines of up to $10,000 can be levied against any individual that posts material seen as unsuitable for minors. The country's film certification system will be used to rate how strong material is - but the police will NOT have to go through an independent adjudicator, they can decide themselves whether the posting breaks the law.

It is expected that the Bill will be pulled into all other Australian states' legislation in the future.

The basic premise of the legislation appears to be that since kids are able to access Internet sites at any time, then everything on the Internet ought to be acceptable to children. This is clearly bonkers thinking seeing as Australia's laws will have no effect on the rest of the world - which contains more than its fair share of "unsuitable" material. Unless of course Australia is thinking of going China's route and running ISPs through the government and blocking any sites outside the country.

Even crazier is that removal of the content is no defence to the legislation. If it goes up at all, you are guilty. The only exception is ISPs - otherwise the entire Internet in Australia would grind to a halt.

TWO FACED O.E.C.D. HEAD “DAMNED MAD”

PARIS, March 1. OECD head Donald JOHNSTON lashed out angrily against accusations his agency is bullying haven nations, saying "Frankly, I'm damn mad".

His dyspepsia was prompted by the leak of a secret OECD memo revealing plans to stiff haven nations after an OECD promise of cooperation, which was denounced by Don McKINNON, head of the British Commonwealth nations.

SICK OF THE O.E.C.D.

DOUGLAS, Isle of Man. Charles CAINE, distinguished editor of Offshore Finance, writes: "We are all heartily sick of the OECD nonsense that has pursued us for the last 2 and 1/2 years. We are sick of the cynical political agenda, the sheer hypocrisy, the technical incompetence, and the transparent agenda." For more of this intriguing analysis go here.

OFFSHORE TRUST PROVIDERS ARRESTED

Federal tax agents raided offices across the U.S. Wednesday and arrested four leaders of what the US Justice Dept. described as a money laundering and tax evasion operation using offshore trusts. The undercover operation nabbed persons who claimed they were "too clever" ever to be caught. Interesting detailed NBC story here and here.

The arrests follow the sentencing of a California couple who helped clients evade at least $13.8 million in US income taxes.

More information about the continuing IRS crackdown on "abusive" trusts and "abusive" tax shelters here.

MONEY LAUNDERING NEWS

ZURICH. The Swiss have signed yet another EU treaty aimed at money laundering and bribery.

And a new book accuses a major LUXEMBOURG financial firm, Clearstream Banking SA, of money laundering.

SWISS SCHIZOPHRENIA

ZURICH. Swiss leaders can't make up their minds; do they want to continue to be Swiss, or should they sell out to the EU and UN.

GRENADA BANK PROBE

St. GEORGE'S, Grenada. The government has appointed the international accounting firm, PriceWaterhouse to probe the demise of the country's largest offshore bank, The First International Bank of Grenada.

MILOSEVIC GOLD

BELGRADE, Yugoslavia. Ex-president Slobodan Milosevic may have sent illegal gold to Switzerland, cash to Cyprus and Greece.

RETIRED BRITS IN TAX TROUBLES

A growing number of older U.K. citizens choose to retire in the sun by moving to Spain or Cyprus, unaware Brit estate taxes follow them.

SEARCH AND SEIZE

The sorry state of Fourth Amendment rights in the U.S.

ADVICE FROM CATO

Cato’s David BOAZ says Pres. Bush should drop the economic growth argument for tax cuts, and stick to the freedom, liberty, and smaller government arguments.

“AN ALPINE FORTRESS GUARDING DIRTY MONEY”

ZURICH. The headline is from a German newspaper grumbling because on Sunday, in a 55% voter turn out, an overwhelming 77% majority of Swiss voters (and all 26 cantons) rejected a referendum proposal to join the EU. On Monday the Swiss government doggedly reaffirmed its commitment to joining the EU. Perhaps the Swiss need a new government?

For a change, the Swiss economy is thriving and here's why.

ANDORRA ELECTIONS

Andorre-la-Vieille. Incumbents are winners in the 3rd election since 1993 when a new constitution ended a 700-year-old system that shared authority in the hands of two co-princes, the Roman Catholic bishop of the Spanish town of Seu d'Urgell, and the president of France.

BAHAMAS SECURITIES FEEL THE LASH

NASSAU. In its latest appease-the-OECD move, the government plans new controls on the securities and investment businesses here.

THE F.B.I. LIKES MAN, CHANNEL ISLANDS

LONDON. The US Federal Bureau of Investigation praises the Isle of Man and Channel Islands police for working closely with them.

NEW BRITISH PROPERTY CONFISCATION LAW

LONDON. The UK Labour government is creating a fascist property forfeiture agency. The director of a UK civil rights group charges this "undermines the presumption of innocence" creating a system in which mere police accusations "will force people to disclose all their financial affairs." Meanwhile, the Inland Revenue may be an unwitting cover for massive money laundering.

TONY BLAIR’S RED TAPE FACTORY

Surprise: New and Old Labour are one and the same! How Blair has stifled British business while pretending to be its friend.

CORPORATE MONEY CONDUIT

BOGOTA, Columbia. How alleged dirty criminal money is finding its way to the clean corporate bottom line. An interesting study here.

BANK JULIUS BAER GOING ON-LINE

Switzerland’s largest family controlled private bank launches its online bank this summer, to be called Julius Baer Net, for self directed investors.

Will banking secrecy survive in any form? Yes, say experts.

CASTRO'S HARD LINE

HAVANA, Cuba. Although trade advocates argued the opposite would occur, as the US trade embargo on Cuba has weakened, Fidel Castro has clamped down hard on his critics.

HOW BAD WILL IT GET?

Business Week, in a special report, examines the US bear market and concludes that an end to the carnage could still be months away.

STALEMATE AT PARIS

Meetings here March 1-2 between the OECD and British Commonwealth jurisdictions on the rights of tax havens failed to produce any joint statement. Observers think this may indicate all out war is pending.

MORE U.S. LEGISLATORS BLAST O.E.C.D.

WASHINGTON. US Sen. Jesse HELMS (R-NC), chairman of the Senate foreign relations committee, blasts the OECD anti-tax haven campaign and is joined by two congressional colleagues.

And the Free Congress Foundation warns that Clinton holdovers in the US Treasury Dept. are attempting to use the OECD to limit financial freedoms.

More evidence of the internal US Treasury policy struggle, this time on the phony issue of offshore shell banks raised in Senate hearings.

ONE WORLD BANK RULES

BASLE, Switzerland. The slick phrase “customer due diligence policies” has now replaced “Know Your Customer”, but the terms cover the same insidious attack on individual liberty; an official end to all financial privacy.

OFFSHORE BANKS CLOSED DOWN

THE BAHAMAS and GRENADA act to suspend/revoke licenses of 19 questionable offshore banks.

While the Bahamas Prime Minister blows smoke with OECD double talk.

And 15 British banks are censured for lax money laundering controls.

ANGUILLA BOOSTS SERVICES

THE VALLEY, Anguilla. The Financial Services Dept. goes all out to promote new offshore business.

MARSHALL ISLANDS KEEP FIGHTING

MAJURO, Marshall Islands. These feisty little Pacific isles want off all blacklists. They ask: "Why accuse us of dirty money when we have no offshore banks registered here?"

BUSY CAYMANS BANK INFORMANT

WASHINGTON. A star witness at last week's Senate anti-offshore hearings was government informant and former Cayman Islands banker John MATHEWSON. The convicted US tax evader and money launderer blithely claimed that 95% of those who bank offshore are tax evaders.

Mathewson had a busy week earning his keep as government snitch. At a Pittsburgh trial he also testified against one of his ex-clients.

E.U. CORPORATE TAX COMPETITION

COPENHAGEN, Denmark. While the OECD rails against "harmful tax competition" and EU member states soak their citizens with high income taxes (see Comment above), EU governments compete for business by offering corporate tax breaks.

JERSEY - MANX TAX RIVALRY

ST. HELIER, Jersey. Planned tax cuts in the Isle of Man prompt Jersey leaders to plan tax cuts of their own; more beneficial tax competition.

In spite (or because) of, its resistance to OECD high tax demands, business on the Channel Island of Jersey is booming.

EURO MAKES SWITZERLAND A HOT MONEY CENTER?

LONDON. A financial analyst claims Swiss banks will benefit from money laundering and tax avoidance as euro notes start entering circulation, creating "an unprecedented opportunity for counterfeiters and organized crime, as well as tax evasion."

BERMUDA ROAD SHOW

HAMILTON, Bermuda. Insurers here are mounting a traveling show to explain to US business why it needs captive insurance.

EUROPE ONLINE BROKERS SUCCESS

European Online brokerages outpaced US growth in the final quarter of 2000 and could have more than 10 million traders within two years.

CYBERCRIME TREATY THREAT

After 4 years and 25 drafts, the Council of Europe's cybercrime treaty soon will be finished -- and so will Internet privacy, as government watches and records your every Web move.

INVASION OF THE WEB BUGS

A major security threat on the horizon called "Web bugs," a small scripts technology that Web sites can deploy to copy files from hard drives and ship them to 3rd-party sites while evading nearly all firewalls. And they can surreptitiously install programs on your PC.

LOCATION, LOCATION

Wireless systems capable of tracking vehicles and people all over the planet are making would be trackers happy, and privacy advocates are deeply and rightfully concerned.