Offshore News Digest for Week of December 2, 2002

MUTUAL LEGAL ASSISTANCE TREATY (MLAT) NEWS

Supreme Court of British Columbia Chief Justice denied a request for information via the US-Canada MLAT due to a finding of “abuse of process” by the IRS in connection with efforts to obtain records relating to alleged tax offenses of offshore promoter Jerome Schneider. An international tax attorney labeled it a setback to the United States because “The case shows the ability or targeted persons to raise constitutional and other legal issues, even though new US-MLATs expressly state that MLATs are between the treaty states only and do not give rise to any rights of the investigated, defendants or third parties.”

Coalition of freedom-oriented organizations expresses concern that two proposed anti-money laundering laws will actually hurt the fight against terrorism by discouraging other nations from assisting the United States in its investigations. The claim is that both proposed laws create protectionist barriers and regulatory burdens that threaten political and financial ties with many nations. Complete letter to President Bush here.

OAS page on Canadian mutual legal assistance in criminal matters here.

Bruce Zagaris’s International Enforcement Law Reporter newsletter (source of above quote) home page here.

SWITZERLAND IN THE NEWS

EU compromises with Swiss on interest withholding tax; Swiss preserve bank secrecy. According to the Financial Times, Brussels now appears ready to compromise by accepting a Swiss proposal in which Bern would levy a 35 per cent withholding tax on EU citizens savings. One stumbling block remains: the Swiss say they will only exchange information in criminal cases including tax fraud. The EU wants this extended to cases of suspected tax evasion.

Swiss private banks declining fast, many fighting to survive. The number of Swiss private banks, which has fallen by 38% over the last decade, looks set to continue its steady decline.

US fines Swiss banks millions for misleading investors. The SEC accuses several banks of writing overly positive research reports in order to mislead investors and win clients. Credit Suisse has also been fined SFr750,000 ($505,000) for overlooking rules designed to prevent tax fraud and money laundering when it accepted deposits of more than $200 million from the former Nigerian dictator, Sani Abacha.

Switzerland has given Mexico its extensive files from the money-laundering investigation of the brother of former Mexican President Carlos Salinas.

BRITISH LABOUR PRESSES ON WITH INITIATIVE TO CLAMP DOWN ON RICH

LONDON: New budget aims to end the tax break for foreigners living but not domiciled in the UK, who pay no tax on their overseas income. The most likely change would require foreigners to start to pay tax on their overseas income if they stayed in Britain for a certain period. It is estimated that 60,000 people claim non-domicile status by demonstrating substantial ties to another country. Maritime industry spokesman said the London-based Greek shipping owners, who formed the industry’s backbone, would leave the UK.

IRISH REVENUE EYES CHANNEL ISLANDS, ISLE OF MAN

DUBLIN. Government seeks Tax Information Exchange Agreements with British offshore havens.

EU PRODS GIBRALTAR OVER TAX BREAKS

BRUSSELS: EU “Competition Commissioner” will ask the jurisdiction to phase out its Exempt company regime by 2005, despite Gibraltar’s announced plans to reform its tax regime. Claim is breaks are “a selective tax relief that benefits only few companies. As such it violates EU state aid rules.”

MONACO A “BILLIONAIRES’ BENIDORM”

British reporter, in Monaco for the trial of Ted Maher, finds that the principality is a rotten little retirement home for fat cats.

EU MEMBERS FACE RENEWED PRESSURE ON SAVINGS TAX INITIATIVE

BRUSSELS: Austria, Luxembourg and Belgium on the hot seat to break a year-long deadlock over new rules on savings taxation. The three countries have argued that the Swiss should be subject to the same rules as EU member states, which will automatically exchange information on non-residents’ savings. Berne has repeatedly refused that request. Also, France and Germany have agreed to launch a push to harmonise European Union tax policies, challenging the UK government’s insistence that taxation must remain subject to national veto.

A recent EU study has renewed calls for direct EU taxation. The study stressed that the partial reorganisation of the funding process for the European Union should not increase the amount of tax paid by EU citizens. [Gee. It must be OK then.]

ECONOMIC GROWTH IS THE ANSWER TO TAX SHORTFALLS

WASHINGTON: Thus far, only about 10 percent of the personal income tax cut has even taken place. The real blame for the deficit can be placed on subpar economic growth over the past two years. Lawrence Kudlow argues that growth should be the number one priority of political leaders. Traditionally, when you combine tax incentives that encourage private investment with restraints on federal spending, you get a policy mix that nurtures growth.

DIGITAL PIRACY RAMPANT IN CHINA

Not just in music and movies, a black market has emerged for scientific and engineering software powerful enough to fall under United States export restrictions. Such software can be used in a wide range of tasks like designing rockets or nuclear reactors or predicting the path of a cloud of anthrax spores. Little or no action for fear of upsetting “delicate politics and economics of United States-China relations”.

BRITISH TREASURY CASTS DOUBT ON UK’S ENTRY INTO THE EURO

LONDON: Wisdom of fixed exchange rates questioned.

SINGAPORE AND SOCIALISM

What is the difference? Socialism doesn’t work.

POWER HUNGRY U.S. POLICE WANT MORE

WASHINGTON: Cops want limits on police spying and surveillance of its own citizenry lifted. Civil libertarians argue that the fear of police abuses in a war on terror is neither speculative nor paranoid, in light of history. New York Civil Liberities Union director says "New York is a town of big mouths. If we chill dissent and stop being the city of big mouths, the nation loses something vital, even if it doesn’t realize that now."

MASSIVE CANADIAN MEDICAL DATABASE PROPOSED

OTTAWA: Federal Privacy Commissioner Radwanski “terrified” by proposal. “What he recommends would appear to be the end of health privacy as we know it.”

IRELAND TO STORE DATA

DUBLIN: Detailed personal data on every citizen’s phone and mobile calls, faxes, and e-mail and Internet usage will be retained for up to four years under a new Department of Justice bill. At present, data may only be retained for a short period, exclusively for billing purposes, and then must be destroyed.

A HUMOROUS TAKE ON “TOTAL INFORMATION AWARENESS”

“Bringing paranoia to the people.”

MALTA: A PERFECT OVERSEAS HAVEN

Good weather year-round, crime virtually unknown, low cost of living, first rate medical care, and interesting old houses available for modest prices in a historically interesting setting. Sounds good to us! The island’s most famous visitor was St. Paul the Apostle, who was shipwrecked here in A.D. 60 - an event commemorated with a colorful festival every February.

The case for moving to Malta made here.

CIA Fact book on Malta here.

Maltese investment incentives described here.

E.U. DESPERATE TO CRACK SWISS BANK SECRECY

BRUSSELS: European Union finance ministers try and fail, again, to get Swiss agreement to end their financial secrecy laws. Showdown looms.

EU Deadlocks on savings tax as Swiss defend secrecy.

EU tries last ditch effort for a savings tax deal.

LUXEMBOURG NIXES ANY E.U. TAX COMPROMISE

Luxembourg will make use of its veto to block the current proposal of the EU Commission to impose an EU-wide withholding tax on investments and to abolish banking secrecy as it still exists in Luxembourg and Austria. The compromise, proposed by the Swiss to stop EU citizens dodging home country taxes by squirrelling money away in Swiss bank accounts, would leave their own financial sector at a disadvantage.

Movement to preserve Luxembourg’s culture is based on expanding written use of native language of Luxembourgish.

JERSEY, GUERNSEY CUT CORPORATE TAX TO ZERO

Following the example of the Isle of Man, Channel Islands kill tax. In a claim that has a familiar ring to it, both islands say that no new taxes will be needed to compensate for revenue losses.

DENMARK DROPS IN WEALTH LISTINGS

COPENHAGEN: From 7th to 8th among world’s wealthiest nations. Daily newspaper Berlingske Tidende worries that if the country does not get its act together, the outlook for future rankings is even grimmer.

CAYMANS LEADER TALKS TOUGH

GEORGE TOWN: Government official indicates that if the UK tries to force the dependent territory into compliance with the EU’s Savings Tax Directive using an Order-in-Council, the Caymanian government will challenge it. “There is precedent for challenging an Order-in-Council and if we have to take that route we will do so,” he says.

Ex-US Congressman Robert Livingston advised the Cayman Islands and the United States to stand shoulder to shoulder in opposition to the EU’s Savings Tax Directive. He believes the restrictions on capital flows engendered by the directive will hurt the Caymans immediately, and the US in the longer run.

Caymans security firms licensed, regulated anew as Securities Investment Business Law takes effect in 2003.

BARBADOS SAYS IT IS NOT “OFFSHORE” ANYMORE

Distinction with a difference? Barbados Senator claims country is moving away from its image as an offshore destination, and towards a reputation as a top-class international business centre.

B.V.I. DEBATE OVER END TO BEARER SHARES

Law firms say curbs on bearer shares do/do not hurt island business.

DISPUTE OVER BERMUDA ECONOMY

Where you stand depends on where you sit: Ruling party says it is great. Oppositions says otherwise. Election year rhetoric.

BUSH CREATES “PARALLEL LEGAL SYSTEM”

Terrorism suspects -- U.S. citizens and noncitizens alike -- may be investigated, jailed, interrogated, tried and punished without legal protections guaranteed by the ordinary system, lawyers inside and outside the government say. President alone can designate individuals, including U.S. citizens, as enemy combatants, who can be detained with no access to lawyers or family members.

Why the Pentagon will watch where you shop. Should Uncle Sam know as much about you as MasterCard does?

Actions taken since September 11 in the effort to combat terrorism effectively erode individual freedoms while exceeding the historical powers assumed by past presidents in times of national emergency, according to a new report from a New York think tank. These actions also hold little prospect of improving the chance of stopping terrorist threats. “The attempt to detain Americans and then treat them as prisoners of war, even when they were arrested on U.S. soil, is virtually unprecedented,” said report writer, noting that this did occur to some extent during the civil war, but not since.

“HOMELAND SECURITY” MEANS SPYING ON YOU

Privacy advocates warn that the nation is indeed experiencing the beginnings of a real-life Orwellian nightmare. “The Department of Homeland Defense is another example of ... providing authority to the executive branch with a lack of effective oversight and checks and balances,” says People for the American Way legal director.

RESISTANCE RISING IN AMERICA

Abuse of liberties by government creates growing opposition. House majority leader Dick Armey says “The Justice Department ... seems to be running amok and out of control. ... This agency right now is the biggest threat to personal liberty in the country.” Fort Wayne, Indiana newspaper notes that “The power to demand reading lists from libraries could have been drawn from the pages of Ray Bradbury’s Fahrenheit 451.” Continued growth occurring in the number of cities and towns throughout the nation of Bill of Rights Defense Committees or their equivalents, a number of which are working with ACLU affiliates. ACLU $3.5 million campaign to defend the Constitution, called “Safe and Free”, now airing TV ads.

Notes a Madison, Wisconsin high school student, with regard to The Patriot Act: “For many of you in this room who were active in the civil rights movement of the ‘60s, you’ve been down a similar road before, and for my generation it’s a road we don’t want to go down again.”

“SECURITY” BECOMES “SECRECY”

Attorney General John Ashcroft, who is sworn to enforce all laws, has told federal employees that they can bend -- perhaps even break -- the Freedom of Information Act, and he will even defend their actions in court. Terrorism excuse used to prevent researchers from evaluating effectiveness of government efforts, and subsequently embarrassing beaurocrats.

How government secrecy operates in real life. Governments have a tendency to classify everything. World War II memories of Japanese newspaper clippings being stamped “classified”. Far fewer conspiracies than examples of stupidity and incompetence, and a keen desire to cover up both.

TOTAL POINDEXTER AWARENESS

Worried about what John Poindexter is up to as federal information czar? Call his home number and ask.

SWISS-EU TALKS COLLAPSE ... FINANCIAL PRIVACY WINS

Swiss refuse to help other EU states in the milking of their citizens, despite the threat of sanctions and other pressure. Swiss officials have argued that the secrecy laws are fundamental to Switzerland’s financial services industry, and that scrapping them would simply prompt depositors to move their money to other nations offering tax havens. Because tax evasion is not considered a serious crime under Swiss law, Swiss officials do not waive bank secrecy to assist foreign prosecutors in such cases, as they do when fraud, terrorism and other criminal matters are involved.

“As a human being, I believe financial privacy is a fundamental right. I don’t have to sacrifice my financial privacy on the altar of transparency,” says said Raymond Baer of Bank Julius Baer.

Swiss Franc could be hurt if other EU nations decide to offer amnesty for funds repatriated from Switzerland in exchange for small penalty. When Italy tried such an amnesty in 2001 - 2002, EUR 30-50 billion was repatriated.

Family-controlled Banc Julius Baer lowered its full-year profit forecast and said 150 jobs were to be cut. In common with several of its domestic rivals, it has been hard hit by the recent downturn.

UK SET ON STRONG-ARMING ITS TERRITORIES INTO EU TAX DIRECTIVE COMPLIANCE

LONDON: Although its Caribbean territories have expressed their opposition to the plan, and have pledged to challenge an Order of Court if one is issued, Chancellor Gordon Brown gave the European Council meeting his “unequivocal assurance” that automatic information exchange will be introduced in the Caribbean territories. “If necessary, we will legislate directly”, he threatened. However, some parties are developing a legally-based challenge to the strong-arm tactics the fat-cat nations use on the low-tax territories.

COSTA RICA TAX HITS OFFSHORE BANKS

SAN JOSE: The majority parties were in broad agreement over a plan which includes new “sin taxes” and luxury taxes, and provisions to tax casinos, online betting operators, and banks which maintain an offshore presence, in order to deal with CR’s deficit.

Abrupt closure in October of operations of Luis Enrique Villalobos Camacho leaves billions of dollars in limbo. Man who offered investors 3% interest monthly has the usual litany of defenders and detractors.

The founder of an alleged tax shelter scheme, Keith Anderson, has been extradited from Costa Rica to face federal tax evasion and money laundering charges. During a two-year undercover operation IRS agents posing as Anderson Ark clients laundered $370,000 through the business.

HONG KONG BANKS MAY QUIT OVER NEW LAW

Communist Beijing-inspired anti-treason law may cause foreign bank exodus. Local banker/legislator contents that the financial community is fearful the laws would restrict the free flow of information in the territory. The issue of new national security laws is the most contentious Hong Kong has faced since it was returned to China. Mainland official dismisses threat of banks leaving.

INDIA CLAMPS DOWN ON MAURITIUS TAX HAVEN

NEW DELHI: Indian tax authorities want an end to offshore haven use. It is estimated that India’s revenue department loses US $100 - $500 million annually through companies routing their investments via Mauritius in what is known as “treaty shopping”. Treaty shopping is when companies from high tax countries scout the globe looking for low tax havens to set up residency and claim tax benefits available to the nationals of those nations. Crucial for foreign investors in making decisions on India, is tax liability that could go from virtually zero for Mauritius-routed capital, to anything between 10% to 36.75%.

Extensive discussion on the new world of international capital flows that has followed globalization.

U.S. BANKERS OPPOSE I.R.S. FOREIGN REPORTING RULE

WASHINGTON: Late influx of negative comments was reaching the agency, adding to the substantial mail-bag which has seen numerous organizations and many members of Congress objecting to the measure, which is widely seen as disastrous for US banks. Experience of implementing a reporting requirement for Candian citizens allows them to be sure that the bureaucracy attached to the requirement (applying initially to 15 additional countries) would be very costly.

SOUTHEASTERN EUROPE ADOPTS FREE MARKET IDEAS

Former communist countries of southeastern Europe are rather slowly adopting “shareholder” culture, essential to attract much-needed foreign investments. Countries in the region have achieved good results so far as markets have been freed, but have been “far below” those countries where the companies are better-governed, like the Czech Republic or Poland, according to OECD spokesman.

BRITISH INLAND REVENUE MAY GO AFTER BIG TARGETS MORE AGGRESSIVELY

LONDON: Agency criticized for lagging collection results. £20 billion estimated lost to tax evasion annually. In September, the agency’s special compliance office raided 120 building contractors suspected of tax fraud, vs. past average of 20-30 raids/year. Meanwhile, new anti-money laundering act will force accountants, lawyers, bankers, financial advisers to confess what they know about tax evasion. If auditor or tax accountant fails to blow the whistle on anything even faintly suspicious, he/she will face up to five years in jail.

VARIATIONS ON A SCAM: FROM NIGERIA TO ENRON

In a new variant on the Nigerian/African 419 scams that pile up in so many email inboxes these days, the plea is to help liberate some alleged Enron funds, with Haiti being the port of call.

ADVICE TO PRESIDENT BUSH FROM CITIZENS FOR A SOUND ECONOMY

“With two years to go before the next election, the current Administration needs to focus on substance, not style.” “[It is] time to enact pro-growth policies and give them time to work.” Suggests that eliminating the Death Tax will move billions of dollars away from unproductive tax shelters and back into productive assets, and thus spur long-term growth.

U.S. BUSINESS USES CANADIAN TRUST UNITS

US companies seek new identities as income trusts in Canada: Selling trust units to Canadians is an intriguing alternative to issuing stock at home. Some companies trying this are not the highest quality. Risk down the line that the IRS will try to thwart what is essentially an offshore tax avoidance strategy.

NEW YORK BANK FINED $4 MILLION FOR DIRTY CASH

Broadway National Bank violated anti-money laundering laws. Not following rules helped drug dealers and other criminals move more than $120 million.

OFFSHORE INSURANCE BOOMING

Sharp increases in premium levels leading to a major influx of new capital and a rush of start-ups taking advantage of the improved condition. Prominent beneficiaries include Bermuda and Ireland.

HOW TO BECOME A MILLIONAIRE

Ideas on how to make lots of money.

EUROPEAN UNION-U.S. POLICE COOPERATION POSTPONED

LONDON: A secret US-EU joint police operation proposal (previously cited on these pages) has been temporarily postponed. Proposed exchange of personal data between Europol and USA would evade EU data protection rights and protections. EU Justice and Home Affairs Council may try to quietly “nod through” proposal with minimal notice or debate soon, however.

BRITISH PLANS TO CURB CIVIL LIBERTIES

LONDON: Labour revolt threatened on some aspects of “criminal justice” bill, but they backed the bill’s plans to restrict the right to a jury trial in some complex fraud cases and where there is evidence of jury tampering, and to abolish the “double jeopardy” rule, as well as the proposed sentencing regime for criminals, and the transfer of charging from the police to the crown prosecution service. Tory spokesman warns that party will oppose the ending of double jeopardy and the changes to the right to jury trial, fearing that the initial slight inroads would be used to erode the scope of jury trial.

US COURT UPHOLDS RIGHT TO LEGAL COUNSEL FOR ALLEGED COMBATANT

A U.S. citizen accused of plotting to explode a radiological “dirty bomb” in the US must be granted access to an attorney to challenge his detention as an enemy combatant, a federal judge in New York ruled yesterday. Administration’s assertion that allowing accused access to his attorney would impede intelligence gathering and jeopardize national security is rejected. ACLU, which filed a brief on Padilla's behalf, called the decision “a critical repudiation of the Bush administration’s claim of virtually unbridled power to unilaterally detain an American citizen and to hold him incommunicado indefinitely.”

PGP OPENS UP ENCRYPTION SOURCE CODE, RELEASES VERSION 8.0

The code for the entire PGP 8.0 line, which was released on Monday, is available on the company’s Web site for free download. Users can review the code but cannot reuse or modify it. “We believe that releasing the source code for security-related software should be a standard industry practice and a requirement of any serious security vendor,” says company CEO.