Offshore News Digest for Week of January 26, 2003

GLOBAL BUSINESS

NEW REPORT RANKS ECONOMIC FREEDOM AMONG THE CANADIAN PROVINCES AND U.S. STATES

For the first time in the 20-year span measured by the Economic Freedom of North America report, a Canadian province -- Alberta -- has broken into the top 10 in economic freedom among the Canadian provinces and U.S. states. However, provincial policies already threaten Alberta’s ability to maintain high levels of economic freedom and, ultimately, prosperity for its citizens. The report constructs two measures of economic freedom: the all-government index, which captures the effect of restrictions imposed by all levels of government (federal, provincial/state, and local); and the sub-national index which captures the restrictions imposed by provinces/states and local government.

Prince Edward Island continues to have the worst economic freedom score in Canada and the United States and, not surprisingly, is the poorest jurisdiction in either nation, just behind Newfoundland and Labrador [!], which also has an extremely bad record in economic freedom.

THE CARIBBEAN AND GLOBAL SECURITY

The US has determined that the Caribbean is its third border and has even gone so far as to incorporate parts of the Western Caribbean within the ambit of homeland security. Whether the issue is airport or port security, immigration procedures, intelligence exchange or the reach of the International Criminal Court, the Caribbean is now being asked or sometimes coerced to cede ground. The dilemma about how far any Caribbean nation should go in this direction is made more complex by a culture, history and sense of national identity that in public has to be seen to reject all external interference in decision-making.

U.S. AND COSTA RICA REACH FREE TRADE AGREEMENT

Costa Rica agreed to join a free trade pact with the U.S. that four other Central American countries already have joined. With the deal, Costa Rica agreed to expand access to its insurance and telecommunications markets, along with general reductions in trade barriers under the U.S.-Central America Free Trade Agreement. The United States concluded negotiations last month with El Salvador, Guatemala, Honduras and Nicaragua.

HUNT FOR MISSING PARMALAT FUNDS CONTINUES

Financial police investigating the Parmalat scandal raised the stakes sharply when they searched offices of international credit rating agency Standard and Poor’s. And as the hunt intensified for billions of euros believed missing from the finances of the Parmalat dairy empire, a company spokesman said Thursday that a rescue plan had been delayed. Meanwhile a newspaper report said investigators had tracked down €1.5 billion euros in an account in Monaco. Financial police began searching the Milan offices of Standard and Poor’s on Thursday, court sources here and a company spokesman in London said.

Parmalat debt grows to €14 billion.

Parmalat owes €14.3 billion euros ($18 billion), its auditors say -- almost eight times what the company claimed when it went bust in December. The figures, from accountants PricewaterhouseCoopers, give Parmalat’s position as of end-September and exceed even the most pessimistic of estimates. The new numbers issued by Parmalat but calculated by PwC, show that Parmalat’s true performance was much worse than it had claimed. Its core earnings, for example, were €121 million instead of the 651 million it had reported to investors for January-September 2003.

An Italian city mourns as a dynasty collapses over financial scandal.

The name Parmalat stems from the northern Italian city of Parma and the company’s primary product, milk, or “latte” in Italian. The town of Parma is more familiar to us than we might think. It gives its name to Parmesan cheese, or “parmigiano,” and to a type of ham called Prosciutto, the tasty cured raw ham, known here in Italy as Prosciutto di Parma, and in the U.S. as Parma ham.

Throughout the golden years no one had any idea that things at Parmalat were not what they seemed. Serious losses began due to failed ventures in the early 90’s, after the company went public. It kicked off a cycle whereby increasing losses were kept secret and bond offerings were held to raise more cash. The city of Parma is described as collectively depressed and their “god” has fallen back to earth with a very rough crash.

ONE EUROPE, UNITED IN FISCAL MISRULE

The founding members of the euro have themselves conspicuously failed to live by the single currency’s fiscal rules. Last November, finance ministers from the 12 euro member states voted by a majority to suspend the stability and growth pact, which enshrines the rules of the Maastricht treaty in EU law. Their insouciance is now being challenged by the European Commission at the European Court of Justice. But as with many clubs, once you are inside the door with your feet under the table, the rules can be relaxed or fudged. For those waiting at the door, it is a different story.

The accession countries need to get to grips with their budgets for their own sakes. They do not really need to curb them for the euro’s sake. Central Europe’s deficits are worryingly large as a percentage of their GDP. But they are still small as a percentage of the euro area’s total output. Nonetheless, it is this fiscal numerology that will determine when and whether new members join the euro. The four central European countries celebrating EU membership this year will probably have to wait until next decade to celebrate entry into the single currency.

EC warns five EU member states over deficits.

In separate economic assessment reports, the Commission warned France, Germany, the United Kingdom, Italy, and the Netherlands that their deficits are either in breach of the 3% of GDP ceiling imposed by the Stability and Growth Pact, or risk becoming so in the next couple of years.

U.K. may have to resort to tax hikes to cover revenue shortfall.

Chancellor Gordon Brown has received another warning over the state of the nation’s finances, this time from the Institute of Fiscal Studies, which estimates that income tax may have to rise by as much as 4% to plug the gap between spending and revenue.

Concerns expressed on the state of Hungary’s preparedness for EU accession.

According to local media reports, tax professionals have warned that many of Hungary’s businesses will face substantial tax-related difficulties after the country’s accession to the EU, owing to a general lack of preparation by both the government and companies to legislate and adopt new VAT rules.

SUPPLY-SIDE SWISS

Towards the end of last year, the local Parliament of the Swiss canton of Schaffhausen decided to introduce a new income tax that has as its cornerstone the principle of regression. In other words: the more money you make, the less tax you pay. As of January 1, 2004, it actually pays to get rich. Instead of flying into a Howard Dean-like rage, though, tax addicts would do well to consider the merits of the Schaffhausen measures before rejecting them in a knee-jerk fashion. No sane person, after all, could oppose a system of taxation that is morally sound and economically efficient -- which is precisely what these measures are all about.

HEDGE FUND BODY QUESTIONS EU PROPOSALS FOR REGULATORY SYSTEM

The Alternative Investment Management Association (AIMA), the body which represents the global hedge fund industry, is seeking a meeting with members of the European Commission to clear up “several misconceptions and inaccuracies” contained in the proposals for a pan-European regulatory framework for the industry. The AIMA observed that: “Whether the proposals will ultimately lead to a specific regulatory regime for ‘sophisticated alternative investment vehicles’, or ‘SAIVs’, applying throughout the European Union is, perhaps, [un]certain.”

THE IMPACT OF GLOBALIZATION AND MALTA

The chief executive of HSBC Malta, Chris Hothersall, was the main speaker yesterday at the Malta Business Weekly business breakfast. He spoke about the impact and challenges of globalization and added some thoughts about Malta’s positioning in a globalized world. Included in the speach was this comment: “In our opinion, one of America’s unique advantages is a political class, by and large, with business experience. And it has a longstanding tradition of breeding entrepreneurs and a culture of risk taking. This means that we think America will maintain higher growth rates than Europe over the long term, buttressed by the Western world’s only growing population and a flexible economy.”

Malta Enterprise reveals interest from foreign firms.

In contrast to a recent warning from the Federation of Industry that the island is facing a potential investment crisis, the head of Malta Enterprise, Joe Zammit Tabona, has revealed that the agency has received dozens of applications from internationally-based firms seeking to establish new operations in the jurisdiction.

RUSSIAN GOVERNMENT TO MAINTAIN PRESSURE ON OIL FIRMS OVER TAX

In an interview from the World Economic Forum in Davos, deputy Prime Minister Alexei Kudrin indicated that the government is currently investigating the prior activities of several oil companies. However, he was reluctant to reveal whether another Yukos-style scandal was about to be uncovered. Kudrin told UK’s Times that “the only thing I can tell you for sure is that if they used these loopholes within the legal framework and they were permitted by legislation at the time there will be no punishment of these companies.”

AWAY ON BUSINESS: THE EXPATRIATE LIFE

An overseas assignment might be a dream come true for many. But for corporate executives trying to set up a household half a world away, it is stark reality. Even while caught up in the excitement and buoyed by prospects of a promotion, expatriates are required to juggle cultural differences, meet job expectations, find schools for their children and keep a spouse feeling productive. As U.S. companies continue rapid expansion overseas, they must choose candidates wisely. But people with international experience are not in great supply, making it an expensive gamble for both sides.

WORLDCOM COULD SUE KPMG, SMITH BARNEY, ANDERSEN

The company formerly known as WorldCom, now known as MCI and in bankruptcy court, could sue Big Four firm KPMG for bad tax advice, Smith Barney for breach of fiduciary duty, and defunct accounting firm Arthur Andersen for negligent auditing, according to a report released this week. The court’s report noted that WorldCom’s aggressive tax minimization program, based on advice from KPMG, “is seriously vulnerable to state challenge.” In addition, the examiner concluded that Arthur Andersen “committed professional malpractice” by negligently failing to carry out substantive tests warranted by the risks of fraud and material misstatement.

TAXES

IRS DISBARS JOE BANISTER

An administrative law judge has ordered that Joseph R. Banister, a CPA and former IRS criminal investigation agent from San Jose, be disbarred from practice before the IRS. The IRS alleged that he was misrepresenting the law to taxpayers and that he failed to file his own federal income tax returns for tax years 1999-2002. According to public documents, the judge found that Banister provided erroneous advice to taxpayers, including improperly advising them that they were not required to file returns because the 16th Amendment to the Constitution was not properly ratified. Banister also provided erroneous advice that returns were not required because Sections 861 through 865 of the IRS define “income” in a manner which excluded their earnings.

Judge William B. Moran said that “the very significant problem with Banister’s advice to his clients is that it is absolutely wrong.” Judge Moran noted that “Banister’s assertions have been addressed by so many federal courts that they are no longer afforded the dignity of repeating the explanations as to why the claims are meritless.”

IRS WITHHOLDING PROPOSAL IRKS SELF-EMPLOYED

Withholding is necessary to collect $81 billion a year in taxes that the IRS is missing due to underreporting of income by self-employed people, said Nina Olson, national taxpayer advocate. Olson recommends a 5% withholding rate on payments to independent contractors who do not maintain inventories and a 3.5% withholding rate for independent contractors who maintain inventories or receive payments for materials and supplies.

Robert Hughes, president of National Association for the Self-Employed, says Olson’s recommendations are “a departure” from the taxpayer advocate’s mission of protecting taxpayers’ rights and reducing their tax burden. But Olson says businesses that fully report their income are being penalized if sole proprietors get away with cheating on their taxes.

YET ANOTHER ATTEMPT TO STOP IRS’S NONRESIDENT ALIEN INTEREST REPORTING PROPOSAL

The Center for Freedom and Prosperity, joined by more than 30 of the country’s largest and most influential free-market groups, urged Treasury Secretary John Snow to “permanently” withdraw the proposed IRS regulation to require the reporting of bank deposit interest paid to nonresident aliens. In the letter sent today to the Treasury Secretary, the members of the Coalition for Tax Competition stated, “This initiative is not needed to enforce US tax law and it will undermine our economy’s performance by causing capital to flee the American banking system... For more than 80 years, Congress has sought to attract capital to the US economy by neither taxing nonresident alien bank deposit interest nor requiring the reporting of such income. The IRS does not have the right to unilaterally change this law, so the regulation is a clear violation of congressional intent.”

“This regulation has been around for more than three years. It was proposed by the Clinton Administration and kept alive by former Treasury Secretary Paul O’Neill and his underlings,” said Andrew Quinlan, president of the Center for Freedom and Prosperity. “Not one Member of Congress has endorsed the rule. In fact, 18 Senators and more than 65 House Members have asked for its withdrawal. It is time for Treasury to put the American people first and stop acting as tax collectors for our supposed allies in France and Germany,” added Quinlan.

KERRY PLEDGES TO END BERMUDA’S “CREED OF GREED” WITHIN 500 DAYS

Democratic Presidential front-runner John Kerry says he will introduce legislation to eliminate Bermuda’s off-shore “creed of greed” within 500 days of taking office if elected. In October, Sen. Kerry -- whose campaign treasurer is Bob Farmer, US Consul General in Bermuda between 1994 and 1999 -- unveiled his legislative plan to crack down on “unpatriotic corporate tax evaders”.

“I’m tired of seeing chief executives permitted to take their millions or billions to Bermuda and leave the average American here at home stuck with the tax bill. You know what I call that? Unpatriotic,” he said in a speach. Kerry’s now ubiquitous anti-Bermuda stump speech stance is hitting a resonant note with Americans. This week a national poll shows a stagnant US economy is the top issue among voters with 33% of respondents naming economic issues as their top concern. Just 21% of those polled identified terrorism and only 5% selected the US war in Iraq.

US FIRMS RETAIN FAITH IN PUERTO RICO DESPITE WITHDRAWAL OF TAX BREAK

A measure allowing US firms with operations in Puerto Rico to repatriate their profits tax-free is set to expire next year, with no signs on the horizon that the US government is keen to replace the measure. The provision in the US tax code known as Section 936 has been instrumental in building up a solid manufacturing base in the Caribbean island, particularly in the pharmaceutical sector, which accounts for 25% of the manufacturing industry’s work force of approximately 120,000. However, the prospect of life without Section 936 does not seem to be unduly worrying US companies, which appear to be continuing heavy investment in local manufacturing projects.

TURKS AND CAICOS COMMITS TO EU SAVINGS TAX DIRECTIVE, IN ALL ITS TERMS AND CONDITIONS

The Chief Minister of the Turks and Caicos Islands, Michael Misick, announced that the jurisdiction has committed to implementing the European Union’s Savings Tax Directive, subject to the creation of a level playing field on the issue for all offshore and onshore jurisdictions “... and will apply a withholding tax during the transitional period, which commences on 1 January 2005 on the same terms and the same conditions that apply to the Swiss Confederation, the Principality of Lichtenstein, ...”

Developments in the Nevis Financial Services Sector: Report here (somewhat intrusive registration required).

OECD DEFUSES TAX ROW WITH SWITZERLAND

At a two-day meeting in Paris, Swiss negotiators agreed to give foreign tax authorities more access to information about Swiss-based holding companies. The issue was one of three points of disagreement between Bern and the OECD, which had threatened to blacklist Switzerland as a country that supports “potentially harmful tax practices”. The Swiss government had staunchly opposed the threat, arguing that its purpose was to weaken Switzerland’s ability to attract foreign companies. Wilhelm Jaggi, Switzerland’s ambassador to the OECD, stressed that the deal had nothing to do with banks or banking secrecy, which the Swiss authorities have always maintained is non-negotiable.

EC PROPOSES CHANGE TO INTEREST AND ROYALTIES DIRECTIVE

The proposal will aim to eliminate withholding taxes on payments of interest on royalties made between associated companies in different Member States.

NEW IRS TAX FORM TARGETS CORPORATE INCONSISTENCY

The Treasury Department announced a new tax form that is aimed at making corporate practices more transparent. The form is designed to reveal gaps between corporate financial statements and tax returns. Inflated earnings and tax shelters appeared during the 2002 wave of corporate accounting scandals. Corporations with assets of $10 million or more would use the form when filing 2004 tax returns. The change does not affect small businesses.

ESTATE TAXES: AN HISTORICAL PERSPECTIVE

Until recently, estate taxes (also known as death taxes) were the almost exclusive headache of the super rich, their tax attorneys, and their estate planners. But a strong economy, an ever-widening distribution of wealth coupled with tax policy that has failed to keep up with economic growth have extended the reach of estate taxes well into middle-class America.

As early as 700 B.C., there appears to have been a 10% tax on the transfer of property at death in Egypt. Who pays the highest estate tax rates? Typically they are owners of small businesses, family farms, and savers who amass wealth during their lifetimes through hard work and thrift. Because wealth is often unexpected, these people may not be aware of, or take full advantage of, ways to reduce estate taxes. As a result, those who come late, or not at all, to estate planning end up paying most of the tax.

JOB CREATION AND THE TAXATION OF FOREIGN-SOURCE INCOME

The World Trade Organization has ruled that portions of U.S. tax law -- specifically, the Foreign Sales Corporation/Extraterritorial Income (FSC/ETI) Act -- provide an impermissible “export subsidy”. The bad news is that the WTO is interfering with America’s fiscal sovereignty by insisting that Congress repeal the FSC/ETI legislation or run the risk of more than $4 billion of compensatory tariffs on U.S. exports to EU nations. The good news is that this creates an opportunity for lawmakers to enact much-needed tax reforms, especially reducing the tax on income earned by U.S. companies abroad so that they can compete on a level playing field with foreign-based firms.

The U.S. tax code currently places American companies at a competitive disadvantage by taxing them on income earned abroad. This policy of “worldwide taxation” can subject U.S.-chartered companies operating overseas to tax burdens several times larger than those imposed on their foreign counterparts, most of which come from countries with “territorial taxation” (taxing only income earned inside national borders). America’s high corporate tax rate -- the second highest in the developed world -- exacerbates the anti-competitive impact of worldwide taxation, and American companies competing in low-tax jurisdictions like Ireland or Hong Kong are the most adversely affected.

Microsoft decides to abolish URLs with user names, passwords.

Microsoft has finally come up with a plan to combat those pesky “phishing” mails that attempt to persuade gullible users to type their passwords and bank account numbers into fake websites. The practice is based on a little-known feature of web addresses, which allows the user name for logon to be encoded into the web address in the form http://username@www.webaddress.com/. The “phishers” send emails to unsuspecting netizens that include urgent entreaties to log in to a certain web site. The emails include clickable addresses in the form http://www.trustedsite.com.bla.bla.bla.bla.bla@www.evilsite.net/ These addresses are difficult to distinguish at first glance from legitimate URLs.

Life was made more difficult for the potential victims and simpler for the scamsters when a bug was discovered in Internet Explorer that allowed the real URL to be disguised even more effectively. Now Microsoft appears to be lumbering into action. The plan is simply to do away with user names and passwords in URLs altogether. Though little-used, the tricky URL form is a recognized Internet standard. For this reason the developers of other browsers, like Mozilla, do not feel they can simply undertake this rather drastic baby-and-bathwater action. Browser minnow Opera seems to have got it right, however, with a popup that warns users they they may be on the hook of the phisher. This simple and surely effective solution was clearly “too obvious” for the big boys of the browser wars.

NIGERIA TO BATTLE INTERNET SCAMS THAT TAINT ITS IMAGE

Ngozi Okonjo-Iweala, the Nigerian finance minister, said that she had led planning for a campaign against e-mail fraud that would enlist Nigerian law enforcement officials and include a global advertising campaign to warn potential victims. “As Nigeria’s minister of finance, I am extremely angry at these people who conduct fraud by e-mail,” Ngozi said in an interview at the World Economic Forum. “We will no longer allow them to ruin our country’s reputation.”

In addition to readily joining a criminal undertaking, Ngozi said anyone responding to the ads lacked common sense to an extent that astounded most Nigerians. “In Nigeria, we are always amazed that anyone could be so stupid as to respond to such an offer,” Ngozi said. “People do not deserve to lose their money, but you do have to be extremely greedy and stupid to respond.”

419 scammers start working the phones.

Nigerian scammers increasingly are calling US companies on the phone, using relay phone services. These are normally free calls made by supposedly deaf people using keyboards which go to a phone company operator, who places a phone call and speaks for them. Companies such as AT&T offer these services at no cost. Very often, scammers order goods with fraudulently obtained credit cards and have them shipped to Africa. The orders have several characteristics. The scammers often type in all caps and their English is poor. They usually want fast shipment (with shipping cost no objection) and most orders are huge in size. Most favorable are commodity item that can be quickly resold. Never trust Internet relay calls unless you actually know the person calling you.

This article has a recent 419 scam example, analysis of how the class of scam works, and some advice.

RISKY E-VOTE SYSTEM TO EXPAND

Researchers warned last week that an Internet voting system designed for Americans overseas to use in the November presidential election should be scrapped -- because Internet insecurities could compromise the election. The government dismissed the researchers’ findings, saying the report offered false conclusions about the security of the Secure Electronic Registration and Voting Experiment, or SERVE, system.

Clueless Canadians seem to think everything is wonderful when you vote online. More on this story here.

FBI SPECIALIST CLUES IN A TECHNOLOGY CLASS ABOUT COMPUTER SECURITY

Dave Thomas, former chief of computer intrusion investigations at FBI headquarters, and current Assistant Special Agent in Charge of the St. Louis Division of the FBI had this to say: “I have spent a considerable amount in the computer underground and have seen many ways in which clever individuals trick unsuspecting users. I don’t think most people have a clue just how bad things are.” He spent quite a bit of time talking about the intersection of Trojans and viruses.

I am a civil libertarian at heart, and that brings with it an innate mistrust of governmental authority -- but I am glad people like Dave Thomas are in the FBI. He is a good man, and he has a good understanding not just of technology, but also of the complexities of the moral and ethical issues surrounding technology in our society today.

PRIVACY

CAPPS II TO START THIS SUMMER

Homeland Security officials say a government plan to check all airline passengers’ backgrounds before they board a plane could be implemented by this summer. It is such an urgent priority that the government will order airlines to provide background information on their customers to test the program, Homeland Security Undersecretary Asa Hutchinson said Monday. “The information that is given by a passenger to the airlines is important for us to have -- in terms of name, address, date of birth -- so we can properly assure the safety of a particular flight,” Hutchinson said.

The Computer-Assisted Passenger Prescreening System, or CAPPS II, would screen all passengers by checking that information against commercial and government databases. Each passenger would be given one of three color-coded ratings. CAPPS II has been criticized by privacy advocates, who contend it infringes on civil liberties and might wrongly label people as security threats.

The sorry record of the Transportation Security Administration.

Before the agency was even a year old, it was clear that it had “become a monster”, to quote the chairman of the House Aviation Subcommittee, John Mica (R-Fla.). Arrogant, abusive, incompetent, and expensive, the TSA is, in the words of the House Appropriations Committee, “seemingly unable to make crisp decisions... unable to work cooperatively with the nation’s airports; and unable to take advantage of the multitude of security-improving and labor-saving technologies available.” The attacks of 9-11 changed many things, but they did not make the federal government more competent or effective, and they did not make it more willing to respect the dignity or liberty of its citizens. For proof, one need only examine the TSA’s sorry record.

Airport profiling’s hidden controversy.

Conspicuously absent from the airport-security headlines is any reevaluation of the Department of Transportation’s ban on the use of racial and ethnic profiling in the passenger screening process. The debate about profiling has stagnated because the opposing sides are separated by a pair of hidden assumptions -- the idea that correlation does not imply causation and the idea that algorithms cannot duplicate the human mind’s ability to process information.

REPORT FAULTS SCREENING OF 9-11 HIJACKERS

The U.S. government fumbled repeated opportunities to stop many of the men responsible for the Sept. 11, 2001, attacks from entering the country, missing fraudulent passports and other warning signs, according to a preliminary report released Monday. The findings, released at the start of a two-day hearing on border and aviation security by the National Commission on Terrorist Attacks Upon the United States, contradict earlier assertions by top Bush administration officials that the hijackers entered the country legally. The report pointed out that FBI Director Robert Mueller had testified all the hijackers came “lawfully from abroad,” while CIA Director George Tenet described 17 of the 19 hijackers as “clean”.

Top 9/11 suspect was granted US visa.

Khalid Sheikh Mohammed, alleged mastermind behind the September 11 plot, was granted a visa to enter the US just six weeks before the terrorist attacks in Washington and New York, according to new revelations from the federal commission studying the attacks. Mr. Mohammed, who had previously been indicted in the US for his alleged role in an earlier terrorist plot, was granted a visa through a US consulate in Saudi Arabia after applying under a false Saudi passport using the alias Abdulrahman al Ghamdi, the National Commission on Terrorist Attacks upon the United States said on Monday.

Mr. Mohammed, who was captured in Pakistan last April, did not appear to have used the visa to enter the US, the commission said. The revelations will raise new questions about lapses in US border controls that may have contributed to the September 11 attacks.

NASA’S NEW MISSION INVOLVES MINING DATA FROM HERE ON EARTH

For years, NASA has been involved in data mining designed to help formulate a better understanding of the universe. Space telescopes generate a tremendous amount of information, and gleaning what is important takes sophisticated data-crunching techniques. Now NASA researchers are using data gleaned from flight-safety records, including reports of sick passengers, bad weather and sleepy pilots, to build an antiterror database.

Although the new program’s budget is undersized -- less than $1 million -- civil libertarians are troubled by the effort. Such projects are a waste of resources, they say. “This is 21st-century phrenology,” said privacy advocate Bill Scannell, referring to the discredited art of reading people’s personalities from the bumps on their heads. “You might as well stick a couple of employees in a subbasement and have them read tea leaves... Anyone who gets irate because they got bumped off a flight now could have a terror matrix put on them.”

BIO-SECURITY STILL A FANTASY -- EXPERTS QUESTION EFFECTIVENESS AND PURPOSE

It is going to be expensive and it is going to be inconvenient. But, mainly, the high-tech border security introduced by the United States this month is going to be ineffective. At least for its stated intention. Protecting against terrorists by biometrically identifying every person who enters the country is a fantasy, say leading experts in the field, and a potentially dangerous one.

George Tomko, a Canadian biometric pioneer regarded as one of the fathers of the technology. Even a 99.99% accuracy rate -- which does not exist -- could leave millions of people vulnerable to mistaken identity. Biometrics works effectively on “one-to-one” identification, Tomko says, where a scanner reads a fingerprint on a passport or card, compares it to the real finger in front of it, and determines that you are you. “But there are too many errors when it’s used on `one-to-many’,” he says. “Biometrics doesn’t have the accuracy needed to identify passengers against a huge database of bad guys.” Not that such a database exists.

“So now they’ll be collecting the identities of millions of people and comparing them to -- what?” asks Peter Hope-Tindall, technical director at Toronto’s dataPrivacy Partners, leading biometric consultants. “Who the hell are they going to catch? Not terrorists. It’ll catch people who haven’t paid parking tickets, who haven’t paid child support.” Or, on a bigger scale, money launderers and tax evaders.

Biometrics enters third dimension.

While biometrics experts mainly depend on features like retinas and thumbs to determine identity, another approach is gaining steam: 3-D facial scans.

Chinese citizens to get new ID cards.

The technology used in the card will include a chip and as far as can be judged, the card and the semiconductor are both Chinese implementations. The card, said the People’s Daily, will “greatly increase security because police can use a card processing machine to check” it.

UTAH CITIZENS UNKNOWINGLY SIGNED UP FOR “MATRIX” PILOT PROGRAM

It sounds like a sci-fi thriller: a super computer program that gathers dossiers on every single man, woman and child -- everything from birth and marriage and divorce history to hunting licenses and car license plates. Even every address you have lived at down to the color of your hair. It sounds surreal, but former Gov. Mike Leavitt signed Utah’s 2.4 million residents up for a pilot program -- ironically called MATRIX -- that does just that. And he never bothered to reveal details of the program to Utah citizens or to state lawmakers who, upon learning of the program on Capitol Hill this week, are now worried the state could be involved in a program that jeopardizes basic civil liberties.

VIDEO SNIFFING IN SAN FRANCISCO

A 2002 New York Times article first brought to light how easily outsiders could intercept the video from the inexpensive cameras sold by X10 Wireless Technology using nothing more than the receivers sold with the cameras. Later that year, a how-to in 2600 magazine coined the phrase “warspying” to describe the sport of driving or walking around to sniff out wireless video signals from X10s and other cameras that share the unlicensed 2.4GHz band. Hobbyists with more cash than soldering skills can spring for a $400 Icom IC-R3 scanner, capable of picking up wireless video signals and displaying them on a built-in two-inch LCD screen. But just what are the video sniffers picking up? If the San Francisco expedition late last week is any indication, the answer is, not all that much.

GOOGLE BACKGROUND CHECK ON DATE CATCHES FUGITIVE

While, for most people, Googling dates is just an amusing and quick way to find out a little more about the person you are meeting up with, sometimes you can turn up quite a bit. In this case, a quick Googling turned up the fact that the guy a woman was about to meet was a wanted fugitive who had eluded authorities for over a year. Once again, it appears that Google really is your permanent record.

MEET THE HOMELAND SECURITY BLIMP

Measuring 500 feet long, with a volume of 5.2 million cubic feet, the prototype high-altitude airship, or HAA, will be 25 times larger than the Goodyear blimp. Parked 12 miles up, it will be immune to most ground-launched missiles, and its onboard sensor systems will “see” at least 350 miles in any direction, allowing it to spy most incoming military threats. A fleet of 10 could provide an early-warning curtain for the continental United States.

MENTOR/PAL MONITORS YOUR MOODS IN REAL TIME

You are in a meeting, and each person in attendance is hooked up to a computer that is monitoring their perspiration and heartbeat, reading their facial expressions and head motions, analyzing their voice tones and then presenting them with a running account of how they are feeling. This information will also be transmitted to everyone else in the meeting. Talking too much? A pop-up window appears on the screen to tell you to shut up. Feeling edgy? A message reminds you to calm down. Got a big account or project to assign? Scan the feed to see which employee is feeling the perkiest that morning.

Preliminary tests of Mentor/PAL indicated that using the system improved teamwork and resulted in a calmer, less-stressed workplace since everyone had insight into how their team members were feeling, Merkle added. But privacy advocates think that Mentor/PAL is eerily similar to HAL, the computer that took over the spaceship in the movie 2001: A Space Odyssey, and believe that monitoring physical information such as heartbeat and perspiration is a violation of an individual’s right to keep personal medical information private.

CENSUS BUREAU TEST TO TALLY U.S. CITIZENS IN THREE COUNTRIES

The Census Bureau will begin a six-month experiment next week to count Americans living in France, Kuwait and Mexico, under orders from Congress to test the idea of including private citizens who live abroad in the national decennial tally. But what the count could be used for has not been decided, and some top census officials doubt they can do an accurate job. The census will be voluntary. It will ask basic questions such as name, age, sex, race or Hispanic origin, and relationship to others in the household, as well as citizenship, U.S. address and passport number. Americans on vacation or short business trips overseas should not fill out the questionnaires, but those with dual citizenship should, census officials say.

The notion of an overseas count has enthusiastic support from advocacy groups for Americans who live abroad, some of whom hope it will bring them greater political influence. Census Bureau officials say there are obstacles to counting private U.S. citizens overseas.

STATE DEPARTMENT FACES POTENTIAL VISA-PROCESSING NIGHTMARE

The State Department will be forced to process millions of additional visa applications annually unless Congress loosens the requirements of an immigration law enacted to protect the country from future terrorist attacks. Officials from the State Department and Homeland Security Department are lobbying lawmakers to relax a requirement in the 2001 Border Security Act that calls for 27 countries to issue passports with biometric data to their citizens who travel to the United States. Only two countries, which are part of the U.S. Visa Waiver Program, may meet the congressionally mandated deadline of October 26, 2004 for compliance.

GET READY FOR THE U.S. NATIONAL ID CARD

It is only a matter of time before driver’s licenses become the de facto U.S. identification card. Our licenses already have most of the features of a national ID card, and state governments are hard at work improving what little they lack. From there, it will be only a small step for America to adopt a full-fledged national ID card. What should freedom-lovers do about it? Reread the Constitution and 1984, and then buckle down for an impassioned debate that might challenge the way you think about the issue.

LAW

POLICE RETURN $1,000 BILL TO TRUCKER

PINE LAWN, MO: A man’s treasured $1,000 bill was returned by police who swapped it for more common currency at the mayor’s request after the trucker was arrested. Curtis Smith Sr., 71, had made several requests to have the rare bill returned without success. On Friday the city gave him the money back in exchange for 10 $100 bills. The bill was seized last April when Smith was arrested on suspicion of drunken driving.

PART OF PATRIOT ACT RULED UNCONSTITUTIONAL

A federal judge has declared unconstitutional a section of the USA Patriot Act that bars giving expert advice or assistance to groups designated foreign terrorist organizations. In a ruling handed down late Friday and made available Monday, U.S. District Judge Audrey Collins said the ban is impermissibly vague in its wording.

David Cole, a Georgetown University law professor who argued the case on behalf of the Humanitarian Law Project, declared the ruling “a victory for everyone who believes the war on terrorism ought to be fought consistent with constitutional principles.”

The case before the court involved five groups and two U.S. citizens seeking to provide support for lawful, nonviolent activities on behalf of Kurdish refugees in Turkey. The Humanitarian Law Project said the plaintiffs were threatened with 15 years in prison if they advised groups on seeking a peaceful resolution of the Kurds’ campaign for self-determination in Turkey. The judge’s ruling said the law, as written, does not differentiate between impermissible advice on violence and encouraging the use of peaceful, nonviolent means to achieve goals.

Lawmakers not rushing to take up Patriot Act extention.

Crucial provisions of the law do not expire until the end of 2005, and Mr. Bush’s push for their renewal in his State of the Union speech caught many lawmakers off guard. Charles E. Grassley, Republican of Iowa and a leading member of the judiciary committee, like other members of Congress interviewed, said that while the antiterrorism act included some important law enforcement tools worth keeping, it was so far-reaching that its continuation needed careful scrutiny.

Democratic presidential candidates, while differing on many issues, largely agree in opposing the law. Members of Congress from both parties have sought to repeal main parts of it, and the Los Angeles City Council became the latest of more than 230 communities to approve a symbolic resolution in opposition to the law.

Ashcroft says surveillance powers should stand.

In a letter to the Senate, Attorney General John Ashcroft said that defanging the controversial law, which has been criticized by every major Democratic presidential contender, would “undermine our ongoing campaign to detect and prevent catastrophic terrorist attacks.” Were Congress to vote to amend the USA Patriot Act, Ashcroft indicated, President Bush would veto the bill.

Patriot Act gives rise to activists’ suspicions.

The act’s purpose, according to the act itself, is “to deter and punish terrorist acts in the United States and around the world, to enhance law enforcement investigatory tools, and for other purposes.” It is the “other purposes” part that has left many civil rights advocates uncomfortable. The act also introduced a slew of legislative changes that significantly increased the surveillance and investigative powers of law enforcement agencies in the United States.

Those laws are expanding. Recently, Congress added a provision to the Intelligence Authorization Act for 2004 that grants the FBI greater authority to seize records in terrorism investigations, according to EPIC, a public interest research center in Washington, D.C. The provision, EPIC says, permits the FBI to obtain records without judicial approval from car dealers, pawnbrokers, travel agents, casinos and other businesses.

Police officer Martin C. Maransky, a member of a computer crimes task force, attended a seminar on the act. Maransky says the act “kind of took us by surprise. It gives us a lot of power,” he says. “The Patriot Act is another way for us to get information. We can get search warrants for information from companies or owners of computers. There’s things we didn’t even realize we had access to.”

Department of Justice pursues few claims of abuse under Patriot Act.

Only about 1 percent of the 1,266 civil rights and civil liberties complaints filed against Justice Department employees over the past six months concerning the USA Patriot Act “warranted opening an investigation or conducting a closer review,” according to a report by the department’s Office of Inspector General. Most complaints,it said, were related to accusations of excessive force or verbal abuse by Bureau of Prison officials, denial of library and phone privileges for prisoners, unreasonable cell searches and issues involving solitary confinement.

JUDICIAL REVIEW HAS COME TO MEAN JUDGES AMMENDING CONSTITUTIONS

Judicial review was originally proposed (most notably in Federalist No. 78) as a method of making sure legislatures did not pass unconstitutional laws. For many years it existed more in principle and theory than in practice, even after Chief Justice John Marshall asserted it as a power of the courts. In 1954, the Supreme Court, in Brown v. Board of Education, ruled that racial segregation in state schools violated the Fourteenth Amendment. Though this was a very questionable decision on constitutional grounds, liberals applauded the result, and segregation was so disreputable outside the South that few outside Dixie really objected. Liberals soon realized that an aggressive judiciary could be a shortcut to achieving their agenda without the bother of getting it past voters and legislatures. And so it has been ever since.

A SEARCH THE ROYAL CANADIAN MOUNTIES WILL COME TO REGRET

By figuratively kicking down an Ottawa Citizen reporter’s door, the RCMP did two things it will regret: It pushed Paul Martin’s new government into its first home-grown crisis and focused public attention on intrusive security measures that the country had until Wednesday chosen to largely ignore. Only hours after the raid, the first results landed with a thud. Speaking to reporters in Davos, Switzerland, the Prime Minister again promised to get to the bottom of the case that sent Canadian Maher Arar to a Syrian jail and the RCMP to Juliet O’Neill’s doorstep. Then he went a significant step further, suggesting security legislation written in fear and haste after Sept. 11, 2001, may need revision. None of that is good news for the RCMP and its keenly political commissioner, Giuliano Zaccardelli.

An independent inquiry into the Arar affair is now all but inevitable. It will almost certainly embarrass the RCMP and perhaps other agencies, raise difficult questions about the cross-border exchange of information between government agencies and strain relations with the U.S. that Martin has been trying hard to repair. Demonstrating how fast that pressure is rising, Martin was forced into an awkward denial that Canada is becoming a police state.

Canadian government to probe inteligence agencies’ role in Arar deportation.

Maher Arar, a native Syrian with Canadian citizenship, was arrested in September 2002 on a return trip to Canada by U.S. authorities while he changed planes in New York City. After holding him for nearly two weeks, US officials deported the man to Syria, where he was imprisoned without charge for eight months. Arar says he was tortured in Syria, and forced to sign untrue admissions that he was an agent for the al-Qaeda terrorist group.

OPINION & ANALYSIS

FREEDOM PROPONENT FREE THYSELF FIRST

Provocative Web site explores liberty in a new and different way.

Taken from the “About” page: TakeLiberty.com was established on the premise that political liberty is not only a workable and practical goal, it is also a natural right. We do not need permission to have liberty. We are within our natural rights anywhere on the planet to simply take it -- and not bother either asking permission, nor trying to win consensus. Each individual has the power to take liberty and make it a reality in his own life.

We are not a group of people gathering the disgruntled masses. We do not want the masses. We do not want a group. Does nobody any good. We address this website to individuals. Presumably more than one. Perhaps one at a time. Read a bit, then go away. Think a bit.

Carl Jung’s prescription for unchaining liberty.

Carl Jung’s writing focuses upon the psychological transformations that must occur if we are to transcend the fears and the violence that are tearing apart our world. He states: “If the individual is not truly regenerated in spirit, society cannot be either, for society is the sum total of individuals in need of redemption. I can therefore see it only as a delusion when the Churches try -- as apparently they do -- to rope the individual into some social organization and reduce him to a condition of diminished responsibility, instead of raising him out of the torpid, mindless mass and making clear to him that he is the one important factor and that the salvation of the world consists in the salvation of the individual soul.”

SURVIVING THE COLLAPSE OF VIRTUAL REALITY

David Kline is an Amishman. He farms about 200 acres in Holmes County, Ohio, good land that supports a herd of forty to fifty dairy cows. He has some modern equipment, such as milking machines, but his life does not depend on any of it. In today’s world, his farm provides him a good living. In a Fourth Generation world, his farm would still provide well for him and his family. I am not talking about “survivalism” here. What he and other Amish are doing is preserving an understanding of how to live in reality for the time when all the virtual realities collapse.

Virtual realities lie at the heart of Brave New World, aka the New World Order, “globalism”, “democratic capitalism” (as the neo-cons define it), etc. The bargain Brave New World offers is this: if you will only do as Marcuse advises and trade the Reality Principle for the Pleasure Principle, we will enmesh you in virtual realities that will make you happy. True, you will lose your free will, because our virtual realities will condition you to think as we want you to. But they will also give you anything and everything you want. So what if none of it is real? All that matters is that you feel happy, right now.

HISTORY LESSONS

The catastrophic First World War

The United States’ 1917 entry into World War I represents one of the crucial turning points in American history. Its significance, however, scarcely exceeds modern America’s collective ignorance of it. In the final accounting, the “Great War” was only the opening chapter of a new Thirty Years War. That war climaxed more than fifty million deaths later with the dropping of the atom bombs on Japan. And it launched a bitter half-century Cold War involving triumphant Bolshevism. Perhaps the Los Angeles Times said it best after World War I and its “peace” were concluded: “It is quite impossible to tell what the war made the world safe for.”

New York City: Biggest battle of the Civil War

In July 1863 a bloody battle between New York’s citizens alongside the State militia, and the Federal government’s regular forces. History books call this the “Draft Riot”, as if this was a spontaneous outburst against conscription. That term disguises the magnitude of this well-planned defiance against Lincoln’s brutal policies against the North. This “riot” was actually a military defense of the Empire State against the invasion of its sovereignty. It was the longest engagement of the entire war and the only major urban battle. It surpassed Gettysburg in length of time, geographic scale, and approached it in casualty numbers. It more resembled the house-to-house fighting at Stalingrad or Berlin in the Second World War.

The Constitution Is Not The Answer

For those who truly cherish liberty, it is reality check time. If the Constitution truly had the built in protections to prevent opportunistic politicians from abusing it, we would not be in the mess we are today. There is a very good reason the Patriot who said, “give me liberty or give me death” refused to sign that document.

The history of government debt.

While there is some expressed concern about the size of the Bush deficits, almost no member of either the intelligentsia or the ruling elite has suggested, or even considered, paying the debt down. From 1800 to 1860 the United States political elite viewed government debt as a temporary expedient, to be contracted only for pressing national purposes and then discharged within the lifetime of the generation who contracted it. Amassing debt to fund grandiose national projects and then funding it to perpetuity was regarded as monarchical, English, and corrupting. Times change.

ONE BRIT HAS HAD ENOUGH, AND MOVES TO FRANCE (!)

Theodore Dalrymple says he is turning his back on the ugliness and emptiness of Britain and moving to France, which for all its faults he considers a more civilised country than his own. The French are some years behind us in the race to cultural oblivion. No doubt they will catch up with us in the end, but not in his lifetime, the writer hopes.

Over in England it is not scarves that are aggressive, but the muggers. More here.

THE MYTH OF MARKET FAILURES

Although the idea is widely taught in undergraduate and graduate economics courses, there is very little to it, when you look closely. Market failures are either trivial conditions no one can be justly upset about or they simply do not exist at all. But their alleged existence is used to justify shutting down the free market and transforming it into the far more inefficient, not to mention unjust, statist system Galbraith and Co. desire

RUMBLINGS FROM RUMSFELD: SYRIA AND LEBANON ARE NEXT

A recent edition of Jane’s Intelligence Digest maps out the next stop on this administration’s road to war: Syria. Forget George W. Bush’s “road map”. The real road map, plotted by a cabal of U.S. war-hawks in 1996, is proceeding apace.

A bipartisan empire forged in the Balkans.

One of the deadliest illusions persistent among the American public is the belief that Empire’s foreign policy is partisan by nature. A closer look, however, reveals that both the Balkans and Babylonian expeditions have the essential bipartisan support. Both major parties favor massive taxation, government spending, and foreign wars. People halfway around the world get bombed, killed in droves, and occupied by US and satellite troops.

INCREASING ECONOMIC FREEDOM LEADS TO GREATER POLITICAL FREEDOM AND PROSPERITY

The Economic Freedom of the World: 2003 Annual Report, from The Fraser Institute, provides a roadmap for building prosperous and democratic nations, according to Nobel Laureates who helped construct the report. There is a clear correlation between countries scoring high on the UN’s Human Development Index and those countries that score well in the Economic Freedom Report. The more economically free a country, the greater the level of human development enjoyed by its citizens. The top fifth most economically free countries have an average score of 9 out of 10 on the Human Development Index whereas the bottom fifth least economically free countries have an average score of 6.

“Freeing people economically unleashes individual drive and initiative and puts a nation on the road to economic growth,” says Milton Friedman, one of the original creators of the Economic Freedom Index. “In turn, economic prosperity and independence from government promote civil and political liberty.” The key ingredients of economic freedom are personal choice, voluntary exchange, freedom to compete, and the protection of person and property.

SO CALLED INDEX OF ECONOMIC FREEDOM PULLS THE WOOL OVER OUR EYES

The Heritage Foundation and Wall Street Journal’s tenth annual Index of Economic Freedom pulls the wool over our eyes. The deception is unintentional and arises from a fatal flaw in the index. The index delivers the comforting conclusion that the US is the 10th most free country, far ahead of 155th ranked North Korea. However, the index ignores the simple truth that people who do not own the product of their labor are not free. People subject to an income tax do not own the product of their labor. Serfs and slaves are not free, because they do not own their labor. Any American who thinks he owns his labor can test the proposition by refusing to pay his income tax. He will quickly discover that he is not a free person.

The Heritage index is ahistorical. It is blind to the enormous loss of freedom in the 20th century, especially in the US and the UK. It takes as its starting point the re-enserfment of populations and predicates a “freedom” index on unfree labor. This extraordinary failing reduces a valuable study to a propaganda device.

A broader index of freedom, one that not only includes self-ownership, but also the Bill of Rights that defines our civil liberties and the 14th Amendment that insists on equality before the law, would reveal that the US is a stunningly unfree country. The lowest federal tax rate in combination with the Social Security and Medicare tax confers serf status upon lower income groups. The top tax rate, federal and state, converts successful Americans into government’s slaves. The delusion that America has a monopoly on virtue and the right to impose American values on the world prevents a realistic look at the deplorable state of freedom in America today. It is a paradox that a country that has abandoned freedom and re-enserfed its population sees itself as role model for the world.

WHAT TERRORIST THREAT?

Following the coordinated attacks orchestrated on 9/11/2001 there have been no significant terrorist attacks that have occurred in the entire United States since that time. There have been no bombings of American nightclubs, movie theaters, grocery stores or shopping malls. There have been no assaults by gunmen on those attending NFL football games or any other sports events.

In the meantime, both the northern and southern borders of the United States have remained largely undermanned and unguarded by the United States Government, allowing anyone to enter, smuggling anything from drugs to portable anti-aircraft missiles, to any other munitions domestic terrorists might want to obtain and use.

In point of fact, no terrorist threat exists, nor has it ever existed, in the mainland of the United States. If that were untrue, terrorists would have committed violent acts since 9/11/2001. They have not happened. Not one. It is all a big, fat lie. If terrorists could inflict their harm upon us, they would have by now. We citizens are fools.

VOTE HERE, PAY LATER. IT’S THE AMERICAN WAY NOW

The people get fooled every time there is an election. They must love it. There is an old tradition to being either a Republican or a Democrat that changing times have not changed, and the politicians do not wish to change because it keeps one of two facades in power. Changing parties is not changing directions, but the people in power want us, the American voters, to think it really matters. The last man to run for president who really wanted to change things in America was Barry Goldwater, and he was soundly beaten by socialist Lyndon Johnson. In his time, which spanned the late 1950s into the 1970s, Barry Goldwater stood for nearly identical values to those that Rep. Ron Paul (R-Texas) stands for today, and Americans will have none of it: abolishment of the nanny state and a liberty.

Free trade: What has government got to do with it?

Someone once told me that he was all for free trade but could not understand why free trade agreements needed thousands of pages. The simple answer is that this is not free trade. All that is required for free trade are willing buyers and sellers agreeing voluntarily to deal peacefully with each other, the eradication of protectionist tariffs, quotas and subsidies, and the presence of important foundations of a free market economy such as secure property rights and sound money. So instead of a massive, detailed agreement between governments (which, to be fair, would make a handy doorstop) that invariably includes a witches brew of subsidies, bailouts, aid programs, bogus regulations, exceptions, bureaucracies, quotas, favours, cartelisation, etc., one would really need a commitment by governments to stay the heck out.

AN INDOCTRINATION MODEL THAT LASTS

In a tutorial showing teachers how to recruit and use students as activists, a former high school social studies teacher unwittingly exposes a model for social predation by teachers on students that is instituted in K-12 and college campuses across the USA. A must-read for anyone who has or knows children in a government school.

BUSH LEGACY: LESS FREEDOM

If anyone still looks to the Republican party of President George W. Bush for limits on government power, it is long past time to look elsewhere. They certainly will not be found among the Democrats either. But this is no reason for Pollyannaish rhapsodies about the Republicans, who are more offensive than the other guys because they still pay lip service to limits. That is, they insult our intelligence more than the Democrats.

DOES MORALITY REQUIRE A SOUL?

As scientists continue to confirm that human beings are just an especially clever species of animal, philosophers have hammered away at the old picture of the mind as an immaterial, unconstrained substance for which the body is merely a fleshy garment. On the scientific front, souls seem increasingly in danger of being banished to the trash heap of redundant hypotheses. The problems on the philosophical end are, in a sense, still more disturbing to the conventional picture, because they go to the conceptual root of the manifest image. Many philosophers now believe that radical free will or fixed “true selves” are incoherent concepts.

It would be a mistake to suppose that the tension between the two worldviews presents a problem only for religious believers. Core tenets of liberalism, such as the emphasis on free, autonomous choice and individual rights, were originally closely tied to the Christian doctrine of the salvation of the individual soul and still bear the mark of that origin. Indeed, in a thoroughly secular age, the main challenge of Owen Flanagan’s book, The Problem of the Soul: Two Visions of Mind and How to Reconcile Them, is really directed at people who trace their political ideology to the Enlightenment’s classical liberal tradition. But if naturalism leaves us with a new set of problems in place of our old and comforting myths, it also leaves us with a new opportunity to create meaning. That, too, is a kind of freedom.