Offshore News Digest for Week of September 20, 2004

GLOBAL BUSINESS

CAYMAN’S FINANCIAL INDUSTRY UP AND RUNNING, POST-IVAN

The Cayman Islands Monetary Authority (the “Authority”) announced that it will resume its operations on Monday, 20th September 2004, following the passing of Hurricane Ivan. Despite the destructive force of the category 5 hurricane, the headquarters of the Authority received little damage and all of its operating systems and records remain secure and intact. Consequently, the Authority is able to assist its licensees, wherever possible, in making as smooth a transition to normal business activity.

Internet access is now available in the capital George Town, where electricity was restored to the Authority’s headquarters as well as other surrounding buildings. Central George Town is expected to receive power over the weekend. Many financial institutions, therefore, will also re-open for business on the 20th of September. The Cayman Islands clearing banks confirmed that their records and data were unaffected and that the banking system remains sound.

Looting on Caymans followed hurricane.

On Sunday evening when the worst of the hurricane had died down sporadic looting began around the island of Grand Cayman. Martial law was declared in the Islands on Monday and various incidents were reported, including looting from jewelery stores, supermarkets and other businesses, as well as private homes. The Royal Cayman Islands Police (RCIP), did what they could to control the situation including using force, as units are armed.

No truth to rumors that foreign media are being kept out of the Caymans.

According to the Government Information Service (GIS), recognised media organisations may make arrangements to travel to the Cayman Islands by filing with GIS the names of the individuals travelling, the description of equipment to be brought into the country and the proposed flight arrangements (private or commercial).

Disaster-hit Cayman bank takes refuge in Jersey.

A Cayman Islands bank is operating from Jersey with three staff who have been evacuated from the hurricane-ravaged Caribbean. Bank Austria Cayman Islands staff are using offices in the disaster recovery business Foreshore. The bank, which has assets of $2.2 billion, was granted a banking licence to operate in Jersey within hours of an application being made to the Jersey Financial Services Commission (FSC) earlier last week. The director of banking at the Jersey FSC, Mark Sumner, said that a licence was granted under the Banking Business Law. He said that the commission had to do “a fair bit of work to process the application quickly.”

Jersey shows its value as disaster recovery site.

At least seven disaster recovery programs have been put in motion, with the Island’s financial services regulator called upon to consider a number of emergency applications. David Carse, the director general of the Jersey Financial Services Commission, said, “Obviously it has been terrible for the Cayman, but it does illustrate that Jersey does have attractions as a disaster recovery site.”

Banks reopen but Cayman Islands remain “in crisis”.

Many of the Cayman Islands’ 600 banks re-open Monday in an effort to show that life is back to normal in the British territory devastated by Hurricane Ivan last week. But local people fear the the reopening of George Town’s business district, where electricity has been restored ahead of the rest of Grand Cayman, is being used to mask an increasingly serious humanitarian problem. Frustration is growing on the streets. Even government workers speak of a “cover-up” of the scale of the disaster by authorities desperate not to tarnish the islands’ image and anxious to persuade investors to stay.

Along the coast, some areas have been obliterated. No one yet seems sure whether all the residents have been accounted for. The stench of rotting debris fills the air and electricity and mains water supplies have yet to be restored in most places outside the capital, George Town. Petrol and bottled water are rationed.

Hurricane Ivan hits Cayman law firms.

Law firms in the Cayman Islands are struggling to relocate staff to safe havens around the world in the wake of Hurricane Ivan, which hit the islands last week. Disaster recovery programmes have been launched, with scores of fee-earners and staff in the main firms being flown out to the US, the British Virgin Islands (BVI) or London.

Jonathan White, chairman of Ogier, says his firm is still trying to make contact with missing staff and lawyers who were caught in Hurricane Ivan. Angus Foster, senior partner at Walkers, said, “A lot of staff have lost their houses and have nowhere to live. Some secretarial staff have nothing but the clothes they were wearing. We’re arranging for them to fly back [to their country of origin] or to Miami.”

Caymans slowly recover from Ivan.

A week after Hurricane Ivan ripped through the Cayman Islands, residents are still trying to come to grips with the devastation left in its wake. About one in five houses were destroyed beyond repair and a quarter of buildings that remain are uninhabitable. Hundreds of people are still living in shelters while they attempt to repair their homes. Steve John, a Cayman Islands government spokesman based in London, said the capital George Town now has limited power and Internet access is also available again. Electricity pylons are still strewn across the landscape and access to water is limited.

Living conditions are starting to improve, although most roads on the eastern side of the island are impassable because of debris. Although the Red Cross is providing emergency food packages, water purification tablets and plastic sheeting, many residents have taken it upon themselves to supply the island with vital resources -- such as generators, plywood, chainsaws and canned food. The Florida Cruise Ship Association provided a cruise ship on Tuesday loaded with relief supplies.

Residents estimate it could take up to a year for the island to recover. Tourists and residents are still struggling to leave the island as Cayman Airways runs an emergency evacuation service on a first come, first served basis. South African Airways chartered a plane of South African citizens out of the island. Air Canada and Air Jamaica did the same thing for residents of those countries. Many residents are escaping to Cayman Brac, which suffered minimal damage from Ivan and has running water and electricity. Despite the damage and confusion, there have been few incidences of looting.

TAX BREAK BRINGING BUSINESSES, AND FRAUD, TO THE U.S. VIRGIN ISLANDS

ST. THOMAS, V.I.: Inside and outside the freshly stuccoed mansions that hug the hillsides here, the gardeners and cleaning women come and go. No one else seems to, though. No one, that is, except the federal agents who have taken to questioning the workers and the neighbors about when the owners last took a dip in their glistening pools and when they might be expected back. The questions are intended to ascertain whether the owners of the candy-colored homes are bona fide residents of the Virgin Islands or instead are pretending to live in these homes to dodge an estimated $400 million in federal income taxes.

Drawn by an economic development program that is blessed by Congress and confers a special tax rate that amounts effectively to just 3.5% of income, well-heeled Americans have migrated in droves to this United States territory in the last few years, kindling its first real economic boom. At least until recently. Last year, IRS agents raided the offices of one of the program’s beneficiaries, and the Justice Department has subpoenaed others in what one government official described as three criminal investigations.

The ensuing confusion about the islands’ economic development program and fears of attracting the scrutiny of tax authorities have already scared away some of the new arrivals, both individuals and companies. And local officials are beginning to fret that people violating the spirit and perhaps the letter of the tax law could derail the program, which is vital to a territory where 30% of the residents were living below the poverty level in 1999. Many here blame the federal government for failing to carefully define what constitutes residency and what income qualifies under the program.

The case for economic incentives, according to a resident Virgin Islander.

I have lived in the US Virgin Islands for more than 16 years, and until a year or two ago these islands were regularly featured in the travel sections of various international publications -- as a world-class destination for visitors of all sorts: honeymooners, divers, sailors, shoppers and sun worshippers. Recently, though, my beloved islands only seem destined for cover slots in the business section of various publications. Snippets supporting and grousing about the territory’s tax incentive program have ended up in publications ranging from the Wall Street Journal to the Sovereign Society’s newsletter.

Yet as I look out my window at a cruise ship in St. Thomas Harbour, and think about the strides that the territory has taken in recent years -- courtesy of the economic development programme -- it is clear to me that there is a story that has not being told about the US Virgin Islands. It is a story of jobs, training, local spending, tax payments, and charitable contributions. It is also the story of how important it is to have clear and workable rules and regulations for any economic development program -- from the start.

Not too long ago, when the cruise ships pulled out, that would have meant that the windows of Charlotte Amalie would be dark and merchants would be looking to the next day’s tourists. But now the computers are humming 24/7 (for better or for worse), the Bloombergs are spitting out data, the Blackberries are ringing, and people are waking up to careers that a decade ago could only be found in New York or Miami. With its diverse population, beautiful terrain, economic diversification and use of carefully crafted incentives to bring non-polluting jobs to the territory, the US Virgin Islands has the potential to be the model 21st Century community.

SWISS BANKING CHIEF HIGHLIGHTS COSTS OF REGULATION

The chief executive of the Swiss Bankers Association says rising regulatory costs represent one of the main strategic challenges to the banking sector. Urs Roth said that regulatory requirements now account for up to ten per cent of the work in Swiss banks -- with smaller institutions particularly hard hit. Roth was speaking after the SBA’s annual media conference, which also saw the publication of a first-ever survey of the short-term prospects for the sector.

REPORT: IRELAND NEEDS MORE TAX BREAKS TO COMPETE AS AN OFFSHORE FINANCIAL CENTER

The report, which was presented to the Government last week, identified five areas where there are “excellent opportunities to grow and develop the sector.” They include developing the IFSC as a center from which banks and companies raise debt and finance large deals. There is also an opportunity for Ireland to become a hub linking offshore back offices that administer financial products with the front offices that sell them in different markets, according to the review.

The report consultants also believe that Ireland’s position as a major centre for administering investment funds can be developed further. They also conclude that asset management, which is a relatively small sector at present, could be grown by targeting hedge managers and other niche players. The final opportunity identified is to make the Republic a centre for the management of mass risk and retail insurance.

GIBRALTAR EXCLUDED FROM NEW EUROPEAN BORDERS AGENCY

Gibraltar is to be excluded from a new agency being set up to police the EU’s external borders, it was confirmed after a meeting last week. The new agency will coordinate the monitoring of the EU’s external land and sea borders, facilitate better exchange of information on border security, and help countries train their border officials. Last month the Gibraltar Government expressed dismay at the UK Government’s intended limited participation in the agency without Gibraltar, after what it described as diplomatic pressure from Spain. Gibraltar’s government is said to be considering a legal move against the decision.

RULES TO BE RELAXED FOR CHINESE FIRMS INVESTING IN HONG KONG

According to reports in the Chinese media, rules governing how mainland enterprises can invest in the special administrative regions of Hong Kong and Macao are due to be relaxed. A new policy has been formulated setting out a clear service pledge on handling applications from mainland investors, in order to facilitate approval procedures. The new arrangement will reportedly make the application procedure more transparent and hand over most approval duties to provincial authorities.

Firms going to Hong Kong and Macao can choose to invest through setting up wholly owned or jointly owned businesses, mergers, acquisitions or capital injection under the relaxed rules, the source stated. However, enterprises planning to be listed overseas indirectly, and investment holding companies, will still require approval from the Ministry of Commerce. Applicants no longer need submit project proposal and feasibility study documents. The new rules are being implemented as part of the Closer Economic Partnership Arrangement (CEPA) between Hong Kong/Macao and China.

CAYMAN STORM DAMAGE COULD IMPACT BERMUDA INSURERS

Devastation in the Cayman Islands from powerful Hurricane Ivan could leave a financial mark on Bermuda shores, with several local companies having stakes in insurance firms operating in the Caribbean financial center. Ivan smashed into the Caymans, a low-lying chain of several islands, on September 12, with winds of up to 150 mph. The storm is estimated to have caused more than $1 billion in property damage. Early assessments predict that damage in the Caymans will account for a significant portion of total Caribbean damage from the storm, which is estimated at about $2 billion. About a fifth of homes on Grand Cayman, the largest of three Cayman Islands and home to 43,000 people, were destroyed by the hurricane.

The level of expected claims has prompted some speculation that the island’s domestic insurers might have to seek cash injections from investors, but ratings agency AM Best said it was too early to say whether this would be necessary. One Bermuda firm that has a significant stake in a Caymans insurer said it was too early to give an estimate of claims from the event, but said reinsurance protection was expected to be adequate. Another said it had not been approached for financial assistance.

AM Best senior financial analyst Nelson Rivera said it was too early to say whether the Caymans’ major domestic insurers -- Island Heritage Insurance, British Caymanian Insurance and Cayman General Insurance -- would need cash injections from stakeholders to meet claims from Ivan. Mr. Rivera told The Royal Gazette that ratings for the Cayman insurance companies were currently under review with negative implications, indicating the strong possibility that financial strength ratings could be downgraded.

FOREIGN INVESTMENT PLUNGED IN CENTRAL AND EASTERN EUROPE IN 2003

Central and Eastern European countries suffered from an unexpected sharp fall in foreign investment during 2003 despite the growing trend for companies to seek cheaper offshore production sites, a UN report said. Nonetheless, the UN Conference on Trade and Development (UNCTAD) forecast a “second wind” for eastern Europe as earlier foreign investments took hold and the region capitalized on its reputation as a pan-European manufacturing base. Foreign Direct Investment (FDI) flows into the region plunged by about one-third from a record high of $31 billion in 2002 to $21 billion last year, the report said.

Experts had forecast that the skilled but relatively cheap workforce available in the eight new central European members of the EU would help them attract even more investment from foreign companies anxious to gain a foothold in the EU’s single market. Instead, UNCTAD’s report found that long-term “greenfield” investment in production plants in the region could not immediately compensate for the plunge in FDI last year in the Czech Republic and Slovakia with the end of privatization of former state-owned companies. It also underlined that enlargement had not led to large scale diversion of investment away from older EU members, with France, Germany, Ireland and Spain still ranking as the most favored destinations for foreign capital.

The eight eastern economies that joined the EU this year saw their combined inflows fall from $23 billion in 2002 to $11 billion last year. But the 11 non-EU members in the region saw their slice grow from 23% in 2002 to 45% as foreign investment inflows there climbed to $9.5 billion in 2003.

TAXES

TAX CARROT OFFERED TO AUSTRALIAN COMPANIES

Australia’s governing coalition will try to ease the tax treatment of Australia-based companies operating overseas if it retains power in next month’s general election, Peter Costello, the country’s treasurer, said. Mr. Costello said one of his priorities was to help companies that derive much of their income overseas and pay tax on it but do not benefit from a tax credit in Australia. Financial institutions with operations in the UK and Europe are particularly affected.

The plans come as News Corp, the biggest company on the Australian Stock Exchange, is preparing to move its domicile and primary listing to the US. But Mr. Costello said the media group was moving mainly to qualify for inclusion in US equity indices. Nevertheless, the News Corp move has reignited fears inAustralia that the stock market is in danger of marginalization. It underlined the difficultiesAustralian companies face when competing globally. The government’s plans for tax legislation are based on a detailed review of the country’s international tax arrangements published last year.

IRELAND IS MOST PROFITABLE TAX HAVEN FOR US FIRMS

Ireland is the most profitable country in the world for US corporations, a detailed analysis of global tax havens has found. The analysis, in the influential US tax journal Tax Notes, found that profits made by US companies in Ireland doubled from 1999 to 2002, while profits in most of the rest of Europe plunged. While Luxembourg showed greater profitability rates for US corporations, Ireland has a much larger “real economy” and produced the greatest profitability.

The report found a huge shift in the movement of capital towards tax havens. In low-tax Ireland profits of subsidiaries of US multinationals have doubled in four years, from $13.4 billion to $26.8 billion, while profits from operations of US multinationals in no-tax Bermuda have tripled to $25.2 billion. The report analyzed the most recent data available from the US Commerce Department. While US corporations in Ireland were involved in real productivity and the country was only a “semi-tax haven”, locations such as Bermuda were found to have returns that bore little relation to productivity on the island.

SWISS BANKERS CALL FOR EXTRA LAYER OF LEGISLATION ON EU SAVINGS TAX PLAN

The Swiss Banker’s Association has revealed that it will push for new domestic legislation to back up the agreement reached with the EU on the taxation of interest income earned by foreigners with bank accounts in Switzerland. In a press conference on Wednesday, the SBA said that the new legislation would act as “additional insurance” against any unforeseen circumstances arising as a result of the agreement with the EU.

“Our aim is merely to formulate in more precise terms those provisions of Swiss law that will help exclude the ambiguities of the future EU law,” Urs Roth, chief executive of the SBA explained. According to Roth, the agreement with the EU will cost the Swiss banking sector a “high three-digit million” figure.

HAVENS THAT HAVE BECOME A TAX ON THE WORLD’S POOR, ACCORDING TO LEFT-WING GROUP

Billions of pounds, enough to pay for the entire primary health and education needs of the world’s developing countries, are being siphoned off through offshore companies and tax havens, according to a body formed to expose the offenders. Aid organisations are alarmed that money which should be used for building the infrastructure of the poorest countries is being hidden in havens by corrupt politicians and multinationals exploiting tax loopholes. Offshore companies are being formed at the rate of about 150,000 a year. While in the 1970s there were just 25 tax havens, there are at least 63 now, about half of them British protectorates or former colonies. Tax avoidance in Britain alone is estimated at between £25 billion and £85 billion.

This month the Tax Justice Network, which was formed last year by tax experts and economists worried about the trend, launched an international secretariat in London. It will work with the UN and other international bodies to reverse the practice of hiding money from governments worldwide.

Chirac in call for global tax...

French President Jacques Chirac has called for an international tax to help fight poverty. Speaking at the UN, Mr. Chirac praised a report prepared by a French working group, which suggested an international tax be levied on arms sales and some financial transactions in a bid to eradicate poverty. The report contains “technically realistic and economically rational solutions,” he said.

... But the U.S. refuses to go along.

The US refused to sign a UN declaration to fight hunger and poverty because part of the discussion surrounding the statement called for levying a global tax on financial transactions as well as arms sales. The declaration was signed by 110 heads of state and was the result of a meeting of leaders from 50 nations ahead of the 59th UN General Assembly. The declaration followed the release of a UN study that found that over one billion people in the world live on less than $1 per day.

The tax proposal was only one point of discussion, but Agriculture Secretary Ann Venemen, who spoke in Bush’s place, called the proposal “inherently undemocratic”. In response, Chirac said, “However strong the Americans may be, in the long term, you cannot successfully oppose a position taken by 110 countries. You can’t oppose that forever.”

IS BERMUDA A “TAX HAVEN”? WELL, YES, NOW THAT YOU ASK

An analysis by a US tax expert of offshore financial domiciles had classified Bermuda as a “pure tax haven”. Six out of ten of the respondents to the Royal Gazette poll agreed when asked the question, “Is Bermuda a tax haven?”

Earlier this month, Finance Minister Paula Cox said such reports were not always based in reality, pointing out that anyone who does their research will see that Bermuda as an international business jurisdiction should not be labeled “a tax haven”.

NEW ZEALAND CRACKING DOWN ON TAX AVOIDANCE BY AUSTRALIAN-OWNED BANKS

New Zealand Finance Minister Michael Cullen announced that the Government was legislating to plug a loophole that has allowed hundreds of millions of dollars to pour through the Government’s fingers to the shareholders of the Australian-owned ANZ, BNZ, Westpac and ASB. The move follows a two-year investigation by the Inland Revenue Department into why bank taxes have stayed static while their profits have increased.

The department is not allowed to say how much tax the banks have avoided paying, but Reserve Bank documents released last month estimate the big four paid just NZ$191 million tax in 2003 on a combined profit of $2.87 billion. That equates to an effective tax rate of 6.7% -- a fifth of the 33% company rate.

The new measures will remove the incentive for banks to finance their New Zealand operations almost exclusively from debt, a practice that allowed them to offset income against debt servicing costs. From July of 2005 they will have to hold a minimum level of capital in New Zealand to qualify for interest deductions. They will also have to fund offshore investments from capital if they want to claim interest deductions.

UK LAWYERS FACE SHOWDOWN WITH BROWN ON TAX DISCLOSURE

Lawyers set themselves up for a showdown with the Chancellor after rejecting claims that they should reveal clients’ tax plans. In guidance issued to its members, The Law Society said it believed the new tax avoidance disclosure regime should be largely ignored by solicitors. The move undermines Gordon Brown’s attempts to clamp down on tax leakage through imaginative schemes to reduce company and personal tax bills devised by accountants and supported by lawyers. The legislation comes into force at the end of the month.

Janet Paraskeva, Law Society chief executive, said, “Solicitors have a duty to keep their clients’ affairs confidential. It should be made absolutely clear when they have to make a report under the proposed rules.”

Talks between the Revenue and lawyers on the issue of professional privilege have reached a stalemate. The taxman argues the legislation does not prevent lawyers maintaining the balance between confidentiality and disclosure. Observers say that unless there is a last-minute climbdown, the legal profession is on a collision course with Mr. Brown. Accountants, faced with full disclosure about discussions with their clients because they do not enjoy the same professional privileges, are furious at the society’s stand.

INLAND REVENUE PERFORMS U-TURN OVER GIFT AND LOAN TRUST TAXATION

The UK’s Inland Revenue has back-tracked on its decision to levy income tax on gift and loan trusts, a tool used by many to shelter assets from inheritance tax. In his most recent budget, Chancellor Gordon Brown announced that he would be bringing in laws to prevent people from continuing to benefit from assets that had been given away for tax purposes. Since Brown’s announcement, the Inland Revenue has changed its mind at regular intervals about whether or not to include gift and loan trusts within the new “pre-owned assets” regime.

During the summer, the Revenue wrote to the Association of British Insurers informing it of plans to levy income tax from next April against growth accruing in any trust set up since March 1986. However, after receiving strong representations from the insurance industry, the tax authority has seemingly decided not to subject the trusts to the new tax regime after all.

IRS IS SEEKING A FEW GOOD SNITCHES

Sen. Charles Grassley, R-Iowa, chairman of the powerful Senate Finance Committee, has proposed legislation that would create a whistle-blower office at the IRS that would handle reports of tax fraud by wealthy taxpayers and corporations. Under the provision, the whistle-blower’s office would go after individuals with a gross income of more than $200,000 and whose disputed tax -- including penalties and interest -- exceeds $20,000.

The proposed high thresholds are because the government does not want people ratting on their neighbors on a tax bill consisting of chump change. The legislation is before a House-Senate conference committee. Under the Grassley provision, informants who blow the whistle on tax evasion stand to win 15% to 30% of the recovered taxes and penalties if they contribute substantially to the case. Those who make less substantial contributions can win up to 10% of recovered money.

The IRS already has an informant program, which rewards informants as much as 15% of the recovered money, up to $2 million. But critics said the program is not working because the government is so tight when it comes to passing out the money.

LIBERAL GROUP DECRIES CORPORATE TAX SLIDE

Business tax cuts and proliferating shelters pushed the effective tax rate of 275 large U.S. corporations down by 20% since 2001, even as their pretax profits jumped 26%, according to a new analysis by Citizens for Tax Justice, a liberal tax watchdog group. Dozens of companies in the sample paid no taxes. The study attempts to explain a sharp falloff in corporate tax receipts, which are at their lowest level in 20 years compared with the size of the economy, and which continued falling even as the economy rebounded in 2002 and 2003, according to the Congressional Budget Office.

But in targeting its analysis to the years President Bush has been in office, the group coupled its study with sharply partisan criticism of the administration’s economic policies. The study focuses on the ways in which corporations can shelter their profits from taxes, an issue that predates Bush but which CTJ says has been increasing under the current administration. Officials from several of the companies included in the study disputed the group’s conclusions, and the Treasury Department blames recession and slow recovery for declining payments.

THE U.K. MIDDLE CLASSES HAVE NOTICED THEIR INCREASED TAX BURDEN

As the Labour faithful gather in Brighton for what is expected to be their last annual conference before the general election, much of the grousing that always accompanies these occasions will be about the government’s timidity, especially when it comes to tax. Party activists complain that, because Labour has not taxed with sufficient gusto, its traditional supporters will not bother to vote. The Tories’ failure to revive under Michael Howard has encouraged the belief in Labour circles that the government has won the argument in favor of spending whatever it takes to improve public services.

But a poll carried out for The Economist suggests the opposite (see chart): that voters’ tolerance for tax-and-spend policies is fast running out. And, worryingly for Tony Blair, who has so assiduously courted them, it is the middle classes that are seen to have done worst. (In Britain, incidentally, “middle class” describes people who are averagely well-off or better, vs., in America, people who are averagely well-off or worse.)

According to the poll, 64% of respondents are aware that their tax bill has gone up since Labour came to power and very nearly as many expect it to rise further if Labour wins the next election. At the same time, 60% think that the extra spending on public services has not improved their lives, while those who believe it has made things better for them are only slightly more numerous than those who reckon things have got worse. Astonishingly, given the government’s successful macroeconomic record, 59% of respondents think they have not prospered under Labour. How justified are the middle classes’ complaints?

ASSET PROTECTION

YOU HAVE GOT THE POWER TO MAKE GRANDCHILD RICH

Want someone in your family to be rich? You can make it happen with a mixture of affection, forethought and relatively small sums of money. The mixture can be turned into millions of dollars if that “someone” in your family is a grandchild. The magic ingredients, of course, are compound growth and time.

Give $11,000 a year (the annual gift exclusion) for five years. Let it grow while invested in a low-cost equity index fund. Your grandchild will have more than $5 million at age 56 and nearly $16 million by age 69. Spoilsports will be quick to point out that $5 million 56 years from now might not be enough to cover a major Starbucks habit. We keep losing purchasing power to inflation.

Well, yes, but if you assume a long-term inflation rate of 3 percent, the original investment will still grow to $1 million of current purchasing power by age 56 and $2 million of current purchasing power by age 69. These figures assume the 10.4% annual rate of return on large common stocks, fully taxed at 15% each year, or a net of 8.84% annually. Returns, of course, could be lower. Taxes and inflation could be higher. Whatever.

CYBERCON

As a high school senior in Houston, Zachary Keith Hill killed time by doting on his souped-up Honda Accord, practicing hair-braiding skills and surfing the Net. Hopscotching AOL chat rooms and message boards, he hooked up with “Mike”, a salty 16-year-old from New York City with a penchant for slamming chat room blowhards. Mike helped Hill design a flashy Web site for one of his classes in the winter of 2002, a favor that grew into a friendship and, within months, evolved into a partners-in-crime spree.

That partnership deepened and grew soon after Hill entered his freshman year as a computer engineering student at Texas A&M University that fall. The 20-year-old recalls, “Mike said, ‘Anything you can think of, I can get for free.’ I was, like, ‘Cool.’” Over the next year the duo blitzed what Hill calls “thousands and thousands and thousands” of bogus e-mails supposedly from AOL’s billing center to subscribers, urging them to provide sensitive financial information before their accounts were canceled. A link embedded in the e-mails sent recipients to a stunningly realistic but phony AOL billing page, where they could input their credit card numbers. The data went to an e-mail account opened under Hill’s name. Hill and his accomplice used the pilfered cards to bankroll a $47,000 online shopping spree for videogames, computer equipment and car accessories.

This is the new face of the fastest-growing cybercrime: not an al Qaeda agent, not a hardened criminal, not even a Kevin David Mitnick, the computer genius who hacked his way into the heart of what was then Pacific Bell. These new scammers are average students, bored stay-at-homes and low-end criminals who have discovered how easy it is to pick the locks on the Web. Their specialty is phishing, creating fake sites that sucker people into giving up account numbers and other sensitive information online. (The spelling alludes to the phone “phreaks” of decades past, who pilfered long-distance phone service.) They get technical help from any of 50 or more gangs of professional criminals, operating mostly in Russia and eastern Europe, where legions of unemployed programmers have found steady work as freelance hackers.

Gmail scam phishes for victims.

An email which looks like it comes from Gmail admin has turned out to be a phishing expedition. The emails ask you to connect to your Gmail account and gives you a link. If you click on the link you end up with a box where you are invited to fill in your user name and password. If you do so you are taken to a page that says sorry there are no more gmail addresses available. However the phishers have harvested your email details and can use them for spam attacks or other nasty business.

Phishing cost banks $1.2 billion.

Anti-virus software company Symantec published statistics that estimated US banks and credit card issuers lost almost $1.2 billion because of the phishing phenomenon in one year. And meanwhile its Internet Security Threat Report claimed that zombified, or remotely controlled Windows based PCs, now number over 30,000 a day. These are machines that have programs on them allowing people’s PCs to be controlled for a number of different purposes including co-ordinated denial of service attacks and mass-spamming emal attacks. Of course, Symantec has an interest in these stats because it sells software which is intended to thwart such attacks.

Symantec estimates that it takes only around five days for crooks and Lord Spamster to exploit vulnerabilities in software. A staggering 95% of the vulnerabilities between 1st January and June 30th this year were “highly severe”. The survey also reported that 4,496 Windows viruses and worms were detected during the same period -- four and a half times the number during the same period in 2003.

U.S. AGRICULTURE CO-OPS FORM OFFSHORE CAPITIVE INSURANCE COMPANY

Twenty-three agriculture co-ops have formed their own offshore-based captive insurance company -- a form of self-insurance -- to better control their liability, auto and property insurance costs. The company, Pillar Insurance Ltd., is believed by industry observers to be the first captive formed by agriculture co-ops nationwide. Pillar’s 23 co-ops are all in southern Minnesota and range in size from $10 million to $200 million in revenue.

A captive insurance company, which shareholder members own and operate, lets shareholders stabilize the cost of insurance, invest their premiums and retain profits. They also assume more risk and must raise startup capital, set aside reserves to cover claims and meet regulatory requirements. The Minnesota co-ops had self-funded their workers’ compensation insurance for about a decade, so they were familiar with the self-insurance idea.

Captives are the fastest-growing part of the U.S. insurance industry. Growth spiked after Sept. 11, 2001, when it became difficult to get certain types of property and liability insurance, said Carl Modecki, president of the Captive Insurance Companies Association in Minneapolis.

INVESTIGATORS CO-OPERATE TO STOP INTERNATIONAL INSURANCE FRAUD SCAM

A man with estates in Ireland and Barbados has been nabbed in Canada by international law enforcement authorities, in what is being described as a global insurance fraud scam involving companies in St. Vincent and the Grenadines. U.S. officials reported that federal and state authorities in California said the international search for a fugitive wanted in connection with an alleged $20 million global insurance fraud operating via the Eastern Caribbean, ended with his arrest in Canada.

A federal complaint filed in Sacramento charges the 58-year-old man, using the alias Robert Lewis Brown with conspiracy, mail fraud, money laundering and making false statements. Authorities said even that name is fake, assumed a decade ago from a man of the same age who died three years ago in Las Vegas. Brown’s wife, who has not been charged, is believed to also be using an assumed name, that of dead Shirley Darlene Whittaker. Brown was traveling in Canada when he was picked up last week by the Toronto Metropolitan Fugitive Squad on immigration charges and a US arrest warrant. Most recently, however, he had been living in his estates in Ireland and Barbados.

The arrest continues an effort by the FBI, IRS Criminal Investigations, and California Department of Insurance Investigation Division to shut down the alleged insurance scam operated through two companies in St. Vincent and the Grenadines. Since January 2000 those companies, Tri-Continental Exchange Ltd. and Combined Services Ltd., collected $20 million in premiums from customers throughout the US for insurance policies they falsely claimed were backed by a collection of real insurance companies, authorities alleged. In furtherance of the scheme, Brown and others reportedly set up a number of offshore insurance companies on the island of Nevis. Customers were told to send payments to post office boxes in Phoenix, Arizona. The money was then forwarded first to St. Vincent and the Grenadines, then to a bank account in Blaine, Washington, with some of the money siphoned off to foreign bank accounts, authorities alleged.

ABACHA FAMILY APPEALS HANDOVER OF FROZEN FUNDS

The family of the late Nigerian dictator, Sani Abacha, has appealed against Switzerland’s decision to hand over to Nigeria funds frozen in Swiss banks. The appeal follows a decision in August to return the remainder of Abacha’s assets, worth SFr622 million ($500 million), which the Swiss say are of “criminal origin”. The money will have to remain frozen until the court rules on the appeal.

It is the second time that members of the Abacha family have attempted to block Swiss cooperation with Nigeria. Previously they went to court to try and prevent the two countries from sharing information about the late dictator’s assets. That appeal was thrown out, paving the way for the transfer of the frozen funds, which was approved by the justice ministry last month. The return would bring an end to six years of searching for an estimated $3 billion in assets allegedly embezzled and transferred abroad by Abacha. The Swiss said in August that the money was clearly of criminal origin and should therefore be returned.

PRIVACY

SEARCH FOR BOMBS WILL ADD TO DELAYS AT U.S. AIRPORTS

The federal Transportation Security Administration said it was tightening screening for bombs at passenger checkpoints with the following measures: 1.) Giving workers more leeway to conduct “secondary screening” on passengers that present an “irregularity” in their clothes or behavior; requiring anyone wearing a jacket or coat, including warm-up jackets or suit and sport coats, to send them through the X-ray machine before going through the metal detector; allowing federal screeners to use physical pat downs more often during secondary screenings; and requiring all carry-on bags belonging to those selected for such extra screening to be checked electronically for explosives. The new measures will go into effect at the end of this week.

Teacher arrested at airport checkin after bookmark deemed a concealed weapon.

Kathryn Harrington was flying home from vacation last month when screeners at the Tampa, Florida, airport found her bookmark. It is an 8.5-inch leather strip with small lead weights at each end. Airport police said it resembled a weighted weapon that could be used to knock people unconscious. So the 52-year-old special education teacher was handcuffed, put into a police car, and charged with carrying a concealed weapon. She faced a possible criminal trial and a $10,000 fine. But the state declined to prosecute, and the TSA said it probably will not impose a fine. Harrington said she will never again carry her bookmark into an airport.

AUSTRALIAN PASSPORT “THREATENS PRIVACY”

The Howard Government’s passport identification system could become a de facto biometric database that would “operate like a scarier version of the original Australia Card”, Democrats Senator Natasha Stott Despoja has warned. The Passports Bill, tabled in Parliament in June, gave “sweeping, unaccountable powers” to the Minister for Foreign Affairs, who also would have the power to pass on information about passport holders to other government departments.

“While the Government intends introducing a biometric identification system, there is no detail as to exactly what’s proposed,” Senator Stott Despoja said. “This is significant, because some biometric systems have more serious implications for privacy than others. In particular, it’s not clear whether the government proposes to create a database containing biometric information about Australia’s eight million passport holders.”

Senator Stott Despoja said there was nothing to prevent the Government “eventually moving towards a genetic database” for identification purposes. “The other serious concern in relation to the Passports Bill is the minister’s power to disclose personal information to other departments,” she said. “This creates a risk that the passport system could become a de facto national database.”

SURVEY: U.S. FINANCIAL INSTITUTIONS TO INCREASE ANTI-MONEY LAUNDERING BUDGETS

U.S. financial institutions will continue to spend at a brisk pace to combat money laundering over the next three years, with some banks expecting costs to more than double during the period, according to a new survey by audit, tax and advisory firm KPMG LLP. “KPMG’s survey indicates that costs will rise, in part, because of transaction monitoring required by federal law, and we’re finding that most financial institutions have a strong resolve to meet these standards by implementing an efficient monitoring system that, with hope, can help thwart terrorism globally,” said Ellen Zimiles, a partner in KPMG’s Forensic practice.

Among the key findings of KPMG’s survey are that, 1.) a vast majority of respondents agree that the overall “burden” to keep up with new anti-money laundering regulations is acceptable, and they want to work with regulators and law enforcement to make the system operate more effectively, and 2.) the majority of anti-money laundering budget increases, in order of priority, will go toward transaction monitoring, staff training, external reporting requirements, and account-opening procedures.

Banks still failing money laundering fight.

Many banks are still unable to monitor financial transactions across different countries, despite a massive increase in spending on anti-money-laundering technology. The Global Anti-Money-Laundering Survey 2004 by consultants KPMG found almost half (46%) of respondents operating in six to 10 countries are unable to monitor a single customer’s transaction and account status across several different countries. For larger global banks operating in more than 10 countries, the figure was a quarter.

Despite this, banks are spending more than ever before on technology and training to combat money laundering and are flagging up an increased number of suspicious transactions. The average reported increase of anti-money-laundering compliance is 61% over the last three years -- a trend that is set to continue for the next three years, according to the research. Automated monitoring systems are a key plank of the technology strategy for fighting money laundering with 61% using internally developed systems, 45% using externally developed systems and 22% using neither. But the human touch is still seen as vital and 94% said they rely on staff vigilance in addition to technology.

Finance sector underestimating the regulatory challenge.

Financial services firms are still underestimating the compliance challenge facing the sector, according to research. Organizations face a wide range of compliance issues, with numerous new regulations being imposed by the Financial Services Authority (FSA) and EU regulators, plus the need for compliance with US rules for multi-national firms. And according to the survey by financial web site Finextra, the number one challenge is anti-money laundering, which 75% of firms are working on, while corporate governance (61%), system security (63%) and improved customer identification (67%) are the other primary concerns. Bank of Ireland IS director Peter Stafford says compliance with legal and regulatory frameworks is one of biggest challenges facing IT departments in the financial services industry.

Big brother banking to watch South Africans.

Providing financial services to “politically exposed persons” (PEPs) is naturally risky business for all banks: which institution would like to be known for having kept accounts for terrorists, shady business people, or corrupt politicians? Speaking at a seminar in South African was David Leppan, the CEO of World Check -- a company that provides structured intelligence to the financial industry, and has built up the largest structured database of publicly available intelligence on heightened risk financial customers, including money launderers, fraudsters, terrorists and PEPs. Leppan said that since the crackdown on terrorist financing subsequent to the 9/11 attacks in the United States, the issue has become even more pertinent: “South African banks are under pressure to identify PEPs, even though there isn’t any legislation in place obliging them to do so. It has become imperative, though -- from a reputational risk point of view -- that banks know exactly who their customers are and the types of transactions that are going through their accounts.”

U.S. GOVERNMENT ORDERS AIRLINES TO RELEASE FLIERS’ DATA

The federal government said that it will order airlines to turn over millions of passenger records by November so it can begin testing a vast computer program that will hunt for suspected terrorists seeking to board commercial aircraft. The proposed program, known as Secure Flight, is the government’s latest attempt to create an effective computer-assisted passenger screening system. Airlines and privacy advocates fought off previous attempts to develop a system known as CAPPS II, arguing it would violate passengers’ privacy. Privacy advocates said the government’s plans for Secure Flight had not alleviated their concerns.

The data will vary by airline. It will include each passenger’s name, address and telephone number and the flight number. It may also include such information as the names of traveling companions, meal preference, whether the reservation was changed at any point, the method of ticket payment and any comment by airline employees, like whether a passenger was drunk or belligerent in encounters with airline personnel.

In rolling out the test program, the Transportation Security Administration is responding to recommendations from the Sept. 11 Commission. The proposed system aims to compare each passenger’s reservation information with a list of suspected terrorists more extensive than the one currently used by airlines. The TSA will also attempt to verify each person’s identity, so the system will not falsely target travelers who might have similar names to those on the various terrorist “watch lists”.

The TSA said it will use the data to test the system for 30 days, then develop a more specific plan about how the program should move ahead. The TSA said it expects to launch Secure Flight by spring 2005, although officials yesterday said they knew few details of how it will work. A spokesman for the Air Transport Association, the airline industry’s chief lobbying organization, said carriers would review the government’s proposed order. But the airlines have the same concerns about how passengers’ privacy would be protected and how the airlines would regularly share passenger reservation records with the government.

UK HOME OFFICE STACKING THE DECKS IN ID SCHEME PILOT?

Call us suspicious-minded, but we feel sure that at some point in the very near future the UK Home Office will announce that the biometric identity system pilot scheme currently running has been a success, and that the response from participants has been positive. This might seem a remarkable achievement, under the circumstances, considering that there have been numerous reports of technical glitches and an underwhelming response to the pilot, but we have received indications that the Home Office has taken the precaution of loading the dice.

At least as far as the participant reactions are concerned. A questionnaire is being presented to those signing up for the pilot, but participants are not being given copies of the questions they are being asked, and the best we can establish after some correspondence with the Home Office is that the Home Office intends to keep the questionnaire a closely-guarded secret.

But in surveys, questions are frequently used to massage the data in order to produce the desired results, and there is some evidence that this is precisely what the Home Office is up to. Marketing consultant Ben Fleming-Williams, who signed up for the trial for his own interest and kindly offered to report back to us, says that, “Instead of asking an absolute ‘How was your experience of the trial,’ the question was ‘How was your experience of the trial, compared to your expectations?’.”

HOMELAND SECURITY DEPARTMENT EXPANDS BIOMETRIC USE

Biometric programs should be expanded to fight terrorism and crime, a Homeland Security Department official said. However, privacy protections should be kept in mind during that effort, said Asa Hutchinson, DHS’s undersecretary for border and transportation security. Hutchinson spoke at the Biometric Consortium Conference in Arlington, Virginia. “We do not want to give the terrorists a victory by [restricting] our normal patterns of behavior,” Hutchinson said.

Members of the 9/11 Commission recommended biometric screening for visitors to the United States. Hutchinson highlighted DHS programs that use biometric technology, including the U.S. Visitor and Immigrant Status Indicator Technology program, the Transportation Security Administration’s Registered Traveler program, and TSA’s Transportation Worker Identification Card. “Biometrics is at the forefront in our agenda for homeland security,” Hutchinson said.

LAW

IRATE JUDGE ORDERS U.S GOVERNMENTT TO HAND OVER DETAINEE RECORDS

In a victory for human and civil rights groups, a federal judge has given the government 30 days to turn over or identify all documents relating to the treatment of detainees held by the United States at military bases and other detention facilities overseas, including at the naval base at Guantanamo Bay, Cuba, and at Abu Ghraib prison in Iraq. The ruling by Judge Alvin Hellerstein, which may be appealed by the government, was the latest development in a lawsuit filed in June by the American Civil Liberties Union (ACLU) and several other rights groups to compel the government to disclose records bearing on the possible abuse of detainees in U.S. military custody pursuant to Freedom of Information Act (FOIA) requests first submitted 11 months ago.

The original FOIA request, which was directed to the Pentagon and the Departments of Homeland Security, Justice, and State, asked them to immediately process and release all records of the abuse or torture of detainees held at Abu Ghraib and other overseas detention facilities, including the U.S. base at Guantanamo Bay, Cuba; and records of investigations and inquiries that resulted from reports of abuse.

The initial FOIA request also asked for records of the deaths of detainees in U.S. custody and any records of investigations into those deaths. According to recent news reports, several dozen detainees have died in U.S. custody in Afghanistan and Iraq since late 2001; at least 16 of them have been classified as homicides.

DO AMERICAN’S HAVE A RIGHT TO THEIR PROPERTY -- OR NOT?

The U.S. Constitution, properly construed by a vigilant Supreme Court, prevents untrammeled power, which is the definition of despotism. But the human propensity for abusing power -- a propensity the Constitution’s unsentimental framers understood and tried to shackle with prudent language -- is perennial. There always are people trying to carve crevices in constitutional terminology to allow scope for despotism. Such carving is occurring in Connecticut. Soon -- perhaps on the first Monday in October -- the court will announce whether it will hear an appeal against a 4-3 ruling last March by Connecticut’s Supreme Court. That ruling effectively repeals a crucial portion of the Bill of Rights. If you think the term “despotism” exaggerates what this repeal permits, consider the life-shattering power wielded by the government of New London, Connecticut.

That city, like many cities, needs more revenues. To enhance the Pfizer pharmaceutical company’s $270 million research facility, it empowered a private entity, the New London Development Corporation, to exercise the power of eminent domain to condemn most of the Fort Trumbull neighborhood along the Thames River. The aim is to make space for upscale condominiums, a luxury hotel and private offices that would yield the city more tax revenues than can be extracted from the neighborhood’s middle-class homeowners.

The question is: Does the Constitution empower governments to seize a person’s most precious property -- a home, a business -- and give it to more wealthy interests so that the government can reap, in taxes, ancillary benefits of that wealth? Connecticut’s court says yes, which turns the Fifth Amendment from a protection of the individual against overbearing government into a license for government to coerce individuals on behalf of society’s strongest interests. Henceforth, what home or business will be safe from grasping governments pursuing their own convenience?

But the Fifth Amendment says, inter alia, “nor shall private property be taken for public use, without just compensation” (emphasis added). The Connecticut court, like the courts of six other states, says the “public use” restriction does not really restrict takings at all. It merely means a taking must have some anticipated public benefit, however indirect and derivative, at the end of some chain of causation. Fifty years have passed since the court considered whether the “public use” clause allows condemnation for private development. If the court refuses to review the Connecticut ruling, its silence will effectively ratify state-level judicial vandalism that is draining the phrase “public use” of its power to perform the framers’ clearly intended function. That function is to prevent untrammeled government power -- in a word, despotism.

CRIMINAL PROSECUTIONS UNDERCUT JUSTICE

John Cassese is fighting for his freedom. His future depends on a deceptively simple question: What is a crime? The very definition of a “crime” hinges on two things: a criminal act and a criminal mind (wrongful intent). The prosecutor’s job is to prove both the wrongful act and the wrongful intent beyond a reasonable doubt. This two-part definition provides a basic -- and critical -- protection of civil liberties. The requirement that there be a criminal act assures that no one goes to jail for a “thought crime”. The intent requirement means people cannot be tossed in the slammer for making a mistake. Bumping into someone, rear-ending a car, forgetting to carry the “1” on your taxes -- if done inadvertently, none of these things is a crime.

For crimes like murder or theft, the intent requirement still rules. But when it comes to “white collar” offenses, lawmakers, prosecutors, and others who want speedier (and easier) convictions are weakening this vital protection. Just ask Cassese, a New Jersey businessman.

The government initially sued Cassese for alleging insider trading in his company’s stock. In civil court, the government can sue even for an accidental violation of securities law -- there is no requirement to show criminal intent. Cassese settled immediately, giving up all his profits plus a large penalty. When asked about the settlement, Cassese said, “I never tried to hide anything. If I made a mistake, I made a mistake.” The matter appeared settled -- until political pressure to throw most any “suit” into the slammer apparently convinced prosecutors that Cassese should pay even larger fines and go to prison, for up to 10 years for each of two criminal charges.

A judge threw out one frivolous charge right away. A jury found Cassese guilty of the second charge, but the judge threw out that conviction, too. There were simply no facts, the judge said, that showed Cassese intended to break any law. It seems a most reasonable ruling, but prosecutors are contesting it in a U.S. Court of Appeals. That is worrisome for Cassese, and dangerous for all of us. We all make mistakes. If prosecutors are given a pass on proving criminal intent, every one of us could be branded a criminal.

PIECES OF PATRIOT ACT II LEGISLATION RETURN TO SENATE

Civil liberties advocates are once again raising concern over legislation moving through Congress meant to enhance the controversial USA PATRIOT Act rushed into law in the wake of the September 11 terrorist attacks. Earlier in September, the Senate Judiciary Committee held a hearing on the “Tools to Fight Terrorism Act of 2004”, which opponents say contains proposals that would dramatically erode constitutional protections and unnecessarily increase government power. The ACLU, which has been at the forefront of a grassroots fight to repeal provisions of the Patriot Act, chided Congress on its consideration of legislation that would expand the power of the law enforcement before meaningfully weighing the effects of current legislation.

“Congress must not repeat the mistakes of the Patriot Act and adopt laws that undermine freedom with little added security,” Laura W. Murphy, director of the group’s Washington Legislative Office, said in a press statement. “Instead of considering new laws to further erode our privacy and freedoms, the Senate should be reviewing the Patriot Act to bring it in line with the Constitution.”

The Tools to Fight Terrorism Act (TFTA) was introduced by Senator Jon Kyl (R-Arizona). It is massive and contains several provisions that were originally proposed in a leaked draft of the Domestic Security Enhancement Act, commonly known as “Patriot II” -- legislation so alarming public outcry squashed it almost immediately. Though S. 2679 is currently being considered in the Senate Judiciary Committee, the ACLU is afraid that Sen. Kyl may try to attach some of its provisions to a separate bill proposed to implement a set of the 9/11 Commission recommendations, which bears significant momentum. TFTA would expand the government’s ability to obtain personal records and compel testimony without judicial oversight, increase the number of crimes that are punishable by the death penalty, deny bail to suspects who the government has not proven as dangerous or at risk of flight, broaden the definitions of “material support for terrorism” and money laundering, and change the rules for using secret evidence in immigration hearings. There is debate about whether new government powers are in fact needed.

U.S. TO FREE HAMDI, SEND HIM HOME

Yaser Esam Hamdi, who was held in solitary confinement as an “enemy combatant” for nearly three years and never charged with a crime, will be released from custody and flown home to Saudi Arabia, government officials announced this week. Hamdi, a United States citizen, will leave on a military aircraft, probably by the end of the week, said Frank W. Dunham Jr., the federal public defender representing him. The Justice Department said only that Hamdi’s release “is currently being arranged.”

The U.S. military captured Hamdi with pro-Taliban forces in Afghanistan in 2001. He was sent to Guantanamo Bay along with other detainees until authorities learned that he was born in Louisiana and was a citizen. He has been held in military brigs ever since. Hamdi’s detention came to symbolize the legal clash over the government’s anti-terror efforts. The government convinced a federal appeals court in Richmond that the military -- and not the courts -- had the sole authority to wage war and that courts should defer to battlefield judgments. But in June, the Supreme Court ruled that Hamdi had the right to contest his detention in court. Now, with his pending release, the mystery of Hamdi, and what threat, if any, he posed to national security may never be resolved.

Some legal experts argued that the deal to release Hamdi means that the government should not have held him for so long in the first place. “This is tremendously embarrassing to the government,” said Shayana Kadidal, an attorney with the New York-based Center for Constitutional Rights, which filed legal briefs on Hamdi’s behalf. But other lawyers said the Hamdi case produced an important legal victory for the government because the Supreme Court ruled that the government still has the authority to detain U.S. citizens as enemy combatants, even if they can challenge the detentions. The Supreme Court opinion, in which all the justices except Clarence Thomas rejected the Bush administration’s contention that the courts could exercise no supervision over Hamdi’s case, laid the groundwork for negotiations to release him. The agreement was finalized late last week.

The release agreement requires Hamdi, once in Saudi Arabia, to renounce any claim to U.S. citizenship and to abide by strict travel restrictions, according to the Justice Department statement. Sources familiar with the agreement said it restricts Hamdi from leaving Saudi Arabia for a certain time and restricts him from traveling to the United States, Afghanistan, Iraq, Israel, Pakistan, Syria, the West Bank and the Gaza Strip.

OPINION & ANALYSIS

THE MOST IMPORTANT TERRORISM

The world is dividing into two hostile camps, Islam and “us”. That is the unerring message from western governments, press, radio and television. For Islam, read terrorists. It is reminiscent of the cold war, when the world was divided between “Reds” and us, and even a strategy of annihilation was permissible in our defence. We now know, or we ought to know, that so much of that was a charade -- released official files make clear the Soviet threat was for public consumption only.

Every day now, as during the cold war, a one-way moral mirror is held up to us as a true reflection of events. The new threat is given impetus with every terrorist outrage, be it at Beslan or Jakarta. Seen in the one-way mirror, our leaders make grievous mistakes, but their good intentions are not in question. Tony Blair’s “idealism” and “decency” are promoted by his accredited mainstream detractors, as the concocted Greek tragedy of his political demise opens on the media stage. Having taken part in the killing of as many as 37,000 Iraqi civilians, Blair’s distractions, not his victims, are news: from his arcane rivalry with treasurer Gordon Brown, his Tweedledee, to his damascene conversion to the perils of global warming. On the atrocity at Beslan, Blair is allowed to say, without irony or challenge, that “this international terrorism will not prevail.” These are the same words spoken by Mussolini soon after he had bombed civilians in Abyssinia.

Heretics who look behind the one-way mirror and see the utter dishonesty of all this, who identify Blair and his collaborators as war criminals in the literal and legal sense and present evidence of his cynicism and immorality, are few. But they have wide support among the public, whose awareness has never been higher, in my experience. It is the British public’s passionate indifference, if not contempt for the political games of Blair and Brown and their courts and its accelerating interest in the way the world really is, that unnerves those with power.

“Few of us,” wrote the playwright Arthur Miller, “can easily surrender our belief that society must somehow make sense. The thought that the state has lost its mind and is punishing so many innocent people is intolerable. And so the evidence has to be internally denied.” It is time we stopped denying it.

NO DOG IN THIS FIGHT

“Right now, Bush has got a comfortable lead,” said Chris Ruddy, proprietor of NewsMax.com, “But the race will probably tighten as it gets closer to the election.” We wondered why the race might tighten; it seemed more likely to us that it might fall apart. The more people get to know the candidates, the more they might turn away in disgust. The only open question is which one is more reprehensible.

George W. Bush, it is alleged, dodged the draft during the Vietnam War and then failed to fulfill his obligations to the National Guard. That is mostly to his credit. The Vietnam War was a stupid disaster; anyone who was able to get through it with neither blood on his hands -- nor on his shroud -- was ahead of the game. But 40 years later, when a new generation of young men’s lives are at stake, Bush volunteered the whole nation to undertake a mission as expensive, as foolhardy and maybe more dangerous than Vietnam.

John Kerry, on the other hand, reported for duty 40 years ago and tells us so every chance he gets. But as evidence of his wartime service comes to light, it appears his reason for going to war was more political than strategic, more practicable than honorable, more idiotic than patriotic. In other words, it looks as though the man had elections in mind, rather than military service.

When the votes are tallied in November, one of those not counted will be ours. We have no dog in this fight. Other Americans are likely to come to the same conclusion.

Comparing the economic and fiscal effects of the Bush and Kerry tax proposals.

Nearly every day, the two major presidential candidates speak about the economic good or ill that stems from the 2001 and 2003 tax cuts. Besides the war in Iraq, few matters so divide the candidates and their supporters as their view of the wisdom of enacting substantial tax cuts in 2001 and again two years later. Indeed, many pundits believe that the election may well turn on whether or not the electorate believes the President’s core economic policy is working.

President George W. Bush argues that these two important changes in U.S. tax law turned the tide of recessionary forces, supported the U.S. economy during the dark days following September 11 and the corporate scandals, and now explain a large part of the country’s current prosperity and rates of high employment. Just as vigorously, Senator John F. Kerry condemns the tax cuts for being overly generous to high-income taxpayers, draining revenues from the federal government at a time of war and on the eve of the baby boom retirement, and producing record federal budget deficits. Senator Kerry particularly endorses this last claim, and he is especially galled by the evaporation of budget surpluses that President Bill Clinton handed to his successor.

Both candidates have proposed additional changes in current tax law that reflect their views of how the 2001 and 2003 tax cuts affected the economy and federal finances. This report joins the debate over current economic policy by estimating how each candidate’s tax proposal would affect the economy and the government’s finances. Among the findings are that, 1.) the Bush plan consistently outperforms the Kerry plan, and 2.) Kerry’s greater reliance on targeted tax policy changes yields the unintended consequence of producing a tax cut for high-income taxpayers after 2011.