Offshore News Digest for Week of September 5, 2005

GLOBAL BUSINESS

UBS, SWITZERLAND’S BIGGEST BANK, SELLS WEALTH UNIT TO RIVAL JULIUS BÄR

UBS has agreed to sell its SBC Wealth Management division to rival Julius Bär in a deal valued at SFr5.6 billion ($4.6 billion). With SFr270 billion in assets, the Bär group will become the country’s largest institution concentrating solely on asset management and private banking. SBC Wealth Management includes three small private banks as well as a fund manager, GAM.

The private banks will adopt the Julius Bär brand name. GAM will continue to be marketed as an independent brand. The deal will create a domestic powerhouse in Switzerland, home to the world’s largest offshore banking industry, and is likely give growth-strapped Bär the mass it needs to weather a downturn among small- and mid-sized wealth managers.

Julius Bär strives for scale.

Bank Julius Bär’s expansion in a deal with UBS is a logical step in the consolidation of the private banking industry, said London analyst Andy Penman, who is a senior global equity analyst with Barclays Stockbrokers. He says the bank’s acquisition of UBS’s wealth unit would help it reach the size it needs in today’s competitive environment.

Julius Baer-UBS deal underscores private banks’ bind.

Swiss Julius Baer Holding AG’s Chf5.6 billion purchase of three private banks from UBS AG (UBS) underscores the pressure that midsize institutions are facing and may help spark the much-awaited consolidation in Swiss private banking, analysts said. The Zurich-based private bank revealed plans Monday to purchase three private-label banks from UBS, an acquisition that will make it the largest independent wealth manager in Switzerland measured by assets under management. The move is emblematic of the bind that midsize players are increasingly finding themselves. The Swiss private banking market has become crowded in recent years, and many players are finding themselves lacking the resources to go after promising growth markets outside of Switzerland.

“This should definitely get people thinking,” said Victor Aerni, a private banking consultant with Boston Consulting Group. “For most banks, the lack of growth is the main issue. Now that Julius Baer has made their move, it’s an admission that it’s tough to go out on your own.” Large players UBS and Credit Suisse Group (CSR) are not threatened, Aerni said, because they are hauling in assets by way of expensive onshore presences in key European countries and by tapping into Asian wealth. “The ones in the middle – like Julius Baer – are the ones being squeezed.”

The midsize players such as Bank Sarasin & Cie AG or Vontobel Holding AG are struggling with little or no net-new private banking money. That is because traditional offshore customers are increasingly favoring big global banks and their onshore presences, which midsize players simply cannot afford to pour as much money into. Tax amnesties in some European countries and new banking-permit regulations in Germany have also made keeping and attracting business in Switzerland tougher.

LIFE OVERSEAS SHOWS ITS DARK SIDE

To the outsider, it looks too good to be true: $1 million paychecks, luxury cars and upscale apartments staffed with maids and cooks. But this high-flying expatriate lifestyle – enjoyed by select foreign bankers and executives from Seoul to Bangkok – often requires serious sacrifice for the men and women who flock to Asia’s financial centers, with heavy business travel schedules and long hours. A chilling manifestation of the cracks that form during life abroad was the 2003 murder of top Merrill Lynch banker Robert Kissel, who had accumulated an estate worth $18 million and lived with his family in a Hong Kong luxury flat.

On Thursday, a Hong Kong jury sentenced his wife Nancy Kissel to life in prison for the American banker’s murder, following a trial that riveted the territory with tales of rough sex, marital violence and adultery. His murder is an extreme example of how the high-living lifestyles of some foreign professionals may mask deep problems underneath the surface. Although many expatriate marriages remain happy, the stress of an 80-hour work week for some executives punctuated by spur-of-the-moment business trips to Tokyo, Shanghai or New York can place an enormous strain on family life. “The single most important issue is that many expat families don’t have family or friends in Hong Kong,” said Dominic Lee, a professor of psychiatry at the Chinese University of Hong Kong. “This is particularly depressing for the wife.”

THE EVER-EXTENDING TENTACLES OF HUGO CHÁVEZ’S “21ST-CENTURY SOCIALISM”

The crowded beach of Camurí Chico, squeezed between Venezuela’s coastal mountain range and the Caribbean sea, is not the first place one might look for experiments in “21st-century socialism”. But if Venezuela’s president, Hugo Chávez, has his way (and few are betting against him these days), the country’s economy will soon start to look a lot less capitalist and a lot more like this beachfront.

Nearly six years ago, devastating mudslides obliterated much of Vargas state, just north of Caracas, killing thousands of people. In effect, Camurí Chico ceased to exist. Recovery has been agonizingly slow. Somewhat reluctantly, the vendors who used to operate out of ramshackle wooden huts agreed to form a co-operative, demolish their huts and trust the government to replace them with purpose-built modules. The government kept its word, and the Brillo del Mar co-operative is now in business. “It isn’t easy,” admits its chairman, Víctor Mendible. “You have to accept what the majority wants. But we’re 100% better off now.” The 32 co-op members have a 15-year concession allowing them to run everything from the car park to the cafés.

Capitalism, says Mr. Chávez, is the root of all evil. Poverty, corruption, the decline in moral values – all are the fault of “savage neo-liberalism” and globalization. The only hope for the world is a society based on socialist solidarity. Many wonder whether private enterprise – theoretically guaranteed by the 1999 constitution that Mr. Chávez himself fathered before he openly embraced socialism – has any place in this Utopian vision. There is even speculation that the president’s “Bolivarian revolution”, ever more closely tied to Fidel Castro’s Cuba, might take the road towards collectivization.

Venezuela’s once pugnacious private sector, which has backed several failed attempts to remove the president, now looks cowed. The recently elected head of its main federation, José Luis Betancourt, a prominent rancher, won fame when he publicly tore up the 2001 land-reform law. Now he talks meekly of “co-existence” with the government so long as it respects the law. But with the 51-year-old Mr. Chávez on course to win total control of parliament by early next year, and planning to remain in power for another quarter of a century, “the law” is likely to become whatever he wants it to be.

Fiscal policy fears in Bahamas.

The impact of those prices has been mild, he said, but projected that if high oil prices persist, which will likely happen, then economic growth could be affected. He also suggested what policymakers should do to sustain growth in this environment. IMF officials conceded that the predicament is placing a strain on all economies especially in low-income countries. The latest evaluation of the outlook for the Bahamian economy, which is heavily reliant on tourism inflows, is that key vulnerabilities remain.

The Bahamas Government sent a delegation to Jamaica for talks on the Petro-Caribe oil agreement where Venezuelan President Hugo Chavez was scheduled to discuss details of the cost slashing measure. Each of the 13 countries that signed the initial agreement with Venezuela – including The Bahamas – to activate the terms of the deal will have to sign a bilateral pact. Countries that signed the agreement will receive preferential terms for the purchase of oil. In some cases, Venezuela would even accept goods like sugar or bananas in exchange for oil.

Some who have expressed skepticism about the potential benefits. For instance, the Nassau Institute, a local think tank has suggested that all that glitters is not gold. “If the deal with Chavez succeeds in forcing the withdrawal of the current suppliers due either to government coercion or undercutting prices, and the country is left dependent on a single supplier there is no guarantee that the good times of the initial lower prices will last,” the Institute wrote recently. “In fact they won’t last, count on it.”

Oil and Collectivism

Hugo Chavez, President of Venezuela and Fidel Castro of Cuba do not like America. They do not like Free Markets, Democracy or Capitalism. Both are Utopian Socialists committed to economic planning based on the collectivist philosophy of command-and-control socialism. Over thirty years of state planning by Fidel in Cuba has resulted in desperate shortages of the goods and services that Bahamians take for granted. The Cuban experiment is one that the Bahamas is unlikely to try.

On July 5th Venezuela celebrated its Independence Day with a parade that included a show of military strength in a fighting force “armed to the teeth”. The announcement of the purchase of 100,000 Russian Kalishnikov rifles and a dozen or so Helicopters along with a pay raise to the military of between 50% to 60% tells us that the President intends to have a strong military presence in the region. Not all Venezuelans are pleased with the Chavez policies that include the expropriation of private property and a Constitution that gives him sole authority over promotions that are “used to purge the more talkative dissidents”. The Economist also reports that Venezuelans, “especially from the country’s fast-shrinking middle class”, are concerned that Chavez is “replacing democracy with autocracy” and armed with oil wealth is “doing his best to spread revolution and instability across Latin America.”

Hugo and Castro also have plans for the Caribbean and The Bahamas. The PetroCaribe Agreement is a “planning” document written in collectivist language as it simultaneously propagandizes the ideals of Socialism. Thirteen Caribbean countries including the Bahamas have begun the “integration” process that has the potential for monopoly control of the oil market throughout the region by Chavez.

Collectivism means the end of truth. To function efficiently, societies such as Cuba and now Venezuela under Hugo Chavez must force obedience to those in control. This requires everyone to regard the ends described by their leaders to be the same as their own. Propaganda is the tool used to convince and it goes with control of all sources of information. The Bahamas has a tradition of democracy and freedom. Although our freedoms have been in steady decline with the growth in size of government, individualism is still a feature of Bahamian Culture. The defeat of the Hon. Fred Mitchell’s agenda for joining the CSME confirms that it is unlikely that a majority of Bahamians would willingly exchange independence and freedom for cheaper oil.

PANAMANAINS CALLED TO AWAKEN FOR POSSIBLE ENERGY CRISIS

Officials of the Panamanian government asked the local population to take conscience of the world oil crisis, while local transportation trade union leaders pointed out that the Panamanian administration is being forced to face the problem. Manuel Jose Paredes, Panamanian vice minister of Trade and Industries said that despite the increase of the fuel prices and alarm over the growing consumption of energy, people are acting as if nothing has happened. Nevertheless, Panamanian transport trade union leader Esteban Rodriguez said the situation is getting to its limit.

In an interview with Prensa Latina, Rodriguez commented the government of Panamanian President Martin Torrijos has a strategic plan for energy development but only for the long term, while transnationals handle fuel as they wish. He said gas should be offered as an alternative to gas oil, and the role of the distributing firms for fuel in the country should be regulated. “I believe President Torrijos has planned to travel to Venezuela to talk to President Hugo Chavez for an agreement, and we ask Torrijos to reach an agreement to mitigate the effects of the world fuel crisis,” he stated.

Panamanian hydrocarbons director Wolfgang Gonzalez announced the country would have its first gas supply pumps for cars by September 20 to ease the energy crisis. He also said that the kits to adapt vehicles to liquid gas consumption are now ready, which will mean savings at the filling stations, Gonzalez said.

Panama pressured to widen canal.

On a hot, drizzly day in July, the Aegean Leader sailed through the Panama Canal, its 105-foot-wide hull barely clearing the waterway’s locks. The vessel, which carries Japanese cars to the U.S. East Coast, is the biggest that its owner, Nippon Yusen K.K., sends through the canal linking the Pacific and the Gulf of Mexico. Nippon Yusen and Wal-Mart Stores are among companies pressing Panama to enlarge the 91-year-old waterway to take bigger ships at a time when growing exports from Asia clog U.S. Pacific ports. If the country balks at spending the $10 billion needed to expand the canal, it will lose income as ships take alternative routes such as the Suez Canal to reach the Atlantic seaboard, said Asaf Ashar, a professor at the National Waterways Institute at the University of New Orleans. “People will still use it, but it will have secondary status,” said Ashar, 61, who estimates that, without expansion, annual toll revenue would fall 21%, or $210 million, based on the fiscal year ended Sept. 30, 2004.

U.S. imports and exports account for about half the cargo transported through the 52-mile canal. China is the second-biggest user, and Japan is third, according to the canal authority. Vessels that are too big for the waterway use other routes to travel between Asia and the U.S. East Coast. Some cross the Suez Canal and Mediterranean Sea to reach the Atlantic Ocean. Alternatively, goods are unloaded at West Coast ports and transported by road or rail across the U.S. Last month, the canal authority ordered eight more powerful tug boats to replace eight of its current fleet of 24 smaller ones, in an effort to speed the biggest vessels through.

Enlargement of the canal, which would take nine years to complete and involve the construction of a third channel, needs to begin as soon as possible, said Robin Lanier, 52, director of the Waterfront Coalition, a Washington trade group that represents U.S. retailers such as Wal-Mart on shipping issues. Without expansion, increasing congestion at ports on the U.S. West Coast will slow growth of trade and add to companies’ costs, Lanier said. “U.S. economic prosperity depends on upgrading the canal,” Lanier said. “Immediate expansion should be a high priority.”

Debts and more debts … Quo Vadis Panama?

“Live now and pay later.” This is a motto that the majority of human beings put in practice to try and acquire some of the “beautiful things” that this globalized world offers us. Mortgaging our body and soul is the only tolerable way of life it has been shown to us century after century. Living on credit seems to be the only option in the modern way of life. The Panamanian State also seems to be one of the favorites in the books of indebtedness. Each government that takes power immediately hires the best economic brains to tap the large international credit consortiums and there begins to function the old refrain: “bread for today … hunger tomorrow”.

In Panama, the extraordinary increase of our debts is classical behavior since the day of our independence. According to historic data, we have never finished paying our debts because there is always an open door to refinance and thus to prolong the financial crisis. The government appears as the main spender of money available. Annual budgets are made that always glow with numerical makeup to falsify the true interests of the State. Over the next year, the government will spend US $1,623-million just to service the public debt. This absurd increase, according to the government, is due to the expiration of some bonds of public entities, budgetary projects and investment programs.

When the evolution of the Panamanian debt between June 2004 and June 2005 is analyzed, it is observed that the balance increased by US $996 million. In that period the debt grew by 11.1%, more than the growth of our economy. Analysts agree that one must know how to renegotiate the public debt on favorable terms that regenerate conditions to avoid the mortal drowning of our economy. It is the moment to establish a savings policy in public expenses and to leave aside timid and cowardly positions of the moment and face the challenges imposed on us by the “masters of gold” who are little or not interested in the luck of the debtor countries because their order is … pay up! This it is a truth that many know, but fear for other hidden reasons hidden that are under the table. It is appropriate to conclude with the Latin expression “Quo Vadis Panama?”… Where are you going Panama?

KATRINA-RELATED CLAIMS COULD TOTAL AS MUCH AS $25 BILLION

Estimates of how many billions of dollars Hurricane Katrina could drain from the insurance industry continued to rise as flooding and business interruption costs along the Gulf Coast continued to mount, according to industry experts. Fitch Ratings and Moody’s Investors Services – both companies that rate the financial strength of companies like the insurers and reinsurers that sell property-catastrophe policies – revised their estimates for the insurance industry’s total loss up to as high as $25 billion. And Risk Management Solutions, a risk modeling company, said it expected the total economic loss sustained by the region to top $100 billion. RMS said its prediction was based on the area having suffered not one, but two catastrophic events: Hurricane Katrina’s hit on Louisiana and Mississippi followed by the so-called “Great New Orleans Flood” after the city’s levee system failed.

Robert Hartwig, insurance economist at New York’s Insurance Information Institute, said the region was in crisis and problems associated with flooding waters being contaminated, an oil spill, uncontained fires and explosions continued to push up costs daily. “It will at least be the end of September before we have a reasonable number,” he said. Dr. Hartwig said it was impossible for claims adjusters to get into the worst hit areas. “What you are seeing in the area is the slowness of the recovery effort, which is pushing up insured losses, and much more, pushing up economic losses.”

Tourism and passport processing damaged by Katrina.

The tourism business is worth $5 billion a year to New Orleans, and as the evacuation of the city gets underway the travel impact in the Big Easy is just starting to be felt, as airlines cancel flights and work out whether to offer refunds to ticket holders. And the city’s bustling convention business has, quite literally, been drowned. And there could be a broader impact on the tourism business. One of the nation’s largest passport processing centers is located in New Orleans, and plenty of U.S. passport applications are now likely sitting under water. In fact, yours may be there and you do not even know it.

“There’s a good possibility that those people taking trips that have applied for a passport, or a passport renewal, won’t know that their passport has been canceled, or isn’t being taken care of,” notes Kathy Sudeikis of the New Orleans Convention and Visitors Bureau. This passport problem could lead to future travel headaches and cancellations, Sudeikis says, because passport applications from Wisconsin to Puerto Rico to Los Angeles go through New Orleans. Travel agents are trying to help, but if you want more information you can go to the Bureau of Consular Affairs’ Web site and click on the “passports” tab to get help tracking your application.

Why does the U.S. need foreign money?

The world’s only superpower has been forced to turn to aid agencies to speed up the humanitarian effort in the wake of Katrina. Seemingly unable to draw on its wealth at short notice to immediately respond to the disaster, charities in other countries, such as the British Red Cross, are now launching appeals to raise money. In addition half a million military ration packs worth an estimated £3 million have been flown out from the UK and more are expected to follow. The public in many countries are accustomed to providing aid to poverty stricken developing nations, but the need to provide assistance to the most opulent country in the world may leave many perplexed.

It is not a position the U.S. is used to being in either. President George W. Bush seemed to initially dismiss suggestions of receiving foreign assistance. Later, U.S. Secretary of State, Condoleezza Rice, said “no offers of assistance will be refused.” The gross national income of the U.S. is $37,870 per capita, according to the World Bank. It is just $810 for tsunami-hit Indonesia and $200 for poverty-stricken Niger. And, national wealth aside, Americans have a strong track record of generosity concerning disasters on their own soil. They gave $2 billion following the 11 September attacks.

The British Red Cross says the appeal is about getting money quickly to speed up the aid effort, but admits it does raise questions about measures the U.S. Government has in place to deal with large-scale domestic disasters. No country has enough rations to deal with such an immediate need and so an appeal for outside help is inevitable, say experts.

Poor and isolated nations rally to offer aid to Katrina’s victims.

Cash from Djibouti, the U.S. can accept. Bananas from Panama, so far, it cannot. Hurricane Katrina has triggered an outpouring of generosity from some of the world’s poorest nations towards the world’s richest, forcing the U.S. State Department into an awkward diplomatic dance and turning an Arkansas air force base into a cosmopolitan aid bazaar. Ten days after President Bush indicated that his country would not need aid, it has accepted pledges of more than £540 million from 45 countries and is processing offers from 45 more. First-aid kits are on their way from Israel, dike-plugging specialists from Holland and money from Afghanistan, Sri Lanka and Bangladesh as well as Kuwait, which is sending £272 million in oil and cash.

Djibouti, whose per capita GDP is 1/30th of that of the U.S., has pledged £30,000. Afghanistan said it was offering £55,000, tsunami-ravaged Sri Lanka had come up with £13,000 for the American Red Cross, poverty-stricken Bangladesh has offered £540,000, while Panama wants to donate 120,000 pounds of bananas. Some offers, heavily tinged with Schadenfreude, have been declined. More than 1,000 doctors put on standby by Fidel Castro, who customarily sends his medical teams to disaster zones, will stay in Cuba, and 20 million barrels of crude oil offered by Tehran on condition that the U.S. not seek nuclear sanctions will stay in Iran.

The U.S. is anxious not to offend anybody, but is calling for cash and ready meals rather than specialized equipment. Even so, a Mexican army convoy bearing mobile kitchens and water purification units crossed the Texan border yesterday, bringing with it the first Mexican military presence on U.S. soil since 1846. In Beijing, the China Foundation for Poverty Alleviation, one of the countries foremost charities, will begin a campaign today to drum up aid for survivors of the hurricane.

In Katrina’s Wake: The Blame Game

Eight days after Hurricane Katrina struck, state and federal officials say they are finally beginning to work together. But no one is denying all the mistakes – some of them fatal – that have occurred. And finger-pointing abounds – much of it aimed at the the Federal Emergency Management Agency and its director Michael Brown – who some critics want fired.

The top U.S. disaster official waited hours after Hurricane Katrina struck the Gulf Coast before he proposed to his boss sending at least 1,000 Homeland Security workers into the region to support rescuers, internal documents show. Acknowledging that moving in such a large crew of workers would take two days, Brown sought approval from Homeland Security Secretary Michael Chertoff roughly five hours after Katrina made landfall on Aug. 29. With debate over the slow pace of rescue in New Orleans and elsewhere in the Gulf states growing ever angrier and louder, House leaders met with the Bush cabinet to discuss the situation. Members of Congress are also speaking in public and on television to voice their concerns.

House Majority Leader Tom DeLay says the House and Senate should conduct a bipartisan investigation of how local, state and federal governments prepared for and responded to the hurricane. But local officials in Baton Rouge are now directing the rescue effort that seems to finally be making a difference. As CBS News 48 Hours correspondent Peter Van Sant reports, it has come only after days of national shame. “This is bureaucracy at its worst and this bureaucracy at its worst has committed murder in the New Orleans area,” Aaron Broussard, who heads a local parish just outside New Orleans, told Van Sant. “When the autopsies are finally done, they’re gonna find, horribly, that many people died many days after Mother Nature had come and gone – an atrociously high number of people who could have been saved if the time had been used wisely from the beginning.”

Analyzing Katrina

Lately it seems that any mention of Hurricane Katrina must include (if not have as its purpose) the assignment of blame. The concept of a Natural Disaster, exceeding mankind’s ability to hold it back, appears to be so foreign a thought that it falls outside most commentators’ sphere of understanding. (Remember that the Natural state of New Orleans – apart from the intervention of manmade levees and pumps – is to be part of Lake Pontchartrain, or perhaps the Gulf of Mexico!) That being said, it is time we look at the “blame game” from a rational and analytical point of view, rather than the emotional stewpot the left is trying to brew. Our analysis must be differentiated into 2 areas: the disaster itself, and the response to it.

A tropical storm developed over the Bahamas, and hit Florida as a Category 1 storm, then headed into the Gulf. All this occurred in a matter of just a couple days. Unlike tropical depressions that are tracked from the mid-Atlantic, this storm popped up in the Bahamas with little advance notice. The storm then became a monster in the Gulf. The timeframe for preparation was mere days. There is a lot of finger pointing over the failure of the levees, bemoaning the fact that they were designed to withstand “only” a Category 3 hurricane. Katrina was a huge storm. A slow moving storm. A massive rainmaker. The wind did not blow down the levees. It was the weight of so much water that had been added to the lake. The 17th Street levee – the breach responsible for the bulk of the city’s flooding – was recently renovated. It was the focus of the bulk of flood control spending. It was considered the least likely to fail. So much for the theory that government spending could have prevented disaster.

Both Louisiana Governor Blanco and New Orleans Mayor Nagin resisted issuing evacuation orders until pressured by the President. Neither Mr. Nagin nor Gov. Blanco had the balls to invoke shoot on sight orders for looters. When even police were participating in the looting, there was resistance to giving the feds authority to restore order. No local officials exercised enough command and control to enable law enforcement to quell the lawlessness. Finally federal troops quieted the gunfire once the President gave Blanco an ultimatum to allow federal authority over the situation. The response to the disaster was indeed a secondary disaster. It was disgraceful. But it was the LOCAL and STATE response that was responsible for that disgrace. The Feds were the saving grace in the situation.

Poll: Katrina sparks shift in American priorities.

Hurricane Katrina has made Americans heartsick. They are depressed about the images of destruction and despair they see from the storm zone and they increasingly want President Bush to shift his attention toward home, a poll released Thursday found. More than half of Americans now say it is more important for the president to focus on domestic policy – the first time since Sept. 11, 2001 that domestic matters have been viewed as a higher priority than the war on terrorism in polling by the Pew Research Center. Two-thirds said the president could have done more to get relief efforts going quickly, according to the survey.

The slow-moving response to the hurricane appears to have shaken American confidence in the government’s ability to deal with a major disaster. Four in 10 said the response to the hurricane has made them less confident about the government’s ability to handle a major terrorist attack. 58% say they have felt depressed because of what has happened along the Gulf Coast. Pew polling indicates that at no point during the Iraq war has that high a percentage of people said they were depressed because of the war.

Hurricane relief Internet scams proliferate.

Internet sites purporting to be charities related to Hurricane Katrina have been popping up faster than the FBI can look at them, and many appear to be fraudulent, the head of the FBI’s cyber division said. There were roughly 2,300 Katrina-related sites by midday Thursday, FBI assistant director Louis M. Reigel said. He said that the number had more than doubled just since Tuesday, and that the number of sites and the money being donated already exceeds what the FBI saw following the tsunami. The Red Cross, whose Web site is one of the most imitated, is working with the FBI to try to identify bogus sites – several Red Cross impostors are especially well done, he said.

The FBI has so far been able to look at roughly 800, of which 60% have an international connection in Eastern Europe, Asia and elsewhere, and are presumed to be bogus. The FBI has opened eight criminal fraud investigations of domestic sites, but no arrests are imminent, said Reigel. The bureau has received 250 complaints at its Internet complaint center about hurricane-related charities. Reigel again cautioned people not to respond to solicitations and also warned that such e-mails could contain computer viruses. People wishing to contribute should contact a well-known organization, he advised. Also Thursday, the Justice Department established a Hurricane Katrina Fraud Task Force that will focus on phony charities, identity theft, insurance scams and government benefit fraud.

OIL AND TROUBLED WATERS

Last week, a shaken nation watched a Hobbesian nightmare unfold on its television sets. Americans have begun asking their officials pointed questions about who let this happen, but they are also questioning themselves, discarding their faith that the terrorist attacks of September 11th 2001 had finally taught Americans how to pull together in a crisis. Long after the looting has stopped and the refugees have been resettled, the reverberations of the Hurricane Katrina disaster will be felt in the American psyche.

But these are not the only effects that will reach beyond the flooded streets in time and space. Economists are already hard at work, rewriting their forecasts to account for the toll that Katrina may yet take on the nation’s economy. The affected area’s ports move a large fraction of America’s imports – including critical oil and gas supplies – as well as roughly half its grain exports. Action Economics, a market-analysis firm, has already nudged its forecast for GDP growth down to 4.4% from 4.6%, at an annualized rate, for the current (third) quarter.

While big hurricanes like Katrina destroy wealth, they sometimes lead to a temporary surge in GDP as the downturn immediately after the storm is made up for by the burst of economic activity that takes place when the rebuilding begins. In the case of Katrina, however, any output boost will be balanced by the effect on the area’s energy infrastructure. In a research report from Merrill Lynch, David Rosenberg says that while rebuilding could add $40 billion to America’s GDP, disruptions to energy supplies could raise prices enough to claw back $30 billion of that gain.

The ripples will spread even beyond America’s shores. Many other nations, particularly in Asia, are heavily dependent on robust American demand for their exports; and some are already feeling the pain of high oil prices. Indonesia’s central bank was forced to raise interest rates sharply last week to stem a near-10% drop in the rupiah. Partly thanks to lavish fuel subsidies, Indonesia’s oil imports, financed in dollars, have touched off fears of a balance-of-payments crisis, driving the currency sharply downwards. While rich countries are much less dependent on oil than they used to be, thanks to increases in fuel efficiency and a shift from manufacturing to services, middle-income countries are still big energy guzzlers. India and South Korea use more oil per dollar of GDP today than they did in the 1970s.

Even in less-thirsty Europe, there are fears that economic recovery could be choked off in its infancy by the steady upward march of prices for petrol and heating oil. That would weaken another of Asian exporters’ main markets and leave the world economy looking vulnerable. If the damage Katrina has done to the Gulf’s oil-pumping capacity forces Americans to shop abroad for more fuel to feed their appetites, it could be a long cold winter for everyone.

FOREIGN COMPANIES PILE INTO HONG KONG

Hong Kong Chief Executive, Donald Tsang, this week feted mainland and international investors whose firms have been crowding into the city-state, boosting the total number of regional and head offices to nearly 6,000 by the end of 2004. More than 200 guests representing some 160 overseas and Mainland companies that set up operations or increased their overall investment in Hong Kong from July last year and August this year attended the reception. Consulates General and heads of international chambers of commerce in Hong Kong also joined the event.

Director-General of Investment Promotion at Invest Hong Kong, Mr. Mike Rowse, said that 2004 was Hong Kong’s most successful year ever for investment promotion. Invest Hong Kong assisted 205 foreign and Mainland companies to set up or expand operations in Hong Kong last year. By the year’s end, 5,943 mainland and overseas companies had either regional headquarters, a regional office or a local office in the city. The figure is up from 5,414 in 2003 and 4,867 in 2002.

Mr. Rowse also noted that inward investment has stayed on the upswing. At the end of June, Invest Hong Kong had assisted 144 companies to invest or expand in Hong Kong, achieving more than half of its annual target of 220 and representing a healthy 13.4% increase from the same period last year. These projects led to the immediate creation of more than 1,400 jobs. The same investors plan to create over 3,000 additional jobs in the next two years. Initial investment by these companies investment topped $1.5 billion.

CHINA’S BEST PLACES FOR BUSINESS

The thriving eastern China city of Hangzhou’s lush hills and scenic lake plus a pro-growth business environment put it atop Forbes China’s rankings of the country’s best places to do business for the second year in a row. The capital of Zhejiang province, Hangzhou is home to Internet firms including Alibaba, which just landed a $1 billion+ investment from Yahoo for a 40% stake. Several key players in China’s thriving textile trade are based there as well. A weekend playground for interlopers from Shanghai, the city also will host a massive travel expo in 2006 that may put it on the world map as an exhibition center. Forbes China’s city rankings are based on market size, transportation infrastructure, success in attracting private investment and other factors.

MOVING AND LIVING ABROAD

Vanuatu: Island Living In The South Pacific

Vanuatu is a series of Islands situated between Australia and Fiji. Flying time from New Zealand and Australia is less than 3 hours on a late model Boeing 737s flown and maintained by expats. The economy is tax-haven based and banking secrecy is extremely good. The temperatures are such that we can swim all year round and we experience regular rainfalls so the countryside is perpetually green. The expat community is very friendly and makes potential new expats welcome.

Many visitors are drawn to the displays in the windows of real estate offices. They find the low prices of property quite unbelievable. The locals are worried that there might be a massive property boom which could destroy the idyllic laid-back nature of the place. They do not want it to become another “Bali” or “Phuket”. It is very easy to obtain a residency so you can live in Vanuatu permanently if you wish.

The Working Geezer’s Guide to Nicaragua

Life is not all cake and ice cream in the rough and tumble world of offshore real estate sales. I discovered as much after a week subbing at a friend’s real estate agency in Nicaragua, in the colonial city of Granada, a favored tourist hangout on the gigantic Lake Nicaragua and gateway to the country’s finest beaches. My proprietor friend Gerry hung out his shingle on the main square there three years ago when he began to anticipate, correctly as it turned out, that the region was primed for a real estate boom. By the time I arrived, however, Garry and his Nicaraguan wife had been swindled, prosecuted, convicted, and sentenced by a criminal court – all in absentia and ex parte – and without actually having committed a crime or appeared before a judge. Unthinkable? Down here it is downright commonplace.

But this column is not about Gerry, or his misadventures, nor even my own attempts to straighten them out on his behalf. Rather, it is about a rather singular island called Ometepe, called by some the largest fresh water island in the world, and where I washed up on shore, Robinson Crusoe-like. Separate from the chaos of Managua and especially the soap operas of Granada, where the small but growing gringo community seems to have settled into a lifelong episode of Days of Our Lives, Ometepe is a comparative oasis.

The island is beautifully forested, with countless species of fruit trees including a delicious type called mammon which I had never discovered before. The ambient scent of fresh guava and plumeria is intoxicating, and when the jungle runs out one encounters waving fields of soft green pasture grass, finely-grained sand beaches, fascinating marshes, petroglyphs and even prehistoric plants that are extinct everywhere else. All of this unfolds within a soft, undulating climate that is alternately wet and dry but never too much of either. It is a true biosphere, unsullied by the agrarian ways of its 34,000 residents, and a bargain to boot. Even the extravagant among us will find it hard to spend more than $20 per day on accommodation, food, and travel.

Living and Retiring in Panama

Inexpensive real estate, a low cost of living, breathtaking scenery and world-class perks should put Panama at the top of your list if you are considering a life outside of your country. Home to Central America’s most vibrant and attractive capital (Panama City), Panama is slightly larger than the state of Florida. It is one of those places that can seduce you through its sheer natural beauty. The seemingly endless stretches of picturesque coastline, lush green valleys, near-perfect weather and friendly people make it one of the most livable places in the world. If you like Florida, the Caribbean and South America, you will love Panama.

Outside of its scenic charms, Panama is one of the best places anywhere for expatriate and retirees today, offering one of the world’s best discount programs for retirees. AARP rated Panama “the fourth best retirement place in the world.” When stacked up against traditional retirement havens such as Mexico, Costa Rica, and the Dominican Republic, Panama has more amenities, lower costs and less crime, red tape and government interference. In addition, Panama has put together an impressive list of incentives to attract newcomers.

Living on Panama’s Pacific Coast

I visited Vista Mar on Panama’s Pacific Coast twice. Of all the developments that I have seen on the Pacific Coast of Panama, Vista Mar is the best. Everything is well planned and built and the views of the Pacific Ocean are great. No other residential community on the Pacific Coast of Panama can give you this view and this fresh salt air. Vista Mar is the perfect name for the project as every condo, apartment and villa has a great view of the Pacific Ocean.

The sun is very hot on the Pacific Coast and the weather is very dry: the site on which Vista Mar is built is probably the driest part of Panama, even in the wet season you do not have to worry about constant rain as you do, say, on the Caribbean Coast. Bugs are not a problem here. There is plenty of water available as there are many freshwater streams that flow down the mountains behind Vista Mar. The dry season in Panama begins in December and ends in April. This is the best time to visit as you can enjoy the sun and ocean and also catch the summer fairs and, of course, Carnival. Panama has one of the best Carnivals in Latin America.

On the Island of Dominica

I have come to Coconut Beach in Dominica, the Nature Island, volcanically spit and shaped in the Lesser Antilles, to spend Christmas holidays with my spouse Captain Tom. He arrived here on November 20th, delayed by scores of mudslides that blocked passage on cliffside roads. The island suffered the only major earthquake in its history – 6.5 on the Richter scale, the epicenter of the quake was 10 kilometers from the east coast of the island. The quake occurred at 6 a.m. on Sunday, November 21st. It rocked the place awake, a cacophony of people running into the street, as it blew the steeple off the Catholic Church hours before the first service, crushing the blessedly empty Methodist bus, leaving only a pile of rubble. The cement houses, skywhite or lime bright, withstood the force of the quake.

Driving in Dominica is an exercise in dexterity. Legend states that Columbus, when asked about the topography of the island by Queen Isabella, crumpled a balled piece of paper and dropped it to the ground. The reflexes of a jaguar, the sonar of a bat, and an eagle-eye are needed for survival on erratically twisting roads filled with continuous curves and blinding flora that juts into your face as you navigate narrow coastal roads. Many Dominicans do not drive at all, preferring to take the “transports” from village to village, or to walk. People used to live in villages linked only by mule transport up until the first road was built in the 1950’s. Dominicans have been driving for only a few decades, and approach the wheel of their favored car with a teenager’s abandonment. It is not unusual to find them in the middle of roads with no yellow midlines, swerving to avoid potholes, marring the road every 10 feet or so, cutting the air as they whiz by. Being bumped into a ditch could mean a fall of hundreds of feet into a gorge.

Escape to New Zealand

We landed in New Zealand true immigrant style. When we left for New Zealand, known as the land of the “Long White Cloud”, we allowed our family of five just two bags each. One was for clothes and one for everything else we wanted to bring to this “new land”. We had no jobs, no relatives, and knew no one. We left everything we had known in the U.S. including a large house overlooking San Francisco Bay, good paying jobs, cars, computers, furniture, friends and family. (This decision from two people with advanced degrees!) For us, moving to the South Pacific has been the best decision we ever made.

Once in New Zealand, we rented a car and traveled 6000 kilometers (about 3600 miles) around New Zealand’s two primary islands. Everywhere we looked, the scenery was stupendous, the people were friendly and the lifestyle seemed pretty laid back. In most cities in New Zealand if you travel 20 minutes to work, you are a “heavy duty commuter”. We started collecting details on this small, spectacularly beautiful country. The range of communities in New Zealand varies from very “outback”, “rural” or even “rugged” to pretty cosmopolitan. Traveling around New Zealand, we could tell that the majority of the country is still very agriculturally oriented. Sheep, cows, apple trees, kiwi fruit, grapevines and now olive trees abound. There are three major cities. New Zealand has a population just over 4,000,000 and its land mass is about the size of Colorado. It costs less to live in New Zealand, but the wages earned are also lower.

We decided after comparing numerous checklists, trying to evaluate every angle and most of all trying to crystal ball the future … to “just do it”. Deciding to move to another country is only the first step in “making it happen”. For us, moving to New Zealand was a risk, but also an adventure. We approached the entire process with an eye to experimentation. After all, what would happen if we tried and failed at any juncture? Though you may not think it at the time, you can always go backwards. But few people ever do. Jobs, houses, cars are obtainable in any country as long as you are able to put your enthusiasm into looking for them.

Working in Paradise (Margarita Island, Venezuela)

I have gotten lots of e-mails from people wanting to “get out of Dodge” … i.e., leave the U.S. Many of them have not reached retirement age and have asked if they can get work here on Margarita Island – often they do not include any information about their skills, present employment, trade, no other information, just “can I get a job there?” Naturally, I could not answer their questions. Most foreigners could not live on a local salary as wages are low compared with the U.S., Canada, Europe, etc. A hotel manager may make the equivalent of $250 a month and a really good salesman might earn about $350 a month.

Consequently, the best way to get a good paying job here is to create one! It is reasonably easy to start a small business here on Margarita, even with the bureaucracy involved. In most cases much easier than in the U.S. No OSHA, very limited involvement with things like Workman’s Comp., Liability Insurance, Employees Medical Insurance, Fire Insurance, Fire Marshal inspections, City Ordinances, Zoning, City Council, State Taxes, Federal Taxes, County Taxes, Tax Taxes and on and on.

Let’s assume you are desperate to escape the escalating prices and bureaucracy in the U.S. or elsewhere, but do not have a lot of money to start. You might consider something as simple as a food cart selling hot dogs, corn dogs, sandwiches, stuffed baked potatoes or something similar … most food stands here just sell Arepas. A stainless steel cart will cost between $200 used and up to $1,000 for a really nice new one. Your permit will be a few dollars, and possibly a couple of hundred for legal work and accounting. Add the cost of stock, location rental (could be flat rate or percentage of sales) and you are looking at a couple of thousand dollars to set you up to make a living in Paradise! One of the most successful restaurateurs in Mexico started just this way. If you qre not into food sales, maybe a spray tanning booth on the beach or an “Olde Time” photo shop, or a “banana boat” … none of these types of businesses are here, and Margarita Island is a major tourist destination.

Isla Margarita Revisited

After my article that was published in Escape Artist, I got a landslide by faithful readers who inquired as to what I had found on this beautiful Caribbean island south of Caracas. As a result, I had a 10 day reunion with a handful of inquiring minds that could not wait to discover Margarita Island Venezuela. If you do not want beautiful beaches, affordable living, wonderful weather, this place is not for you.

You need to get out of your head that this is a third world country. Yes, many parts look like Mexico, same with the architecture, but the shopping centers, pharmacies, big grocery stores, department stores, etc are as nice (or nicer) than some of the U.S. best. The only thing Margarita Island is lacking from the U.S. is congestion, smog and prices. However, many things like electronics and appliances are about the same, maybe a little higher. Where the real value is lies in property, gas, cost of living, taxes, insurance, etc. Gas is still around $0.12 a gallon, cigarettes (Marlboro) are $1 a pack, beer is $3.20 a case of 30, car insurance is less than $100 a year, property taxes the same or less and groceries are very inexpensive. Anything and everything else you want is there. Cellular, Direct TV, shopping centers, restaurants, casinos, nightclubs, everything!

A good 90% of the roads are in great condition. Far better than Mexico’s old roads or Costa Rica [Ed: that is not saying much]. Some divided highways, very few accidents even tho you do not need to stop for red lights and drinking and driving is acceptable unless you are extremely drunk. From what I saw, their accident rate and DUI’s are about 1% of ours. Everybody drives aggressively passive and very polite unless you are holding up traffic. Then you get the horn. Should you bump another car and he pays for your car and you pay for his. What a concept? Not one ambulance chaser on the island. Wow, did I love that!

Since this trip was to research property, we were very impressed with price’s compared to the rest of the world. I found one penthouse for sale for $110,000 asking and this was brand new but not completed. Structure was there but needed everything, tile, appliances, furniture, cabinets, etc. The good thing was, you would get it exactly the way you wanted it. You would be hard pressed to put another $40,000 into it. So for $150,000 you have a brand new custom 3000 sf, 4 bed/4 bath penthouse with the 3000 sf sundeck on the roof that is perfect for a wet bar, hot tub, lawn, BBQ, putting green. For $55,000 I saw many condos, some on the beach, some with a nice view of the water. All were security gated with all amenities, 2 bed/2 bath, living room, kitchen, AC, yada, yada.

Escape from America’s latest issue’s table of contents may be found here.

TAXES

CROCODILE DUNDEE SWEPT UP IN AUTRALIAN TAX NET

One of Australia’s most famous entertainers, Paul Hogan, has been caught up in the Australian Crime Commission’s special investigation into the use of offshore tax havens. Millions of dollars in royalty payments from Hogan’s Crocodile Dundee films were channeled from Hollywood’s 20th Century Fox, owned by News Corporation, to complex offshore tax structures in Chile and the Netherlands Antilles. The Crime Commission wants to question Hogan relating to any knowledge he has of tax avoidance schemes. They are also interested in the former Sydney Harbour Bridge rigger’s bank statements, receipts, credit cards, debit cards and computer records.

According to a source close to Hogan, it was more likely that the Crime Commission was examining possible criminal activities of some of Hogan’s then tax advisers rather than Hogan himself. Speaking on behalf of Hogan, the source stressed that his involvement in tax havens had been organized by his then U.S. lawyers, and that any failure to pay tax was the result of ignorance rather than dishonesty. The source said Hogan was “put into” offshore structures by top-line Los Angeles lawyers and advisers in about 1986, and those advisers may not have understood Australia’s complex and changing tax laws.

The Crime Commission is interested in the connection between Hogan and brothers Philip and Richard Egglishaw, of the Swiss-based firm of tax haven specialists, Strachans, which is the central focus of Australia’s biggest tax investigation, Operation Wickenby. The Crime Commission is examining why a large proportion of Hogan royalties ended up offshore in tax havens administered by Strachans, which recently moved its headquarters from Jersey, in the Channel Islands, to Geneva, Switzerland. Those offshore entities included secret trusts which did not disclose the ultimate controller or beneficiary. When required, funds were drawn down by Hogan and family members from automatic teller machines in Australia, using credit or debit cards issued by tax haven banks. Strachans documents emphasise secrecy and promote the use of “blind” and “mobile” trusts aimed at minimizing tax, or avoiding it altogether. They strongly promote the use of tailored offshore “employment companies” for film stars.

THE FLAT TAX GATHERS MOMENTUM IN WESTERN EUROPE

Since 1994, the flat tax has become an integral part of the fiscal landscape in Central and Eastern Europe, from Estonia in the North, to Russia in the East, Georgia in the South, and Slovakia in the West. They are joined by Latvia, Ukraine, Serbia, and Romania. The number is likely to rise in the next year or two with Poland and the Czech Republic joining the bandwagon. Interest is also growing in Hungary and Croatia.

Suddenly, the flat tax is germinating in Western Europe, home to governments that generally profess the “social market economy” of high taxes and redistribution of income. Slow growth and unemployment seems to be changing minds. The flat tax is currently the centerpiece of tax policy debate in Germany, the United Kingdom, Greece, and Italy.

A complete roundup of Western Europe would include Denmark and Finland, where small political parties are expressing their interest in the flat tax, and Spain, where two professors who serve as economic advisors to the prime minister have written a paper supporting a flat tax for Spain. It is too early to predict the adoption of the flat tax in any or all of these countries, but the idea has clearly taken root.

U.K. Conservatives commissioning investigation into flat tax system.

A flat tax system is one that charges a single marginal tax rate above the personal allowance. This means that above a certain level, everyone pays the same proportion of their income regardless of how much they earn. It can also describe a tax system that applies the same single rate across a number of different taxes, such as income tax, corporation tax and VAT. The UK currently has a progressive income tax system, which has four different marginal tax rates depending on how much you earn. There is a personal allowance of £4,895 on which no tax is paid, then there is 10% payable on the next £2,090, then 22% on the next £30,310 and finally 40% on all earnings above £37,295. In addition, National Insurance Contributions are payable.

Ten countries have flat tax systems, all bar one of which are the former communist states of eastern Europe. In 1994, Estonia was the first of these countries to introduce the system with a flat tax rate of 26%. It has since fallen to 24%. Its Baltic neighbours Latvia and Lithuania introduced similar systems in 1995 and since then Russia, Serbia, Slovakia, Ukraine, Georgia and Romania have all followed suit. Of these Russia has the lowest marginal tax rate of 13% on all income above 4800 roubles – roughly £100. Hong Kong is the only other country with a flat tax system.

The simplicity of a flat tax system is the most indisputable benefit. It is very easy for everybody to understand and avoids the complexity and potential confusion associated with systems such as tax credits in the UK. Libertarian exponents of flat tax also argue that it is fairer for everybody to pay the same rate of tax. But the system also has the support of some on the left because low income earners would not have to pay tax at all. Of course, the extent to which the poor benefit depends on the level of the personal allowance. George Osborne, the Conservative finance spokesman, has touted a figure of between £10,000 and £12,000 for the UK. It is also argued that the lower marginal tax rates associated with flat tax systems encourage enterprise and boost growth as more people enter the labour force and work harder because less income is taken in tax. An associated benefit is that government tax revenues could potentially rise as a result. A final benefit attributed to flat taxes is that tax evasion falls, particularly among the rich as they no longer have to pay punitive rates of tax.

Critics of flat tax systems argue that many of the benefits are not yet proven and that the system is just a way of helping the rich pay less tax. Some on the left also argue that taking low earners out of the tax system by substantially increasing personal allowances would stigmatise the poor as non-contributing members of society. Critics also argue that flat tax systems encourage tax competition between countries and that this puts continual pressure on government revenue and therefore welfare and public spending.

The shadow chancellor has committed the Conservatives to consider a “flat tax” system for the UK.

George Osborne detailed plans for a special commission to consider the introduction of a single low tax rate. At the Social Market Foundation event he attacked the chancellor’s economic record as being “dogmatically” stuck in the past and ill-equipped to compete in the modern world. “Gordon Brown has in a few short years blown the strongest fiscal position in a generation,” he said. “He faces the prospect of increasing taxes when the economy is weak and growth is below trend. Even more seriously it means that when the rest of the developed world is cutting taxes and reining in spending to compete with the emerging giants of China and India, Britain is almost alone in heading in the exact opposite direction: of higher taxes and more profligate spending. Instead of a fiscal policy that is shaping Britain to face the challenges of the future, we are left paying the debts for the chancellor’s past mistakes.”

U.K. PARLIAMENT WATCHDOG QUERIES BROWN’S “NIGHTMARE” TAX CREDITS

Parliament’s public spending watchdog questioned whether Gordon Brown’s flagship tax credit system can ever be made to work fairly as it described its introduction and operation as “a nightmare”. At the same time it disclosed that, over a three-year period, routine housekeeping software had deleted almost 1 million taxpayer records before they were processed fully. That means at least 360,000 people who cannot be identified are owed £82 million in tax and another 22,000 owe HM Revenue and Customs more than £5 million.

The new tax credit system overpaid 1.8 million families, or one third of claimants, in its first year of operation. This led to MPs being “inundated with distressing complaints” as the Revenue tried to claw much of the money back, the Commons Public Accounts Committee said. Leigh, the Conservative MP who chairs the committee, said the government could not show whether the new system had halved claimant error and fraud, as it predicted in December 2003, and a system that “routinely overpays large numbers of claimants” is offering “no kindness to people in desperate financial circumstances”.

ASSET PROTECTION

CURRENCY CARDS: LIKE HAVING LIQUID GOLD IN YOUR WALLET

Traveling with large amounts of cash used to mean you would either have to sweat it out with a big bankroll in your pocket or get writer’s cramp signing a bucketload of travelers’ cheques. But not any more. Now, there are great ways to travel with cash stored in a credit card-sized piece of plastic that is NOT a credit card (though it looks like one). These currency/debit cards give you the confidence of cash, the ease of a credit card and all the privacy in the world.

A Swiss Travel Cash card looks like a credit card, but has no name on it, just a numerical code. The user also gets a PIN code. The user calls his or her banker, who loads the card with a maximum 10,000 euros, U.S. dollars or Swiss francs. It can then be used to withdraw cash all over the world. Even better, there are no monthly limits of withdrawal, although a limit per withdrawal may apply. And you can reload the card when you run out of cash.

Now, it is not free. When you purchase the card and load it for the first time, you pay a commission of 1%, not unlike an insurance premium in the event of loss or theft. Charges for each withdrawal are €3 or $3 (depending on the type of currency loaded in the card) worldwide, though local ATMs may add on their own charges. And when you reload it, you pay a commission of 1% on the reloading amount.

If you lose the card or it is stolen, the card is replaced and your current balance is credited to your new card – worldwide and at no charge. And anyone who finds the card will not be able to use it without knowing the PIN. If you have gold in a Swiss bank account, it can be sold for cash to come up with the Swiss Travel Cash in a matter of hours. You can use the card at more than 900,000 ATMs in more than 120 countries around the world. Your privacy is protected, as purchases are not made in the card user’s name. For more on this card, click here.

SWISS FREEZES ASSETS OF 4 IN UN OIL-FOR-FOOD CASE CORRUPTION CASE INVESTIGATION

Switzerland has frozen the assets of four people it is investigating on suspicion of money laundering and bribery in connection with the United Nations’ scandal-ridden oil-for-food program. None of the four, who have not been identified, are Swiss citizens. The Swiss investigation is linked to international inquiries into the program, under which the UN supplied food and medicine to Iraq in exchange for allowing the government to export oil.

One of those investigations, directed by Paul A. Volcker, the former Federal Reserve chairman, issued its findings yesterday. According to lists compiled by Mr. Volcker’s investigation, only France and Russia brokered more oil under the program than Switzerland.

Another U.N. official is charged with money laundering through Antigua.

The Russian head of a key UN committee has been arrested and charged with money laundering involving accounts in Antigua. Vladimir Kuznetsov is chairman of the UN Advisory Committee on Administrative and Budget Questions, a powerful position to which he was elected by the General Assembly three years ago. His arrest is linked to a corruption case involving another Russian official working for the UN, Alexander Yakovlev, who pleaded guilty to conspiracy, fraud and money laundering on August 8, the day when an independent panel probing the scandal-tainted oil-for-food program for Iraq charged him with taking bribes. Kuznetsov and Yakovlev are accused of having set up a company, Moxyco, to handle the illicit payments, receiving transfers on accounts in Antigua in the Caribbean and in Switzerland in exchange for information and assistance for these companies.

THE AVENGERS

When authorities shrugged at a $100 million investment scam, angry backers turned into gumshoe vigilantes.

On an arid, sun-drenched day in Las Vegas in November 2000 Dennis D. Cope called a secret meeting of his disciples – a hundred clients of his popular investment firm, the Millennium Group. They had been told to dial a cell phone number at noon to learn where to show up: a drab conference room at the Golden Nugget. The investors had handed over millions of dollars for Cope and a partner to invest in an array of highly secretive and startlingly lucrative deals. They had been receiving glowing monthly statements showing returns of up to 30%a year. Now Cope, a blue-eyed former Mormon missionary who is charismatic, square jawed and almost 6 feet tall, had new advice. They should roll their investments into a new deal, a $20 billion oil and gas venture in Mexico that would make them staggeringly rich.

So they did. The oil-gas play was the brainchild of Cope’s partner, Edgar M. Bias, the 300-pound chairman of an outfit called FIIK Investment & Holdings. Only one dubious follower had the moxie to stand up at the meeting and challenge Cope directly. “Is this a scam?”, he demanded. Cope calmly returned serve. “No. If it were, I’d be in jail. Do you want your money back?” The dissenter sat down. What the clients did not know was that virtually none of them had received promised quarterly payments. And Bias, two years earlier, had finished serving 18 months for money laundering. He had brazenly named his firm as a private joke. By all accounts, FIIK stood for “F*ck If I Know.”

Five years later Cope and Bias have been indicted on 32 counts of securities fraud and face trial next month in Arizona. By some estimates the pair took more than $100 million from 550 investors who were too eager and too credulous. “I was greedy and gullible,” says Claudia Nelson, 66, a retired real estate agent in Boise, Idaho. She had invested $100,000 in Millennium’s “high yield” private placement in 2000. That the case against Cope and Bias exists at all owes largely to her efforts. When it became clear she had been ripped off, she organized an investor revolt, allied with disgruntled castoffs from the men’s inner circle and gathered evidence to prod law enforcement to act. The pair was indicted by a federal grand jury in Arizona in March and arrested a week later.

Their list of alleged victims is impressive for its breadth, from cattle ranchers and retired insurance salesmen to professional athletes. Cope started out recruiting mainly from Mormon senior citizens groups. His early investors convinced friends and acquaintances to invest and were paid a fee equal to 10% of the new deposits. Claudia Nelson, who was raised a Mormon, had attended the secret meeting in Las Vegas. She recalls being shocked that anyone would dare doubt Cope. He was dramatically cryptic about how he produced such spectacular results at a time when the stock market had gone to hell. His secrecy “was like an aphrodisiac,” she says now; it was as if his clients were getting in on something special. The fact that Cope, too, was a Mormon was a plus, she says. “It was like we were one step away from God.”

As the months went by, Nelson got statements showing her nest egg getting bigger – but without ever getting the quarterly profit checks that had been promised. Cope variously blamed the lapse on bank errors, regulatory red tape and “unexpected holds on profits” from the secret deals he did. Then Nelson discovered that no one else she talked to had gotten a payout either. When she suggested to Cope, in an e-mail, that it was “time to get some help from upstairs” and offered to organize a prayer group, he declined. “That’s when I really began to lose faith. A good Mormon would never turn that offer down,” she says.

Nelson complained to the Arizona state attorney general’s office but got nowhere. So she took the lead – after a lucky break. Cope’s son-in-law mistakenly sent her an e-mail listing every group member, and she began contacting some of them. Thus began four years of “documenting deception”, she says. She and other Millennium members shoveled signed contracts, internal memos and corporate credit card records to FBI agents, prosecutors, SEC investigators, and the IRS. Gradually a detailed picture of the alleged scam emerged. However, little of the millions separated from mesmerized clients has been recovered.

PRIVACY

WILL THE NEW NATIONAL ID TRACK YOUR MOVEMENTS?

By the end of September virtually unaccountable bureaucrats inside the Department of Homeland Security will likely have decided whether the new de facto national ID card will broadcast your sensitive identification information wherever you go – Minority Report style. This comes as a result of the REAL ID Act. REAL ID was signed into law in May. As a result of negotiations over the intelligence-reform bill passed last December, the law had been attached to the first “must-pass” bill of 2005, which turned out to be “emergency” spending for the Iraq war. Thus a vote against this national ID would have been spun as a vote “against the troops” as well.

REAL ID gave the Department of Homeland Security (DHS) the sole right to issue “design requirements” for driver’s licenses, needing only to “consult” (that is, ignore) state officials and the Department of Transportation. Though the official publication of the design requirements is still some months off, DHS is expected to make an internal decision on one of those requirements, regarding “machine-readable technology” standards, by early fall. And there is a lot of pressure on DHS from the surveillance-technology industry to make radio-frequency identification (RFID) microchips the required machine-readable technology.

FID technology in an identification card consists of an embedded microchip and antenna that broadcasts identity information, decodable by specially designed readers. On an identifying document such as a driver’s license, RFID is an unnecessary, dangerous technology in today’s information-rich world. RFID-enabled identity cards can broadcast identifying information to persons and institutions without the knowledge or consent of the license holder. That information, such as a name, birth date, identification number, or even digital photo, could then be cross-referenced through commercial and government databases to gain increasingly sensitive identity information on the individual. That kind of technology on essentially mandatory government documents can lead to identity fraud, endangering the victim’s finances, privacy, and even physical safety.

U.K. HOME SECRETARY TELLS MEP’S TO BACK DATA RETENTION LAW

The legal framework in which enforcement agencies try to gather and collect vital intelligence data is “very difficult and in some cases impossible,” UK Home Secretary Charles Clarke told MEPs in Strasburg. He urged the European Parliament to support plans for EU laws on the retention of telecommunications data, updating the Schengen Information System (which allows citizens from participating Member States to travel throughout those states without checks at internal borders) and in establishing a new Visa Information System. Each of these proposals has faced criticism from civil liberties groups concerned that they herald the coming of a surveillance society.

But the political environment is changing, largely due to 9/11 and the Madrid and London bombings, and the UK Government, which holds the EU presidency until January, is determined to push the measures through. Clarke warned MEPs that no country could tackle the problems of international crime, terrorism or international migration alone. “The truth is that in each of these areas we will all, including within our own countries, achieve most by sharing experience, information and resources and by identifying, and then targeting, the threats systematically and consistently,” he said. Given that criminals and terrorists use the internet and mobile communications, Clarke argued that we need to “know what they are communicating”.

But he sees human rights legislation as an obstacle that makes it difficult for law enforcement agencies to obtain the information needed to tackle the threats against our society effectively. Clarke says agencies need to be able to access telecommunications data held by ISPs and telcos, or by the Schengen Information and Visa Information Systems. He also called for visas, passports, identity cards and driving licences to contain biometric data. He countered criticism that civil liberties would be threatened by these measures by arguing that the right to privacy, the right to property, the right to free speech and the right to life are all under threat from criminals and terrorists.

“We have a duty and responsibility to help protect them for our citizens through practical measures,” said Clarke. “As we consider how best to do this there will always and inevitably be a balance in rights. What matters in each case is that the steps are proportionate and that protections against abuse are effective. I believe that our proposals offer that.” He cited the retention of telecommunications data as an example.

LAW

LAWYER AT CENTER OF AUSTRALIAN TAX PROBE FIGHTS BEING COMPELLED TO TESTIFY

A lawyer at the center of an A$300 million money-laundering investigation fears some of his high-profile clients will be arrested. The Melbourne solicitor, whose name has been suppressed by a court, is named by the Australian Crime Commission as “a principal person of interest” in its joint investigation with the Australian Taxation Office into serious and organized crime involving money laundering, and tax fraud.

The lawyer has gone to the Federal Court to fight a summons to appear before the ACC to provide information about tax avoidance schemes, and companies and individuals that may be involved. In an affidavit presented to the court, the lawyer’s solicitor said that having to give evidence would cause the lawyer and his clients “irreparable harm”. The affidavit said that if the lawyer were compelled to give evidence, it could be used “for purposes including identifying and apprehending persons.”

THE SQUEEZING OF LAWYER-CLIENT PRIVILEGE

In its agreement with the government that headed off an indictment, the accounting firm KPMG promised not to try to use “any claim of privilege” to keep information from prosecutors. The pledge did not get much attention, perhaps because waiving the privilege that protects communications between a lawyer and client is now commonplace for corporate defendants. But the privilege has been weakened in other ways, too, as more individual defendants try to argue that their actions were blessed by a lawyer and that, as a result, they did not know they were doing anything wrong.

Some lawyers say they are worried that weakening the privilege will mean that clients will be less candid, making legal advice less reliable. Other lawyers counter that anyone advising a company, an executive or an individual will give better advice because of the possibility that the advice may someday become public. But all agree that the privilege today is much more negotiable than in years past. “It’s clear that there’s this chill out there, that the privilege is vulnerable,” said R. William Ide III, a lawyer at McKenna Long & Aldridge in Atlanta and also chairman of an American Bar Association committee on lawyer-client privilege. “We don’t think it should be in play.”

But powerful forces have put in play the privilege protecting communications, as well as the so-called work product privilege covering documents and other work by a lawyer in anticipation of litigation. Examples abound in recent years of lawyers providing evidence – in cases involving HealthSouth, Tyco, Credit Suisse First Boston, Enron and others. A recent bar association report notes that while it is difficult to determine how frequently companies are asked by regulators and prosecutors to waive the privilege, those interviewed by the committee said “these requests, backed by an express or implied threat of harsh treatment for refusing, have become increasingly common.”

OPINION & ANALYSIS

SOME THOUGHTS ON FOREIGN AID

So far I have not blessed Ireland with my presence. And for at least the time being, I have no intention whatsoever of doing so. First, because of the weather there. Second, because it is located in Europe. Anyway, there are in particular two Irish folks who make my eyes roll like a football. They are Bono and Bob Geldolf. They make my eyes roll like a football because they reckon that they are called to save the less developed world. Instead of trying to save the less developed world with their simplistic concepts they may be better off sussing out the underlying reasons for Ireland’s economic transformation (to get a handle on the topic).

Why would it be a little over the top to claim that Bob’s and Bono’s concepts for saving the less developed world make me jump for joy? Their concepts boil down to doubling foreign aid and writing off debt. On average, during the past 50 years developed countries have funneled $100 billion per decade just into Africa. It has not amounted to plenty worth mentioning. Quite often, the more aid these basket cases received the more they went south. 39 countries that received foreign aid from the World Bank between 1980 and 2002 enjoyed negative annual growth. That record tends to be even worse in sub–Saharan Africa. About half the countries there that received foreign aid enjoyed cratering per capita incomes.

There appears to be a pattern. Developing countries that receive less aid do better than developing countries that receive loads of aid. China received between 1990 and 2002 $26 per capita. China’s annual GDP went north by a little more than $2,500 per person. During the same period, Zambia received a little more than $1,100 per capita. However, Zambia GDP tanked by about $140 per person. Do you reckon that it is a coincidence?

THE REPUBLICAN CHARADE: LINCOLN AND HIS PARTY

I want to take a look at this strange institution we know as the Republican party and the course of its peculiar history in the American regime. The peculiar history both precedes and continues after Lincoln, although Lincoln is central to the story. It is fairly easy to construct an ideological account of the Democratic party, what it has stood for and who it has represented, even though there has been at least one revolutionary change during its long history.

I generalize broadly, because all major political parties since at least the early 19th century have most of the time sought to dilute their message to broaden their appeal and avoid ideological sharpness. But we can say of the Democratic party that through most of its history it was Jeffersonian – it stood for, at least in lip service, a limited federal government and laissez-faire economy, and it represented farmers and small businessmen, the South, the pioneer West, and to some extent the Northern working class. This identity for the most part even survived the War to Prevent Southern Independence. Clearly, the party in the 20th century came to represent a very different platform – social democracy as defined by the New Deal and the Great Society – and a considerably different constituency. In either case, onlookers have had a pretty good general impression of what the party stood for.

It is nearly impossible to construct a similar description of the Republican party. The party that elected Lincoln was pretty clear about some things, like the tariff, although it may have been less than honest about the reasons. It was obfuscatory about other things. Since Lincoln took power, it has been difficult to find a clear pattern in what the party has claimed to represent. The picture becomes even cloudier when you compare words and behavior. This, I believe, is because its real agenda has not been such that it could be usefully acknowledged.

Apparently millions continue to harbor the strange delusion that the Republican party is the party of free enterprise, and, at least since the New Deal, the party of conservatism. In fact, the party is and always has been the party of state capitalism. That, along with the powers and perks it provides its leaders, is the whole reason for its creation and continued existence. By state capitalism I mean a regime of highly concentrated private ownership, subsidized and protected by government. The Republican party has never, ever opposed any government interference in the free market or any government expenditure except those that might favor labor unions or threaten Big Business.

There is nothing particularly surprising that there should be a party of state capitalism in the United States. And certainly nothing surprising in the necessity for such a party to present itself as something else. Put in terms the Founding Fathers would have understood, the interests Republicans serve are merely the court party – what Jefferson referred to as the tinsel aristocracy and John Taylor as the paper aristocracy. The American Revolution was a revolt of the country against the court. Jeffersonians understood that every political system divides between the great mass of unorganized folks who mind their own business – that, is, the country party – and the minority who hang around the court to manipulate the government finances and engineer government favors. It is much easier and quicker to get rich by finding a way into the treasury than by hard work. That is mostly what politics is about. Of course, schemes to plunder society through the government must never be seen as such. They must be powdered and perfumed to look like a public good.

Contrary to what we might hope, there was nothing in the New World to inhibit the formation of a court party. In fact, the immense riches of an undeveloped continent merely increased incentives for courtiers. The number of projects that could be imagined as worthy of government support was infinite. In America there were not even any firmly established institutions of credit and currency, control of which was always the quickest route to big riches. Neither was there anything in a democratic system to inhibit state capitalism. The great mass of the citizens could usually be circumvented by people whose fulltime job was lining their pockets by swindling the voters. Lincoln’s triumph is most realistically seen as the permanent victory of the court party, a victory that had been sought ever since Alexander Hamilton. The Lincoln regime eliminated all barriers to making the federal government into a machine to transfer money to those interests the party represented (and as many others as needed to be paid off to support the operation).

WHAT DO LIBERTARIANS BELIEVE?

So what exactly do libertarians believe? I have heard this question too many times. I am going to ignore the inanity of it, in deference to the truly curious, and attempt to answer it briefly because there is no other way – that is, short of writing several volumes of political philosophy, which is something I am not planning on doing.

The core principle of libertarianism is simple, and if one wishes to join the Libertarian Party one must sign a pledge to uphold it: the principle of non-aggression. Therein lies the most striking difference between libertarianism and the other political philosophies currently wrestling for power in the U.S. Non-aggression simply states that your freedom to engage in violence ends where another human being begins, except in cases of self-defense. Thus, your inherent authority extends only to your own borders – the property you own, or your own body – and nowhere else. Authority is an artificial construct that is morally valid if and only if the consent of the subordinated is clearly established. This rule applies to all individuals, corporations and yes – even governments. It is from this foundation that all libertarian positions derive. The government, at any level, is an exercise in authority that is not necessarily intrinsic to its existence. As Murray Rothbard, one of the greatest political thinkers you have never heard of, said, “If you wish to know how libertarians regard the State and any of its acts, simply think of the State as a criminal band, and all of the libertarian attitudes will logically fall into place.”

Unlike Rothbard, however, most libertarians are not anarchists. Most are disillusioned Republicans or Democrats who have seen the national debt grow, who have watched civil liberties be curtailed, who have seen the machinery of state aggression, who have recognized that the root of oppression is the usurpation of authority and who have had enough. Libertarians reject authority that does not rest on the explicit consent of the governed. We believe that neither you nor any politician has a right to our money. We believe that no one has the right to interfere in our private lives. We believe that self-defense is inalienable but that all forms of aggression are immoral. We believe that drug laws, just like immigration laws, have been enacted to create criminals out of peaceful citizens. The government’s role is not to enforce charity and morality, and we believe that the best way to a better society is not through more laws, but through fewer.

Hence the difficulty in classifying libertarians on the left-/right-wing scale. Like the left, we believe that the state has no right to interfere in the personal lives of people. Like the right, we believe that the state has no right to steal from its citizens. Libertarians are thus both simultaneously left and right, and most will say they are neither.

REFUSING RESCUE

Should a hurricane pummel New York City as it did New Orleans, we need not fear. Our Masters will rescue us whether we want them to or not. Mayor Michael Bloomberg announced this week that he not only has an evacuation scheme, he will enforce it. “Officials … would knock on doors,” The New York Sun reported, and, in Bloomberg’s words, “‘get a court order, if we have to.’” “Court order” is Mike’s euphemism for SWAT teams’ dragging little old ladies out of their rent-controlled apartments and interning them at Madison Square Garden. And that is what it will require, too, after the examples we had of Leviathan’s hospitality last week.

Then again, maybe not. In Katrina’s path were Americans who had seen children gassed at Waco and mothers murdered at Ruby Ridge, yet they nevertheless entrusted themselves to Leviathan’s tender mercies. They expected politicians to protect them from the storm, then feed and shelter them, too. There is an enormous, resilient, and utterly unfathomable faith in government out there. Diane Sylvester is typical. One of the thousands imprisoned at New Orleans’ convention center, she starved as the state’s guest for several days. Then the U.S. Army arrived and set up a chow line. Diane enthused, “I feel great to see the military here. I know I’m saved.” Not a fast learner, are you, Diane? Nor is Aaron Broussard, chief cheese of Jefferson Parish. On CBS’s Early Show, he said, “Take whatever idiot they have at the top of whatever agency and give me a better idiot. Give me a caring idiot. Give me a sensitive idiot. Just don’t give me the same idiot.”

Thanks, but you can keep your idiots. I will look after myself in an emergency. The last thing I would do is trust the cops, FEMA, or the National Guard to care for me. Jesse Jackson and Calvin Butts aside, I doubt they would do any better by this white girl than they did with their black victims last week in New Orleans. It is estimated that about 10,000 folks in New Orleans agree. These are the hardy, self-reliant souls who know the person most concerned with their welfare and best able to judge it is the one they see in the mirror each morning. They rode out the hurricane and, even more impressively, survived everything the state unleashed on them afterwards.

Mere survival is not their only ambition, however. “You’ve got to protect your property, that’s the main thing,” 69-year-old John Ebanks told AP. He declined to be rescued – ha!, figuring his cache of food is a whole lot more substantial than Leviathan’s promises. “[My house] is all I’ve got. I’m pretty damn old to start over.” Then there is Jack Jones, a retiree resourceful enough to boil his clothes in vinegar and bathe with water from his neighbors' pools. “They may have to shoot me to get me out of here,” he said. “I’m much better off here than anyplace they might take me.”

If there is one thing Our Masters hate, it is self-reliance. They suspect, and rightly, that such independent types do not need them. Do not even much like them, in fact. It nips at their bureaucratic butts, this weird, rare, heady desire to fend for oneself.

ECONOMICS AND POLITICS

Economics is a theoretical science that analyzes the economic consequences of all modes of human action. It examines goods prices, wage rates, and interest rates and inquires into the principles of production, distribution and consumption. It searches for the most direct means for the attainment of ends chosen. It neither justifies nor condemns the motives of any economic action. It is “value-free”. Politics is the art of government including its policies, goals and affairs, its methods and tactics, and its partisan or factional ambitions and actions. It appeals to various motives and intentions and is guided by preferences many of which are moral choices made by individuals in their relationship with others. Politics has also been defined as “who gets what, when, how.” In the words of President John F. Kennedy, “political action is the highest responsibility of a citizen.”

The connection between economics and politics is clearly visible. Economic production sustains human life which, for most people, is the most important concern in life. The prestige of democratic government, its rise and fall, usually depend on its economic performance. Economic policies must please the greatest number of people who decide democratic elections and reelections. But voters, as well as the representatives they elect, may also be guided by economic notions and doctrines that are popular rather than fitting and exact. Public opinion may be swayed by appeals to emotion and preconception rather than reason and common sense. Articulate politicians may prefer to be popular rather than correct.

Politics is the activity of common men. When they succeed they become important leaders in the eyes of their followers. But most of them merely echo public opinion which was molded and fashioned by eminent authors. Politicians may recount the teaching of their college professors of political science and economics, or relate to the lessons and stories told by famous authors and commentators. Public opinion and public policy are shaped by authors and teachers of thought. They created and disseminated the conflict doctrine that is guiding our politicians and government officials. They are ultimately responsible for the economic war in which the triumphs of some groups are the defeats of others.

Since economic conflict begins in the minds of men, it is in the minds of men that peace must be restored. Authors and teachers must again analyze the economic consequences of human action and enlighten the public about the basic harmony of interest in a free economy. Unfortunately, there are only a few who are teaching harmony and pointing toward peace. They can barely be heard in the clatter of the conflict doctrine.

EMPIRE OF DEBT

America has changed. From a nation running a surplus and minding its own business, America is now the world’s biggest busybody, requiring the kindness of strangers to fund not only its overseas government follies, but also, the lifestyles of its over-indebted private citizens. The story of when America turned its back on what had made it a rich nation, and why, is told by two of the world’s best financial writers, Bill Bonner and Addison Wiggin, in their new book, Empire of Debt. The pair teamed up a year ago to pen Financial Reckoning Day: Surviving the Soft Depression of the 21st Century. Our readers are well acquainted with Bonner’s Mencken-like wit mixed with keen market insights and the occasional dash of Dr. Freud.

The irreverent Bonner and Wiggin write that the purpose of Empire “is to show that the U.S. is headed for trouble.” And that, “their burden is only to show that the people making important policy decisions are morons and frauds.” The authors have a penchant for old ideas, old rules and old investors like the soon-to-be 93-year-old Sir John Templeton who shares their view that stocks and houses are over priced, and contrary to what Dick Cheney says, that trade and federal deficits do matter. Most new ideas fail, and the new economy idea that debt is good, stock valuations will forever remain high and that you can get something for nothing is just chimera.

Bonner and Wiggin explain that typically the imperial power provides the public good of security and order but expects to earn a profit in the form of tribute in return. However, America has turned this equation on its head. America does not take tribute from dependent territories. It borrows from them. “Living standards rise in the U.S.,” the authors point out. “But they are rising on borrowed money, not on stolen money.” In 1952, the authors note, foreign sources provided just 5% of the Federal government’s borrowings, but by 2005 that percentage had grown 9-fold. History shows that central power weakens over time, while the subordinate states gain strength. Therefore, it is just a matter of time before they stop supporting the American empire with loans.

It is hard to know when the empire and its bubbles will collapse. Bill Bonner and Addison Wiggin do not pretend to know. But, Empire of Debt makes the wait more fun.