Offshore News Digest for Week of January 30, 2006

GLOBAL LIVING & BUSINESS

A LIBERTARIAN DREAM STORY IN COSTA RICA?

The rise of the Libertarian Movement Party as a national force is the real story in the upcoming presidential election in Costa Rica. The party’s leader, Otto Guevara, has been able to do what no libertarian has achieved anywhere in the western hemisphere, including the U.S. Mr. Guevara is currently running third, with 15% in the polls – far behind the expected winner Oscar Arias, but a close second to Otton Solis, a classic Latin American populist. The Libertarian Movement party is also well ahead of the Social-Christian Democrats and is set to obtain some 12 seats out 57 in Congress. As Guevara told me recently, he wants to “force the next government to negotiate with the Libertarian Movement Party its public policies for the next four years” and prepare the terrain for a presidential victory in 2010.

Since their inception, the Costa Rican libertarians have been on the rise. In 1998 they got Mr. Guevara elected as the first libertarian in Congress and in 2002, with nearly 10% of the vote, they managed to get six legislators elected. Now, they have become a force to be reckoned with and, without renouncing their radical views, have penetrated into the mainstream – every libertarian’s dream. The libertarians stand for minimal taxation and regulations and have successfully blocked the current President’s attempts to raise taxes for the past three years. They believe in ending government monopolies on electricity, telecommunications, oil refining and insurance, as well as legally protected private monopolies such as vehicle inspection. They have proposed the elimination of trade barriers including support for the Central American Free Trade Agreement with the U.S. And they believe in a property-owning society (they support giving titles to informal home owners), stand against foreign intervention (they stood against the war in Iraq, which the Costa Rican government supported), and in favor of decriminalizing drugs.

One should not, at least at this stage, read more into Guevara’s success than is necessary. But eight years of solid growth without compromising on those issues generally deemed to be an impossible sell deserve at least a second thinking with regard to politics and classical liberalism.

SIX COUNTRIES SIGN UP TO CARICOM SINGLE MARKET

Barbados, Belize, Guyana, Jamaica, Suriname and Trinidad and Tobago formally signed a declaration of their governments’ compliance with the provisions of the Treaty establishing the Caricom Single Market and Economy (CSM). These Member States entered into Single Market arrangements as of January 1. Leaders of the six Organization of Eastern Caribbean States (OECS) – Antigua and Barbuda, Dominica, Grenada, St. Kitts and Nevis, Saint Lucia and St. Vincent and the Grenadines – agreed during a meeting in Jamaica preceding the official ceremony to push the Caricom Single Market start date for compliance to June 30.

Secretary-General H.E. Mr. Edwin Carrington described the launch of the Single Market as an “historic and unprecedented step” in the regional integration process, and a new dimension that will change the way the people of the region live and work. He has urged the region to be “fully prepared” for the challenge that will come with the launch of the CSM. Meanwhile, Caricom’s Assistant Secretary-General for Human and Social Development, Dr. Edward Greene, believes that the free movement of goods, services, capital and persons will be an opportunity for Caricom nationals “to make the Caribbean one market that would work for individuals irrespective of their country of origin.”

10 THINGS YOU NEED TO KNOW BEFORE BUYING A ONE-WAY TICKET TO TONGA

On the night I met the young lady who later would become my wife, we engaged in a conversation about world travel. I, of course, boasted of my desire to find an island to call my own – something in a tropical location, with pure white sands and emerald seas. I was mortified and the bubble that was my dream was burst when she informed me that every man says he wants his own island in paradise. That conversation did two things. One, it woke me up to the fact that I am in no way unique when it comes to a need for adventure and escapism. And two, it ignited a determination to accomplish what so many of those other dreamers never do; … actually achieve the dream.

In the years since, I have kept an eye open and an ear to the water for beach-front opportunities in tropical settings. Notice I did not specifically say “island” this time. I learned along the way that, while there really are many islands available around the world, it is exceptionally rare to find one that is accessible, livable, self-sustaining, secure and affordable. So I subsequently broadened my parameters of acceptability to include a “slice” of an island … sizeable enough to provide privacy and room to roam, yet affordable and close to civilization.

My search ended a few months ago in the Kingdom of Tonga, a long string of island jewels east of Fiji, south of Samoa and west of Tahiti. The archipelago, which Captain Cook referred to as “The Friendly Islands” remains the only monarchy in the Pacific and has been ruled by King Taufa’ahau Tupou IV since 1965. With three major island groups – plus a fourth consisting of only a few sparsely scattered islands to the far north – I was particularly attracted to Vava’u, the northernmost of the island groups. In addition to its decent infrastructure and small “international” airport, Vava’u offers incredible and uncrowded white sandy beaches, colorful coral reefs teeming with wildlife, and crystal clear waters in every shade of turquoise, emerald and blue.

My dream property came to me in the form of a run-down resort on a 7 acre parcel with approximately 300 meters of beach front. The resort has not operated for over three years and all of the structures require considerable work. The question was not, “Do I want it?”, but rather, “What do I do with it?” In the end, I decided to form a Tongan company and pursue a property that can operate as a very exclusive resort, while also serving as a private getaway for my family. I have learned much from my experience and am happy to share 10 things anyone would need to know before making a long-term commitment to property in Tonga. I have compiled my list in descending order, from what I consider the least of concerns, to what I believe should be your primary concerns should you decide to venture the way of Vava’u.

TURKS AND CAICOS LIBERALIZES TELECOMS MARKET IN FURTHER BLOW TO CABLE AND WIRELESS

The Cable and Wireless monopoly which has shackled the development of so many Caribeean territories has taken a further blow with liberalization of the market in the Turks and Caicos Islands. C&W has yielded to pressure by giving up the last six years of its monopoly in the Islands, and has signed a new 15-year license agreement. C&W put on a brave face, congratulating the government on its liberalized regime, but said it planned to reduce local wireless tariffs by up to 50% and national fixed line rates by up to 60% starting March 1, 2006. Communications Minister, McAllister Hanchell, said that the liberalization would see more players enter the market and will boost access to communications services.

Under the legislation, there is now a Telecommunications Commission, which says that there must be universal access to basic sustainable telecommunications services at an affordable price to every citizen, (1) the telecommunications network must be expanded to reach citizens in all areas of the country, (2) every individual must have access to affordable basic telecommunications services at a reasonable distance, and (3) at the minimum, this will be a telephone with internet access in every home.

UNSPOILED, RELAXED, EASYGOING, BEAUTIFUL, AND SAFE – CROATIA’S TOURISM REDISCOVERY

Croatia is one of Europe’s loveliest treasures. Everything a discriminating visitor – or home buyer – is looking for can be found right here: crystal-clear seas, timeless fishing villages and unspoiled beaches, roman ruins, a pristine lake district, and medieval walled cities. Every twist and turn of the coastline serves up grandstand views of secret coves, little harbors, and calm turquoise waters. Out in the Adriatic Sea, a galaxy of islands – 1,185 of them – shimmer like a cache of emeralds. The French diving legend Jacques Cousteau once described Croatia’s waters as “the cleanest and clearest” in the world. When you go out into the Adriatic you will be astounded at how far down into the depths you can see.

What else? Oh, yes – Adriatic property prices are what you could find on the Mediterranean a generation or so ago. Although prices have been increasing at a rate of between 20% and 30% per annum in recent years, (30% in the last six months in the splendid medieval city of Dubrovnik, the hottest spot on the country’s real estate map), it is not too late to find great values. Prices are still well below the European average. When compared with many other European vacation destinations, agents are correct in claiming that the Dalmatian coastline still has significant growth potential.

It is hardly surprising, then, that this little gem of a country is experiencing something of an investor feeding frenzy. Where else along Europe’s sunshine coasts can you find a two-bedroom seaside apartment for under $80,000? Now could be an ideal time to snap one up since it seems most unlikely that prices will fall. Croatia is seeking accession to the EU by 2008, though this could actually come as early as 2007.

Although Croatia was once part of Yugoslavia, the vast majority of Croatians actually resent their country being portrayed as part of the Balkans. Both historically and culturally, they regard themselves as firmly a part of central Europe. Croatia is not a battle zone. The war here ended in 1995. It is neither Kosovo, nor Bosnia. In fact, Croatia is nothing like either. If you are under the impression that it is war-torn, backward, poor, or struggling, think again. Such ideas are either out-of-date or misguided. What you need to know is that Croatia is a wonderful retirement destination, a dream holiday spot, and an interesting investment opportunity.

PROPERTY INVESTING AND LIVING IN DUBAI

When my I told my friends and family three years ago that I was going to live and work in Dubai the first thing they asked was “Where is that?” When I told them that Dubai was a part of the United Arab Emirates in the Middle East their next two questions were “Are you mad?” and “Why the hell would you want to go and do that for?” Sand, camels, oil, terrorists, war, women in veils, men with guns. These are some common perceptions of people who have never lived in the Middle East. These perceptions are fueled and driven by the media who ram images of chaos and misery down our collective throats on a daily basis and have much to answer for in today’s climate of fear and misunderstanding.

Through a couple of isolated conflicts they make the Middle East look like one big chaotic bomb site with carnage waiting around every corner. And while I would never make light of events In Iraq or in Israel and Palestine, in Dubai and 95% of rest of the Middle East for that matter, we might as well be watching it from the comfort of our recliner chair back in America. My travels around the Middle East have shown me repeatedly that the people of this region are cultured, educated, peace loving people whose Muslim faith is about respect, love and charity. As a woman I feel totally safe walking through the streets of Dubai in the evening. This is not something I can say for other places I have lived like England, Ireland, The States or even New Zealand which has world leading reputation for being a “safe” environment for people to live in. [Ed: The author of this article is a woman.] Now that I feel that I have done my best to clear up some of the media driven misconceptions lets get onto the really good stuff about this pearl of a city for property investment and living in called Dubai.

In the late 1960’s Dubai was a small fishing village on a finger of land pointing into the Arabian Gulf. A small community of people settled on the edge of the Gulf and survived on fishing and pearl diving. Behind them was a desert stretching for thousands of kilometers in which nomadic tribes roamed. This way of living was also being played out in six other regions dotted around Dubai that would later combine into what is now known as the United Arab Emirates. Each Emirate had a ruler or a “Sheikh”. Who owned the land and ruled the people. This lifestyle was the same for hundreds if not thousands of years until a little over thirty years ago something was discovered, Oil. Over night the sheikhs became the “Clampets” of the world. Unbeknown to them they were sitting on a rich, deep vein of oil that would take their small group of principalities from poverty to lavish wealth.

It was decided that to best take advantage of the discovery and to share the wealth their emirates should unite and be ruled by one sheikh. This mans name was Sheikh Zayed Al Nayhan. Sheikh Zayed set about putting a plan in place that would make Dubai a world leading City of the Future. In the 30 years to date his plan has taken the small village of Dubai to the fastest growing city in the world today. With projects like “The World”, a massive representation of a map of the world sitting on top of the ocean off the coast of Dubai in which countries are islands and can be bought. Then there is the Burj Dubai the tallest building on earth, Mall of Arabia the largest Mall in the world and Dubailand a theme park that will make Disneyland look like an entertainment Relic. These are all currently under construction.

If you were offered some real estate in Disneyland before it opened would you have bought some? You can purchase hotel apartments within the grounds of Dubailand through certain developers with a minimum of 8% rental return guarantees for three years and occupancy availability for you and your family every year. Dubai is the Californian gold rush town of the new millennium and real estate is dirt cheap in comparison to other leading cities of the world. But Dubai has also cultivated tourism by taking advantage of its superb year round climate, white sandy beaches and pale blue waters and complementing it with some of the most luxurious resorts in the world.

There was also an early understanding of the importance of building a trading environment that attracted businesses to use Dubai as a trading base by initiating “free zones” – of which there are now 15 around the UAE – which allow businesses to trade with the minimum of red tape and customs charges. The Jebel Ali Free Zone was the first and biggest free zone created in Dubai, and is an incredible example of the entrepreneurial spirit of the free thinking city. Since its establishment the Dubai government has invested over $2.5 billion into the zone to further its potential. It is the largest commercial and industrial “free zone” in the Middle East and offers the best tax incentives in the world for both private investors and commercial business.

Not only is Dubai the gateway for trade between the middle east and the rest of the world, it is also building the fourth financial district of the world in DIFC (Dubai International Financial City). This is a strategically important financial center as it straddles the time Zones between New York, London and Hong Kong and makes the world financial markets a truly live 24 hour a day market. It is also another business Free Zone. Many of the world’s leading financial companies have put regional offices in DIFC, seeing the potential of the market and the continued growth expected out of Dubai over the coming years.

Much of the investment in Dubai has been in real estate to cater to businesses and individuals now settling in Dubai, but the real estate market is still very young at 30, and with the currency pegged at 3.67 Dirhams to the U.S. dollar bargains are everywhere. A new 3-bedroom villa in the best location of Dubai or a 2-bedroom Dubai beachside apartment currently runs out at about 2 million AED ($544,959). Property owners are seeing annual appreciation of up to 35% of their land values and are getting up to 15-20% premiums on rental returns. The U.A.E. achieved $1.5 trillion of GDP in 2004. This remarkable little Emirate with Dubai as its centre piece is taking on the world and winning through a business and expatriate friendly attitude combined with a determination to make Dubai renowned as destination synonymous across the globe for top class business, pleasure and leisure.

Dubai could be compared to Las Vegas but only in the climate. It does not have the outrageously priced real estate, the Casino’s (gambling of any kind is prohibited by the Muslim faith) and any of the other unattractive derivatives that come along with the Las Vegas experiences. Dubai does have a vibrant nightlife and contrary to popular belief drinking is permitted in Dubai’s multitude of five star hotels with their beautifully appointed bars and restaurants. Sheikh Zayed recognized many years ago that for Dubai to be an attractive proposition to the Western World it would have to let some of the ways of the western world in which it has done very successfully without forgetting or cheapening its own culture and traditions.

New money, new ideas.

In a city of superlatives, Burj Dubai is supposed to top them all. The “burj”, or tower in Arabic, is set to become the world’s tallest skyscraper in 2008, looming more than 2,600 feet above a new neighborhood of offices and residential buildings. But more important, the rival to Burj Dubai’s 167 floors will not be the current title-holder, Taiwan’s Taipei 101, at 1,667 feet, or even New York’s proposed Freedom Tower, which is to rise to a symbolic height of 1,776 feet. Drive past the Mall of the Emirates with the only indoor ski slope in the Middle East. Pass by three man-made islands shaped like palm trees and then a set of islands arrayed like the map of a world. Continue past Burj Al Arab, the world’s only 7-star hotel, which looks like a giant sail and offers rooms for as much as $13,900 a night. There, farther down Dubai’s coastal highway, another developer is planning to erect a tower that will stand about 2,300 feet tall. Simply known as Al Burj, or The Tower, it is to be the hub of a residential village for half a million people.

Once again, oil producers, particularly in the Arabian peninsula, are experiencing a boom. And just as they did in the 1970’s and early 1980’s, their coffers are spilling over with cash. Last time around, there was an abundance of outrageous projects, and judging from the extravagance on display in Dubai, lavish projects are finding financing once again. But this time around, the region’s main oil producers, like Saudi Arabia, Kuwait, Qatar and the United Arab Emirates, have gotten wiser. Since the boom started three years ago, they have paid down their debt, saved more money than ever before and created more jobs in the private sector. And they are trying to diversify their economies away from oil and its increasingly volatile cycles.

“People are asking where are all the petrodollars and why we have not seen anything like the spending of the 70’s and 80’s,” said Bader al-Saad, who runs the Kuwait Investment Authority. “What has changed is the economic and political reforms in the region, the fall of the barriers for investors, and the improvement of the banking and financial system,” he said. “If we hadn’t learned from our previous mistake, this would have been a big stupidity.” After the 1973 oil shock, governments in the Middle East spent 80% of their increase in revenue. Between 2003 and 2005, by contrast, they spent less than 40% of their new revenue, according to IMF estimates. Governments have also whittled down their debt to an average 20% of GDP last year, from about 40% in 2004. Mohsin S. Khan, the director for the Middle East and Central Asia at the IMF, said governments were still drawing up their budgets based on oil at $30 a barrel.

OPEC will sell more than $1 trillion in oil exports between 2004 and 2006, according to the U.S. Energy Information Administration. This year alone, their revenue is projected to grow by 10%, to more than $500 billion, according to the Energy Department. The bulk of that wealth will find its way to the Persian Gulf. “The question many have in the region is how not to squander the wealth like they did in the 1970’s,” said Rachel Bronson, a specialist on Saudi Arabia at the Council on Foreign Relations. “Unlike in the United States, where it feels like high prices are going to last forever, in the Middle East, the feeling is that it will not last. So, how do you avoid the problems of the 1980’s that followed the boom of the 1970’s?” In Abu Dhabi, the capital of the UAE, the government has an investment arm that some analysts say manages more than $250 billion. Kuwait’s investment arm, meantime, gets 10% of that country’s oil sales and controls a fund estimated at well over $100 billion.

A portion that is not invested at home is finding its way judiciously around the globe. Last year, Dubai bought $1 billion of DaimlerChrysler shares. It also purchased the Tussauds Group, Europe’s largest tourist-attractions operator, and it made a $5.8 billion bid for Peninsular and Oriental Steam Navigation, a British shipping company. Much of the Arab world’s new wealth that is invested abroad also ends up in the U.S., in Treasury bonds as well as corporate and other government debt instruments. Thus, the Arab world is helping to finance America’s enormous trade deficit.

BRAZIL’S RESIDENT INVESTOR STATUS PROGRAM

A law was passed in Brazil on October 2004 whereby the fee for obtaining a permanent residency was lowered from $200,000 to only $50,000. This money does not have to be spent but can sit in the Brazilian company bank account collecting interest. The funds can even be borrowed from family and friends as the $50,000 can be bank wired back out of Brazil once the applicant receives permanent residency. A Brazilian company must be formed and the bank account of that Brazilian company must be registered with the Central Bank of Brazil. The $50,000 must pass through the Central Bank into the investor’s Brazilian company bank account which remains under the investor’s control at all times. You can obtain a permanent residency by investing in a business, e.g., in real estate such as a rental apartment, or it could be in an investment in the fast growing fish farm industry. There simply is no comparison. Central American countries like Costa Rica charge $50,000 to obtain a second residency, but the investment goes to government tree planting projects that you have no control over and it is doubtful that you will ever receive a penny of profit. Consider it a donation.

We would propose for a number of reasons you consider the Brazilian Resident Investor Status program: (1) The ability for applicant to work in their own business. (2) Minimum amount of time required per year to be there. (3) The fact that the program is pre-approved by the government. (4) Unrestricted – applicant and family members may work at any endeavor. (5) Includes entire family including spouse and children up to 18 years. (6) Brazilian Citizenship and Passport possible in only 4 years time. (7) Cost as little as $50,000 per family. (8) Favorable Tax and Extradition laws.

No personal appearance in Brazil is required for processing. Unlike former Brazilian residency programs which restrict you and your family to certain areas of Brazil, our program offers residency anywhere in Brazil for applicant and family. After 4 years you and your family can apply for citizenship and passports. In addition you do NOT have to remain in Brazil during your residency. You can visit for as little as a few days every two years. An interesting note is that if you are single, a Brazilian Citizenship and Passport is possible after only one year of marriage to a Brazilian citizen. A Resident Investor has most of the rights of a Brazilian Citizen except political. They can not vote or get politically involved. Requirements to become a citizen are time in the country, as stated above, and must be able to speak a reasonable amount of Portuguese. There are no further requirements.

An immigration visa to Brazil will be granted only to applicants who satisfy special requirements. In principle, there are seven cases in which a foreigner can obtain a permanent residence visa to Brazil.

EU INTERNAL MARKET COMMISSIONER SPEAKS ON FINANCE SECTOR CROSS-BORDER CONSOLIDATION

Speaking at a European Parliamentary Hearing on Cross-border Consolidation, Internal Market Commissioner Charlie McCreevy dubbed the matter “an issue of crucial importance for the competitiveness of the European economy. … Cross-border consolidation is not an objective in itself. But the small number of cross-border mergers and acquisitions in the financial sector compared to other sectors is a source of concern. As does the fact that there are hardly any large European financial institutions of a truly global size,” he observed.

He went on, “I do not overlook that several paths towards integration exist, and that mergers and acquisitions are only one of them. This is not a reason for not doing anything. On the contrary: this path is bumpy, full of potholes and obstructed by a number of unnecessary and costly hurdles. Market inefficiencies come at a cost for the economy. And in the case of the financial services sector, these inefficiencies can have tremendous spillover effects on the rest of the economy. In today’s world, it is no secret that competition is largely based on innovation. We handicap our innovators all their chances if our financial sector remains fragmented and below the highest global standards. And indeed, we should look at what is happening outside Europe. Financial markets are increasingly global. That is the real market place. If in Europe these markets remain segmented along national lines, our financial sector will lag behind others. And so will our economies.”

BAHAMAS CENTRAL BANK RELAXES EXCHANGE CONTROLS

The Central Bank of the Bahamas has announced the relaxation of exchange controls relating to real estate investments, foreign currency transfers, mortgages, and debt and equity instruments all of which have taken place with immediate effect. The latest action by the bank is in line with its commitment to achieving a gradual yet meaningful liberalization of exchange controls, and the measures follow earlier adjustments introduced in May 1995 and September 2002, both of which provided for an increased delegation of authority to commercial banks over a broad range of current account transactions such as payments for imports, travel and services.

Unlike earlier initiatives, these new measures focus almost exclusively on the relaxation of certain capital account restrictions, with the specific objectives of providing enhanced opportunities for residents to participate in and finance investments overseas and at the same time address several of the recommendations in the Bahamas Stock Exchange Committee’s Report to the Government on measures to deepen domestic capital markets. Currently, residents purchasing securities or making real estate investments overseas must do so through the Investment Currency Market (ICM), at a premium bid and offer rate of 25% and 20%, respectively. With immediate effect, these rates are reduced by half, to 12.5% and 10.0%, respectively.

Residents may invest up to $25,000.00 per family unit, once every 10 years at the official rate, to purchase time share units abroad. With immediate effect, the investment limit is increased to $25,000.00, with amounts in excess of $25,000.00 per year, to be purchased at the Investment Currency Market (ICM) rate. The maximum amount which a person may transfer out of the country when emigrating, i.e., taking up permanent residency abroad, is immediately increased from the foreign currency equivalent of B$125,000 to B$250,000 per family unit, per annum, at the official rate.

TAXES

BRITISH GOVERNMENT APPLIES TO CHANGE ITS VAT RULES TO THWART “MISSING TRADER” FRAUD

The U.K. has made an application to the EC to be able to deal with value added tax on certain goods in a new way, in a bid to cut down on “missing trader” fraud, which, it is estimated, costs the government up to £2 billion annually in lost revenues. The measures will be targeted at goods used for missing trader intra-Community fraud, for example mobile telephones, computer chips and some other similar electronic items. Missing trader fraud, also known as “carousel fraud”, involves the importation of goods (typically mobile phones and computer components) free of value-added tax. The goods are then sold on with VAT added, following which the perpetrators disappear, without having paid the necessary tax to the government. The government’s decision comes after the European Court of Justice ruled earlier in the month that innocent companies caught in a missing trader VAT fraud chain cannot be held liable for the unpaid tax.

TREASURY AND IRS ISSUE FINAL TAX REGULATIONS FOR U.S. POSSESSIONS

The U.S. Treasury Department and IRS issued final regulations to provide guidance regarding taxation in U.S. possessions. The regulations reflect amendments to the Internal Revenue Code made by the American Jobs Creation Act of 2004 (AJCA). The final regulations provide guidance for determining whether an individual is a bona fide resident of the following U.S. possessions: American Samoa, Guam, the Northern Mariana Islands, Puerto Rico, and the U.S. Virgin Islands.

The income tax laws of the U.S. have long contained special provisions for the taxation of individuals residing in U.S. possessions. AJCA revised certain aspects of these provisions to prevent individuals who live and work in the U.S. from inappropriately reducing their combined U.S. and possessions tax. In response to extensive comments on the regulations dealing with the determination of residency, Treasury and the IRS have amended and finalized the regulations dealing with residency. These final regulations incorporate many of the comments received on proposed and temporary regulations, including a number of revisions intended to better reflect the realities of life in the U.S. possessions.

MARICOPA COUNTY, ARIZONA TAX-LIEN AUCTION GOES WHOLLY ONLINE

Last Friday, Maricopa County became one of the largest counties in the U.S. to put a large size tax-lien sale entirely online. “We wanted to make it easier for everyone,” County Treasurer David Schweikert said. Each year, the county prepares a list of properties in which the owners owe back taxes. If the taxes are not paid, then during the 16th month of delinquency the Treasurer’s Office auctions the liens held against the delinquent property owners. If the tax lien is not redeemed within three years from the date of sale, the lien purchaser may initiate foreclosure proceedings.

This year, there are 21,000 parcels representing between $25 million and $35 million in delinquent taxes being listed. In 2005, there were 23,000 parcels listed. Dave Browning, tax-lien manager for the Treasurer’s Office, said the physical auction attracted around 300 people, about half of whom are out-of-state investors. Tax liens, Schweikert pointed out, are sound investments for some people. “For those who want to look for a maximum interest rate, or for people who actually want to have a piece of property, this can be a terrific means of acquisition.” The site went live last week. Bidding ends February 13. Just like an eBay auction, you enter a bid with a final bid amount specified. And just like on eBay, Maricopa’s site will adjust any bid entered to reflect changing bid amounts.

NEVADA SEEKS TO POACH FIRMS FROM CALIFORNIA WITH LOWER TAX AND COSTS

“The case of California’s missing bears has been solved. The bears have been found doing business in Nevada.” This is the tongue-in-cheek slogan being used for a new campaign by Nevada state officials who are attempting to poach more companies from neighboring California with the promise of lower taxes, employment costs and utility bills. The campaign, titled “Missing”, features the California state flag with an outline of the missing bear and a happy California cow missing from a farm, which are now, according to the advert, to be found in Nevada.

The “Missing” campaign was developed by the Nevada Economic Development Partnership, a coalition of economic development organizations throughout Nevada, which states that the bear and cow’s “migration” east to Nevada is symbolic of the continuing trend for companies from the Golden State to relocate to Nevada due to California’s high cost of doing business. In Fiscal Year 2005, Nevada reported that 28 California companies relocated to the Silver State. The Partnership also noted a 50% increase in inquiries from Californian companies during the past year. Nevada’s Lt. Governor Lorraine Hunt, chair of the NCED, explains that the state has a number of innate advantages over its more outwardly affluent but expensive neighbor, including no corporate income tax, no personal income tax and no inventory tax.

COLORADO TAX FRAUD PROMOTER DRAWS A FIVE YEAR PRISON TERM

Tax fraud promoter Paul D. Harris was sentenced in U.S. District Court in Denver to 5½ years in prison, followed by 3 years of supervised release, in connection with his role in an organization called Tower Executive Resources, the Department of Justice and the IRS announced. Harris was also ordered to pay more than $10,000 towards the costs of prosecution. On April 27, 2005, a federal jury convicted Harris, of Elizabeth, Colorado, and co-defendant Lester R. Retherford, of Canon City, Colorado, of conspiring to defraud the U.S. and willfully aiding and assisting in the preparation of a fraudulent income tax return, after a 6 week trial in Denver. Retherford was sentenced on December 16, 2005 to 48 months in prison and 3 years of supervised release.

According to the evidence introduced at trial, wealthy taxpayers paid initiation fees of up to $50,000 to join Tower Executive Resources (TER) and thousands more in annual fees to maintain their membership. Harris and Retherford set up shell corporations for their clients that were used to conceal nearly $9 million in taxable income. The clients transferred millions of dollars to secret bank accounts in the Turks and Caicos Islands and other foreign countries. These secret bank accounts were titled under the names of IBCs and other nominee entities. Although these IBCs were owned “on paper” by a taxicab driver from the Turks and Caicos Islands, they were actually controlled by TER’s clients. The defendants made it appear as though the offshore transfers were payments for consulting services by issuing a series of false invoices to the clients’ businesses, which the clients falsely deducted on their businesses’ tax returns. The TER clients then used debit cards and bogus loans to bring the money they had transferred offshore back into the U.S. for their own personal benefit.

“The establishment of sham offshore entities for the purpose of evading taxes, and the subsequent use of credit and debit cards to access the money in those entities, is illegal,” stated Richard Speier, Acting IRS Chief, Criminal Investigation. “Taxpayers should be wary of ‘initiation fees’ associated with the use of their own money and even more wary of individuals selling arrangements established for the purpose of hiding income from the IRS.” In addition to Harris and Retherford, 9 Tower Executive Resources clients from across the country have been convicted of tax offenses for their role in this scheme as well. Three more clients are currently under indictment for tax offenses.

NEW ZEALAND BUSINESS MUST WAIT UNTIL 2008 FOR TAX REFORM

New Zealand’s Finance Minister, Michael Cullen, has fended off criticism of the government’s perceived dallying over important new business tax reforms, arguing that such “bold” changes cannot be introduced overnight. The review of business taxation forms a key part of post-election confidence-building measures with the United Future and New Zealand First Parties, and is aimed at giving better incentives for productivity gains and improving competitiveness with Australia.

However, in a recent interview with National Radio, Dr. Cullen stated that the reforms will not be ready to be enshrined into legislation for at least two years. The minister added that such a “significant change” in the nation’s tax laws calls for a process of consultation requiring comprehensive input from the tax industry. At the same time, Dr. Cullen has rebuffed statements from opposition National Party leader Don Brash that the government could improve New Zealand’s competitiveness by cutting the corporate tax rate to 30% from 33% by arguing that the reforms go beyond merely “tinkering” with tax rates.

PRAISE BE TO TAX COMPETITION!

Tax competition occurs when a government uses its tax system to try to attract capital, business activity, or wealthy individuals from other countries. At its most obvious this could be a “tax haven” with very low (or even zero) tax rates, but it could include more subtle provisions such as tax breaks for specific businesses relocating into a country. Game theory suggests that if the low-tax countries successfully attract international investment then other governments will respond, leading to a competitive spiral of tax reductions as they all compete for mobile capital. Any mechanism that puts pressure on governments to lower taxes has to be good news. Often the only incentives for government activities and spending seem to be upward ones, as lobby groups and politicians seek to extend the power of the State. Hence the historical trend for taxes to increase, and anything that helps counter this will be beneficial. Even better, this is a market mechanism to limit taxes, not a political one; tax competition effectively sets up a market for governments, who are forced to compete for “customers” (whether businesses or individuals).

Tax competition does not prevent citizens, through electing their governments, from setting whatever tax systems they prefer. However it does mean that countries will face the consequences of their choices, and it gives an exit mechanism for minorities to protect themselves from victimization. It also helps to counter the democratic deficit caused by the political class offering a very limited choice of policies that does not reflect the range of the electorate. Unfortunately this makes tax competition as popular amongst governments as other forms of competition are amongst large corporations, and so often their reaction is to form a cartel to guard their patch from upstart smaller competitors.

In response to this tax competition we have seen several recent attempts to form an international tax cartel, all led by some of the high-tax EU countries. The European Union is not merely a trading bloc but a political construct, based on a supposed shared “Social Model”. This “Social Model” needs high (and seemingly ever-higher) taxes, and so tax competition puts it at risk. Raising taxes would mean a loss as investment moves to other countries. The EU therefore wants to prevent tax competition, to keep its taxes high to fund the supposed “shared values” of its citizens for a high-tax, high-regulation state. In fact it is not clear that the “shared values” really exist outside the European political class, but the political class however is afraid of change and determined to preserve the status quo.

Taxation is increasingly not just an internal European issue but a worldwide one. In a global world an effective tax cartel will have to be international. The best known attempt by the European governments to shore up their crumbling tax systems was the OECD’s campaign against low-tax jurisdictions. The OECD accepted (in theory) the benefits of tax competition but sought to emasculate it by preventing “harmful” tax competition (which seemed to be defined as any tax competition that might actually be effective), forcing non-members to change their tax systems by imposing sanctions on non-compliant countries.

However the EU has been following other routes alongside the OECD action. Under the 2005 Savings Tax Directive all interest payments to EU residents will be subject to a minimum tax (initially 15%, rising to 35%), to prevent tax competition within Europe and so ensure that European governments can collect their high taxes on capital income, and increase their rates in the future. In order to limit capital flight, the cartel had to be extended beyond the EU's borders. Pressure was therefore put on a range of other countries to force them to impose the European tax as well, particularly the main non-EU tax havens within Europe (Switzerland, Liechtenstein, San Marino, Monaco, and Andorra), and the various “dependent or associated territories” of EU members (the Channel Islands, Isle of Man, the Dutch Antilles and Aruba, and the UK’s dependencies in the Caribbean).

Tax competition has, so far, survived these attacks. The OECD process was met by organized opposition from the threatened low-tax jurisdictions, who agreed to the OECD’s commands but insisted that all countries, including the OECD members themselves, reformed their own tax systems. This has so far been successful, as the OECD members are unwilling to remove “tax competition” aspects of their own tax systems (such as “corporate welfare” tax preferences for particular business sectors, or for foreign investors), but find it politically difficult to impose rules on ex-colonies that they are unwilling to follow themselves. In addition, the current U.S. government is not fully supportive of these moves by the OECD. The Savings Tax Directive seems to have had only a limited effect in stopping tax competition, partly because in its current form it is full of loopholes and should be easily avoidable, and partly because it still does not cover all tax havens. Hong Kong reported that in 2003 investments in collective investment schemes soared by 56% after years of relatively stable growth, it is thought due to European capital moving out before the Directive was implemented.

HOW TO AVOID U.S. TAXES – LEGALLY

Let us be honest right up front. “U.S. persons” – citizens or resident aliens – must pay annual income tax (IRS Form 1040) on income earned from any source anywhere in the world. That is the rule, no matter where you live, in or out of the USA. Unlike many other nations, a U.S. person cannot escape by moving offshore. Even if they no longer reside in the U.S., the U.S. is the only major country in the world that imposes income taxes and estate taxes on its citizens and green card holders (resident aliens). No matter where they live, where their assets are located or where their income come sources are located, U.S. taxes apply. A U.S. person can spend 30 years in a foreign country and still be subject to U.S. tax laws.

By contrast, most other countries impose taxes on the income of people who actually live there – residents. Some countries, like Canada, impose tax on the worldwide income of residents, but if a Canadian moves their residence to a tax haven, their legal duty to pay Canadian taxes ends, with a few exceptions. Similar rules apply in most European countries. Thus, for them, moving to a tax haven is a legal way to avoid income taxes for nearly everyone, except U.S. persons. The only way a U.S. person can escape taxes is to end his or her citizenship and residency, a process called “expatriation”. It is legal and the U.S. Supreme Court has upheld the right to expatriate.

But there are ways at home that a U.S. person can reduce or defer taxes legally: (1) Although it is complex and requires expert tax and legal help to create, an offshore asset protection trust can produce significant estate tax savings for your heirs. (2) Although the IRS does not like the fact, it is still possible to achieve major deferral of current taxes using offshore life insurance and annuities as an investment vehicle. This too is a technical area that demands expert help. (3) Expatriation – the most daring tax avoidance plan of all … acquire a second citizenship, move to a no-tax nation, reorder your assets and relinquish your U.S. citizenship. If you are not a U.S. citizen, you do not owe any U.S. taxes. It is more complicated than that, but it is possible.

Of course there are other domestic tax saving moves you can make: incorporation to save business expenses, a family limited partnership to divide tax liabilities, and domestic trusts to avoid probate. But the bulk of current tax savings and deferrals, plus strong asset protection can be achieved offshore.

ASSET PROTECTION / LEGAL STRUCTURES

BERMUDA SIMPLIFIES PARTNERSHIP LEGISLATION

New Bermuda laws have simplified the regime for Exempted and Overseas Partnerships, which are typically used for venture capital private equity, real estate and other investment purposes, reports law firm Conyers Dill and Pearman. Minister of Finance Paula Cox told the House of Assembly that the Exempted Partnerships Amendment Act 2005 and the Overseas Partnerships Amendment Act 2005 are designed to bring administrative rules for partnerships into line with those for companies and to permit more sophisticated uses for a Bermuda partnership.

Key changes include: (1) The Register of limited members in a partnership will no longer be on the public file, (2) the distinction between contributions in capital and kind is being abolished, (3) the requirement for minimum capital of $12,000 has been removed, (4) the notification requirement for changes in limited partners’ capital has been removed, and (5) individual non-Bermudian partners will no longer require authorization to act in Bermuda on behalf of their partnership.

IDENTITY THEFT UNDER CONTROL, ALLEGES REPORT

Young people are victims of identity theft far more often than senior citizens, and when they do get scanned, the Gen X-ers lose three times as much money. This is just one of the counterintuitive conclusions that appear in a new identity theft report released by the Council of Better Business Bureaus. They have commissioned such reports for the last few years, and this year’s research suggests that despite the hype, identity theft is not increasing. Since 2003, cases of identity theft have dropped from 10.1 million a year to 8.9 million, and the report takes pains to stress that theft using the Internet occurs in only a small (and declining) percentage of the cases. In other words – go out and shop! It’s safe! It’s the American way!

The report’s conclusions are not all sweetness and light, however. Mixed in with the good news is the fact that the total amount of fraud (as measured in dollars) has been rising, and now stands at more than $56 billion. The amount of fraud per victim has also jumped by more than $1,000 in the last two years alone, suggesting that thieves are learning how to make better use of the information they acquire.

Among the report’s top 10 findings are that most data compromise – 90% – takes place through traditional offline channels and not via the Internet, when the victim can identify the source of data compromise. Lost or stolen wallets, checkbooks or credit cards continue to be the primary source of personal information theft when the victim can identify the source of data compromise. Almost half (47%) of all identity theft is perpetrated by friends, neighbors, in-home employees, family members or relatives – someone known – when the victim can identify the perpetrator of data compromise.

It is worth raising the question of how far we can trust such studies. Visa and Wells Fargo provided some of the cash to fund the research, and the results definitely turned out to be in their favor. Like Fox Mulder, we at the Orbiting HQ want to believe – but we have seen a lot of conflicting information.

“I was a victim of ID theft.”

When Vikki Anderson had her handbag stolen last July, she knew she was in trouble. She was moving home and her passport and key personal documents were in the stolen bag. “I cancelled everything that day, including my passport and reported the theft to the police. But I was still worried about the possibility of ID theft.” Vikki’s nervousness was justified when she received a call from a car loan broker asking her when she would like her new loan repayments to start. Vikki had not bought a car. “I told them that whoever had applied for the loan was not me and decided to check my credit record immediately.” Vikki found that a fraudster had used the stolen ID to obtain car loans worth more than £20,000 in her name.

Vikki also found that two direct debits had been set up on her bank account without her knowledge. After a month, the loan company concluded that a fraud had taken place and told her that she would not be liable for the loan. “The fraudsters have caused a serious amount of damage. I was recently turned down for a credit card because my credit rating has been damaged.” She is trying to get the two major credit reference agencies, Experian and Equifax, to amend her credit record.

“The whole process is not something I would want to repeat, I have spent hundreds of hours trying to sort everything. I still fear that the fraudsters will strike again, even though I have done everything I can to stop it from happening.” However, according to Vikki, one good thing has come of the experience. “The day that the fraud emerged my boyfriend bought me a shredder which we now use.”

Nasir Ahmed fell for an increasingly common type of ID fraud. It started in September 2004 when he received a call at home apparently from his bank. The caller told Nasir that someone was trying to carry out a fraudulent transaction on his account and that to stop it they needed to confirm his personal details. Eager to fight the fraudsters, Nasir confirmed to the caller his name, address, date of birth, place of birth – everything, in short, needed to perpetrate a sophisticated ID fraud. Nasir heard nothing for a month, then on opening his credit card statement he found that more than £11,000 had been taken, mostly to buy flight tickets and travelers cheques. …

RICH FREEZE THEIR ASSES AND ASSETS FOR CHANCE TO LIVE AGAIN

Defying the old saying that you can’t take it with you, some of America’s richest men are planning to enjoy their fortunes from beyond the grave. They are preparing not only to have their bodies deep-frozen at the moment of death but also to use a tax loophole to bequeath their wealth to themselves. Known as personal revival trusts, the schemes invest millions of dollars until future medical technology makes it possible to bring the beneficiaries back to life.

Believers in “cryonics” sign up to private companies which will suspend their remains in liquid nitrogen and store them for what may be hundreds of years. Most are extremely wealthy – necessarily so, given the $150,000 cost of preserving a body. Now they are seeking to ensure enough future funds to pay for their revival – and for their living expenses in what might be 23rd-century America. David Pizer, a holiday resort owner in Arizona, has made arrangements to be frozen along with his wife and their favorite dogs. He also plans to preserve the couple’s fortune, estimated at about $10 million. Using a personal revival trust, Mr. Pizer, 64, who is in good health, hopes that his wealth will have shown spectacular growth when he comes back to life.

The inheritance loophole was originally devised for America’s 19th-century industrial dynasties, such as the Rockefeller and Carnegie families. Concerned that their fortunes would be consumed by taxes, they created long-term trusts to preserve their estates. Personal revival trusts simply name the deep-frozen corpses as a beneficiaries, treating them, for legal purposes, as unborn grandchildren. Don Laughlin, 75, a Nevada casino owner, has decided to leave his preserved remains $5 million, estimating that he has “a better than even chance of coming back.” At least a dozen other such trusts are thought to exist.

U.K. EXPATRIATES SEEK SAFE HAVEN FOR MONEY

Offshore banking is booming. Huge numbers of British people now live abroad, and, once overseas, look for a safe haven for their money with a name that they trust. Fortunately, there are plenty of offshore banks to choose from, most offer a wide range of services to offshore investors, including savings accounts, instant access and foreign currency accounts, mortgages and loans.

The offshore subsidiaries of UK banks and building societies already have a big presence in Europe, but new branches are opening in more exotic locations. For those living in a country which is economically or politically unstable, placing money offshore may protect assets more effectively. For example, Lloyds TSB Offshore has recently appointed an expatriate banking team for Africa, which will operate from offices in Johannesburg, South Africa. HSBC also has representatives in a range of worldwide locations, including Dubai, Hong Kong, Singapore and South Africa, and independent wealth managers can visit expatriates in these and several other countries. HSBC has more than 9,700 offices in 77 countries and territories.

One of the biggest advantages of offshore banking is the opportunity to receive gross interest, which may be tax efficient, depending upon the tax rules of the country in which you live. However, expats banking within the EU are subject to the European Savings Directive. As a result of the directive, a portion of interest is withheld at source or, alternatively, the financial institution will have to pass details about depositors and the interest they have received to the tax authority in the EU state in which the depositor lives.

JERSEY INTRODUCES PROTECTED CELL LEGISLATION

Jersey legislation, which introduces advances to cell company investment structures, has come into effect. The new legislation in Jersey permits the creation of cell companies and includes innovative features which extend the scope of their use for investment purposes. The legislation has introduced the concept of an Incorporated Cell Company (ICC), alongside an enhanced version of the traditional Protected Cell Company (PCC), to provide investors with greater flexibility when choosing a cell structure to meet their investment objectives.

The new ICC involves the formation of separate, legally recognized cells within the overall structure, with each cell established as a separate incorporated Jersey company. This is in contrast to the traditional PCC where all the cells combined create one legal entity and each cell is not treated as a separate legal personality. The measures, which Island practitioners describe as the first significant advance from the original PCC model, are expected to provide a boost generally to the Island’s investment capabilities in the institutional market, particularly for the insurance sector and in support of international capital markets activity.

Alex Ohlsson, partner at Carey Olsen, said, “The ability to incorporate cells with a Jersey cell company is an extremely useful refinement to existing cell company legislation. This will be a particularly attractive feature for structured debt transactions and insurance based structures. Incorporation is widely accepted as an effective mechanism for ring fencing liabilities. This structure has been designed specifically to meet the requirements of rating agencies and counterparties.”

AN ALTERNATIVE STRUCTURE FOR ACCESSING HIGH PERFORMING OFFSHORE FINANCIAL MARKETS

The market returns in 2005 showed that investors who only focus on the U.S. market miss out on the enormous upside potential profits available in foreign markets. The S&P 500 stock index gained just 3% in 2005 – less than investors could have gotten from a CD or a U.S. government bond. The Dow Jones industrial average ended 2005 with a 0.6% loss, while the Nasdaq composite index advanced just 1.4%. Meanwhile foreign stock markets in Asia, Mexico, Turkey, Egypt and Eastern Europe experienced double-digit gains for the past year. Unfortunately, the U.S. Securities and Exchange Commission and U.S. tax laws make it difficult for a U.S. investor to participate directly in foreign securities markets, as well as imposing potentially negative U.S. tax consequences.

Even if you go offshore and purchase foreign hedge funds and mutual funds through a foreign bank or broker, U.S. investors are not permitted to so directly in person, even though you can do so indirectly. To escape all the American rules and regulations and the high cost of complying with the SEC requirements and to avoid U.S. audits, some foreign banks and other financial institutions will not sell foreign securities or investment funds to a U.S. person, even if the person’s account is held through that person’s trust [“That person’s” trust??? Ed.] or a foreign company.

Investments in offshore mutual funds that are available to Americans are subject to the draconian “Passive Foreign Investment Company” tax rules. These not only convert lower taxed capital gains into higher taxed ordinary income, they may also impose punitive taxes on distributions from accumulated earnings in a foreign mutual fund or upon the sale of fund shares. A tool to access global securities and get around these restrictions is what is a “Private Placement Policy” (PPP) – foreign insurance or annuity policies that can be used as a simple holding structure through which the investor (or designated advisor) can direct the insurance company to invest in a wide range of attractive investment vehicles, including managed portfolios, stocks, bonds, mutual funds, hedge funds or cash deposits. By using the PPP, the entire world of offshore mutual funds and hedge funds is available without restrictions due to U.S. citizenship or residence.

These policies allow you to achieve many additional goals, such as privacy and asset protection. If structured correctly, they may be tailored as U.S. tax compliant deferred variable annuities (DVA) or variable universal life policies (VUL). Each of these allows for substantial tax benefits and tax-deferred growth. [Ed: Similar benefits are accessible via carefully interacting with a foreign legal entity. Compare expenses.]

PRIVACY

IRISH TELECOMS ORDERED TO PROVIDE DETAILS ON FILE SHARERS

Ruling in the Irish High Court last week, Mr. Justice Peter Kelly ordered Eircom, BT Communications Ireland Ltd. and Irish Broadband Internet Services Ltd to turn over to the recording industry the details of 49 subscribers alleged to have partaken in illegal file sharing activity. Suggesting that unauthorized peer-to-peer file sharing is “simply thieving”, albeit undertaken in one’s own house, Mr. Justice Kelly ordered the three firms to turn over the names, addresses and telephone numbers of the 49 individuals or firms in question. He was reportedly quick to point out that no suggestion of wrongdoing was being leveled at the telecoms firms themselves.

DOES ANYONE WANT UK IDENTITY CARDS? LET WHITEHALL KNOW

Friday February 3 is the final day for businesses, people or interest groups to let Whitehall know what they think about the proposed strategy on transforming government through technology. In the words of the Ian Watmore, the man behind “Transformational Government, Enabled by Technology” it is time to move from strategy to delivery. But you do have a final few days to let him know what you think of his strategy. Prime Minister, Tony Blair says, “This strategy has my full support and I’m going to do everything I can to make it happen.” The strategy document covers everything from how the government wants to engage with suppliers (it spends £14 billion annually on technology) to Identity cards.

On I.D. cards it says, “Identity Management: Government will create an holistic approach to identity management, based on a suite of identity management solutions that enable the public and private sectors to manage risk and provide cost-effective services trusted by customers and stakeholders. These will rationalise electronic gateways and citizen and business record numbers. They will converge towards biometric identity cards and the National Identity Register. This approach will also consider the practical and legal issues of making wider use of the national insurance number to index citizen records as a transition path towards an identity card.”

If you wish to proffer an opinion you can do so by writing to Ian Watmore , former head of egovernment and now head of the Prime Minister’s delivery unit at ian.watmore@cabinet-office.x.gsi.gov.uk. Or drop them a line or call.

CALLING FOR PRIVACY

The government may not think you are important enough to eavesdrop on your telephone conversations, but did you know that anyone with a passing interest and a few bucks can go online and buy a record of your phone calls? Don’t care? Privacy experts say you should. Suppose your phone logs were used by a stalker or abusive spouse to locate you or your friends or children? Perhaps a dangerous criminal discovers you have been helping the police by snooping into officers’ telephone records. Or maybe your unscrupulous boss just wants to find out what you do after work as ammunition to demote or fire you.

“Stealing a person’s phone log can lead to serious personal, financial and safety issues for just about any American,” Sen. Charles Schumer, D-N.Y., said last week after introducing federal legislation that would make the unauthorized sale of private cell, land-line or Internet phone records a felony. So-called data brokers have been selling personal phone records for years, but privacy concerns over the practice have been growing as Web sites offering the service have proliferated.

The Federal Communications Commission recently disclosed that it had launched an investigation into “troublesome data brokering practices,” including whether phone companies are doing enough to protect customer records. And several state attorneys general’s offices have been examining the issue for the last several months as part of a multi-state privacy group. Phone companies themselves have started to take action against some of the data brokers, which often steal customer records by tricking phone company employees or paying them for the data. Cingular Wireless two weeks ago obtained a temporary restraining order against 1st Source Information Specialists, a Florida firm that operates the online phone record service www.locatecell.com.

Phone companies say the only legitimate way to get phone records is to order your own or have a subpoena or court order. Data brokers often get the information by pretending to be the customer, a regulator or phone company employee. These so-called “pretexters” may buy a customer’s personal data, such as Social Security numbers from online sources, to help gain access to the accounts. “It’s a con job and they are very good at it,” said John Walls, spokesman for the wireless association CTIA. For customers worried about snoops stealing their phone records, some companies including Cingular and Verizon offer the option of restricting account access by requiring a pass code.

HELLO, MOM. HELLO, FBI. HELLO, NSA

I know a few things about secret, illegal wiretaps. To begin with, they do not stay secret. Second, George Bush should have read the articles of impeachment for Richard Nixon before authorizing the illegal snooping on American citizens. The second article of impeachment against Nixon cites his use of electronic surveillance for illegal purposes as grounds to remove him from office. The revelations of Nixon’s sneaky snooping were the final blow that ended his criminal presidency. But back to my memoirs. In 1968, a few months after Martin Luther King’s assassination, Gainesville, Florida, was a police state, especially in the black community. Generally thought of as an oasis of reason in a sea of racism because of the presence of the University of Florida, Gainesville actually differed little from much of the then still “segregation forever” South.

Civil Rights activist Jack Dawkins arrived in Gainesville in 1967, and he mobilized the black community after two girls were molested while in police custody. A grand jury whitewashed the police. At the behest of the Gainesville Sun, Dawkins’ newspaper, Black Voices, was declared by a local judge to be a “clear and present danger to the administration of justice.” Dawkins was held without bail. Famed Civil Rights attorney William Kunstler charged to the defense of the activist, and a federal appellate court strongly admonished the Gainesville judge. Dawkins disappeared. “We all knew that the cops would find an excuse to kill him,” Marshall Jones, a distinguished psychology professor who was denied tenure at UF because he supported civil rights, told me. Dawkins has never reappeared.

Enter John Sugg [the article author], then a 22-year-old, fresh-from-the-Navy Gator. What I had learned about Vietnam in the Navy had made me vigorously anti-war, and I eventually helped lead various veteran and student groups opposed to the conflict. The antiwar and civil rights groups suspected that we were being spied upon and wiretapped. My girlfriend, a UF librarian, obtained her personnel file for an insurance claim – and found more than two dozen photographs of me haranguing crowds, as well as several surveillance memos that made it clear we been “infiltrated”. Court cases would reveal that the spies were the only people advocating violence. We tried an experiment. We got on the phones and breathlessly told each other that Dawkins was returning to Gainesville. We were to meet him at a Winn-Dixie parking lot in the middle of the night. We buzzed it up on the phones with tons of details, alluding to secret communications channels with Dawkins.

We, of course, had no idea where Dawkins was – even if he was still alive. But we did know where throngs of federal and local cops would be on the night in question, and we were right. We got the drop on the federal agents staking out the Winn-Dixie, and photographed them waiting to collar (or kill) Dawkins. More important, as would come out in several cases – most notably the “Gainesville 8”, a trial of Vietnam vets accused (and found innocent) of plotting terrorist attacks at the 1972 Republican National Convention – the government never had any evidence against activists nor did it have any legal justification for many violations of constitutional rights. In one instance, it was revealed that federal intelligence officers held a child hostage to force the babe’s prostitute mother to swear to outlandish tales of sex and drug orgies among anti-war activists.

Fast forward to circa now. George Bush’s assault on civil liberties, the gloriously misnamed PATRIOT Act, was drafted before 9-11. It was sitting there … waiting. The cry from the Bushies is that they need better intelligence (and, yes, we all agree that that is true by one definition of intelligence). We know that Bush was warned, weeks before 9-11, of very specific plans by Osama bin Laden to attack American targets with hijacked planes – and our government did little (other than John Ashcroft stopped flying commercial flights). Lack of intelligence was not the cause of 9/11. We also know that all of the thousands detained – probably unconstitutionally – after 9/11 have revealed few real threats to America. The government has had little success in terrorism prosecutions, especially compared to the numbers detained. The most recent government debacle was the failed prosecution of Tampa academic Sami Al-Arian, after a decade of investigations.

We know that when the Bush administration came out last May with an assessment of terrorist threats, it was not murderous groups such as right-wing militias, anti-abortion extremists and other haters that interested the feds. Rather, the “threats” were environmental and animal rights groups, which despite vandalism have never killed anyone. The Bush psychology is to keep the public in a constant state of fear. Logic and liberty die in such an environment. We are far more safe today, even with Bush’s mismanagement of the nation, than when we faced Nazi Germany, Imperial Japan or the nuclear-armed Soviets. Yet, Bush contends that as a “war president”, his power should be unlimited.

The power to wiretap and monitor U.S. citizens is constitutionally anathema. But, more important, this is not a power whose real mission is nabbing terrorists. The targets of the abuse are Americans – who must fear that their phones are bugged, their emails read, their list of library books turned over to agents, their bank accounts sifted. That experience of mine I mentioned: An FBI agent called me two years ago with a not-too-subtle threat to reveal wiretaps of me talking to Al-Arian. The agent, Kerry Myers of Tampa, was attempting to get me to snitch on federal law enforcement sources who had confided in me.

The government’s goal is control. A docile population, whose anxieties are jacked up by the strident mendacities on Fox News, is prepped to believe even the most outlandish claims of Big Brother. And if you disagree and dissent, be careful of what you say on the phone.

Electronic Frontier Foundation sues AT&T to stop NSA spying.

The EFF has filed a lawsuit against both the old and new versions of AT&T, alleging that they have illegally cooperated with the National Security Agency’s recently revealed domestic wiretapping program. A related lawsuit was filed against the NSA itself several weeks ago by the American Civil Liberties Union (ACLU). In that suit, the ACLU requested an end to the spying program, on behalf of “prominent journalists, scholars, attorneys, and national nonprofit organizations (including the ACLU) who frequently communicate by phone and e-mail with people in the Middle East.”

The EFF has elected to try a different tactic, choosing the class action route in an effort to hit the NSA’s largest private collaborator where it hurts the most – in the extremely large wallet. AT&T Inc. was recently formed by the absorption of the original AT&T by SBC Communications, making it the largest telecommunications company in the U.S. and one of the largest in the world. How big? According to the suit, the international voice service alone accounts for over 18 billion minutes of connection time per year, linking around 240 countries and 400 carriers. Its Internet backbone averages approximately 4,600 terabytes of data on a business day. That puts AT&T somewhere between the medieval-era Catholic Church and God on the communications power scale. As you can well imagine, AT&T’s database which tracks all of these connections is quite large, and they have been thoughtful enough to give the NSA free reign.

I will not what has been explained so eloquently elsewhere – that such fishing expeditions waste important resources while supplying investigators with little more than wild geese to chase. Even if the program excelled at its goals, it would still be wrong, and the EFF’s tactic in going after private collaborators like AT&T should be applauded. The only problem with the plan is that it is likely to run into a legal brick wall known as state secrets privilege. The only likely scenario that I can see to preclude such action is a possible desire on the part of the government to avoid such a blatant smackdown as we head into an election year.

LAW

THE SEPARATION OF POWERS: BY ALL MEANS, LET US HAVE THIS DEBATE

At this writing, the confirmation for Judge Samuel Alito still is not completed, and there are rumblings that some Democrats will try to filibuster the nomination and keep it from reaching a vote. That is not surprising, given that groups on the left, plus the editorial page of the New York Times, have been demanding a filibuster, even though they do not believe it ultimately will succeed in keeping Alito off the U.S. Supreme Court. Some of the angst liberals have experienced with this nomination is understandable. They consider abortion “rights” to be front and center, the main “right” supposedly guaranteed by the U.S. Constitution (which does not mention abortion). In fact, the ACLU even has declared that abortion “rights” trump everything else that comes down in the Bill of Rights.

However, some of the debate has dealt with issues that are of most importance to our lives, those being attached to the balance of power, and specifically the power of the executive branch versus Congress. One dissenter, Sen. Patrick Leahy of Vermont, has declared that “I am concerned that if we confirm this nominee it will further erode the checks and balances” that the Constitution supposedly created. Now, I agree with that argument as far as it goes, but it really does not go far enough. That is because the dissenting senators, as well as the NY Times editorialists, have a truncated view of executive branch power. In their minds, the debate is only between Congress and the occupants of 1600 Pennsylvania Avenue.

Guess what? The executive branch covers all of those agencies that people on the left (and some on the right) claim to love. Whenever the Times editorials blast the Environmental Protection Agency, it is not because the EPA has abused its power, but rather because it has not exercised as much power as the editorial writers believe it should have done. The same goes for the IRS. The same people who have suddenly discovered the various checks and balances created by the Constitution are also the same people who decried any attempt by Congress to put even mild restraints upon the IRS during the Clinton years, even after it was firmly established that the agency was abusing citizens and illegally destroying their livelihoods. (James Bovard’s Feeling Your Pain, which documents hundreds government abuses during the Clinton Administration, is worth reading for anyone who believes that Bill Clinton and Al Gore respected the rights of anyone. Government abuse of citizens is the staple for all of the political classes.)

When Congress passed the Patriot Act more than four years ago, Senate Democrats added a number of draconian “money laundering” measures. These expansions of the federal criminal code have empowered a number of federal agencies – which fall under the umbrella of the executive branch – and further has jeopardized what few rights Americans have managed to keep from being swallowed by the onslaught of the state. When the same senators who have decried the powers of the executive branch took part in the hearings that investigated the Waco and Ruby Ridge massacres, the Democrats on both the House and Senate panels lavished praise on federal agents and viciously attacked surviving Branch Davidians and what was left of Randy Weaver’s family. Guess what? The FBI and the BATF are executive branch entities. When it came to empowering the executive branch, Democrats were first in line to call for the crucifixion of Martha Stewart.

Ever since the Great Depression and the New Deal, federal agencies have amassed huge powers and have become a law unto themselves. This process has come about only because Congress agreed to redelegate its constitutional powers and hand them over to the executive branch. The process continues unabated today, and many of the same people who have decried Alito’s “deference” to the presidency have been at the forefront of calling for federal agencies to have even more jurisdiction over our lives.

So, yes, by all means let us have the debate on “separation of powers”. Let us applaud when Patrick Leahy or Teddy Kennedy or John Kerry speak of limiting the powers of the president. But if we are going to limit the president’s powers, then we must logically turn to those entities that the president and his appointees control – the bureaucracies. At that point, unfortunately, the dissent stops while the Kennedys and the Kerrys and the New York Times editorial writers bow down and pay homage to the IRS, FBI, BATF, EPA, TSA, and every other agency that Congress should never have created in the first place.

UK’S FINANCIAL SERVICES AUTHORITY REMOVES MONEY LAUNDERING RULE

The FSA is streamlining its detailed rules on money laundering – by removing them. Firms will still be required to have money laundering reporting officers, check the identity of clients, and report any suspected money laundering. But starting in August senior management will still be obliged to have controls in place, rather than following the details of the FSA rule book. An FSA spokesman said, “The firms cannot sit back and relax. This is not a change to reality, we are not sending a wrong signal.”

Regulated firms will have until August this year to put their own anti-money laundering codes in place. Now the emphasis will be on the senior management of regulated companies to make sure their own internal checks against money launderers are sufficiently robust. Philip Robinson, the FSA’s Financial Crime sector leader, said, “The changes in our handbook do not mean we are going soft on money laundering, they are part of delivering a more proportionate and effective regime to counter money laundering.”

BANK OF ENGLAND SEEKS HIGH COURT EXONERATION IN BCCI CASE

The liquidator of BCCI, accounting firm Deloitte, has offered to pay the Bank of England £73 million in costs and £8 million in interest to settle the dispute between the two parties regarding liability for costs in the action over the bank’s collapse, but has failed to apologize for accusing the central bank of wrongdoing. Deloitte launched the lawsuit against the central bank, which was the UK’s financial regulator at the time of the collapse, in an attempt to secure some form of compensation for BCCI’s 6,000 British depositors.

The liquidator claimed that the Bank of England consistently ignored wrongdoing at BCCI, contributing to the $10 billion in debt that it left when it collapsed. One of the main charges leveled by Deloitte was the fact that the Bank of England knew that BCCI’s main place of business was London (despite its being registered in Luxembourg), and that armed with that knowledge, the central bank should have been more vigilant in its regulation of BCCI. Deloitte finally threw in the towel in November 2005, unconditionally withdrawing the case after a 12 year battle. The Bank of England’s counsel, Nicholas Stadlen, described the climbdown at the time as “the most remarkable and humiliating climbdown in the history of English litigation.”

PINOCHET FAMILY MEMBERS ARE ARRESTED

LA PAZ, BOLIVIA: Former Chilean dictator Augusto Pinochet’s wife and four grown children were arrested in connection with an investigation of more than $20 million held in secret bank accounts linked to the ex-military strongman. Court officials in Santiago, the Chilean capital, told reporters that Judge Carlos Cerda ordered the arrest of Pinochet’s wife, Lucia Hiriart, and four of the couple’s five children on tax-fraud and other charges. Last summer, the wife and youngest son, Marco Antonio, were released after being detained on charges of using false documents and passports in connection with their management of the secret accounts.

The case stems from some $27 million in foreign bank accounts that have been tied to Pinochet, in a corruption case that has outraged even some of the former dictator’s staunchest supporters. Some legal observers in Chile say Pinochet may be more likely to be imprisoned for the corruption charges than for the human-rights cases filed against him. Pinochet has been accused of complicity in some 3,000 deaths and disappearances during his 1973-90 regime.

A 1994 report by U.S. Senate investigators found that the former Riggs Bank in Washington had used shell companies to help Pinochet hide millions in assets from prosecutors while he was under house arrest in Britain on human-rights charges. Last year, Riggs Bank, since merged with PNC Bank, agreed to pay $9 million into a fund for victims of the Pinochet dictatorship to settle a case about the bank’s role. In Chile, the ongoing investigation, with new revelations every few months, is known as the “Riggs Case”. The ex-dictator himself, now 90 and in frail health, faces tax-fraud and human-rights charges in Chile but remains free pending various appeals. Last week, a judge stripped Pinochet’s immunity in a case involving alleged abuses at Villa Grimaldi, an infamous detention center for suspected leftists during Pinochet’s reign.

CAYMAN LAW REFORM COMMISSION SETS ABOUT LEGAL TRANSFORMATION

The Cayman Law Reform Commission has set itself the ambitious task of transforming many aspects of the jurisdiction’s legal framework, in a bid to bring it up to date with legal practice in other financial centres. “Cayman is among the world’s leading financial centres and it is therefore paramount that our laws and legal system should endeavour to remain contemporary,” the Attorney General, Hon. Sam Bulgin, QC, told the Commissioners when they met with him last year. “Political and social stability, and a significant and modern communications and financial infrastructure mean nothing unless we have the necessary and relevant laws available to members of our legal profession so they can advise their clients properly.”

Mr. Bulgin noted that the new committee would be responsible for developing new areas in the law, codifying unwritten laws and examining the underlying causes of dissatisfaction with any law or its administration. The Commission intends over the next two or more years to examine 15 areas of the law, outlined by the Senior Legislative Counsel Cheryl Ann Neblett who heads the Commission’s office. These include evidence, corruption, contempt of court, proceeds of crime, alternative sentencing, juvenile justice, regulation of legal practitioners, legal aid, consumer protection, maintenance, affiliation and matrimonial causes, landlord and tenant legislation, and children’s legislation.

SARBANES-OXLEY LAW IS AN OBSTACLE TO FOREIGN COMPANIES LISTING ON U.S. EXCHANGES

The U.S. Sarbanes-Oxley law, which imposes stricter accounting rules and penalties on publicly traded companies, might make foreign firms reluctant to list on U.S. exchanges, an SEC official said. Since enactment of the law, passed in the wake of the Enron and WorldCom securities fraud scandals, the number of companies with American depositary receipts (ADRs) listed on U.S. exchanges has dropped 8.8% to 490. “There is much discussion within the SEC about how Sarbanes-Oxley may be imposing a greater cost than anticipated,” U.S. Securities and Exchange Commissioner Paul Atkins said during a conference in Brussels, Belgium.”

Vivendi Universal SA, one of the five most active French stocks on U.S. exchanges, plans to drop its listing by June, citing U.S. compliance costs and a decline in trading since 2001. Coles Myer Ltd., Australia’s biggest retailer, plans to leave the New York Stock Exchange, and Cable & Wireless Plc, Britain’s No. 2 phone company, delisted last month. Atkins said he was troubled to hear news of an Indian company that wanted to list on an overseas market but did not choose the U.S. “If the story reflects a rising trend it’s not a welcome one,” he said. The SEC has attempted to attract foreign companies to U.S. exchanges by proposing rules that give them more latitude in delisting and obeying reporting rules.

OPINION & ANALYSIS

CATASTROPHE LOOMS

Two recent polls indicate why Bush is getting away with impeachable offenses. Half of the U.S. population is incapable of acquiring, processing and understanding information. Much of the problem is the media itself, which serves as a disinformation agency for the Bush administration. Fox “News” and right-wing talk radio are the worst, but with propagandistic outlets setting the standard for truth and patriotism, all of the media is affected to some degree. Despite the media’s failure, about half the population has managed to discern that the U.S. invasion of Iraq has not made them safer and that the Bush administration’s assault on civil liberties is not a necessary component of the war on terror. The problem, thus, lies with the absence of due diligence on the part of the other half of the population.

Consider the New York Times/CBS poll. 64% of the respondents have concerns about losing civil liberties as a result of anti-terrorism measures put in place by President Bush. Yet, 53% approve of spying without obtaining court warrants “in order to reduce the threat of terrorism.” Why does any American think that spying without a warrant has any more effect in reducing the threat of terrorism than spying with a warrant? The Foreign Intelligence Surveillance Act, which Bush is disobeying, requires the executive to obtain from a secret panel of federal judges a warrant for spying on Americans. The purpose of the law is to prevent a president from spying for partisan political reasons. The law permits the president to spy first (for 72 hours) and then come to the court for permission. As the court meets in secret, spying without a warrant is no more effective in reducing the threat of terrorism than spying with a warrant.

Instead of explaining this basic truth, the media has played along with the Bush administration and formulated the question as a trade-off between civil liberties and protection from terrorists. This formulation is false and nonsensical. Why does the media enable the Bush administration to escape accountability for illegal behavior by putting false and misleading choices before the people? The LA Times/Bloomberg poll has equally striking anomalies. Only 43% said they approved of Bush’s performance as president. But a majority believe Bush’s policies have made the US more secure. It is extraordinary that anyone would think Americans are safer as a result of Bush invading two Muslim countries and constantly threatening two more with military attack. The invasions and threats have caused a dramatic swing in Muslim sentiment away from the U.S. Prior to Bush’s invasion of Iraq, a large majority of Muslims had a favorable opinion of America. Now only about 5% do.

What does it say for democracy that half of the American population is unable to draw a rational conclusion from unambiguous facts? Americans share this disability with the Bush administration. According to news reports, the Bush administration is stunned by the election victory of the radical Islamist Hamas Party in the Palestinian election, which swept the U.S.-financed Fatah Party from office. Why is the Bush administration astonished? The Bush administration is astonished because it stupidly believes that hundreds of millions of Muslims should be grateful that the U.S. has interfered in their internal affairs for 60 years.

Americans need desperately to understand that 95% of all Muslim terrorists in the world were created in the past three years by Bush’s invasion of Iraq. Americans need desperately to comprehend that if Bush attacks Iran and Syria, as he intends, terrorism will explode, and American civil liberties will disappear into a 30-year war that will bankrupt the U.S. The total lack of rationality and competence in the White House and the inability of half of the U.S. population to acquire and understand information are far larger threats to Americans than terrorism. America has become a rogue nation, flying blind, guided only by ignorance and hubris. A terrible catastrophe awaits.

BUSH’S UNTRUE STATE OF THE UNION

Gentle reader, if you prefer comforting lies to harsh truths, do not read this column. The state of the union is disastrous. By its naked aggression, bullying, illegal spying on Americans, and illegal torture and detentions, the Bush administration has demonstrated American contempt for the Geneva Convention, for human life and dignity, and for the civil liberties of its own citizens. Increasingly, the U.S. is isolated in the world, having to resort to bribery and threats to impose its diktats. No country any longer looks to America for moral leadership. The U.S. has become a rogue nation.

Least of all did President Bush tell any truth about the economy. He talked about economic growth rates without acknowledging that they result from eating the seed corn and do not produce jobs with a living wage for Americans. He touted a low rate of unemployment and did not admit that the figure is false because it does not count millions of discouraged workers who have dropped out of the work force. Americans did not hear from Bush that a new Wal-Mart just opened on Chicago’s city boundary and 25,000 people applied for 325 jobs, or that 11,000 people applied for a few Wal-Mart jobs in Oakland, California. Obviously, employment is far from full.

Neither did Bush tell Americans any of the dire facts reported by economist Charles McMillion in the January 19 issue of Manufacturing & Technology News, that “the country ended 2005 with fewer private sector hours worked than it had in January 2001.” Had health care not added 1.4 million new jobs, the private sector would have experienced a net loss of 467,000 jobs between January 2001 and December 2005 despite an “economic recovery”. Without the new jobs waiting tables and serving drinks, the U.S. economy in the past five years would have eked out a measly 64,000 jobs. In other words, there is a job depression in the U.S. McMillion reports that during the past five years of Bush’s presidency the U.S. has lost 16.5% of its manufacturing jobs. Major industries have shriveled to insignificance in half a decade. If the free trade/outsourcing propaganda were true, would not at least some U.S. export industries be experiencing a growth in employment? The new job depression is creating a reserve army of the unemployed to serve as desperate recruits for neoconservative military adventures. Perhaps that explains the Bush administration’s enthusiasm for globalization.

Americans are constantly reassured that America is the leader in advanced technology and intellectual property and does not need jobs making clothes or even semiconductors. McMillion puts the lie to this reassurance. The U.S. “superpower” is dependent on China for advanced technology products and is dependent on Asia to finance its massive deficits and foreign wars. In view of the rapid collapse of U.S. economic potential, my prediction in January 2004 that the U.S. would be a Third World economy in 20 years was optimistic. Another five years like the last, and little will be left.

Patrick Buchanan: Bush is running out of alibis.

“The road of isolationism and protectionism may seem broad and inviting, yet it ends in danger and decline,” railed President Bush in his State of the Union. Again and again, Bush returned to his theme. Why would a president use his State of the Union to lash out at a school of foreign policy thought that has had zero influence in his administration? The answer is a simple one, but it is not an easy one for Bush to face. His foreign policy is visibly failing, and his critics have been proven right. But rather than defend the fruits of his policy, Bush has chosen to caricature critics who warned him against interventionism. Like all politicians in trouble, Bush knows that the best defense is a good offense.

Having plunged us into an unnecessary war, Bush now confronts the real possibility of strategic defeat and a failed presidency. His victory in Iraq, like the wars of Wilson and FDR, has turned to ashes in our mouths. And like Truman’s war in Korea and Kennedy’s war in Vietnam, Bush’s war has left America divided and her people regretting he ever led us in. But unlike the world wars, Korea and Vietnam, Bush cannot claim the enemy attacked us and we had no choice. Iraq is Bush’s war. Isolationists had nothing to do with it. To a man and woman, they opposed it. Bush seeks to counter critics who warned him not to go in by associating them with the demonized and supposedly discredited patriots of the America First movement of 1940-41. His assault is not only non-credible, it borders on the desperate and pathetic.

With opposition also rising to his free-trade policy, Bush reverted to the same tactic: Caricature and castigate critics of his own failed policies. “Protectionists,” said Bush, pretend “we can keep our high standards of living, while walling off our economy.” But it was protectionists from Lincoln to Coolidge who gave us the highest standard of living on earth. And the record of Bush’s merry band of free-traders? The largest trade deficits in history, a $200 billion trade surplus for Beijing at our expense in 2005, and 3 million lost manufacturing jobs since Bush first took the oath.

If America is angry over what interventionism and free trade have wrought, George Bush cannot credibly blame isolationists or protectionists. These fellows have an alibi. They were nowhere near the scene of the crime. It is George W. Bush who is running out of alibis.