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THE LAND THAT TIME FORGOT – REAL ESTATE IN THE GALAPAGOS ISLANDS
One of the best kept secrets in international real estate investing is that it is still possible for foreigners to purchase property in the world famous Galapagos Islands. This is something even most Ecuadorians do not know since various bills have been drafted and approved to exclude foreign investors and developers, BUT, these bills have never been passed into law. There is still time to grab a little piece of this wonderland though real estate opportunities are admittedly somewhat limited. Most of the Galapagos is a national park with only 3% of the land being available for development and most owners of private land are not in any hurry to sell. Savvy investors are snapping up what they can to ensure they and their descendants always have a vacation home in this land that time has forgotten.
The Lonely Planet Guide classifies the Galapagos as Evolution in Action and superlatives seem inadequate to describe the hauntingly beautiful yet barren volcanic setting in which the wildlife thrive. Unique species such as giant tortoises, the largest in the world, and for which the islands are named (up to 250 kg) roam the Santa Cruz Highlands. Marine turtles are easily spotted through the crystal clear waters sleeping on shallow, sandy ocean floors. Marine iguanas, the only true marine lizards accompany you as you paddle along snorkeling the hundreds of coves, snuffing through their noses to eliminate salt from their bodies. Seals and sea lions, whales, dolphins and even sharks swim calmly by you seemingly totally disinterested in your presence. On top of all this there are 58 resident bird species and over 30 other migrant ones – a bird lover’s paradise. Sometimes as many as 750,000 seabirds are in residence in the Galapagos (after all it is nothing but ocean all around).
Not all of the islands are inhabited and most of the residents live in the charming town of Puerto Ayora on Santa Cruz Island, where the streets are paved with organic cobblestones and the houses are framed with bougainvilleas. You will not see cars parked out front very often as automobiles (except for public vehicles and taxis) are prohibited, but you will usually spot a boat in front of the garage. There is a major renaissance and restoration sweeping the area as old houses are lovingly restored and remodeled to provide all modern conveniences. Best bet is to purchase property with a substantial home already in place since all building materials must be transported from the Ecuadorian mainland and dynamite is often needed to blast for a solid footing. Building a new home can be a daunting operation even for native Spanish speaking Ecuadorians. For the more adventurous however, there are occasionally opportunities further inland and there is even a small exclusive subdivision underway at Santa Cruz gardens, although this has been sold out since it was offered to the public.
More information on the Galapagos can be found in several web sites and the highly recommended Ecuador Handbook by Julian Smith (Moon travel handbooks) and the Lonely Planet Guide to Ecuador.Link here.
LABUAN OFFSHORE FINANCIAL SERVICES AUTHORITY TO STEP UP PROMOTION OF LABUAN IOFC
The LOFSA is planning to step up its promotional activities in the coming year and has placed a strong emphasis on Labuan’s continuing development as an islamic finance center. LOFSA is also keen to promote Labuan to businesses in the Asia-Pacific region. In conjunction with its 10th anniversary celebration, LOFSA is organizing a series of seminars and conferences in the months ahead to further enhance and promote the Labuan Malaysian IOFC. LOFSA will also organize the 2nd International Islamic Finance Conference in November 2006 and has again lined up a number of prominent speakers and presenters from the offshore and related industries for the 2-day seminar. While Malaysia declared the island of Labuan to be an International Offshore Finance Center in 1990, LOFSA was not established as the single regulator for Labuan until 1996 under the LOFSA Act.
Incorporting in Labuan offers significant benfits in terms of tax. The Labuan Offshore Business Activity Tax Act provides for the reduction or complete exemption of income tax in respect of many business activities carried on by offshore companies in Labuan. Chargeable profits derived by an offshore company from an offshore trading activity are subject to tax at a rate of 3%. However, an offshore company which carries on an offshore non-trading activity is exempt from income tax altogether. This benign tax regime has allowed Labuan to grow rapidly in stature, and it is now a well established IOFC. As at 30 September 2005, there were about 3,000 active offshore companies in Labuan, including 59 offshore banks, 112 offshore insurance and insurance-related entities, 68 leasing companies, 15 fund managers and 20 trust companies.Link here.
INDIA’S ECONOMY LIKELY TO SUSTAIN GROWTH
India’s economy will continue to grow at an 8% rate in coming years, but the government is worried about the sharp rise in unemployment over the past decade of the boom, an official report said. The unemployment statistics “cause some concerns”, and India needs to learn from China in bringing flexible labor laws that would help create more jobs, according to the annual Economic Survey. India’s economy has grown at about 8% annually the past three years and “the odds are loaded heavily in favor of a continuation of the growth momentum” the report said.
But not all Indians are benefiting from the boom, which has exacerbated the rural-urban divide and regional economic disparities. Unemployment rates went up between 1994 and 2004, increasing for males from 5.6% to 9% in rural areas and from 6.7% to 8.1% in urban areas. Among female workers, unemployment rose from 5.6% to 9.3%in rural areas and 10.5% to 11.7% in urban areas. The increase in unemployment was more pronounced in villages than the cities and towns. Wage differences between rural and urban areas also widened over the past decade, the report said. An average wage worker in urban India earned nearly 40% more than his rural counterpart in 2004. The report also blamed India’s current labor laws that restrict workers’ mobility within the country and block new work opportunities that come with a rapidly developing economy.
Rapid development of physical infrastructure such as power, roads, ports and airports would be critical to sustaining India’s high growth, the report said, pushing for more liberal rules for foreign companies wanting to invest in these areas. “India has an estimated potential to absorb $150 billion of foreign direct investment in the next five years in the infrastructure sector alone.” Foreign investors are increasingly flocking to India because of its buoyant economy and markets, but businesses often complain about bureaucratic red tape and lack of adequate infrastructure. India still ranks in the bottom quarter of comparable nations on the ease of doing business.Link here.
HUGO CHAVEZ MOVES VENEZUELA’S WEALTH OFFSHORE
The Venezuelan government is engaged in a massive money laundering operation, the object of which is obvious: to set up a pipeline with which to transfer’s Venezuela’s billions of dollars of oil profits overseas for Chavez and corrupt members of the “Bolivarian Elite”. Chavez has a good model for their endeavor. Cuba’s Fidel Castro and senior Cuban officials are reputed to have millions of dollars in accounts in Panama, Brazil, Canada, the U.K. and other countries. Castro himself is believed to be a billionaire. While all the details remain unknown, the facts to date demonstrate a concerted effort to establish a secret financial structure to hold funds looted from PDVSA receipts, and the national treasury.
What we have seen is a combination of a seamless money laundering network, operating outside normal channels when necessary, and a potential blank-check for the entire foreign reserve accounts held overseas, where Chavez has the checkbook. More details will appear as our investigation continues.Links here and here.
ONE VIEW OF FREEDOM: NOT HAVING TO REMODEL
Drive past Madrid, New Mexico, home of the Mineshaft Tavern and a tribe of people who are still wearing tie-dyed T-shirts, and you will not find much. Pass the last of the roadside miners’ cabins, and what you will find is miles of beautiful scenery in all directions. But if you go a few miles past Madrid, turn off on a dirt road known to locals as Mail Box Road and follow the ruts a few miles, you eventually will come to the home of Rick Ruff, Airstream guardian angel. Ruff, now in his late 50s, lives there with his collection of six Airstreams, all venerable, all collectible. He has no electricity. He trucks in his water and propane. Solar panels recharge the battery in his residence, and two aging generators are run from time to time for the sole purpose of running power tools. He stays in touch with the world with his cell phone. Rick lives light.
A former leather crafts worker, in time he gave up making leather bags and other craft work. He started fixing people’s Airstreams. He will also go and pick up a trailer for you and bring it back to your house, having recently towed an antique trailer from Southern California to Santa Fe. That is how I met him. Last November, when I bought my 1971 Safari, a 23-footer, the seller told me about Rick. I called him immediately because, well, I was scared to death about what I had done. I was even more scared about what I might have to do. I hired Rick to re-rivet a window, install new tires, and do assorted other tasks before having him transport the Airstream to the family ranch. Other people are devoted to Airstreams. Use the Web to explore the cult of Airstream, and you will find dozens, perhaps hundreds, of people who have either restored their own Airstream or offer to help others do it.
This simple purchase has already had an impact on how we live. We may never live as austerely as Rick Ruff, but its space has redefined our ideas of what we want or need. Plans for building a walk-in closet have been abandoned. Plans for doing a major bathroom remodel have been canceled. I figure the Airstream has already saved us about $40,000 in remodeling expenses. That makes it a pretty good $5,900 investment, no?Link here.
MEXICO – THE FRAUD OF THE CENTURY
A secret report commissioned by the Mexican government on Mexico’s “dirty war” under the Institutional Revolutionary Party (PRI) in the 1970s has caused a major scandal after being leaked to the press. It accuses the military of carrying out a genocidal policy against suspected subversives in the south between the end of the 1960s and the beginning of the 1980s. Even taking into account a number of mitigating factors, especially the fact that President Vicente Fox, who commissioned the study, thinks the report does not give enough weight to the many abuses committed by the guerrillas during the 1970s, the information is potent enough to unmask (once again) the unmitigated fraud that was the PRI.
The exercise is not just academic. Many killers remain at large, 500 people are still missing, scores of families will probably never see justice done, and the PRI is still a major force in Mexican society. During my visit to Mexico last week, I had a chance to talk to some of the presidential candidates as well as a broad spectrum of intellectuals, business representatives, and journalists. The overall consensus is that the PRI will continue to wield colossal power through the state and local government structure as well as Congress, where it will command a solid bloc of votes. Even though Roberto Madrazo, the candidate of the party that ruled Mexico for most of the 20th century, is running third, he cannot be written off.
The most important truth contained in that report is one that it does not formulate directly, that most political power thrives on fraud. In more advanced democracies checks and balances limit the scope of the fraud and therefore its practical consequences. But even in countries with a measure of economic prosperity and a democratic tradition those checks are not nearly enough, so the lessons of the PRI era have universal relevance.
For decades, the PRI maintained a foreign policy based on the principle of “non-intervention”. In theory, this meant, we don’t care what you do in your own countries, so let us do as we please in ours. In practice, it meant, we will wink and nod at any subversive current or government that espouses Third World ideology, and even at domestic revolutionaries, whatever their crimes, as long as they do not actually promote revolution against us in Mexico. This translated into a connivance with all types of revolutionaries, giving many of them safe haven, supporting their causes at international forums, and providing huge subsidies to an intellectual class which was allowed to criticize the PRI mildly from time to time in return for the promise not to question the premise of one-party rule. This policy helped spread and legitimize the ideas that translated into violence and poverty throughout the Latin American region.
We knew, of course, that this policy did not, as the PRI hoped, inoculate Mexico against armed revolution. What we did not know until this report came out, was that the revolutionary fervor actually masked what – by the PRI’s own standards – can only be called a fascist or extreme right-wing policy of genocide, obliterating entire villages and killing scores of innocent victims. The PRI obviously understood the times. So long as it maintained a corrupt aid to revolutionaries inside and outside Mexico and an inflamed anti-imperialist rhetoric, it had carte blanche from all sorts of intellectuals, civil society movements and human-rights groups to practice a systematic negation of everything the PRI, a supposed progressive animal, stood for.The left broke with the PRI in the 1990s, when, in one of its many opportunistic turns, that party espoused globalization and began to (somewhat) open up the economy. But the story of the PRI up to that point is the story of ideological and political fraud on a colossal scale in the interest of power.
Mexicans would do well to remember this when they go to the polls in July and non-Mexicans should take notice of this new reminder that, even in the hands of governments we might feel inclined to support, the state can sometimes be, in Nietzsche’s words, the coldest of all cold monsters.Link here.
WILL MONTENEGRO BE EUROPE’S NEWEST STATE, AND TAX HAVEN?
These days, if you visit Podgorica, the capital of the Republic of Serbia and Montenegro, a plain-looking city in a mountain valley beside a Russian-owned aluminum smelter that provides almost half the economy, you may hear terms like “sovereignty-association” and “distinct society”. Oh yes, and “Clarity Act”. That came up the other day in an interview with Dragan Kujovic, the vice-president of the Montenegrin parliament. “I pay a lot of attention to Quebec,” he laughs, “not just because my wife is a professor who teaches Quebec history, but because we’re on the same road here.”
In many ways, it is a familiar road. On May 21, the 615,000 people of Montenegro get a chance to vote in a referendum on whether to become a separate, independent nation, Europe’s first new state in more than a decade. And this week, the EU provided its equivalent to Canada’s Clarity Act. It passed a resolution saying it would not recognize the vote unless it has a clear question, a majority of 55%, and a turnout of at least 50%. If Montenegro can secede without inflaming either Serbia or its own minorities (almost half its population), then it will be a sign that the explosive enmities of the region have been calmed. Mr. Kujovic is one of the engineers of the referendum, and it is his job to sell it to the people of Montenegro and to the EU, which is wary of adding another country, especially one with an economy of only $1.8 billion, most of it owned by one or two Russian businessmen.
Within Serbia the prospect of losing another huge chunk of territory – and of becoming a fully landlocked nation – is being greeted with relative calm. The likely independence of the southern Serbian province of Kosovo, currently the subject of talks in Vienna, has enraged Serbs, and overshadowed the looming separation. Mr. Kujovic and his colleagues see Montenegro becoming a mountain tax haven like Liechtenstein or Luxembourg, with a wide-open economy. But, they say, they are endlessly thwarted by their big, ugly neighbor with its protectionist laws. Other investors, he says, are turned off by Serbia’s reputation from the war crimes of the 1990s.
The idea brings scorn from Bozidar Milovic, a leader of the opposition Socialist People’s Party of Montenegro, which, as its name suggests, is in favor of returning to the old, comparatively prosperous unity of the old communist Yugoslav Federation. “They want to make a small, private country, which would be completely owned by just a few families. And it goes against the trend in Europe now. We’re in the midst of a process of European integration, so why at this moment would we want another independent state?” Mr. Milovic, however, appears to be in the minority. The most recent poll, in December, showed only 32.3% clearly voting No, with 41.4% in favor, 14.9% undecided and 11.4% saying they would not vote. Analysts say the results are likely to be close, but that a victory is likely.
One surprising effect of the referendum is that it has awoken many Montenegrins to the disreputable state of the government that is launching it, possibly spawning eastern Europe’s latest democracy movement. “It’s a criminal elite fighting for their own freedom, not the freedom of the people,” said Nebojsa Medojevic, a Podgorica pollster who has recently launched a political party, Group for Change. “The people launching this referendum want to portray themselves as fathers of the nation, but … they’re simple criminals.”Link here.
U.S. TRIES TO REGULATE CARIBBEAN BUSINESS … AGAIN
The Bush Administration seems afflicted by congenital tone deafness that has caused it to make a series of embarrassing political missteps at home. This tone deafness has led the administration into embarrassing forays abroad as well – including its humiliation at the Fourth Summit of the Americas where disaffected regional leaders threw a monkey wrench into its plans for a Free Trade Area of the Americas, and its even worse humiliation at the WTO where little Antigua thwarted its attempt to regulate online gaming throughout the Caribbean.
The Bush Administration is not entirely averse to correcting its missteps – as it did recently by retreating from its heavy-handed role as chief enforcer of the OECD’s onerous offshore banking regulations, which made banking for many Caribbean natives a daily nightmare. One also would have thought the administration would be loath to assume the role of chief regulator of our gaming operations. Nonetheless, that is exactly what it is trying to do, despite Antigua and the WTO.
Jay Cohen, an American citizen, moved to Antigua in 1996. He set up an Internet sports gambling site there under the name – World Sports Exchange (WSE). WSE’s business involved bookmaking on American sports events, and was purportedly patterned after New York’s Off-Track Betting Corporation. Cohen chose Antigua because gambling there is legal and officially licensed by the Antiguan government. He believed that by placing his computer servers in Antigua the bets would be placed there, where they would be legal. In one 15-month period, WSE collected approximately $5.3 million in funds wired from customers in the U.S. Cohen allegedly thought and was advised by his peers that his business would not conflict with any U.S. law.
Their advice made both common and legal sense. Unfortunately, the U.S. government thought otherwise and charged him with conspiracy and substantive offenses in violation of 18 U.S.C. § 1084, which prohibits, inter alia, “the use of wire communication facilities to transmit wagers in interstate or foreign commerce.” Cohen was convicted in 2000 and sentenced to 21 months in jail after his appeal was rejected by the Second Circuit, which held that, “Defendant violated this statute by using both the Internet and telephones to transmit calls from bettors in New York, where gambling is illegal, to World Sports Exchange in Antigua, where gambling is legal, during which transmissions bets were placed.”
I am concerned about what happened to Mr. Cohen. (Although he was probably ill-advised to go on 60 Minutes and gloat about how his gambling business was affording him a carefree life of easy riches in Antigua.) I am even more concerned, however, about what ramifications U.S. v. Jay Cohen portend for Antigua and every other Caribbean nation where gambling is legally sanctioned. Just last year, Antigua won a “David v. Goliath” decision before the WTO, which held not only that Antigua acted within its sovereign authority in granting Cohen his gambling license but also that the U.S.’s “restrictive policies towards online gaming” violated global market access – in so far as they prohibited customers from engaging in a legal commercial activity in a foreign jurisdiction. If the U.S. had any regard for international law or comity among nations, that would have been the end of this matter. Instead, it has refused to comply with the requirements of the WTO decision and show no intention of doing so.
But the government of Antigua should not consider this a national slight. After all, the U.S. government has a notorious record of showing arbitrary and capricious regard for the rule of international law. The WTO’s decision might prove a hollow victory for Antigua. Because, with the U.S. insisting that online gaming in the Caribbean is a criminal enterprise, banks will refuse to process payments originating from and going to these businesses and Americans will be less inclined to patronize them. Therefore, here is what I think is the only pragmatic way Antigua could have dealt with this dispute: It must be recognized from the outset that if Antigua were a member of a properly integrated community of Caribbean nations, the U.S. would have been far more likely to comply with the requirements of the WTO ruling. Antigua’s pleading alone to get the U.S. to change its position is rather like a flea pricking the butt of an elephant to get it to change its course. Because unless a country (or a group of countries) can telegraph how its political or economic power can adversely affect the U.S.’s hegemonic interest (e.g., on illegal immigration or drug trafficking), it would be lucky to get even diplomatic niceties in response to such a plea.Link here.
THE BUSINESS OF GIVING
Giving away money has never been so fashionable among the rich and famous. Bill Gates, today’s pre-eminent philanthropist, has already handed over an unprecedented $31 billion to the Bill and Melinda Gates Foundation, mostly to tackle the health problems of the world’s poor. Its generosity has earned the couple Time magazine’s nomination as 2005’s “people of the year”, along with Bono, an activist rock star. The next generation of technology leaders are already embracing the same ethos. Pierre Omidyar, the founder of eBay, and Jeff Skoll, the auction site’s first chief executive, are each putting their billions to work to “make the world a better place”. And when the founders of Google, Sergey Brin and Larry Page, took their company public, they announced that a slice of the search engine’s equity and profits would go to Google.org, a philanthropic arm that they hope will one day “eclipse Google itself in overall world impact by ambitiously applying innovation and significant resources to the largest of the world’s problems”.
The new enthusiasm for philanthropy is in large part a consequence of the rapid wealth-creation of recent years, and of its uneven distribution. Not all of the newly wealthy people are turning to philanthropy – and of those that do, many continue to give in unimaginative ways, say to support an institution such as their alma mater. But the extra wealth is creating huge new opportunities. “This is a historic moment in the evolution of philanthropy,” says Katherine Fulton, co-author of a recent report on the industry, “Looking out for the Future”. “If only 5-10% of the new billionaires are imaginative in their giving, they will transform philanthropy over the next 20 years.”
Done well, philanthropy can have a hugely beneficial effect – witness the achievements of past giants such as Andrew Carnegie, John D. Rockefeller, Joseph Rowntree and William Wilberforce. This survey will argue that if the new generation of philanthropists get it right, they too can make a real difference to the world. But for that to happen, philanthropy will have to shed the amateurism that still pervades much of it and become a modern, efficient, global industry. “Billions are wasted on ineffective philanthropy,” says Michael Porter, a management guru at the Harvard Business School. “Philanthropy is decades behind business in applying rigorous thinking to the use of money.” Mr Porter believes that the world of giving can be transformed by learning from the world of business. Many of the leaders of the new generation of philanthropists agree with him, so “there is a big opportunity over the next 20 years to figure out how to make philanthropy effective.”
But not everyone is convinced that philanthropists must become more business-minded. “We must reject the idea – well-intentioned, but dead wrong – that the primary path to greatness in the social sectors is to become ‘more like a business’,” wrote Jim Collins, a bestselling management author, in a recent monograph, “Good to Great and the Social Sectors”. His reason is disarmingly simple. “Most businesses are mediocre.” Still, even Mr Collins agrees that the way in which money passes from philanthropists to the organizations that put it to work leaves much to be desired. Here there is some reason for hope. In recent years, a host of new firms and institutions have been created that, with luck and good management, will provide the infrastructure and intermediaries of a philanthropic capital market, an efficient way for philanthropists to get their money to those “social entrepreneurs” and others who need it.Link here.
PARTYGAMING CHIEF TO STEP DOWN DUE TO FAMILY’S RELUCTANCE TO MOVE TO GIBRALTAR
Richard Segal, who steered online gaming firm PartyGaming through its most successful period, is to step down as the company’s chief executive due to his family’s reluctance to move to Gibraltar on a permanent basis. Since last year’s flotation of PartyGaming shares on the London Stock Exchange, Mr. Segal had been commuting to PartyGaming’s headquarters in Gibraltar weekly. A statement released by the company said that, given the rapid growth of the Company, both Mr. Segal and the Board have agreed that the CEO now needs to be located in Gibraltar along with all of the other executive directors. However, Mr Segal has strong ties in London and is reluctant to uproot his family.
Mr. Segal joined PartyGaming in August 2004 following a highly successful 16-year career in the leisure industry with Rank, which culminated in him leading the buy-out and subsequent sale of Odeon Cinemas. The PartyGaming statement credited Mr. Segal with playing an “instrumental” part in the company’s rapid growth in recent times.Link here.
TORIES HAIL IRELAND’S LOW TAX POLICIES AS A “SHINING EXAMPLE” TO U.K.
While Conservative leader David Cameron has stressed that economic and fiscal stability must be the Party’s first priority before tax cuts if elected, a recent “listen and learn” visit to Dublin by Shadow Chancellor George Osborne suggests that the party is keen to emulate the low tax policies which have made Ireland Europe’s economic success story in recent times. Attacking Labour’s tax and spend policies, Osborne highlighted how the Irish have managed to raise living standards, attract international investment, and expand economic growth by investing in education, boosting research and development spending, and slashing business tax levies. Corporate tax in Ireland is 12.5%, compared with 30% in the UK.
Speaking in the Irish capital, Mr. Osborne accused UK Chancellor Gordon Brown of hindering Britain’s ability to compete with emerging economies such as China, India, and Brazil as a result of his economic policies, which he argued are “wedded to the past”. “Our Chancellor’s response to globalization is to block much-needed reforms, and give us an ever rising tax burden, and an ever growing welfare state,” he observed. Mr. Osborne went on to state that in contrast, Ireland stands as “a shining example” of what can be achieved by cutting business taxes. “That is why companies like Google, Intel, Apple, and Oracle have all chosen to locate their European operations in Ireland, not Britain,” he noted.Link here.
Increased powers For Irish Revenue commissioners slipping through Dail “by stealth”.
Irish opposition party Fine Gael has warned that legislation allowing Revenue Commissioners to delve into private bank accounts, in their quest for information to clamp down on tax evasion, is being rushed through parliament without appropriate scrutiny. Fine Gael Deputy Leader & Finance Spokesman Richard Bruton noted in a statement that more than half of the 2006 Finance Bill’s 122 sections, many of which herald important reforms in the Irish tax system, have not been subjected to any scrutiny by the Dail, the lower house of the Irish parliament. Furthermore, Mr. Bruton complained that two-thirds of the 79 amendments to the bill introduced by Brian Cowen, the Finance Minister, have also not undergone Dail scrutiny. According to Mr. Bruton, this means that over €1 billion worth of tax changes have slipped through parliament without debate.
Mr. Bruton stated that the situation not only underlined the “pathetic nature of the Dail’s ability to scrutinize financial management,” but also the government’s deliberate attempt to ram through the legislation so as to avoid potential opposition. Chief among Fine Gael’s concerns are proposals contained in the legislation to confer on the Revenue Commissioners new powers to require financial institutions to return details of their customers’ accounts.Link here.
AUSTRALIA TO MEASURE ITS INTERNATIONAL TAX COMPETITIVENESS
Australian Treasurer Peter Costello has launched a new study, the outcome of which is designed to gauge the competitiveness of Australia’s tax systems relative to other developed economies. The aim of the study is to identify areas where Australia both leads and lags its international trading competitors, and it will cover taxes collected at national, state and local government levels. Personal, business, indirect, property, transaction and superannuation taxes will be included in its remit.
The review has been welcomed by the private sector, including the Australian Industry Group. “The tax review announced today by the Treasurer presents a new opportunity to focus our attention on areas of tax reform that can improve our international competitiveness,” commented Heather Ridout, Chief Executive of the AIG. However, Mrs. Ridout went on to note that the study will not achieve anything unless the government is prepared to act upon its findings. “We expect the review to not just identify where our tax system is leading or lagging behind. The review should bring into focus the areas of reform which will have the most impact on our international competitiveness and therefore should be given the highest priority,” she stated.Link here.
FRANCE CALLS FOR MORE NATIONAL SOVEREIGNTY IN TAX MATTERS
Following the French rejection last year of the EU constitution, President Jacques Chirac is to put forward plans for a “Europe of projects” instead, including proposals to increase national sovereignty over certain tax matters, according to reports in the European media. The French President has reportedly drawn up a list of such projects, of which around five will be presented to European leaders at various points throughout the year. Key among these is the French government’s desire for less EU interference in tax matters, sparked by the recent furor over extending reduced VAT levels, which saw Chirac thwarted in his efforts to make good an election promise by reducing VAT rates for restaurants.Link here.
PLACES TO HIDE RUNNING OUT FOR AUSTRALIAN TAX DODGERS
This past weekend Australia and Bermuda moved closer to a formal treaty on the exchange of tax information. Arrangements to make the treaty a reality are already well advanced. Up to A$5 billion a year is estimated to be funnelled to international tax havens from Australia each year. Any agreement allowing Australian authorities to access tax information in these countries could open up hundreds of individuals and businesses to prosecution for tax offences. The public hearing comes as a number of parties continue to fight in the Federal Court efforts by the Australian Crime Commission to question them on a range of tax-related matters. The ACC’s Operation Wickenby has reportedly identified a large number of wealthy individuals in the sporting and entertainment professions allegedly caught up in the use of offshore tax havens promoted by a group of Jersey Island accountants based in Switzerland.
Treaties chairman Andrew Southcott said the treaty was an initiative born of the OECD’s Global Forum on Tax. “Bermuda is only the first one we’ve entered into,” he said. “There are 33 low-tax jurisdictions which have made a commitment to elimination of harmful tax practices.” Just how significant a part Bermuda plays in the operation of Australian business is revealed in a National Interest Analysis document. “Bermuda invested $2.2 billion in 2004, making it the fourth leading investor in Australia, behind the US, the Netherlands and Canada,” the report says.Link here.
NEW YORK AND NEW JERSEY HAVE LEAST BUSINESS-FRIENDLY STATE TAXES
A new study by the Tax Foundation has found that the states of Wyoming, South Dakota and Alaska have the most “business-friendly” state tax systems in the U.S., while New York, New Jersey and Rhode Island have the least hospitable tax systems. The third edition of the Tax Foundation’s State Business Tax Climate Index, by Foundation economist Curtis S. Dubay and Scott A. Hodge, President of the Tax Foundation, ranks the 50 states on how “business-friendly” their tax systems are. Rounding out the top 10 of the states with the most business-friendly tax systems are Florida, Nevada, New Hampshire, Texas, Delaware, Montana and Oregon. On the other end of the spectrum, Ohio, Vermont, Maine, Kentucky, Nebraska, Iowa and Arkansas complete the top 10 worst state tax systems for businesses.
“Every one of the best tax systems raises sufficient revenue without imposing at least one of the three major state taxes – sales taxes, personal income taxes and corporate income taxes,” noted Mr. Dubay. The Tax Foundation says that the goal of its study is to encourage state governments to bring about longer term reductions in the tax burdens that they place on businesses, rather than offer short term tax breaks to lure big employers. “The temptation is for state lawmakers to lure high-profile companies with packages of tax bonuses,” said Hodge, “but that strategy can backfire.” To illustrate the point, the Foundation points to the case of Ohio state officials, who in 2000 offered a company a five year package of tax breaks. However, the company not only failed to employ the 100 Ohio workers as promised, but actually fired 98 employees.
The Foundation explains that its index tends to rewards tax codes that are neutral and have low, flat tax rates that apply across the board. This makes tax law simpler and more transparent and avoids double taxation. Typical characteristics of state tax codes falling near the bottom of the ranking include those with complex multi-rate corporate and individual income taxes, above-average sales tax rates that do not exempt business-to-business purchases, complex and/or high-rate unemployment tax systems, and high effective property tax rates, as well as a host of other wealth-based taxes.Link here.
IRS PROBE FINDS TAX EXEMPT ORGANIZATIONS ENGAGING IN POLITICAL ACTIVITY
Internal Revenue Service officials have released a report on the agency’s examination of political activity by tax-exempt organizations during the 2004 election campaign following an increase in complaints about political activities during the 2004 election cycle. The report concluded that of 82 examinations of tax exempt organizations completed to date, nearly three-quarters engaged in some level of prohibited political activity, including churches. Most of these examinations concerned one-time, isolated occurrences of prohibited campaign activity, which the IRS addressed through written advisories to the organizations. In three cases – involving tax-exempt organizations that were not churches – the prohibited activity was egregious enough to warrant the IRS proposing the revocation of the organizations’ tax-exempt status.
“While the vast majority of charities, including churches, did not engage in politicking, our examinations substantiated a disturbing amount of political intervention in the 2004 electoral cycle. As the 2006 electoral season approaches, we are going to provide more and better guidance and move quickly to address prohibited activities,” said IRS Commissioner Mark W. Everson. The IRS found nine cases where charities, including churches, distributed printed materials endorsing a particular political candidate, and in a further 12 cases, religious leaders were found to have used their church to encourage followers to vote for particular candidate. In other cases charities, again including churches, were found to be endorsing candidates on their websites (15 alleged, 7 determined), placing signs on their property to show support for a candidate (12 alleged, 9 determined), giving improper preferential treatment to certain candidates by permitting them to speak at functions (11 alleged, 9 determined), and making cash contributions to a candidate’s political campaign (7 alleged, 5 determined).Link here.
FINANCE MINISTER HINTS AT NEW ZEALAND CORPORATE TAX CUT
New Zealand Finance Minister Michael Cullen hinted that he would be prepared to cut the country’s 33% rate of corporate tax in order to improve its competitiveness relative to Australia, its nearest and largest competitor. Dr. Cullen told Parliament’s finance and expenditure committee that the government’s review of business taxation would be considered a success if its conclusions allowed him to cut company tax. However, as ever, Dr. Cullen sounded a cautious note over the public finances, arguing that tax reform must be carried out within the constraints of the budget. He has also rejected calls to lower the 39% top rate of income tax.
“This government entered the last election with the tightest fiscal policy of any party and we intend to remain fiscally responsible,” Dr. Cullen said. Nonetheless, he stated that Budget 2006 will underline the government’s “commitment to transforming the economy”. “We need more globally competitive firms and this budget will continue efforts towards building a more dynamic, knowledge-based economy,” he declared.
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, Dr. Cullen has recently found himself fending off criticism of the government’s plans, with opposition leaders calling on him to use the review as an opportunity to cut tax rather than, as National Party finance spokesman John Key said, perform “a deck chair-moving exercise” in terms of revenue. Mr. Key has also alleged that the government is studying plans to reimpose a payroll tax, abolished in the 1970s, to compensate for any loss of revenue brought about as a result of the business tax review, a move he said would be ultimately self-defeating in the context of improving New Zealand’s tax competitiveness.Link here.
HONG KONG LAWMAKERS APPROVE OFFSHORE FUND PROFITS TAX EXEMPTION
Hong Kong’s Legislative Council passed the Revenue (Profits Tax Exemption for Offshore Funds) Bill 2005 which seeks to amend the Inland Revenue Ordinance to implement the proposal to exempt offshore funds from profits tax. Secretary for Financial Services & the Treasury Frederick Ma told lawmakers that exempting offshore funds from profits tax is vital for Hong Kong to reinforce its status as an international financial center and enhance its competitiveness. “The proposed exemption will strengthen Hong Kong’s competitiveness in attracting new offshore funds and encourage existing funds to continue their investment,” he stated. “It will lead to an increase in market liquidity and employment opportunities in the financial services and related sectors. Downstream service sectors such as brokers, accountants, bankers, lawyers, will also benefit from the proposal.”
Under the proposal, individuals’, partnerships’, corporations’ and trust estate trustees’ offshore funds will enjoy tax exemption by satisfying two conditions – the entity that owns the fund is non-resident, and does not carry on any business in Hong Kong other than the fund-related qualifying transactions. Mr. Ma said the well-established common law rule of “central management and control” many other places adopt will be used to determine whether a non-individual entity is resident in Hong Kong or not. He said the proposed scope of the qualifying transactions includes those in securities, futures contracts, foreign-exchange contracts, deposits other than by way of a money-lending business, foreign currencies and exchange-traded commodities. The exemption will apply retrospectively to the year of assessment 1996/97.Link here.
U.K. LAUNCHES NEW CAMPAIGN TO ENCOURAGE SNITCHING ON TAX EVADERS
The U.K.’s tax authority, HM Revenue & Customs announced this week that it has launched its first ever TV advertising campaign aimed at cracking down on people who evade taxes. The advertizement, first shown on commercial TV stations this Wednesday, urges the British public to call a new, confidential hotline if they suspect someone of cheating the system. HMRC Chairman Sir David Varney explained the reasoning behind the campaign, “By far the majority of people are honest taxpayers, but there is a minority out there who refuse to pay their way. People who don’t pay affect us all, and turning a blind eye only reinforces their behavior.” The TV campaign reportedly follows radio and press advertizements which led to a “huge increase” in the number of people contacting HMRC.Link here.
HMRC estimates £10 billion annual loss due to tax avoidance and evasion.
HM Revenue And Customs has claimed in a television program broadcast by the BBC that it is losing as much as £10 billion every year due to tax avoidance and tax evasion. The figures were supplied by HMRC for an edition of BBC2’s Money Program entitled “No Tax Please, We’re Rich.” The program suggested that the Treasury continues to forgo billions every year in revenues as a result of various schemes employed by entrepreneurs, City financial institutions and other wealthy individuals to substantially cut tax bills. In one example, the BBC claimed that Phillip Green, owner of High Street retail outlet BHS, and his family saved £300 million in tax last year by taking residence for tax purposes in the principality of Monaco, which does not levy income tax.
The program also suggested that City firms could save their employees £100,000 in tax on a £1 million bonus by paying them in various exotic commodities such as gold, wine or jewelery. Such schemes allow the employee to present a certificate of ownership of, for example, a consignment of gold at a bank, and receive the cash equivalent tax free. However, the government has been determined to thwart such creative tax avoidance schemes, whether by City firms for the benefit of their employees, or by accounting firms on behalf of their clients, and accountants say that such schemes are rarely endorsed by their profession.
The introduction of controversial disclosure rules, introduced following the 2004 Budget, require accountants and tax planners to disclose to HMRC the details of new schemes that they intend to market to clients within five days of their implementation. This gives the tax man the opportunity to kill off any scheme deemed abusive or unacceptable at an early stage, without resorting to complex and lengthy legislative procedures. By October 2005, around 550 schemes relating to direct tax had been submitted to HMRC under these disclosure rules. According to David Hartnett, head of HMRC, by 2008, tax avoidance could have become “not worthwhile”.Link here.
THE FLIGHT OF AMERICAN RETIREMENT DOLLARS – FROM WALL STREET TO SELF-DIRECTED IRA’S
There are 45,000,000 IRAs in America. And for 30 years, Wall Street has enjoyed an uncontested 97% share of the trillions of dollars in those IRA funds. Well, the times they are a changing. Hundreds of millions of dollars are fleeing Wall Street each month to the vaults of Self-Directed IRA custodians. For example, PENSCO Trust Company (one of about 20 such custodians in the country) recently said that it doubled its Self-Directed IRA assets under management from $1 billion to $2 billion in just the last 18 months. This migration of dollars is, at best, an irritant to Wall Street. However, if those millions of monthly migrating dollars were to change to billions – and they will – Wall Street may have to change its tune.
In theory, Wall Street could offer Self-Directed IRAs – but it has absolutely zero incentive to do so. If it did, its clients might opt to buy such things as real estate, notes, mortgages, tax liens, etc. – where Wall Street would not make one dime. Stockbrokers, financial planners, banks, and insurance companies offer you a limited menu of Wall Street financial products (like mutual funds, stocks, and annuities) for your IRA. Selling these financial products is how they make money, and they are not about to change what has successfully worked for decades. Wall Street not only controls your IRA funds, it also routinely extracts money from them via transaction fees, management fees, documentation fees, etc. On the other hand, Self-Directed IRA custodians do not charge commissions. They just charge a fee for being the custodian of your IRA portfolio. That is how they generate income. And if your IRA funds are with a Self-Directed IRA custodian, not only can you buy real estate, tax liens – and even lend money – as well as Wall Street financial products.
Of course, having the privilege of being able to make your own decisions comes with some responsibility. With a Self-Directed IRA, you have the responsibility to make sound financial decisions for your Self-Directed IRA dollars. This is a caveat that may sound obvious – until you take a look at what has been happening with the pre-construction condo craze, where entire tracts of new homes and blocks of condos were pre-sold to ravenous buyers before the foundations were even poured. Too many folks with newly created Self-Directed IRAs have been jumping on that pre-construction condo bandwagon … and, sometimes, this has led to disaster. Just remember that along with the power and control it gives you, you have the responsibility to do your homework before plunking down your hard-earned IRA money on any investment.Link here.
NEW BANKRUPTCY LAW DRAWS HARSH CRITICISM
Four months after it took effect, the new bankruptcy law is not working the way its backers hoped it would. That, at least, is the conclusion of a report by the National Association of Consumer Bankruptcy Attorneys, or NACBA, based on a survey of credit counseling firms that represented 61,355 consumers. NACBA said it sent the surveys to 10 leading firms authorized to provide credit counseling required under the new law. Six responded. Two of the survey’s key findings are, (1) 79% of would-be bankruptcy filers said their financial problems were caused by circumstances outside their control, such as the loss of a job, catastrophic medical expenses or the death of a spouse, and (2) Only 3.3% were candidates for debt repayment under a debt management plan.
“Contrary to the claims of proponents of bankruptcy law changes that they would zero in on the alleged legions of ‘deadbeats’ who supposedly were crippling the U.S. economy with ‘billions of dollars in losses associated with profligate and abusive bankruptcy filings,’ the federal bankruptcy law changes that went into effect on October 17, 2005, are doing no measurable good whatsoever,” said Brad Botes, executive director of NACBA. “Instead, they have put new hurdles in the path of people who are already flat on their back due to financial crisis over which they have no control, such as the loss of a job, catastrophic health-care bills, and so on.”
The new law – the most sweeping revision of the bankruptcy code in 25 years – makes it tougher for overextended borrowers to erase their debts under Chapter 7, forcing many debtors into Chapter 13 repayment plans instead. The law’s centerpiece is a means test to determine whether debtors who make more than their stat’qs median income are able to repay their debts. One thing the new law undoubtedly has done is drastically reduce the number of consumer bankruptcy filings. For example, in the Western District of Missouri, which includes Kansas City, daily filings have fallen from around 100 or more under the old law to about a score under the new one. To that extent, the law has accomplished what its backers had hoped.Link here.
OFFSHORE HAVEN U.S.A.
Most American taxpayers, heavily taxed as they are, do not know it, but the USA is one of the greatest tax havens in the world – for foreigners only. The U.S. has long been a safe haven for foreign investors. And now with the decline of the U.S. dollar, it has also become a nation with real estate and business assets available for sale at bargain prices. Why do you suppose the Chinese want to buy U.S. oil companies and Dubai wants to buy management control of U.S. port operations? Cheap dollars and bargain prices.
Because the U.S. must compete in the world market for investment funds and most competitor nations permit foreign investors that invest there to earn interest income exempt from paying any taxes, the U.S. provides similar exemptions to attract capital in the form of loans from foreign investors. Tax laws are very favorable to foreign investment that pays tax free interest, no capital gains or estate taxes and allows many methods of deferring payment of any U.S. taxes to a later time. But foreign investors must be careful or they can get caught, just like American taxpayers, with U.S. income taxes on profits as high as 65% and estate (inheritance) taxes on U.S. assets held at death as high as 48%. Proper planning can avoid these traps, however.
Many foreigners do not necessarily want to immigrate to the U.S., but they may want their money invested in the U.S. once they understand how U.S. tax laws favor them. E.g., Senior X, who lives abroad, invests in the U.S. stock market and earns dividend income. His U.S. investments are growth investments and the shares are held almost exclusively for capital gain. If Senior X sells those shares for a profit shortly after purchasing them he might receive a large, short-term capital gain. There is no U.S. tax on Senior X. Except for real estate gains, foreign investors are generally excluded from paying tax on any capital gains earned in the U.S.
Foreigners can also escape estate taxes on U.S. real estate by acquiring it in the name of a wholly owned foreign corporation instead of holding it their individual name. With no direct ownership of any U.S. property the beneficiary of a foreign owner of U.S. real estate will receive only the shares of the foreign corporate owner. There is no U.S. estate tax on a foreigner when the decedent foreigner only transfers shares of a foreign company. All this means that, under the right circumstances, the USA may be the best tax haven in the world for non-Americans, foreign corporations and immigrating foreigners.Link here.
OFFSHORE TAX HAVENS ONE OF THE ENRON MESS’S PHONY VILLAINS
At long last the shady characters who ran the Enron Corporation into the ground, destroying the jobs, retirements and investments of many thousands of innocent people, are on trial in Houston, Texas, the scene of the crime. But one of the phony villains in the Enron mess was said to be offshore tax havens. As usual, they got an undeservedly bad rap in the unthinking news media. That was because of a Byzantine web of “partnerships” created in offshore havens by the artful dodgers at Enron that, in part, allowed the former energy trading giant to pay no U.S. corporate income taxes in four of its last five years. It turns out that Enron, exploiting legal U.S. tax law loopholes, set up no less than 881 subsidiaries offshore, including 692 in the Cayman Islands, 119 in the Turks & Caicos, 43 in Mauritius and 8 in Bermuda.
Good business practice often dictates that domestic corporations create offshore subsidiaries for legitimate reasons, including keeping overseas profits from U.S. taxes, avoiding onerous U.S. regulations and insulating foreign business partners from U.S. taxes. None of this would be necessary if American lawmakers had the sense to abolish corporate income taxes. Shareholders already must pay income taxes on earnings anyway. Why pay taxes twice? And taxes are ultimately are paid by consumers in higher product prices. The great attraction of tax havens is exactly that they impose no taxes on international business corporations (IBCs) registered in their country. Repeal of U.S. corporate taxes would produce more U.S. jobs, more business and more taxpayers earning more money – far too simple an economic solution for a majority of the U.S. Congress to grasp.
The Enron debacle also has exposed the morass that is the then “Big Five” (now down to four) international accounting firms that together and individually have been wreaking investor financial havoc for years. But the villains here certainly include oppressive U.S. tax laws, crafty politicians who write those laws, and, let’s face it, human nature itself. Tax havens are not to blame. They are merely geographic accommodations offering maximum financial freedom.Link here.
LAWSUIT PLAGUE IS GOOD REASON TO REMOVE ASSETS FROM AMERICAN LEGAL SYSTEM’S GRASP
One of the main reasons you need to consider moving some of your assets offshore is to defend against the continuing plague of lawsuits in America. Two recent examples: (1) Shannon Peterson, a special education teacher in an Arvada, Colorado public school, is “being sued for bathing before leaving for work.” The elderly couple who lives upstairs from her Denver condo unit have been complaining about noisy pipes, and unfortunately for Ms. Peterson they happen to have a son who is an attorney at a large law firm. Represented by their son, the Smiths sued Peterson citing the “reckless and negligent use of her bathtub.” (2) Two years ago a former mental patient killed a New Jersey state trooper, first ramming his cruiser head-on, then killing him with two shotgun blasts through the car’s windshield. The trooper’s widow is suing the killer’s parents, the makers of her husband’s police gun – because it jammed after he had fired seven shots from it, and Ford because the deployment of the car’s airbags on collision allegedly delayed his exit from the car.
Plainly there are many good reasons, besides protecting one’s assets from lawsuits, why a U.S. person may wish to move all or part of their financial affairs offshore, away from their home country: wider access to better investments, far greater financial and banking privacy, etc. But especially for Americans, lawsuits are a real hazard. With more lawyers and lawsuits per capita than any other nation, U.S. persons are more susceptible to being sued than they are to the flu. We are not just talking claims by an ex-spouse or angry employee. Anyone who conducts a business or profession in the U.S. becomes a target for litigation.
One professional group that has been a special target for contingency fee lawyers are health care providers – doctors, dentists, nurses, hospitals, clinics and pharmaceutical companies. Why? Lawyers see them as sources of cash with deep pockets for settlements or jury verdicts. All these lawsuits have driven the cost of malpractice insurance beyond affordability for many medical professionals. In many areas medical specialists especially vulnerable to being sued simply have moved away or even stopped practicing. This year the American Medical Association identified 20 states facing a “medical liability crisis,” where medical malpractice insurance costs are so high that many physicians have to abandon their practices or “go naked” without malpractice coverage. [Ed: Before “going naked” a practitioner should definitely un-exposed his or her personal assets, e.g., using techniques discussed on this site.]Link here.
THE AGE OF E-CASH
He is big, he is bad. He sidles up to you on an otherwise deserted street and growls, “Your phone or your life.” This alternate take on the highwayman’s traditional choice for his victim – life vs. money – has probably not yet been uttered, at least not in the U.S. But it may not be far off. Japan, as it so often does with things electronic, has taken the lead in exploring the possibilities of “e-cash” as the preferred form of retail transaction. Increasingly, that brings into play an interface between the ubiquitous cell phone and the bits and bytes that pass for a medium of monetary exchange these days.
Modern life is, to a large extent, about convenience and saving time. Take dining out, for example. You eat, you chat with your companions, you conduct a business deal, whatever. Then, at the end, you have to settle your bill. This takes time. It has to be brought to you, then you have to wait in line at the register, then you have to wait some more while your credit card is processed, or submit your PIN for a debit card, then you have to sign. Suppose you could just get up and walk out of the restaurant, pausing only long enough to wave your cell phone at the check-out desk. In a growing number of establishments, that is exactly what you can do in Japan today. All you need is an e-cash card or a properly equipped cell phone. When you swipe one of them near a compatible scanner, e-money is deducted from your account – which can be replenished with paper money at thousands of automated docking stations around the country (reverse ATMs), or over the Internet with a credit card.
What began four years ago as a time-saving alternative payment method for high-speed rail commuters has rapidly morphed into a staple of Japanese life. Time savings can be significant, especially in a crowded restaurant at lunch hour or in a supermarket. One study indicates that supermarket shoppers save a minimum of 10% of their time over those who pay with cash, and even more over those who pay by credit card. Will the concept make its way across the Pacific? It might seem like a no-brainer, given the speed with which Internet e-commerce has been accepted in the U.S. But there are other considerations. For one thing, the American consumer is hooked on debt, with credit cards playing a major role. E-cash is, in a way, the opposite of a credit card. Another stumbling block is philosophical. Privacy is a strongly held traditional value in the States, unlike Japan, and Americans are acutely aware that every day more and more of it is being stripped away. Many will see the rise of e-cash as just another way of letting the government/corporate complex know what you are doing and where you are doing it. It is not only drug dealers and burglars who benefit from the existence of cold, hard cash. It is everyone who appreciates the value of being able to conduct transactions in private, with no paper trail, when the need arises.
Could there be a way around this objection? The answer, satisfyingly, is yes. Anonymous e-cash is not just a possibility. It is here, and it has been here for a decade. DigiCash, founded in the early 1990s, is the acknowledged pioneer in the field. So how come we have not heard more about this? Well, unfortunately for lovers of the concept, DigiCash filed for Chapter 11 in September of 1998, and no one else has stepped up. It requires an intricate arrangement among consumer, bank, and merchant that must be agreeable to all. Beyond that, Washington loves the idea of a cashless society, provided it is not one that comes with privacy attached. Thus we can be pretty sure that anonymous e-cash transactions will be resisted by the feds, and perhaps prohibited by law.Link here.
WHEN IT WILL NOT REQUIRE A TYRANNY TO DEPRIVE US OF OUR FREEDOM
It received just a few column inches in a couple of papers, but the story I read last week looks to me like a glimpse of the future. A company in Ohio called City-Watcher has implanted radio transmitters into the arms of two of its workers. The implants ensure that only they can enter the strongroom. Apparently it is “the first known case in which U.S. workers have been tagged electronically as a way of identifying them.” The transmitters are tiny (about the size of a grain of rice), cheap (£85 and falling fast), safe and stable. Without being maintained or replaced, they can identify someone for many years. They are injected, with a local anaesthetic, into the upper arm. They require no power source, as they become active only when scanned. There are no technical barriers to their wider deployment.
The company that makes these “radio frequency identification tags”, the VeriChip Corporation, says they “combine access control with the location and protection of individuals”. The chips can also be implanted in hospital patients, especially children and people who are mentally ill. When doctors want to know who they are and what their medical history is, they simply scan them in. This, apparently, is “an empowering option to affected individuals.” For a while, a school in California toyed with the idea of implanting the chips in all its pupils.
A tag such as this has a maximum range of a few metres. But another implantable device emits a signal that allows someone to be found or tracked by satellite. The patent notice says it can be used to locate the victims of kidnapping or people lost in the wilderness. There are, in other words, plenty of legitimate uses for implanted chips. This is why they bother me. A technology whose widespread deployment, if attempted now, would be greeted with horror, will gradually become unremarkable. As this happens, its purpose will begin to creep. Ultimately, I do not believe that you or I or most comfortable, mentally competent people will be forced to wear a tag. But itwill become an increasingly acceptable means of tracking and identifying people who could be a danger to themselves, or who could be at risk of sudden illness or disappearance, or who are otherwise hard for companies or governments to control. They will, on the whole, be people whose political voice is muted.
As it is with all such intrusions on our privacy, it will not be easy to put your finger on exactly what is wrong with this technology. It will not really amount to a new form of control, as all the people who accept the implants will already be subject to monitoring or tracking of one kind or another. It will always be voluntary, at least to the extent that anything the state or our employers want us to do is voluntary. But there is something utterly revolting about it. It is another means by which the barriers between ourselves and the state, ourselves and the corporation, ourselves and the machine are broken down. In that tiny capsule we find the paradox of 21st-century capitalism – a political system that celebrates choice, autonomy and individualism above all other virtues demands that choice, autonomy and individualism are perpetually suppressed.
There will be no dramatic developments. We will not step out of our homes one morning to discover that the state, or our boss, or our insurance company, knows everything about us. But, if the muted response to the ID card is anything to go by, we will gradually submit, in the name of our own protection, to the demands of the machine. And it will not then require a tyrannical new government to deprive us of our freedom. Step by voluntary step, we will have given it up already.Link here.
AOL’S “EMAIL TAX” SPARKS PROTEST FROM MASS MAILERS
In an effort to combat the effects of phishing and spam, AOL and Yahoo, two of the world’s largest internet service providers, plan to deploy a certified email system that will result in bulk mailers being charged to guarantee delivery of their messages. However, the new system has been denounced by charitable groups as nothing more than an “email tax” which could lead to a two-tier internet service.
The two companies are planning to use a “CertifiedEmail” service provided by California-based Goodmail. Every message that is sent through the Goodmail service is embedded with a cryptographically-secure token. These tokens must be detected by participating Internet service providers (ISPs) before the message can be delivered to recipient’s inbox, identified as a CertifiedEmail message. The email is then labeled with a CertifiedEmail symbol in the user’s inbox, indicating that the message can be opened with confidence and that it is from an authentic and trusted sender. Goodmail plans to charge between a quarter of a cent and one cent for each message delivered, with the bulk of the money collected going back to the two ISPs.
AOL will begin using the new system within a month, while Yahoo plans to test the service in the next few months. Yahoo will also only charge fees to deliver emails relating to purchases and financial transactions. Barry Appelman, senior vice president and chief web strategist at AOL, says that spam on the AOL service has declined by over 85% since its peak in 2003, but stated that he is of the belief that “more work needs to be done” to reduce the levels still further.
However, AOL’s decision to charge for certain types of email delivery while maintaining a free service has attracted strong criticism from campaign groups and charities, many of which send millions of emails as part of their fund-raising and awareness initiatives. “We wish to express our serious concern with AOL’s adoption of Goodmail’s CertifiedEmail, which is a threat to the free and open Internet,” stated a petition sent to AOL by a diverse collection of organisations ranging from medical charities to environmental groups. The petition alleged that the new system will do nothing to reduce spam, because the plan assumes that spam will continue and that mass mailers will be willing to pay to have their emails bypass spam filters. The groups also contend that the two-tiered system will result in those not paying for email delivery receiving a degraded service. The petition also warned that the move to charge for email is the “first step down a slippery slope” towards a less-free and more restricted internet.Link here.
THE USA PATRIOT ACT AND FINANCE: THE HIDDEN THREAT
After 18 years in the investment business, a time I might add that has been rewarding in many ways, I am now truly questioning whether I should stay in this profession. It just is not any fun anymore. When it actually stopped being fun is hard to pinpoint, but why it stopped is not. Although we in this industry have always been regulated, or shall I say controlled, by Big Brother (Department of the Treasury, IRS, NASD, and SEC) we got along okay most of the time. But since September 11, 2001, things have changed dramatically, and not for the better … not better for the brokers and certainly not better for our clients, those hard-working individuals who save and invest and drive this country forward.
Although the USA PATRIOT Act is the tool being used, I do not want to give the impression that this single piece of legislation is the only problem. The attacks in 2001 enabled the government to expedite plans for more power, something it continually seeks just by its very nature, but can never acquire fast enough to suit its desires. Our founders warned us of this time and again. James Madison, in a letter to Thomas Jefferson on May 13, 1798, said, “Perhaps it is a universal truth that the loss of Liberty at home is to be charged to provision against danger, real or pretended from abroad.” This statement has never been more true than it is today.
We, as investment advisers, are now “agents” of the government, told to secretly watch our clients and report any “suspicious” activity. We even have an in-house czar, if you will, called the AML Officer, or Anti-Money-Laundering Officer. We are to report anything deemed suspicious directly to him, and he in turn will decide whether or not to turn this information over to the government for further investigation. These reports are called Suspicious Activity Reports (SARs) and are filed directly with the U.S. Treasury and made available to law enforcement and federal securities regulators. We are also required to verify the identity of and do a background check on any client opening a new account. The Patriot Act defines a financial institution as almost anything. The list includes everything from convenience stores to travel agencies to auto dealers to insurance and investment companies. Even jewelry stores qualify. This unwarranted invasion will affect just about everyone at one time or another. Many will be affected on a regular basis, and this will be done for the most part without their consent or knowledge. Are you beginning to get the picture?
As brokers we not only have to watch our clients. We are also liable if we fail to report anything deemed suspicious and could face loss of license, fines, and/or imprisonment. I have worked many years to build a good business and to build trust with my clients. What do I tell them now? Oh, by the way, I am now not only your broker, but also a government spy. Do not worry though, you will never know when you and/or your accounts are being checked or investigated. It’s a secret! This is beyond anything I could have imagined just a few years ago. I am now an unpaid, but threatened agent of the government. How absurd.
Why are so many in this country in favor of the USA Patriot Act? Do they actually believe that this will protect them from all harm? Why are modern-day conservatives insistent that any and all power should be given to this government in the name of safety? No politician can change this course we are on. Only we as a people have the power to control our own destiny. If we do nothing, as seems to be the current plan, our God-given rights to life and liberty will continually be threatened. If left unchecked, government will continue to grow and in time will consume all.Link here.
STATE TAX BREAKS FOR CORPORATIONS AT RISK
It may be common practice for states to lure business with special tax incentives, but a Supreme Court ruling could change all that.
The high court is slated to hear opening arguments in the case of DaimlerChrysler v. Cuno – one of a handful of corporate cases on the docket this term – and one that some say could have even greater implications than the well-publicized eminent domain case of Kelo vs. City of New London. “Kelo didn’t upset the status quo, but Cuno does threaten to do so,” said Greg LeRoy, executive director of Good Jobs First., a non-profit research group. Unlike eminent domain, tax incentives are commonly used by 46 states to attract and keep business within their jurisdiction. In total, it is estimated that state and local governments spend over $50 billion a year on corporations with tax breaks and other incentives, LeRoy said. The theory is that new business is positive for economic development, creating new jobs and tax revenue that can be plowed back into the regional economy.
But now, the high court will have to determine if the practice of offering tax incentives to corporations is in fact legal, and whether it violates the commerce clause in the U.S. constitution that prohibits states from impeding interstate commerce. If the practice is found to be in violation of that clause, it could mean millions of dollars of lost savings for Corporate America. The suit stems from a 1998 decision by the Ohio government to provide $280 million investment tax credit to auto giant DaimlerChrysler, in order to keep the company from relocating its vehicle-assembly plant to Michigan from Toledo. Toledo small business owner Charlotte Cuno and several Michigan citizens filed a suit claiming that the tax incentives coerce Ohio-based companies into remaining in Ohio in order to benefit from special tax breaks. In addition, the suit claimed that Ohio’s tax incentives prevented Michigan citizens from reaping the benefits of the tax revenue that DaimlerChrysler’s investment in the state could have brought.
A federal court in Toledo originally sided with DiamlerChrysler and the state, but that decision was unanimously overturned by the 6th circuit court of appeals which ruled that tax incentives were unconstitutional. And now all eyes are on the Supreme Court's decision.Link here. Supreme Court questions challenge to state business tax breaks – link.
WHO POLICES THE POLICE?
I have a cousin who works for the Mesa, Arizona Police Department. In October of 2002, Dan Lovelace, an officer who works for the Chandler, Arizona Police Department gunned down a woman who attempted to pass a fake prescription at a local Walgreens. Lovelace claimed the woman attempted to run him down as she sped away from the scene, and he shot her in self-defense. Forensic and eyewitness evidence contradicted his testimony. Despite this, Lovelace was acquitted of all charges against him. At the time, I asked my cousin what he thought of the verdict. He simply stated that he would never question a fellow officer in the line of duty. “And besides, she was a felon. A drughead,” he exclaimed. In his view, an officer should never be questioned. His (or her) authority is absolute out in the field. From what I have been able to discern, this attitude is systemic in police officers. The force is a fraternity. They stick together and watch each others’ backs.
The state is the entity which maintains a legal monopoly on force, and the police departments are the enforcers of said force. All men have the capacity for good or for evil, and the last time I looked, police officers were still all men. Simply because a person is given a badge, a gun, and the authority to enforce the law by the state does not make that person a moral agent. Just as there are good and bad people who are plumbers, teachers, and engineers, there are good and bad people who are police officers. Simply trusting police officers to behave themselves is not sufficient. Given my cousin’s attitude and yet another example of police officers looking out for their own kind at the expense of the public good, it is clear that the responsibility for policing the police lies with each of us.Link here.
HOMER SIMPSON, YES; FIRST AMENDMENT? “DOH!” (SPRINGFIELD, WE HAVE A PROBLEM)
In a contest between Americans’ knowledge of “The Simpsons” and what they know about the First Amendment, Bart and Homer win hands down. About 1 in 4 Americans can name more than one of the five freedoms guaranteed by the First Amendment (freedom of speech, religion, press, assembly, petition for redress of grievances.) But more than half of Americans can name at least two members of the fictional cartoon family, according to a survey. The study by the new McCormick Tribune Freedom Museum found that 22% of Americans could name all five Simpson family members, compared with just 1 in 1,000 people who could name all five First Amendment freedoms.
Joe Madeira, director of exhibitions at the museum, said he was surprised by the results. “Part of the survey really shows there are misconceptions, and part of our mission is to clear up these misconceptions,” said Madeira, whose museum will be dedicated to helping visitors understand the First Amendment when it opens in April. “It means we have our job cut out for us.” The survey found that while 69% of people could name freedom of speech as a First Amendment right, just under 1 out of 4 people could name freedom of religion. Only 11% knew freedom of the press, 1 in 10 could name freedom of assembly and 1% named freedom to petition for redress of grievances, the survey found. The survey found more people could name the three “American Idol” judges than First Amendment rights and were more likely to remember popular advertising slogans.
It also found people misidentified First Amendment rights. About 1 in 5 people thought the right to own a pet was protected, and 38% said they believed the right against self-incrimination – commonly known as “Taking the Fifth” – was a First Amendment right, the survey found. The telephone survey of 1,000 random adults was conducted January 20-22 by the research firm Synovate and had an error margin of 3 percentage points. Gene Policinski, executive director of the Nashville, Tennessee-based First Amendment Center, said the results were disconcerting but not surprising. “It’s disappointing that Americans continue to be ignorant of First Amendment freedoms, but even more disappointing is that that these freedoms are more and more in the news,” Policinski said, citing the protests at soldiers’ funerals and the controversial Prophet Muhammad cartoons, which have sparked outrage and violence around the Islamic world after newspapers published them.Link here.
GOVERNMENT INVARIABLY MAKES THINGS WORSE
For every action, there is an equal and opposite reaction. For every government action, there is necessarily an opposite and unintended reaction, though sometimes it can be much more than equal. In my previous article, I wrote that the interventions of forcible government into human activity serve to distort incentives. Whenever government acts, you and I as a necessary result face circumstances in which we are personally rewarded for behaviors that are not in line with the spirit of the law. Nor are these behaviors typically what would be best for human progress. Today, I treat the same subject from a different direction – by showing that government attempts to solve problems always worsen the problems themselves.
There is no way around it – when you begin with centralized, unaccountable violence (taxation in the first place, necessary for government to exist at all), then continue with such violence (compelling an entire population to behave in accordance with legislative dictates), all in the service of controlling the behavior of people who are naturally happiest and most peaceful only when they are free, you will never succeed.
Forcible government will fail in everything it does. It always has and always will. Government cannot provide security. It cannot eradicate poverty or disease. It cannot make people happy or wealthy. It can only destroy wealth, institutions, and beneficial customs, and can do these things only by continually restricting our freedom. Everything it does will have the opposite of the intended effect. These are not coincidental observations nor descriptions of general tendencies. That government will fail, and do harm, is logical necessity based in the nature of mankind, which is itself logical and based on instinctual animal self-preservation. This will never change. What needs to change is everyone’s inculcated belief that government is either necessary or good.
Am I proposing that the absence of forcible government would result in a utopia? Of course not. Diseases, accidents, and evil people will always be among us. But forcible government, aside from being a priori unjust, is the single largest impediment to human progress in dealing with the inevitable challenges of life. Sooner or later, humanity will come to this realization. I hope it is soon, and peaceful.Link here.
RESISTANCE … DENIAL … DEBT
We Americans are a people in revolt against fate. Wealth and power are migrating from West to East … our empire is peaking out … our dollar is doomed – if only we could take it more gracefully. Instead, politicians, central bankers and ordinary consumers want to dispute it, as if they could stop the tides of history, like Xerxes’s troops doing battle with the waves. Just listen to the mindless rants coming from Congress. The Arabs want to take over our ports. The Chinese are taking over our oil companies! What do they think this is? A free country? Last year, 96 American companies were bought by firms from emerging markets. Those transactions were worth about $14 billion and were hardly noticed. But when a big offer makes the headlines, you can count on resistance, indignation, and dissembling. Who do these Chinese think they are? How dare they try to stabilize their economy by tying their currency to that of their largest trading partner? Do they not know they are supposed to let their paper money rise so ours can fall?
Meanwhile, the Financial Times reports on “How China is Winning the Resources and the Loyalties of Africa”. China needs resources. Africa has a lot of them. So far, they seem to be going after them honestly – with smiles and cash, both of which they have in abundance. Back in the homeland, consumers spend more than they earn, borrowing the shortfall from Asia. And why not? They deny that there is any problem at all. If there is a problem, they are sure it can be solved with more debt. Have real hourly wages gone down? They do not seem to have noticed. They already owe a lot of money to a lot of people? It does not seem to bother them. And, isn’t most of the growth since 2001 simply a by-product of a booming housing market? It never seems to occur to them that there is anything wrong with it.
Investors, too, deny that there is a problem. They buy stocks at an average of 20 times earnings – with a dividend yield below 2%. How do they expect to make any money? And over in the bond market, at current yields, after taxes and inflation, an investor is practically guaranteed to lose money. How could he miss it? The math is so simple: a 4.5% yield, less inflation of 4% (being optimistic about it), leaves only half a percentage point to pay taxes. There is no way that will work. But, Americans have been told that they have the world’s most dynamic and flexible economy, and they believe it. What they really have is a mature, shopworn economy struggling to appear young. What can it do but dye its hair, pin back its face, and lie? Around the world, people are beginning to notice the signs. While no maturing economy can avoid some sag, bulges and lines, it is the resistance, denial and debt that produce the real problems.Link here.
EMPIRE OF DEBT LAUDED
Two hundred years ago, when the U.S. was a modest commercial republic, the president could take a walk down Pennsylvania Avenue – by himself – and talk to anyone who approached him. If he was not on a walk outdoors, he was most likely at home, and you could speak to him by knocking on the door of the White House and presenting yourself. The Hamiltonians and their agenda of mercantilism, paper money, and presidential exaltation had been humiliated in the election of 1800. Jeffersonianism had prevailed against them. And though Jefferson made some missteps during his presidency – not even Jefferson could be fully trusted with power – the policy bias was clear: frugality, free trade, peace, hard money, and decentralized government.
Today? The president moves about like Caesar Augustus, with a vast, graded court of civil and military aides, doctors, secretaries, valets, hairdressers, makeup artists, bodyguards, drivers, baggage handlers, cooks, food tasters, Praetorian guards, snipers, centurions, bulletproof limos, a portable hospital, and an armored rostrum. And that is when he travels in the United States. When Bush visited Ottawa, members of Parliament were refused entry into their own legislature by the massed power of the Secret Service, in violation of Canadian law. He counts far more than any other human being on earth. So, of course, every event is staged to the extreme. The president is spoken to by no regular person. There are as many walls that separate us from him as between the supposed government of Iraq and its people, or the old Soviet Politburo and the Russian people. These people live and breathe fear.
Never has sociologist Franz Oppenheimer’s view of the state been more clearly on display. It is there to dominate, exploit, and protect itself against any challenges to its power. It clings to power like Gollum holding the ring. And that power is deployed not for the purpose of protecting people but for protecting the state and its interests. When Oppenheimer theorized in 1908 that this was the true nature of the state, he was shouted down and pilloried for denying the doctrine of government as a social compact. Now his claims read like a description of the day’s political news. Most Americans are aware that something has gone very wrong, but they are at a loss to sort of out the causes, especially the ones that are most invisible. This is where the smashing book by William Bonner and Addison Wiggin, titled Empire of Debt, performs an extraordinary service. In addition to being accomplished financial analysts, Bonner and Wiggin are talented historical writers. And they put this talent to work in the cause of examining the political and economic effects of empire.
The authors not only provide a frightening picture of the mess that the U.S. government has made at home and abroad, they also understand the crucial role that the monetary regime has played in this debacle. They show how the legal right to counterfeit – that is what the Federal Reserve grants the government – has changed the structure of the government and led to the loss of liberty and the rise of an imperial power unlike any in history. The dollar is, for now, the world reserve currency, which permits the U.S. to sustain a world empire without paying the price.
When Richard Nixon enacted, by imperial decree, a purely fiat dollar, repudiating solemn promises to redeem in gold, the printing presses could run 24/7, the pax Americana could be “financed”. To understand the connection requires that we understand two fields of study that are usually kept separate: foreign-policy analytics and monetary economics. It is in understanding this relationship that our authors excel. Alan Greenspan had pretended to be against it all, but given the chance for power, he happily repudiated his restrictionist gold-standard views and supplied the credit for the expensive wars, the expensive bread, and the expensive circuses that have wrecked empires from Rome to London. His successor promises even more of the same. With the end of the last remnants of the gold standard, “all the restraints, inhibitions, and modesty of the Old Republic [were] blown away,” note Bonner and Wiggin. “In their place has emerged a vainglorious system of conceit, deceit, debt, and delusion,” with special financial significance for the country and individuals.
While the loss of gold money was a turning point, the imperial urge has much deeper roots. It all began, say the authors, when the balmy Teddy Roosevelt began riding rough over small, poor nations. They might have gone back further in time. Maybe its roots are in the Colonial era with New England’s religio-cultural drive to improve and perfect the world through coercion and belligerence. Regardless of the roots, the modern history is undeniably disgraceful.
In the midst of my favorite chapter, “Woodrow Crosses the Rubicon”, they pause to repudiate the great killer presidents. How many Americans know that Wilson invaded Mexico before Europe, raising the federal war banner over Veracruz, and set off a reign of terror at home in which Germans, or those thought to be German, were lynched and those who dissented from his national socialism were jailed? Wilson also established the Federal Reserve, the income-tax police, and the direct election of senators. Frank Chodorov called it “The Revolution of 1913”.
The Federal Reserve’s monetary manipulations to finance World War I, and then the boom of the 1920s, led to the Great Depression and then the Roosevelt revolution towards massive statism. After it and Trumanism, and Modern Republicanism, Americans live, said John T. Flynn, “in the war-torn, debt-ridden, tax-harried wreckage of a once imposing edifice of the free society which rose out of the American Revolution on the foundation of the U.S. Constitution.” The impulse to empire helps make sense out of our huge deficits and debts, or such costly and obvious blunders as the invasion of Iraq or the “war on terror”. It is as if America were committing suicide, our authors say, first by bankrupting the economy and then by creating endless enemies all over the world. With this comes a belligerent and blind nationalism that has affected the whole culture in one degree or another. But then, in an empire, the people must become “hollow dummies”, said Orwell.
Paying tribute to As We Go Marching, John T. Flynn’s great analysis of New Deal fascism, our authors understand the glorification of militarism and war that lies at the heart of right-wing statism. As Flynn quoted an Italian fascist, today’s red-state fascists also see the mass death and destruction of war as “the great anvil of fire and blood on which strong peoples are hammered.” American business is still heroically capitalistic, entrepreneurs brilliant and brave at creatively serving the needs of the people, though hogtied by the vastest government in history.
The authors call themselves conservatives, but they quote Confessions of an Economic Hitman approvingly, and see through the Cold War humbug about the Communist Conspiracy, the terrorism of the previous scam. Nor do they fall for the mythology that surrounds the big-spender Reagan, nor celebrate the murderous Vietnam War, with 57,000 dead Americans and between two and three million dead Vietnamese. (Those names are not on a wall, of course.) From the Romans to the Fourth Crusade (and their Venetian and French aggressors) to Genghis Khan to the Spaniards and Napoleon and the British, Bonner and Wiggin teach us the lessons of empire, with learning, wisdom, and irony. “A great empire,” they note, “is to the world of geopolitics what a great bubble is to the world of economics. It’s attractive at the outset but a catastrophe eventually. We know of no exceptions.”Link here.
CHENEY AND CHAPPAQUIDDICK
“You know a politician is in trouble when even shooting a lawyer can’t boost his approval ratings.” Okay, I have added my little bit to the glut of Dick Cheney (and lawyer) jokes. Oh, have a couple more – “By now I suspect even President Bush has heard about it.” And, “If Cheney had not had ‘other priorities’, the United States might have won in Vietnam.” All kidding aside, the incident may have deeper significance as a parable. An innocent man is shot, while the bird gets away. The War on Terror in a nutshell.
The shooting occurred on Saturday, and by Sunday night it was clear that Leno’s and Letterman’s gag writers must already be meeting in emergency session. Not since Monica Lewinsky had they been handed an opportunity like this one. How would the Republicans handle this? The answer came the next day, when Rush Limbaugh opened his show with … a Chappaquiddick joke! Say what you will, the man’s spirit is invincible, his wit inexhaustible. And you thought this incident would shut him up, did you? You thought the Democrats would have the last laugh for once, did you? Guess again. Republicans have a consoling saying in times of stress: “We’ll always have Chappaquiddick.”
Then Rush found his own deeper significance in the story. The liberal media were harping on it, he explained, because here was a chance to embarrass the Bush administration! No doubt if Cheney had slipped on a banana peel on Pennsylvania Avenue, they would have harped on that too, for the same reason. Rush is nothing if not unpredictable. In a pinch, he will always have Chappaquiddick. (Notice how the liberal media covered that up!) I am reminded of a stern Catholic reader who assured me, after I wrote a column on Mozart’s 250th birthday, that the “only reason” the media noted the occasion is that Mozart was a Mason. What is more, he is now “roasting in hell.” Without trying to excuse Mozart’s faults, I reflected that some people may get indignant about too many things at once. I may be prone to this myself when I think about the Bush administration.
Which brings me back to Cheney. If you ask me, nobody in Washington has been more overdue for deflation. For a while it looked as if the special prosecutor might achieve this, but he lacked the necessary light touch. The task has now fallen to others. Let us keep this in perspective. As Rush was quick to point out, Cheney had not left anyone to die, or tried to cover up a criminal or cowardly act, or engaged in absurd semantics. All the historical analogies worked in his favor. All the same, the Bush administration did not especially need more slapstick right now. With so many crises hitting the fan at the same moment and his own party ready to revolt, President Bush may be in no mood for historical perspective. The old battle cry “We’ll always have Chappaquiddick” will not cut it anymore.Link here.
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