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IN SEARCH OF THE PERFECT BEACH ON THE COAST OF MALAYSIA’S ANDAMAN SEA
Although the perfect beach is something of a tourism cliché, Datai Bay, on the north coast of Pulau Langkawi, Malaysia deserves every accolade. Sprinkled with tiny exotic seashells, the sands here really are talcum-powder white. Go out in the early morning, and you can spend ages marveling at the extraordinary patterns the spider crabs have made. The mesmerizing seascapes make it a battle to even pick up a novel let alone do anything resembling work. On the horizon, jungle-clad limestone formations look like a scroll painting. Your eyes are constantly drawn to the bobbing little boats of anchovy fishermen and sea eagles riding the ocean thermals.
Idling in paradise is not the only option. The island has three top-class golf courses and three yacht clubs. You can visit the mangroves and go jungle-trekking, or explore bat caves and the coral wonderland of the Pulau Payar Marine Park. The twice-weekly night markets are fun, too. It is a chance to sample hawker food such as satay chicken on skewers, and haggle for trinkets, batik, and wooden carvings. But Langkawi’s big allure for me is the jungle. If you enjoy back-to-nature experiences, it is magical to glimpse hornbills and white-headed Brahminy Kites swooping through the treetops … to come face-to-face with monitor lizards … to hear the nighttime chorus of croaking frogs. The island is also home to strange “flying snakes” (non-poisonous), fox bats, colugas (gliding lemurs), and a host of other wildlife including kingfishers, muntjac deer, and black leaf monkeys. And you do not have to get all sweaty by going on a trek to see these creatures – some of Langkawi’s resort hotels are backed by jungle.
An unspoiled island? You bet. And that means none of the usual expat requirements such as private hospitals and international schools. But the biggest shock is that Langkawi does not possess a single real estate agent. Before leaving home, I did an Internet search for contacts. Not finding any was not a great concern – I reckoned I would be sure to come across some agencies in Kuah, the island’s capital. I was wrong. Although I eventually tracked down a fairly new condo development, Langkawi does not surface on the radar screen of foreign property buyers. The reason is simple. Around 80% of the land is under government control. And developments are few and far between. As things stand at the moment, your only chance of buying is a resale. One new development is in phase two stage, but all properties here have already sold out.
When property on Langkawi changes hands, it is through private sales. There is an Web site run by a guy called Vennie Loh, but this only serves as a listings service for vendors selling privately. Once you ignore the “sold” properties and the homes only available to Malay buyers, there is not a great selection. Choice is between a 1,600-square-foot attached house for $51,600 and a new townhouse with the same living space in a Kuah residential development for $84,800.
As elsewhere in Malaysia, a proportion of development properties are reserved for bumiputera buyers. The word means “sons of the soil”, and refers to native Malays, not residents of Chinese or Indian descent. Bumiputeras get special discounts on everything from real estate to hotel rooms. Regarding that condo development mentioned earlier … looking toward the sea in one direction and mountains in another, Century Suria is a 12-story residence of 147 units with gym, pool, and sauna. On the northern outskirts of Kuah, on Jalan Taman Pelangi, it was built a couple of years ago. All the penthouses were sold pre-construction. The other condos range in size between 1,025 square feet and 1,046 square feet. Prices for fully furnished units are now pitched between $60,500 and $69,000. Run as serviced apartments, some condos are available for both short- and long-term rentals. Daily rental for up to six people is from $66. Monthly rentals range from $477 for low floor condos to $636 for ones on a higher floor with a view.
Malaysia is not the Middle East, though travelers should be aware that drug offenses can result in the death penalty. While I was there, the newspapers carried details of one case in which a guy was sentenced to death for trafficking in ganja. The form of Islam practiced in Malaysia is not extreme, though its moral maze may seem odd to Westerners. Not all cases are tried by the High Court. Muslims are also subject to Sharia law. In another high profile case, an actress was fined $530 by the Sharia court for committing khalwat. This means being “in close proximity” with someone to whom you are not married.Link here.
LIVING IN SLOVAKIA
For about 7 years we have been searching the world for a place to live an easier, less constricted lifestyle, longing to find a more basic and natural way of life than in our home country Holland. During those years we have visited other western countries like Australia, Canada, and the U.S. only to find out that the rules for immigration are so restrictive. To us this would have meant less freedom instead of more. In other EU countries like France, Spain, Italy the price of real estate has risen so much, bureaucracy has become so overbearing, and getting a renovation done is so complicated. Following the implementation of the Euro in our country, general life has become so much more expensive, that we felt even more we wanted to get out and find a place where you can still get a decent value for your money.
After watching a popular daily English emigration TV-show, “A Place in the Sun”, where people with similar ideas are followed on pursuing their dream abroad, we were intrigued by the beauty and prices of land and real estate in Eastern Europe, especially Slovakia. So off we went in November last year, not the best time but for research, but quite good considering there was less competition from other buyers. Slovakia is divided into 8 self-administered regions, each having its own capital – Bratislava, Trnava, Trencin, Nitra, Zilina (western Slovakia), Banska Bystrica (central Slovakia), Kosice and Presov (East). Public transport is excellent, if you want to get away from the car culture. Every little village has public bus service connecting it with the outside world. The northwestern part we did not like particularly, a bit gloomy and still too much a feel of the communist oppression for our taste. The high Tatra Mountains although amazingly beautiful, were too cold in winter and have a too short summer season for us.
Most of economic life is still concentrated in the Bratislava area, followed by other main western Slovak cities. These areas are also likely to be of most interest to a property investor. The reasons are simple – solid economy, growing investments (foreign as well as domestic), excellent infrastructure, favorable business environment. Along with relatively low unemployment and higher prosperity of the population makes Trnava, Zilina, and to a lesser extent Trencin and Nitra into exceptional markets for those looking for untapped opportunities. Prices are low with little competition and there are potentially high returns. Trnava and Zilina are perhaps no longer a secret tip in Slovakia, but are still practically unknown abroad.
After 3 weeks of traveling the country, feeling and trying to decide on what would be a good area for us, the southwest area around the town of Levice in the Nitra district, a relaxed small sized town, situated in the midst of wine fields and, to the north, mountains for skiing, walking, biking and general outdoor life. This area has a Mediterranean atmosphere, without the price tag. So you have the best of both worlds, with all-season holiday opportunities. Everywhere there are these rural markets with people selling their own grown produce: fruits, vegetables, mushrooms and nuts.
What really won our hearts over are the Spas, a naturally ingrained health tradition in Slovakia. Doctors here are highly trained, as are most people we met, since education was free for everybody in the communist days. Their approach to solving health problems is a natural and more sustainable one. Instead of chemical medication, one goes to a Spa and spends a few days or weeks depending on your health problem. Every Spa has a specialty, like skin, heart or respiratory problems. Prices which include room, board and treatments are very affordable indeed. After spending a day in a Spa we felt this would be a great country to settle.
The Slovak property market continues to offer some of Europe’s best opportunities with low prices and healthy and solid growth. And of one thing you can be sure. As virtually all property sales are sold to locals, and 95% are owner occupiers in their (family) apartment or house, so you will always be able to sell your property on to a Slovak buyer, ensuring a safe exit.Link here.
THE DONALD COMES TO PANAMA
A 2.4 million square foot mixed-use development will rise in Panama City, according to its developers – a joint venture of the Trump Organization and K Group. The effort has a current price tag of approximately $220 million. The Trump Ocean Club International Hotel & Tower will feature a 65-story condominium tower with 500 condominium units and 312 hotel condominium units. There will also be a casino, private beach club, 24-hour marina, among other amenities. The project will be built on an artificial peninsula on the Panama Bay, with total land area of 140,000 sf. Plans also call for more than 1,500 parking spaces.
The development coincides with Panamas plans for an approximately $5.5 billion improvement of the Panama Canal, K Group president Roger Khafif pointed out during a press conference announcing the project. The just-announced Canal plan still must meet voter approval. Khafif said as many as 30,000 U.S. citizens currently call Panama home and there are more than one million tourists each year. Donald Trump said his interest in Panama was sparked three years ago when his “Miss Universe” pageant was held in the country. This effort – the organization’s second largest right now – was recently increased by 600,000 sf. “The right opportunity presented itself.” HSBC is providing the financing. He expects the project to be “easily funded,” noting that as many as seven “major financial institutions were fighting to put up money.”Link here.
Panama’s president urges support for Canal expansion.
In a televised address to the nation, Panama President Martin Torrijos appealed to voters to back the proposed expansion of the Panama canal, a move which he suggested would represent “a formidable challenge and a gigantic project”. It emerged earlier this month that the Panama Canal Authority (ACP) had approved plans for a $7.5 billion expansion project that will increase the capacity of the famous waterway which, as China and India boom as major exporting nations, is already at full stretch. Under the plans, two 3-chamber locks will be constructed at both ends of the canal. This will create a third lane of traffic wide enough to handle the largest of modern container ships and tankers. New approach channels will also be prepared, while existing channels will be dredged to ensure large craft can enter the system.
The project will take about seven years and employ up to 8,000 people. Current projects under development within the program include the deepening of Gatun Lake and the Atlantic and Pacific entrances, the construction of a second Tie-up station in the Gaillard Cut and the further widening and straightening of the Gaillard Cut. With these projects, the ACP is maximizing the Canal’s resources with the goal to attain 330 million PC/UMS tons over the next two years.Link here.
Panama Canal expansion to create 240,000 jobs. Where will the people come from?
The planned expansion of the Panama Canal will be self-financed via higher tolls, and the construction project is expected to create some 240,000 jobs, a canal official said. The waterway’s No. 2 administrator, Manuel Benitez, told reporters that if the project was approved, the Treasury will not have to pay for the project. Regarding employment, “we are talking about possibly more than 240,000 additional jobs,” including direct and indirect positions. Some 150,000 Panamanians are currently unemployed.Link here.
AMERICANS FUEL YUCATAN LAND GRAB
A big cadre of American baby boomers looking to retire someplace sunny and cheap is fueling a land rush in the Riviera Maya, a small idyllic slice of Mexico’s Yucatan peninsula. But many land-seekers are encountering a variety of obstacles, including skyrocketing real-estate prices, confusing laws and con artists. Real estate prices have spiked so quickly – roughly doubling in the past five years – that unscrupulous promoters sometimes try to flip property they do not even own. The warnings against this potential trouble are everywhere. “This property is not for sale,” advises a hand-lettered placard posted in Spanish on a fenced-off beachfront lot, one of several near Tulum, about 80 miles south of Cancun. “Don’t be caught by surprise.”
The land rush is occurring at the beginning of a demographic tidal wave. With more than 70 million American baby boomers expected to retire in the next two decades, many without adequate pensions or health plans, some experts predict a vast migration to warmer – and cheaper – climates. Often, such buyers purchase a property 10 to 15 years before retirement, use it as a vacation home, and then eventually move there for most of the year. Developers increasingly are taking advantage of the trend, building gated communities, condominiums and golf courses. Mexico, already thought to be home to as many as one million American citizens, or roughly a quarter of all U.S. expatriates, is set to get the lion’s share of new arrivals. No place has boomed in recent years like the state of Quintana Roo in Mexico’s far southeast corner, anchored by the high-rise resort destination Cancun at one end and cosmopolitan Playa del Carmen an hour to the south. The hottest section is near Tulum, just down the beach from a massive Mayan fortress overlooking the Caribbean.
But Mexican real-estate law can be tough to navigate. Under the Mexican constitution, foreigners are allowed to own land outright anywhere except within 50 kilometers (31 miles) of the coastline or 100 kilometers from a national border. Within the so-called restricted zone, they can hold the property in a trust, or fideicomiso. While they do not officially own it, they retain the right to use it and sell it for a renewable 50-year period. In Tulum there is an additional real-estate wrinkle. Several miles of virgin beachfront are claimed by an ejido – a form of communal ownership that is fairly common in Mexico. The ejido is composed of impoverished peasants who were given the land years ago by the government, before anybody thought the property was worth anything. Now it could fetch tens of millions of dollars. Under current law, ejidos can be “privatized”, subdivided and sold, subject to unanimous approval by ejido members and time-consuming government approvals. Until that happens, foreigners are technically blocked from buying pieces of it, according to real-estate experts.
Unfortunately, anxious buyers sometimes do not want to wait. They find an individual ejido member who claims ownership of a parcel and buy it at a steep discount, on the promise that they will receive full title when a privatization is completed. Such arrangements have given rise to endless title disputes. Conflicts over title are not uncommon in Mexico. In 2000, some 200 American homeowners were evicted from their luxury development on the Baja coast, after a court ruled against the developer in a convoluted title dispute. But such hardships may be on the wane in much of Mexico, as the real-estate business matures. If you are interested in making a purchase, experts say there are a few basic steps to help avoid heartache.Link here.
CHINA, RUSSIA WELCOME IRAN INTO THE FOLD
The Shanghai Cooperation Organization (SCO), which maintained it had no plans for expansion, is now changing course. Mongolia, Iran, India and Pakistan, which previously had observer status, will become full members. SCO’s decision to welcome Iran into its fold constitutes a political statement. Conceivably, SCO would now proceed to adopt a common position on the Iran nuclear issue at its summit meeting June 15. Speaking in Beijing as recently as January 16, the organization’s secretary general Zhang Deguang had been quoted by Xinhua news agency as saying, “Absorbing new member states needs a legal basis, yet the SCO has no rules concerning the issue. Therefore, there is no need for some Western countries to worry whether India, Iran or other countries would become new members.”
The SCO, an Intergovernmental organization whose working languages are Chinese and Russian, was founded in Shanghai on June 15, 2001 by China, Russia, Kazakhstan, Kyrgystan, Tajikistan and Uzbekistan. The SCO’s change of heart appears set to involve the organization in Iran’s nuclear battle and other ongoing regional issues with the U.S. The SCO membership is a lifeline for Iran in political and economic terms. The SCO is not a military bloc but is nonetheless a security organization committed to countering terrorism, religious extremism and separatism. SCO membership would debunk the U.S. propaganda about Iran being part of an “axis of evil”.Link here.
GIBRALTAR CHIEF MINISTER PETER CARUANA SEES “NO MOVEMENT ON SOVEREIGNTY”
Chief Minister Peter Caruana delivered a robust defence of Gibraltar’s right to self-determination before a high-powered audience in the heart of Madrid. Speaking to a gathering of senior diplomats and business executives, he said any attempt to resolve the political future of the Rock against the wishes of its people would be both “useless” and “sterile…p“The UK has accepted, and Spanish public opinion should also accept, that it is futile, politically inefficient and democratically undesirable to try and negotiate the sovereignty of a territory without the will of the people who live there,” Mr. Caruana said.
“There is no model that is acceptable to the UK, to Gibraltar and to Spain.” But he added that an “efficient political process” of dialogue could perhaps change the dynamics of the relationship between Gibraltar and Spain and, in future generations, create “a new perspective” that might facilitate solutions that are not possible at this time. Mr. Caruana spoke from a podium against the backdrop of three flags – Spain’s, the UK’s and Gibraltar’s. He described the creation of the forum as a “courageous and politically intelligent” move that in no way compromised the fundamental position of each party on the issue of sovereignty. He was short on detail as to progress on any of the key issues such as the joint use of the airport and the Spanish pensions, adding that there were still technical issues to resolve. Mr. Caruana said the rate of progress had to be seen within the context of the fact there had been no dialogue between the three sides in two decades.
He began with an overview of Gibraltar’s social and economic make-up, describing Gibraltar as a “mature and prosperous” democracy. On the finance center, he said Gibraltar not only complied with EU regulatory requirements – not just his view, but that of international bodies too – but had the resources in place to ensure that laws were enforced. Not everyone was convinced. Mr. Caruana was asked a number of pointed, though by no means hostile, questions about predictable sources of controversy, including cheap petrol and cigarettes, and visits by nuclear submarines.Link here.
NEW HEDGE FUND TO FOCUS ON RUSSIA’S GROWTH POTENTIAL
A new emerging market equity hedge fund which aims to tap into the growth and investment potential of Russia and neighbouring states formerly belonging to the Soviet Union is set to be launched next month. The Greater Europe Deep Value Fund, a closed-end fund registered in Jersey and listed on the Irish Stock Exchange, will have a lock-up period of three years, allowing the fund’s managers to make investments in illiquid but potentially highly profitable stocks. The fund is scheduled to open in May and close in June of this year.
According to Jochen Wermuth of Wermuth Asset Management, a German investment boutique which is acting as advisor to the fund, Russia’s economic growth potential has been underestimated, and he believes that in the long-term, Russia’s economic prospects look stronger than those of developed countries such as the U.S. “Gross domestic product growth in dollar terms – around $3,000 per head – may well triple over the coming five years due to real growth, high wage inflation and a stable exchange rate,” Wermuth told Reuters.
He added that earnings of companies focused on the domestic consumer market are also expected to triple, while strong demand for Russia’s abundant natural resources from emerging economies such as China and India will keep commodity prices high. This will also benefit the economies of states such as Kazakhstan, where the fund will also be making opportunistic investments. The fund will also explore opportunities provided by private equity, takeovers, restructuring finance, shareholder activism and initial public offerings, according to Reuters.Link here.
IN GERMANY, OUTLOOK IS BULLISH FOR FIRST TIME IN YEARS
Have the German people, who regularly are chided by their political leaders and commentators for unwarranted pessimism, succumbed to a bout of irrational exuberance? A raft of recent surveys shows that German companies and consumers are more bullish about their economic prospects than they have been in years. Some of the numbers are so rosy that critics say they do not reflect reality in a country that still has tepid growth and nearly double-digit unemployment. The influential GfK survey just reported that German consumers feel more optimistic than at any time since 2001, just before the introduction of the euro. That followed a monthly survey of businesses by the Ifo Institute for Economic Research, which found the highest level of confidence since 1991.
“If you take the Ifo survey literally, Germany should be growing on the order of 4 percent a year,” said Thomas Mayer, the chief European economist at Deutsche Bank in London. “That hardly seems possible, given what we’ve seen from the hard numbers on the German economy.” In fact, he said, Germany is unlikely to expand even 2 percent in 2006, although other economists are busy upgrading their growth forecasts, partly to take account of the surging sentiment. The ranks of Germany’s jobless have stopped growing, but more than four million people are still out of work. And while consumers appear ready to open their wallets, the prospect of high oil prices and a looming increase in Germany’s value-added tax could snap them shut again.
Much of the soaring sentiment can be explained by lower expectations. After four years of near-stagnation in Germany, economists said, even a modest rebound can make a vivid impression on people. The growing gulf between perception and reality troubles some politicians and economists. They worry that it could prompt a backlash against Chancellor Angela Merkel, who won office largely because of disenchantment with the economic policies of her predecessor, Gerhard Schröder.Links here and here.
MAURITIUS CAN BECOME MORE COMPETITIVE AS GLOBAL FINANCIAL CENTER, SAYS PRIME MINSTER
Dr. Navin Ramgoolam has stressed that government and business must work in partnership to ensure that the jurisdiction remains competitive and continues to attract global companies. Speaking at the inauguration of the Financial Center of Huawei Technologies (Mauritius) on April 26, the Prime Minister reiterated the commitment of the government to create the appropriate investment and business platform for enhancing the development of high value-added services. Promoting a business-friendly approach to investment and modernizing institutional and regulatory frameworks remained the most significant areas for facilitating investment and business, Dr. Ramgoolam noted.
Dr. Ramgoolam also stressed the importance of creating and maintaining an adaptable and highly skilled workforce if Mauritius is to remain globally competitive. “It is only by strengthening our human capital that Mauritius will be able to attract global demand for world-class services and position itself as a Center for Excellence”, he pointed out. He did expressed satisfaction that Huawei Technologies chose Mauritius, in preference to South Africa, Dubai and Singapore to establish its regional Headquarters for the Indian Ocean region as well as its Financial Center for the Sub-Sahara Africa region. “It is a clear indication that Mauritius is well poised to become a premier regional business platform.”Link here.
COOK ISLANDS TO ABOLISH IMPORT LEVIES
The government of the Cook Islands has stated that it intends to forge ahead with the removal of most import levies later this year. From July 1, 2006, most import levies will be lifted, although pork, fresh fruit and vegetables, pearls and soft drinks have been added to the original “big four” list of exceptions – motor vehicles, liquor, tobacco and fuel – in order to allay fears that the move will have too big an impact on government revenues. However, import duties on the items added to the list will be cut by 50% on July 1, 2008. Further reductions will be subject to review. Confirming last week that the government was going ahead with the measure, Finance Minister Dr. Terepai Maoate said that the views of the public would be taken into account on how best to proceed with the lifting of the levies.Link here.
U.S. TAX COURT SIDES WITH IRS IN KEY “ABUSIVE” TAX SHELTER CASE
The IRS has won a significant legal victory in its campaign to deter the use of so-called “abusive” tax shelter schemes, after the U.S. Tax Court ruled that the “Son of Boss” scheme is illegitimate. The ruling related to the sale of R. J. Thompson Holdings, a day-trading firm in Omaha, Nebraska, by its founder and former chief executive Randall J. Thompson, for $13 million in cash to TD Waterhouse of Canada in June 2001. The IRS believes that Thompson used a Son of Boss scheme to create an artificial loss in order to slash the amount of federal taxes he owed on the sale, and disallowed more than $20 million in tax losses. Thompson, through a partnership, decided to challenge the IRS.
Son of Boss evolved from an earlier scheme known as “Boss” (bond and option sales strategy). The scheme utilizes a complex set of derivative transactions to reduce tax liability and was commonly used in the late 1990s to offset large one-off gains such as the sale of a business. The ruling is significant as it marks the first time that a court has ruled on the Son of Boss scheme, and the decision could have an important bearing on the outcome of the trial of 18 individuals facing criminal charges related to sale of tax shelters by the accounting firm KPMG.
Lawyers for the defendants, 16 of whom are former KPMG executives, have argued that their clients did nothing illegal because the tax courts had not hitherto established whether the tax shelters were improper. The defendants in the KPMG trial are facing conspiracy and fraud charges for their role in creating and selling tax shelters viewed by the IRS as close relations to Son of Boss.Link here.
SOUTH KOREAN TAX OFFICE EXPANDS PROBE INTO FOREIGN INVESTORS
The South Korean tax authorities have reportedly widened their probe into the activities of foreign funds, but continue to deny that they are discriminating against overseas companies amid a popular outcry over the level of profits being made from the sale of national assets. According to reports in the national media, the National Tax Service is examining changes in the stakes of 4,889 foreign invested corporations that were more than 10% owned by foreign investors as of the end of 2004.
Under the Foreign Investment Promotion Act, foreign investors are entitled to certain tax privileges provided that foreign share ownership does not fall below 10%. The latest move by the NTS comes amid growing controversy over how foreign investors are taxed. Much of this attention in the past few weeks has focused on Lone Star, the Dallas-based equity fund which is set to record a 4 trillion won profit from the sale of its stake in Korea Exchange Bank. However, it has also been reported that the Seoul Regional Tax Office officials have visited the premises of Newbridge Capital and seized documents and accounting records. The U.S.-based investment fund sold its 48.6% stake in Korea First Bank – bought for 500 billion won in December 1999 – for over 1 trillion won to Standard Chartered Bank in January last year. However, the firm is said to have paid no tax on the transaction, as the profit was channeled through Labuan in Malaysia, which has signed a double taxation avoidance treaty with South Korea. Such activities have caused outrage among members of the public.Links here and here.
COUPLE ACCUSED OF RUNNING AN OFFSHORE TAX-FRAUD SCHEME ORDERED HELD WITHOUT BAIL
A couple accused of running an offshore tax-fraud scheme from the Bahamas with the help of a former head of the North Carolina Republican Party should be held without bond until trial, a judge ordered. Federal prosecutors asked Judge W. Earl Britt to keep Howell and Vernice Woltz in jail because they have significant undeclared assets and have moved their primary home to the Bahamas. They are also key figures in a separate international money-laundering case, prosecutors said. “This is just the tip of the iceberg of an international money-laundering investigation,” assistant U.S. attorney Kurt Meyers said. “Millions, literally tens of millions, of dollars are involved in money laundering. It provides an incredible incentive for these defendants to flee.”
For example, the Woltzes offered customers a type of credit card that lacked the raised lettering that make the cards traceable, prosecutors said. Transactions using the cards were cleared through a bank in the Netherlands Antilles, Meyers said, making the card an attractive way to move money into the U.S. without attracting much notice. In a court filing, Meyers said the Woltzes tried to interest an undercover IRS agent in “an offshore credit card whose primary purpose was to allow U.S. citizens to take money offshore undetected by the government and to use the card without being tracked.” The Woltzes are charged with two counts of obstruction and conspiracy to obstruct a lawsuit brought by the Commodities Futures Trading Commission. Howell Woltz also is charged with tax conspiracy and perjury. Vernice Woltz also is charged with concealing documents.
The Bahamas does not recognize tax fraud charges and would not extradite the Woltzes to the U.S. to face trial if the couple returned there, Meyers told Britt. The couple planned to cut their U.S ties when the sale of their home and farm closed in June, prosecutors said. The Woltzes were charged in a federal indictment unsealed last week in Charlotte. Wilmington tax attorney Ricky Graves and Raleigh attorney Sam Currin were also charged in the case after a three-year undercover IRS investigation. Currin was formerly an aide to Sen. Jesse Helms, the United States attorney for eastern North Carolina from 1981 to 1987, and a Superior Court judge until 1990. Since then, he has represented criminal defendants in the state’s federal courts. From 1996 to 1999, he served as chairman of the state GOP.
Howell Woltz was the president of Sterling Trust, a financial services company based in the Bahamas and the British West Indies the U.S. government claims set up financial entities to hide the assets of wealthy Americans. Vernice Woltz and Currin were directors of the related Sterling Bank, based on the island of St. Lucia, prosecutors said. Currin and Howell Woltz had a financial falling out late last year and since then have each approached federal prosecutors offering to provide evidence in an ongoing investigation, U.S. attorney Matthew Martens said.
Currin, Graves, and Howell Woltz were charged with tax fraud conspiracy for preparing “false and fraudulent documents to deceive the IRS,” the indictment said. Currin, 57, also was charged with obstruction of justice, witness tampering, and perjury in a related grand jury investigation of securities fraud. Currin not only gave false testimony, he persuaded Raleigh attorney Robert Wellons to “make false and misleading statements to and withhold documents from the grand jury,” the indictment said. Wellons, 37, pleaded guilty to conspiracy to obstruct justice and has agreed to help the government, prosecutors said. He faces up to five years imprisonment.Link here.
“CAROUSEL” FRAUD BLAMED FOR SHOCKING FALL IN UK VAT RECEIPTS
A surprising fall in value added tax receipts received by the U.K. government in the past year has been blamed largely on the rising incidence of “carousel” fraud. According to official figures, VAT revenues fell nearly 14% in March compared with March last year while revenues were down by 0.2% in the full fiscal year – the first time that VAT revenues have fallen on an annual basis since the introduction of the tax in 1973. While a slowdown in consumer spending is thought to have played a part in falling revenues, the shock statistic has sparked fears that the extent of carousel fraud is greater than previously believed and certainly higher than the £1.1 billion to £1.9 billion annual revenue loss estimated by the government. An HMRC official was quoted in the report as confirming that carousel fraud is viewed as a “significant problem” and a “major issue”, by the government. HMRC already has a team of 500 within the department to combat the problem.
Carousel fraud, also known as missing trader intra-community fraud (MTIC), involves the importation of goods (typically high-value small electronic goods such as mobile phones and computer components) free of value-added tax. The goods are then sold on by companies with the 17.5% VAT added, following which the firms disappear, having pocketed the difference. In many cases, the goods are passed along a long chain of traders making the fraud hard to detect and the perpetrators difficult to apprehend. In January the UK made an application to the EC to be able to deal with VAT on certain goods in a new way, in a bid to cut down on the fraud. This would enable the UK to introduce a reverse charge procedure for transactions between VAT registered businesses in certain goods.Link here.
IRS UNABLE TO DETERMINE TAX GAP ACCURATELY
U.S. Senator Max Baucus (D-Montana), Ranking Member of the Senate Finance Committee, has called on the IRS to determine more accurately the size of the annual tax gap. A new report from the Treasury Inspector General for Tax Administration concluded that dated and incomplete information and questionable methodologies make it impossible for the agency to accurately estimate the tax gap, or how many people are voluntarily complying with tax laws. Without this information, the report notes, the IRS cannot make its best effort to reach the 90% voluntary compliance rate Baucus has called for since April 2004. The Inspector General found that sample sizes were cut and some findings may not be reliable, indicating that “substantial amounts are not included in the estimates provided in the tax gap map projections.”
“The IRS will have a hard time closing the tax gap as long as they don’t know what the tax gap really is,” argued Baucus. According to the IRS, the updated estimate of the overall gross tax gap for Tax Year 2001 – the difference between what taxpayers should have paid and what they actually paid on a timely basis – comes to $345 billion. This figure falls at the high end of the range of $312 billion to $353 billion per year, an estimate released in March 2005. However, Baucus noted that the report indicated that the annual gap between taxes owed and taxes collected may be even more than $345 billion. Two years ago, Baucus challenged the IRS to achieve a 90% voluntary compliance rate by 2010. He estimated at the time that this would raise as much as $100 billion each year without any tax increases at all.Link here.
SMALL COMPANIES AROUND THE GLOBE SNUB U.S. STOCK MARKETS AND LIST ON OVERSEAS MARKETS
Peach Holdings did something shocking a few weeks ago. When the Boynton Beach, Florida lending outfit wanted to mount an IPO, it shunned U.S. stock markets and investors to raise $231 million on AIM, the London Stock Exchange’s Alternative Investment Market. Peach’s reception across the pond has been peachy indeed. Its stock is up 6% from the offering price, and the company now carries a market valuation of $598 million. Going public in the U.S. would have been brutal for Peach, with just $100 million in revenue. It would have had to pay a $100,000 fee to get on the Nasdaq plus something in excess of $2 million to comply with myriad rules and the onerous burden of Sarbanes-Oxley (Sarbox), the post-Enron antifraud act. To go public on AIM, the company spent all of $500,000, including a fee of $7,600 to the exchange. “We chose London to be exempt from a litany of U.S. regulations,” says James Terlizzi, Peach’s chief executive. “The math is pretty straightforward.” Had he gone public in the U.S. he also would have had to shore up accounting practices and cajole executives at other companies to join his board, which by law must be dominated by independent outsiders. And he would have to report earnings each quarter rather than twice a year as is allowed in the U.K.
Small outfits around the world similarly are eschewing U.S. exchanges and the straitjacket of Sarbox in favor of the relaxed capital markets to be found abroad. London’s AIM market is a prime beneficiary – it listed 335 initial offerings last year, nearly twice the total in the boom of 2000, while Nasdaq eked out just 126 last year, down 65% from 2000. Last month the beleaguered Nasdaq, spurned in an initial attempt to merge with the London Stock Exchange, managed to buy a 15% stake in it for $782 million. Nasdaq officials say the Sarbox burden is heaviest on the smallest companies – and firms with less than $100 million in sales make up half of Nasdaq’s 3,000 listings. The regulatory costs average 2% of revenue at firms with revenue under $100 million, while they are only 0.1% of revenue for the biggest companies.
“Nasdaq has become a hostile environment for small companies,” says Oren Zeev, a venture capitalist with Apax Partners in Menlo Park, California, which has taken seven companies public on foreign markets in Europe. Theodore Stebbins, chairman of investment banking at Canaccord Adams in the U.S., adds, “Clearly, the low end of the Nasdaq is broken. We can no longer in good conscience recommend to our small clients that they go public on Nasdaq.” Since early 2005 his firm has listed 17 companies on AIM. Seven more deals are in the works. Other foreign markets have made gains, too, but London’s AIM has been particularly persistent in pitching inself. “A year ago I never would have thought about foreign markets. Now my partners and I talk about it all the time,” says Robert Pavey of Morgenthaler Ventures in Cleveland, who has been invited to a dozen or more AIM seminars. India, too, is emerging as an alternate market.
Charlotte Crosswell, head of Nasdaq’s international business, is defensive. “The U.S. is the biggest capital market in the world. Our regulation is second to none, and investors are willing to pay a premium for that,” she says. But her boss, Nasdaq President Robert Greifeld, has lamented the Sarbox fallout publicly. Lovers of big government will tell you that, despite the Sarbox backlash, U.S. markets still hold the most sway and the biggest companies will continue to insist on trading here. Moreover, companies that bypass the U.S. to list overseas still can get hit by the regulatory pox. If 500 investors end up buying stock in an American company listed abroad, U.S. regulations kick in again and the company must bow to the law.Link here.
PROLIFERATION OF U.S.-BASED “SHELL” COMPANIES AROUSES SCRUTINY
The U.S. has created a booming international market for a vehicle increasingly favored in financial crime, namely corporations that exist mainly on paper but come with American addresses. So-called shell companies “have become popular tools for facilitating criminal activity,” the U.S. Government Accountability Office says in a new report, citing data and reports from federal law-enforcement agencies. Last year, Russian and Ukrainian prosecutors filed more than 100 requests with the U.S. Justice Department for help investigating U.S. shell companies. The FBI told the GAO that a majority of its 100-plus cases of market manipulation involved shell companies.Link here (subscribers only).
AUSTRALIA TO TARGET TAX-REDUCTION SCHEMES THAT SHIFT PROFITS OFFSHORE
Offshore tax havens and companies that use complex laws to illegally reduce their tax will be targeted by the Australian Tax Office (ATO), tax commissioner Michael D’Ascenzo said. Speaking at an international tax seminar in Sydney, Mr. D’Ascenzo said large companies and rich individuals were sometimes using the complexity of the global tax system to avoid tax. But he said despite the inherent problems of tracking tax payments across the world, the ATO was working with other tax agencies to pin down Australian tax avoiders. “International tax issues, abuse of tax havens, profit-shifting, cross-border financing and non-resident withholding continue to be areas of risk,” he said. “The rise in businesses and people involved with international tax poses particular challenges. The high level of sophisticated structuring among larger companies and wealthier individuals contrasts sharply with lower levels of awareness of international tax issues from smaller businesses, individuals and their advisors.”
One of the ATO’s biggest operations of recent years has been Operation Wickenby, an ongoing investigation that uncovered an off-shore scheme that allegedly defrauded the Commonwealth of $300 million in tax revenue. D’Ascenzo said there had already been some changes made to tax arrangements because of the operation. “In addition to some significant approaches to voluntarily disclose arrangements and resolve tax liabilities, there have been signs of changed behavior such as various structures being dismantled,” he said. Last year the Government struck an agreement with Bermuda on sharing tax information in a bid to catch companies that may be using off-shore tax havens. Negotiations are well advanced for similar agreements with a host of other localities used as tax havens, including Anguilla, Jersey, Guernsey, the Isle of Man and the Cayman Islands.
Mr. D’Ascenzo said one continuing problem was the way some multinational firms tried to shift profits untaxed out of Australia. He said the ATO was now focusing on companies that sold intangible assets, such as trade names of manufacturing know-how, to related companies offshore. It was also looking at business structures that deliberately reduced the profitability of Australian firms and companies that had significant dealings with tax havens.Link here.
INDIA GETS TOUGH ON TRANSFER PRICING
India has stepped up transfer pricing audits this year, and unofficial reports surfacing in the local press suggest that demands for more than Rupees 2.5 billion (50 million) have been slapped on multinationals operating in India in respect of the 2002-03 tax year. The country introduced transfer pricing anti-avoidance rules (broadly based on the OECD guidelines) and an audit regime in 2001, but did not begin to conduct audits until last year, and then they covered the 2001- 02 tax year. In 2005, the tax department is said to have raised demands for Rupees 1.2 billion, but had recovered only Rupees 100 million by the end of the year.
Demands issued this year already include one for Rupees 350 million against a foreign bank. The tax department says that very frequently it finds excess profits generated in offshore holding company locations, so that products or services are imported to India at inflated prices, reducing taxable profits in the country. Companies in India complain that there is no formal appeal process for transfer pricing, and there is no APA (Advanced Pricing Agreement) system to simplify negotiations with the tax authority. However, tax demands are still subject to a possibly long-drawn-out litigation process in the regular courts.
Any taxpayer having international related-party transactions exceeding Rupees 50 million ($1.1 million) is liable to transfer pricing audit. Experience so far suggests that the tax authorities take a hard-line attitude towards international pricing issues, for instance insisting on the use of “secret comparables”, denying 5% safe harbors, refusing to accept pricing agreed by other departments, and refusing to accept Transactional Net Margin Method analyses based on the “simpler party” principle when that party is outside India. At least the lawyers will win.Link here.
THE CHOICE IS SWITZERLAND
I had the pleasure of visiting Switzerland recently. It may have been chilly on the mountaintop, but Switzerland provides a warm and genuine welcome to foreigners – and their money and investments. Fully one third of all the world’s assets are managed and banked in Switzerland. The contrast between the treatment we received in Swiss banks, such as Bank Julius Baer, and the mass production mentality of American banks is stark. There are good reasons why the Swiss manage over $3 trillion of offshore assets for investors from every nation on earth – and a principal one is their open and frank approach to investments and making money.
For several years now we have chosen Switzerland as our top offshore haven. While it is not a tax haven per se, Switzerland is the global leader in world banking, asset protection, insurance, annuities and investments. And all this is available within a shield of financial privacy (and, yes, banking secrecy) guaranteed by law. Swiss bankers can go to jail for violating a client’s privacy. The Swiss think your business is nobody else’s – a refreshing difference from nosey U.S. officials who have the power to freeze your assets without notice. Switzerland offers a lot more than watches, chocolate and fondue. It is the place where your cash and assets can find a second home.Link here.
TRACK YOUR ID THIEVES
Don’t worry about losing your credit card number, bank account or entire identity to some pimply little geek hunched in front of a computer in Minsk. Beat the problem with the technology that created it. Here is how to get started: Practice on your kids. 17 years ago I surrendered part of my identity to an innocent infant. Time passed, and she came into possession of me-too versions of my credit and ATM cards. This same individual, who used to chatter to me quite freely about almost everything, is now overseas. And she has grown very cagey about all things “personal”, which is to say, everything. She now has, in short, much in common with the guy in Minsk.
But money talks. With my financial software (Quicken) wired to my bank and credit card accounts, I can track this identity thief, in almost real time, as she traverses the coffee shops and train stations of Europe. I have stolen back my own identity. Yes, I know, it was mine all along – I have mounds of paper statements stuffed away somewhere to prove it. But near-instant access changes everything. And soon it will be truly instant. With two spendthrift boys following a few years behind their (comparatively) frugal sister, I am going to need a ticker scrolling family financial news in real time across the bottom of my screen. The bright side is that no one beyond those three is going to steal my credit card and get away with it for long. The fraud protection software in my bank’s infuriatingly stupid computer calls me every few weeks because it apparently finds my family’s shopping habits too weird to swallow. With a private financial wire, my own eyes and software do the same job much faster – and do it right.
What I still need is an equally transparent window on my account at the IRS. My Social Security number is surely the least secure – and most important – id number I own. I hand it out willy-nilly, because I have to. It is a key starting point in most identity frauds. And it could so easily be used to defeat them. Financial institutions link every individual interest-bearing account to a Social Security number and report the income earned to the IRS. Give me real-time access to just one innocuous piece of information – the exact number of financial accounts tied to my Social Security number – and I can take care of the rest. If the count ever changes when it should not, I will find a way to get people in authority to track the unauthorized change back to its source.
I face similar problems with other government-issue IDs, like my driver’s license. The identity thief knows that many government agencies are pretty casual about sticking a first set of unverified identification numbers into a computer to spawn a second set that makes a false identity that much more credible. I could take steps to protect myself if I got quick notice whenever any of my numbers – my Social Security number, for example – was fed into these second-tier ID factories. But I do not get any notice at all.Link here.
STUDENTS AT TOP NEW YORK CITY SCHOOLS SUING RUMSFELD FOR VIOLATING PRIVACY
Six students at top city high schools are suing Defense Secretary Rumsfeld and the Department of Defense for violating their right to privacy. The New York Civil Liberties Union filed a lawsuit in federal court on behalf of the students, charging that the department is violating federal law by maintaining an unauthorized database of personal information on millions of high school students across the country for the purpose of military recruiting.Link here (full article available to subscribers only).
WISCONSIN BILL WOULD PROHIBIT MANDATORY MICROCHIP IMPLANTS
Former Governor Tommy Thompson was one of the first high-profile supporters of tiny microchips implanted in peopleqrs arms that would allow doctors to access medical information. Now the state he used to lead is poised to become the first to ban governments and private businesses from forcing such implants on employees, privacy advocates say. A proposal moving through the state Legislature would prohibit anyone from requiring people to have the tiny chips embedded in them or doing so without their knowledge. Violators would face fines of up to $10,000. The plan authored by Rep. Marlin Schneider, D-Wisconsin Rapids, won approval in the Assembly last month. The state Senate is scheduled to consider the measure, which would allow for the implants if the person gives consent. Gov. Jim Doyle would sign the bill, a spokesman said.
Schneider aides say the legislator wants the law in place before companies and governments could use them to keep track of their employees. “I don’t think most people had thought about this as an issue, but it’s scary. It’s reality now,” said Michael Schoenfield, an aide to Schneider. “Companies can or will be ordering their employees to have chips implanted. We want to stop that before it begins.” VeriChip Corp. of Delray Beach, Florida, is the only company with federal approval to implant such chips in people. The company so far has implanted 2,500 people worldwide with chips the size of a grain of rice under the skin of their upper arms, said spokesman John O. Procter.
Thompson endorsed this application last year as a way to give hospitals easy access to patients’ medical records when he joined VeriChip’s board of directors and vowed to “get chipped” himself. Procter said that Thompson has not undergone the procedure, which he likened to getting a shot, but plans to do so once more hospitals adopt the technology. VeriChip is also marketing the implants as a way for companies or governments to limit access to high-security areas. In February, a Cincinnati surveillance equipment company became the first U.S. business to use this application when a handful of employees voluntarily got implants to allow them to enter secure rooms. Some employees in the Mexico attorney general’s office have also been implanted with chips, whose signals are recognized by readers in doorways.
Procter said VeriChip supports the spirit of Schneider’s bill and would not work with companies forcing employees to get implants. However, he said the implants are superior to employee badges or key chains as a way to limit access. Privacy advocates say they are unaware of any companies forcing implants but are worried the technology is taking off with little debate about potential abuses. Wisconsin would be the first state to ban mandatory implants, said Katherine Albrecht, a New Hampshire privacy advocate and co-author of Spychips: How Major Corporations and Government Plan to Track Your Every Move with RFID.Link here.
SWISS “SUPER-REGULATOR” TAKES SHAPE
The Swiss parliament is currently considering plans to create a super-regulator, to be known as the Federal Financial Market Supervisory Authority (Finma), which will combine the existing Federal Banking Commission, the Federal Office of Private Insurance and the Money Laundering Control Authority. Transparency International recently said that there were shortcomings in the country’s money laundering laws, pointing out that the number of money laundering cases reported to the Money Laundering Control Authority was low compared with other major financial centers. The government hopes that Finma will help improve Switzerland’s image as a financial center. The new body will be independent in both its operations and finances, although it will answer to the government and be itself closely supervised.
Although the MLCA has carried out a number of investigations and has imposed fines in some cases, it has not once applied the ultimate sanction of removing a licence. The Swiss courts are often reluctant to agree to international requests for information. In January 2006, Switzerland’s highest court rejected a request for judicial assistance from the Russian authorities, relating to the handover of documents in the ongoing investigation into the embattled oil company Yukos. The Federal Tribunal partially upheld an appeal by several companies seeking to block the passing of documents to Russia detailing bank account information and financial dealings between Yukos and a number of Swiss firms. In doing so, the judges rejected the decision made by the Swiss federal attorney last July to hand over 80 files, out of the 1,300 it has in its possession, to the Russian authorities.Link here.
CANADIAN DIAMOND INDUSTRY ANTI-MONEY LAUNDERING RULES IN THE MAKING
One of the world’s larger diamond producers, Canada, may soon announce anti-money laundering and anti-terrorism financing diamond and jewelry industry rules that may well be more demanding than that of its southern neighbors. The Canadian government seems to hold rather exaggerated fears about the money laundering and terrorist financing risks associated with its diamond production. In a preamble to a rule-making consultation paper, the government states, “Police investigations indicate that organized crime groups are taking a growing interest in Canada’s expanding diamond industry. Unless preventative measures are taken, law enforcement authorities predict that the incidence of money laundering and terrorist activity financing in the sector will significantly increase in the future with the domestic expansion of the precious metals and jewelry industries.”
With reference to the appropriate FATF recommendations, the Canadian government proposes to subject to the Proceeds of Crime (Money Laundering) and Terrorist Financing Act (PCMLTFA) persons or entities in the business of selling or purchasing gold, diamonds and other precious stones, including jewelry. Similar to the rule-making process that was followed in the United States, the Canadian government sought views from the industry on specific elements of the proposal. By the time this deadline expired, only one industry player had clearly enunciated its thoughts – BHP Billiton Diamonds. BHP formulated a detailed position, that “encourages the adoption of provisions that are clearly aligned with those already implemented by Belgium, for both uniformity of coverage and implementation within the industry. However, having had more than 18 months of operating experience with the Belgian legislation, we believe that certain improvements can be made …”
BHP noted that in virtually every country in the world, the filing of a suspicious activity report is done (and kept) in greatest secrecy. In Belgium, government has taken action against certain diamond firms based on suspicious activity reports, without allowing the suspect party much room for defending its reputation or pleading its case. “[W]e believe that – save and except in the case where national security is at immediate and direct risk – an expedited appeal process should be established for access by those whose conduct or reputation may have been wrongly impugned by a report that was filed more as a defensive reaction to the legislation (out of fear of being prosecuted ‘after the fact’) or as a vendetta for past wrongs than because of a bona fide belief that the proposed transaction involved ‘suspicious’ circumstances.”
BHP VP Graham Nichols wryly implied that he believes the government overstated the “dangers” posed by the industry, when he remarks that “subject to further explanation by the Federal Government as to how the sale or trade in rough or polished diamonds has been used as a mechanism to facilitate money laundering (the financing of terrorist activities having being documented), we believe that all segments of the diamond industry engaged in sale and purchase transactions should be included in the PCMLTFA, from the sale of rough by producers and traders, through the cutting and polishing (manufacturing) processes, to the retail sale of loose stones and jewelry to the consuming public.” Other elements of BHP’s proposal included placing a monetary minimum on mandatory compliance with the PCMLTFA.
A fascinating feature of the company’s proposal is the suggestion that because compliance with the legislation will be new to most dealers impacted by the anti-money laundering legislation (and publication of companies’ failure to comply is proposed in the Canadian proposals), initial reporting may be unduly prolific until guidelines are established and the industry develops a greater familiarity with the legislation. This could lead to “precautionary reporting”, which ultimately could prove to contain unfounded suspicions. At present, the legislation prohibits any disclosure to others by the author of a report and provides for no right of appeal by the reported party. This raises the specter of ruined reputations and damaged business interests without the impugned party having either knowledge or recourse as regards the report, made worse by the proposed disclosure to other local government departments and international law enforcement agencies and “foreign partners”.Link here.
BRITISH COLUMBIA LAW ALLOWING SEIZURE OF PROCEEDS OF CRIME COMES INTO EFFECT
The Civil Forfeiture Act was introduced will allow the Province to apply to the Supreme Court of B.C. to seize and sell assets acquired through crime. If a civil court judge orders forfeiture, the assets – such as houses, cars, boats or other property – can then be sold, with the money going into a special account that will help compensate victims of the crime that resulted in a forfeiture, providing grants to fund crime-prevention activities, remedy the effects of unlawful activities, and cover costs related to the administration of the act.Link here.
A DEMOCRATIC DICTATORSHIP
Given all the discussion and debate about whether President Bush will order his military forces to attack Iran, now would be a good time to review the state of liberty in America. No one can deny that we now live in a country in which the ruler has the omnipotent power to send the entire nation into war on his own initiative. To use the president’s words, when it comes to declaring and waging war against another country, he is the “decider”. It was not always that way. The Constitution brought into existence a government in which the powers to declare war and wage war were vested in two separate branches of the government. While the president had the power to wage war, he was prohibited from exercising it without a declaration of war from Congress. The idea behind the Constitution itself was that a free society necessarily entails restrictions on the power of the government, especially its ruler.
Yet we now live in a nation in which the president has the omnipotent power to ignore all constitutional restraints on his power. That might not be the way the president and his legal advisors put it, but that is the practical effect of what they are saying to justify his powers. They effectively claim that the Constitution vests the president – as military commander in chief during the “war on terrorism” – with such extraordinary powers that he is able to ignore restraints on his powers imposed both by the Constitution and by Congress.
No restraints on declaring and waging war against other nations. No restraints on the power to secretly record telephone conversations of the American people. No restraints on the power to kidnap and send people into overseas concentration camps for the purpose of torture and even execution. No restraints on the power to take Americans into custody as “enemy combatants” and punish them – even torture and execute them – without due process of law and jury trials. If all that is not dictatorship, what is?
“But President Bush is a good man. He is trying to protect us. He is waging war against the terrorists. He is not evil like other dictators in history. He was elected. He can be trusted.” People who say that are missing the point. The suggestion is not that Bush is an evil man. The point is simply that Bush now wields the same omnipotent, dictatorial powers that other dictators in history have wielded. Unless the American people figure out a way to reverse what has happened to their country – and have the will to do something about it – they will earn the mark of shame reserved for those people in history who voluntarily relinquished their freedom in exchange for the aura of security. Like all others in history who have chosen such a course, they will ultimately learn that they have lost both their freedom and their security.Link here.
Many years ago I rented a small farm at the edge of a rural community. I did this so that my wife would have space for her horses, and so that I had a quiet place to study and write on my four days off every week. The farm had three acres planted in mature walnuts, and two pastures of three acres each. The place came with an old diesel tractor fitted with a disc harrow, and part of the rental agreement included using the tractor to maintain fire lanes and to generally control weeds. I did not intend to earn money on the place, although I sold a ton of walnuts every year. I did not buy the place, as it was not for sale. It only served to prove a point, namely that marginal farm land can be restored easily and cheaply with the application of informed stewardship. I would like to pass on this information to younger people who are searching for a way to hedge their bets on the future, people who are most likely urban-born and educated in high-tech professions.
For anybody who is interested, I can suggest specifics to be investigated. What one is looking for is ten to 20 acres of “worn out” flatland that is zoned farming and that is not deed restricted to million dollar estates, preferably outside any city limits. I would look for something that has been destroyed by a “horse ranch” that also comes with a decayed mobile home, a well, and a septic system. From such a wreck a young, healthy person can build a paradise. Since I became sensitive to the idea I have seen eligible properties in many areas of the U.S., including the southeast, middle-west, and northwest. What I see is land gone to weeds, and an old doublewide mobile home surrounded by junk cars and household garbage. Nobody wants to buy a mess like that! Right? One 5-acre parcel I saw went on the market at $35k, and sold for $13k. The buyers cleaned it up in a week, and then rebuilt the mobile home from the inside where nobody could see it – no permits, no inspectors, no interference. A buyer will never get a commercial mortgage on such distressed property, so the seller has to provide it, if they truly want to sell. Just be sure the water is running before you sign.
Can a small farm pay for itself? Yes. Here a person has to do their homework. Search for high-priced crops, like items sold in heath-food stores, holistic medicine, and gourmet foods. Even 10 acres in wine grapes will pay the mortgage. Hedgerows densely planted in fast growing trees can provide adequate firewood year after year with careful management. Please note that I am talking about a comfortable place to live in the country and a quiet restoration project with a fall-back business plan in mind. While I fully agree that gold is the best hedge against inflation, I think that fertile land is the ultimate hedge against social meltdown.
Look around. Rent a place. Try it out.Link here.
I would like to thank those readers who wrote to me asking for more information about small-scale restoration farming. My advice is usually the same. Look for level land in a poverty stricken county that has been trashed and overgrazed, has utilities in place, has ground water, rainfall, and moderate weather. Such property can be cleaned up and the fertility restored with little expense or labor, although that will take time. For a high-tech urban dweller, that means the place is only useful as a private vacation spot.
I saw a perfect place on the western slope of the Olympic Mountains recently. 10 acres in a flat spot on a valley floor beside a year-round creek, covered in weeds from overgrazing, a trashed doublewide, junk and garbage scattered around, the kind of place a spouse might condemn on sight. What I saw was restorable land with utilities in place in an excellent spot for a vineyard. I would pick up the trash, give the mobile home away, remove the cross fencing, hire a guy or rent a tractor to disc it down, sow in clover, and forget it for a season. With nothing to steal showing, I would use it as my personal campground (I live in an old motor home) once or twice a year, bring up the fertility, and get up to speed on viniculture. A person could plant 10 acres in commercially valuable timber and more or less forget about it for 20 years. Or a person could divide the space into woodlot, garden, and orchard, which means a bit more on-site work. Or a person could add a greenhouse and raise something exotic for sale. More work, and now somebody has to live there, maybe a four-hour drive from the money-tree. But what about livestock?
We drive along and see cattle lolling around a pasture, and maybe we think that is a way to go. Raise your own meat! Sorry to disappoint anybody, but that is not the way to go on a small property. Animals are high-risk and high-maintenance, whether we are talking about cattle, horses, sheep, goats, or pigs. Livestock absolutely requires on-site management 24/7, lots of food and water, shelter, and a good veterinarian. Oh, and good insurance too, since the owner is liable for escaped animal damage, including car wrecks. Livestock also destroys the land, defeating the purpose. I would consider free-roaming chickens in a garden for bug control, and honey bees for pollination.
What purpose? One idea is that if the supermarket is running out of everything, then retreat to the farm. This presupposes some careful planning. If nothing awful happens, then the land is still there, getting better, awaiting whatever use money will buy in the future. Fertile land is like gold. It is there if you need it, and it is there if you don’t.Link here.
I grew up in Massachusetts in the 1950s. April 19th was celebrated each year as Patriots Day. The holiday commemorates the ride of Paul Revere, and the battles of Lexington and Concord in the colony which birthed the American Revolution. The holiday is a big one throughout New England. Banks are closed, parades are held, and if the snow is less than knee-high, we break out the short sleeves and barbecue gear and get a head-start on summer. The Boston Marathon is run on the third Monday each year, on or close to Patriots Day. I once lived right on the Boston Marathon route, a few miles from the start line, and we would watch the racers fly by in huge packs. A few of the runners once wore redcoats and carried muskets, in keeping with the tenor of the holiday then, but likely a felony today.
Growing up in New England in the 1950s, there seemed to be no great public concern about guns. At a fairly tender age, I was responsible enough to be entrusted with a BB gun, which I used to protect the household from marauding tin cans, birds in the cornfield, and squirrels robbing the bird feeders. A few years later, I enrolled in a neighboring town’s NRA Youth program, shooting .22 rifles in the basement of the armory. A young boy with an air rifle or .22 drew little interest from passersby on the country roads along which I would walk on the way to the range, or to an abandoned quarry where I often practiced. Even the local police would wave and drive on by.
And the area was awash in history. Concord was two towns removed, a summer bicycle ride away, and Lexington a school field trip several times taken. I would visit the Minuteman Statue at the North Bridge posed with his plow, musket and colonial hat. Old homes along Battle Green with glass-encased bullet holes in their outer walls, claimed to be from the guns on that fateful day, the recreations held in full regalia, with the thunder and smoke of war as it was. On to Bunker (actually Breed’s) Hill, Charlestown, Dorchester Heights. All these were accessible to this young boy, and I reveled in it. It is little wonder that I grew up believing in that vision of America. I had been born in it and steeped in it. Our forefathers had believed so strongly in the principles of liberty and self-determination, that they were willing to stand up and shoot back at the mightiest army on earth. What puzzles me sorely, is how so many of my native-staters have forgotten, sold, and abandoned that vision.
Interestingly enough, I have come to live in Hawaii, where the Second Amendment to the United States Constitution, written verbatim into the Hawaii State Constitution, is as poorly observed as it is in my native Massachusetts. After nearly 40 years removal from my home state, it has been quite some time since I had thought of Patriots Day, truth be told. It is not an official holiday of any kind here. The daily routine of life and business tunes out many of the old pleasures and memories.
Then I found myself at the Hawaii County Police Department the 19th of April, 2006, filling out the firearms permit application, to renew my long gun permit. In effect, to ask for permission to be able to purchase firearms – only long guns, and only after a two-week wait for the permit to return, and only during the 12-month period for which the permit is valid. Pistol permits are even more restricted.
I wait in line, in an anteroom between the Police Chief's office and the Records & Firearms Section, along with a half-dozen others, each for our turn to solicit the government for their permission to exercise our most basic of rights. Several men and women with their rifles or pistols, cased and unloaded, wait for the opportunity to have its serial number recorded and all the pertinent details archived. One at a time, we pass through the magnetically locked doors, to fill out forms, get fingerprinted and surrender more personal information than required of a judge candidate or a convicted child molester. Finally, it is my turn. I dutifully fill out all the blanks in the form, certify that I am legally competent and mentally sound enough for them to grant me their permission to exercise my withered right. I sign the form at the bottom line, then finally the line asking for the date. As I fill it in, 19 April, 2006, both the significance of the date, and the irony of where I am and what I am doing hit me.
I ask they clerk who handles the bulk of the firearms duties at HPD’s Hilo Station if she recognizes the date. She does not, so I tell her about it being the anniversary of the first shots fired in the American Revolutionary War, that it was a state-recognized holiday throughout the northeast. She replies that another state holiday would be a great idea. Then I recount that it was the date of Paul Revere’s midnight ride, and the battles of Lexington and Concord, where the American colonists had shot back at their rulers in response to the Redcoat’s attempt to seize the guns and ammo stores of the colonial militia.
She nods with the interest given any unsolicited bit of trivia, and without skipping a beat, asks me to stand in front of the neutral backdrop so that she can take my picture with her digital camera. Perhaps some of the other ladies in the office who heard the conversation took note, recorded my name and will be passing that along with the details of my exposition to whichever agency is in charge of conspiracies and gun nuts. So here I sit, an American patriot by original definition, in one of these United States, wondering somewhat uneasily that my observation of one of the most American of holidays has gotten me noticed in the wrong way. We will see in a couple of weeks, when my permit is due back.
Happy Patriots Day, America.Link here.
HOPE: FROM RUSSIA WITH LOVE
The greatest reason to be optimistic about the future of liberty is the growing awareness of the lack of credibility the state has. The full faith and credit of the United State are inextricably intertwined. When the credit (ability to borrow) of the United State Government is gone then the faith in the USG will also be gone. Many believe that the ability to forcefully take money from (tax) the wealthiest citizens in the world is akin to a blank check to spend unlimited amounts of money. The apparatchiks pulling the levers behind the curtains of the Soviet-style central planning behemoth in Washington, D.C. become more and more detached from both reality and the American People every day. The peaceful break-up of the U.S.S.R. gives me hope in more ways than one.
The biggest obstacle to the majority of the population recognizing what is obvious to those who have been deprogrammed is the perception instilled by Big Media and government schools that the people who live within a defined territory are synonymous with the state that rules them. You know “We the People” and “…government of the people, by the people and for the people” lore is ingrained into the national psyche. Children are indoctrinated every morning, first thing, with a Pledge of Allegiance to the most popular symbol of the state. Many people getting goose-bumps and tears welling up at the sight of this symbol is evidence of the power that this indoctrination process has had. And some people think that the government schools have not been successful!
People who do not have a clue who Murray Rothbard, Herbert Spencer, Albert Jay Nock and Gustave de Molinari are know who the Wachowski Brothers and Charlie Sheen are. People who have never read a book in their life will watch “V for Vendetta” and “Showbiz Tonight”. It is a sad fact of life that “The Simpsons” and “South Park” have more influence than Strike The Root or the Ludwig von Mises Institute. But this sad fact is coming back around to bite the state on the butt. Most kids today instinctively know that the state has no credibility. It is the Baby Boomers who challenged The Establishment, The Man, when they were younger who have sold out their principles for a few pieces of silver. When our children start standing up to The Man to end this War on Everybody and to end the taxes confiscated from them to support too many old people, will the Baby Boomer generation cut their legs out or join them to do what is right?
The War on Drugs, Terrorism, Poverty, and every other moronic, liberty-destroying “policy” began by the United State has not only been woefully unsuccessful, expansive and expensive, it has made every “problem” worse. Propaganda can only keep people in the dark for so long. Many are struggling with vested economic interests, emotional attachments to traditional institutions and the fear of change. It appears to me that the changes coming cannot be stopped. The United State, like all hubristic states before it, will go bankrupt and collapse. Alas, fear not.
When the mountain of debt that both the American people and the United State Imperial Federal Government have created comes crashing down on our heads I have no doubt that life will become significantly more troublesome for nearly everybody. However, it will be an opportunity to recognize that the state is the problem and not the solution to the problems of individuals, families and communities. Americans past have faced greater trials and tribulations only to survive and then prosper. Unfortunately, the collapse will also be an opportunity for a demagogue to set up a totalitarian nightmare: a man promising the sheeple that if he is made Super-President, he will use a monopoly on the use of force to make everything better. We will see if America is still the land of the free and the home of the brave or the land of the slaves and the home of the cowards. I am optimistic that we are still the former, or I would be packing.Link here.
STATIST REASONING: I AM TRUSTWORTHY, BUT “EVERYBODY ELSE” IS NOT
Most of us have tried discussing issues considered somewhat radical with a number of average Joes. Such an endeavor usually ends with frustration and a total failure of communication. The statist retreats from reason and logic to feeling when his views are challenged. It seems impossible to break through to these people. But I claim people are in general libertarians and most of them are in effect radicals. It is just that they do not reason any more than they absolutely need to, and they suffer from a strange form of self-centrism. In these collectivist times, with income redistribution through taxation and popular support for a force-based common system for equal “welfare,” people tend to be very egotistical – at least in one sense. They see themselves as the rational model of man.
The problem is, most of them totally distrust everybody else. Thinking “rationally”, they choose a society with a large amount of force limiting the damages caused by the average Joe before a free society. Why? Because the average Joe (that is, everybody else) cannot be trusted. Everybody else is power-hungry, trouble-seeking, violent, dishonest, and potential murderers. Perhaps the best example of this is the drug issue, since State prohibition of substances that make you feel good is such an infected issue – you simply cannot allow it. There is no good reason to continue the “War on Drugs”. It costs billions every year and it only makes things worse (crime, disease, deaths, and so on). All good arguments are really for “legalizing”, but no one seems to be able to use enough a quantity of reason to see the clear logic for non-prohibition.
Even reasonably rational people seem unable to see the legalizers’ arguments. A common first response to legalization is “You want people to do drugs?” So you simply ask the person if he would do drugs and become a drug addict as soon as the State ends prohibition. The automatic response is “Not me – but everybody else!” Right. “Everybody else” would start doing drugs and quickly degenerate into tough criminals engaging in shoot-outs, rape, and murder. From this perspective, it is rational to advocate prohibition – it seems to be in your own personal interest.
Of course people are not much different. They are not irrational, aggressive, and violent. Rather, they are all very much the same – and they all believe “everybody else” would do something horrible if there is no one forcing them in the right direction. What we have here is actually a majority of the population being wannabe libertarians, and that is quite uplifting and promising. But they all advocate the State rather than freedom, because it “is not possible” that statelessness would ever work, as “everybody else” would turn into live monsters. The same reasoning goes with any issue of the State.
This logic is applicable on all statists, be they welfarists, fascists, or minarchists. They all suffer from a “Messiah complex” causing them to advocate force and coercion for the sake of maximizing their freedom. They simply know better, and “everybody else” does not understand. At all. It is kind of a Prisoners’ Dilemma in logic caused by State propaganda. The State makes sure to communicate this illusion of how “everybody else” really is, and this enormous supply of disinformation has made people unable to see they are the same and reason the same way.
The logic and reasoning of statists is perfectly right, considering the information they have at hand – disinformation, that is. If they did not believe the lie of “everybody else” being inhuman, they would probably be some kind of libertarians. The conclusion is that statists for some reason cannot allow themselves to trust other people. They are stuck in a Hobbesian world view where life would be “nasty, brutish, and short” – because “everybody else” would make it so. This is an obviously faulty identification of man and society. What they need is to open their eyes.Link here.
THE PEACE OF OBJECTIVISM
I have had occasion lately to look in on my old friends the Objectivists. I call them my friends because I grew up intellectually among them. I consider Ayn Rand the most important intellectual influence on my life, the influence who made all others possible and defined the limits in which they could function. As both a Catholic and an anarchist, however, I find that my Objectivist friends do not think much of the influences to which I have opened myself since those earlier days. Well, I cannot say I think much of the turns they have taken, either. I have been looking at their Websites – both the “official” one (the Ayn Rand Institute, the one that holds all the copyrights), and the most important of the “unofficial” ones (the Objectivist Center, the one that gets along with other libertarians). I find that they are both just too friendly with tyrants. I would like to imagine Ayn Rand turning over in her grave, but I fear that is wishful thinking.
There are all sorts of minor objections one can make to the Objectivists’ cozy attachment to the United State, from an article stating that concern with a national I.D. program was “trivial” to an explicit claim that the president was right to declare war on Afghanistan – even though he has no such authority, as limited-government constitutionalists should know. Those are all side issues. The main issue is rather that these old friends of mine just blank out when it comes to thinking about the United State. They are self-blinded to its nature. They think of it as “we”, that pronoun one finds all over their Websites when they talk about the so-called War on Terrorism. They identify with their government. They give it their moral sanction, and they are loyal to it.
Here is what Ayn Rand said, in answer to a question at a Ford Hall appearance about those who live under a tyranny: “If by neglect, ignorance, or helplessness, they couldn’t overturn their bad government and choose a better one, then they have to pay the price for the sins of their government – as all of us are paying for the sins of ours.” Essentially, if those who live under wicked government will not or cannot overturn their governments, then they deserve whatever they get. Not much room for “we” thinking there. What are Objectivists doing today to overturn their government? Well, they are doing a lot of writing about epistemology and about the virtue of selfishness, and by no means are those projects to be despised. But surely it is clear that if you support a government when it goes to war, you cannot be said to be working to overturn it. You cannot really serve God and mammon, and you cannot really rush to the defense of a “bad government” and pretend to be working to overturn it.
Moreover, let us just think about U.S. history for a moment. Rand condemned the Kennedy administration’s “New Frontier” as fascist. Some thought she had gone too far with that characterization. I do not. I think she was right on target. I only wish that her successors would show as much clarity. It has been nearly 40 years since the Kennedy administration came to an abrupt end. Has any administration since then been more devoted to liberty? Has the U.S. government gotten even the tiniest better by Objectivist standards? Or has it become even more tyrannical with each passing administration? Should Objectivists’ objections to the U.S. government not be louder than Rand’s were? Should their criticisms not be harsher? ar or no war? Isn’t Objectivism an enemy of fascism? Do they not know that in waging war against “terrorism”, the U.S. government is going to become even stronger than it is now? That it will move ineluctably closer to the totalitarianism Rand depicted in Atlas Shrugged?
The simple fact is that Objectivists and Randians have always been just a little in love with the United State, always willing to make excuses for it. One can perhaps give a naturalized immigrant, a refugee from communism, a pass here. But what about these others who owe this government nothing, who have taken no loyalty oaths? They can bluster all they want about the evil of compromise. But the U.S. government commits crimes and initiates violence and threatens to do so every single day against every one of them and against every other American. Period. It is no friend of liberty. It is no friend of reason. Nevertheless, the Objectivists have made their peace with it. They have made their peace with fascism.
Ayn Rand was right. There can be no compromise with evil. None whatever. And as Roy Childs wrote in an essay now forgotten, “The only logical attitude that any Objectivist should take toward the present government and constitution is one of uncompromising hostility. And since one does not sanction evil in any capacity, that means that every Objectivist should withdraw his sanction from the political establishment immediately and in every possible way.” The U.S. government can fight the terrorists perfectly well without the Objectivists’ rallying around its flag. It does not need them. The cause of justice does. So what is it going to be? Friendship with the cause of justice or with fascism? It looks, I am afraid, as if they have made their choice.Link here.
IT ALL STARTS WITH PROPERTY
I vaguely remember as a teenager being certain of just about everything. Now, six decades later, I am not absolutely certain of much, with one exception: The world’s conflicts, great and small, are conflicts over property. Whether it is a conflict between governments, as is the current case with Israel and the Palestinians, between sects – as in the case in Iraq between Shiites and Sunnis, or between plaintiffs and defendants in court, the battle is always over property.
Based on these definitions, and the premise that interfering with property rights is the source of conflict, what road will lead to a peaceful, more prosperous world? Should each individual’s life and the things he produces belong to him, or to others who might need it more? Human nature itself holds the answer. Professor Edward O. Wilson, in his path-breaking book, Sociobiology: The New Synthesis, and three years later his Pulitzer-Prize-winning On Human Nature, argued that our social behavior is rooted in our genes. It evolved through natural selection. Evidence is overwhelming that all animals, including human beings, are endowed with internal programs that urge us to mark the boundaries of our chosen habitats, defend against intrusions, and battle for food, lairs and mates. In humans, this instinct pushes us to acquire property and to defend it against threats, theft, and trespassing. We “mark” our land with deeds, our bank accounts with name and number, and our mates with rings and contracts. We are angered and enraged when faced with aggression against our property. Your body, your ideas, your home, your business, and your assets – everything you are or you create (with the exception of your children) – should be yours to control. Period. Nor am I justified in enslaving you to protect me if I am threatened.
Human nature insures that when one individual, or group, has power over the property, actions, and lives of another, that power will be used. As Lord Acton correctly stated, “Power tends to corrupt and absolute power corrupts absolutely”. Governments are the primary aggressors against individual property. The larger the government becomes, the more corrupt it becomes, the more property it confiscates, and therefore the more conflict it sows. When we arrange our affairs to minimize taxation, regulation and privacy intrusions, we are responding to our natural instinct for survival. To the extent we succeed, we deprive government of resources, and slow or reverse its growth. We also provide encouragement to others to follow our example. The less self-interested politicians and bureaucrats are endowed with the power to aggress against the lives and property of individuals, the higher the level of peace, productivity and human achievement will be.Link here.
THE ONGOING SOUTH AMERICANIZATION OF POLITICAL CULTURE NORTH OF THE BORDER
In the ongoing South Americanization of political culture north of the border – a drawn-out historical journey whose markers include fiscal recklessness, an accelerating wealth gap between the rich and the rest, corruption masked by populist rhetoric, a frank official embrace of the techniques of “dirty war”, and, by way of initiating the present era, a judicial autogolpe installing a dynastic presidente – what has been dubbed the Revolt of the Generals is one of the feebler effusions. But it is striking all the same. By last week, the junta had swelled to six members. All the generals have said devastating things about the job performance of the current Secretary of Defense, particularly with respect to the Iraq war. Their critiques vary – some of them see the war as a series of tactical blunders, others as a strategic disaster doomed from the start – but on one point the Pentagon Six are unanimous: Please. Bring us the head of Donald Rumsfeld.
This brass band of clarion calls for Rumsfeld’s resignation or dismissal has occasioned a certain amount of hand-wringing about alleged threats to the constitutional principle of civilian control of the military. But, as military coups go, this one is pretty weak tea by hemispheric standards. Instead of seizing the radio stations and the Presidential Palace, our disgruntled generals are content to overrun the op-ed pages, the bookstore signing tables, and the greenrooms of the cable-TV news talk shows. Also (and this is not a small point), the generals in question, however youthful and vigorous some of them may appear, are retired. No longer subordinate, they cannot be insubordinate. They are civilians. And they are every bit as entitled to express their views publicly, and to give their former civilian superiors a hard time in the process, as were Andrew Jackson in 1824, and Dwight Eisenhower in 1952 – not to mention the nine other ex-generals who became President, beginning with General George Washington (ret.), in 1789. There is nothing new about the bitching of pensioned-off generals. What is unusual – unprecedented, apparently – is for so many to speak out so strongly against a prominent architect of an ongoing war and to demand his removal.
The generals’ revolt of 2006 has resonated. One reason, no doubt, is that the experience of these particular generals suggests that they know what they are talking about. A second reason is their relative immunity to assaults of the kind that right-wing publicists and talk-radio hosts routinely launch at the patriotism and in, but a dense pack is not so easily Swift-boated. If the generals have struck a chord, a third reason, surely, is a widespread public hunger for some sort of accountability. The White House dimly understands this, hence last week’s highly touted “shake-up”. If Bush were serious about stanching the hemorrhage of public support for any kind of American role in Iraq, then Rumsfeld’s exit – a step that has been suggested not only by generals and Democrats but also by conservative hawks like George Will, Max Boot, David Brooks, and Bill Kristol – would be the obvious beginning. The President’s response has been an adamant refusal. “I’m the decider,” he said. “And I decide what is best. And what’s best is for Don Rumsfeld to remain as the Secretary of Defense.”
His reasons for this decision are obscure, a matter for speculation. Perhaps he is simply afraid to lose him, for reasons he understands no better than the rest of us. He is the decider, and there’s the rub.Link here.
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