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HOW TO BUY A PRIVATE ISLAND
If you are thinking “a private island … sure, maybe when I win the lottery,” do not despair. Buying a private island is a much more attainable goal than you probably realize. There is no denying that a few million bucks in the bank will expand your options considerably, but the days when islands were the exclusive status symbols of the rich and famous are long gone. Today, if you can afford a reasonably priced cottage, you can afford an island.
With private islands, as with all things, price is a function of demand. That tropical, palm tree-laden island with the white sandy beaches we all dream of is going to appeal to a lot more people than a similarly-sized island in North Dakota – and you will pay accordingly. Location is the most important factor in determining an island’s price. While islands in the Caribbean or South Pacific typically cost $1 million and up (exceptions exist, of course), islands in more northern climes can be had for a fraction of that price. Availability is another factor to consider. Private islands for sale in tropical locales are more rare, and consequently more expensive. Canada, with its million lakes and thousands of kilometres of coastline, has more islands than any other nation. This abundance of choice is reflected in island prices.
Another factor to consider when purchasing an island is the degree of development. Are you looking for an undeveloped island, left in its natural state, or are you looking for a property with existing facilities? If you are planning on building a home or cottage, bear in mind that construction costs on islands are significantly higher than on the mainland – budget at least 1.5 times the price you would normally expect to pay for construction. While untouched islands tend to be cheapest, you may end up saving both time and money by purchasing an island with an existing dwelling.
An excellent way to determine what type of property is best for you is to rent an island for a while. “Test drive” island ownership, and learn exactly what you are looking for – or want to avoid – in an eventual island purchase. Do you prefer something more isolated, or is an island in a well-trafficked locale more to your taste? Does roughing it Robinson Crusoe-style live up to your fantasies, or is it worth the added expense to find an island with a pre-built home or cottage? Once you have decided on the type of island you are interested in, the serious research begins. Spend as much time as possible investigating what islands are available on the market. The following step by step guide has been compiled to help you on your way to making a successful private island purchase.Link here.
EUROPEANS DISCOVER NORTHEAST BRAZIL FOR RETIREMENT AND REAL ESTATE INVESTMENT
The Northeast of Brazil found its avocation: To be the tropical paradise where Europeans spend and invest their euros. Portuguese, Spaniards, French, Italians, Germans and Scandinavian are invading the region to do business, spend holidays or enjoy their retirement in a place with pleasant climate and at prices much more affordable than those in Europe. This movement has two consequences. The first one is the increase in residential tourism. A few thousand foreigners are buying apartments and houses there for holidays or even to live for good. The other consequence of the invasion is the explosion of investments by European companies in the hotel, touristic and real estate sectors of the Northeast. In the next five years, the European investments in new hotels, resorts and condos should exceed R$4 billion (about US$1.8 billion), the equivalent to 8% of all foreigner investments that the entire Brazilian economy received last year.
Both groups of newcomers – investors and residents – are result of the same phenomen, namely the increase in the flux of European tourists in the region. Since the 1990s, the number of foreigner visitors in Bahia, Ceará and Rio Grande do Norte was multiplied by four. This increase draw the attention of corporations and hotel groups in Europe, which decided to build the infrastructure necessary to serve their country fellows in Brazilian territory. In Northeast, the tourists of today are the immigrants of tomorrow. Tourism is a natural avocation not only of the Northeast, but of entire Brazil. The country has varied sceneries, 2000 beaches and pleasant climate. But it receives fewer visitors per year than the Louvre Museum, in Paris, or the minuscule Cingapure, in Asia. If the Northeast is at last realizing its potential, it is because over the last 10 years infrastructure problems started to be solved, permiting the investment in condos and resorts in beaches located far away from capitals. Also, efforts were made towards the formation of qualified work force.
By European standards, prices of hotels in Brazil are low. “An European who spends holidays in the Northeast spends less than he would in Mallorca, Spain, or Algarve, Portugal,” says Marilia Cecilia Bodas, director of Lugares no Brasil, a real estate agency with office in Lisboa which works with Europeans. The value of the money is a strong argument when an European decides to buy a holiday house or start a life in Brazil, usually opening a small hotel or restaurant. The new group of tourists include families, just-married and elderly. If you plan to immigrate to Brazil you may wish to contact us for consultation where we are able to provide with professional advice on your chances and opportunities.Link here.
A TALE OF TWO ASIAS
The China-India comparison is central to the Asia debate. It is also of great importance to the rest of the world. In the end, it may not be either/or. While China has outperformed India by a wide margin over the past 15 years, there are no guarantees that past performance is indicative of what lies ahead. Each of these dynamic economies is now at a critical juncture in its development challenge – facing the choice of whether to stay the course or alter the strategy. The outcome of these choices has profound implications – not just for the 40% of the world’s population residing in China and India, but also for future of Asia and the broader global economy.
As recently as 1991, China and India stood at similar levels of economic development. Today, the Chinese standard of living is over twice that of India’s, with China’s GDP per capita hitting $1,700 in 2005 versus a little over $700 in India . The two nations have approached the development challenge in very different ways. For China, it has been a manufacturing-led growth strategy, whereas for India, it has been much more of a services-based development model. While each approach has its advantages and disadvantages, China’s outstanding performance in the development sweepstakes over the past 15 years makes it a very tempting model for the rest of Asia to emulate.
Benefiting from a high domestic saving rate, huge inflows of foreign direct investment (FDI), and major efforts on the infrastructure front, Chinese economic growth has been increasingly fueled by exports and fixed investment. Constrained by a lower saving rate, limited inflows of FDI, and a sorely neglected infrastructure, India has turned to a fragmented services sector as the sustenance of economic growth. The labor-intensive character of services has provided support to India’s newly emerging middle class – a key building block for India’s consumption-led recovery. As a result, private consumption currently accounts for 61% of Indian GDP – far outstripping the 40% share in China. Interestingly enough, as both of developing Asia’s largest economies look to the future, they do so with an eye toward emulating the other.
If India is to services as China is to manufacturing, what role does that leave for the high-cost developed world? Down the road, if India also succeeds in pushing into manufacturing while China makes successful forays into services, the same question becomes all the more threatening to the world’s major industrial economies. Both the speed and scope of an IT-enabled globalization has broken the mold of the classic theory of comparative advantage. In days of yore, it was fine – albeit painful – for rich countries to give up market share in tradable manufactured products. That is because highly-educated knowledge workers could seek refuge and shelter in nontradable services. However, with nontradables becoming tradable and with educational attainment and skillsets rising rapidly in the developing world, the security of the old way has all but vanished. That provides both the justification and the opening for protectionists.
China and India represent the future of Asia – and quite possibly the future for the global economy. Yet both economies now need to fine-tune their development strategies by expanding their economic power bases. If these mid-course corrections are well executed, China and India should play an increasingly powerful role in driving the global growth dynamic for years to come. With that role, however, comes equally important consequences. IT-enabled globalization has introduced an unexpected complication into the process – a time compression of economic development that has caught the rich industrial world by surprise. Out of that surprise comes a heightened sense of economic insecurity that has stoked an increasingly dangerous protectionist backlash. This could well pose yet another major challenge to China and India – learning how to live with the consequences of their successes.Link here.
Bank of China IPO draws huge demand.
Bank of China, the country’s second-biggest lender, raised $9.7 billion after pricing its initial public offering near the top of its indicated range. The offering was heavily oversubscribed as investors scramble to tap China’s surging economic growth. The state-run bank’s share sale tops the $9.2 billion raised last October by rival China Construction Bank to be the nation’s largest, and was the most heavily-subscribed Hong Kong IPO ever despite a recent selloff in emerging markets. “It’s pretty much a no-brainer in that most institutions see it as a stock they have to own, and the brand name drives a lot of the non-institutional demand, like corporate, wealth management, and retail,” UBS Managing Director David Chin told Reuters.
Bank of China, whose IPO is the world’s largest by a financial institution, will use proceeds from the deal to build its capital base and expand its business. China is taking its big lenders public as it scrambles to whip the long-ailing banking industry into shape before the sector opens further to foreign competition at the end of this year under Beijing’s World Trade Organization commitments. The deal values Beijing-based Bank of China at $92.4 billion, ranking it 10th among banks in the world. Investors crowded into the IPO to access China’s consumer lending boom as members of the fast-growing middle class buy cars and homes and carry credit cards for the first time. Investors also hope the country’s banking sector is managing to put the legacy of decades of state-directed lending behind it. The warm investor reception to Bank of China, despite choppy markets, paves the way for the IPO later this year of the country’s biggest lender, Industrial and Commercial Bank of China, which aims to raise roughly $12 billion.Link here.
China’s pollution battle might fan inflation.
Rich nations are not used to the dark side of globalization. For them, the phenomenon tends to reduce costs, boosting corporate profits, securities markets and living standards. Recently, wealthy economies have gotten a taste of globalization’s other side. High-paying jobs are migrating to cheaper locales, while demand from developing nations is driving up commodity prices. Nowadays, the Group of Seven nations have little control over global trends. Things may be about to get worse, and Chinese pollution could be a catalyst.
“China has kept the global cost of production artificially low by not paying for pollution and labor benefits,” said Andy Xie, Hong Kong-based chief economist at Morgan Stanley. “The political pressure within China is as such that the government is normalizing production costs, which could boost global inflation.” It is often thought that cheap labor is what draws executives to China. Yet, Xie argued, the mainland’s “lax environmental rules and their enforcement are not well understood and may have become more important than labor costs in attracting production relocation in the past three years.”
Since the early 2000s, multinational companies have contributed to China’s pollution to the detriment of its long-term outlook. Xie points out that China’s pollution is 12 times the world average per unit of GDP. Two-fifths of China’s seven major river basins are badly polluted, as are 90% of the rivers running through cities. Roughly 300 million rural Chinese do not have access to purified water. Chinese pollution is becoming a problem for neighboring economies, too. Foul air cost Hong Kong $300 million in medical bills and lost productivity last year, according to the University of Hong Kong. The city may soon be counting the cost of lost talent and investment.
China is waking up to the need to normalize pollution costs. If China’s factories followed the environmental standards of OECD countries, producing goods would be far more expensive. At the same time, China’s efforts to spread the benefits of 10% growth could result in higher wages nationally, increasing mainland export costs substantially. “Normalization of China’s production is a major source of cyclical inflation,” Xie said. “Part of the unsustainable disinflation globally between 2002 and 2005 has to be regurgitated.”Link here.
MONACO STEERS CLEAR OF ONCE-SHIFTY IMAGE
Casino gambling. A fairy tale palace. Yachts in the harbor. The Monaco Grand Prix, which returns here this week for the famed Formula One auto race through Monte Carlo’s streets and past its jet-set beaches. Of all of the images that the tiny principality on France’s Riviera coast evoke, there is one that its ruling monarch, Prince Albert II, son of Prince Rainier III and the American actress Grace Kelly, wants to erase. That is British writer Somerset Maugham’s description of Monaco as “a sunny place for shady people.” Or, more to the point, the image that Monaco’s penthouses offer refuge to scoundrels, and its confidential bank accounts provide a haven for laundered money. “I don’t want Monaco to be perceived that way,” says Albert, 48, who, when he took Monaco’s throne last July 12 after the death of Rainier in April 2005, declared that “money and virtue must go together.”
Since then, Monaco has cracked down on what Albert calls “people who have had doings with illicit activities” and has declared persona non grata anyone with a reputation that the prince does not care for. “We are not going to tolerate the presence of people or allow people who are passing through to establish residency here if their reputation precedes them,” Albert told USA Today. “I don’t think we were always careful in the past. Now, we are.” In addition, Monaco has worked to comply with EU banking regulations and to get itself off a list of allegedly “uncooperative tax havens,” posted by the OECD.
To enforce Albert’s wish that Monaco shed its shady image, his government has beefed up its intelligence operation to monitor people’s comings and goings and its accounting staff to scan the source of funds coming in to the principality. “We have access, with certain intelligence, to where people come from and what their activities are,” says Jean-Luc Allavena, director of Albert’s Cabinet in this constitutional monarchy. Allavena says that the principality responds quickly to every request from any nation about the source of money in Monaco bank accounts. In addition, he says, the 50 banks and 20 other financial firms here have been “sensitized” to the prince’s desires. Bankers know that “you cannot just close your eyes and get money when it arrives,” he says. “There are a lot of good reasons for people to come here. But we want people that are actively involved in life here. It’s important that they know what the rules are.”
The principality is a little more than half the size of New York’s Central Park. Monaco is attractive to the British because Monaco’s residents pay no tax on personal income, capital gains or inheritance on personal trusts unless they are French nationals. French citizens in Monaco, a protectorate of France, must pay income and wealth taxes, as do all French. About 6,000 British can be counted among Monaco’s 32,000 residents, compared with about 300 citizens of the USA, whose tax laws do not make residency there that advantageous.
Monaco keeps tabs on who comes in by having guests surrender their passports at hotels, which send the information to a central registry to be checked. It also keeps track of anyone who might abuse its residency requirements – six months and a day in the principality each year – by checking utility bills and even telephone records. There are other reasons Monaco is attractive to people who can afford the one-bedroom condos that can sell for an average of $1.3 million or three-bedroom condos that go for $2.9 million. The principality, which has one police officer for every 100 residents, is considered safe. Uniformed police officers are in evidence, as are security cameras. “For every policeman you see in uniform, there are two in plain clothes,” says pub owner Haly. All of this adds up to a desirable place to live, says real estate broker Pierre Mare, who like many business people here supports Albert’s efforts to clean up Monaco’s image. Mare also approves of Albert’s vision for this city-state for the 21st century.Link here.
ANDRE AGASSI LOSES UK HOUSE OF LORDS BATTLE ON TAXATION OF “OFFSHORE” EARNINGS
The UK’s highest court (the House of Lords) has ruled against tennis star Andre Agassi in a closely-watched case involving taxation of endorsement earnings by non-resident entertainers. The ruling, which is final, imposes tax on a portion of foreign endorsement earnings relating to performance of the endorsement contract in the UK, in Agassi’s case, for instance, at Wimbledon, even though the money does not touch the UK.
Agassi had challenged an assessment of $50,000 for the 1998-99 tax year in respect of a portion of the star’s Nike and Head endorsement earnings. Agassi had appeared at a number of tournaments in the UK. The Court of Appeal had previously ruled in Agassi’s favor because neither he nor the sponsors were UK-based. Had HMRC lost, it might have faced repayment claims totaling £500 million from numerous other entertainers and performers who have been taxed on similar deals since the current system began to operate in 1988. Section 555(2) of the 1988 Finance Act requires promoters and sponsors to deduct tax before paying stars for work in Britain. Lord Scott said, “Payments to foreign companies controlled by (the performers) are to be treated as payments to them.”Link here.
JUST BECAUSE CONGRESS EXTENDED LOWER TAX RATES, DO NOT STOP PADDLING. DANGERS LURK
Eric Solomon’s father got a letter from the IRS stating his 2004 tax return could not be processed because he had not computed his alternative minimum tax. “My dad said, ‘I’m 82. I don’t pay the AMT,’” Solomon recalled recently. No such octogenarian exemption, of course, but Solomon spent three hours on the phone with his dad working through the form. Who knows how long it would have taken if Solomon were not Treasury’s head of tax policy? An octo-exemption might make as much sense as some of the other stuff in the 5,000-page tax code. Since 2001 Congress has created or expanded hundreds of tax breaks – for students and for teachers, for domestic manufacturers and for those with profits overseas, for solar and wind power, and for oil, gas and coal. And on and on.
In May the potential for chaos grew ever larger. Bickering House and Senate Republicans finally agreed to a $69 billion tax-cut package for the fiscal year that had begun seven months before. At a cost of $51 billion the 15% maximum rate on long-term capital gains and qualified dividends was extended two years, through 2010. The Securities Industry Association lauded the provision for providing “investors and businesses more certainty.” Certainty? Not really. Folks caught in the AMT pay an effective federal gains rate as high as 22%. But the May deal, which extended a temporary AMT exemption for one year (to keep an additional 15 million taxpayers from being thrust onto AMT in 2006), left the AMT rules for 2007 unsettled. So a lot of investors do not know at what rate their gains will be taxed next year, which complicates decisions about whether to sell or hold.
The May package also failed to extend 20 tax breaks that expired last December 31. The biggest uncertainty is how all these breaks can possibly fit into the budget, particularly once the country gets hit with costs for the boomers’ retirements. Congress has made most of the breaks – including President Bush’s big, signature tax cuts – temporary. For example, the estate tax is phased out by 2010 and then springs back to life in 2011. Yet the May package created more new breaks, just to make life interesting for taxpayers. There will be further tinkering. Of that you can be certain.Link here.
Tax cut bill bad news for U.S. expats and their employers.
A little-known provision inserted at the last minute into the $70 billion tax reconciliation bill signed last week by President Bush will increase the burden of taxation on the many thousands of U.S. expatriate workers employed in foreign jurisdictions. While the package increased the amount that Americans working abroad can earn tax-free to $82,400 from $80,000, income above that level is now typically subject to higher effective tax rates.
Additionally, in something of a double-whammy, U.S. citizens will see the tax exemption on foreign housing expenses significantly reduced. Prior to the new law, Americans working abroad could deduct almost all of their housing expenses. However, the new rules cap the amount that can be deducted to $11,536. Although the Treasury has the flexibility to adjust the deduction cap for countries with high living costs, workers in jurisdictions such as Bermuda, Hong Kong and Saudi Arabia are expected to be substantially worse off. Employers, who normally absorb these tax costs through higher salaries, will also see their costs rise significantly and it may now be more cost effective for them to recruit workers from jurisdictions with more benign expat tax regimes.
The provision was added to the tax package late on in the negotiations by Senate Finance Committee chairman Charles Grassley, in order to help offset the costs of extending business and investment tax cuts. The Joint Committee on Taxation estimates that the provision, which is retroactive to the start of this year, will raise an estimated $2.1 billion in revenue for the U.S. Treasury over the next 10 years. A 2004 study be the IRS revealed that almost 300,000 individual income tax returns were filed by Americans working overseas in 2001.Link here.
WORLDWIDE TAX RATES CONTINUE TO DRIFT DOWN
Forbes’s annual look at taxes around the world reveals good news – rates generally continue to decrease. The Tax Misery & Reform Index offers a global view of the top marginal rates of taxation, the ones that typically affect a successful entrepreneur. The Misery score – a sum of six tax rates – is lower in 16 countries or regions this year, with France decreasing the most (although it remains in the top position). Only eight governments increased their tax burden, seven of them just slightly. Overall, China and the original EU 15 have the highest levels of Tax Misery – China because of its extraordinary social security and pension rates. The lowest levels generally are in the rest of Asia, the Middle East, Russia and the U.S. The chart is arranged so that countries at the bottom are the most tax-friendly to entrepreneurs and wage earners, while those at the top are the harshest. For the list of all 51 countries, click here.Link here.
SENATORS SLAM IRS ON FAILURE TO TRACK U.S. TAX PAYORS’ FOREIGN INCOME
U.S. Senators Charles Grassley (R-Iowa) and Max Baucus (D-Montana), Chairman and Ranking Member of the Senate Finance Committee, requested more information on IRS handling of foreign-source income information documents received from foreign countries. American taxpayers generally are taxed on their worldwide income and these reports are a good way for the IRS to find out if they are paying everything they owe. However, a Treasury Inspector General for Tax Administration (TIGTA) report recently found that the IRS fails to make good use of these reports to identify income earned overseas by American taxpayers.
In a letter dated May 17, the Senators asked IRS Commissioner Mark W. Everson to explain why the agency is letting this valuable information go to waste. Congress urged the IRS to begin a systemic use of foreign source information documents as far back as 1976, but the IRS has done little to tackle the issue. Until recently, most of these information documents were received in paper format at the IRS Philadelphia Service Center. TIGTA found that these forms were stored in boxes, but the IRS never did anything with them. These documents have subsequently been destroyed.
While almost all of this data is now collected and stored in electronic form, Grassley and Baucus noted that the IRS has no specific process to use this data to detect unreported foreign income, meaning the IRS Criminal Investigation Division has been unable to access the data for use in connection with its investigations. Between 1999 and 2003, foreign investments by U.S. residents nearly tripled, from $2.6 trillion to $7.2 trillion.Link here.
IRS budget cut penny-wise but dollar-foolish, warns Senator.
U.S. Senator Max Baucus (D-Montana), Ranking Member of the Senate Finance Committee, has estimated that a 1% cut in the 2006 budget of the IRS will actually cost the U.S. Treasury $1 billion in lost tax collection. In response to a query from Baucus, IRS Commissioner Mark Everson reported this month that the funding rescinded in last year’s Defense appropriations bill could have provided for the closure of 88,000 additional collection cases and 25,000 additional by-mail audits.
According to Baucus, a 2003 Government Accountability Office (GAO) report indicated that there would be substantial returns on the dollar – from 11 to 13 dollars raised for every dollar spent – for the kinds of enforcement activities that Everson says have been curtailed by budget cuts this year. “At a time when the IRS is struggling to close the annual $345 billion tax gap, it’s clear that the 2006 across-the-board budget cut is hamstringing their efforts even further,” stated Baucus.
The IRS currently estimates the direct return on each dollar of its budget at four to one. IRS Research Division estimates in the 2003 GAO report placed returns for activities such as tax enforcement at more than 10 – and in some cases more than 20 – dollars collected for every dollar spent. Phone calls to follow up on tax debts owed were estimated to return $13 for every dollar spent. Audits by mail returned as much as $11 for every dollar spent.Link here.
IRS ORDERED TO COMPENSATE TAXPAYERS IN TAX SHELTER CASE
The IRS has been ordered by a U.S. Tax Court Judge to repay millions of dollars in taxes, fines and interest to a group of taxpayers, after officials from the agency were found to have effectively bribed witnesses to win a tax shelter case. The case centred on the so-called Kersting tax shelter, named after Honolulu businessman Henry Kersting, which allowed airline pilots and their families to purchase stock in one of Kersting’s companies. In exchange, the pilots received promissory notes, on which they would have to pay interest, but which allowed them to claim interest deductions on their tax returns.
In the early 1980s, the IRS ruled that the Kersting tax shelter was illegal and began pursuing a number of investors who had used the scheme. Many of these eventually settled with the IRS. However, according to Colorado Attorney Declan J. O’Donnell, who represented 100 of the 500 taxpayers who settled with the IRS, three witnesses were effectively bribed with cash, pre-paid expenses, tax settlements below par, and 10 years of added tax benefits so that they would testify against six pilots. The Tax Court stated that all of the settled cases in the Kersting Tax Shelter program should receive 64% of their monies back as a sanction.
It is perhaps the first time that such a judgment has been made against the IRS, certainly for such a substantial amount of money. “This particular ruling is the only time the IRS has ever been adjudicated with a money judgment against them. All others were either sanctioned or the cases were retried,” said O’Donnell. His clients and the settled group will receive an estimated $56 million from the IRS in due course. The IRS has the right to appeal the decision, but Mr. O’Donnell stated that such an eventuality is remote given that interest is continuing to accrue, and that the agency cannot appeal against liability in the case.Link here.
CYPRUS HAS LOWEST LABOR AND CORPORATE TAX IN EU
Cyprus has the lowest tax on labor in the EU and the lowest corporate tax rate, according to figures released by European Commission Services, but has the highest ratio of environmental taxes as a proportion of GDP. The “implicit tax rate on labor” (ITR) was 23.1% in 2005, the lowest rate in the EU, compared with an EU25 average of 35.9%. The second lowest rate was the UK, at 24.8%. The list of countries on labor excluded data on Poland, Portugal, Slovakia and Norway, although we know that Poland, Slovakia and Norway, at least, are not famous for low labor taxes.
Key reasons for Cyprus’ good score on labor are no doubt the high threshold for income tax (the first CYP10,000 is tax-free), the low top rate (30%) and the comparatively low social security contribution rate (6.3% for employees and even less if you work for the government). Something that has escaped the attention of a distinguished international magazine twice in the past few weeks is that Cyprus has the lowest corporate tax rate in the EU, at a flat rate of 10%. The next lowest is Ireland at 12.5%, while the EU average is 25.9%. Cyprus may have escaped attention because of the confusion caused by the surcharge imposed on profits above CYP 1 million in 2004 and the fact that semi-government organizations are taxed at 25%. Evidently, the EU thinks that the semi-government organizations do not count, and has listed the top rate at 10%.
As any Cyprus-dweller will tell you, tax on consumption has risen sharply in recent years, from an ITR of 12.2% in 1995 to 19% in 2004, compared with an EU25 average of 21.9%. The sharp increase in Cyprus is largely owing to a rise in VAT from 8% to the EU minimum of 15% over a relatively short period (because the parliamentarians put it off as long as possible). Cyprus comes bottom of the class for environmental taxes, at 11.9% of total tax revenue, vs. an EU average of 6.6%. Transport taxes are the the highest (as a proportion of total tax revenue) at 5.7%, while energy taxes are higher than average at 6.2%. The near total absence of public transport, combined with a climate in which gas-gobbling air-conditioning is used by drivers for around four months a year, could be the main reason.Link here.
U.S. HOUSE BILL CALLS FOR PUBLIC COMPANIES TO DIVULGE TAX DATA
A bill has been introduced into the House of Representatives that would require companies in the U.S. to report income tax data in their annual filings with the Securities and Exchange Commission. The “Honest Income Disclosure Act of 2006”, sponsored by Rep. Paul Gillmor (R-Ohio), would require corporate income-tax data for the prior year to be included in a prominent location in the company’s annual report. According to Gillmor, some companies are using what he termed “funny math” to arrive at the income figure they report for tax purposes, and he is of the view that shareholders would benefit by being given an accurate picture of corporate tax payments. He also claimed that the figures a company reports to the IRS may be “a more predictable indicator of a company’s health” than the results contained in SEC reports.
However, the idea of side-by-side company reporting is hugely controversial and raises questions of taxpayer privacy. Currently, the U.S. Tax Code prohibits the disclosure of taxpayer information, except in very limited circumstances. Nonetheless, it is an idea that has recently been discussed by the country’s most senior regulators. SEC chairman Christopher Cox revealed that he had talked about the idea of simultaneous tax and earnings reporting with IRS chief Mark W. Everson. However, Cox later told a Congressional committee that the idea is favored more by the IRS than the SEC.Link here.
HEDGE FUND GRANDEE SOUNDS “DEATH KNELL” FOR THE INDUSTRY
Crispin Odey, one of the grandees of the London hedge fund world, said that the industry could be doomed, likening it to the disaster that was the Lloyd’s of London insurance market in the 1980s. Most hedge funds had enjoyed the massive benefit of cheap money and would be found wanting by the coming era of rising inflation and interest rates, he suggested. In a largely negative critique of the industry, Mr Odey said that hedge fund managers would struggle to adapt to the changing environment. “The hardest thing to do is to think in a different way to the crowd, but in an inflation world, hedge funds get killed.” Lloyd’s imploded when people realized that the participants were hopeless at underwriting risk, he said.
Fellow speakers at a round table lunch on hedge funds also pitched into the industry. Richard Oldfield, chief executive of the fund managers Oldfield Partners, said that investors would gradually become disillusioned by poor returns over the next ten years. “It will end with a whimper, not a bang,” he said, adding that the target returns of 12, 15 or 17% routinely conjured up by hedge funds were “totally fanciful”. He said, “We will look back and realize this was a barmy time … My message is that hedge funds are a con.”Link here.
Phoenix Four hedge fund looks like a “high yield” program with a respectable Wall Street face.
The selling pitch for Phoenix Four, a hedge fund with a heavy dose of real estate, was liquidity. Unlike the usual hedge fund or partnership, this one was going to come with a generous redemption right. Investors could cash out on a month’s notice. With this promise (and sales assistance from prestigious private banks in Europe) Paul Schack and James Hopkins raised a lot of money. Their fund, a Bahamian corporation created in 1993, had $362 million at its peak four years ago. Not too long after that the redemption checks stopped. Investors in this hedge fund have been waiting three years to get their hands on their money. They may never get much. Phoenix is a cautionary tale about how hedge funds, unregulated and blazingly popular lately, can go horribly wrong.
Banding together, stockholders forced founders Schack and Hopkins out of the fund and installed veteran Manhattan property developer Percy Pyne to set things right. Pyne, elected chairman in 2004, started picking through the ashes to see what could be resurrected. His current (optimistic) estimate of what can be extracted from the fund? $150 million. One asset of very uncertain value is a claim against the founders. Pyne is suing the old managers, alleging fraud. His description of Phoenix suggests a Ponziesque scheme in which the managers used money from new investors and debt to pay out departing shareholders. He also says that Schack and Hopkins made $120 million by favorably calculating the value of illiquid real estate assets and taking a 50% performance fee on a monthly basis, even on unrealized gains. They also charged 5% of assets to manage the fund. A typical hedge fund would charge 1% of assets and 20% of the profits.
Schack and Hopkins, through their attorney, say that everything Pyne complains about, “be it valuation of assets, fees earned by [their management company] or otherwise, was approved by the full board of directors, fully disclosed to shareholders, and ratified by the shareholders after full disclosure at every annual general meeting.” Phoenix bought and sold loans, shares in private companies and, among other properties, low-rent malls in New Jersey. Phoenix was the first fund that either Schack or Hopkins had managed. Neither Schack, 46, nor Hopkins, 51, invested his own cash in Phoenix, but they both presented a well-heeled facade to the world. While the money was still coming in, Phoenix looked like quite the winner. It reported a return of 15% a year, and this was after the hefty fees. But then in 2003 Phoenix could not keep up with two years’ worth of redemption requests.
When Pyne stepped in, the fund was claiming net assets of $279 million. That looks like wishful thinking. When Pyne took over the fund, he did not even know who all the investors were. Phoenix had failed to pay the Bahamian company that tracks such information, and it had been discarded. Pyne eventually found 300 of them. Pyne says the founders ignored 38 requests for such information. Hopkins and Schack have started a new business under the name JPS Capital Partners. JPS is a middleman that will find bridge loans for real estate developers who have trouble getting financing. Pyne, still seeking financing for a condo project, will not be going to JPS.Link here.
NO HAVEN IN ST. KITTS FOR OFFSHORE BROKER PROMISING HIGH INVESTMENT RETURNS
Olint Corporation, barred from currency trading in Jamaica, has registered as a company in St. Kitts & Nevis but has no licence to conduct financial services operation in that east Caribbean country to which it told clients it had relocated after its troubles here, according to officials in Basseterre, the St. Kitts capital. “Olint registered as an exempt/offshore company,” confirmed Fidela Clarke, the director general of the Registrar of Companies in the twin-island federation. “This means they cannot transact business with citizens of St. Kitts or Nevis.” But Clarke also made clear that neither could Olint, despite its registration, conduct business with foreigners. “Because of the nature of their business, currency trading, they need a licence to operate from us to conduct business with anyone in the world. And this applies to any company doing business of a financial nature. The company is aware that it needs this licence but they have not applied for one.”
Olint, controlled by Jamaican broker, David Smith, had branded itself an investment club, offering its members substantially higher than market rates – up to 10% a month – on U.S. dollars placed with it. But in March Jamaica’s Financial Services Commission (FSC), moved against Olint and Smith, saying that they were not licensed as securities dealers. When the Jamaican court grant an injunction against Olint to operate and allowed the FSC’s to confiscation its files, Smith left Jamaica and late last month the company e-mailed clients telling them it would in the future operate from St. Kitts and Nevis.
But even beyond Clarke’s rejection of Olint’s ability to operate from either Basseterre or Charlestown, the Nevis capital, the authorities went further with what was tantamount to a warning to international clients on the worldwide web.Link here.
RICH LIKE ME
Search “millionaire” on Amazon.com and you will come up with scores of books on how to make yourself into one. Somebody is getting rich off this phenomenon, but we suspect it is not the purchasers. Click here to start the slideshow.Link here.
FLEEING NORWAY’S HIGH TAXES, SHIPPING TYCOON DECAMPS TO CYPRUS
Shipping magnate John Fredriksen, one of the world’s wealthiest individuals and owner of the world’s largest tanker fleet, has deciding to turn his back on his native Norway in preference to the relatively benign tax regime of Cyprus. It would appear from numerous media reports that the final straw as far as Fredriksen was concerned was the decision by the Norwegian government to make individuals resident for tax purposes if they spend on average more than 90 days a year over a three year period, down from six months.
At least one of Fredriksen’s businesses is already registered in Cyprus. Sea Tankers in Limassol is also one of his companies. The top rate of personal income tax in Cyprus is levied at 30% on income in excess of CYP20,000 (€44,650). “If we want people and capital out of Norway, this is the way to do it. The 90-day rule was made to threaten Fredriksen back to Norway,” said friend and fellow shipping businessman Herbjorn Hansson. In reality however, Hansson said that Fredriksen has been “hunted” out of the country by Norway’s overbearing authorities.
Norway’s Prime Minister, Jens Stoltenberg, appeared unmoved by arguments that Norway’s high tax regime was scaring away what Hannson called “net contributors to social construction.” “It hasn’t crossed my mind to adjust the tax system so that John Fredriksen can avoid taxes,” he remarked. In any case, Stoltenberg noted, Fredriksen has not lived or paid taxes in Norway for many years.Link here.
U.S. CREDIT COUNSELING INDUSTRY UNDER THE KNIFE
“They hold the handle and we hold the blade,” said the man with the soothing Caribbean accent at Creative Credit Counselors in Jamaica, Queens. He was talking about the relationship between his nonprofit credit counseling agency, which is supposed to help debtors in arrears, and the banks that actually hold the debt. In fact, his whole industry is now under the knife.
America’s $2 trillion in consumer debt has spawned its own shadow economy – collection agencies, bankruptcy lawyers, payday lenders, and debt consolidators whose market is overwhelmingly the desperate. On May 15, the IRS took a step on behalf of those living in the red. The government has spent the past two years auditing 63 credit counseling agencies, together accounting for half the revenue of this $1 billion industry, which is made up of nonprofit agencies that are supposed to advise and help people get control of their debt by negotiating lower interest rates and one monthly payment. Every one of the 41 completed audits has resulted in termination of tax-exempt status.
IRS Commissioner Mark W. Everson told the Washington Post that more audits and even criminal investigations are underway. “They have poisoned an entire sector of the charitable community,” Everson said. Despite their 501(c)3 status, the IRS found, many of the agencies offer little or no education or counseling, operate as commercial businesses, pay their executives huge salaries, and are closely associated with banks and other for-profit entities. The monthly payments they offer are often too good to be true, set so low as to lock people into years of repayment and multiplying interest charges.
The 2005 bankruptcy act, among other restrictions and barriers to bankruptcy, mandated for the first time that anyone filing go see a credit counselor first. If you are behind on several cards and looking for someone to make the creditors stop calling, the best course to take right now is look for an agency accredited by the National Foundation for Credit Counseling.Link here.
WEALTH MANAGERS TOLD TO SHAPE UP
Financial advisers must do more to meet the demands of the world’s richest people as they compete to manage their wealth, according to the head of Swiss bank UBS. Peter Wuffli said that many affluent clients are dissatisfied with the service received from bankers struggling to come to grips with an increasingly complicated sector. Speaking at the Chartered Financial Analysts (CFA) Institute Conference in Zurich, he said that traditional banking practices were often at odds with clients’ expectations. “The instinct of a banker is to draw out the value of an asset and then present it to the client,” he added. “But wealthy people hate to be on the end of the chain, they want to be involved at the beginning. There needs to be a huge change in attitude.” He also admitted that dealing with wealthy individuals was not always easy and required a lot of social skills.
Responding to questions about Switzerland’s banking secrecy and criminal activity, Wuffli pointed out that money laundering had become more difficult than in many other countries. But he added that despite its best efforts to combat money laundering and the financing of terrorism, the country is still viewed suspiciously in some quarters. “It is somewhat annoying for the Swiss that there is the likelihood that in every novel the crook will deposit their money in a Swiss bank,” he said, challenging critics to put their money where their mouth is. “The doubters just have to see how difficult it is to open a bank account in Switzerland without showing a plausible source for their money,” he added.
Wuffli also defended the Swiss tax system, claiming it was not designed to help the rich avoid paying their dues. “The Swiss tax system traditionally involves a high degree of privacy and competition amongst cantons,” he said. “The other way is for tax to imposed by a central authority. We don’t say that our way is best, but there is a strong case for keeping government authority in check.”Link here.
Survey shows little to choose among top Swiss asset managers.
A performance league table compiled by EDHEC, a leading European business school, and EuroPerformance, a European fund rating agency, has shown that there is little to choose between the performance of Switzerland’s top asset managers. The “Alpha League Table” showed that the top ranked company achieved a score of 0.97%, while the 10th-placed scored 0.22%. However, the top three asset managers in the ranking are only separated by a hair’s breadth, with a difference of less than one hundredth of a point. The Alpha League Table is a ranking constructed upon a measure of the intensity of alpha (performance above and beyond what would be expected for the risks taken) for all of the asset management firm’s active “equity” management.
The league table showed that specialists and private banks monopolize the top places in the rankings with investment management oriented towards emerging markets and sector funds. According to the ranking results, the average rates of alpha vary from to 2 to 4% depending on the zone. The strongest outperformance is obtained in the Asian and emerging markets. However, it appears to be more difficult to generate significant alpha with portfolios invested in Swiss company stocks. On average, the “alpha” funds favor large-cap stocks and the share of small caps is limited to 30% of the portfolios.Link here.
Swiss private equity firm to become first European listing on Dubai International Financial Exchange.
Switzerland-based Fortune Management Inc. has received approval to list its shares on the DIFX. Fortune, a leading private equity firm listed on the Frankfurt Stock Exchange, announced that it will list its shares on the DIFX in a non-capital raising secondary listing. FMI shares will begin trading on the Dubai Exchange on June 1, 2006. Fortune’s shares have been one of the best performers on the Frankfurt Stock Exchange over the past three years, and enjoy substantial trading volume. On 23 May 2006 the stock was trading at €2.8, giving the company a market capitalization of €340.9 million.Link here.
U.K. INITIATIVE TARGETS OFFSHORE ACCOUNT HOLDERS
“Should five percent appear too small, be thankful I don’t take it all.” So sang The Beatles in their song Taxman, disgruntled at the 95% top rate of income tax they had to pay back in the 1960s. Now, more than 110,000 UK residents who bank with Barclays are going to get a similar feeling. Next month the Revenue & Customs (HMRC) will be given details of the bank’s offshore accounts in places like the Isle of Man, Jersey and Guernsey. The Revenue & Customs estimates it will soon be able to scoop up £1.5 billion ($2.84 billion) in unpaid tax, interest and penalties from Barclays customers alone.
But it seems the penny has yet to drop with many of the account holders. And the authorities in one offshore location, Guernsey, believe the Revenue & Customs is massively over-estimating just how much money has been left sitting untaxed in bank accounts on the island. But HMRC can barely disguise its glee at the legal victory it won in February, where it was decided that the tax authorities could demand that Barclays hand over the names and addresses for the offshore accounts of UK customers, along with transaction details for six selected months going back over the last six years. A Revenue spokesman admitted that similar approaches were now likely to be taken towards other big banks. “We are quite likely to take this forward,” he says. “This is a very big project for us. There is a lot of tax at stake.”
Last year, HMRC, prompted by the desire of Chancellor Gordon Brown to cut down on tax evasion, set up a special unit called the Special Civil Investigations Offshore Fraud Projects Group. Its director presented evidence to the Special Commissioners that hundreds of millions of pounds of interest had been accruing on deposits, which the account holders had failed to declare on their tax returns. The tax inspectors also suspect that large sums have been salted away over the years without being subject to any income tax in the first place. They quoted one eye-popping case of £576,000 in undeclared business takings being hidden in one account.
Barclays still advertises confidentiality as being one of the main advantages of having an offshore account. That is about to evaporate. When Barclays hands over the information, it will be parcelled out to local tax offices They will check if the people have been declaring interest on their offshore accounts, or if they can explain unusually large amounts of money that do not seem to tally with their previously declared earnings. The bank is trying to appear laid back about all this and has yet to write to its affected customers.
Accountants are never slow to spot a new line of business and in the last few weeks they have been busily warning their customers to come clean if they have somehow managed to “forget” telling HMRC about their offshore savings. Peter Silk, a chartered accountant and spokesman for the Institute of Chartered Accountants in England & Wales (ICAEW), believes these latest developments may come as a bit of a shock to some clients. “People have always thought they were ring fenced. I’m sure Joe Public doesn’t realize what is around the corner,” he says.
In Guernsey, the financial services industry appears to be regarding all this with equanimity. The 51 banks registered there account for more than half the economic activity of the Island. The fact that deposits from around the world currently total about £80 billion – more than half from Switzerland – reveals just how successful the island has been in running itself as a low-tax, offshore banking center. But the idea – repeated on the front page of the Financial Times recently – that people can simply bowl up with bags of used notes and deposit large sums of money, no questions asked, is vigorously challenged by Peter Niven, head of the joint government and trade body Guernsey. “If somebody appeared with a stash of cash, they would have the greatest difficulty in putting that into an account here.” Just like UK banks, those in Guernsey have to know their customers and report any suspiciously large transactions in case these involve attempts to launder money. For these reasons he reckons that 90-99% of tax dodgers have long been weeded out of the local system. “The Revenue may be a little ambitious in what they think they’ll get. I don’t think they’ll get anything like that £1.5 billion.”Link here.
ALL FOREIGN INVESTORS IN COOK ISLANDS TO BE CHECKED BY POLICE
Police checks will soon be required for all foreign investors regardless of the extent of their shareholding in Cook Islands businesses. The new requirement will come into force on July 1 and is just one of the results of an investment review carried out late last year, says Development Investment Board chief executive officer Mark Short. At present vetting is only carried out on foreign investors if their shareholding exceeds 33.3%. The review also found that foreign investment should be restricted to targeted areas where there was greatest need, Short says. “We still need investment, but probably not to the extent that we did after the transition period in the mid to late 1990s.”
As a result of the review the DIB is likely to take a new direction and there will be greater emphasis on business development initiatives, both in Rarotonga and the outer islands, Short adds. “Cook Islanders have proven they have the confidence and the ability to set up their own businesses. So instead of adopting policies that encourage greater foreign investment that may create jobs, we should also be pursuing the creation of business ownership by Cook Islanders which in turn will lead to the same result.”Link here.
MORE THAN 565 PEOPLE ARRESTED IN MASS-MARKETING FRAUD SCHEMES INVESTIGATION
More than 565 people in North and South America and Europe have been arrested as part of “Operation Global Con” – the largest and most far-reaching multinational enforcement operation ever directed at mass-marketing fraud schemes, the U.S. Department of Justice announced. The ongoing action began on March 1, 2005, and involved unprecedented coordination by law enforcement agencies at the national and international levels. “Operation Global Con” targeted mass-marketing schemes that were international in scope and impact, were conducted by criminal groups, and generated significant proceeds. The schemes were carried out through various methods, such as telemarketing, the Internet and mass mailings.
The wide variety of schemes uncovered during the operation included so-called “419" advance-fee schemes; foreign currency trading; bogus lottery, prize and sweepstakes schemes; offers of nonexistent investments; bogus offers of “pre-approved” credit cards or credit-card protection; and tax fraud schemes. The 96 separate U.S. investigations in this operation led to the discovery of more than 2.8 million victims, who suffered losses totaling more than $1 billion. “Mass-marketing fraudsters think they can use modern technology to operate from anywhere in the world with impunity,” said Attorney General Alberto R. Gonzales. “The virtual task forces that we have built with Canada, Costa Rica and the Netherlands provide a new model for us to bring these international con artists to justice.”
The operation resulted in the arrest of 139 individuals in the U.S., and an additional 426 arrests in Canada, Costa Rica, the Netherlands and Spain. Authorities executed 447 search warrants in the five countries as part of the operation, and 61 individuals have been convicted in the U.S. to date. In addition, the Federal Trade Commission brought 20 civil actions against 140 defendants in illegal fraud schemes. “Mass marketing fraud is an international crime problem that predominantly victimizes elderly U.S. citizens. Through our Legal Attache Offices located around the globe, the FBI is uniquely positioned to address this problem,” said FBI Assistant Director, James H. Burrus, Jr., Criminal Investigative Division.
“The best defense against these types of scams is public awareness. U.S. citizens need to know that federal agents don’t call asking for money or asking for money to be sent somewhere. That’s not how we do business,” said Julie L. Myers, Assistant Secretary for U.S. Immigration and Customs Enforcement. “I would also add that if a sales pitch over the phone sounds too good to be true, it probably is.”
As part of Operation Global Con, Costa Rican agents, acting in cooperation with the U.S. government, just last week conducted a series of arrests and searches in Costa Rica that targeted significant mass-marketing fraud “boiler room” operations. These operations used Internet-based telephony and mobile phones to contact prospective victims in the U.S., purporting to be from nonexistent organizations such as the “Sweepstakes Security Commission”, to offer nonexistent sweepstakes winnings of as much as $4.5 million. Victims were expected, in return, to pay “insurance fees” for the alleged “benefit” of Lloyds of London. Some victims who made the payments would then be recontacted by participants in the schemes, who pretended to be Costa Rican or U.S. customs authorities demanding payment of additional “customs fees” or taxes.Link here.
PERSONAL DATA OF 26.5 MILLION VETERANS STOLEN
Thieves took sensitive personal information on 26.5 million U.S. veterans, including Social Security numbers and birth dates, after a Veterans Affairs employee improperly brought the material home. The information involved mainly those veterans who served and have been discharged since 1975, said VA Secretary Jim Nicholson. Data of veterans discharged before 1975 who submitted claims to the agency may have been included. Nicholson said there was no evidence the thieves had used the data for identity theft, and an investigation was continuing. “It’s highly probable that they do not know what they have,” he said in a briefing with reporters. “We have decided that we must exercise an abundance of caution and make sure our veterans are aware of this incident.”
Veterans advocates expressed alarm. “This was a very serious breach of security for American veterans and their families,” said Bob Wallace, executive director of Veterans of Foreign Wars. “We want the VA to show leadership, management and accountability for this breach.” Ramona Joyce, spokeswoman for the American Legion, agreed that the theft was a concern. Nicholson declined to comment on the specifics of the incident, which involved a midlevel data analyst who had taken the information home to suburban Maryland on a laptop to work on a department project. The residential community had been a target of a series of burglaries when the employee was victimized earlier this month, according to the FBI in Baltimore.Link here.
WIRED MAGAZINE EXPLAINS WHY THEY PUBLISHED THE AT&T DOCS
A file detailing aspects of AT&T’s alleged participation in the National Security Agency’s warrantless domestic wiretap operation is sitting in a San Francisco courthouse. But the public cannot see it because, at AT&T’s insistence, it remains under seal in court records. The judge in the case has so far denied requests from the Electronic Frontier Foundation and several news organizations to unseal the documents and make them public. AT&T claims information in the file is proprietary and that it would suffer severe harm if it were released. Based on what we have seen, Wired News disagrees. In addition, we believe the public’s right to know the full facts in this case outweighs AT&T’s claims to secrecy.
As a result, we are publishing the complete text of a set of documents from the EFF’s primary witness in the case, former AT&T employee and whistle-blower Mark Klein – information obtained by investigative reporter Ryan Singel through an anonymous source close to the litigation. The documents consist of 30 pages, with an affidavit attributed to Klein, eight pages of AT&T documents marked “proprietary”, and several pages of news clippings and other public information related to government-surveillance issues. The AT&T documents appear to be excerpted from material that was later filed in the lawsuit under seal. But we cannot be entirely sure, because the protective order prevents us from comparing the two sets of documents.
This week, we are joining in efforts to bring this evidence to light in its entirety. We are filing a motion to intervene in the case in order to request that the court unseal the evidence, joining other news and civil rights organizations that have already done so. Before publishing these documents we showed them to independent security experts, who agreed they pose no significant danger to AT&T. For example, they do not reveal information that hackers might use to easily attack the company’s systems. The court’s gag order is very specific in barring only the EFF, its representatives and its technical experts from discussing and disseminating this information. The court explicitly rejected AT&T’s motion to include Klein in the gag order and declined AT&T’s request to force the EFF to return the documents.Link here.
FCC will not investigate NSA phone logs.
The FCC has declined to investigate whether telecommunications companies have broken consumer privacy laws by sharing phone call data with the NSA, saying the classified nature of the program prevents the agency from doing so. Chairman Kevin Martin, a Republican, said that the FCC would be unable to investigate at this time due to the fact it would require the examination of highly classified information. According to Martin, the agency has no power in ordering the release of those documents. Martin also mentioned that the government had already used the state secrets privilege in a court case against AT&T, which meant the FCC would have little chance of prevailing in any legal action. The decision is likely to anger many, as politicians from both sides of the aisle have called for an investigation into whether laws had been broken.Link here.
THE U.S. CONSTITUTION’S PREAMBLE RECONSIDERED
The Preamble to the United States Constitution is surely one of the most sublime paragraphs ever written. Before this dissection begins, let us prop it up and admire it in all its glory. We the People of the United States, in Order to form a more perfect Union, establish Justice, insure domestic Tranquility, provide for the common defence, promote the general Welfare, and secure the Blessings of Liberty to ourselves and our Posterity, do ordain and establish this Constitution for the United States of America. Okay, Nurse, the patient being sedated, hand me that scalpel, please.
Mendacity, we are told, has three grades: lies, damned lies, and statistics. Let us start by seeing into which category fall these opening words. The Constitution was signed by 39 dead white males (they were not dead at the time, of course) who had been elected by the respective legislatures to represent their states. The members of those legislatures had in turn been elected by the several peoples, or those of the people who were at the time entitled to vote, i.e., more dead white males, with property.
Historians more diligent than I can perhaps tell us by what majorities this two-stage election process placed the 39 signers in Philadelphia, but to illustrate the problem let me guess that each stage was of 75%. The probability that the 39 enjoyed the support of “the people” would then have been 0.752 squared, or 0.56 – a bare majority of 56% – of property-owning males, that is. Of all adults, that would be 28%, and of all The People including children, perhaps about 21% – just over one person in five. Yet these liars asserted that they were acting in the name of all “The People”. Was that just a damned lie, or did it also fall into the dark, bottomless chasm of a statistic? You be the judge.
We also know that as well as the vigorous debate in Philly that preceded the compromise wording of the Constitution, there was an even more vigorous one raging countrywide, between Federalists (who wanted to constitute a new government) and everyone else (who did not) – and that the later ratification process was hardly a slam dunk. The sizes of the respective numbers matters less than the certain fact that the entire process was highly controversial – that these first seven words of the Preamble were, therefore, at best a Damned Lie. …Link here.
GOVERNMENT SECRECY IS A FARCE
Over the weekend, Attorney General Alberto Gonzales made a draconian threat to prosecute journalists for writing about the National Security Agency’s (NSA’s) clandestine and illegal monitoring of U.S.-overseas telephone calls. That threat shows what an Orwellian farce the government’s classified information system has become. Gonzales is threatening to prosecute reporters under the 1917 Espionage Act. This anachronistic act was passed during World War I to make it illegal for unauthorized personnel to receive and transmit national defense information. The law is also currently being used to prosecute two lobbyists from the American Israel Public Affairs Committee (AIPAC) for obtaining and transmitting classified information they received from a U.S. Defense Department employee. The lobbyists’ lawyers have filed a motion in court arguing that the law is an unconstitutional breach of the First Amendment right to free speech.
A successful prosecution in the AIPAC case could open the floodgates to indict journalists for publishing classified information leaked to them by government officials. The government would have an easier time prosecuting reporters than it does uncovering and indicting often-anonymous leakers. In fact, the threat of being prosecuted might make reporters less inclined to protect sources, thereby flushing out the leakers, or making officials more reluctant to leak in the first place. The Bush administration is classifying ever more information. In a democracy, where the supposed rulers – the people – need the maximum information possible to make good decisions, the amount of information that is withheld from the public should be minimal.Link here.
ANTIGUAN INTERNET GAMBLING FIRM INDICTED, ALLEGED PROCEEDS CONFISCATED, BY U.S.
The U.S. District Court for the District of Columbia unsealed an indictment last week against the operators of two internet gambling firms based in Antigua and Barbuda for offenses related to an estimated $250 million worth of internet gambling wagers. The 12-count indictment alleges that from April 1998 through the date of the indictment, Scott and Davis operated WWTS, one of several entities through which they illegally enticed gamblers to send funds from the U.S. to Antigua with the intent that these funds would be used for wagers on Internet casino games and high profile sporting events. The indictment alleges that wagers were placed by toll-free telephone numbers and through the website, www.BetWWTS.com, and other sites controlled by the defendants in violation of the Wire and Travel Acts. The indictment also alleges that by causing funds to be sent from places within the U.S. to places abroad with the intent to promote Wire and Travel Act violations, Scott and Davis engaged in a money laundering conspiracy.
The indictment also specifies subsequent financial transactions made by Scott with the proceeds of this illegal gambling activity as separate money laundering violations, as well as alleging his failure to report foreign bank accounts to the IRS. Soulbury Limited is alleded to be one of the “shell” corporations that Scott used to hide his personal profits from the illegal gambling enterprise, including $10 million of allegedly illegal proceeds that Scott moved to Guernsey. The U.S., with assistance from the Guernsey government, was able to confiscate $7 million from the U.S. correspondent account of a foreign bank in a parallel civil forfeiture action filed in D.C. in December 2003.
Funds for wagers to be placed on, or funds paid out from, “offshore” Internet gambling remain against the law in the U.S. despite a ruling by the WTO in April 2005 which upheld one of Antigua and Barbuda’s complaints over U.S. prohibitions preventing U.S. banks and major internet search engines from doing business with gambling firms on the island. U.S. federal laws bar the placing of bets across state lines by electronic means, preventing Antiguan online gambling companies from accessing U.S. customers. After losing the WTO case, the U.S. pleaded for a year’s delay to implement federal legislation to accommodate the ruling. But the year laater, a bill sponsored by the chairman of the House Judiciary subcommittee on crime – currently moving forward in Congress – would add an “enforcement mechanism” to the Wire Act to address the situation where the gambling business is located offshore but the gambling business used bank accounts in the U.S.
The indictment came as no surprise to Antigua’s Ambassador to the WTO, Dr John Ashe. “These indictments, coming down at a time when the United States is supposed to be undertaking efforts to comply with the rulings of the WTO, are surely no coincidence. It is more than just a little ironic that the United States Department of Justice has chosen to single out for prosecution a well-known gaming service provider from Antigua, a jurisdiction that has been leading global efforts to license, regulate, supervise and oversee a robust yet clean and safe gaming industry over the Internet – and the only jurisdiction to take on the United States at the World Trade Organization and win on this exact issue.”Links here and here.
U.S. OFFICIALS ARREST URUGUAYAN IN $800 MILLION BANKING SCANDAL
U.S. immigration officials said a man wanted in Uruguay for an alleged $800 million banking scandal that contributed to a 2002 financial crisis affecting three South American countries has been arrested. Juan Peirano-Basso, 56, is charged with making false statements, embezzlement and bank fraud.Peirano-Basso had been hiding from authorities since the 2002 banking scandal, which occurred at the height of a deep economic crisis in Uruguay. His three brothers, also allegedly implicated in the scheme, have been in custody in Uruguay since then. Uruguayan authorities say the brothers were part of a so-called “Grupo Velox”, an operation that rocked the financial markets of Uruguay, Argentina and Paraguay.Link here.
BAHAMAS TO UNDERGO CFATF REVIEW
The ongoing assessment of The Bahamas to ascertain its level of compliance with international anti-money laundering and anti-terrorist financing standards is set to resume when a team from the Caribbean Financial Action Task Force (CFATF) is expected to travel to this jurisdiction. Highlighting the importance of the country inspection by the CFATF, Attorney General and Minister of Legal Affairs Allyson Maynard-Gibson noted that the exercise will be conducted by the CFATF on behalf of the FATF. She indicated that the findings of the assessment will also be evaluated by the IMF, which has also agreed to accept the conclusions of the CFATF.
Last October the FATF announced that after five years of monitoring this country it would remove The Bahamas from the list of countries which it continued to monitor. In June of 2000, the FATF listed The Bahamas among 14 other offshore financial centers which it identified as Non-Cooperative Countries and Territories. The country subsequently implemented a series of legislative and institutional measures to improve the regulatory regime and was removed from that list in 2001, however, the FATF continued to monitor the jurisdiction until October 2005.Link here.
RUSSIAN MINISTER EMBROILED IN OFFSHORE FUND CORRUPTION SCANDAL
Russian Telecommunications Minister Leonid Reiman, a close ally of President Vladimir Putin, has found himself at the center of a financial scandal over allegations that he has attempted to illegitimately increase his ownership in a Russian mobile operator through an offshore fund based in Bermuda. A Zurich Arbitration Tribunal concluded that Reiman, known as “witness #7”, was the only beneficiary of the Bermuda-based IPOC fund and its option over a 25% stake in MegaFon, Russia’s third largest mobile operator. LV Finance Group, which has been locked in a legal battle with IPOC for more than three years, is disputing IPOC’s claim that it has an option on a 25% Megafon stake, in a complex case which has involved a string of associated shell and associate companies and led to several suits and counter-suits in Switzerland, Bermuda and the British Virgin Islands.
Reiman denies that he is the beneficiary of the IPOC fund and has said that he was not invited either officially or unofficially to testify before the tribunal. The affair is being seen as a key test of President Putin’s anti-corruption drive, announced in his recent state of the nation address. Putin and Reiman were close associates when the former was deputy mayor of St. Petersburg and the latter was on the board of a state-owned telecoms firm. Putin has also worked for one of Reiman’s companies. IPOC expressed “surprise” at the tribunal’s verdict, and indicated that it would be prepared to appeal to the Swiss Supreme Court.Link here.
TO FREEDOM ACTIVISTS
I have done some time as a freedom activist, in several arenas, and with some wonderful people. So lately, when I notice articles or forum posts that detail some new gummint abuse, and then whine that “no American even blinked when news of this travesty got out,” I have one simple, angry answer. Bullsh*t!
Lots of us Outlaws did, and are doing, lots more than that. But perhaps not in obvious ways or through noisy, visible political means. Whatever the latest news story, when we heard about it, some of us renewed – or discovered – our determination to build personal freedom, because that most recent crackdown was the one that finally crossed our line in the sand, made us ready to do whatever it takes to taste real freedom. Some of us crossed that line years ago. But whatever stage we are at in our Outlaw development, we are almost certainly expressing it on the quiet. Living free is not a popular or safe topic these days, and martyrs or stupid we ain’t.
Few writers and journalists today have the vision to grasp the contradiction between America as she once was, and as the Powers That Be have made her. Those who do, likely have yet to break away from the din of modern media long enough to learn that the chirping of crickets they mistake for silence and apathy is really the intense buzzing of many swarms of focused, determined, pissed-off worker bees. The Libertarian Party, with many good people under its banner, remains after 32 years of existence a political joke in the eyes of nearly everyone. Misguided, quaint, Constitution-waving crackpots. And this is, in a way, a good thing. Because we gulch-builders remain camouflaged.
I honor the good work done by freedom activists, the devotion that keeps them coming back for more abuse and heartbreak every election cycle and protest day. My heart goes out to you honest, decent folk. So to you who are still actively working against the system, you dedicated political types: It is not that no one cares about your hard work. We do – most of us have been where you now are. Rather, it is that we have understood we cannot fight the massive beast on his turf. We are not apathetic. We are quietly and privately preparing for the real fight.
You ave all read Ayn Rand’s Atlas Shrugged. And like Hank Rearden, you might have wished that someone would come to you and sweep you away to a safe, free place like Galt’s Gulch. My friends in liberty – Gulches exist! But you will need to find or make yours. You will need to earn your place in it. You “Libertarians” who have government jobs, for instance (unless you are truly working as a mole and helping freedom in a tangible way), will not be near the top of anyone’s membership list. You will need to make yourself someone worth saving. Which means you must save yourself first. We cannot and will not do it for you. You are the one who has to wake up.
For those of you who are not with us yet, thank you for serving as what the statists see as harmless, ineffective camouflage for the bigger group of freedom fighters. You are playing a part in something constructive for freedom, whether you know it or not. And when you have decided not to go that route of activism any longer, but to pursue your own happiness, we are here – at least for some time to come – when you are ready to join us.Link here.
Conscientious non-voting 2006: Liberation from within.
In 2004, I did something that I had not done since I turned 18 years old. I did not vote. At the time, I gave my act a name – “conscientious non-voting”. Since then, I have studied a lot of pacifist writings and have tried to eliminate acts of aggression in my own behavior whenever practical. I view conscientious non-voting as one step among many I have taken in an attempt towards reducing aggression in my life (although I must confess I am nowhere near where I would like to be). In 2004, I said voting for a person to serve in government – which by its very nature is forceful – is an act of aggression. I still believe that. Surely it is not aggressive as pointing a gun at another human being, but it is aggressive action nonetheless.
In most U.S. elections, about a third of eligible Americans vote. Being the contrarian that I am, I feel as if that participation rate is far too high. When that rate falls to 10%, our social problems will begin to be solved from the grassroots up. Government is the problem, not the solution. And before you ask, I have tried the third party scene. I voted Libertarian from 1992-2002.
Voting could also be viewed as a greedy act. Every religious tradition with which I am familiar frowns upon greed. When we vote, we vote “for” someone or something at the expense of others for our own self-interest. In the Four Noble Truths, the Buddha tells us that greed is one of the main causes of suffering. The political process is the cause suffering, not the path of liberation. Therefore, voting in hopes of using the political process to lessen suffering in my life is futile. Lenin said that the ends justify the means. Gandhi preached the opposite, that ethical means must be used to attain ethical ends. Gandhi’s core belief was ahimsa, which loosely translates to “non-harm to living things”. This non-harm includes fellow human beings, animals, insects and oneself. Who will go down in history as the greater man, Gandhi or Lenin?
Mark Twain had it right when he said, “Nothing so needs changing as other people’s habits.” We agree that the world needs to change. However, we can only change ourselves. Indeed, change must begin with us, so change into what you want the world to become. Karl Marx said, “All that is solid melts into air.” The Buddha preached the same thing 2,400 years earlier, and took it one step further in saying that nothing is permanent except our actions and the consequences of our actions. Voting is an aggressive action that I will be avoiding in 2006.Link here.
MANAGING, SOMEHOW, TO SURVIVE WITHOUT PARASITES
6,000 people, five clinics, two primary schools, and two churches. An endless string of clubs, two supermarkets, and 5-story buildings. A booming construction industry. Four petrol stations, one casino with live entertainment, a cyber café, photocopying centers. No slums. No beggars. No street children. No banks. Mlolongo.
As recently as 1984, this bustling trading center in Mavoko Municipality was a mere expanse of African bush on a narrow strip of land approximately 50 by 1,000 meters between the old and the new alignment of the Mombasa road, some 15 km from Nairobi. In the mid-1980s, crafty sand traders from Machakos district, some 30 km further east, found that by dumping their lorry loads along the old alignment of the Mombasa road, not more than 50 meters from the new one, they avoided the weighbridge charges. Soon after the sand trade begun, the first shops started appearing. They mostly sold food and drink, but in no time other services were provided for – tailors, clinics, a locksmith, shoemakers. It did not take long before wooden shacks gave way to stone and cement buildings. By 1990, Mlolongo was booming, while officially continuing not to exist. Even today, it is useless to try to locate Mlolongo on a map. An interesting phenomenon is that neither politicians nor street preachers, not even NGOs, find a ready audience in a fully employed population. And the inhabitants do not look forward to having such operators in their midst.
Why? Henry George (1839-97) used to say, capitalist A and worker B do not divide between themselves the wealth produced by B. They divide what is left to them after landowner C rakes in his rent, usurer D his interest, tax collector E his extortions, and a whole line of parasites from F to Z their more or less visible cuts. It is evident that the Mlolongo dwellers avoid, or evade, some of that. Not all, for sure, otherwise the place would not differ much from an earthly paradise. A tentative, necessarily incomplete, analysis follows.Link here.
THE DEATH OF THE AMERICAN STATE
“This is the way the world will end; Not with a bang, but a whimper.” ~ T.S. Eliot
The impending death of the Bush empire has been the subject of some recent thoughtful articles. Such a prognosis seems well-founded, but greatly understates the broader implications of our current situation. It is the American political system, itself, that appears to be in a terminal state. Intelligent minds need to focus on the question, if this government collapses, what will be the nature of the social systems that replace it? Will the state, itself, survive and, if so, will it be in the same constitutional form as the present system?
Had the American state initially become a monarchy – as many thought and hoped it might – Americans might have become as conditioned to accept the autocratic power of a ruler as they have to believe in the illusion of a democratically-controlled state. George W. Bush might then have been accepted, in the popular mind, as the continuation of the “fine tradition” going back to England’s George III, or even Henry VIII. But America embarked on a different rationale for governmental power, derived from the liberal sentiments of individual liberty, as expressed in the Declaration of Independence. Political authority was no longer to be justified in terms of the “divine rights” of rulers, but only as an expression of a mythical “social contract” supposedly entered into by millions of free persons. Thus was a written constitution crafted as the expression of this alleged “contract” between the state and its citizenry. Governmental power was to be limited, and the protection of individual liberty paramount, as the stated purpose of this constitutional republic.
Such intentions were never taken seriously by most men and women with ambitions over their neighbors, as was evident from the start and continues today. State power has been in the ascendancy, and individual liberty in decline, for many decades. It is erroneous for anyone to blame George W. Bush for this collapse of the constitutional model. He only represents the most recent and dramatic extension of long-unquestioned statist premises. Those who were shocked when Bush declared the Constitution “an old scrap of paper,” are unaware that he was echoing the sentiments of the Assistant Secretary of War, John McCloy, who defended the World War II power of President Roosevelt to imprison Japanese-Americans. “The Constitution is just a scrap of paper to me,” McCloy declared.
If one were to judge the success of the American constitutional state in limiting state power by the same standards we would apply to a medical procedure, or the success of a business enterprise, we would readily admit to its total failure. The American state has evolved into a thriving contradiction of the announced expectations of a constitutional republic. Washington, D.C., has been a combination slave-market, fencing operation for stolen property, and street-corner gang long before the current gang of racketeers took over. The politically-ambitious want the rest of us to never wake up, but to cling to the remnants of a hazy dream that monopolistic power can somehow be restrained. You will soon hear them chanting their mantra of the need for political “change” in America. The Democrats will replace the Republicans and the dream restored. What childish nonsense. Political “change”, within the confines of the existing system, has never amounted to anything more than bringing in a relief pitcher from the bullpen in an effort to save the game for the home team.
The entire concept of constitutionalism has failed in its fundamental purpose, to restrain state power in order to prevent tyranny from arising. Had more of us been paying attention, we would have understood that this failure was implicit in a system in which government (a) enjoys a monopoly on the use of force, and (b) has the authority to interpret the scope of its constitutional powers. This fact did not escape the notice of Lord Macaulay who, on the eve of the American Civil War, observed that “your Constitution is all sail and no anchor.” A similar insight has been offered more recently by Anthony de Jasay, who noted that “collective choice is never independent of what significant numbers of individuals wish it to be.”
The collapse of the foundations of the American political system has been compounded by the internal failures of Constitutional safeguards. The legislative branch, the judiciary, and the bulk of the American public, went into a simultaneous, collective collapse in the face of George Bush’s grasp for what he has repeatedly expressed as his desire for a “dictatorship … just so long as I’m the dictator.” The bulk of the major media – long thought of as an aggressive watchdog of the state – has become, through incestuous inbreeding, little more than a whining, obedient lapdog. Of course, there will be those who, ignoring the lessons of history, will be unable to digest the idea that the American state might ever go into an entropic collapse. But any system that relies on violence, lies, distrust, and force of arms to hold itself together, has little future.
If Congress were to impeach President Bush and any other members of his administration responsible for conducting the Iraq war and, upon their removal from office, have such individuals – along with all advisors – arrested and turned over to an international tribunal for prosecution as war criminals, the modern state might retain a sliver of a chance to overcome its present plight. But with a few exceptions, members of Congress are too complicit in the actions which they would be forced to condemn. Nor would members of the political establishment – whose special interests are advanced through the violence, bloodshed, and despoliation by state forces – ever permit any fundamental challenge to its privileges.
And, so, the upcoming elections will provide us with what prior elections offered … new-and-improved candidates with new-and-improved messages. The new product will consist of nothing more than a repackaging of the old, replete with new commercials. What remains of the voting public will be urged to participate in the collective hallucination of voting. Those who refuse to join in this electoral debauchery will be condemned for not partaking of the “freedom” of Americans to participate in the meaningless ritual. In 2008, the media will be feeding us a steady diet of the message that choosing between John McCain and Hillary Clinton will be a watershed event in American history. The outcome of the 2008 elections will “restore confidence” in the system … this time for sure! The question is whether, by that time, the outcome will really matter.Link here.
C.S. LEWIS: DESIRE TO BE IN “THE INNER RING” A MAINSPRING OF HUMAN ACTION
You have met the phenomenon of an Inner Ring. You discovered one in your house at school before the end of the first term. And when you had climbed up to somewhere near it by the end of your second year, perhaps you discovered that within the Ring there was a Ring yet more inner, which in its turn was the fringe of the great school Ring to which the house Rings were only satellites. It is even possible that the School Ring was almost in touch with a Masters’ Ring. You were beginning, in fact, to pierce through the skins of the onion. And I can assure you that in whatever hospital, inn of court, diocese, school, business, or college you arrive after going down, you will find the Rings – what Tolstoy calls the second or unwritten systems.
All this is rather obvious. I wonder whether you will say the same of my next step, which is this. I believe that in all men’s lives at certain periods, and in many men’s lives at all periods between infancy and extreme old age, one of the most dominant elements is the desire to be inside the local Ring and the terror of being left outside. This desire, in one of its forms, has indeed had ample justice done to it in literature. Victorian fiction is full of characters who are hag-ridden by the desire to get inside that particular Ring which is, or was, called Society. But it must be clearly understood that “Society”, in that sense of the word, is merely one of a hundred Rings and snobbery therefore only one form of the longing to be inside. People who believe themselves to be free, and indeed are free, from snobbery, and who read satires on snobbery with tranquil superiority, may be devoured by the desire in another form.
Freud would say, no doubt, that the whole thing is a subterfuge of the sexual impulse. I wonder whether the shoe is not sometimes on the Other foot, I wonder whether, in ages of promiscuity, many a virginity has not been lost less in obedience to Venus than in obedience to the lure of the caucus. I am not going to say that the existence of Inner Rings is an evil. It is certainly unavoidable. There must be confidential discussions. And it is not only not a bad thing, it is (in itself) a good thing, that personal friendship should grow up between those who work together. But the desire which draws us into Inner Rings is another matter. A thing may be morally neutral and yet the desire for that thing may be dangerous. Let Inner Rings be an unavoidable and even an innocent feature of life, though certainly not a beautiful one. But what of our longing to enter them, our anguish when we are excluded, and the kind of pleasure we feel when we get in?
I do not believe that the economic motive and the erotic motive account for everything that goes on in what we moralists call the World. Even if you add Ambition I think the picture is still incomplete. The lust for the esoteric, the longing to be inside, take many forms which are not easily recognizable as Ambition. We hope, no doubt, for tangible profits from every Inner Ring we penetrate – power, money, liberty to break rules, avoidance of routine duties, evasion of discipline. But all these would not satisfy us if we did not get in addition the delicious sense of secret intimacy. It is no doubt a great convenience to know that we need fear no official reprimands from our official senior because he is old Percy, a fellow-member of our ring. But we do not value the intimacy only for the sake of convenience. Quite equally we value the convenience as a proof of the intimacy.
My main purpose in this address is simply to convince you that this desire is one of the great permanent mainsprings of human action. It is one of the factors which go to make up the world as we know it – this whole pell-mell of struggle, competition, confusion, graft, disappointment, and advertisement, and if it is one of the permanent mainsprings then you may be quite sure of this. Unless you take measures to prevent it, this desire is going to be one of the chief motives of your life, from the first day on which you enter your profession until the day when you are too old to care. That will be the natural thing – the life that will come to you of its own accord. Any other kind of life, if you lead it, will be the result of conscious and continuous effort. If you do nothing about it, if you drift with the stream, you will in fact be an “inner ringer” – although not necessarily a successful one. But whether by pining and moping outside Rings that you can never enter, or by passing triumphantly further and further in – one way or the other you will be that kind of man. I have already made it fairly clear that I think it better for you not to be that kind of man.
But you may have an open mind on the question. I will therefore suggest two reasons for thinking as I do. My first reason is that of all the passions the passion for the Inner Ring is most skilful in making a man who is not yet a very bad man do very bad things. My second reason is this. The torture allotted to the Danaids in the classical underworld, that of attempting to fill sieves with water, is the symbol not of one vice but of all vices. It is the very mark of a perverse desire that it seeks what is not to be had. The desire to be inside the invisible line illustrates this rule. As long as you are governed by that desire you will never get what you want. You are trying to peel an onion. If you succeed there will be nothing left. Until you conquer the fear of being an outsider, an outsider you will remain.Link here.
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