Offshore News Digest for Week of March 24, 2003

TONY BLAIR SUPPORTS FREEDOM FOR IRAQ, BUT NOT FOR UK CITIZENS

The Proceeds of Crime Act, which is being rolled out across the UK, allows forces to confiscate everything from cars and houses to bank accounts and bonds. The police said this new legislation will target everyone from the “Mr Bigs” to small-time crooks. Forces will be able to probe money laundering more vigorously, as they no longer have to prove investigations are directly linked to a particular crime.

Police have further powers to investigate the financial history of drug dealers and arms traffickers and the Crown can confiscate their assets, and also can apply for restraining orders which prevent criminals from getting rid of their assets.

On Monday, Justice Minister Jim Wallace announced that the third part of the legislation, covering provisions on “criminal lifestyle”, had been rolled out. Anyone adjudged by the courts to have a criminal lifestyle will be subject to a confiscation order.

British residents with offshore bank accounts were told last week to check they are compliant with tax laws if they want to avoid heavy penalties. The warning, from accountants KPMG, comes as the Inland Revenue investigates whether UK residents with bank accounts in Ireland, in particular, have declared them on their tax returns. The inquiry should act as a reminder that it is not legally possible for British citizens to hold money offshore without declaring it to the authorities and therefore without paying tax.

Chancellor Gordon Brown intends to press ahead with plans to close a tax loophole benefiting wealthy foreigners living in Britain, including some wealthy Labour party donors, but will invite discussion on reforms that could still be some way off. Government insiders said Mr Brown was keen to strike a balance between making the tax system fairer and simpler and not putting economic competitiveness at risk by deterring foreign business people from working in Britain.

Money deposited in GUERNSEY’s banks fell 6.8% during 2002, recording its first decline since 1996, according to the Guernsey Financial Services Commission. The number of licenced institutions has also fallen with the number now at 67. This is the lowest level since 1989.

The UK government’s independent auditor has launched a formal investigation into the controversial sale of Inland Revenue buildings to a company based in a tax haven. The structure of the deal allows the buyer to avoid paying tax on the rent and fees paid by the Revenue.

CAYMANS DELEGATION CHALLENGES EU IN COURT

A delegation of top financial and legal officers from the Cayman Islands has gone to the European Court of First Instance in Luxembourg where they are challenging the EU’s failure to respond to a request from a consultation period prior to the adoption of the savings and tax directive.

A report by several of the Islands’ leading attorneys outlining the Caymanian case stated: “In our view, we consider it strongly arguable that the EU does not enjoy competence under the European Community Treaty to direct Member States to legislate for their associated or dependent territories in the manner contemplated by the Draft Directive.”

BAHAMAS INTERNATIONAL SECURITIES EXCHANGE FUTURE UNCERTAIN

The BISX has lost $2.3 million over the last two years, and requires a cash injection of $50,000 per month from the central government. The extent to which the government has been subsidising the BISX has caused criticism from some quarters, who complain that the institution is no longer viable in its present form. However, the exchange is a vital feature of the nation’s economy and is looking at ways to create a sustainable capital market where shares can be traded, maintains Minister of State for Finance, Senator James Smith.

LIECHTENSTEIN OPPOSITION CRITICISES LAW ENFORCEMENT TREATY WITH US

According to reports in the national media, the party took issue with the lack of clarification in the treaty over exactly when the principle of double criminality is applicable, and for what tax offences mutual judicial assistance should be granted by either country. Vice Parliamentary President, Peter Wolff also reportedly slammed the inclusion of certain retroactive provisions in the agreement.

COMMERZBANK, 4TH LARGEST IN GERMANY, FINED €31.2 MILLION

FRANKFURT: Commerzbank is to pay the fine for facilitating tax evasion. Following an investigation by tax inspectors, 30 Commerzbank employees were suspected by the tax authorities of helping their clients evade taxes by opening bank accounts in Luxembourg. Ever since the German government introduced a withholding tax eight years ago, its citizens have been shifting money across the border to Luxembourg and other investment havens such as Switzerland, Liechtenstein and Austria, which do not have a withholding tax.

DUBAI POWERS AHEAD DESPITE MIDDLE EAST WOES

With the Middle East in turmoil over the Iraq war and the ongoing Israeli/Palestinian confrontation, it might seem that Dubai’s efforts to establish itself as a business hub could be held back until stability returns; but the Emirate is confident about its future and continues to plan for the development of its Dubai International Finance Centre (DIFC), which will be the region’s most modern capital market.

KOREAN PLAN TO TAX OFFSHORE INCOME

The National Tax Service is planning to impose capital gains taxes on the transfer of local stocks by foreign funds set up in tax havens. The plan is being strongly opposed by foreign investment firms operating such funds.

JUDGE BANS BOOK PROMOTING NON-PAYMENT OF US INCOME TAX

A federal judge has ordered Irwin Schiff, author of The Federal Mafia: How It Illegally Imposes and Unlawfully Collects Income Taxes, and other books and guides, to stop selling his products that claim that the payment of income tax in the United States is voluntary under the constitution.

Reacting to the judgement, Schiff retorted: “Banning a book! The government is trying to prevent me from telling the truth about the income tax,” claiming that the order violated his first amendment rights in the bargain.

A federal judge in Tampa, Florida issued a temporary restraining order requiring Gregory T. Mayer to provide the Department of Justice with a list of the names of all customers for whom he has prepared any income tax return, amended return, and/or request for refund in the past three years, as well as copies of these documents. The court’s ruling also allows the Department of Justice to seek further information from Mayer immediately to identify all of his customers.

“Getting customer lists is an important step in our efforts to stop tax return preparers who promote tax scams,” said Claire Fallon, Deputy Assistant Attorney General for the Justice Department’s Tax Division. “Federal law requires return preparers to turn over their customer lists on request of the IRS. The Justice Department is taking vigorous action to ensure that preparers comply with this law.”

IRS STEPS UP AUDITS OF WEALTHY AMERICANS

The IRS audited more high-income taxpayers in 2002 and collected $32.6 billion in unpaid taxes through traditional audits and newer programs aimed at taxpayers who never file a return or underreport their income.

The number of audits focusing on people who make more than $100,000 rose by more than 22% during the budget year that ended last Sept. 30, reflecting the beginning of a new enforcement strategy focused on those most likely to evade tax collectors. That includes companies that promote or use abusive tax schemes, individuals who hide money in offshore accounts and filers who abuse low-income tax credits.

THE RISE OF THE WALL STREET TAX MACHINE

The shelter game has been hidden and lucrative. Could it be the next big scandal? The furor that began with the revelation in February that Sprint Corp.’s two top executives attempted to avoid taxes on nearly $200 million in stock options has intensified with new disclosures about Enron’s scams.

Thousands of pages of new documents released by the Enron bankruptcy examiner and the Senate, analyzed by BusinessWeek, provide the most detailed view ever of the tax-shelter trade. In particular, they shed light on how the investment bankers, lawyers, and accountants who profited from this business created and marketed their schemes. Now these professionals are in the crosshairs of plaintiffs’ lawyers and regulators.

HOW BLUE-CHIP COMPANIES ARE PAYING FEWER AND FEWER TAXES

The federal income tax rate for corporations is 35%, but few pay that much. Over the past decade, companies across the U.S. have aggressively pursued tax-reduction strategies. Many have achieved the Holy Grail of corporate finance: steadily growing profits coupled with a dramatically shrinking tax burden. To reach that goal, they are taking extraordinary steps - everything from making tax-favored investments to shifting profits to low-tax jurisdictions overseas to reincorporating in Bermuda or other tax havens.

While the recent corporate scandals have shone a harsh light on weak corporate governance, excessive executive pay, and deceptive accounting, corporate tax avoidance has continued, largely under the regulatory radar. But that could change.

ASHCROFT EXPANDS USE OF SEARCH POWERS

Since the 9/11 attacks, the Justice Department and FBI have dramatically increased the use of two little-known powers that allow authorities to tap telephones, seize bank and telephone records and obtain other information in counterterrorism investigations with no immediate court oversight. The FBI, for example, has issued scores of “national security letters” that require businesses to turn over electronic records about finances, telephone calls, e-mail and other personal information, according to the officials and documents. The letters, a type of administrative subpoena, may be issued independently by FBI field offices and are not subject to judicial review unless a case comes to court, officials said. Attorney General John Ashcroft also personally signed more than 170 “emergency foreign intelligence warrants”, three times the number authorized in the preceding 23 years, according to recent congressional testimony.

Government officials describe both measures as crucial tools in the war on terrorism that allow authorities to act rapidly in the pursuit of potential threats without the delays that can result from seeking a judge's signature. Authorities also stress that the tactics are perfectly legal.

FEDERAL EMAIL MONITORING HELPS JAIL INTERNET BETTORS

A wire-tap investigation into illegal online betting, using email monitoring for the first time, has resulted in the conviction of a number of Wisconsin people.

INSTEAD OF AIRPORT SECURITY, WE HAVE A BLACKLIST

A second generation Lebanese-American found herself being searched every time she entered an airport. Shes called the Transportation Security Administration close to a dozen times, contacted her local FBI office, Continental Airlines and her congressman. None of these contacts yielded any information on how she got on a suspicious-persons list or how to get off. All they have given her is a royal runaround.

The reason her story should concern the traveling public is that the TSA is about to markedly expand the number of people who land in this netherworld of suspicion. A new data-mining system is being rolled out this month at three major but unidentified airports. Privacy issues aside, there is simply no evidence that this kind of data mining effectively identifies true threats. What is certain, however, is an extraordinary potential for making inaccurate assumptions about innocent activities.

TRAVELING FROM THE US TO CANADA? BRING YOUR PASSPORT.

Now that the US has taken decisive action against Iraq, all people attempting to enter the US will be under the utmost scrutiny. Under the security CODE RED, the US Border Patrol (USBP) has the ultimate authority to deny admittance to any person and/or vehicle (land, water or airborne) from entering their country without what could be considered “hard evidence”. Suspicion based on personal bias is all that is needed to reduce the flow of traffic to a trickle.

The flow of traffic from the USA into Canada has not yet been seriously affected, but people visiting Canada from the USA may well have a more difficult time getting home again. Now, more than ever, US citizens are advised to carry a valid passport, secondary ID (e.g., driver’s licence) supporting documentation as to their travel plans such as hotel confirmations, return air tickets, and to demonstrate considerable patience when crossing the border.

SCOTS ID CARD PLAN GETS GREEN LIGHT

Scots are to be issued ID cards in a controversial move to tackle illegal immigration, terrorism, identity fraud and make it easier for citizens to access public services. First Minister Jack McConnell is to place the plan at the heart of Labour’s Scottish Parliament election campaign, risking the wrath of civil liberties campaigners and his Liberal Democrat coalition partners who believe it breaches human rights.

According to Labour, the so-called “entitlement cards” would give people access to welfare benefits as well as allowing them to use buses, car parks, leisure centers and to borrow library books and pay rent. They could also contain medical information - such as blood types and allergies - and be used as a proof of age to tackle underage drinking.

But human rights campaigners are concerned they could be used by the police and other authorities to carry out identity checks and catch benefit cheats. The cards would have to be produced at police stations if requested.

THE IRAQ WAR AND THE ECONOMY

The dollar fell sharply on Monday as signs U.S.-led forces were running into more resistance in Iraq shook investors’ belief that the war would be finished quickly. Any signs of a long war play on the market’s biggest dollar fears - that the United States will be saddled with huge conflict-related costs in an environment where international investors are wary of sending savings abroad to help finance its debts and its huge trade deficit.

Weak economy leaves investors on their guard. At a time when accurate real-time assessment of the economy is at a premium, the US Federal Reserve and other central banks are watching intently the reaction of investors. In theory, markets deliver an instant analysis of all available information which might affect the economy. As Jim Paulsen of Wells Capital Management says, “the markets are the ultimate confidence survey”.

Road from Baghdad could lead to unknown fork for business. Consumers are fearful, managers are wary - and the economy is on hold. Hiring is at a standstill. Expansions are dormant. Meetings and travel are getting canceled.

The uncertainties of any war, managers say, are never conducive to strategic planning. In this particular case, there is a full slate of near-, medium- and long-term concerns. Short-term concerns are things like disrupted travel and gas prices. Medium-term are fears over whether the economy can recover should the war end quickly. And long-term anxiety focuses on a feeling that this conflict represents not just a military intervention, but also the onset of an era of costly foreign involvement not unlike the Cold War.

Insurance firms adjusting as clients demand sure bets. The philosophy “be fearful when people are greedy and greedy when people are fearful” has made prolific investor Warren Buffett a wealthy man. But wise as it may be in theory, such risk-taking requires a high threshold for stress - something that separates Buffett from most of the rest of the world. A trend toward more conservative approaches to spending money has prompted a pendulum swing in the insurance industry.

Professionals say their clients have veered away from variable-life insurance products with yields tied to the stock market and back to traditional policies with guaranteed returns. Their challenge is to help clients make choices that deal with an emotional issue in logical terms.

Middle Eastern investment money in US real estate slows. Investors from the Middle East have in recent years been pouring money into US real estate but inflows are slowing as capital shifts from the US to Europe amid strained relations with Washington.

For observant Muslims, investing according to Shariah - Islamic law - can be difficult, as the law prohibits followers from paying or receiving interest (riba), which is a part of most financial transactions in the US. This meant that until recently Muslims could only invest on an all-equity basis.

SADDAM’S WEALTH SEEN UNWELCOME IN SWITZERLAND

Switzerland said on Monday it was still mulling a U.S. request to freeze any bank accounts held by the Iraqi leadership but insisted it was unlikely illicit Iraqi funds would be found in the alpine state.

Switzerland, which has frozen assets embezzled by the late Nigerian strongman Sani Abacha, Zairean leader Mobutu Sese Seko and Ferdinand Marcos of the Philippines, is often eyed with suspicion because of its bank secrecy rules. But officials say some of the toughest “know your customer” rules in the world which are designed to ferret out abusers and protect honest clients, as well as strict guidelines on “politically exposed persons”, will have prevented both Saddam and his entourage from stashing cash in Switzerland.

IS CYPRUS REVEALING BENEFICIAL OWNERSHIP SECRETS?

Russian Federal Securities Commission chairman, Igor Kostikov, was quoted last week as telling a conference in Geneva that the central bank of Cyprus was fully disclosing to the FSC the beneficial owners of Russian companies registered in their favorite offshore tax haven.

The remarks raised eyebrows in financial and legal circles in both countries because Kostikov seemed to suggest that the Cypriot central bank was bending its own laws. The bank quickly issued an official denial that it was acting improperly and demanded clarification from Kostikov.

RUSSIA’S FLAT-TAX MIRACLE

President Vladimir Putin implemented a flat tax in 2001. Not only a flat tax, but a flat tax with a 13% rate, four percentage points lower than the supposedly “radical” plan espoused by Steve Forbes and former House Majority Leader Dick Armey. And it is been a big success. The U.S. won the Cold War, but Russia gets a flat tax while America is stuck with a Byzantine tax system based on class-warfare ideology.

The Russian flat tax has been so successful that even American politicians might learn the right lessons. Let’s look at the evidence: Russia’s economy has expanded by about 10% since it adopted a flat tax - decidedly better than occurred in the U.S. or Europe. It also appears, conventional wisdom aside, that a low tax rate does not mean less money for government. Over the last two years, inflation-adjusted income tax revenue in Russia has grown 50%. Why? Because people are willing to produce more and pay their taxes when the system if fair and tax rates are low.

The success of Russia’s flat tax should not surprise anyone. Hong Kong has had a flat tax for a long time, and it has been the world’s fastest-growing economy over some 50 years. Indeed, there are growing signs that China may implement a flat tax in the near future. Talk about a man-bites-dog story!

CHINA WORKS TO INCREASE THE FLOW OF FOREIGN CASH

The State Administration of Foreign Exchange (SAFE) yesterday announced measures which will boost the flow of foreign direct investment (FDI) into China. They contain a broader array of funding sources that foreign investors can use as their stakes in Sino-foreign joint ventures, and clarify procedural matters regarding FDI-related forex administration. The purpose of the rules is to “adapt to the new trends in international investment, attract foreign capital by a multi-channel approach, continue to optimize foreign direct investment-related foreign exchange management and further improve the environment for foreign investment,” said a SAFE spokesman.

BRITISH VIRGIN ISLANDS FINANCIAL SECTOR PERFORMED WELL IN 2002

Outlining the performance of the economy in his 2003 budget, Chief Minister and Finance Minister Ralph O’Neal gave many examples which showed that business confidence in the jurisdiction was high. Of particular strength was the captive insurance sector, where 50 new licences were granted by the government. This brings the total number of captive insurers actively managed in the territory to 282, making the BVI the world’s fifth largest centre for the captive insurance industry. He also noted that international business company (IBC) incorporations were up on last year, and that the jurisdiction continues to be a magnet for mutual funds.

ANTIGUAN GOVERNMENT CONFIRMS PLANS FOR LEGAL OFFENSIVE AGAINST US

The government of Antigua and Barbuda has confirmed plans to launch legal action against the United States over the latter’s perceived interference in the jurisdiction’s developing online gaming industry. Newly introduced laws in the US allow for the prosecution of overseas companies operating internet gaming services which can be accessed by Americans. The Antiguan authorities hope to challenge legislation such as the Interstate Wire Act before the World Trade Organisation, arguing that the US authorities are unfairly constraining the island's sportsbook industry.

BEFORE HEADING OVERSEAS, MAKE SURE YOU HAVE A PASSPORT

Many Americans - unsettled by war or anti-American sentiment - are staying home this summer. But those who do venture abroad will need a valid passort. Passport applications can be obtained at more than 5,000 venues across the country, and can be printed online at the state department Website, http://travel.state.gov/passport-services.html. For an extra $60, applicants may expedite their passport application.

SWISS TO HAND OVER FROZEN IRAQI MILLIONS

Switzerland’s largest bank, UBS, has said it will transfer frozen Iraqi-held deposits in the United States to US authorities. UBS said the funds, blocked in 1990 under United Nations sanctions, had been confiscated by the US Treasury and would be transferred to the US government soon.

The total money involved, said to be about $1.74 billion (SFr2.41 billion) without interest, comes from transactions between US oil firms and the Iraqi state oil company, the UBS spokesman added.

Swiss neutrality comes under the spotlight. Switzerland has reaffirmed its long-standing policy of neutrality following the outbreak of war in Iraq. But opinions differ in Switzerland over how that neutrality should be interpreted in the light of the conflict.

For the duration of the war Switzerland is banning military, surveillance and reconnaissance flights over its airspace by the US and its coalition partners. The government also decided to suspend military exports to all countries involved in the war. A total ban would apply to exports of government-owned military supplies to the warring parties, the government said. On the other hand, private manufacturers would be allowed to continue military exports if they could prove that the arms and material exported would not be used in the conflict.

UK rejects US bid for Iraqi cash. The chancellor of the exchequer, Gordon Brown, is unwilling to comply with a US demand that he should turn over £200 million in Iraqi assets frozen in Britain to an American-controlled account. Britain wants the UN to control the funds, which have been frozen since the first Gulf war began 12 years ago.

The Treasury said yesterday that Mr. Brown has been in talks with his US opposite number, the treasury secretary John Snow, and wanted the money to be “used for the benefit and welfare of the Iraqi people”.

“KNOW YOUR CUSTOMER”: THE NEW BUZZ PHRASE

A report released last week estimates that the U.S. brokerage industry will spend as much as $700 million through 2005 on technology and outsourcing services in order to comply with the antiterrorism and anti-money-laundering regulations of the Act. The report says brokerages spent $117 million on Patriot Act compliance measures last year and will invest about $404 million this year, when most of the Patriot Act’s provisions become law.

US money laundering rules to be imposed on Nevada gambling. Nevada casinos will have to meet new federal cash reporting rules, after the U.S. Treasury Department rejected a bid by Nevada gambling regulators to allow the state to continue with its present reporting system. The change requires casinos with gross gambling revenues of $1 million or more to file “suspicious activity reports” with the Treasury’s anti-money laundering arm, the Financial Crimes Enforcement Network (FINCEN).

Nevada Gaming Commission Chairman Peter Bernhard said state regulators had hoped the federal government would let the state continue with its own rules, which apply to casinos grossing $10 million or more per year. Some small casinos, bars and even supermarkets with large slot machine clienteles will be affected.

INFORM THE IRS OF TAX CHEATS, GET UP TO A 15% REWARD

To have a chance at collecting on your high-living relative or slimy former boss, you have to have the goods, follow procedures, ask for a reward and wait an awfully long time - it could be two years or more - for the cash. Even then, the IRS is under no obligation to give you a dime. “We determined from a study that one in 10 informants actually asks for a reward and approximately one in 10 of those gets one,” says Jeaneen Heiskell, IRS senior program analyst.

ARE YOU IRS AUDIT BAIT?

It is not necessarily wealthy filers who need to look over their shoulders. Audit rates for taxpayers with incomes of more than $100,000 continue to edge down. Meanwhile, lower-income filers, especially those claiming the complicated earned income credit, have been taking most of the recent audit heat.

The tax agency hopes to spread scrutiny around this year by reviving its random, line-by-line audits, with almost 50,000 returns expected to be examined. The IRS says this will help it gather information to better target future cheaters. The agency also is taking a look at paid preparers who push the tax-break envelope a bit too far. But tax officials acknowledge that the number of audits is not likely to rise significantly until Congress provides more money for tax enforcement efforts.

How to avoid being one of the unlucky few asked to bring your tax paperwork in for a review? The chances of being selected are greater if, in your zeal to cut your tax bill, your return sends the IRS the wrong message. Advice on how to not do that follows.

UK EXPAT PENSIONER FIGHT BEGINS

LONDON: The government is unfairly discriminating against 460,000 pensioners without even attempting to give a rational justification for it, the appeal court has been told. More than half of the 760,000 UK pensioners living abroad have their pensions frozen at the moment they retire and are denied any inflation linked increase.

The court was hearing an appeal by Annette Carson, a British pensioner now living in South Africa. Ms. Carson says the government is discriminating against her by refusing to uprate her pension simply because where she chose to live. She claims government policy is in breach of the Human Rights Act.

CHARITABLE REMAINDER AND CHARITABLE LEAD TRUSTS

These [U.S. statutory] vehicles allow taxpayers to reduce estate taxes, eliminate capital gains, claim an income tax deduction, and benefit charities instead of the IRS.

THE PHILOSOPHER OF ISLAMIC TERROR

Police in many countries, applying themselves at last, have raided a number of Muslim charities and Islamic banks, which stand accused of subsidizing the terrorists. The raids have shown that Al Qaeda is not only popular; it is also institutionally solid, with a worldwide network of clandestine resources. This is not the Symbionese Liberation Army. This is an organization with ties to the ruling elites in a number of countries; an organization that, were it given the chance to strike up an alliance with Saddam Hussein’s Baath movement, would be doubly terrifying; an organization that, in any case, will surely survive the outcome in Iraq.

Al Qaeda and its sister organizations are not merely popular, wealthy, global, well connected and institutionally sophisticated. These groups stand on a set of ideas too, and some of those ideas may be pathological, which is an old story in modern politics; yet even so, the ideas are powerful. We should have known that, of course. But we should have known many things.

THE TERRORIST ADVANTAGE

By just existing, the terrorist is causing Americans to spend billions of dollars - and is making Americans fearful and anxious. That is the terrorist advantage. He can strike anywhere at any time. His target, however, has to try to be on guard all the time everywhere. New York City’s heightened state of alert is costing it several million dollars a week it cannot afford.

The fact is, terrorists could take a year, two years or even three or more years before they strike us again. In the meantime, given the government’s desire to politicize its war on terror and the media’s perpetual hysteria, we will spend and spend on security and, given the present administration’s fear of liberty, nibble away at individual rights.

The proper way to deal with terrorists is to ignore them. That means reasonable security at airports and ports of entry, but all of this show of uniforms and guns and stupid color schemes is not going to do any good. Like the old baseball player who used to “hit ‘em where they ain’t”, the terrorists, when they are ready, will simply choose a target that is unguarded.

The Israelis have been a miserable failure at preventing terrorism (their policies generate it perpetually), but they do know how to deal with the attacks. They clean up the mess, bury the victims and go right on with their lives. They don’t talk about it for weeks on end or shut down their country. They have learned to accept it as a fact of life. There are accidents, there are storms and there are terrorist incidents. Clean up, bury the dead and go on with life.

TONY BLAIR WINS TOP 2003 U.K. BIG BROTHER AWARD

London-based Privacy International announced its 2003 U.K. Big Brother Awards, which the group presents annually to “the most persistent and egregious privacy invaders in Britain”. Prime Minister Tony Blair came away with the top prize, winning the “Lifetime Menace” award for what the group characterized as “his active involvement in the government’s attack on civil liberties.”

“The judges were overwhelmed this year with a vast number of malodorous nominations,” Simon Davies, the director of the civil liberties group, said in a statement. “Many politicians and companies since the Sept. 11 attacks jumped onto the security bandwagon without any justification.”

OECD MOVES TO LIFT CORPORATE VEIL ON SHIP OWNERS

A review by the OECD’s Maritime Transport Committee has concluded that it is easy and comparatively cheap to establish a complex web of corporate identities to conceal beneficial ownership of a vessel - thereby possibly helping terrorist organisations. Work has now moved on to the identification of remedies that could ensure adequate transparency.

CANADIAN GOVERNMENT AMENDS ANTI-MONEY LAUNDERING RULES FOR LAWYERS

The rule change acknowledges conflict with client confidentiality. Ottawa says that it intends to develop a new legislative and regulatory regime over the coming months that better takes into account the nature of the duties of legal counsel, in consultation with all interested parties. There has been some concern that the rules conflict with lawyer’s legal and ethical obligations to maintain client confidentiality.

UK MOBILE PHONES USERS CAN BE TRACKED FROM WEB SITE

A new UK web service from Overview Mapping called VeriLocation is likely to have privacy activists up in arms, paranoid employers signing up and jealous spouses addicted. The service lets you pinpoint the location of a mobile phone to within 100 meters, and even gives you a map of the area.

GROUPS LOSE CHALLENGE TO U.S. GOVERNMENT’S BROADER USE OF WIRETAPS

The U.S. Supreme Court declined to intervene yesterday in an ongoing argument over the proper boundaries for federal surveillance of suspected terrorists, rebuffing an attempt by civil liberties advocates to challenge the Bush administration on the issue. The American Civil Liberties Union, the National Association of Criminal Defense Lawyers and Arab American groups had asked the high court to consider whether the government had gone too far in permitting information gathered with secret Foreign Intelligence Surveillance Act warrants to be used in criminal prosecutions.

The justices declined to allow the groups to intervene in the case, but they did not issue a decision on the merits of either side.

The ACLU had taken the novel step of filing an appeal on behalf of people who did not know they were being monitored in an attempt to bring the case before the high court. The organization said it was disappointed but not surprised by the justices’ decision to reject that effort. “It was an unusual case because there was no one able to appeal the government’s power to spy on ordinary Americans,” said Ann Beeson, the ACLU’s associate legal director. “We are not going to give up on our many different attempts to challenge these new spying powers.”

SOUTH AFRICAN CURRENT INVESTMENT TIPS

South African equities offer plenty of value with many dividend yields around 4.5% and higher. Interest rates are expected to decline by around 3% over the next 12 months on the back of falling inflation. That should be good for the local economy and equity prices and will also support local bonds.

South African equities, although riskier than bonds, offer better value. But the global bear market dominates right now and so long as it continues it will influence our local equity prices as well - despite the apparent and compelling value. Attempting to call a turn is not for the fainthearted. Patience in local equities is at least rewarded by the attractive (tax-free) dividend yields while you wait for an improvement in prices.

MOST RECENT LETTER FROM PANAMA

The situation in Venezuela and the Latin American economy are briefly discussed.

FOREIGN INVESTMENT BEST REMEDY FOR BAHAMIAN ECONOMY

Speaking to an audience of largely Canadian Investors, Larry Gibson of Colina Financial Advisors pointed out that there is very little that the Bahamian government can do by way of reducing taxes in order to reinvigorate the economy. He argued that the jurisdiction's main driving force was foreign investment, and that attracting more overseas money is “absolutely the right thing to do” to give the economy a “quick fix”.

Gibson also urged the government not to impede prospective investors with excessive bureaucracy. “They don’t want to be dragging on for six months, and then to be told no, when they could have pursued opportunities elsewhere,” he warned.

INDIA CONTINUES TO ACT AGAINST FISCAL “ROUND-TRIPPING”

The Indian authorities are continuing with their efforts to prevent Indian-owned foreign companies from using offshore jurisdictions such as Mauritius to avoid taxation on capital gains realised on domestic share investments.

After the Reserve Bank of India issued questionnaires in February to many “Overseas Corporate Bodies” seeking information on their holdings of Indian stocks, it has now become clear that the income tax department is likely to issue notices to some Mauritius-based companies whose management - the authorities suspect - is actually in India.

OECD, FATF PRAISE THOSE WHO OBEY THEIR DICTATES

Ireland: OECD praises Ireland for taking “High Road” in tax policy. This meant that the authorities had been promoting “fierce and fair” competition, as opposed to secrecy and opaque tax policies which are practiced by countries taking the “low road”. Jeffrey Owens, who heads the OECD’s tax policy and administration unit, said that Ireland set a good example to other nations by being “relatively aggressive” when it comes to matters of taxation.

Antigua & Barbuda’s anti-money laundering regime has been given an almost exemplary evaluation by the Caribbean Financial Action Task Force (CFATF). A recent CFATF report, compiled on the basis of an exhaustive evaluation of the country in September last year, has pronounced that Antigua & Barbuda’s anti-money laundering framework is in compliance with international standards and is being properly enforced.

MANILA: At least 450 bank accounts containing a total of nearly P1 billion have been frozen by Philipine government regulators on suspicion that the money came from criminal activities, including terrorism. A report by the Anti-Money Laundering Council revealed that as of March 13, the AMLC has frozen a total of P954.392 million in peso deposits, $855,627 in dollar deposits and Y29,625 in yen deposits.

The report covered the period after the enactment of the anti-money laundering law in September 2001 and before it was amended early this month to tighten controls on the flow of dirty money. Ironically, the amendments to the law were now slowing down the AMLC because they now require the body to seek a court order before it can freeze funds, a council source told reporters. The launder law was amended so the Philippines can avoid financial sanctions from industrialized nations.

Philipine president Arroyo’s critics should her a break.

The Lebenon Central Bank has intensified its campaign against suspected money launderers after Lebanon’s name was removed from the list of countries not cooperating in the fight against dirty money less than a year ago.

Russia may become a permanent member of the Financial Action Task Force on Money Laundering (FATF) in June 2003, chairman of the Russian Financial Monitoring Committee Viktor Zubkov told a news conference in Novosibirsk.

CZECH CRIMINALS DISGUISING ILLICIT EARNINGS STAY AHEAD OF POLICE EFFORTS TO CRACK DOWN

Chinese restaurants that stand empty day and night. Jewelry shops with no customers. Nightclubs without dancers. Travel agencies that do not organize travel. These are all businesses known at times to launder money - typically by disguising illicitly generated cash as legal earnings and passing the money through the mainstream banking system.

“The introduction of anti-money-laundering legislation has simply made the cost of laundering more expensive. Launderers are becoming far more sophisticated in the way they launder,” said Michael Adlem, Central Europe director of forensic services at Deloitte & Touche. “By the time the money gets into the financial system, the money has already been through a few companies, where it is almost impossible to detect. The launderers are using more and paying more for professional services. In a perverse sort of way, the launderers will be doing more crime, because that is how they make their money back again.”

In an effort to keep up, the Cabinet March 12 approved an amendment to the Money-Laundering Act, which will oblige a wider group of professionals - beyond bank employees - to report suspicious transactions to the Finance Ministry. The amendment, which follows the EU’s Second Money-Laundering Directive introduced last year, will apply to lawyers, auditors, accountants, notaries and even real estate agents. It could come into force as early as July.

EU-SWISS SAVINGS TAX AGREEMENT HANGS IN THE BALANCE

As the EU’s Savings Tax Directive sits becalmed while Italy uses it as a hat-rack for various unrelated demands, details have emerged of the ongoing discussions between Brussels and Switzerland over the details of the withholding tax regime proferred by the Alpine country.

The Swiss have made it clear that their adherence to any Agreement with the EU is dependent on the adoption of the current EU proposal, saying: “In case the Proposal should be changed or the measures proposed by the Swiss Confederation should be regarded as not being equivalent, the Swiss Confederation would have to reconsider its position with respect to the provisions of this draft Agreement.”

ITIO WARNS OVER EROSION OF “LEVEL PLAYING FIELD”

The 16-member International Trade and Investment Organisation has called for “a strictly focused meeting of the Global Tax Forum” to discuss the erosion of the level playing field concept with regard to to the OECD's harmful tax competition initiative.

Despite delays in the adoption of the EU’s savings tax agreement as a result of Italian objections, the ITIO argued, the principle behind the EU’s decision to offer special treatment to certain countries - namely Austria, Belgium, Luxembourg and Switzerland - flies in the face of, and therefore threatens, the principles espoused by the OECD with regard to tax competition. “The proposed EU directive ignores an OECD commitment not to favor its own members over small states,” the organisation argued.

OFFSHORE INVESTORS WITH LOSSES AND THE IRS AMNESTY PROGRAM

The IRS has announced that they will not pursue civil fraud penalties or information return (non-filing) penalties for those taxpayers who voluntarily come forward before April 15th, 2003. (Rev. Proc. 2003-11) The purpose of the IRS amnesty program is to encourage those with unreported income from offshore financial accounts to come forward to provide the IRS with the names of the promoters who aided them to establish an offshore bank account, foreign trust and/or foreign corporation (IBC). The IRS will then contact the promoter to secure the names of his clients and to pursue those U.S. taxpayers who have unreported income from foreign sources.

The question is whether everyone who has any kind of offshore investment is also required to participate. The answer is that this amnesty program is for those who have income from foreign accounts that has not been reported - AND those who failed to file various information returns relating to foreign entities such as a foreign trust, foreign corporation or IBC, foreign bank account, etc.

Investors who have lost money in various offshore investment schemes may not have any need to participate in the program so long as they did not receive any income from their offshore investment at any time. In fact, such taxpayers may be entitled to file an amended return to claim a tax refund for their losses. In some cases, it may be possible to claim a loss even for an investment that simply became worthless.

IMF ADMITS ITS POLICIES SELDOM WORK

The International Monetary Fund, the Washington-based bank set up to police the financial globe and assist the Third World, yesterday made the startling admission that the policies it has been pursuing for the last 60 years do not often work. In a paper that will be seized on by IMF critics across the political spectrum, leading officials reveal they can find little evidence of their own success.

Countries that follow IMF suggestions often suffer a “collapse in growth rates and significant financial crises”, with open currency markets merely serving to “amplify the effects of various shocks”.

A recent study by the United Nations reported that the 47 poorest countries in the world - the biggest recipients of loans from the IMF and the World Bank - are poorer now than they were when the IMF was founded in 1944.

US STEEL TARIFFS RULED ILLEGAL

The United States lost a major trade fight to Europe on Wednesday with the World Trade Organization ruling that the steel tariffs imposed by President George W. Bush last year were illegal. The administration said immediately that it would appeal the decision. While the trade decision was interim, with the final report expected next month, it is rare for an interim decision to be reversed.

Bush imposed tariffs of nearly 30% on most types of steel imported into the United States from Europe, Asia and South America last spring, the biggest government action to protect a domestic industry in several decades. The case against the tariffs was brought by the European Union, which charged that the United States was illegally protecting the steel industry.

Pascal Lamy, the European Union’s trade commissioner, called the tariffs “unjustified, highly protectionist U.S. measures.”

The ruling is the latest in a series of setbacks for Washington at the WTO, and it evoked some unusually pointed denunciations of the organization by leading members of Congress.

NEW STEALTH TAX COULD SPARK EXODUS OF ENTREPRENEURS FROM UK

Next month will see the introduction of a new stealth tax which will hit entrepreneurs handing their wealth down to their children. It has prompted many of the UK’s most celebrated businesses men and women to say they will consider taking their firms offshore as a consequence. The measure - which was announced in 1998 and will take effect on April 6 this year - will abolish tax relief on shares or business assets that are passed on to children.

EUROPE’S FLEDGLING EQUITY CULTURE IN DANGER OF COLLAPSE

Remember Tulip Mania? That was the notorious episode in the 17th century when the Dutch and other Europeans speculated in tulip bulbs, driving prices sky high, until the market crashed. Merchants, housewives, sailors - everyone lost big-time. It took a long time for the Dutch to recover their taste for investments of any kind.

A similar scare is working its way today through the ranks of Europe’s retail investors. It is easy to see why. Many investors got into the market only within the past decade, sinking savings and retirement money into privatized state-run companies that seemed conservative, safe, and secure. The list of such companies that have since blown apart because of bad luck, risky acquisitions, or poor management stretches around the block. Now, the stock of most of those companies is worth 20% or less what it fetched in 2000.

Retail investors may not be selling what they already own: They are disciplined enough not to sell at what could be the bottom. But, says a London fund manager, they are not buying new shares or stock mutual funds. If the share aversion persists, it could be bad news for Europe.

SEC TAKING A “LONG, HARD LOOK” AT HEDGE FUNDS

Much stricter regulation may not be far away. Secretive, powerful and very lightly regulated, hedge funds have a glamour about them that the rest of the investment world can only dream of. Recently, with traditional investments in the doldrums, such funds have been attracting more and more investors.

That worries both the Securities and Exchange Commission and Eliot Spitzer, the New York attorney general who was instrumental in separating investment banking from research on Wall Street. They fret that unsophisticated retail investors may lack the protections they need. The SEC has been examining hedge funds since last May. In a speech this week, William Donaldson, the SEC’s chief, signaled that hedge-fund regulation may soon be tightened. The SEC has invited representatives of the industry to a public “roundtable” in May to discuss investor protection.

British investors denied easy access to hedge funds. Hedge-fund investing is set to remain the preserve of the ultra wealthy after the Financial Services Authority on Wednesday shied away from relaxing rules to allow retail investors greater access to these unregulated investment products.

“The feedback we received did not indicate a great desire on the part of hedge-fund advisers to provide or sell hedge funds as retail products. Nor was there evidence of significant demand from retail investors,” said Gay Huey Evans, director of markets and exchanges at the FSA.

BRACING FOR BUSH’S WAR AT HOME

A new, comprehensive review of Bush’s growing presidential power hardly reveals any “holes”. Rather - using court positions, internal policy changes, and secret decisions as bricks - the administration has built the executive branch into a fortress, nearly invulnerable to the checks of the judiciary and Congress. Most alarming, according to the watchdog authors of the 96-page report, “Imbalance of Powers”, the complexity of this historic expansion continues to mask its true proportions.

“You have to connect the dots,” said Elisa Massimino, Washington, D.C., director of the Lawyers Committee for Human Rights (LCHR), a 25-year nonprofit defender of civil liberties and humane policy. LCHR analyzed hundreds of pages of legislation, policy directives, and congressional records, plus a spate of major court cases such as the suit challenging the indefinite detention, without representation, of accused American “dirty bomber” Jose Padilla. The big picture shows an “executive branch amassing so much more power,” said Massimino, even in the past six months alone. But since many developments have occurred “under the radar,” she said, few members of Congress, let alone of the public, could easily map out such a blueprint on their own.

Even with the existing behemoth, Massimino said, a “quantum leap” in executive branch authority is possible. She referred to the recently leaked Justice Department draft bill, the Domestic Security Enhancement Act of 2003, commonly known as Patriot Act II. “It would make over 100 changes to existing law,” she said. But as recently as March 4, Attorney General John Ashcroft was being coy about it, refusing to discuss any of the 86-page draft at a Senate hearing.

The Justice Department lifted a requirement Monday that the FBI ensure the accuracy and timeliness of information about criminals and crime victims before adding it to the country’s most comprehensive law enforcement database. Officials said the change, which immediately drew criticism from civil-liberties advocates, is necessary to ensure investigators have access to information that cannot be confirmed but could take on new significance later.

The change to the 1974 U.S. Privacy Act was disclosed with an announcement published in the Federal Register. The Privacy Act previously required the FBI to ensure information was “accurate, relevant, timely and complete” before it could be added to the system.

FBI SEEKS INTERNET TELEPHONY SURVEILLANCE

The FBI and Justice Department are worried that Voice Over IP applications may become safe havens for criminals to communicate with one another, unless U.S. regulators make broadband services more vulnerable to lawful electronic eavesdropping, according to comments filed with the FCC this month. The government filing was prompted by the efforts of telecom entrepreneur Jeffrey Pulver to win a ruling that his growing peer-to-peer Internet telephony service Free World Dialup is not subject to the regulations that govern telephone companies.

Free World Dialup (FWD) has been called “Napster for Phones”. It is a free service aimed at developing Internet telephony as a mainstream alternative to the public switched telephone network. After an initial investment of about $250 for a Cisco SIP telephone - a device that functions much like a conventional analog phone, but plugs directly into an IP network - users can “dial” each other over the Internet anywhere in the world at no cost. FWD provides a directory service that assigns each user a virtual telephone number, and sets up each phone call. Since it was launched in November, the service has gathered over 12,000 users.

In seeking a declaratory ruling that it is outside the FCC’s jurisdiction, it turns out that one of the regulations from which FWD would be incidentally exempt is the Communications Assistance for Law Enforcement Act (CALEA), the federal law that required telecommunications carriers to modify their networks to be wiretap-friendly for the FBI.

TAXPAYERS’ ONLINE DATA PROTECTED, IRS SAYS

The IRS’s free online tax-filing program provides adequate protections for taxpayers and their confidential information, the agency said. A group of consumer organizations charged this week that some companies participating in the program are using it to market products and services to taxpayers without properly obtaining the taxpayers’ consent.

MARRIED COUPLES COMPRISE THE LION’S SHARE OF “WEALTHY” AMERICANS

Most married couples, especially those with children and a house in the suburbs, consider themselves distinctly middle-class. But according to IRS statistics, more than one out of every three married couples – 21 million in all – are statistically “rich”, with incomes high enough to put them in the top 20% of tax filers. Indeed, of those Americans in the top quintile, 85% are married couples. By contrast, just 1 of every 7 single or non-joint filers is in the top income group. At the other end of the income spectrum, 85% of those in the lowest group are single workers or non-joint filers, such as heads of household.

CANADIAN BANKS CONSCRIPTED IN WAR ON TERRORISM

As of January, banks were required to report all cash deposits over C$10,000 to the Financial Transactions and Reports Analysis Centre of Canada (FINTRAC), an arm of the federal Department of Finance. Beginning Monday, they will also be required to report to FINTRAC all international electronic fund transfers over C$10,000. They are also required to report all suspicious transactions.

For a bank with close to 1,000 branches, dealing with millions of transactions every day, the search for suspicious activity is “a very onerous process” that cannot be done accurately or efficiently without technology, says Lloyd Darlington, president and chief executive officer of Bank of Montreal’s technology department.

But the technology is costly and, as banks invest in automated reporting systems and software for detecting patterns of money-laundering activity, they are also keeping an eye on their own bottom lines. Even though people in financial institutions are anxious to play their part in the war against terrorism, they are also aware that spending money to comply with government regulations does not directly help their customers, Mr. Darlington says.

UK TO TAKE DNA FROM ALL SUSPECTS

British police could take fingerprints and DNA samples from every suspect brought to a police station - even those who are not charged with a crime - under new rules proposed by the government. Officers can currently take samples only from suspects once they have been charged with an offence.

The government says allowing police to fingerprint all suspects would make it harder for criminals to assume false identities. “Taking the fingerprints of an arrested individual means police can be 100 per cent certain about the identity of the person in their custody,” said Home Office Minister Lord Falconer. “This stops suspects getting away with lying about their identities and prevents the release of those wanted for a previous offence.”

The DNA samples would be kept indefinitely, added to a growing national database which currently has 1.8 million samples.

YOUR BRAKE PADS MAY HAVE SOMETHING TO SAY

Turning the key in a car’s ignition does more than bring the engine roaring to life. It also starts a steady stream of data flowing. Small computers throughout the car gather information from an array of sensors to control motor functions, like firing the spark plugs, and mechanical operations, like shifting automatic transmission gears. Computers sometimes even briefly wrest control from the driver to stop brakes from locking on slippery roads or to prevent out-of-control spins.

But the data may have a role to play beyond the car’s minute-to-minute functioning. Automakers hope it can be recycled to help maintain a car as well as operate it. By harvesting the digital signals and transmitting them to a central database, researchers plan to develop systems that could warn motorists and mechanics of potential problems before a breakdown occurs.

Privacy concerns will be pressing when it comes to consumers and their personal cars. Sally Greenberg, senior product safety counsel for Consumers Union, said that telemetric systems, like the airbag data storage systems already in cars, might be misused by insurance companies or car dealership service departments. A telemetric database could possibly provide a long-term profile of where a car has been and how it has been driven.