Offshore News Digest for Week of December 1, 2003

CONFISCATED CASH FUNDING ALABAMA POLICE

Millions of dollars forfeited by drug suspects have helped Alabama law enforcement agencies purchase equipment and deal with budget cuts. State and federal laws, along with U.S. Justice Department guidelines, strictly outline when money can be seized, how it must be handled, and finally distributed.

In October 2002, Alabama State Troopers seized $1.3 million that a woman was transporting in a van on Interstate 20/59. The woman was not charged with a crime, but the troopers took 150 pounds of bills bundled in cellophane and hidden in her vehicle. She had the chance to appear in court to prove that the money was legitimately hers, but she has not been heard from since.

On Oct. 9, deputies with the Tuscaloosa Sheriffwts Office stopped a southbound driver on I-20/59 and found a hidden compartment containing $824,605. U.S. Attorney Alice Martin filed charges against the man, Javier Garcia-Lara, 37, of Mexico, under a provision of the Patriot Act. He was charged with attempting to evade currency-reporting laws. In 2002, the sheriff’s office seized $2.9 million. Once it was determined that the money came from narcotics activities, $1.9 million came back to the department.

The Alabama Department of Public Safety also is working on making these types of busts. Two troopers have been working on felony detection full-time for the past two years. When any member of law enforcement seizes money from a driver, it is up to them to prove that it is of suspicious origin, Major Patrick Manning, chief of the Alabama Department of Public Safety’s highway patrol division, said.

IRS ARROGATES STALINIST POWERS TO PUNISH DISSENTERS

In a precedent-setting case, the IRS wielded new power to punish the political speech of those who “espouse views” the government considers “inconsistent” with government-held beliefs. In a hearing originally closed to the public in a secret tribunal on a military island, but moved to a public location after protests from the press and the public, the IRS wants to wield this power against a former IRS whistleblower who was forced to resign upon his discovery of fraud in the agency.

The IRS, through the small office of “Director of Practice”, claims the authority to wield carte blanche authority over all the other powers of government -- the authority to monitor, surveil, and eavesdrop on political dissenters, the authority to pry into the private financial records of banks, businesses, and taxpayers, the authority to conduct secret investigations under a criminal grand jury, and the authority to censure political dissenters by branding on them a badge of infamy and stripping them of governmentally-protected licenses. In short, under the guise of a “practice” investigation, the IRS claims the right to wield all intrusive and invasive powers of government available.

The IRS claims it can exercise this authority in a secret proceeding without allowing a person the opportunity to cure any alleged mistakes, the opportunity to prepare a defense by knowing the exact facts they are accused of, without any opportunity for discovery, without any opportunity to call witnesses necessary for their defense, without any opportunity to cross examine their accusers, without any opportunity to testify at their own hearing about the merits of their position, without being forced to testify against themselves without such an assertion being held against them, and without even an opportunity for a hearing on the evidence.

Too Hoover-ish to be true in modern America? Just read the case of the IRS against Joe Banister scheduled for a “hearing” -- a hearing where the IRS prohibited Banister from introducing any witnesses or presenting any evidence as to his defenses, and even discussing the sincerity, the truth or the “reasonablenes”q of his positions -- on December 1 in the Tax Court chambers of the federal courthouse in San Francisco. History is being made.

GLOBAL EYE -- NAKED GUN

Don’t kid yourself -- and don’t let them kid you. When they come at you with that pious sugar, telling you how they are going to protect you, secure you, keep you free, you better run and check the back door -- because that is where their goons will be breaking in.

Last week, the U.S. Congress approved an expansion of FBI powers that will allow Attorney General John Ashcroft’s federal police to arbitrarily seize records from a range of private businesses without bothering a judge or grand jury with any silly-billy nonsense about evidence or even suspicion of criminal intent. All Ashcroft’s boys have to do is say, “Boo! Terrorism!” and they can take whatever they want. This expansion of Patriot (sic) Act powers was smuggled into the funding bill for the Bush Regime’s security organs. Although the FBI is technically under the supervision of the Judiciary committees, Bushist bagmen in Congress routed the measure through the secret sessions of the intelligence committees to avoid any public debate

ORWELLIAN EYES

Surveillance technology reminiscent of George Orwell’s futuristic Big Brother in his book 1984 is all possible now thanks to technology being developed or on the market in the United States and Europe. “We’ve reached a point where a 1984 surveillance society is technologically possible, and that trend was accelerated by the events of September 11, said Barry Steinhardt, director of technology and liberty programs at the American Civil Liberties Union. “The technology is developing at the speed of light, but the laws that protect us go back to the stone ages.”

Pennsylvania-based TransCore offers a windshield tamper-resistant transponder that notifies the DMV when insurance lapses, emissions tests are needed, or registration is not in compliance. The transponder can be read by roadside posts, and also will signal mechanical problems or unpaid traffic tickets.

“[W]e need to get a handle on how we are using this technology, we need to have some laws to govern how these technologies are employed before it’s too late and it runs away with our lives,” Mr. Steinhardt said.

Credit-card implant provokes criticism.

An under-the-skin implant that makes credit card payments via radio signals is attracting widespread criticism from technologists, privacy lobbyists and security experts. Advanced Digital Solutions in Palm Beach, Florida, announced a plan to turn its rice-grain-sized Verichips into a method of payment at ID World 2003 in Paris, France recently. ADS claims its Veripay system, which is based on radio frequency identification (RFID) technology, would end the problems of identity theft and make it impossible to lose your credit card.

However, Veripay’s opponents say that it has technological limitations, would compromise the wearer’s privacy and could be less secure than a conventional credit card. Richard Smith, an internet security and privacy consultant, says the device poses a security risk. The implanted tag could potentially be accessed by a bogus reader, unknown to the owner, and the signal “cloned”.

Subdermal RFID chip furor warranted?

There is no apparent benefit to the consumer from this RFID application. Someone’s business will benefit, but you will be walking around with a chip in your arm carrying personal and/or financial information which can be scanned without your knowledge. Well, that is what Joe Public seems to think, as exemplified by the story of Wal-Mart and its attempt to use RFID inventory control. This is just one example of possible applications which have a whole raft of civil liberties and consumers’ groups calling for a moratorium on all RFID chips.

But could this not be just another Big Brother-style panic induced by the prospect of fleets of black helicopters disgorging RFID scanner-bearing lizard people bent on the subjugation of the human race? Surely there must be some practical application for this skin-deep technology?

SOME NON-TAX MOTIVATED REASONS TO GO OFFSHORE

[Every so often we reprise certain pieces from the web site of Vernon K. Jacobs that speak to the fundamental reasons for and mechanisms of going offshore. This piece was written before all of the post-9/11 legislation and technology that further restricts privacy and liberty came into being, and yet makes a compelling case for jurisdictional diversification.]

For those who are concerned or fearful about “going offshore” for asset protection, investments or even for business, it may be helpful to remember that risk is relative. Jumping out of a two-story window is certainly high on the risk scale, but if the building is on fire and you cannot get out any other way, the two-story jump is a lot less risky than staying where you are. Before discussing some of the ways in which you can reduce the risk of losing your assets by moving them offshore, let us look at some of the alternatives and the reasons why an increasing number of people in the US are moving some of their assets offshore.

There is a rancorous debate going on between those who believe there is "no place like home" (the USA) and those who believe the USA is rapidly becoming a police state in which our traditional liberties are being circumvented by a host of devious laws. The USA does continue to offer many economic and personal benefits not readily available in other countries. But there are cancers growing in the body politic and some fear they are irreversible. Those in the USA who are financially successful are not safe or secure in their possessions for many reason. Perhaps the best reason to have some assets offshore is the possibility that the USA will establish currency controls and will prohibit citizens from taking any assets out of the country. And -- there are other benefits in having some assets offshore.

YEAR END TAX PLANNING FOR 2003

After about 35 years of helping people to save taxes, my considered opinion is that tax planning is best done all year long. But for those who procrastinate, it is better to do something late in the year than to wait until the year is over. Among other issues, each dollar of federal tax that you can defer to next year will most likely also result in the deferral of another dollar for estimated taxes and some deferral of state income taxes. When I say “do something” I do not mean throwing good money into something that is worthless just to defer taxes.

However, for long term tax savings, you must continue to make these same expenditures at the end of each year in order to avoid having the tax benefit for this year turn into higher taxes next year or the year after. Having made that caveat, the basic choices near the end of the year are to (1) defer income, (2) accelerate deductions and credits, (3) make exempt gifts.

For high net worth taxpayers, any gifts that they want to make need to be made before the end of the year in order to utilize the annual exemption of $11,000 per recipient. Married couples can make exempt gifts of up to $22,000 per recipient. One type of deduction that does not have to be made until the date that you actually file your tax return is the IRA contribution. But if you are self employed and want to contribute to a SEP-IRA or a Keogh plan, you will need to establish the plan before the end of the year.

LAWYERS GEAR UP FOR SUITS ON TAX SHELTERS

Accounting firms may have weathered a storm of criticism on Capitol Hill for promoting dubious tax shelters, but the pressure on them could be just starting to intensify. In the past year, several former clients have sued top accounting firms like KPMG and Ernst & Young, alleging that the firms advised them to enter into illegal tax shelters that are now being audited by the IRS.

That trickle of lawsuits, however, could become a much bigger wave in coming months, lawyers involved in some of the cases say. The U.S. Senate hearings and the IRS crackdown on tax-shelter promoters and wealthy clients who used them have given lawyers more to work with. “The potential liability is huge for the promoters. I wouldn’t at all be surprised to see an enormous number of suits because the number of taxpayers involved is really large,” said Joseph Bankman, a professor at Stanford Law School who has researched tax shelters. “I don’t think any of the defendants are going to look very sympathetic. If I were the promoters, I’d be very worried.”

California announces new assault against abusive tax shelters.

California’s Franchise Tax Board Chair and Controller Steve Westly has announced a Voluntary Compliance Initiative to encourage state residents who may have used illegal tax shelters to amend their tax returns and escape potentially harsh penalties. Legislation signed in October this year has increased the enforcement powers of the FTB in the realm of tax law and it allows the board to impose heavy fines on offenders. It has also signed an information sharing agreement with the IRS in order that both agencies can cooperate in the tracking down of those suspected of tax crimes.

Tax shelters being abused, Canadian charities say.

A group of charity managers is calling on the federal government to crack down on the misuse of tax shelters that involve charitable donations. The shelters are known as “buy low, donate high” arrangements. They typically involve promoters who buy large volumes of items, often works of art, at a discount. The promoter then arranges for clients to donate the items to charities at an appraised value. The clients receive tax receipts from the charities based on the appraisals, which are higher than the purchase price.

The Canadian Association of Gift Planners says these arrangements should be stopped because they are not genuine donations and hurt charities. Malcolm Burrows, chair of government relations for the association, which represents about 1,200 managers at charities across the country, said that these donations can often end up costing charities money. By law, charities must hand out 80% of the donations they receive. If a charity receives a piece of art appraised at $1,000, it must disperse $800. However, if the charity cannot get the appraised value for the artwork, it may have to use other money to meet the 80% quota.

A SMALL OPENING FOR BRITISH TORIES TO TRY FOR ELECTORAL VICTORY

With the Tory party facing defeat at the third election in a row, no ambitious young tiger would want to be leader at this juncture. Hence Michael Howard. He has never quite made it, but is an experienced politician with absolutely nothing to lose, now handed a quite unexpected, even if minuscule, chance of the great prize. He is rather like Cicero trying to restore the Republic after the dictatorial Caesar -- who had played a critical part in its decline -- had been assassinated.

Tories to push for tax holiday.

Voters could get a special Bank Holiday to mark the date when they stop working for the taxman, Michael Howard said in his first party political broadcast. A Tory government would introduce the measure to help people decide if they were getting genuine value-for-money in return for the tax they pay.

CAYMANS FACES UK ULTIMATUM OVER EU DIRECTIVE

The UK will demand that the Cayman Islands drop its fierce opposition to implementing the EU’s savings directorate and comply with the EU crackdown on tax evasion. The Caymans fears significant parts of its financial services industry could move elsewhere because of the EU directive, which seeks to tax cross-border interest payments to EU residents from 2005. Singapore is expected to be a big winner from the directive and is welcoming European private banks that want to develop their wealth management operations.

The confrontation between the UK and one of its dependent Caribbean territories is threatening the EU offensive against tax cheats because the initiative cannot start without the Caymans’ participation. Dawn Primarolo, UK treasury minister, is due to convey the offer of certain tax concessions to the Caymans if it gives a commitment to implement the directive. But she will warn the islands’ ministers at a meeting in London that UK will legislate to enforce compliance with the EU directive.

The Caymans’ banking sector is the fifth-largest in the world and is a leading center for hedge funds. But a study suggests the EU directive could prompt European investors to snub the Caymans, leading to bank closures. All five of the UK’s dependent territories in the Caribbean are supposed to comply with the EU directive. The Cayman Islands is the only territory that has not given a commitment to do so.

Caymans defiant in dispute over tax status.

The U.K. Treasury has failed to extract an explicit commitment from the Cayman Islands to comply with a EU crackdown on tax evasion, but will hold further talks to try to resolve the dispute. Banking laws in the Caymans guard the confidentiality of information on deposits in its offshore financial companies in most circumstances. It does not collect taxes on deposits and officials there say the EU measures would force their government to disclose information on investors or pay a withholding tax on interest earnings.

Britain is willing to give official recognition to the Cayman stock exchange, which would provide tax relief on shares held by UK investors. However, this falls short of the Caymans’ demands, which include better access for their financial products to EU markets.

The risk to business is not the only reason the Caymans are reluctant to sign up to the directive. Relations with the UK were badly strained in January when it emerged that MI6, the British intelligence service, had an agent there apparently monitoring suspicious transactions.

GIBRALTAR LEADER WINS THIRD TERM

A lawyer who led a campaign against allowing Britain to share sovereignty of Gibraltar with Spain won a third straight term as the tiny British colony’s chief minister. Peter Caruana’s center-right Gibraltar Social Democratic Party won 51% of the vote in Thursday25s general election. Caruana’s chief rival, former union leader Joe Bossano, won 39% of the vote. Caruana’s victory was narrower than the previous election in 2000, when he defeated Bossano by nearly 18% points. Caruana first took power in 1996 by unseating Bossano. Caruana, 47, is credited with overseeing Gibraltar’s emergence as a vibrant offshore banking and financial center with virtually no unemployment.

Control over Gibraltar, a chunk of land with some 30,000 inhabitants located at Spain’s southern tip, has been disputed since Spain ceded sovereignty to Britain in 1713. The issue dominates Gibraltar’s politics. Last summer, after Britain and Spain announced they were considering sharing sovereignty over the Gibraltar, Caruana traveled to London to denounce the plan and appeared in the international media. He convened a nonbinding referendum in which 99% of the colony’s voters rejected it. Britain responded by saying it would never act against the will of the local population, and the plan has now been shelved.

JERSEY RETURNS $149 MILLION OF ABACHA MONEY TO NIGERIAN GOVERNMENT

Some US $149 million of missing state funds traced to the family of the late Nigerian military ruler Sani Abacha have been returned to the Nigerian government by Jersey. Finance Minister Ngozi Okonjo-Iweala told reporters in the capital Abuja on Wednesday night that this sum was in addition to $618 million stashed away in Swiss banks which Switzerland had pledged to return to Nigeria. Okonjo-Iweala led a delegation to Switzerland last week for discussions on modalities for the release of these funds. Before her departure she said the Swiss authorities had agreed to return the money on the condition it would be spent on welfare programmes that would benefit ordinary Nigerians.

President Olusegun Obasanjo’s government estimates that over US $4 billion of public funds were siphoned into secret overseas accounts by the Abacha family and close associates during military strongman’s five years in power. Abacha’s iron rule of Africa’s most populous country and biggest oil exporter ended in 1998 when he died suddenly from an apparent heart attack. Obasanjo, who had been imprisoned by Abacha on suspicions of plotting a coup, was released soon afterwards and went on to win the presidential election 1999. He was returned to power for a second four-year term in a fresh poll last April.

COMPLEX DEALS PERMIT SCOTTISH ESTATE TO AVOID TAXES

An entire Highland sporting estate, complete with its own “fairytale castle”, has temporarily “vanished” in an entirely legal transaction that avoids UK tax liabilities. Ownership of the estate cannot currently be traced in Scotland after an international card shuffle of title deeds has led to the Corrour estate changing hands between three companies in Scotland and the Cayman Islands over the last four months. All the companies are ultimately controlled by the estate’s owner. Two of the companies are now in liquidation and the estate’s legal advisers say a further change of ownership has now occurred.

This complex series of transactions, monitored by the Who Owns Scotland land project in Edinburgh, has resulted in Corrour Estate Ltd now being in liquidation, with liabilities of more than £8 million. Moving ownership of the estate to its offshore parent company has seen a total of £24.8 million ( a £16.8 million loan and £8 million sale receipt) coming into the UK free of any tax liability.

Accountancy experts who have seen the Corrour paper trail uncovered by Who Owns Scotland confirm that such transactions, typically involving land or property assets, enable companies to move large sums in and out of the country while avoiding capital gains tax in the UK even though they remain exposed to general corporation tax.

SHEVARDNADZE’S EXIT GREASED BY WASHINGTON?

The latest recipient of Washington’s “regime change” was not some miscreant Muslim state but the the mainly Christian mountain nation of Georgia. Eduard Shevardnadze, the 75-year-old strongman who has ruled post-Soviet Georgia’s 5.1 million citizens since 1991, was overthrown by a bloodless coup that appears to have been organized and financed by the Bush administration. Shevardnadze’s sin, in Washington’s eyes, was being too chummy with Moscow and obstructing a major U.S. oil pipeline, due to open in 2005, from Central Asia, via Georgia, to Turkey.

Georgia occupies the heart of the wild, unruly, and strategic Caucasus region. The entire region is near a boil. The sharply increasing rivalry between the U.S. and Russia for political and economic influence over this vital land bridge between Europe and the oil-rich Caspian Basin promises a lot more intrigue, skullduggery and drama.

RUSSIANS ACCUSED IN CRIMINAL COMPLAINTS FILED IN SWITZERLAND

Two ex-bankers filed a criminal complaint with the Swiss attorney general against Mikhail Khodorkovsky, Platon Lebedev, and Alexei Golubovich, accusing them of money laundering and support for a criminal organization. The former bankers have requested the federal officials in Switzerland to open an investigation into the charges and to search the records of the Swiss offices of Menatep SA, Menatep Finances SA and Valmet (in liquidation) and of Bank Leu related to investigate claims of fraud against the Russian company Avisma and money laundering by Menatep in Switzerland.

The complaint was filed with Attorney General Valentin Roschacher in Bern by Andre Strebel, a Swiss citizen, and Ernest Backes, of Luxembourg. The Swiss anti-money laundering law allows such private actions. The complaint says that Khodorkovsky, Lebedev, and Golubovich are or were owners in Switzerland of the Swiss companies. It claims that since its creation, “the Bank Menatep SA has been mixed with the affairs of members of the Russian oligarchy and criminal organizations, such as Mikhail Khodorkovsky and Alexander Konanykhine. It is also related to another mafia figure, Semyon Mogilvich, called the godfather of organized crime in Russia.”

HOW SOVEREIGNTY IS KEY TO IRELAND’S SUCCESS

There is broad agreement among economists about what gave rise to the spectacular rate of growth of the Irish economy since 1987. This saw Ireland overtake both the UK and the OECD average in terms of real GDP per capita. This success is down to six major influences over the past 40 years, for the origins of the story are to be found in events as far back as 1959.

The Irish economy was then in a dreadful condition, the result of 25 years of high tariffs and restrictions on inward investment. In 1959, Sean Lemass became prime minister and initiated a reversal of economic policy. The new policy of openness to trade and the attraction of inward investment is one that all governments have since followed. He saw that the only way forward was through increasing employment in manufacturing for export. Since Ireland had no tradition of manufacturing, this meant attracting foreign direct investment. So began a policy which delivered its full fruits in the 1990s.

The key features of Irish industrial policy have been consistency, focus, realism and the tax structure. Consistency means that policy has evolved without abrupt shifts when governments have changed. Long-term commitments on taxation and profit expatriation have been honored. The principal tax incentive of a low, sometimes zero, rate of corporation tax was originally offered, together with capital grants, to selected foreign investors. Now, a uniform 10% rate applies to foreign and indigenous firms alike.

HONG KONG ECONOMY SURGES ON CONSUMER-DRIVEN RECOVERY; RECORD DEFICIT FORECAST

Hong Kong’s economy surged in the third quarter according to the latest economic data as consumer spending, tourism and exports combined to boosted the city’s GDP by a staggering 6.4% compared with the second quarter. “For eight quarters, Hong Kong has flown on one engine: trade. This report shows private consumption beginning to accelerate, which is the key to sustainable growth at this pace,” Ben Simpfendorfer, an economist with J.P. Morgan & Co, said. He also believes it marks the beginings of a more sustainable recovery. “This is more than a blip.”

However, the economy remains in the grip of a long deflationary cycle. The government estimates prices will fall a further 2.7% this year, and unemployment remains at near record levels, standing at 8.3% in the third quarter. The government also announced that the budget has widened to HK$81.1 billion (US$10.44 billion) month-on-month compared to HK$74.3 billion in the first seven months of 2003. It anticipates a record deficit of HK$78 billion by the end of the year.

PUERTO RICAN BANKING INDUSTRY LOOKS STRONGER THAN EVER

Total assets and net income up 65% and 62% in four years. While most sectors of Puerto Rico’s economy have gone into a holding pattern during the economic slowdown -- at times recession -- of the past four years, commercial banks, mortgage lenders, and credit unions have grown by leaps and bounds. Loans, in particular, have shown spectacular growth amid a recession, playing a key role in keeping the local economy afloat. In less than four years, since January 2000, domestic commercial banks and mortgage lenders in Puerto Rico have pumped a whopping $54 billion into the island’s economy through consumer, mortgage, and commercial/industrial loans.

THE BUSH BETRAYAL

In 2000 George W. Bush campaigned across the country telling voters: “My opponent trusts government. I trust you.” Little wonder that some of his supporters are now wondering which candidate won that election. Federal spending has increased by 23.7% since Bush took office. Education has been further federalized in the No Child Left Behind Act. Bush pulled out all the stops to get Republicans in Congress to create the biggest new entitlement program -- prescription drug coverage under Medicare -- in 40 years. He pushed an energy bill that a colleague described as “three parts corporate welfare and one part cynical politics ... a smorgasbord of handouts and subsidies for virtually every energy lobby in Washington.”

It is a far cry from the less-government, “leave us alone” conservatism of Ronald Reagan. Conservatives used to believe that the U.S. Constitution set up a government of strictly limited powers. That is what lots of voters assumed they would get with Bush. A Los Angeles Times poll in September 2000 found that Americans preferred “smaller government with fewer services” to “larger government with many services’ by 59 to 26%.

But that is not what voters got. Leave aside defense spending and even entitlements spending: In Bush’s first three years, nondefense discretionary spending -- which fell by 13.5% under Ronald Reagan -- has soared by 20.8%.

The Republican party has abandoned conservatives.

The Medicare prescription drug bill passed by Congress last week may prove to be a watershed event for political conservatives in America. This latest expansion of the federal government, potentially the largest in our nation’s history, is firmly in keeping with the failed New Deal and Great Society programs of the utopian left. This leaves true conservatives, who believe strongly in limited government and identify with the Goldwater-era Republican party, wondering whether they still have a political home in the modern GOP. In the eyes of many conservatives, today’s GOP simply has abandoned its limited-government heritage to buy votes and gain political power in Washington.

The unfortunate truth is that the Bush administration, aided by a Republican congress, has increased spending more in three years than the previous administration did in eight. Consider that Mr. Bush has not vetoed a single bill, nor does he even bother to employ conservative rhetoric. Furthermore, the outlook for spending restraint during a second Bush term is nil.

The irony is that conservatives suffered through decades of Democratic control of Congress, always believing that liberals were to blame for the relentless growth of the federal government. When Republicans finally took control of Congress in 1994, many saw an opportunity for a real conservative revolution. But first, conservatives were told, the Democratic administration had to be removed. The latest line is that the GOP needs a filibuster-proof Senate of 60 Republicans, and then, finally, the party can begin to implement a conservative agenda. At what point will conservatives stop accepting these excuses?

PATRIOT ACT CREATORS VOICE CONCERN OVER PATRIOT ACT

The Justice Department’s war on terrorism has drawn intense scrutiny from the left and the right. Now, a chief architect of the USA Patriot Act and a former top assistant to Attorney General John Ashcroft are joining the fray, voicing concern about aspects of the administration’s anti-terrorism policy. At issue is the government’s power to designate and detain “enemy combatants”, in particular in the case of “dirty-bomb” plot suspect Jose Padilla, the New York-born former gang member who was picked up at a Chicago airport 18 months ago by the FBI and locked in a military brig without access to a lawyer.

Civil-liberties groups and others contend that Padilla, as an American citizen arrested in the United States, is being denied due process of law under the Constitution. Viet Dinh, who until May headed up the Justice Department’s Office of Legal Policy and is now a professor at Georgetown University Law Center, said in a series of recent speeches and in an interview with the Los Angeles Times that he thinks the government’s detention of Padilla is flawed and unlikely to survive court review. The principal intellectual force behind the Patriot Act, Dinh has steadfastly defended the Justice Department against charges that the act has led to civil-rights abuses. While the Patriot Act does not speak to the issue of enemy combatants, his remarks still caught some observers by surprise.

Dinh said that the Padilla case was not within his line of authority when he was in the department, but that he began to think about the issue after leaving the government and concluded the administration’s case was “unsustainable”. Another top former Justice Department official, Michael Chertoff, who headed the department’s criminal division, has said he believed the government should reconsider how it goes about designating enemy combatants.

New surveillance guidelines fuel debate in California.

Federal authorities may now have broad powers under the USA Patriot Act to monitor the public in its fight against terrorism, but guidelines distributed last month by the California attorney general's office contradict the surveillance methods used by federal agencies -- and advise local police to observe stricter state limits when it comes to spying on the public. “Put bluntly, it is a mistake of constitutional dimension to gather information for a criminal intelligence file where there is no reasonable suspicion” of criminal activity, the guidelines state.

The guidelines, entitled “Criminal Intelligence Systems: A California Perspective”, were prompted by concerns over law enforcement responses to antiwar protests. Activists and civil libertarians applauded release of the guidelines.

THE UNION JACK’S PATRIOT ACT

Shortly after September 11, 2001 many western governments pushed through legislation ostensibly aimed at combating the emergence of a worldwide “terrorist” threat. Americans got the USA PATRIOT Act, Canadians got Bill C36 and here in the UK we got the Anti-Terrorism, Crime and Security Act. Each of these sought to balance civil liberties against perceived security threats, usually incurring a curtailment of the former. In the wake of 9/11, many regarded such sacrifices as acceptable.

And yet, two years on, the legislation gravy-train continues in the UK, using the same justifications to further cripple people’s liberties enshrined in law. The Civil Contingency Bill, the UK government’s new legislation currently under consideration for dealing with national emergencies, not only builds upon previous post-9/11 lawmaking, it greatly surpasses it, potentially giving unprecedented powers to the government. Up until this week, media coverage has been sparse. While UK Home Secretary David Blunkett’s national ID card scheme gleaned some attention in the press, the draft bill, released this summer has remained away from the public eye.

Some of the main features of the Bill include: The ability to destroy an individual’s private property without compensation. ; the power to suspend all primary Legislation (in other words derogate from any previous legislation; allow the government to “prohibit assemblies of specified kinds,” including peaceful protest, during a declared “emergency”. The changes proposed in the Bill go beyond anything previously deemed appropriate for the safety of the British people even through such periods as World War II and the Cold War, not to mention decades of Sectarian violence in Northern Ireland. Indeed, the ease with which the government could activate these new powers may give one more pause than the powers themselves.

Peers reject limits to jury trial.

Peers have again rejected plans for limiting the right to jury trial. The plans, part of the Criminal Justice Bill, mean some judge-only trials would be introduced for fraud cases, or where a jury may be “nobbled”. The Bill now returns to the Commons, where MPs are expected to again vote to reinsert the measure in the Bill and send it back to the Lords. Peers have also expressed criticism of proposals to end the “double-jeopardy” rule, when someone found not guilty of a particular crime cannot be tried again for it. The government wants this rule not to apply where compelling new evidence has subsequently emerged.

Normally there is a compromise reached at the end of the parliamentary session, as the government drops parts of Bills the Lords disagree with to ensure at least some measures become law. However both sides have yet refused to blink first on the Criminal Justice measures.

UK telephone tapping and mail-opening figures for 1937-2002 published.

Certainly a growth industry.

VISA BACKLOG COSTS U.S. BUSINESS DEALS, TOURISTS

Congress is hearing that obtaining visas for foreign visitors, a process that once took 30 days or less, can now stretch over months. The delays confirm the fears of South Florida business leaders who worried that post-Sept. 11 moves to tighten visas could hamper trade and tourism. Witnesses told the House Small Business Committee at a Nov. 20 hearing that there are still problems getting explanations for why visas are sometimes not approved.

The result has been lost business deals with foreign customers, lost productivity from key employees whose return to the United States has been delayed, lost trade shows to overseas locations and foreign tourists lost to more welcoming vacation destinations, the witnesses said.

As the January 2004 implementation of the first phase of a border entry/exit system approaches, House Government Reform Committee Chairman Rep. Tom Davis (R-Virginia) is seeking information about agency coordination in the program. In letters sent last week to Secretary of State Colin Powell and Homeland Security Department Secretary Tom Ridge, Davis expressed concern about how the two agencies would coordinate in the development of the U.S. Visitor and Immigrant Status Indicator Technology (US-VISIT) program.

PATRICK HENRY: ENEMY OF THE STATE

As Murray Rothbard has pointed out numerous times, the court historians of our age would have us believe that the American revolution was no revolution at all, but merely an unfortunate disagreement among refined compatriots. But for Patrick Henry -- and he was certainly not alone in such sentiments -- British rule was nothing short of barbaric tyranny, a despotism to be ripped from American soil no matter what the price in blood.

Henry never wavered in his support of American independence during the eight years of the Revolution, but perhaps his most valiant effort to preserve American liberties came with the ratification debates over the Constitution of 1787. Henry was a defender of the Articles of Confederation, the government formed during the waning days of the Revolution, and which had provided the colonies peace and international recognition ever since. Henry was not one to rely on parchment barriers to keep the grasping hand of the state at bay. To believe that mere laws, created by men, could keep a mighty government at bay is a delusion -- a fool’s game of wishful thinking. Reiterating his prophesy from before the Revolution, liberty would never be preserved by anything but force.

He had boycotted the Constitutional Convention of 1787 because, as he so eloquently put it, “I smell a rat” and suspected the worst: that the independent colonies that had thrived for over a century were to be herded under one consolidated government, a vast government apparatus founded not on liberty, but on the bureaucratic dreams of monarchists and mercantilists like Alexander Hamilton. And quite an empire it has become. Today, as Americans, half our incomes are taxed away to that consolidated government; we send our sons to die toppling dictators armed and financed by those same taxes; we bleat like sheep for protection from each other and every foreign bogeyman near and far, and we call it liberty!

“Fear is the passion of slaves” Henry tells us, for an armed and confident people are sure of their liberties, and not afraid to demand them. But we live in a country ruled by fear. Fear of terrorists, or criminals, or punishment by the state. How then, can we conclude anything other than that we are ourselves slaves? It would appear that we cannot, and Patrick Henry would no doubt agree.

HEY, CONSERVATIVES: STOP BACKING THE TOTALITARIAN PROSECUTOR STATE

Law and order conservatives, who believe that the only wrong ever done by the criminal justice system is to under-punish the guilty, have much to learn from the Kenneth Michael Trentadue case.

Supreme Court OKs waiting only 20 seconds before knocking down the doors.

In a victory for law officers, the Supreme Court ruled unanimously yesterday that it was constitutional for police to wait only 20 seconds before knocking down the door of a drug suspect. The court ruled 9-0 that a 20-second delay was ample, because any longer would give drug suspects time to flush evidence down the toilet. The justices refused, however, to spell out exactly how long is reasonable in executing warrants for drugs or other contraband.

High court to decide reach of U.S. agents.

The Supreme Court said it would decide whether federal agents may sneak into foreign countries to arrest criminal suspects and bring them to the United States for trial, a case that tests the reach of the government’s terrorism-fighting powers. The Bush administration said covert kidnappings of suspects overseas are rare, but the government needs that authority.

A lower court ruling would block federal agents from bringing Osama bin Laden to the United States to face charges in the September 11 attacks, Solicitor General Theodore Olson said, and jeopardizes U.S. efforts “to apprehend individuals who may be abroad, plotting other illegal attacks” on the United States.

PRICING AND VALUING FINANCIAL ASSETS -- IT’S A GREAT TIME TO SELL!

Determining the price of financial assets is far easier than determining their value. However, knowing there is a difference between price and value and having the wisdom to see the difference, is a pre-condition for making the right investment decisions. Over time, it is certainly wise to buy financial assets at a price below their long term value, and to sell them at a price above their long term value.

The current market price of U.S. stocks, as measured by the Wilshire 5000, is about $10 trillion -- down from a 2000 peak of $17 trillion, but still a considerable number. Credit market borrowings are approaching a pay-off balance of $34 trillion. With the US Treasury running $500 billion deficits a year and the single family mortgage market still growing at a rate of over $600 billion a year, the total debt owed is continuing to grow quite rapidly. In our economy, the vast majority of financial assets are nothing more than the ownership of someone else’s liabilities. The current total market price of financial assets (liabilities) is certainly over $47 trillion, or four times GDP. The cash flows from our $11.8 trillion economy will not support payments on this level of liabilities. Something has to give, and it will most likely be the real value of the assets.

Pricing stocks is easy while valuing them has a strong element of art and psychology. The Federal Reserve has made holding cash painful by dropping interest rates to 1% or less. This has propelled stock prices to inflate to extraordinary levels given all logical means of measuring value. With interest rates artificially pushed down, stock prices have “no anchor”. Current liquidity-driven P/E multiples on stocks are at 1929 levels.

Financial markets are in a forgiving mood.

Back in the dark ages of American capitalism -- oh, about a year or so ago -- when investors ran scared from shares in any company with even the whiff of impropriety, it is safe to assume that the departure of the chief executive and chief financial officer of one of America’s biggest and most iconic companies with little by way of explanation would have caused something of a tizzy. Shares in many a company were sent into a prolonged tailspin for far less. But the news that Mike Sears, Boeing’s finance chief, had been sacked simply because he had violated company procedures on employing government officials, and that his boss, Phil Condit, resigned a week later, caused scarcely a ripple.

As is the way of things when investors feel all is right with the world and God is in his heaven, many thought that the latest woes at Boeing, far from illustrating a deeper problem, showed that the company is now whiter than white. Perhaps, on the other hand, investors don’t give a tinker’s cuss now because they are once again making money, do not want to pass up the chance of making more, and are happy enough to allow any unpleasantness to be swept under the carpet. It has always been thus. Nobody much cares about how companies make money when markets rise. That is why investors were so tolerant in the late 1990s, despite much evidence of accounting gimmickry and worse. Only when they are seriously out of pocket do investors shine a light into companies’ darkest corners. By which time, of course, it is too late.

Templeton trepidations, Buffett battle stations.

According to Gary Moore, who serves as a media spokesman for Sir John Templeton, the legendary investor “... Surprised even me [a few weeks ago] by suggesting that we avoid [U.S.] stocks altogether as the money that was in tech has moved to cheaper stocks around the world ... John primarily suggested sovereign debt from Canada, Australia and New Zealand. He’s been there the past three years, principally in Canadian zero coupon treasuries.” When a reporter who wrote the article “Templeton Feeling Bearish”, (Sarasota Herald Tribune, Oct. 14, 2003) asked about the prediction that the dollar would slide 40% in a special Economist report, Gary Moore assured the reporter that he had the feeling that Sir John wouldn’t waste much time arguing with that prediction. However, it is more Sir John’s style to say, “The odds are better than even ...” rather than give a specific number.

Billionaire investor Warren Buffett said in his Oct. 27, 2003 Barron’s interview that he sold $9 billion in long term U.S. Treasuries earlier this year and feels it is unwise to buy into the stock market at current levels. He has $24 billion in cash on the sidelines. There is no evidence that he has sold the 129.7 million ounces of silver that he accumulated in 1997. In regard to currencies, Buffett stated: “I am crying wolf again [about the impact of mounting trade deficits, having first started his warnings in 1987] and this time backing it with Berkshire Hathaway’s money. Through the spring of 2002, I had lived nearly 72 years without purchasing a foreign currency. Since then Berkshire has made significant investments in -- and today holds -- several currencies. I won’t give you particulars; in fact, it is largely irrelevant which currencies they are. What does matter is the underlying point: To hold other currencies is to believe that the dollar will decline.”

GEORGE W. BUSH, PROTECTIONIST

The Mises Institute editorialized against both WTO and NAFTA on grounds that they constituted managed trade, not free trade. In the case of NAFTA, it was outright regional protectionism. But for dissenting from both sides of the phony DC debate, we were called secret protectionists. Fast forward all these years later, and the Bush administration is undertaking a blizzard of protectionist regulations, and nary a word of protest is coming from the supporters of international trade agreements. Let us begin with the pathetic tale of cheap catfish imports from Vietnam ...

For all its rhetoric about free trade and free enterprise, you can always count on the Republican Party to back a protectionist plan if it is supported by a big business with good connections. The Bush administration has followed in the footsteps of the previous Bush administration and even the Reagan administration -- and most famously the Hoover administration -- in violating its supposed principles to help its friends. The costs of all of this are incalculable, and the American consumer is paying them. American retailers and wholesalers are paying them as well.

The tragedy of mercantilism is that it tends to creep up when it can do the most damage, that is, during economic downturns. Sure enough, the US is experiencing a wave of protectionist sentiment, legislation, and action, some of it supported by the supposed friends of free trade. Who benefits from mercantilism is no mystery: look at the list of lobbyists and signatories to the complaints. It is pure special pleading that cannot, in the long run, even help the assisted industries.

SWISS RIGHTWING PROSPERS AT THE EXPENSE OF CENTER-RIGHT

In just eight years the Swiss People’s Party has gone from being the smallest of the parties in government to the largest. In successive elections in the 1990s it increased its share of the vote and in October it won 26.6% of the popular vote to become the largest party in parliament with 63 seats. Its success has led to renewed calls for a second seat in government at the expense of the Christian Democrats, with its figurehead, Christoph Blocher, as the party’s official candidate.

SWISS PARLIAMENT MOUNTS DEFENCE OF BANKING SECRECY

Switzerland yesterday put itself on potential collision course with its main trading partners after the federal parliament approved an initiative to anchor bank secrecy in the national constitution. The proposals -- which now have to go before parliamentary committee -- are being seen as a symbolic stand against European Union interference.

Stéphane Garelli, an economics professor in Lausanne, said parliament’s show of support for banking secrecy was a clear attempt to strengthen Switzerland’s negotiating hand in Brussels. “It is essentially a political move, because, in private, everyone knows we will have to make some concessions on banking secrecy,” he told swissinfo. “But I have the feeling that there is also a very strong desire among the public and the business community to make sure that not too much is conceded.”

Opponents of the move, mainly from the center-left Social Democrats have said that setting banking secrecy in stone could hamper Switzerland’s foreign policy. Any final decision on whether to enshrine banking secrecy in the constitution would require a national referendum.

JERSEY HINTS AT JOINING EU

The Jersey finance chief, Phil Austin, has hinted at the jurisdiction joining the European Union. John Christensen, former economic advisor to the Jersey Government, said that the island relies on the finance industry for up to 90% of its income. He said any clamp down on its tax haven status would force Jersey to consider joining the EU.

Opposition mounts To Jersey 2004 budget proposals.

The President of Jersey’s Finance Committee is facing increasing opposition to proposals put forward for next year’s budget that will see some taxes rise in order to stave off a mounting government deficit. Among the revenue raising measures expected to be contained in the 2004 budget are taxes on alcohol and tobacco; a levy on the registration of new cars; and a cap on mortgage interest tax relief.

It seems that certain taxes will inevitably be increased in the years to come if the island puts into practice a proposal for a zero-rate of corporate tax which has been mooted in response to fears that the jurisdiction will become uncompetitive for banking and financial firms.

THE EURO AND EUROPE’S BLURRING BORDERS

The introduction of euro notes and coins, following the withdrawal of EU internal border controls, removed one of the key sensations of crossing from one country to another. If you set off from Hamburg, Calais, Malaga, or Brindisi you can now drive for days without necessarily ever finding out how many countries you have passed through. You pay in euros, and you can leave your passport buried in your luggage.

Europe’s unity, or at least the EU’s, is now almost as obvious as its diversity. How does this affect the way people think about Europe? Opinion polls conducted for the EU in 2002 found about 60% of people in euroland agreeing that by using euros “we feel a bit more European than before”. Other polls show that when people are asked what the EU means to them personally, the euro is one of the most common answers.

U.S. COMPANIES BECOME EU TAX COLLECTORS

Since July 1, U.S. firms selling certain goods to customers in the European Union have been required, under a law passed by the EU last year, to act as tax collectors on behalf of EU officials. Concerned that overtaxed consumers might otherwise escape the EU’s value-added tax, member countries adopted on May 7, 2002 a plan that imposes the VAT on software, videos, computer games, and music downloaded via the Internet from non-EU companies. The EU claims the extra-territorial tax scheme is necessary to level the playing field for its own retailers./

European companies traditionally add a VAT to the services and products they sell online. A Dutch company collects the Dutch tax on any online products it sells, regardless of where the customer lives.By contrast, companies headquartered outside the EU impose only the taxes required by their national governments. They have not collected an EU value-added tax on sales to EU customers, because the point of sale is not in the EU. The EU’s new VAT on Internet sales changes that dynamic, by shifting the point of taxation from where the good is sold to where it is consumed. Under the new VAT, a U.S. company selling to an EU customer is expected to collect the VAT and remit it to the EU government.

Provided non-EU companies comply with the VAT requirement, the revenue potential could be huge. As the cost of international shipping continues to fall, highly taxed Europeans are increasingly turning to the Internet for tax-free purchases. In July, Amazon.com reported that its international sales are growing faster than its North American sales, thanks mostly to Europe’s “big three” Internet markets: Germany, France, and the United Kingdom. In 2002, according to Amazon.com, those countries accounted for 70% of the e-commerce in Europe.

OECD: BANK SECTOR PROBLEMS CURB JAPAN GROWTH

The OECD expressed support for Japan’s nationalization of Ashikaga Bank but warned a bloated banking sector and other structural problems were curbing its sustainable economic growth. While acknowledging an upturn was under way in Japan, the OECD said in its annual report that Japan’s growth potential was still limited by uncompetitive business conditions and public finance deficits as well as weak banks. The report’s tone was notably more pessimistic than that of many foreign investors who had bought Japanese stocks in the past six months on signs of an economic revival.

The reluctance of weak banks to lend money has limited the effect of the Bank of Japan’s liquidity injections aimed at ending deflation, the OECD said. It recommended the BoJ broaden the range of assets it purchases, and said it should commit to continued monetary easing until the risk of deflation became negligible. The OECD also said “a coherent exit strategy” was needed for the eventual end of deflation. This includes a long-term target for prices, or an inflation rate target, that is high enough to prevent the country from falling back into deflation.

AN INTERACTION WITH THE RUSSIAN TAX INSPECTOR HAS A FAMILIAR FEEL TO IT

After waiting 2 hours in line for the privilege of talking to an inspector, the article’s subject finds her bureaucratic imperviousness to logic and justice worthy of her counterparts in the U.S.

Yukos denies unpaid tax report. Gorbachev criticizes treatment of Khodorkovsky.

Russian oil giant Yukos has denied a report that the authorities are pursuing it for $5 billion in unpaid taxes. Russia’s Interfax news agency had reported that the Tax Ministry had informed state prosecutors that Yukos owed the back taxes.

Last month, former Yukos chief executive Mikhail Khodorkovsky -- believed to be Russia’s richest man -- was arrested on charges of tax evasion and fraud. His arrest was seen as a warning to Russia’s super-rich business leaders to stay out of politics. Mr Khodorkovsky had backed several political parties. The authorities’ behaviour has attracted high-level criticism: “What really worries me is the way the prosecutors of this have behaved towards Mr. Khodorkovsky,” former Soviet leader Mikhail Gorbachev told the BBC. “Mr. Khodorkovsky was not really the only target. They did it in such a way as to intimidate the business community and to intimidate our society, and that is something I cannot approve of.

REPORT: U.S. NOT TAKING ADVANTAGE OF ITS TECHNOLOGY EXPERTISE TO FIGHT TERRORISM

According to a new report authored by leading IT and national security experts, the problem is largely due to the fact that U.S. government agencies are still reluctant to share information with each other. The Markle Foundation report, “Creating a Trusted Information Network for Homeland Security”, recommends that President Bush set up a decentralized terrorism analysis network that would encourage government agencies to share information with each other and with local law enforcement agencies. The network could effectively combat terrorism while protecting privacy and other civil liberties, said members of the foundation’s Task Force on National Security in the Information Age.

HOW MUCH IS PRIVACY WORTH?

The Supreme Court will hear oral arguments over whether the federal government should reimburse individuals whose sensitive data was disclosed illegally, even if no harm can be proven. At issue before the court, according to privacy advocates, is how valuable privacy really is. The Privacy Act of 1974 prohibits the government from disclosing private information intentionally, without the individual’s consent, and provides for a $1,000 minimum fine if the individual is “adversely affected”. In the case, known as Doe v. Chao, the Department of Labor distributed the Social Security number of a coal miner who was appealing for black lung benefits.

Ari Schwartz, associate director of the Center for Democracy & Technology, which was one of many organizations that cosigned a friend of the court brief supporting the anonymous miner, argues that the outcome of the case will have implications beyond the Privacy Act and could affect future privacy legislation. “The outcome of this case will make a general statement about how we value privacy in the United States today,” Schwartz said. “If someone rummages through all your stuff, nothing’s taken, but they find out information about you, (yet) you can’t show actual damages.”

“Yet something intangible has been taken from you, and what do we do to make up for that as a society?” asked Schwartz. “It seems clear to us from the history of the Privacy Act that Congress at that time wanted people to be compensated even for intangible harm.” The government, on the other hand, argues that the law requires citizens to demonstrate real damages from intentional disclosures of information.

WAS 1984 A HOW-TO BOOK?

Polls show Americans regaining their skepticism of government and demanding that respect for civil liberties figure in anti-terrorist policies. But government officials do not appear to be paying attention. Instead, they seem to be pawing through a copy of 1984 with the idea of using George Orwell’s cautionary tale as a blueprint for an America of the future.

PATRIOT ACT CHANGES ARE DEAD

A House measure rolling back part of the USA Patriot Act will not make it through Congress this year -- Senate and House leaders refused to place that provision in the massive omnibus spending bill coming up before Congress next week, killing it for the year -- but the measure’s GOP author says he will try again next year. The Justice Department, however, says it does not expect that Congress will ever pass Rep. C.L. “Butch” Otter’s legislation banning “sneak and peek” searches. The Justice Department lobbied hard to ensure that the provision did not make it through Congress.

THE GROWING PROBLEM OF IDENTITY THEFT

According to the 2003 Computer Crime Survey conducted in conjunction with the FBI, nearly 13% of respondents were the victim of identity theft in the past year in the US. In total, losses from identity theft in the US in the past year are estimated to have amounted to around $50 billion. Traditionally, the most common way for thieves to obtain an individual’s information is carelessness, including not taking sufficient care to safeguard personal information, especially when disposing of it. One of the richest treasure troves for thieves looking for personal information are family and company rubbish bins -- in the US, it is estimated that as much as 70% of all identity theft includes theft of disposed of information from bins.

According to MasterCard, identity theft accounts for seven per cent of all fraud committed and is a growing problem. Until recently, identity theft has been less of a threat in Europe than in the US. One reason why it has been such a problem in the US is the traditional use of social security numbers as an identifier -- a piece of information that, when linked to the name and address of the individual, makes it relatively easy for a thief to assume an individual’s identity. However, the UK Home Office estimates that identity theft is growing at 165% per year in the UK. Furthermore, the areas in which identity theft is growing fastest are Eastern Europe and Southeast Asia -- two of the new hotspots in the current spate of outsourcing.

Companies need to be aware that identity theft is a pressing problem for them -- especially since the vast majority of fraud is carried out by insiders. There have been numerous reports recently of employees involved in theft of information, such as customer credit card numbers. And companies are increasingly finding themselves being held responsible.

SWITZERLAND: NEW TYPE OF CREDIT CARD FRAUD ON THE RISE

Swiss authorities are worried about the rise of a card-copying method called skimming, which leaves credit card holders with little chance of protecting themselves. By swiping a credit card through a special reader, the data from the card’s magnetic strip is copied on to a new card. Victims do not realize that the card has been stolen, so they do not cancel the card.

Electronic signatures gain legal status in Switzerland.

Electronic signatures will carry the same legal weight as written ones, when a new law comes into force in 2005. The move puts Switzerland among the first European countries to recognize e-signatures. Electronic signatures will be valid for some contracts and legal documents, but not for wills and deeds of sale for buildings. Owners of digital signatures will not be responsible for fraud committed by others, if they can prove they had taken the necessary security measures.

IMF FURTHER STICKS ITS NOSE IN ISLE OF MAN’S BUSINESS

Isle of Man Treasury Minister, Allan Bell has said that the government will deal with issues raised in the recent IMF report with regard to the independence of the island’s financial regulators within the next six months. While the report gave a clean bill of health to the jurisdiction’s financial system, concluding that it “complies well” with international standards, the IMF identified a number of potential “shortcomings” concerning the accountability of the Financial Supervision Commission and the Insurance and Pensions Authority.

BRITISH TYCOON FINDS JERSEY LESS TAXING

Express Newspapers owner Richard Desmond cut his corporate tax bill by more than £2 million last year by basing his broadcasting businesses, including profitable porn channels, in Jersey. According to the Financial Times, a staff of four work in two small rooms in a shabby office behind an Indian restaurant in St. Helier, enabling Mr. Desmond has been able to avail himself of a special 2% tax rate available in the Channel Islands compared with the normal 30% payable on business operating in the UK.

The FT raised questions about whether Mr. Desmond was genuinely running his businesses out of Jersey. One tax expert told the FT: “Where is policy decided? That is the key issues. If policy is rubber-stamped by the Jersey directors after being decided by Richard Desmond in his bath in London, then the company is UK resident for tax.”

UK MONEY LAUNDERING LAW GOES INTO EFFECT MARCH 1

The much delayed and highly controversial money laundering regulations have finally been laid before parliament. The proposals provoked opposition from many within the profession, but firms now have three months to prepare for their new responsibilities. The regulations will require accountants to file reports on any suspicious transactions to the National Criminal Intelligence Service, or face a potential prison term of up to 15 years. Accountants who argue that they did not spot money-laundering activity through negligence or ignorance will not be able to avoid prosecution, unless there is proof they were not trained to a sufficient level -- at that point the firm itself would become liable. There is also no minimum level for the amount of money involved in a suspicious transaction before it must be reported.

Royal Bank of Scotland CEO says staff “burdened by draconian rules”.

Fred Goodwin said the rules were “so draconian” that banks might feel they need to report almost every transaction to the authorities, putting a burden on staff who believe “we’d better report everything”.

Suspicious bank transactions must be reported by banks to the National Criminal Intelligence Service. However, a report by the consultants KMPG earlier this year found that the service was struggling to cope with a huge backlog of reports which have risen from 15,000 in 2000 to 63,000 in 2002.

UK business faces more tax law red tape.

British businesses are expected to face a big increase in the administrative burden of tax law under changes set to be unveiled by the Treasury next week. The new rules, designed to make UK tax law compliant with European Union treaties, have been forced on the government by the European Court of Justice in Luxembourg, which decided that many tax arrangements have discriminated unfairly against companies from other EU members, in violation of the single market freedoms guaranteed by European treaties.

In his pre-Budget report next Wednesday, Gordon Brown is expected to change the rules governing intra-company transactions and financing structures, bringing groups operating within the UK under the same rules as international companies. Tax experts do not expect the changes to raise significant amounts of extra revenue, but say they will greatly increase compliance costs to business.

FRANCE CONSIDERS TAX AMNESTY TO HALT CAPITAL FLIGHT

French Budget Minister Alain Lambert indicated that the government is considering introducing a tax amnesty for wealthy investors repatriating assets to France in a bid to halt the tide of capital flight from the country witnessed in recent years. Speaking on a national radio station Lambert said that this politically sensitive issue could no longer be ignored, and remarked that he does not regard the subject as “taboo”.

According to a report written by French assembly member Gilles Carrez some €11 billion worth of assets left France in the previous five years in response to high inheritance and wealth taxes.

GERMAN OPPOSITION PARTY PROPOSES SHAKE UP OF TAX AND ECONOMIC POLICY

Germany’s opposition Christian Democrats are due to approve a package of radical economic reforms at their party conference this week which will include proposals to significantly change the tax system, including the introduction of three bands of income tax between the rates of 12% and 36% as part of a general simplification of the tax code. Plans to axe many tax breaks were also announced. While the party is not thought to be fully united behind the plans, should the CDU be elected and carry out its plans, it could mean a fundamental shift in direction for the country’s economic and social policy.

WHAT CHALLENGES FACE CYPRUS AND MALTA ON THE EVE OF EU ACCESSION?

On the eve of their accession, Cyprus and Malta have made progress towards transparency, and intend to use their favorable geographical location, as well as their banking experience, to ensure the development of their financial centers. Are these two countries well placed to win this wager? With EU accession and the intensification of competition, the expansion of these financial centers will encounter certain difficulties, despite a still attractive tax system.

SLOVAKIA: HONG KONG OF EASTERN EUROPE

These success stories of Hong Kong and Ireland have a new rival. Slovakia, a small nation in Eastern Europe, has junked its class-warfare tax code and replaced it with a 19% flat tax. This reform, which will go into effect Jan. 1, almost surely will create the “Slovak Tiger” as entrepreneurs and investors from Western Europe’s stagnant, high-tax welfare states quickly shift productive activity to take advantage of this market-friendly tax system.

Some forms of double-taxation remain, but it is one of the best systems in the world. Corporate profits will only be taxed one time (at the same 19% rate) and the death tax will be abolished. And since the tax was approved by an 85-48 margin, including some support from opposition parties, there is every reason to expect the new system will have the necessary stability to attract long-run investment.

Led by a dynamic young finance minister, Ivan Miklos, the government also eliminated all special preferences and penalties in the value-added tax. This will help ensure economic decisions are based on sound economics instead of tax distortions. The Slovak government also is modernizing the nation’s Social Security system. The new plan, expected to gain final approval in the next couple of months, will allow workers to place 9% of their income in personal retirement accounts -- a number rivaled only by Australia, which also allows workers to invest 9%, and Chile, which permits workers to invest 10% of their income.

WHY DOES THE EU NEED A CONSTITUTION ANYWAY?

The question arises again out of the growing unease with Valery Giscard d’Estaing’s 265-page treaty. This week, the U.K. and Estonia added their voices to the ranks of potential dissenters. Along with Spain and Poland, who have been playing the spoilers almost alone up till now, a growing (albeit still small) number of countries are beginning to ask, as the classic 1970 song did of war: What is it good for?

Different member states have different reasons for disliking the document, and some of those reasons are more sensible than others. But more interesting than the particular objections is the growing sense around Europe, embodied in the statement earlier this week out of Tony Blair’s government that the constitution is “highly desirable” but not “necessary”. With the words “not necessary” a bubble of sorts may have been punctured in Brussels.

BRUSSELS CONSIDERS IMPOSING CURRENCY CONTROLS

The European Commission is examining the legal basis for 1970s-style exchange controls to stop the euro surging to destructive levels. A team working for Pedro Solbes, economics commissioner, claims Brussels may lawfully impose “quantitative restrictions” on capital inflows, clearing the way for a crisis response if the dollar continues to fall.

The move came as the euro hit highs against the US dollar, touching 1.2125 ($/€) yesterday before closing at 1.2109. It has gained 42% in less than two years. The euro-zone has borne the brunt of the global realignment. The Chinese yuan is pegged to the dollar, while Japan has capped the yen by buying US bonds.

CONSEQUENCES OF A DOLLAR STANDARD

In a chapter of his book Economics and the Public Welfare dubbed “The Tyranny of Gold”, Benjamin M. Anderson offered the view of a wizened hard-money proponent who had glimpsed the essence of money and noticed irredeemable paper was not part of it. “Gold needs no endorsement,” Anderson wrote. “It can be tested with scales and acids. The recipient of gold does not have to trust the government stamp upon it, if he does not trust the government that stamped it. No act of faith is called for when gold is used in payments, and no compulsion is required.”

Since the end of the Bretton Woods agreement in 1971, the dollar has been an irredeemable currency, no longer defined or measured in terms of gold. Nonetheless, in an ironic twist, it has become the world’s dominant currency and the core reserve asset of central banks all over the world. It has replaced gold as an international currency. The transformation has not happened without consequences. One of these is that the discipline imposed by the gold standard is no longer operative. Another consequence, related to the first, is the profound effect this has had on international trade.

CHINA TO RELAX CAPITAL CONTROLS

China has flagged imminent policy changes aimed at easing capital controls and taking the heat off the country’s currency. On a day of evidently co-ordinated announcements that will arm Premier Wen Jiabao with negotiating ammunition when he arrives in Washington on Sunday to meet critics of the mainland’s currency regime, policymakers formally revealed that:

Non-bank financial institutions, including insurance companies, will be allowed to invest in offshore securities, paving the way for China’s state pension fund, which manages assets of more than 125 billion yuan (HK$117.29 billion), to begin investing abroad “in the near-term”; Controls over domestic interest rates are under review to allow lenders more freedom in setting their own rates; and the narrow band in which the yuan is allowed to trade, might be widened.

PROPERTIES WORTH $100 MILLION SEIZED FROM SUSPECTED MONEY LAUNDERERS ACROSS NIGERIA

The Economic and Financial Crimes Commission (EFCC) said it has seized the properties from over 100 suspected money launderers. Executive chairman of the commission, Alhaji Nuhu Ribadu disclosed this in Lagos at a seminar on “anti-money laundering”, organised by Travelex, issuers of Thomas Cook travelers cheques. Ribadu stated that the properties were seized in order to send signals that there would be no sacred cows in the assault launched by the commission against money laundering and other economic crimes.

The anti-money laundering statutes, he pointed out allows anything to be seized and forfeited if it was used to facilitate the commission of a range of crimes, or if the assets are shown to have been acquired through the proceeds of crime. Seizing properties of money launderers, he stated have been designed to send a message that Nigeria is not a safe haven for proceeds of crimes. Ribadu indicted banks for not forthcoming in disclosing customers’ transactions to the authorities, stating that some banks argued that bank business is based on trust and confidentiality which the Bank Secrecy Act protects. “Hence some banks when requested to submit records, hesitate and in some cases erroneously demand orders of court.”

OPINION: TIME FOR BERMUDA TO CONSIDER INDEPENDENCE

The arrival of the International Banking arm of global behemoth HSBC that has caused a seismic shift in the somewhat complacent psychology of Bermudians by its audacious purchase, lock stock and barrel of the local banking icon, the Bank of Bermuda; a purchase that for many was had for a mere song at all of $40 per share, with the precious local property holdings of the Bank of Bermuda thrown in to boot.

Now, the sale to HSBC does not spell the end of the world. What it does signify at least in part and a major one at that is that Bermuda’s emergence as a “City State” in this Global economy is now virtually assured. The other part, that being Independence, must now be placed at the top of the agenda by our Government. After all, you cannot be a “City State”, without possessing full sovereignty in all matters. But the deal itself presages something significant and if we play our cards right, something which may usher in a profoundly new era. There is an upside to this, no matter how bewilderingly ham-fistedly it has all played out.

Bermuda-British showdown looms over appointment of Chief Justice.

British Foreign Secretary Jack Straw will be forced to make a decision on Bermuda’s new Chief Justice as Government and Governor Sir John Vereker are at loggerheads over the post. As a result of Premier Alex Scott’s strong opposition to Sir John’s suggestion, Mr. Straw will be forced to make the final decision, the Premier said.

Mystery deepens over bank deal.

Mystery surrounds what exactly the boss of HSBC’s private banking meant when he claimed in an interview last week that the London-based bank had been in negotiations to buy Bank of Bermuda for four years. The interview, which went out on Monday has sparked controversy because if true, a four-year-old deal directly contradicts the official line from Bank of Bermuda’s management which states that negotiations only started in February this year. And would also mean that when the bank applied for exemption from the 60/40 ownership rule in 2001, it knew it was being targeted for a buy-out.

A Bermuda property could easily set you back at least $750,000.

Have your heart set on a quaint Bermuda cottage on a parcel of land? That dream could be an increasingly tough one to realize with Bermuda realtors candidly telling The Royal Gazette that the properties available are few and far between, and they do not often come with a price tag any lower than $750,000.

Competition for listings is tight with more than 200 realtors seeking to sell an increasingly limited supply of properties. Buddy Rego, president of Rego Realtors, said the local market was “extremely strong; the strongest it has ever been in my long memory,” with the highest prices ever and very little available on the market.

U.S. TO USE BANK BLACKLISTING POWER AGGRESSIVELY

A senior U.S. Treasury official warned that the United States plans to be more aggressive ahead in blacklisting foreign “rogue banks” from the U.S. financial system. In November, the U.S. government designated Myanmar and two banks headquartered there as “primary money laundering concerns”, allowing the Treasury to prohibit U.S. banks from keeping correspondent accounts with institutions or individuals there as a way to seal off access to the U.S. financial system.

Treasury has been reluctant to use the power previously because doing so could have led to the intelligence used to make the designations being revealed in court. But with the passage recent legislation, the basis for the action does not have to be heard in open court, similar to the protection afforded intelligence used to add people to a separate asset-freezing blacklist maintained by Treasury.

The approach has worked in the past. After Ukraine was designated, it made changes in its laws that led the United States to eventually withdraw the designation. Another country, Nauru, has taken “important steps” toward cleaning up its financial system but remains designated.

INTERPRETING THE CONSTITUTION CONTEXTUALLY

Both “strict constructionist” conservative and “loose constructionist” liberals ignore essential principles of the Constitution, principles that are stated clearly and explicitly in the document itself. The conservatives’ chief blind spot is the Ninth Amendment, which reads: “The enumeration in the Constitution, of certain rights, shall not be construed to deny or disparage others retained by the people.” The amendment was intended by the Founders not only to protect unenumerated rights but also to ensure that rights provisions generally be interpreted as broadly as possible. Conservatives also tend to overlook, or to interpret too narrowly, the many provisions in the Constitution -- particularly the Due Process clauses of the Fifth and Fourteenth Amendments -- that explicitly protect property and liberty rights in all their aspects, including the so-called right to privacy and other rights of personal autonomy.

Left-liberals, on the other hand, are blind to the Ninth Amendment’s companion provision in the Bill of Rights, the Tenth Amendment, which affirms a fundamental feature of the Constitution: that it creates a national government of limited, enumerated powers. By dismissing the Tenth Amendment as stating a mere truism, as the Supreme Court did in its 1941 decision in United States v. Darby, liberal constitutionalism not only ignores the importance of the Amendment (which Thomas Jefferson regarded as the foundation of the Constitution) but also tends to render meaningless the Framers’ carefully crafted list of Congress’s legislative powers in Article I of the Constitution. The liberal jurisprudence reads these provisions -- particularly the Commerce Clause and the so-called General Welfare Clause -- so broadly as to give Congress virtually unlimited legislative powers and thus permit the federal government to regulate almost all aspects of Americans’ daily lives.

Context used to be a well-established canon of legal interpretation. It meant that each provision in a document ought to be understood in the context of the document as a whole and, especially, in light of the purpose of the whole document. In the case of the Constitution that purpose is to limit the power of government and to safeguard the rights of the individual. Unfortunately, the Supreme Court in the twentieth century has forgotten this basic canon of interpretation. Instead, the Court has engaged in the logical fallacy that Ayn Rand called “context-dropping”.

Neocons are the real Americans.

With the exception of the radical heroes of American independence, our national history is that of conquest, theft and empire. In fact, it is today’s warmongering neocons who represent true historical American values, as they fight to win back the country they lost to the socialists a century ago. The libertarians and their individualist heroes have been left on the sidelines for over 200 years.

FRIENDLY ADVICE FROM IRAN

We take our freedoms for granted. Thus we read with only mild interest what Iranians have to say about their own government, a government the majority of them worked to achieve, a government cloaked in Islamic justice. A government most Iranians today would not wish upon their worst enemy. Washington Post Foreign Service writer Karl Vick interviewed Iranians on the street, young and old, men and women. What they said about Tehran and the Iranian oligarchy is a wake-up call, and not only for Iraqis.

“They talk of Islam but they don’t act on it ... This government is not good at all. It’s full of problems. There’s all sorts of wrongdoing. It’s full of theft. They don’t think of the young people. They only think of their pockets ... In the beginning of the revolution, the objectives were very good. But afterward people appeared to act only in line with their own interests. They’re busy accumulating money. They don’t think of the people. They don’t think of international relations. Iran has lost a lot.”

Replace the words Christianity for Islam, “war on terrorism” for revolution, and America for Iran, and you could be listening to any average American on the street, speaking of the White House and Washington. The advice from our Iranian fellow travelers is a cool drink of water. Be wary of those who say they are good and wise because they are religious. Never doubt the ability of a state to enrich its politicians and friends over the best interests of its future generations, and to steal a nation blind of its treasure and the blood of its young men and women. Do not be surprised at what is lost for a whole nation when its leaders are arrogant, self-serving, and corrupt.

THE TWISTED STATE OF U.S. LAW: EVERYONE BUT THE U.S. GOVERNMENT IS BLAMED FOR 9-11

Given the toxic legal climate in the United States for business in general, it should have surprised no one that a federal judge has ruled that families who lost loved ones in the September 11 attacks can sue United Airlines, American Airlines, Boeing and the Port Authority of New York and New Jersey. That the plaintiffs and their lawyers are not suing the worst offender of the tragedy -- the U.S. Government -- says volumes about the surreal nature of American jurisprudence today.

THE MADNESS OF GEORGE II

The list of stable paper currencies built by central bankers is as short as the list of stable democracies built by armed invaders. Some basic grease in the human heart seems to work against them. When bankers discover that they can increase the supply of money simply by printing up some worthless paper, they do not seem able to stop themselves. Soon, there is too much paper and it becomes worthless. And when foreigners invade a country -- even foreigners who think they have a better idea how to run the place -- the locals seem to resent it. That may not stop us from hoping. But readers might want to check the odds -- just in case.

The madness of George II, reigning president of the American government, is that he believes he can do what has never been done. Never mind the grease, says he; with some Ajax and a little scrubbing, the economy and the war effort will sparkle.

THE ERA OF FICTITIOUS CAPITALISM

In the era of “fictitious capital”, Chinese bureaucrat Wang Jian surmises in a recent article, America must keep its hegemonic power over money in order to keep feeding the enormous yaw in its consumerist belly. Hegemonic power over money requires that international capital keep flowing into the market from all participating economies. Should the financial market collapse, the economy would sink into depression. America’s reigning financial monopolies, he believes, (whoever they may be), would not stand for it.