Offshore News Digest for Week of April 19, 2004

GLOBAL BUSINESS

ISLE OF MAN’S RELATIONSHIP WITH THE EU TO BE THE KEY TOPIC AT EVENT

A presentation, “Global Regulation and the Isle of Man”, by Brussels law firm O’Connor and Company, specialists in EC and international law, will take place on Tuesday, April 20. It will focus on the unique issues raised and challenges faced by Isle of Man companies seeking to benefit from the potential opportunities for conducting business with the EU.

HOW GIBRALTAR WON A VOICE IN UK’S EURO-POLL

The colony, about 12 miles from north Africa, a limestone rock seized from Spain 300 years ago, one of the Pillars of Hercules in the classical era and a tax haven condemned as a refuge for smugglers in the modern world, has been lumped in with Devon, Cornwall and the rest of south-west England some 900 miles away in this year’s elections.

Just over 20,000 people will be able to vote for the first time in the UK leg of the Brussels beauty parade after the British government lost a test case at the European court of human rights. Their ballot papers could influence the result in a constituency with 3.8 million potential voters.

MALTA BOWS TO ECONOMIC CHANGES WITH EU MEMBERSHIP

Malta’s tiny island economy, which for decades has thrived on tourism and offshore financial services, has undergone a culture shock to adapt to EU norms and regulations in time for membership on May 1. The islan’qs shipyards, long buoyed by government subsidies, have been restructured to comply with EU rules on state aid, and layoffs have caused a spike in the unemployment figures. Clothing factories have also shed workers or closed altogether, increasing the numbers of those unemployed to more than 8,000. Estimates for 2004 put unemployment at 5.2%. In 2000, it was 4.5%.

The island’s 150,000-strong workforce is dependent on foreign trade, manufacturing -- mostly electronics and textiles -- and tourism. Natural resources are almost non-existant, except for stone used for construction. Malta’s public deficit soared to 9.7% in 2003, more than triple the 3.0 percent ceiling set by the Stability and Growth Pact for EU members. Malta has said it hopes to adopt the euro in 2008, but the deficit makes that date highly unlikely.

Public debt stood at 72% of GDP -- the highest among the EU accession countries -- in figures released last month. Malta ranks as one of the least affluent European countries, with per capita GDP of approximately €10,315 euros ($12,378) -- around half that of Germany, France and Britain.

THE STATE OF SOUTH AFRICA

A landslide for South African president Mbeki.

Nobody doubted that the ruling African National Congress (ANC) would get another thumping majority, and nobody was left surprised: on Friday, with 90% of the votes counted, the ANC was on course for a third successive landslide. Thabo Mbeki, the ANC’s leader, is assured of a second and final term as president. His party looked to have attracted almost 70% of the vote and outright control of seven of the nine provinces. Why is the ANC still so popular? Partly it is out of gratitude for the party’s struggle to end the oppressive apartheid regime and bring democracy; partly because it has a fairly good record in office; and partly because the opposition parties are feeble.

What worries voters most is a serious lack of jobs. The latest official figures put unemployment at 28% in March; a broader measure has it over 40%. Crime remains at terribly high levels; most worrying is the violent sort. About 20,000 people are killed each year, mostly on Friday and Saturday nights in the townships (districts originally built to house non-whites during apartheid). In early April one of the country’s best known musicians, Gito Baloi, was shot dead in his car by a mugger. Rape, robbery and other heinous acts also remain at shockingly high levels. AIDS is another issue. A string of reports in recent months have confirmed how badly affected the country is.

South Africa struggles to rebuild.

An estimated 17,000 science and technology workers left the country between 1994 and 2001 -- years of tense uncertainty in South Africa and unprecedented boom elsewhere, according to the country’s latest brain-drain study. But while previous studies have cast grim scenarios of a crippled economy feeding downward spirals of crime, poverty and societal dysfunction, a recent one found that the country’s science and technology sectors are actually looking quite healthy. The government’s latest emigration figures show the brain drain to be as pervasive as ever. Teachers, doctors and nurses in particular are often in critically short supply.

Racism holds South Africa back.

Before the arrival of multiracial democracy in South Africa in 1994, the country’s unequal education policies had barred most non-white South Africans from competing for the best jobs. A decade on, South Africa uniquely straddles the developed and developing worlds, with a wealthy minority enjoying living standards comparable to Spain’s while coexisting with an impoverished black majority. Despite the growth of a sizeable black middle class, old racial divisions are largely reinforced by continuing economic inequalities. No other country except Brazil has such disparities of wealth. This schism is particularly apparent in South Africa’s burgeoning technology industry, which remains largely white.

Entrepreneurs seeking riches from the poor.

In Africa, there is a huge demand for simple technologies that can be used by people who lack access to banks, phone lines, credit cards and computers that Westerners take for granted. Living in the only country on the continent that has a modern infrastructure -- even while most of its citizens remain firmly entrenched in poverty -- South African entrepreneurs are in a unique position to develop and deliver these products to Africa’s poor, says Raven Naidoo, a founder of Radian, a small technology-consulting firm.

Democracy, the god that failed in South Africa too.

There is a horrible continuity between apartheid and ANC rule. Both the National party and the ANC had strong socialist instincts before coming to power, and a desire to nationalize the economy. Neither did so when in power, both choosing instead a corporatist or fascist approach, in which the big corporations and trade unions were co-opted into arrangements with the state on the running of the economy. Both believe in an all-powerful state that must control every aspect of life. And of course both are obsessed with race, their all-consuming ideology.

In most of Africa, oppression is worse than it was under colonialism. This is certainly not the case in South Africa, but here, while the brutal and idiotic laws of apartheid have gone, the cramping, demeaning, sterile patterns of racial thought are as strong as ever, reinforced by the acts and threats of the ANC.

Debate in South Africa has nearly ended; the press that criticized apartheid so fiercely has become craven, the universities that demonstrated so loudly have become silent, and the only political aim of the business community is appeasement. White people do not argue against the ANC. They just emigrate. Businessmen do not defy the new race laws. They just move their investments abroad. Almost alone, the liberal DA opposition cries out to recognize men as men and not racial specimens -- for which it is reviled by the ANC and its creatures.

NAURU ON BRINK OF FINANCIAL COLLAPSE

The Pacific nation of Nauru, the world’s smallest republic, is likely to go bankrupt this week after decades of exploitation and mismanagement. It confirmed that receivers had taken control of its assets in Australia, including hotels and a shopping center in Sydney and Melbourne, as it faces defaulting to a major US financier. The bankruptcy would cap a sad tale that has seen the island, home to 12,500 people, slip from having the world’s highest per capita income in the early 1970s.

The once idyllic island halfway between New Zealand and Hawaii, dubbed “Pleasant Island” by its first white visitor in 1798, has also been turned into a barren wasteland by strip-mining of its phosphate resources. “Nauru was once a tropical paradise, a rainforest hung with fruits and flowers, vines and orchids,” Finance Minister Kinza Clodumar said in the early 1990s. “Now, thanks to human avarice, greed and short-sightedness, our island is mostly a wasteland.”

IN PALM BEACH, SOCIALITE’S MURDER STILL CASTS A SHADOW

Last month, a jet touched down in Atlanta carrying one of the U.S.’s most wanted fugitives, James Vincent Sullivan, a 63-year-old multimillionaire indicted for the murder of his socialite wife. The homecoming marked the end of a four-year global manhunt and 17-year effort to prosecute one of Atlanta’s most infamous crimes. It also spotlights a new mystery unfolding among the white beaches and Spanish mansions of Palm Beach. In a story that has gripped high society and opened a rare window on the elite world of private banking, one of Palm Beach’s most successful bankers is fending off accusations that he helped Mr. Sullivan conceal millions of dollars while the fugitive was overseas.

IF THE BERMUDA DOG CATCHES THE INDEPENDENCE CAR, THEN WHAT?

Independence, when it does come to Bermuda, will mean that the Bermuda Government would have to take over responsibility for external affairs, defence and internal security. The additional responsibilities will come at a cost, observers agree, but in the case of foreign affairs Government would have a slew of options that could keep the costs down. “It depends on how you want to live. If you want to live high on the hog it will be very expensive,” said Shadow Housing Minister Wayne Furbert, “But if you want to be a meek and humble nation, and not get all the bells and whistles, then I don’t think it will be expensive at all.”

Besides finding ways to represent locals abroad, Bermuda would also have to carve out its own foreign policy positions on global events and realities. Independence advocates would remind Bermudians that the Island’s colonial status could mean lending support to positions that may not necessarily be held by Bermudians -- such as engaging with the apartheid regime in South Africa or being at war with Iraq. But Independence opponents, like Opposition MP Trevor Moniz, scoff at the idea that Bermuda could hold its own on the world stage.

Reports of large reinsurers moving from Bermuda to Dublin are greatly exagerated.

A report in the Sunday Times has claimed that large Bermuda reinsurers are relocating to Dublin -- and moving thousands of jobs to the area. But no one in Bermuda appears to know anything about any insurers, large or small, that are leaving Bermuda in favor of the Emerald Isle at the moment.

TURKS AND CAICOS ANNEXATION NOT A PRIORITY FOR CANADA

Canadian Foreign Affairs Minister Bill Graham poured cold water on the prospect of Canada being linked with the Turks and Caicos Islands. A political union with the Turks and Caicos is not a priority for the Martin government, Graham told the Montreal Gazette’s editorial board. “Trying to find an institutional framework into which it would fit would be very complicated,” he said. Annexation talk heated up recently after Prime Minister Paul Martin invited the islands’ chief minister to Ottawa to discuss closer relations with Canada.

BRIDGES TO NOWHERE

The defense contractors who charged Americans $600 for hammers in th 1980s were crooks. What do you call a Congressman who charges $320 million for two bridges to nowhere? Perhaps you should ask his Alaskan constituents.

GUERNSEY TOLD THE U.K. HAS DEFENDED THEIR INTERESTS WELL

Peter Mandelson, MP, who was in Guernsey as the guest of the Institute of Financial Services and Lloyds TSB, spoke to finance industry members and politicians about his passionately-held beliefs on European integration. Known as an arch pro-European, Mr. Mandelson said sticking together was the best way to operate in an increasingly global marketplace. “My impression is that the UK Government has negotiated reasonably and you have some protection and can retain advantageous tax rates and financial services and will be able to remain competitive,” he said.

BLAIR CALLS FOR VOTE ON EU CONSTITUTION

Tony Blair promised to transform the surprise referendum on the proposed EU constitution into a vote on Britain’s place in Europe as he wrong-footed the Conservatives with his pledge to stage the nation’s first such plebiscite for 30 years. The Prime Minister, in the biggest gamble of his political career, vowed that he would still call the countrywide poll even if another EU country scuppered a new treaty by voting “no” in an earlier referendum.

The Prime Minister made it clear he will try to turn the referendum into a wider question about Britain’s place in Europe. He warned that the Tories’ opposition in principle to the constitution would lead to Britain having only “associate membership” of the EU. Downing Street added that the vote would have “profound implications for our future in Europe and no one should be under any illusions in that.”

PANAMA TODAY

Panama cannot be classified as being part of either the first or third world, but, rather, it is a second world country with its blend of sophistication and underdevelopment. The canal continues to remain very important to world commerce (it is slated to be widened to welcome even larger ships) and Panama’s offshore financial services grow increasingly more attractive as those of many other jurisdictions become less so because of international pressures. The republic continues to broaden its horizons and is not just looking north for guidance: the EU has recently announced that Panama will receive over €6 million in aid, spread just over 4 years, to assist with the bolstering of the country’s judicial system.

On the political front, unlike the situation in Venezuela, following 5 years of tempestuous rule by Hugo Chávez, the country has enjoyed almost 15 years of restored democracy after General Manuel Antonio Noriega was removed from dictatorial power. Panama had already abolished any army in 1991 and a referendum in 1998 rejected a constitutional amendment that would allow the president to run for a second term. Elections will take place in May this year without any sense of foreboding.

Panama is a stepping stone between Central and South America because the country is split (literally) in two by its canal. So it has a foot in both camps, on the one side Costa Rica and on the other Colombia. This unique country has come far since 1903. And so has the U.S., whose shadow has been cast across the isthmus. It has changed from being a regional to a super power only since the Spanish-American war in 1898, just five years before Panama’s independence. It is really not that long ago.

RUSSIAN TAX OFFICIALS RAID YUKOS HQ

Russian tax officials raided central Moscow headquarters of oil major Yukos today in search of documents relating to tax evasion charges. The raid comes only two days after Standard & Poor’s slashed Yukos’s credit rating by an unprecedented five points to CCC, and warned that the firm could be heading for bankruptcy.

“We had around 25 people searching the office and confiscating documents,” said Yukos spokesman Alexander Shadrin. “They presented a search warrant under an investigation into alleged tax underpayment by Yukos subsidiaries,” including oil production companies Tomskneft and Samaraneftegas and three oil refineries, he said.

The raid is the latest incident in a long running saga, which began on October 25 when Mikhail Khodorkovsky, Yukos’s chief executive and Russia’s richest man, was arrested at gunpoint in Novosibirsk on numerous tax evasion charges. The arrest sparked fears that the government could be about to embark on a re-nationalisation of the oil and gas companies that were auctioned off cheaply in the mid 1990s.

A new twist in the Yukos affair.

Investors have begun to contemplate a once far-fetched outcome to the “Yukos affair”, that the shares in Yukos Oil held by the company’s founder, Mikhail B. Khodorkovsky, and his business associate, Platon L. Lebedev, may land in government hands if the two are convicted. Both men are in jail awaiting trial, after they were arrested last year in what is widely viewed as an inquiry orchestrated by the Kremlin.

Mr. Lebedev’s first pretrial hearing in the government’s criminal case took place on Thursday. If convicted, his assets, including his stake in Yukos, could be seized by the government, according to oil industry analysts, Yukos lawyers and American officials who are following the case. Mr. Lebedev’s trial is widely seen as a prelude to that of Mr. Khodorkovsky, expected in June or July.

At the time of his arrest last October, Mr. Khodorkovsky’s stake in Yukos was worth $7.8 billion, and has since risen in value to $15 billion. Mr. Lebedev is the fourth-largest holder in Yukos, and has total assets valued at $1.8 billion, according to Forbes. Many experts say that the Kremlin is making an example of Mr. Khodorkovsky to other “oligarchs” who, in the 1990’s privatization period, paid pennies on the dollar in government auctions. Just this week, a Moscow court overturned a deal the state agreed to with Mr. Lebedev over the disputed 1994 privatization of Apatit, a lucrative fertilizer factory. The allegations surrounding the Apatit privatization lie at the heart of Russian prosecutors’ case against the two men.

TAXES

AVERAGE TAX FILING TIME RISES TO 28 HOURS AND 30 MINUTES

The government estimates that the average taxpayer filing a typical tax return with itemized deductions and income from interest, capital gains and dividends, has to spend 42 minutes more than last year doing the math and paperwork. The total estimated time to finish these common forms is 28 hours and 30 minutes.

WHAT DOES THE IRS DO WITH YOUR INTIMATE FINANCIAL DETAILS? A LOT

Did you file intimate financial details with the Internal Revenue Service yesterday? Have you ever paused to wonder what happens with that sensitive information after it gets to the P.O. Box in Memphis or Puerto Rico? According to the Congressional Joint Committee on Taxation, a lot happens. The JCT publishes information provided by the IRS on how many times each year IRS shares taxpayer information with others. According to the Disclosure Report for 2003 released earlier this month, the total for last year was 3,744,087,686 -- more than ten times for every man, woman and child in the United States.

Now, about two-thirds of that total is accounted for by disclosure to the individual states. The report says these 2.4 billion disclosures are to state tax authorities for the purpose of administering state tax laws. Why the states need more than eight data-dumps for each person living in these United States is unclear, however. More than 61,000 disclosures were made to criminal investigators in various federal agencies and US Attorney offices, up more than 30% from 2002.

Last year, the General Accounting Office of the Congress found IRS computer systems to be ludicrously insecure and vulnerable to hackers. In 2000, Privacy Journal caught the IRS signing taxpayers up for junk mail. Congress closed a loophole in 1997 that let thousands of IRS employees “legally” “browse” through taxpayer records at will, subject to the occasional administrative slap on the wrist, but no criminal sanction. If you believe the practice stopped in 1997, we have swampland in Florida for sale you might be interested in.

Of course, consumers do not really have much of a choice when it comes to turning over sensitive information to the IRS. It is not like you can take away your business from the IRS when you become dissatisfied with its privacy policy or practices. The tax collectors throw around words like “voluntary compliance”, but that just means you volunteer to risk imprisonment if you do not give them everything they want -- including your personal information.

SOCIAL SECURITY AND TAXES

If you earn $25,000 a year, you pay $1,550 annually in FICA taxes (or payroll taxes) to support the Social Security retirement program. That is a pretty big chunk of change -- especially for a growing number of young workers who do not believe Social Security will still be in existence when they retire. Three out of four Americans pay more in FICA taxes than in federal income taxes. Look at your pay stub sometime to see how much comes out of your paycheck. But wait, there is more. Because a financial crisis looms over Social Security, the huge tax bite that falls on Americans will only get bigger unless something changes. Social Security has to be fixed -- now.

U.S. TREASURY SECRETARY: IRS AUDIT STATISTICS MISLEADING

A decline in some audit rates for large companies and partnerships is a misleading statistic. The explosive growth of tax shelters and other complexities of corporate cases has led to a decline in the number of audits because these cases are time-consuming. In fiscal 2003, for example, the IRS worked more than 2,200 tax-shelter returns. The time to complete a tax-shelter return averages 7.5 months longer than a non-shelter corporate return, but the potential for results per audit makes this a good trade-off. More than a third of the new corporate cases in 2003 were in this complex category, nearly double the level of two years earlier. About 55% of all cases fell into this category. This increasingly complex workload is why the overall number of corporate audits declined.

The president’s 2005 budget would rectify this situation by adding $490 million to the IRS budget. Making sure taxpayers comply with the law is not enough. The complexity of the tax code aids those who seek to improperly reduce their taxes. The administration has made tax simplification a priority, and we look forward to working with Congress to achieve it. A simpler code is something we owe honest taxpayers and the worst thing of all for the tax cheat.

BESTSELLER AUTHOR PLEADS GUILTY TO OFFSHORE TAX FRAUD

Military thriller author Dale Brown pleaded guilty to filing a tax return with more than $440,000 in fraudulent expenses as part of an offshore tax evasion scheme, federal prosecutors said. Brown, 47, of Lake Tahoe, has written such best sellers as Flight of the Old Dog, Fatal Terrain and Warrior Class. He pleaded guilty to tax fraud in Portland, Oregon said Mercedes Manzur, an agent with the IRS in Las Vegas. He faces up to three years in prison and a $250,000 fine.

The IRS said Brown created companies in the West Indies for the purpose of receiving tax deductions for fictitious expenses, then used the money to remodel his home.

SINGAPORE EXPANDS TAX BREAKS TO ACCOUNTANTS AND LAWYERS

The Singaporean government has extended tax breaks which are usually only available for corporations to partnerships, in an attempt to encourage more accounting, audit, and law firms to locate their headquarters in the country. Firms which are able to prove that they intend to expand their Singapore-based operations will receive a 50% tax exemption on qualifying overseas income over a certain amount, determined by the average of the partnership’s profits for the provision of services in the region over the three years prior to the application.

EUROPEAN COMMISSION ORDERS GERMANY TO SCRAP “EXIT TAX” RULES

The EC formally requested that Germany removes a so-called “exit tax” on certain assets of individuals leaving the country, arguing that the provisions of the tax law run counter to the principle of freedom of establishment as laid down by the EC Treaty. Under the current German tax law, individuals who decide to leave the country are taxed on unrealized capital gains if they have had unlimited income tax liability in Germany for at least ten years, and have held more than 1% of a limited company. However, by contrast, the “exit tax” rules state that capital gains are taxed for residents in Germany only if they are realized.

IRS CONTRACTOR PLEDGES TO GET IT MODERNIZATION RIGHT THIS TIME

New computer systems for the IRS are on track and will be completed on their revised schedule, according to the president of the leading contractor on the project. Lawmakers have become increasingly impatient with delays and cost overruns surrounding the Customer Account Data Engine, a multi-year effort to replace IRS’s antiquated “master file” with a modern database. The master file holds more than 150 million taxpayer records and serves as the hub of the tax-collection system.

At a hearing this month, Alabama Republican Richard Shelby, chairman of the Senate subcommittee that oversees the IRS, said the department’s modernization efforts have “woefully under performed,” adding that “schedule slippages and cost overruns have been epidemic.” Shelby worried that the current modernization could repeat an earlier two-year program to update IRS systems that failed after spending $4 billion. “That effort was a complete loss,” he said.

U.K. DIVIDEND TAX: FROM “GIFTHORSE” TO “LOOPHOLE”

The political battlelines were drawn on the dividend tax and other new measures affecting freelancers and small businesses during the Finance Bill’s Second Reading. It emerged that Opposition members were prepared to attack the new dividend tax (IR591) on the basis that the Government had lauded the introduction of the zero corporation tax rate as a “gifthorse”, only for it to change to a “loophole” 18 months later leaving small businesses in an uncertain and disruptive situation.

The Second Reading of a Bill gives politicians the first opportunity to debate the wider principles of the legislation rather than the detailed provisions, which is carried out in the forthcoming Committee Stages of the Bill. However, Conservatives and LibDems spent some time focusing on the damage being done to the small business sector with the dividend tax; IR35; Section660 and other measures. The Government also recognized this was going to be an issue during the next few months and reinforced its determination to tackle tax avoidance and evasion, particularly with reference to small businesses and owner-manged companies.

One taxpayer wrote in that “I am sick of this Government messing up so many areas of my life. I am fed up with their taxes, anti-family stances and sheer arrogance. They meddle in so many areas where they just do not see the ramifications.”

FEDERAL AND STATE CO-OPERATION ON TAX SHELTERS BEGINS TO PAY DIVIDENDS

A program designed to facilitate the sharing of information on suspected users of tax shelters between federal and state governments appears to have yielded some good results for the tax authorities in its early stages. As part of a data sharing agreement, the IRS has supplied 48 state tax authorities with 28,000 names of those suspected of using abusive tax shelters. One state that has been a major beneficiary of the program is California, and of the 3,500 names turned over to the state authorities by the IRS, 2,000 have been notified that they may have taken part in illegal tax sheltering activities.

The program has also helped to boost the returns from California’s voluntary compliance initiative, whereby individuals suspected of tax shelter use could amend their tax returns and pay back taxes without facing penalties or interest charges. The initiative, which closed on April 15, collected $310 million according to the state Franchise Tax Board, far in excess of the projected $90 million take from the scheme.

THE REAL PROBLEM WITH THE TAX SYSTEM

With the dreaded April 15 tax deadline having come and gone, it would be interesting to have a little discussion about the topic while it is fresh in your mind -- or as the empty feeling in your pocket is just beginning to fade. In the past week or so, several timely people have made mention to their strife and exorbitant tax rates. They have informed me on programs such as the Flat Tax, the Fair Tax Program and the National Sales Tax System, all designed to alleviate problems associated with our current graduated income system. The key problem that many seem to be missing is the fact that no matter what tax system we have, it will take a little more than a new name to remedy the situation in Washington.

Let us look at some stats. Currently, a family of four (husband, wife, two kids) making $100,000 a year in a major metropolitan area, living in the suburbs, are considered wealthy. This family is going to pay nearly 30% of their income off the top to the Feds. And, like magic, we are down to $70,000 net income. Then the state gets their cut. Let’s say this family is living in Kansas City, Missouri -- knock off another $6,000 for state taxes and between 5-7% for local ($6,000) -- and you end up with about $58,000 net income. With a mortgage, car payments, everyday bills, and two kids to raise, it hardly seems like enough.

Many people will claim that this is cause to lower tax rates and renew the whole system. I too agree that something must be done. Realistically, however, Americans need to renew their thinking on what should be done. In the 1950s, government operated on a budget less than $80 billion. Today the budget deficit is nearly 6 times that amount. Were the needs of Americans only 50 years ago any less than those of today? The reality is that they were not. The difference is they were more self-reliant. Are we better off because of all the additional government services now provided? Maybe, maybe not, but they have undoubtedly led to the creation of a huge bureaucracy -- a practical government monopoly on nearly every major industry. To maintain a monopoly, one has to feed it.

Complaints about the tax code and reforms, thereof, do us no good unless we recognize the underlying causes of its failure. If we, as Americans, have a true fundamental problem with paying so much in taxes, we must begin by phasing out our dependence on the federal government as the solution to all our woes, and look at it as what it is -- a source of them.

ASSET PROTECTION

SWISS GOVERNMENT GIVES NIGERIA $50 MILLION OF ABACHA LOOT

The Swiss government has returned to Nigeria $50 million linked to the later dictator General Sani Abacha. The money is part of the funds frozen in Swiss bank accounts in 1999 at the request of the Nigerian government, which accuses Abacha of looting more than $2.2 billion from state coffers. Nigerian President Olusegun Obasanjo has told the Swiss that the funds will be used for “social, health and educational projects”.

Around $500 million remains frozen in Swiss banks while the government decides who is the correct owner. Another $85 million was previously released following a legal ruling against a British intermediary. Last year Nigerian Finance Minister Ngozi Okonjo-Iweala urged Swiss officials during a visit to the capital Bern to speed the return of the money.

PANAMA TO PROBE EX-PERU SPY CHIEF’S BANK ACCOUNTS ... AFTER SUPREME COURT GIVES OK

Panama has ordered an investigation of bank accounts held by former Peruvian spy chief Vladimiro Montesinos as part of an international probe into the biggest corruption scandal in Peru’s history. Panama’s Supreme Court has agreed to a request from Peru’s government to probe the origin of money Montesinos deposited in Panama, a court official said. “What we’re trying to do is determine ... if the money in accounts opened by [Montesinos] and his partners was taken from Peru’s government or if it came from drug trafficking,” said the official, speaking on condition of anonymity.

SWISS PREPARED TO DELAY EU TAX DIRECTIVE

The EU savings tax directive is supposed to take full effect next January, but Joseph Deiss, Switzerland’s president, said his country could not co-operate without a separate agreement on border controls. The EC is pressing Switzerland to sign an agreement on the directive by the end of June, but Bern wants eight further deals with the EU on matters such as agriculture and the environment. Most of those additional deals are completed, but Switzerland is seeking important concessions on the Schengen convention on border controls.

The EU savings tax directive is supposed to ensure that EU residents who put funds outside their home countries pay tax on any interest. However, the directive cannot take effect in January without Switzerland’s participation, together with the US, Andorra, Liechtenstein, Monaco and San Marino.

Switzerland is pressing the EU for concessions on the Schengen convention that would ensure its much cherished banking secrecy regime is left intact. The Schengen arrangements, which cover 13 EU countries plus Iceland and Norway, facilitate co-operation between police in the fight against organised crime, and Switzerland wants to co-operate. But Mr. Deiss expressed concern that the Schengen convention might dilute its banking secrecy regime because of ambiguous provisions on information exchange between countries. Bern is seeking concessions to ensure its authorities do not have to exchange information on tax evasion, which is not a criminal offence in Switzerland. Switzerland is also resisting pressure from fellow members of the OECD over its crackdown on tax evasion.

INTERESTING OBSERVATIONS FROM MARCH OFFSHORE PILOT QUARTERLY

Of Dodos and “independent” U.K. dependencies.

The obstinate stance of the Cayman Islands against the British government over the implementation of the EU Savings Tax Directive, while entertaining, amounted to nothing more than pure farce. In January it was the turn of the Turks & Caicos Islands to join in the political pantomime. The flightless Dodo of Mauritius, the Tasmanian tiger, New Zealand’s laughing owl and stubborn dependent offshore financial services centers all have something in common -- all thrived for a long time before meeting disaster due to the acts of human beings. The human beings in the case of those dependencies sit in Whitehall. Gordon Brown has told his country’s dependencies that he intends to put an end to “designer taxation” and that he is not prepared to “defend the indefensible”. I predict that the TCI’s resistance to the UK government has as good a chance of not melting away as a snowball has in a microwave on a two-minute setting.

The OECD has yet to master the fine art of plucking feathers.

Gabriel Makhlouf, chairman of the OECD’s fiscal affairs committee and a former tax inspector, is leaving the OECD committee after 4 years during which time the question of harmful tax competition has become a major international issue. He has been, inevitably, a target of criticism, especially from professional offshore practitioners, because he initiated a policy of “naming and shaming” recalcitrant jurisdictions by issuing blacklists. Two years before the blacklists started in 2000, the OECD had published a report calling for a crackdown on tax havens.

In March, 2000, after Mr. Makhlouf’s appointment, a second OECD report was published which, this time, contained demands, rather than suggestions, specifically on the related subject of banking information. It accused 35 jurisdictions of harming trade and investment because of bad tax policy. In September, 2003, as disagreement continued, Switzerland and Luxembourg (with support from Austria and Belgium) blocked agreement at the OECD for access to banking information from 2006 onwards.

The action by the dissident 4 presents Mr. Makhlouf with an impossible situation because all decisions by the OECD’s fiscal affairs committee are reached by consensus and the 4 member countries cannot be forced to comply. The 2006 deadline is no longer a certainty for the offshore jurisdictions and the Committee’s chairman has accepted that the OECD, perhaps, should have taken a less aggressive position from the start. He agrees that more speaking softly and less stick-wielding will probably result in greater progress. But the chasm between the OECD and the offshore jurisdictions remains and, to add to the already complex situation, several other international bodies, including the United Nations, are now competing for influence on international tax policy. Jean Baptiste Colbert observed that the collection of taxes was a skill and consisted of so plucking the goose as to get the largest number of feathers with the least hissing. To say that the feathers of the offshore jurisdictions have been, at the very least, ruffled, is to put it mildly. Expect a lot more hissing.

Where you stand depends on where you sit.

Adam Smith, the protagonist of free-market capitalism, held a dim view of joint-stock companies. He saw them as synonymous with greed and corruption. After all, in the 1720s, John Law’s Mississippi Company ruined the economy of France, the world’s most prosperous country at the time and in the United Kingdom the collapse of the South Sea Company caused nearly as much damage. Today, America has nearly 5.5 million companies and not much seems to have changed from the days when one corporate baron, John D. Rockefeller, was a symbol of “fraud, deceit, special privilege, gross illegality, bribery coercion, corruption, intimidation or outright terror” according to the author of that vituperative prose, the journalist, Ida Tarbell.

Since the earliest business known to have multiple shareholders existed in the middle of the 13th century, companies have been at the center of scandals often because the people managing them forgot the fiduciary relationship between themselves and the shareholders. As Adam Smith observed over two centuries ago, they are “managers rather of other people’s money than of their own.” The fact that business managers today use offshore financial services centers in their structuring does not transfer the root cause of criminal activities by some managers to those centers. Even so, those offshore centers have been seen as renegades much like Atlas, a rebel against the gods, who was punished by Zeus by having to bear the burden of carrying the heavens on his shoulders; the offshore centers seem destined to shoulder the blame of corrupt practices, regardless of where they originate.

Offshore jurisdictions have become the whipping boy of bureaucrats such as the EU’s Internal Market Commissioner, Frits Bolkestein, who has said that the “role and regulatory control of offshore centers needs to be tightened” following the Parmalat scandal. Ida Tarbell would have appreciated the EU commissioner’s flamboyant style, especially when he goes on to say that scandals such as Parmalat are symptomatic of a corruption of financial markets likened to the “corrosive drip of a leaking fuel tank”. His gaze from within his bureaucratic bubble is firmly fixed offshore where he sees the threat to transparency, especially, persisting. Maybe the EU bureaucrat is unaware of Delaware (stockholders are not revealed to the state) and nor, perhaps, of either Nevada where the law is silent on bearer shares or Wyoming where they are allowed. Panama, in fact, based its own corporate law on Delaware’s, but Mr. Bolkestein might not appreciate that fact. Ah, the corrosive drip of bias.

MAKING LIFETIME GIFTS

Since estate taxes are scheduled to be phased out gradually and then reinstated in 2011, you may still want to make gifts during your lifetime to reduce your taxable estate. Some tips to consider are given below. While gifting can be a valuable estate planning strategy, you do not want to gift so much of your estate that you have difficulty making ends meet later in life.

REVIEW OF REPORTING REQUIREMENTS FOR FOREIGN TRUSTS WITH U.S. OWNERS

Form 3520-A is the annual information return of a foreign trust with at least one U.S. owner. The form provides information about the foreign trust, its U.S. beneficiaries, and any U.S. person who is treated as an owner of any portion of the foreign trust. A foreign trust with a U.S. owner must file Form 3520-A in order for the U.S. owner to satisfy its annual information reporting requirements under section 6048(b). Each U.S. person treated as an owner of any portion of a foreign trust under sections 671 through 679 is responsible for ensuring that the foreign trust files Form 3520-A and furnishes the required annual statements to its U.S. owners and U.S. beneficiaries.

No penalties will be imposed if the taxpayer can demonstrate that the failure to comply was due to reasonable cause and not willful neglect. The fact that a foreign country would impose penalties for disclosing the required information is not reasonable cause. Similarly, reluctance on the part of a foreign fiduciary or provisions in the trust instrument that prevent the disclosure of required information is not reasonable cause.

A grantor includes any person who creates a trust or directly or indirectly makes a gratuitous transfer of cash or other property to a trust. A grantor trust is any trust to the extent that the assets of the trust are treated as owned by a person other than the trust. A part of the trust may be treated as a grantor trust to the extent that only a portion of the trust assets are owned by a person other than the trust. A nongrantor trust is any trust to the extent that the assets of the trust are not treated as owned by a person other than the trust. Thus, a nongrantor trust is treated as a taxable entity.

PRIVACY

STEALING MAY BE EASY, BUT HIDING GETS HARDER

Fill in the blank: Corrupt dictator plus ill-gotten gains equals _____. Well, historically, one answer would have been “Swiss bank account”. But over the past few years Switzerland, with its 350 banks managing $2.3 trillion in private investments, has been trying to persuade outsiders that the days of shady dealings with suitcases of cash and numbered accounts are over.

Recently, Transparency International, a Berlin-based anticorruption advocacy group, produced a tally of riches accumulated by the world’s most notorious kleptocrats. So the question now is, Where can a bad guy stash the national loot these days? Terrorists, drug dealers, gun runners and political leaders siphoning the patrimony of hungry citizens all need havens for sums of cash.

Not surprisingly, Switzerland has no wish to be associated with the list of “non-cooperative” countries in international efforts to block the flow of illicit funds, and its bankers say they have been tightening their controls since 1977. That does not alter the fact that Switzerland’s bank secrecy laws, dating to 1934, impose far fewer obligations to report customers’ affairs than laws elsewhere. But as the enforcement of regulations on illicit money has tightened, Swiss banks have become more cooperative with investigators.

ANTITERROR LAWS TAKE PRIVACY OUT OF BANKING

As the most prominent target yet in the post-9/11 search for terrorist dollars, Riggs Bank of Washington is an object lesson for all financial institutions -- pawn shops, even you are not exempt -- that are not diligent in spying on questionable customers and reporting them to the Feds. There is no evidence that Riggs-linked money is connected to terror. Nobody has been charged with a crime, although Riggs could face fines and heightened oversight and was criticized last year for what the government said was lax compliance with money-laundering safeguards. Riggs has ended its relationships with Saudi Arabia and Equatorial Guinea, both huge depositors.

But what is clear is that the rules of the game have changed. The USA Patriot Act of 2001, government reorganization and huge boosts in spending have given teeth, sinew and extra eyes to federal money-flow scrutiny. Last month President Bush created the Office of Terrorism and Financial Intelligence at the Treasury Department. The Financial Crimes Enforcement Network, an obscure office founded in 1990 to fight money laundering, has been upgraded, expanded and put under that umbrella. FinCen, as it is known, not only collects information on “suspicious” bank transactions under the Bank Secrecy Act; it employs intelligence specialists to sift through the data and is empowered to share it with other government agencies. And some financial outfits are now empowered to share information on suspect customers with each other -- in addition to being required to report it to the government.

What constitutes a “suspicious” transaction is unclear, but banks are supposed to report everything from apparent false statements and identify theft to credit card fraud and computer hacking. And they are not just watching depositors; accountants, employees, shareholders and appraisers may be reported, too. Banks must disclose the suspects’ addresses, phone numbers, Social Security numbers and account numbers. Political pressure for results is enormous, especially in an election year. “Private banking” is becoming an oxymoron.

FBI WARNS OF STOLEN FRENCH PASSPORTS

Nearly 10,000 blank French passports were stolen in February, leading the FBI to warn U.S. law enforcement agencies to be on the lookout. “These stolen passports are of particular concern because France participates in the Visa Waiver Program that allows visitors from 27 nations to enter the United States for pleasure for 90 days without a visa,” the FBI said in the warning.

BELGIAN POLICE TO SNOOP INTERNET LINES

The Computer Crime Unit of the federal Belgian police is to begin testing an Israeli system of so-called “e-taps” on Belgacom high-speed internet connections. They then plan to install the system, which is capable of intercepting, reading and recording email messages, across all high-speed ADSL lines in Belgium.

“The legitimate fight against terrorism can in no way justify a practice which will see each citizen connected become liable to bugging,” said a statement by the Belgian committee of the League of Human Rights (LHR). Belgium’s federal police authorities said the testing of the tapping system, due to last several days, will not involve private internet lines but will only be carried out on Belgacom high-speed lines within the police administration.

IN THE U.K., NO SECRET IS SAFE WITH YOUR ADVISER

You may never think about your accountant in the same way again. New regulations are forcing accountants tell the Revenue about their tax avoidance schemes, to inform on clients, and make it an offence even to let their clients know they have informed. It raises questions about whether you can receive confidential financial advice from accountants or other advisers.

The laws, originally introduced to catch people laundering terrorist or drug money, are now being use to spot any infringements, and regulatory agencies are being inundated with reports on clients -- and other people’s clients -- from advisers protecting themselves. On top of these, the new Finance Act will contain what the Treasury calls a “package of measures” to tackle tax avoidance, even though avoidance -- unlike tax evasion -- is legal. One firm of accountants in London is writing to clients warning them not to tell it any information they want to remain confidential.

MANY AMERICANS IN THE DARK ABOUT PATRIOT ACT PROVISIONS FOR SNOOPING

The Patriot Act has already changed the lives of many Americans in the wake of September 11 and, as I tell my college students, if renewed and strengthened it could alter the way almost all of us live. Polls routinely show most Americans do not have a clue as to what the Patriot Act is, or if they do, about 70% of those surveyed think it is just fine and dandy. Civil libertarians and many members of Congress complain the 30-month-old legislation is just the opposite.

The law has a lofty and stirring acronymic title “Uniting and Strengthening America by Providing Appropriate Tools Required to Intercept and Obstruct Terrorism”. For those of you barely paying attention, notice what the first letters of the main words spell out. Some bureaucrat got paid good taxpayer money for thinking this up. The 350-page law was passed in a hurry with lots of adrenalin-laden speeches just six weeks after the Sept. 11 disaster to give the law enforcement community new capabilities in preventing further terrorist acts. But members of Congress and their staffers had little time to study the language, and they insisted it be subject to “sunse”q provisions so anything wrong in it could be corrected after a few years. Plenty of Republicans and Democrats alike think there are lots of things wrong with the Patriot Act. It could morph into a key issue in this year’s presidential election campaigning.

In plain terms, the standards for legally snooping on anyone in this country are waaaay more lenient than they used to be, and permission to do so is waaaay easier to get. Permission to surveil suspicious religious or political groups without evidence of suspected wrongdoing is simply obtained under the Patriot Act. Opponents have also noted the FBI and other agencies have been using the Patriot Act as an investigative cudgel to scoop up evidence in cases not even remotely connected to terrorism. Section 314 of the Patriot Act states the law can be applied to behavior “that may involve terrorist acts or money-laundering activities.”

Note the clever and judicious placement by bill-drafters of the word or in that sentence. The FBI, for instance, has seized upon it to probe accusations of political corruption and money-laundering -- most notably involving a Las Vegas strip club owner’s attempt to influence local officials to loosen laws that restrict the ability of patrons to touch nude dancers. Terrorism?

PRIVACY SUIT FILED AGAINST GOOGLE IN 16 COUNTRIES

A watchdog group said it filed complaints in 16 countries over Google’s proposed email service, Gmail. The complaint alleges that Google’s “Gmail” service will break privacy laws on a number of counts, including unfairness, a lack of contractual commitment to the security of data, laws governing the interception and scanning of emails, confidentiality, offshore processing of personal data and 3000+ more words.

THE FBI WANTS TO LISTEN TO YOUR KEYSTROKES

The FBI is trying to convince the government to mandate that providers of broadband, Internet telephony, and instant-messaging services build in backdoors for easy wiretapping. That would constitute a sweeping expansion of police surveillance powers. Instead of asking Congress to approve the request, the FBI (along with the Department of Justice and the Drug Enforcement Administration) are pressing the Federal Communications Commission to move forward with minimal public input.

The three agencies argue that the 1994 Communications Assistance for Law Enforcement Act (CALEA) permits the FCC to rewire the Internet to suit the eavesdropping establishment. Unfortunately for the three agencies, CALEA, as it is written, would not grant the request. When Congress was debating CALEA, then-FBI Director Louis Freeh reassured nervous senators that the law would be limited to telephone calls. (CALEA was intended to let police wiretap conversations flowing through then-novel services like cellular phones and three-way calling.) But now that more conversations are taking place through audio-based instant-messaging and voice over Internet Protocol (VoIP) services, the FBI and its allies are hoping that official Washington will not remember inconvenient details.

New technologies do present police with new headaches, and perhaps that justifies additional wiretapping powers. But the question will be: Who gets to make that call -- elected representatives in Congress or well-meaning but unelected bureaucrats at the FCC?

TSA PLANS RAIL SECURITY PILOT PROGRAM

The Transportation Security Administration will launch a pilot program in May to test technologies that could be used to screen passengers and baggage within the rail and commuter train industry. The pilot marks the first time TSA and the rail transit industry have teamed to examine how passenger and baggage screening activities that have become commonplace at the nation’s airports might be applied at train stations. Homeland Security Secretary Tom Ridge announced the effort March 22 after bombs ripped through the public transit system in Madrid, killing 191 people and injuring more than 1,500 others.

POST-9/11 ENTRY REQUIREMENTS HURTING TRAVEL TO U.S.

Top Bush administration officials said that restrictions on the entry of foreigners have prompted many to shun travel to the United States since 2001. They recommended that the constraints be reviewed. “This hurts us,” Secretary of State Colin Powell said, citing a 30% decline in overseas visits to the United States over 2 1/2 years. “It’s is not serving our interests. And so we really do have to work on it.”

Homeland Security Secretary Tom Ridge said the security benefits derived from the post-Sept. 11 restrictions have had unwanted economic side effects. Powell and Ridge made their comments in testimony to the House Judiciary Committee.

Powell cited the example of a Harvard Ph.D. candidate from China who returned to his homeland to attend a wedding but was unable to resume his studies for months because he had neglected to reapply for permission for the return trip. “People aren’t going to take that for very long, and when the word gets out to others, they will start going elsewhere,” Powell said. The number of foreign students in the United States is down as are visits by scientists, businessmen and others, he added.

CONGRESS TO DELAY EUOREAN PASSPORT SECURITY REQUIREMENT

Congress is likely to give the 27 countries -- which include most E.U. nations, Japan and Australia -- in the U.S. Visa Waiver Program two more years before requiring that their passports include new security features, such as biometric identifiers. Right now, citizens of those countries can travel to the United States temporarily without a visa under the Visa Waiver Program (VWP). In 2002, Congress set a October 26, 2004 deadline for those countries’ passports to include the new biometric security features such as facial recognition, retinal scans and digital fingerprints. With that deadline looming and few countries, including the United States, ready to meet it, members of Congress said they will have to grant an extension. U.S. Secretary of State Colin Powell has confirmed that the deadline will be pushed back to November 2006.

EUROPEAN PARLIAMENT TAKES ON EU AND US OVER AIR DATA DEAL

MEPs have defied “huge pressure” from Brussels, national governments and the US to mount a legal challenge to a Trans-Atlantic anti-terror agreement. The European Parliament by a 16 vote margin, 276 in favor vs. 260 against, agreed to take a privacy rights battle over handovers of air passenger data to US security agencies to the EU courts. Washington has expressed “regret” over the latest opposition from MEPs but US officials indicate data transfers will continue with the backing of other EU institutions. The EU external relations chief told MEPs that European airlines would face huge fines and travellers be subjected to lengthy security checks without the agreement.

The anti-terror measure is set to stay in place regardless of the case going to the European Court of Justice the EU. A legal challenge could take up to two years, though a ruling against the deal would require the commission to seek parliament’s full “assent” to a future agreement. Welcoming the result European Liberal Democrat leader Graham Watson stressed that Brussels had got what it deserved.

MINORITY REPORT A FORETASTE OF THINGS TO COME?

Billed as a near future action movie -- science fiction combined with science fact -- Minority Report could also be viewed as a horror movie, one that shows us where technology could lead us if we do not consciously make the effort to protect our liberties. The futuristic appearance of Washington, DC is skillfully done, perhaps because director Steven Spielberg took the time to consult with experts to get it right. In a meeting lasting several days, a group of MIT scientists, urban planners, inventors, and others carefully crafted the society and infrastructure of 50 years from now based on the trends of today.

The Washington of 2054 is blanketed by cameras everywhere which take quick retinal scans of all passers by. As each is identified, personalized advertising appears on walls next to their pathway, and storefronts address them by name. The police have the authority to scan at any time for any reason -- or no reason -- and people passively obey. I found this aspect of Minority Report utterly terrifying, not least because it was so completely believable.

NO PRIVACY FOR THE POOR, HOMELESS

Across the country, homeless shelters and other service providers are scrambling to implement an electronic homeless-management system by an October 2004 deadline set by the Department of Housing and Urban Development. Those systems, according to HUD draft standards, will include information on homeless individuals’ incomes, mental health histories, dates of birth and Social Security numbers. The databases would keep the information for seven years. The impetus for the homeless-management system came from Congress, which told HUD to come up with a better way to count the number of homeless people.

Cindy Southworth, technology director of the National Network to End Domestic Violence, told attendees at the “Computers, Freedom and Privacy Conference” in Berkeley, California that the mandated databases would endanger the lives of women fleeing a violent partner. She argued that there are simpler, cheaper and less-invasive ways to achieve the goal of a homeless census. “It is a fabulous tool for stalkers,’ she said. “We are taking the exact location and other information about a victim and sticking it in a central server that’s not very secure.”

LAW

BANKS’ MONEY-LAUNDERING SLIP UP MAY LEAD TO TIGHTER RULES

Calls for tighter control to prevent money-laundering are likely following claims that Lloyds TSB and Citibank should repay millions of pounds that were wrongly cleared through accounts set up in Switzerland. Lloyds TSB is accused of clearing part of $242 million (£135.6 million) that came from Banco Noroeste in Brazil was recycled to Nigeria. Several high street banks have been fined for failing to install sufficient anti-money-laundering devices. Penalties amounting to £5 million have been dished out to high street banks. Most recently, Royal Bank of Scotland was fined £750,000 for failing to make adequate records on its customers.

U.S. READY TO FINE RIGGS BANK FOR NOT REPORTING SUSPICIOUS TRANSACTIONS

Federal bank regulators are preparing to impose fines on Riggs Bank as soon as this week for not reporting millions of dollars in suspicious transactions at its embassy banking division, and have notified bank officers and directors that they may be sanctioned individually, according to people familiar with the investigation. The penalties would come as the FBI, bank regulators and three congressional committees continue to delve into Riggs’s international banking relationships, particularly its two-decade role as chief banker for the Embassy of Saudi Arabia in Washington. Investigators are looking at the Saudi accounts for evidence of money laundering.

US AGENTS TAKE SOUTH AFRICAN RADIO MAN OFF PLANE AND GRILL HIM FOR 12 HOURS

Cape Town radio man Zane Ibrahim, an award-winning journalist and managing director of Bush Radio, had flown to the US from Cape Town via Amsterdam to deliver a keynote address on 10 years of South African democracy at a conference at Goucher College, near Baltimore. Ibrahim said by telephone from the US that his aircraft was still on the runway when guards boarded the flight, removed him, strip-searched him and interrogated him in the airport building for nearly 12 hours.

Reached at his hotel, just after his encounter with the almost a dozen security officials, an angry Ibrahim said he was shocked and disturbed. “I don’t know what was wrong with these people, but they seemed really angry about an anti-war campaign we had running on Bush Radio, called Bush Against War.” Ibrahim said that when he did not appear at the airport, colleagues who were there to meet him made inquiries and eventually he was released, without an apology.

BUSH OPENS PATRIOT ACT RENEWAL AND EXPANSION OFFENSIVE

President Bush urged Congress on Monday to renew the anti-terrorist USA Patriot Act and strengthen it before the law expires next year, saying it gives investigators the tools to stop “terrorist monsters”.

“There’s only one path to safety, and that’s the path of action,” Bush said. “Congress must act with the Patriot Act. We must continue to stay on the offense when it comes to chasing these killers down and bring them to justice.” Bush credited the law with the ability of federal agents to break up “terrorist supporters and operatives” in eight states. He urged Congress to make permanent all the act’s provisions and to add others that he said would strengthen the law, including expanding the federal death penalty for terrorist attacks, restricting bail for suspects facing terrorism charges and allowing administrative subpoenas to be issued without a judge's or a grand jury’s approval in cases “where speed is of the essence.”

Critics on both the left and right say the act already gives federal agents too much power to snoop on and limit the freedom of individual Americans. A federal judge declared a portion of the statute unconstitutional in January, saying its ban on providing “expert advice or assistance” to groups designated international terrorist organizations was impermissibly vague. Timothy Edgar, legislative counsel for the ACLU, said some of the Patriot Act’s provisions make sense, such as those allowing government agencies to share intelligence and help intelligence services to translate intercepted documents.

Kerry’s proposes making the police state more arbitrary and efficient.

He recommends the consolidation of the competing security agencies under one Director of National Intelligence, which would be best positioned to consolidate the information gleaned from the various security agencies and ensure that the systemic weaknesses that existed before 9/11 are properly addressed.

Kerry proposes to improve the Patriot Act’s ability to “prevent terrorism and curb its assault on civil liberties” by, among other things, improving information sharing between intelligence community and local law enforcement and enhancing efforts to end money-laundering. He promises to complete the placement of all non-bank financial institutions, such as hedge funds, within U.S. anti-money laundering regulations. He also says he will freeze assets of foreign banks known to hold funds of terrorist groups.

Bush draws terrorism law into campaign.

Three times in just four days President Bush publicly invoked the USA Patriot Act. And it reflected what aides said would be systematic references to it in his speeches and television advertisements through Election Day, as this signature statute of his administration becomes a crucial part of his campaign strategy. Mr. Bush’s aides argue that they have found a way to advance two of their chief lines of attack against John Kerry: that Mr. Bush would be tougher than he in facing down terrorism and that the senator, who voted for the law and later came to criticize some of its provisions, is a “flip-flopper”, as Republicans regularly describe him.

ACLU urges Congress to resist calls to make Patriot Act’s problems permanent.

On the eve of President Bush’s trips to Pennsylvania and New York, during which he is expected to promote the USA Patriot Act and ask that its “sunset” provisions be removed, the American Civil Liberties Union renewed its call for reconsideration of the law in Congress and urged lawmakers to fix the act and bring it back in line with the Constitution.

“Rather than addressing the real reasons behind national security failings in America, President Bush continues to argue that we must sacrifice liberty for security,” said Laura W. Murphy, Director of the ACLU Washington Legislative Office. “By overemphasizing the Patriot Act, the president is attempting to deflect criticism of a culture of secrecy that flourished in the nation’s intelligence agencies, which arguably led to 9/11.”

President should heed Patriot Act’s critics, says New York Times.

The Patriot Act has always been a tempting bit of election-year politics, an easy way to seem tough on terrorism. But it also is bad law, and the president should be heeding calls from conservatives and liberals to remove provisions that trample on civil liberties. The Patriot Act sailed through Congress just weeks after the Sept. 11 attacks, in a climate, and bearing a name, that made it difficult to raise questions. Instead of conducting a serious investigation of the law enforcement flaws that made the nation vulnerable, its drafters came up with a rushed checklist of increased police powers, many of dubious value in fighting terrorism.

It is not hard to see the attraction of making a political issue out of the Patriot Act, with an independent commission raising questions about the administration’s vigilance before 9/11. But Mr. Bush’s sweeping praise for the act sidesteps the real debate. With more than a year and a half before central provisions of the act are due to expire, even its supporters do not need to rush to reauthorize it. It would be more productive for Mr. Bush and Congress to spend the time finding ways to fight terrorism that do not take away important liberties.

FRAUD, BUREAUBABBLE AND INTIMIDATION

A few years back, the FBI was exposed for the astonishing malfeasance, lack of professionalism and reckless abandon of scientific discipline ascribable to its once world-renowned forensic crime laboratory. Shortcuts and political expediency on the part of the laboratory were exposed. Even the failure of basic safety procedures relative to laboratory testing of explosives, explosive devices and propellants, partially destroyed the FBI laboratory back in 1987.

And in 2001, it had been reported that the FBI “lost” 449 weapons. Now even though the FBI uses standard government accounting, probably a nebulous, trackless contractor-installed system no one can figure out and tantamount in effect to no accounting at all, its ramshackle complexity was able to determine that of the 449 firearms missing, 265 firearms were lost and 184 were stolen. Stolen? Isn’t the FBI the premier federal police agency of the most powerful nation on Earth, and yet common thieves stole their guns?

The FBI’s failings have been recognized as far back as 1987, and even prior. False evidence and political expediency have sent known-to-be innocent people to prison for virtual life sentences to protect criminal informants relative to “more important” cases and convictions. An article by veteran journalist Phil Brennan, The Federal Bureau of Investigation -- A Legendary Department in Rotten Decay, posted May 23, 2001, documents the decline of the “bureau” recognized three full years ago. And Brennan noted and documented this decline four months before 9-11.

It is becoming increasingly obvious, that anything involving the FBI should be viewed at the highest level of distrust. Just as they did with the investigations into TWA Flight 800 and American Airlines Flight 587, that crashed in Far Rockaway, Queens, they are now doing with the 9-11 Commission -- the FBI is leading the way in stifling and suppressing evidence, blocking the testimony of witnesses, intimidating and smearing witnesses, and serving as the administrations’ personal bodyguards and damage control agency. In short, what we have is a politicized secret police! Reading through William Shirer’s Rise and Fall of the Third Reich, many examples of such secretive maneuvers by Nazis Herbert Himmler and Joseph Goebbels parallel the operations and manufactured news events -- propaganda -- of the Bush administration and its secret police.

EVERY POLICE STATE NEEDS HAPPY POLICE

Every good police state needs plenty of police, so as the United States becomes more totalitarian it should be no surprise that the job of enforcing all the rules is becoming more lucrative. Lines are typically long when police agencies begin hiring, given salaries that can easily top $100,000 a year and retirement packages of 90% of final pay, or even more. Cities always are promising to spend more on “public safety”, which means more cops, bigger salaries, more outrageous pensions, more high-powered weapons and other gee-whiz gadgets to subdue the population.

The work is not particularly hazardous, despite the claims to the contrary, and for some reason the populace still gives the police a great deal of respect, despite the never-ending examples of abusive police tactics, the bullying of police unions and the increasing tendency of cops to view their “subjects” with hostility and disdain. And being a cop means living under a double standard. As a cop, you can do the things “they” cannot. That’s a rush. It is such a freeing feeling to live a life that is accountable to no one, which is another reason to choose this profession. Even though they take the lives of 14 innocent Californians a year due, in large part, to police recklessness, who really cares? You can blame the guy you were chasing. Being a cop means never having to say you are sorry, never having to worry about the pain you caused.

As a service to readers in California and elsewhere, who want to take part in this burgeoning industry, and enjoy all the available taxpayer-funded perks, I offer 10 easy tips on how to be effective on the job. Once you master those basics, we can go into the advanced course of evidence destruction, weapons-planting and buying city councils.

FIRST FOREIGNERS, THEN AMERICANS

When Congress passed the Patriot Act in 2001, it granted law enforcement authorities unprecedented surveillance powers. Lawmakers approved the act not only because of the crisis of 9/11, but because it was aimed primarily at foreign nationals. Most Americans believed the powers would never be applied to them, according to Georgetown University law professor David Cole. But Cole says history shows that once the American government goes after foreigners, it is only a matter of time before it turns the same laws on Americans.

A graduate of Yale Law School, Cole is a volunteer staff attorney at the Center for Constitutional Rights and teaches at Georgetown University Law Center alongside Patriot Act author Viet Dinh, who has called Cole “the Clarence Darrow of his generation” for his defense of underdogs. Wired spoke with Cole about his new book, Enemy Aliens, and efforts to revise the Patriot Act.

OPINION & ANALYSIS

GOING POSTAL

Allegedly a people of “rugged individualism” and pragmatism, anytime the issue of national defense enters into the conversation, Americans quickly find a place to sit at the feet of their masters and be spoon-fed a myriad of half-baked speculations as to how much the American people must be willing to sacrifice in order to provide for government employees who never quite seem to know what they are doing, and are always fighting the last war. How the bureaucracy called “The FBI” or “The CIA” differs in any qualitative way from the bureaucracy called “the post office” or “the welfare state” can never be explained by these people. All they know is that when the government comes around asking for more money, more lives, and more power in the name of “national security”, everybody had better fall into line.

Amazingly, this blind allegiance to the myth of national security persists even when we are confronted with the most blatant evidence of incompetence by those entrusted with keeping foreign belligerents from killing Americans. In the past few weeks, we have been exposed to the systemic disarray that abounds at the FBI and the CIA, yet it is extremely unlikely that we will hear much about reining in these out-of-control yet exceedingly ineffective government money pits.

The rugged individualists out there will nod and talk bitterly about how those (insert whichever political party you’re not a member of) have prevented those honest hard-working folks at the CIA and the FBI from doing their jobs properly. In fact, they were so hard working that they could not be bothered with getting their computer skills up to a fifth grade level or with updating their software to do things that your average small businessman would consider to be rudimentary. It is tough fighting terrorists when people like David Koresh are on the loose, and you are busy setting women and children on fire. Sometimes, though, a government agency is so useless that it comes right out and admits it. Consider this week’s admission by CIA director George Tenet that the CIA needs five years before it can start any effective operations against Al-Qaeda.

Both the FBI and the CIA could have fifty years to make good, and they would not be any closer to preventing disasters like 9-11. Perhaps in an attempt to console themselves and to believe the best about a culture of obedience that they have been born into, most Americans refuse to believe that federal agents are nothing more than bureaucrats with guns. They are just government employees protected by law from any competition, and thus any responsibility for their blood-drenched failures. We should not be surprised when they cannot read a memo any better than the surly clerk down at the DMV.

Trump fires everyone.

“Good evening everybody and welcome to the newest and hottest reality TV show ever produced, America Messes Up. And tonight, we have a special guest, Donald Trump, who will take on the U.S. government. And here he is folks, The Donald.” ...

Why the U.S. keeps getting it wrong.

One of the few consistencies of the war in Iraq is America’s ability to make the wrong choices. Such consistency raises a question: can we identify a single factor that consistently leads it in the wrong direction? I think we can. That is not to say other factors are not also in play. But one wrong notion does appear to underlie many of our blunders. That is the belief that in this war, the U.S. military is the strongest player. We hear this at every level from the rifle squad to the White House. The bragging and self-congratulation reach the point where, as Oscar Wilde might have said, it is worse than untrue; it is in bad taste.

AN AMERICAN CAESAR

Intentionally or stupidly, President Bush and his neocon overlords are on track for igniting general conflagration in the Middle East. In placing America’s stamp of approval on Israeli Prime Minister Ariel Sharon’s annexation of the West Bank, Bush jettisoned a half century of American diplomacy and broadcast to Muslims everywhere that U.S. armed forces are Israel’s Middle Eastern legions. On top of Bush’s betrayal of the Palestinians and endorsement of Israeli terrorism, an Iraqi general uprising would likely cause a Middle Eastern explosion in which our secular puppets in Egypt, Pakistan, Jordan and Saudi Arabia would be overthrown.

Bush plays with matches while anger and frustration drive Muslims to an explosive state. You, the public, wake up! Bush is leading us into a wider war that will consume our sons, our incomes, our freedom and our honor.

A hypothetical memo from Osama bin Laden.

What if al Qaeda were a bureaucracy -- you know, like the U.S. government? What would its inter-cave memoranda say about the state of the U.S. war on terrorism from a jihadist perspective? Here is a guess at what such a hypothetical memo by Osama bin Laden to his followers might say.

The real reason George Bush went to war in Iraq.

I have just finished Bob Woodward’s compelling new book, Plan of Attack, and while it contains several gasps per chapter -- more reasons why George Tenet should be fired, more proof that Condi Rice is in over her head and more reasons that Dick Cheney should be medicated -- the stunning disclosure that I expected is simply not there. I thought Woodward would reveal the real reason George Bush went to war in Iraq. It turns out we already knew. As Woodward’s book makes clear, it was the president’s conviction that he was in an epochal fight against evil and had the historic opportunity to reorder the Middle East. Bush simply ignored all prior warnings, because essentially he believed what he believed. “I sat there somewhat nonplussed,” Woodward wrote.

THE ROAD TO FREEDOM DOES NOT LEAD THROUGH D.C.

The more of us there are, the more we do well to specialize, to cooperate through exchange, to boost our impact by dividing the labor. There is no way to know in advance what is right for any person in particular. There are so many wonderful paths from which to choose (and which I will discuss below). But this much we can know. The usual answer “go into government” is wrongheaded. Too many good minds have been corrupted and lost by following this fateful course. People who have tried end up working in the Department of Education or for the White House, doing the prep work to amend the Constitution or invade some foreign country. I know a bureaucrat who helped run martial law in Iraq who once swore fidelity to Rothbardian political economy. This is a disastrous waste of intellectual capital.

The Rothbardian approach to a pro-freedom strategy comes down to the following four affirmations: 1) the victory of liberty is the highest political end; 2) the proper groundwork for this goal is a moral passion for justice; 3) the end should be pursued by the speediest and most efficacious possible means; and 4) the means taken must never contradict the goal -- “whether by advocating gradualism, by employing or advocating any aggression against liberty, by advocating planned programs, by failing to seize any opportunities to reduce State power, or by ever increasing it in any area.”

THE FEUDAL AND SOCIALIST NATURE OF TAXATION

If there was ever someone who stated clearly, unambiguously the case for the institution of taxation, it was August Comte, the father of modern sociology and an avid champion of socialism. It is his view, we are born under a load of obligations of every kind, to our predecessors, to our successors, to our contemporaries. After our birth these obligations increase or accumulate, for it is some time before we can return any service. From birth on everyone in society is obligated to pay with some portion of his or her life for whatever benefits he or she enjoys. We are, therefore, in bondage from the start, with no question about what we have chosen, whether we have voluntarily assumed our debts.

The opposite view, laid out first by John Locke, is that each of us comes into the world free and independent and as adults we then take up various tasks, including certain responsibilities toward others, as a matter of our free choice. But no one owns us, our labor, prior to our having made a free decision about the matter. By this latter view taxation is an extortion scheme, nothing less. You are born and despite never having been asked whether you choose to sign up for various benefits, when they are delivered to you, you are forced to pay up. That is exactly how organized criminals collect funds from those whom they “protect”. If you do not pay, the protectors will come and get you and hurt you -- in the case of the government fine or even jail you good and hard.

THE MYTH OF POLITICAL LEADERSHIP

In this dreadful election season, many politicians have promised to “lead us into the future.” I can hardly think of a worse fate for any society than to be led into the future by the political class of gangsters, marauders, looters, and liars. Even the most honest and well-intended among them are powerless to improve the world in any way except by diminishing rather than increasing their power.

Politicians ddo not have the capacity to lead whole societies anywhere. They are outclassed and outrun by trends in the world economy that are beyond the ability of the political class to control or direct. The market economy -- globalized, enormously powerful, breathtaking in scope and breadth -- is remaking the world in ways that far surpass any existing political development in the US, from the crafted blather of Congressional hearings on this or that to the mad rush to grab the presidential brass rings.

To understand the world being recreated before us, we must constantly keep this principle in our mind: trade based on ownership is always and everywhere mutually beneficial. Within the institution of trade -- whether on the most local level or the global level -- we find the key to peace, prosperity, and human flourishing. If we understand this, we have no reason to fear our fate except to the extent that anyone anywhere dares to interfere. If we understand this, we can see why being led into the future by the political class is something we should neither desire nor expect.

JUST IGNORE THEM

Government is one of the few problems that can be gotten rid of by ignoring it. In this respect it compares favourably with such hardier ills as tornadoes, swarming piranhas, and male pattern baldness. There is a catch, of course. If only a few people ignore the government, it will not go away; instead it will come down on those few people like a ton of CS gas. But if the number of people ignoring the government -- treating its commands as one would treat the commands of some delusional street person -- were to reach critical mass, the power of the state, resting essentially as it does on the complaisance of the governed, would melt away like butter in the Arizona sun. Government rulers are human, all-too-human, and do not command sufficient strength in their own persons to compel the obedience of their subjects. The rulers’ power consists crucially in the legitimacy granted to them by those they rule -- what Ayn Rand called the “sanction of the victim”.

As Étienne de la Boétie wrote in his classic essay Discourse of Voluntary Servitude, “Resolve to serve no more, and you are at once freed. I do not ask that you place hands upon the tyrant to topple him over, but simply that you support him no longer; then you will behold him, like a great Colossus whose pedestal has been pulled away, fall of his own weight and break into pieces.”

Freedom, the Future, and YOU

Free will is a fact of human nature. No matter how many people submit to the will of others, no matter how pervasive the institutions of coercion, no such evil is possible without the capitulation of the victims. Such capitulation too is an act of will, no matter how fervently we might wish that it was someone else’s responsibility.

Even when the gun is pressed against your temple and the thug says, “lick my boot or I will kill you,” it is we who must choose to do the boot-licking. In saying this, I was once challenged on whether the people in the former Soviet Union were free. I answered that they were, and had only to realize it in order to throw off their oppressors. Well, they did and they did.

This fact, the fact that people cannot be enslaved against their will -- the fact of freedom -- is a hard one that makes most people uncomfortable. But it is a fact, and it certainly has a bright side, a beautiful, almost unbearably bright side. It means that we can be free, if we would only choose to be that way.

Why men follow masters.

History has born out that Thomas Jefferson was wrong when he wrote that all men came into this world with certain “unalienable rights”. As it turns out, “life, liberty, and the pursuit of happiness” have proved to be nothing more than the pipe dreams of a generation of crackpots, traitors, and rebels, men we would now call “terrorists” and “insurgents” because they dared shoot at an occupying army, its mercenaries, and its collaborators. Servitude is now ingrained, in vogue, and even laudable behavior among many.

For Americans, servitude to the nation-state commenced with the Union victory over the Confederate States. The permanence of war for empire and government-created economic crises in the twentieth century has accelerated the enslavement of Americans. Hordes of bureaucrats now enforce the will of the tyrannical state, depriving Americans of their life, liberty, and property with increasing impunity. Troubling as this evolution of history has been, it would not have been possible without the cooperation of Americans to make it happen.

To discover why Americans, who loudly and regularly proclaim to the world that they are the “freest” people on earth, have been willing participants in their own enslavement for several generations running, we must look to an obscure sixteenth-century text.