Offshore News Digest for Week of June 7, 2004

GLOBAL BUSINESS

LUXEMBOURG AND IRELAND TOP EU “RICH LIST”

According to a survey conducted by the Eurostat data agency, Luxembourg’s residents enjoyed around 208% of the EU average GDP per capita in 2003. Citizens of the Republic of Ireland came a not very close second, with 131%, and the Danish were revealed to benefit from GDP per capita levels 123% of the EU average. Eight of the ten bottom places on the list were taken up by EU newcomers.

HONG KONG VIGIL HONORS TIANANMEN DEAD

Tens of thousands of people dressed in funereal black or white gathered in a central park in Hong Kong and lit candles last Friday night to mark the 15th anniversary of the Tiananmen Square crackdown and protest the Chinese government’s hard line against democratic reform in Hong Kong. The vigil was the only public commemoration of the June 4, 1989, military crackdown permitted in China. In Beijing, police thwarted several attempts to mark the anniversary, dragging away more than a dozen unidentified people from Tiananmen Square and keeping many dissidents and relatives of those slain in 1989 under surveillance or house arrest.

The contrast between the security clampdown in the Chinese capital and an emotional, two-hour candlelight vigil in Hong Kong highlighted the special freedoms that the people of Hong Kong enjoy -- and the thorny challenge that their demands for greater democracy continue to pose to the ruling Chinese Communist Party.

TERRORIST FINANCING DETECTION ELUDES CARRIBBEAN

The main challenge to financial institutions in the region is the manner in which prevention and detection of terrorist financing is to be carried out, Attorney General Alfred Sears told an International Monetary Fund seminar. The former chairman of the Caribbean Action Financial Task Force (CFATF) said there also existed “the difficult task of attempting to identify accounts established for this purpose, which may now be entrenched in our financial systems.”

“This is a colossal undertaking for the [FATF] member countries, and far more so for the micro-countries of the Caribbean with their limited resources,” said Mr. Sears. He noted that CFATF member countries had not had any reports on “suspicious transactions” related to the financing of terrorism.

LOCKBOXES, IRAQI LOOT AND A TRAIL TO THE FED

About a year ago, a discovery by a U.S. Army sargeant ultimately led to the finding of 164 metal boxes, all riveted shut, that held about $650 million in shrink-wrapped greenbacks. The cash was so heavy that the Army needed a C-130 Hercules cargo plane to airlift it to a secure location. Just two days later Thomas C. Baxter, head of the legal unit of the Federal Reserve Bank of New York, read a brief news account of the discovery. Most of the money that turned up in Baghdad was new, bore sequential serial numbers and was stored with documents indicating that it had once been held in Iraq’s central bank. One fact particularly bothered Mr. Baxter: the money had markings from three Fed banks, including his own in New York.

Mr. Baxter and the New York Fed, along with the Treasury Department and the Customs Service, immediately began an investigation into Baghdad’s currency stockpile. The continuing inquiry offers a rudimentary road map of illicit dealings -- including lucrative oil smuggling -- in Iraq and neighboring countries during the Hussein years, the federal authorities say. The investigation led quickly to the vaults of four Western banks that were among a select group handling the sensitive task of distributing freshly printed dollars overseas. Several other commercial banks and foreign central banks also served as stopovers along Baghdad’s money trail.

None of the four main banks the Fed scrutinized had sent currency directly to Iraq. But investigators eventually learned that UBS, Switzerland’s largest bank, had transferred $4 billion to $5 billion to four other countries that were under sanctions: Libya, Iran, Cuba and the former Yugoslavia. Over an eight-year period, UBS employees had quietly shipped the money to those countries from a vault at the Zurich airport, undetected by Fed auditors.

Of the $680 billion in cash that the Fed has in circulation, more than $400 billion, or nearly 60 percent, is outside the United States. That overseas supply, particularly in economically unstable regions, is the financial lifeblood of businesses, and even of pensioners who stow dollars in their mattresses. The authorities constantly monitor that supply to keep counterfeiters from tainting it, and hub banks like UBS play a pivotal role in ferreting out currency forgers. Those billions overseas, however, also grease the wheels of more nefarious commerce -- arms trafficking, smuggling and the timeless crafts of political and financial graft.

Bank Secrecy Act/Anti-money laundering guidance on money services business customers from the Office of the Comptroller of the Currency here.

GIBRALTAR TO VOTE IN EUROPEAN ELECTIONS FOR FIRST TIME

The people of Gibraltar will vote for the first time in elections for the European Parliament after a near three-decade legal battle. Gibraltar and its 20,740 eligible voters will form part of a British electoral region for the first EU parliamentary poll since the enlargement of the European Union in May. While Gibraltar was captured by Britain in July 1704 and ceded to it by the Treaty of Utrecht in 1713, British governments refused its citizens the right to vote as British citizens until the European Court of Human Rights ordered it to do so in 1999.

YUKOS PAIR TO FACE JOINT TAX AND FRAUD TRIAL

The crisis surrounding Yukos, a leading Russian oil company, appeared yesterday to be entering its final phase after a Moscow court agreed to consolidate the cases of its two jailed shareholders and set the date for the trial. Mikhail Khodorkovsky, the largest single shareholder in Yukos and its former chief executive, will stand trial in public together with his close business associate Platon Lebedev on June 16. Both businessmen face charges of tax evasion and fraud worth more than $1 billion.

Widely seen as the first trial of such magnitude and political importance since the collapse of the Soviet Union, it is expected to set the tone and direction for the next four years of Vladimir Putin’s presidency. A team of defence lawyers welcomed the court’s decision to consolidate the two cases. Yury Shmidt, a defence lawyer, said, “Effectively it is the same case. The only reason they were not combined originally is that Mr. Lebedev’s arrest was meant to be a warning to Mr. Khodorkovsky to leave the country. But he refused and was arrested on the same charges as Mr. Lebedev.”

GIULIANI TAKES AIM AT KERRY, PRAISES BERMUDA

Former New York City Mayor Rudolph Giuliani was on the Island as a guest of the World Insurance Forum which has been taking place this week. Speaking to hundreds of insurance executives gathered for his lunchtime speech, Mr. Giuliani said that his thoughts immediately after the 9/11 attacks were to guard against further attacks, and the safety of the city. But he said it did not take long for thoughts to turn to insurance, and praised the Island’s insurance sector for its quick response in paying millions of dollars in claims after the tragedy. Mr. Giuliani called the Island’s insurance sector “a haven after 9/11”.

He also shot down the Bermuda-bashing rhetoric that has come from US presidential hopeful, Democrat Senator John Kerry, who has said along the campaign trail that he would, if elected, take measures against companies that have inverted their place of incorporation offshore, like Bermuda, for tax reasons. Mr. Giuliani said Sen. Kerry’s view of Bermuda and the companies that moved here, was a “very narrow” take on how economics work. Were he in the same shoes, he said he would “take a look at why companies feel so comfortable here and try and replicate that in America”.

Accenture Tax Dodging The Bullet

The U.S. Department of Homeland Security last week awarded Accenture the lead role in a $10 billion contract to create what it calls the Smart Border Alliance, “a new entry/exit system to be deployed at the nation’s more than 400 air, land and sea ports of entry.” But something funny happened soon after. Lawmakers woke up to the idea that Accenture would, in its way, be building this border system from outside the border. The House Appropriations Committee June 10 voted to block the contract, because Accenture insists it is based in Bermuda, not the United States, where its top executives and a plurality of its employees work. The committee voted 35 to 16 in favor of a budget amendment that would prohibit contracts between the Homeland Security Department and non-U.S. corporations and would prevent such companies already under a government contract from receiving extensions.

For Accenture, the Bermuda tax dodge charge is nothing, and it neither admits nor denies. According to Accenture’s own history of itself, it has always operated everywhere but from nowhere. It calls the border it would create for the Department of Homeland Security “virtual”, much like Accenture itself is virtual. While it is occasionally attacked for tax-dodging despite this defense, Accenture positions itself as on the cutting edge of globalism.

At the same time, Accenture brags about being “committed to being a good corporate citizen.” A citizen of what it does not say. Perhaps it is a citizen of the world. Accenture and its lobbyists -- who are based in Washington, D.C., not Bermuda -- have won the day then, and they seem confident they will win again.

GIBRALTAR PRESS C24 TO TAKE ACTION ON SELF-DETERMINATION

Gibraltar Chief Minister Peter Caruana and Opposition Leader Joe Bossano urged this week the United Nations Committee of 24 for Decolonization to “take action” and discharge its duties to the colonized people of Gibraltar. The Chief Minister of Gibraltar repeatedly asked the chairman whether it was the Committee’s role to assist the colonial people to uphold their rights or to act as a neutral observer in a sovereignty dispute between the U.K. and Spain.

Mr. Caruana accompanied by Chief Secretary Ernest Montado and Labor Party leader Daniel Feetham said it was important that the C24 needed to take action so as to help colonized peoples achieve self-determination, but pointed out that, despite the annual submissions by the Gibraltar delegation, the Committee does not engage in action or even reflect any statements or views in its annual resolutions.

CHANNEL ISLANDS ALLIANCE IS UNLIKELY

Guernsey Deputy Chief Minister Bernard Flouquet wants the islands to investigate where increased co-operation would bring economic benefits. But he believes a federation to represent them on the international stage is not necessary and would not be acceptable in either island. “It will be very interesting to see if we can identify economies of scale where currently there may be duplication across the islands,” said Deputy Flouquet. “I believe that this may be possible with the regulation of utilities and it could also be interesting to look into financial regulation, although this may be more difficult.”

He was cautious about a more formal alliance. “Having a Channel Islands federation for representation on the international front is much different. That would involve both islands giving up the autonomy that they currently cherish.” Deputy Flouquet was speaking after Senator Philip Ozouf last week sent a letter to all Jersey, Guernsey and Alderney politicians with proposals for a Channel Islands commission. And last weekend, Guernsey States members and their Jersey counterparts met to discuss increased co-operation between the islands.

ISLE OF MAN WINS TWO MAJOR FINANCE CENTER AWARDS

The Isle of Man has scored a double by winning two major finance center awards: Best International Financial Center, at the International Investment awards; and Best Offshore Financial Center, at the International Money Marketing (IMM) awards.

In the category of Best International Financial Center, the Isle of Man beat off strong competition from Guernsey and Gibraltar to retain the title for the fourth consecutive year. The Island’s focus on retail products was deemed to give it the edge in winning this award, with the judging panel highlighting the IoM’s commitment to target markets and its levels of service and support to distributors.

CANADA POLITICS SPILLS ONTO THE BARBADOS

When Mr. Paul Martin took over as Canadian Prime Minister last December there were few Canadians, no matter which party they might support personally, who had the least doubt that his Liberal Party would win the general election due sometime in 2004. Since that time the polls indicate that the situation has changed dramatically and today, with three weeks to go, the Liberals and the Conservative parties are running neck and neck. This change of fortunes has mainly come about because of the revelation that the Liberal government, with Mr. Martin himself as Minister of Finance, spent CN$100 million, let us say, inappropriately and Mr. Martin himself has so far been a disappointment as a leader.

All of this would be quite academic for the distant Barbadian observer were it not for the fact that the left-leaning New Democratic Party (NDP) has focused heavy criticism on the issue of Mr. Martin’s ownership, now passed on to his sons, of nine international business corporations (IBCs) related to his Canada Steamship Line which are located in Barbados. They have made much of this accusing Martin of dodging payment of Canadian taxes through collaboration with this alleged “tax haven”. The NDP have now gone so far as to include the following passage in the section of their manifesto dealing with tax proposals: “Cancelling all tax treaties with tax havens like Barbados. Canadian corporations should not be permitted to establish shell companies in tax havens and then bring profits home tax-free like Paul Martin did with his Canada Steamship Lines.”

The Barbados got its name cleared by the OECD as a “tax haven” over two years ago, but that certainly is not the case in Canadian political or news media circles.

TAXES

AGREEMENT OF “EQUIVALENT MEASURES” GIVES EU SAVINGS TAX THE GREEN LIGHT

EU Taxation Commissioner Fritz Bolkestein announced that, “[N]ot only Switzerland, but also Andorra, Monaco, San Marino and Liechtenstein have all agreed to put in place equivalent measures to those to be applied by the EU’s Member States as regards the taxation of income from savings. In particular, they have all agreed to impose a withholding tax on the interest income of EU residents at the same rate as Austria, Belgium and Luxembourg and to hand over 75% of these revenues to the Member State of the EU resident concerned. They have also agreed to exchange information on request in criminal or civil cases of tax fraud or similar misbehavior.”

The agreement marks the end of several years of painstaking negotiations, although the challenge remains to get the directive implemented on time.

Swiss-EU savings tax deal implementation faces delay.

Swiss and EU officials have ironed out remaining differences over a package of nine bilateral treaties. But uncertainty remains over whether Switzerland can ratify the accord on the taxation of EU residents’ savings in time for it to come into force on January 1. The Swiss argue the deadline is unrealistic because the accords have first to be debated by parliament, something which is not expected to happen before the end of the year. Swiss voters are also likely to be given the final say in a nationwide vote on whether to accept the package of accords. Swiss and European banks are unlikely to be disappointed by the delay. They have already requested that implementation be put back to give them more time to prepare themselves.

BRITONS TOIL LONGER TO PAY THEIR TAXES

May 30 was a significant date for most Britons this year, as it was the day they effectively stopped working for the government and began drawing from their own pay, in what has become known as “Tax Freedom Day”. The calculation was done by the Adam Smith Institute, a free-market think-tank which calculates the date each year. According to the Institute, this date has been falling later and later since the present government came to power in 1997, when Tax Freedom Day arrived on May 25.

“It is astonishing that Gordon Brown has managed to make us all put in six days more work for the Treasury without many people noticing. It is a tribute to his skill at dreaming up new stealth taxes”, commented the Institute’s director, Dr Eamonn Butler.

IRC SECTION 6700 -- IRS’S NEWLY FOUND WEAPON AGAINST PROFESSIONALS

Recent actions by IRS agents to invoke section 6700 (“Promoting Abusive Tax Shelters, Etc.”) portends a new area of concern for professionals who render tax advice. ...

TAXING TIME FOR U.K. DODGERS

Those who imagined that overseas bank accounts presented a problem just for people in the Republic should think again. The Inland Revenue is now targeting individuals in Northern Ireland who have been quietly salting money away in secret offshore trusts. The issue has been highlighted by the scandal engulfing Allied Irish Bank group. AIB admitted that five former executives had “tax issues” to address over funds held in an investment company managed by the bank’s offshore section.

The golden rule is that while tax avoidance -- the use of schemes to legally reduce the tax burden -- is legal, tax evasion is not. It can sometimes seem like a fine dividing line, but the rules are clear. To judge from the data produced by the Revenue in its spring report, a number of people have been pushing their luck. A nationwide crackdown on tax dodges has raised an additional £100 million in just six months. Now the heat is being turned up in Northern Ireland as well as Britain. As PricewaterhouseCoopers disclosed, a special investigation team is being established in Belfast in order to streamline the Revenue’s procedures.

US THINK TANK LAMBASTS OECD’S GLOBAL TAX FORUM AND NEW BLACKLIST

According to the free market think tank the Center for freedom and Prosperity, the OECD Global Forum on Taxation’s decision to stage the next meeting at the end of 2005 represents their recognition that the 2006 target date for the implementation of its international tax law agenda is unattainable. “This concession is good news for tax competition, but the OECD has not given up in its effort to prop up high-tax welfare states,” said CF&P President Andrew Quinlan. Quinlan described as “quite disturbing” the OECD’s apparent drawing up of a new “blacklist” of nations which is said to include Hong Kong, Macao, Labuan and Singapore in addition to Andorra, Barbados, Brunei, Costa Rica, Dubai, Guatemala, Liberia, Liechtenstein, Marshall Islands, Monaco, Philippines, and Uruguay.

Dan Mitchell of the Heritage Foundation who was present at the recent Berlin Tax Roundtable observed that, “The OECD’s anti-tax reform agenda is a threat to global prosperity, a scheme to promote higher tax rates and the discriminatory double-taxation of income that is saved and invested. The postponement of the 2006 deadline is good news, but the new blacklist shows that fiscal imperialism is alive and well.”

The strange new OECD blacklist.

According to noted economist Dr. Gilbert Morris, the OECD is struggling to find another cause to continue its financing, so is the FATF; both are funded at the pleasure of their members. “If they continue to do things, which put their members, including the United States, in a position where they have to comply with what politicians think is not good for the United States, then they will lose their funding ...” He suggested, “Let us observe how Hong Kong, Singapore, Barbados, Dubai, and Liechtenstein are going to respond to the OECD. I think you would see it being completely different,” compared to how the Bahamas responded to the first blacklist.

He reiterated his advice that small countries should join together financial services and develop their own policies for their own protection; and, he concluded, that if every country on that blacklist complied, there would be a new blacklist on something else. “We have to nip this in the bud.”

IRS COMMISSIONER REPORTS GOOD RESULTS FROM PARTNERSHIP WITH STATES

IRS Commissioner Mark W. Everson has announced that the agency’s partnership initiative with state tax administrators has produced some early results for the authorities as they attempt to stamp out tax-related crimes. “We’ve already shared 28,000 leads with the states,” Everson told the Federation of Tax Administrators’ annual conference. Everson went on to explain that the IRS and the states are exploring new ways to extend cooperation with state tax administrators to reduce duplication, improve taxpayer service and intensify the fight against non-compliance with the state and federal tax systems.

IRS to cut tech jobs.

The IRS revealed that it is to cut significant numbers of jobs in its information technology, helpdesk, desktop, and telecommunications departments. The IRS’s chief information officer, said that a part of the cost-cutting initiative which will involve shifting administrative workers into technical support roles would likely “free up maybe around 150 jobs”, and reduce IRS expenses by around $10 million. The move has been condemned by the Union which represents IRS employees, the National Treasury Employees Union, which has argued that union leaders did not have the opportunity to exhaust all of the alternatives.

INDIA MAY ELIMINATE DIVIDEND TAX

It has emerged from reports that the Indian government is considering the elimination of dividend tax as an alternative to cutting corporate tax in the 2004/2005 budget. Government sources have revealed that a reduction in corporate tax from the current 36.75% to 30% will achieve very little in terms of boosting tax receipts unless the large number of permitted deductions is also reduced. It has been suggested that removing the dividend tax levy will be a simpler task to achieve than lowering corporate tax.

ASSET PROTECTION

BULLYING IN BERLIN, PART I: THE OECD VS. ITSELF

The US government wastes a lot of money, but few items in the federal budget do as much damage as the $50 million that American taxpayers send each year to the OECD. This Paris-based bureaucracy is helping pave the way for higher taxes around the world through a little-known, yet insidious project to stamp out “harmful tax competition”. Representing mostly high-tax European nations, the OECD thinks it is unfair when jobs and investment move from high-tax to low-tax nations. The bureaucrats are particularly upset that so-called tax havens provide a refuge for oppressed taxpayers from welfare states like France, Germany, and Sweden. As part of its anti-tax competition project, the OECD met in Berlin last week, hoping to bully tax havens into helping high-tax nations track and tax flight capital.

Acting as the Gambino family of the tax world, the OECD has pressured places like Anguilla and Panama to sign “commitment letters” pledging to participate in something called “information exchange” -- an odd term for a one-way flow of data from “tax havens” to high-tax governments. The OECD is having a problem, though, since it is throwing stones from inside a glass house. The term “tax haven” conjures up images of small islands in the middle of a tropical paradise, but the OECD’s definition of one clearly covers many of its own member nations, including Switzerland, Luxembourg, and yes, the United States.

The United States is actually the world’s biggest “tax haven” -- passive foreign investments here generally are not taxed, and investors from other nations easily can structure their portfolios so that foreign tax collectors cannot discover assets invested in the U.S. -- which makes it all the more ironic that one-fourth of the OECD’s annual $200 million budget comes from U.S. taxpayers.

Bullying in Berlin, Part II

The OECD has for six years pushed for eliminating what it calls "harmful tax competition" -- which can be best described as any policy that undermines the ability of welfare states like France, Belgium, and Germany to maintain extraordinarily high tax rates. The stated goal of this project is to stamp out so-called “tax havens” -- jurisdictions that have appealing tax and privacy laws, and thus attract investment capital and business from high-tax regions, primarily European welfare states. The OECD even has a blacklist, and has threatened these jurisdictions with financial protectionism. The problem, at least from the OECD perspective, is that the jurisdictions they are targeting insist that they should not be forced to surrender their fiscal sovereignty until all nations and territories agree to the same policy.

This “level playing field” requirement puts the Paris-based bureaucracy in a quandary since member countries such as Switzerland, Luxembourg, and even the United States, are tax havens under the OECD’s standards. Each has little to no taxes on non-resident investors, and those foreign investors generally can structure their affairs to avoid the reporting of their financial information to home country tax authorities. Yet the OECD has been unsuccessful to date in “persuading” its own tax haven members to adopt bad tax policy, in part because it is much more polite when dealing with its own member nations. There are no threats of protectionism and no blacklist. The bureaucrats apparently realize the futility in fighting nations that can fight back.

So it is little wonder that smaller nations like Panama and the Bahamas felt unduly picked upon when their supposed sin is adopting rules for foreign investment modeled on those of several OECD members. Not helping matters for the OECD was the pesky presence of Dan Mitchell of the Heritage Foundation and Andy Quinlan of the Center for Freedom and Prosperity, who camped out at the same hotel where most of the conference participants were staying. To the extent any attendees needed a reminder that lower taxes are fundamentally sound economic policy, there was even a Swiss professor on hand to give a powerpoint-based lecture.

It appears that the OECD conference was doomed from the start. Small countries not privileged enough to be included in the OECD were determined not to cave, particularly since OECD members like Switzerland probably never will. The affair, ironically, was not terribly contentious, as low-tax nations politely smiled and nodded, but in the end, brushed off the tax cartel’s entreaties. Failing to twist the arms of tiny jurisdictions like the Cayman Islands and Anguilla, the OECD’s next mission is an odd mix of quixotic and absurd. The OECD’s blacklist is now being expanded to include various Asian nations, particularly Singapore and two jurisdictions that are part of communist China, Hong Kong and Macao. Which raises an important question: why is the U.S. supplying $50 million per year to a group that thinks jurisdictions within a communist country have dangerously low tax rates?

Straight from the horse’s mouth ...

From the OECD Harmful Tax Practices Web page: “Competitive forces have encouraged countries to make their tax systems more attractive to investors. However, some tax practices are anti-competitive and undermine fair competition and public confidence in tax systems. The OECD provides a framework in which countries can work to eliminate such harmful tax practices.”

NEW WRINKLE IN ID THEFT

Most people think of identity theft as a crime that occurs when a crook steals a person’s entire identity -- their name and Social Security number -- to make fraudulent purchases. But a growing number of victims’ good credit is hijacked by thieves who use the victims’ names with other people’s Social Security numbers. Making purchases on credit using your own name and someone else’s Social Security number may sound difficult -- even impossible -- given the level of sophistication of the nation’s financial services industry. But investigators say it is happening with alarming frequency because businesses granting credit do little to ensure names and Social Security numbers match and credit bureaus allow perpetrators to establish credit files using other people’s Social Security numbers.

Social Security number-only fraud now makes up the majority of cases of identity theft, Ingleby said. The Federal Trade Commission estimates that one in eight adults have had their identities stolen over the past five years. The crime also is escalating to bigger ticket items such as homes. The most alarming facet of this new form of identity theft is that victims, faced with overwhelmed government agencies ill-equipped to handle the deluge of identity theft cases, quickly find out there is no easy way -- or any way at all -- to completely clear their credit reports. It is almost easier for victims to detect fraud and fix their reports if the crook uses both their name and Social Security number. That disparity between the two types of fraud stems from the way that credit data are collected.

When crooks use their own names and someone else’s Social Security number, a new “subfile” is created that is attached to the SSN holder’s own credit report and is accessible only by the crook, contends Ron Ingleby from the Social Security Administration’s Office of Inspector General. Victims cannot access that subfile or receive a copy of it, he says, let alone try to correct it, yet the subfile can mar a victim’s overall credit report, making it difficult or impossible to gain credit. Victims also can be targeted by collection agents once the crook stops making payments. Ingleby said the fact that credit bureaus allow subfiles to be created allows this type of fraud to proliferate. He said if credit bureaus simply rejected inquiries by creditors when the name and Social Security number did not match, this type of fraud could be dramatically reduced. The bureaus themselves deny the existence of subfiles, though ample evidence from the files of numbers of victims provides proof that such files exist.

PEOPLE STILL CARELESS ABOUT WIPING HARD DRIVES BEFORE DISPOSING OF COMPUTERS

A customer database and the current access codes to the supposedly secure Intranet of one of Europe’s largest financial services group was left on a hard disk offered for sale on eBay. The disc was subsequently purchased for just £5 by mobile security outfit Pointsec Mobile Technologies. According to Pointsec, one of the hard discs contained “highly sensitive information from one of Europe’s largest financial services groups with pension plans, customer databases, financial information, payroll records, personnel details, login codes, and admin passwords for their secure Intranet site. There were 77 Microsoft Excel documents of customers email addresses, dates of birth, their home addresses, telephone numbers and other highly confidential information, which if exposed publicly could cause irrevocable damage to the company.” Pointsec is not prepared to name the careless company.

Pointsec purchased 100 hard discs as part of its research into the “lifecycle of a lost laptop”. Pointsec found that they were able to read seven out of 10 hard-drives bought over the Internet at auctions such as eBay despite the fact all of had “supposedly” been “wiped clean” or “reformatted”. The company said the exercise illustrated how easy it is for identity thieves or opportunists to access highly sensitive and valuable company information from lost laptops and hard-drives. All the 100 hard drives and laptops purchased as part of Pointsec’s research will be destroyed.

BUSINESSES SHOULD NEVER HOLD INSURANCE POLICIES ON THE OWNER’S LIFE

It is rare, indeed, that we look over the life insurance program of a business-owner client without finding a potentially expensive tax blunder. Sometimes it is the income tax, sometimes the estate tax. Usually both. What is the most common mistake? Having the corporation own one or more policies on the owner’s life. No, the insurance is not the mistake. But the way the policy is owned will enrich the IRS -- usually more than your family -- down the road.

The most common reason a business buys life insurance is for so-called key-man insurance or to fund a buy-sell agreement. When you die, the corporation collects the insurance proceeds on your life -- say $1 million. First, the good news: The entire proceeds are free of the regular income tax. Sorry, but the rest of the news is all bad. Very bad. Who should own the policy to make the death benefit tax-free and to avoid the claims of creditors, then? There are four choices.

PRIVACY

THE FBI’S TERROR TRAWL AND EMERGENT COMPUTER GOOFS

The Register’s story analyzing why technology let the FBI down with catastrophic results, drew an impressive reader response. Recall that the Spanish authorities found a fingerprinted bag full of explosives a week before the Madrid bombings, and the FBI was convinced it had their Man. They had the wrong man -- but a combination of faith in their “social software” and poor quality digital fingerprint led them to the wrong conclusion. Such mistakes are expensive. A senior business analyst at a multinational has the most succinct summary of possible remedies: “The short answer is, by promoting critical thinking and a higher level of education and understanding in the young. There are several reasons why this will not, and possibly cannot happen ...”

WELCOME TO SECURITY NATION

Nearly three years after September 11, the feds are massively funding new anti-terror tools under development by America’s technology wizards. Half a billion foreign visitors cross America’s borders, land at her airports, and dock at her harbors each year. Imagine trying to weed out the criminals and terrorists while keeping track of everyone else as they vacation, conduct business, enroll in college -- and try to drop out of sight once they have overstayed their visa. That is the challenge Accenture LLP took on when it landed a federal contract on June 1 that could ultimately be worth $10 billion. The Bermuda technology consulting company, with U.S. headquarters in Reston, Virginia, will design a system for high-tech passports and visas, plus a database to keep track of when and where travelers cross the border.

Welcome to a high-tech Security Nation. The passport-and-visa system could take 10 years to perfect. The Bush Administration has booked a 10% hike in spending for the Department of Homeland Security in fiscal 2005, which will boost its budget to $40.2 billion. Most of the new money will flow to anti-terrorism tools under development by the nation’s technological wizards. And that is just the start. Tally it all up and government and private-sector security spending will hit $130 billion to $180 billion a year by 2010, up from $65 billion in 2003, calculates consultant Homeland Security Research Corp.

U.S. may use RFID-equipped ID cards at borders.

Government contractors hope a mix of new and existing technologies will better identify foreigners entering the United States through thousands of miles of land borders, without causing backups that stretch halfway to the ocean. One key ingredient is a rapidly emerging but controversial technology known as RFID, or radio frequency identification, which companies are increasingly using to remotely track products. Border stations would use RFID-equipped identity cards to verify fingerprint information, but experts say the initiative faces daunting challenges, from cost to concerns about enforcement.

VIETNAM ORDERS NET CLAMPDOWN

Vietnam has ordered local governments nationwide to closely monitor Internet use and enforce regulations aimed at cracking down on “bad information” sent or read on the Web, an official said. The move comes after the communist country sentenced several dissidents to long prison terms over the past two years for using the Internet to criticize the government and promote democracy.

U.K. INFORMATION COMMISSIONER “INCREASINGLY ALARMED” BY ID CARD SCHEME

David Blunkett’s ID card draft bill came under fire from Information Commissioner Richard Thomas, who told the Home Affairs Committee ID cards inquiry that his views on the subject had changed from healthy scepticism to “increasing alarm”. Thomas, who intends to publish a critique of the draft next month, attacked the draft for lack of clarity or any clear statement of purpose, and pointed out that the real issue was not the individual’s ability to identify themself with a piece of plastic, but the nature of the information to be held on the central ID register. He declined to state absolutely that the draft bill was taking us into 1984 territory, but the Committee chairman responded that the Committee could draw its own conclusions on this.

RFID READER SIZE DIPS BELOW A DIME

Innovision Research & Technology has announced what it believes is the world’s smallest and lowest-costing 13.56 MHz RFID reader engine. Smaller than a U.S. dime, the new reader engine (an RFID transceiver minus its antenna and power source) measures 12mm (0.47 inch) in width and length and 2mm (0.08 inch) in thickness and features an on-board RISC processor. According to IR&T, the readers small size and 2.8-volt power consumption making it ideal for small-footprint devices such as small, battery-powered handheld devices.

TIA ALIVE AND WELL AND PRYING INTO THE PERSONAL BUSINESS OF AMERICANS 24-7

Despite Congressional action cutting funding, and the resignation of the program’s controversial director, retired admiral John Poindexter, DARPA’s TIA program is alive and well and prying into the personal business of Americans 24 hours a day, seven days a week. “When Congress cut the funding, the Pentagon -- with administration approval -- simply moved the program into a ‘black bag’ account,” says a security consultant who worked on the DARPA project. “Black bag programs don’t require Congressional approval and are exempt from traditional oversight.” Congress had left the door open by supplying DARPA with research funding to develop data mining alternatives to TIA.

DARPA also hired private contractors to fill many of the roles in the program, which helped evade detection by Congressional auditors. Using a private security firm instead of the Federal Protective Service helped keep TIA off the radar screen. TIA’s mission was to build a giant computer database with real time access to bank records, credit card companies, airlines and other travel companies, credit bureaus and other data banks to monitor, in real time, the financial transactions and travel of Americans and foreign citizens with accounts at the institutions. Under provisions of the USA Patriot Act, the banks and other companies were forced to allow DARPA to access their files, a move normally considered an invasion of privacy.

WASHINGTON STATE ACLU MEMBERSHIP SURGES; GROUP CREDITS PATRIOT ACT’S BACKLASH

With her carefully landscaped home in an exclusive Eastside development, Katie Phelps, a lifetime member of the Republican Party, never expected to find common cause with activists who take to the streets in support of liberalized drug laws and gay marriage. But six months ago, she opened her wallet, wrote out a check and added her name to the list of 10,000 people who have doubled the rolls of the American Civil Liberties Union in Washington over the past two years. Phelps’ support initially may have been fueled more by gratitude than political ideals -- the civil liberties watchdogs had just filed a lawsuit on her behalf that succeeded in getting the stay-at-home mom elected to Medina’s City Council -- but it also reflects the group’s improving image among those who once dismissed it as fringe left, irredeemably, impossibly liberal.

If the numbers are any indication, thousands of others feel similarly. With more than 400,000 dues-paying members nationwide, the ACLU -- a network of lawyers and organizers dedicated to defending personal privacy, due process and political freedom -- is at an all-time high, and no state has seen a greater rate of increase than Washington, which jumped from 10,000 to nearly 20,000 members between 2001 and 2004. “It’s because of John Ashcroft more than anything else,” said Doug Honig, a spokesman for the Washington chapter. “People really feel that their rights are under fire, so for us, these are the worst, but also the best, of times.”

Founded in 1920 by a roomful of activists dedicated to bare-knuckles defense of the Bill of Rights, the ACLU has in its 84 years argued more cases before the U.S. Supreme Court than any other organization outside the federal government. It also has aided pornographers and criminals, been reviled as “anti-Go”q and dismissed as a haven for communist dupes. During his campaign for president in 1988, George H.W. Bush blasted his opponent Michael Dukakis for being “a card-carrying member of the ACLU,” and membership in the organization plummeted by 22,000 over the next five years. But the ACLU, working to shed its wonk-lawyer image of old, is on a rebound.

U.S. AGREES TO SHARE TRAVELER DATA

The U.S. next year will begin handing personal data about U.S. air travelers to the security services of foreign countries, including Russia, under a global aviation security plan crafted at the Group of Eight summit. Among the initiatives in the plan is “data exchange on visa watch lists and advanced passenger information,” a senior administration official told reporters on the condition of anonymity. The official did not say exactly what data about U.S. citizens might be made available to G-8 partner states, but that it would be more extensive than what the U.S. now exchanges with Europe.

The data-exchange deal with the European Union, which has been in practice for more than a year but was not formalized until June 1, covers 34 data fields on the so-called PNR, or passenger name record, including name, address, phone details and credit card numbers. But data covered by the new plan likely will include some kind of unique identifier, such as a passport number, date of birth or Social Security number.

LAW

CITIES SAY NO TO THE PATRIOT ACT

In the past two years, 322 cities and four states have passed resolutions calling on Congress to repeal or change parts of the USA Patriot Act that, activists say, violate constitutional rights such as free speech and freedom from unreasonable search and seizure. Barring that, the resolutions declare that their communities will uphold the constitutional rights of their residents should federal law enforcement agents come knocking on the door of local authorities for assistance in tracking residents. This means local authorities will insist on complying with federal orders only in ways that do not violate constitutional rights. The resolutions are not binding, however, and do not affect the federal government’s actions.

The municipal resolutions, crafted individually by each community, vary in language. They affirm, for the most part, that city employees aiding federal authorities in national security investigations will not violate the rights of people under investigation, such as monitoring political and religious gatherings where people are engaging in activities protected by the First Amendment.

EX-UKRAINIAN PREMIER CONVICTED OF EXTORTION

A U.S. jury convicted a former Ukrainian prime minister last week on criminal charges of using his position to extort tens of millions of dollars from his country and then launder it through Californian banks. Pavlo Lazarenko, 51, who became a multimillionaire while in power during Ukraine’s economic depression of the 1990s, said he would appeal the rare case against a former foreign leader in the United States. Lazarenko becomes the first foreign leader to be convicted in a U.S. court since Panamanian leader Manuel Noriega in 1992. Noriega is currently serving a 30-year prison sentence on drug-trafficking charges.

FORMER IRS EMPLOYEE SENTENCED FOR FRAUD AND TAX EVASION

A former IRS officer was sentenced to prison on charges of fraud and tax evasion after more than $500,000 was stolen from her grandmother’s estate. Sandra J. Valencia had been appointed by her 93-year-old grandmother, Alice Wobig, as trustee of her estate and was given power of attorney over the woman’s brokerage and bank accounts. Wobig had said she wanted her estate divided among her three children. She died in June 1998.

In court, Valencia admitted that she used her position under the power of attorney and as trustee from 1997 through April 2000 to transfer the vast majority of her grandmother’s assets to herself. Valencia was a revenue officer and supervisory tax examiner with the IRS from at least 1985 to 1997, according to the court records. She had worked in IRS offices in Chicago and Denver.

CONSTITUTION IS SUPPOSED TO LIMIT GOVERNMENT’S DOMESTIC SPYING

Rather than address legitimate constitutional concerns when details of “Patriot II” were leaked to the press last year, the Bush administration quietly withdrew the proposal. But now the Justice Department is back, trying to slip the same domestic spying enhancements through Congress piecemeal, in several different bills.

The FBI has been authorized since 1986 -- long before the Sept. 11 terror attacks -- to use so-called “national security letters” to obtain business and financial records (as well as electronic communications) from third parties, such as Internet service providers, medical offices and credit reporting agencies. But now, the new “Anti-Terrorism Intelligence Tools Improvement Act of 2003” seeks to punish with five-year prison terms anyone who publicizes the fact they have even received such a “security letter”.

When the American Civil Liberties Union recently tried to use the Freedom of Information Act to find out how many times -- and in what kinds of cases -- the FBI had used so-called “national security letters”, they received six pages of blacked-out data with the word “secret” stamped on the top of each. The ACLU then filed a lawsuit, challenging the constitutionality of the letters. But to avoid violating the very gag order it was challenging with its lawsuit, the civil rights group agreed to file its lawsuit under seal. The very existence of the suit then remained secret for three weeks, while the ACLU’s lawyers negotiated with the government what they could and could not say about their own case.

This would seem absurd, were it not so dangerous. How are we to judge how dangerous or unjustified the government’s use of these investigative techniques are -- or may become -- if we can be thrown in prison just for discussing how they are being used?

Artists subpoenaed in USA PATRIOT Act case.

On May 30, members of the performance art collective Critical Art Ensemble were subpoenaed by the FBI. The FBI is planning to indict Steve Kurtz, a member of CAE before a grand jury on June 15, on unknown charges. CAE is under investigation for their use of scientific equipment to produce art projects that question the relationship between commerce, politics and biotechnology. Critical Art Ensemble have been producing performances and theory that merge political realities with technology and theater since 1987. Thus far six subpoenas have been issued. The committee to organize CAE Defense is calling for a peaceful demonstration of support outside the Grand Jury hearings on the case of Steve Kurtz (CAE), beginning on June 15th.

FED SHOULD TARGET ALL DIRTY MONEY, NOT JUST TERRORIST FUNDS

The U.S. Treasury will soon inaugurate its new Office of Terrorism and Financial Intelligence, which will extend the dedicated work initiated by David Aufhauser, until recently general counsel at Treasury and the Bush administration’s point man in the hunt for terrorist assets. This attention on terrorist financing, however, ignores one key fact: The terrorists did not invent anything new. The mechanisms that move terrorists’ funds around the world are the same ones that drug lords, despots and tax dodgers have used for years. Terrorist financing is just one facet of the much larger problem of dirty money. Dirty money, estimated at more than $1 trillion a year, is any money that has been illegally earned, used or transferred. It has three components: criminal, corrupt and commercial.

The real problem, however, is trying to crack down on terrorist and drug money but largely ignoring other forms of dirty money. Before 2001, the U.S. Congress was reluctant to tighten money-laundering laws. U.S. law currently specifies about 200 classes of domestic crimes as the basis for a money-laundering charge, but only 11 such crimes are applicable if committed offshore. This approach is doomed to fail. The only way to curb the influx of dirty money is to address it in all its forms at the same time. This requires a law that says that if it is a crime to handle 200 kinds of dirty money in the United States, then it is a crime to handle that kind of money coming from abroad. Canada and the EU are ahead in adopting this position.

About 99% of dirty money deposited in the United States now goes undetected. With such a high failure rate, the new leadership of the Office of Terrorism and Financial Intelligence must rethink the scope of the dirty money problem, close the loopholes and wage a war it intends to win.

Credit Suisse banker arrested in Japan crime syndicate probe.

Police in Japan have arrested a former Credit Suisse employee for allegedly assisting an international money-laundering ring. Authorities in Japan, Switzerland and Hong Kong have been investigating the illegal network, which involves Japan’s biggest yakuza crime syndicate, for several months. A Tokyo police official said Atsushi Doden, 41, was taken into custody hours after he arrived in Tokyo from Hong Kong. Doden is accused of helping the ring set up bank accounts and transfer profits.

Doden -- who reportedly resigned last week from Switzerland’s second-largest bank -- was the seventh person arrested in the crackdown, which has mainly targeted Japan’s largest crime syndicate, the Yamaguchi-gumi.

SAUDIS HAVING PROBLEMS OBTAINING BANKING SERVICES IN THE U.S.

The U.S. State Department is pressing federal bank regulators to address the inability of some foreign embassies to find banking services in the United States, according to several people briefed on the matter. An investigation into suspicious transactions in embassy accounts at Riggs National has made banks wary of engaging in such business. While several countries are having difficulty finding a bank as Riggs shuts down a large portion of its embassy business, the move by the State Department was driven primarily by the needs of Saudi Arabia, a U.S. ally whose embassy accounts are at the center of the Riggs investigation, the sources said. The investigation is focusing on accounts that may have been used to launder money or finance terrorist activities. “The State Department is very concerned that the Saudis cannot find a bank,” said one senior regulatory official, who spoke on the condition of anonymity.

Regulators have their work cut out for them. American banks are now skittish about taking on accounts from countries with suspect banking practices or possible links to terrorist groups, not only because of the Riggs investigation but also because of a recent $100 million fine the Federal Reserve Board imposed on the Swiss bank UBS for violating dollar-trading restrictions with countries subject to U.S. economic sanctions.

And the State Department’s action underscores the ways in which diplomatic and law enforcement goals are sometimes at odds, especially in the case of Saudi Arabia. Its oil remains vital to the United States and it occupies a key position on the political chessboard in the Middle East. But serious concerns remain about possible Saudi ties to the financial sponsorship of terrorism.

OPINION & ANALYSIS

PREEMINENTLY, REAGAN LEFT US LESS FREE

Like all presidents, he had a number of legacies although many of the experts, I believe, will miss those things from his eight years in office that will have the longest-lasting impact upon our lives. Perhaps the most ironic thing about Reagan’s legacies, I believe, is the fact that the longest-term effect of his presidency will be the loss of freedom for many people in this country, and especially the loss of entrepreneurial freedom. That is because if there truly was a “Reagan Revolution” -- and I am among the skeptics who question whether or not there were any truly “revolutionary” aspect to his terms in office -- it occurred in the area of law, and especially federal criminal law.

In the spirit of Marc Anthony, I come to bury Reagan, not to praise him. Yet, I cannot forget that his 1980 campaign was the last presidential contest in which real ideas were discussed. Things like “Say’s Law” and “growth of government” were part of the daily discussion, “one brief, shining moment” if you will. For me, it was the first and last time I have campaigned door to door for a U.S. presidential candidate. We forget that Reagan also campaigned on ending draft registration, and many of his old speeches were tinged with libertarian ideals. One also forgets that his 1980 campaign -- following his near-upset of Gerald Ford in the 1976 primaries -- was seen as a threat by the Republican establishment of Washington. In the end, Reagan won an easy victory, but he did not govern as he had campaigned, and that has made all the difference.

Reagan also ran on an “anti-crime” platform, but realized that the U.S. Constitution limited the role that the federal government could play in state affairs, and that especially meant criminal law. However, the Reagan Administration simply began to experiment around the edges, slowly expanding the federal role in criminal affairs, and helping to lead to the present day situation when nearly every crime committed can be federalized. Out of the “War on Drugs” would come a series of laws and court decisions that expanded the powers of government agents to arrest people on flimsy evidence and seize private property willy-nilly. The War on Drugs grew from a campaign that Nancy Reagan pursued. Much of the American public ignored or made fun of Mrs. Reagan, but the real teeth in this new domestic conflict would come from Congress. Having lost Vietnam, along with the ridiculous “War on Poverty”, Congress set out on yet another disastrous “cause”. The government not only managed to federalize many drug offenses, but also began to seize property in earnest, a practice that has continued apace to this very time. Within a short time, both the federal and state prison populations began to grow rapidly.

One especially ambitious federal prosecutor, Rudolph Guiliani the Southern District of New York, decided to use the expanded federal legal powers to beat up certain Wall Street firms. Because of the press yelping about Reagan being a “friend of the rich”, no one in Reagan’s Department of Justice moved to stop Guiliani, who set bad precedent after bad precedent. In the end, what is left is increased power placed into the hands of U.S. attorneys who would frame their grandmothers if they thought that would earn them political points. And, in the end, thanks to his uses of military force, we also have a seemingly unending war in Iraq. The U.S. Government has become an even bigger threat to life, liberty, and the pursuit of happiness. That is the real Reagan legacy, and it is one that neither the critics of the left or the admirers on the right will ever understand.

Reagan changed the world.

Few Americans realize that President Reagan’s economic policy won the cold war by rejuvenating capitalism. Members of the Soviet Academy of Sciences, with whom I spoke in Moscow during the Soviet Union’s final months, agreed that it was President Reagan’s confidence in capitalism, not his defense buildup, that caused Soviet leaders to lose their confidence. The Soviets themselves were well aware of the failures of their economic system, but took comfort in American stagflation and the various diseases that afflicted the British and European economies.

Ronald Reagan took away the Soviets’ comfort factor when he said that stagflation and falling US productivity were the results of the wrong policy mix, not inherent features of a market economy. The U.S. economy, in other words, could be easily fixed, but the Soviet economy could not. Reagan then proved his point by slashing tax rates from 70% to 28% and presiding over a record economic expansion while inflation fell. Margaret Thatcher achieved a similar renewal of the British economy, and the French followed by privatizing their socialized economy. The Soviets saw that the jig was up. Released from suffocating economic policies, Western economies moved ahead rapidly, while the Soviet economy ground to a halt and declined. Reagan changed the world, because he did not believe capitalism was a spent force.

The first post-Enlightenment president?

When Ronald Reagan was sworn in as the United States’ 40th president, most clear-thinking people clearly saw that he was not going to be the right man for the job. Only a fortnight from 70 when he became president, the one-time minor film actor often glazed over in cabinet meetings. He disliked painful arguments with awkward colleagues. He could fail to notice curious things going on behind his back. He was a definite non-intellectual. He was bound, in short, to be a bumbler of a president.

Instead of which, the Reagan presidency of 1981-89 brought the end of Soviet-block communism, changed most people’s views about how a free-market economy should be run, and gave another generation of self-confident life to the American idea. Mr. Reagan, who died on Saturday June 5th aged 93, turned out to be one of the two or three most effective presidents of the past half-century; some would say the best of them all. Now the intellectuals can start musing about the hidden strengths that overcame all those too-evident weaknesses.

The Great Compromiser

The death of Ronald Reagan provides an opportunity to reflect on the conservative movement at a time when principled conservatism means to conserve the foreign policies of Woodrow Wilson and the domestic policies of Lyndon Johnson. This, sadly, reflects the state of conservatism in the Age of George W. Bush. But it was not always thus. Back in the 1980s mass conservatism meant opposition to communism abroad and to big government at home. Conservatives seemed to accept the idea that fighting the former required embracing the latter, although a few honest ones admitted that the process required that they hold their noses. That is why Reagan could propose budgets with what were then record deficits and, contrary to his rhetoric, expand the size and scope of the State.

It was much later in the 1990s that a light bulb went off in my dense head -- a light bulb that probably illuminated Murray Rothbard when he was in the womb -- that this strategy was self-defeating, because by fighting Leviathans abroad we had created one at home. Rothbard referred to the process when he noted that the warfare and welfare states are one and the same, and that you cannot feed the former without feeding the latter.

A funny thing happened along Reagan’s path to that shining city on a hill. The Cold War ended, but the vast nation state that was created to supposedly defend that shining city became its greatest threat. As a result, today the federal government often seems as entrenched and as encompassing as did the Soviet state -- a gigantic, wasteful, divisive, and warmongering edifice that had become a joke from around the time of the fall of the Berlin Wall but which has been resurgent following that fateful day in September 2001.

Reagan’s smile provided a happy face to the federal government of the 1980s -- a smile the bankrupt neoconservatives and left-liberals of today dearly wish to extend to our time. This is why his legacy is being extolled today. It is up to the paleoconservatives and paleolibertarians -- members of the ascending Old Right -- to take up Reagan’s anti-government cudgels and use them against those who would consolidate and centralize power today. It is the least we should do. In today’s political environment, this would mean using Reagan’s words against many of the Republicans in power. May he rest in peace.

From the Murray N. Rothbard archives: The Reagan Phenomenon

The presidency of Ronald Wilson Reagan has been a disaster for libertarianism in the United States, and might yet prove to be catastrophic for the human race. Reagan came to power in 1981 as the chief political spokesman for the Conservative Movement, a movement which took its essential modern form in 1955, with the founding of National Review. Reagan has been the main conservative politician since “The Speech”, delivered over nationwide TV during the 1964 Goldwater campaign, established him as the “Great Communicator” of the right wing.

The Conservative Movement of modern times has had three basic, and mutually contradictory, tenets: (1) “Getting Big Government Off Our Backs” by rolling back statism and establishing a free market economy; (2) crushing civil liberties whenever crime, “national security”, or “morality” are threatened, i.e., whenever civil liberties become important; and (3) seeking an all-out political and military confrontation with “atheistic world Communism”, in particular its satanic headquarters in the Kremlin, up to and including a nuclear showdown.

It is starkly evident that (2) and (3) are, at the very least, inconsistent with (1). For one thing, how does one “Get Big Government Off Our Economic Backs,” while at the same time spreading “Big Government” into our bedrooms, and into our private letters and phone calls? How does one secure the right to free trade and free enterprise while outlawing pornography and all commerce with the Soviet bloc? And how does one preserve the right to personal life and property while engaging in the mass murder of civilians required by modern warfare? Whenever the Conservative Movement has become aware of such inconsistencies, it has opted unhesitatingly for (2) and (3) over (1). For conservatives, the State as Theocrat and Moral Enforcer and the State as Mass Murderer have always taken precedence over the feeble goals of freedom and free markets.

For almost thirty years now, the Conservative Movement has flourished by maintaining these contradictions. How have they been able to do this? Much of the explanation is more sinister than sheer stupidity. Reagan has been a master at engineering an enormous gap between his rhetoric and the reality of his actions. All politicians, of course, have such a gap, but in Reagan it is cosmic, massive, as wide as the Pacific Ocean. His soft-soapy voice appears perfectly sincere as he spouts the rhetoric which he violates day-by-day. If rhetoric in politics has no relation to reality, why does Ronnie, or any other politician, bother with the rhetoric at all? Why not just pursue the usual statist game without all the lies? The reason, of course, is that it is the rhetoric that sucks the conservative masses into voting for Ronald Reagan. And so Reagan has cleverly put together a working coalition for Republican victory: quasi-libertarian rhetoric, by which he sucks in the dumbright conservative voting masses, and statist reality, by which he preserves the rule by the special interest groups of the centrist Establishment.

What explains him? There are only two logical explanations of the Reagan phenomenon. Either he is a total cretin, a dimwit who really believes in his own lies and contradictions. Or, he is a consummate and conniving politician, the shrewdest manipulator of public opinion since his hero FDR. Or is he some subtle combination of both? Meanwhile, what we have to worry about is a question far more serious than the key to the puzzling Reagan personality. Not only as libertarians, but still more as human beings and members of the human race, we have to ask ourselves the question: Is There Life After Reagan? The jury is still out on that one.

The real reason for the affection for Reagan.

Had he given up the ghost at a different moment in time, Ronald Reagan might not have received the veneration that unfurled like a large American flag across the country this week. Yet unfurl it most certainly has, and speaking on my own behalf, something about it has been immensely gratifying. The first mention of President Reagan in an EWI publication was in Bob Prechter’s Elliott Wave Theorist in November 1980, the issue just following the election. As the decade progressed, it was clear that a huge bull market was in progress and, in turn, that Ronald Reagan’s presidency would transcend the ordinary.

How clear? In Bob Prechter’s view, clear enough to say this in January 1987: “President Reagan will eventually exit as the most loved president in U.S. history.” While that quote now appears stunningly appropriate to the moment, it is vital to note that the observation had nothing to do with politics or policies, but to the realization early on that the president’s epic stature was growing. More so than with any other individual, the public eventually associated Ronald Reagan with the great bull market.

The fact that bull markets create heroes is a demonstrable truth, one that we have identified in the lives of many individuals over the years -- heroes in business, the markets, in politics, sports, and beyond. You may believe that Ronald Reagan eclipses them all, and I will not disagree.

SUPERPOWER OR SUPERDEBTOR?

Since the passage of the “Iraq Liberation Act” in 1998, the US government has spent more than 40 million taxpayer dollars on the Iraqi National Congress and its leader Ahmed Chalabi. As we now know, Chalabi in turn fed the US government lies about Iraq’s weapons of mass destruction and ties to al-Qaeda in the hope that the US would invade Iraq, overthrow Saddam Hussein, and put him in power. To hedge his bets, it appears he made a few deals with the Iranians, delivering US intelligence to that country. How is that for gratitude? Now we see that the US has raided the house of Ahmed Chalabi and seized his papers and computers to see how much damage he may have caused the US with his Iranian dealings.

Round and round we go, and we never seem to learn. It is clear that interventionism leads to the perceived need for more interventionism, which leads to more conflict and to increased resentment and anti-Americanism. It is an endless cycle and the American taxpayer is always left holding the bill. This policy has huge dollar costs at home, which contributes to huge deficits, higher interest rates, inflation, and economic dislocations. The day is fast approaching when we no longer will be able to afford this burden. Economic law eventually will limit our ability to live off others by credit creation. Eventually trust in the dollar will be diminished, if not destroyed. At that point it will become painfully obvious to even the most strident supporter of our interventionist foreign policy that the super-power has become a super-debtor, its power and influence greatly diminished, and its people much poorer and more vulnerable.

THE DOG DAYS OF THE WAR PARTY

Fourteen months ago, after the 3rd Infantry Division and Marines swept into Baghdad, Washington was at the feet of the neoconservatives who had been plotting and propagandizing for an invasion for years. A celebratory breakfast was held at the American Enterprise Institute think tank, in a spirit of joyous anticipation of wars and victories to come. As the ‘60s song went, “Those were the days, my friend, we thought they’d never end.” Now, enmeshed in a guerrilla war, Americans are demanding to know who lied us into war. But the neocons may be facing problems more serious than entering the history books alongside the Whiz Kids of the McNamara era who got it wrong in Vietnam and left 58,000 behind. Some War Party leaders may see careers cashiered and reputations ruined.

The Ahmad Chalabi, Valerie Wilson, and Abu Ghraib prison scandals all threaten to boil over, and stories persist of how neocons “cherry-picked” the prewar intelligence and “stove-piped” it up to Cheney’s office, where it was inserted into the addresses of President Bush. The Night of the Long Knives has begun. The military and CIA are stabbing the neocons front, back and center, laying responsibility on them for the mess in Iraq. But a larger matter looms than the cashiering of ideologues and apparatchiks whose time has come and gone. If Bush’s “world democratic revolution” and “Pax Americana” are out, what is in?

THE RELUCTANT ANARCHIST

As a child I acquired a deep respect for authority and a horror of chaos. In my case the two things were blended by the uncertainty of my existence after my parents divorced and I bounced from one home to another for several years, often living with strangers. A stable authority was something I yearned for. Meanwhile, my public-school education imbued me with the sort of patriotism encouraged in all children in those days. I grew up feeling that if there was one thing I could trust and rely on, it was my government. I knew it was strong and benign, even if I did not know much else about it. The idea that some people -- Communists, for example -- might want to overthrow the government filled me with horror.

In the late 1980s I began mixing with Rothbardian libertarians -- they called themselves by the unprepossessing label “anarcho-capitalists” -- and even met Rothbard himself. They were a brilliant, combative lot, full of challenging ideas and surprising arguments. Rothbard himself combined a profound theoretical intelligence with a deep knowledge of history. I can only say of Murray what so many others have said: never in my life have I encountered such an original and vigorous mind. Murray’s view of politics was shockingly blunt: the state was nothing but a criminal gang writ large. Much as I agreed with him in general, and fascinating though I found his arguments, I resisted this conclusion. I still wanted to believe in constitutional government. Murray would have none of this. He insisted that the Philadelphia convention at which the Constitution had been drafted was nothing but a “coup d’etat”, centralizing power and destroying the far more tolerable arrangements of the Articles of Confederation.

Murray died a few years ago without quite having made an anarchist of me. It was left to his brilliant disciple, Hans-Hermann Hoppe, to finish my conversion. Hans argued that no constitution could restrain the state. Once its monopoly of force was granted legitimacy, constitutional limits became mere fictions it could disregard; nobody could have the legal standing to enforce those limits. The state itself would decide, by force, what the constitution “meant”, steadily ruling in its own favor and increasing its own power. This was true a priori, and American history bore it out. The U.S. Constitution is a dead letter. It was mortally wounded in 1865. The corpse cannot be revived.

For most people, anarchy is a disturbing word, suggesting chaos, violence, antinomianism -- things they hope the state can control or prevent. Yet it is the state that is truly chaotic, because it means the rule of the strong and cunning. They imagine that anarchy would naturally terminate in the rule of thugs. But mere thugs cannot assert a plausible right to rule. Only the state, with its propaganda apparatus, can do that. This is what legitimacy means. Anarchists obviously need a more seductive label. “But what would you replace the state with?” It would seem that an institution that can take 200,000,000 lives within a century hardly needs to be “replaced”. I miss the serenity of believing I lived under a good government, wisely designed and benevolent in its operation. But, as St. Paul says, there comes a time to put away childish things.

D-DAY REMINDS US OF WAR’S HORROR

One of my favorite quotations is from Robert E. Lee: “It is well that war is so terrible -- we should grow too fond of it.” The older I get, and the more wars I read about, the more I come to believe that Gen. Lee had it right. That is a hard point to grasp, especially today as we commemorate one of the most horrific scenes of modern warfare, D-Day, when Allied troops invaded France. We have all seen the movies, as frightened young men willingly marched into enemy fire on Normandy’s beaches.

Yet people still like wars, which is why we fight so many wars that seem so unnecessary. Soldiers like the challenge and the adventure. I read a Los Angeles Times article during the battle of Fallujah in which the interviewed Marines expressed extreme disappointment that they were not being allowed to go into the city and continue their firefight. They were excited to engage and kill the enemy. Politicians like war because it gives them a chance to make bold pronouncements about stopping evil. Read any number of President Bush’s post-9/11 speeches.

Editorialists love war also. They get to pound their chests and call for the nation unifying on behalf of the New National Cause or for Supporting Our Troops. Sure beats writing about the local sewer commission. They get to call for sacrifice. And for honor. And for heroics. Not that they will be engaging in any of those activities personally. Pro-war writers love to berate those who do not prosecute the war with sufficient gusto. And there are plenty of people from all walks of life who, from the comfort of their easy chairs or sofas, love to see bombs dropping on The Enemy, even if many of those bombs drop on those who are not enemies at all -- such as 8-year-old girls playing with dolls and 12-year-old boys playing soccer.

I have an idea. Next Memorial Day we can all spend a few minutes pondering this question: If Americans are so willing to fight for “freedom” abroad, why do they so willingly let their freedoms slip away at home ... without a peep, let alone a battle or full-scale war? Just asking. Yes, many Americans have bravely fought in wars, some of which did have something to do with our freedom. But let us not get so caught up in the commemorations that we forget the essential point: There is nothing noble or wonderful about war.