Offshore News Digest for Week of June 28, 2004

GLOBAL BUSINESS

SAVINGS TAX DIRECTIVE DELAY “NOT SWITZERLAND’S FAULT”, SAY BANKERS

James Nason, a spokesman for the Swiss Bankers Association, hit back at accusations of Swiss “foot dragging”, pointing out that the banking industry has been provided with insufficient details of the tax directive, preventing them from making the necessary preparations. “We need a definition of ‘interest’, we need a definition of ‘EU taxpayer’. The EU has’qt delivered these definitions,” he said. This was rejected by EU spokesman Jonathon Todd, who claimed that the information has been available for some time.

The Swiss government announced last week that none of the nine bilateral treaties recently agreed with the EU will be put to a mandatory referendum. Nevertheless, anti-EU groups in the country are confident of gathering the 50,000 signatures needed to trigger a plebiscite on the issue.

EU and Switzerland initial Bilaterals II.

The draft agreements will now be submitted to the European Council as soon as possible, so that they can be signed and ratified by the EU member states. Issues covered by the nine agreements include the taxation of EU citizen savings income and the Schengen agreement that will facilitate the free movement of EU and Swiss citizens.

BASEL II BANKS CAPITAL ADEQUACY FRAMEWORK ENDORSED BY REGULATORY COMMITTEE

Central bank governors and the heads of bank supervisory authorities in the Group of Ten (G10) countries met on Saturday to endorse the publication of the the new capital adequacy framework commonly known as Basel II. Responding to criticisms that the initial draft of the proposed update was too stringent, and risked increasing the compliance burden on banks to an unacceptable level, the committee of regulators which met at the Bank for International Settlements in Basel, Switzerland revealed that they had opted for a tiered minimum capital and risk management framework.

Basel II improves on the original version of the accord by increasing the sensitivity to the risk of credit losses generally by requiring higher levels of capital for those borrowers thought to present higher levels of credit risk, and vice versa.

MINISTER FOR FINANCE DEFENDS IRELAND’S LOW TAX POLICIES

Responding to recent criticism of the government’s economic management, Charlie McCreevy argued that the government’s employment-friendly tax policies “have been the key to our recent economic success. ... Our low-tax strategy has paid huge dividends and is, I am certain, strongly supported by the Irish people, as evidenced by the results of the last general election when the economy and its management were central campaign issues.” McCreevy cited an opinion poll taken last autumn in which only 9% of respondents favored raising taxes to tackle the budget deficit.

JERSEY TO NORTH AMERICAN FINANCE PROFESSIONALS: “WE ARE NOT A ‘TAX HAVEN’”

In its first formal visit to New York, Jersey is currently showcasing its financial industry to North American finance and legal professionals at a week-long promotional event. As one of the longest established offshore jurisdictions in the European region, and having obtained independent endorsement for its regulatory stance from organisations such as the FATF, the OECD and the IMF, the Jersey delegation are keen to get the message across to the United States that the island should no longer be regarded as a “tax haven”, as it is often classified.

THE THREAT OF MARITIME TERRORISM

A quarter of the world’s entire maritime trade, including about half of all seaborne oil shipments, passes through the Malacca strait in South-East Asia, which at one point narrows to as little as one-and-a-half nautical miles. The strait and the seas around it are infested with well-organised, armed and ruthless pirates (see map) who hijack ships and kill or maroon their crews before repainting the vessels at sea and sailing into port under a new, “phantom” identity. If pirates can do this so easily, why not terrorists? Imagine the devastation to world trade if one or more giant tankers were captured and used to block the straits. Or the possible casualties if a hijacked phantom ship were used to carry a nuclear “dirty bomb” into one of the world’s main ports or to launch missiles at a coastal city?

These are nightmare scenarios worthy of a Hollywood disaster movie. But they are also the sort of threats that are being taken seriously by the world’s governments. Leaders of the NATO military alliance, meeting in Istanbul, Turkey, agreed a package of anti-terrorism measures including new defences against attacks on ports and shipping. (To guard against just such threats, the nearby Bosphorus strait, another busy shipping route, was closed to hazardous cargoes during the summit.) New international security regulations for ships and ports will come into force, along with measures under America’s new Maritime Transportation Security Act.

The new regulations specify what security equipment each ship and port must have, and oblige them to draw up and enact adequate security plans, and to designate officers to ensure these are complied with. But while the new rules are intended to prevent serious disruption to world trade due to terrorist attacks, in the short term they risk causing exactly such disruption: many ports and shipping lines are still not up to the new security standards and thus, if America and other countries impose them strictly from day one, many ships may be arrested or denied entry to ports. The U.S. Coast Guard says it intends to board every ship that does not comply with the rules on its first entry to an American port starting July 1.

CANADIAN LIBERAL PARTY WINS FOURTH TERM, BUT LOSES ITS MAJORITY

In his search for a mandate, Paul Martin has lost his majority. Canada’s prime minister, who took over from the scandal-hit Jean Chrétien last December, has survived his first encounter with the electorate, but he did not escape unscathed. According to provisional results, the Liberals secured 135 of the 308 seats in parliament in the general election held on Monday June 28th, falling 20 seats short of a majority. It was their worst showing since 1988, though still better than many of them had feared. Polls on the eve of the election had suggested that the newly unified Conservative opposition, led adroitly by Stephen Harper, might deny the Liberals the chance of a fourth term. As it turned out, the Liberals will form the next government, and may even try to govern alone, but they will have to rely on the support of other parties in parliament.

Having escaped a disembowelling, Mr. Martin must now cope with an electoral headache. Even if he enters into a formal coalition with the leftish New Democratic Party (NDP), which won 19 seats, he will be one seat short of the majority he needs. He may therefore choose to operate with ad hoc coalitions, turning to the NDP or the Bloc Québécois as the occasion demands. Securing the backing of the NDP, which doubled its vote from the 2000 election, would be relatively straightforward, if expensive. The party’s leader, Jack Layton, wants to see Mr. Martin keep his campaign pledges to promote child care and safeguard the country’s costly health system. Keeping the Bloc Québécois on side will be trickier. Compromise with the Bloc will also be personally galling for Mr Martin. After all, one of Mr Chrétien’s great achievements was to clip the Bloc’s wings and mute its nagging call for Quebec’s secession. Without the Bloc’s support, Mr. Martin cannot get much done. But if the Bloc refuses to co-operate, Mr Martin can threaten to return to the polls, where the Bloc knows it will struggle to hold on to its gains.

SPAIN IS ENTERING A NEW PHASE OF DEMOCRATIC AND ECONOMIC DEVELOPMENT

In less than 30 years -- Generalisimo Francisco Franco died in November 1975 -- Spain has emerged from dictatorship and international isolation, built a successful economy and established an effective democracy. Perhaps no other European country has achieved so much, on so many fronts, so quickly. Spain has developed not just a firm democracy but a system of governments that produce policies and implement them -- in other words, they govern. Most notably, they deliver economic growth, which is why Spaniards are today about 75% richer than they were 30 years ago, and have seen their economy grow faster than the European average for nearly ten years. Not surprisingly, democratic Spain has won the respect of other countries.

The new government under José Luis Rodríguez Zapatero has the opportunity to launch a second transition. It has lost no time in bringing Spain’s troops back from Iraq, in proffering an open hand to Spain’s traditional partners in Europe and in embarking on a program of social change, all the while promising to stick to the old certainties of sound financial housekeeping, and dialogue and consensus all round. Popular as this is at present, it may not be adequate to meet the realities of Spain’s new circumstances: a richer country whose citizens must now find higher-earning and more productive jobs than the unskilled ones of the past; a more diverse society which now includes multitudes of North Africans and Latin Americans; and an internally strained society that has to manage the different ambitions of its constituent peoples -- Basques, Catalans, Galicians and the rest -- within a tolerant, sophisticated democracy.

FUTURE IS BRIGHT FOR SEYCHELLES AS OFFSHORE FINANCIAL CENTER, SAYS EXPERT

John Goldsworth of Trust & Trustees in London remarked that the jurisdiction has attained political stability and developed strong legislation, which in combination with its membership of the Commonwealth makes it an attractive choice for potential international investors. Mr. Goldsworth praised the Seychelles “careful” approach to the development of its offshore finance industry, and while other jurisdictions may have “swept ahead” in the race to offer offshore services to certain companies, this policy has allowed it to keep its reputation intact, setting up potential for future growth.

REFORMS NEEDED BEFORE CARIBBEAN STOCK EXCHANGE BECOMES REALITY

Contributing to a panel discussion entitled “Formation of a Caribbean Stock Exchange and Promoting Non-Traditional Investment Mechanisms”, Baljit Vohra, general manager of the Eastern Caribbean Securities Exchange in St. Kitts argued that the region’s existing bourses and the firms listed upon them must first be demutualised. “If we are going to talk about integration and coming together on exchanges, first we have to demutualise them. Convert them into shareholding companies, corporatise them even before you start talking about cross-ownership,” he observed. He added that a further hindrance to the formation of a regional exchange is the value of local shares in relation to market capitalization, which is very low. “The average company size across the region is small, family owned and there is the whole issue about control,” noted Vohra.

EU CONSTITUTION A PYRRHIC VICTORY FOR STATISM?

European pro-federalist politicians are patting themselves on the back after agreeing on a new constitution, but their self-congratulation may be premature. In part, this is because voters in several countries might decide that they do not want to be governed by hundreds of pages of dense bureaucratic prose. But even if the politicians manage to dupe people into approving the constitution (probably by forcing them to vote over and over again until they “get it right”), the document contains a landmine that will cause headaches for political elite in Brussels.

Notwithstanding efforts by high-tax nations such as France and Germany, the draft constitution retains the unanimity rule for tax matters. This means that a single country has the ability to block any and all tax harmonization proposals. This is important because “tax competition” has become a very powerful force for economic liberalization in Europe. But the handful of nations that are driving this process -- including Ireland with its 12.5% corporate tax rate and Slovakia with its 19% flat tax -- could have been out-voted and forced to raise taxes if the constitution relied on “qualified majority voting” for tax matters.

Politicians in high-tax countries are right to be concerned. There is every reason to believe that tax competition will become even more prevalent in the future. One reason is that the European Union has expanded to 25 nations, and several of those countries have aggressively reduced tax rates and implemented pro-growth tax reforms. In addition to Slovakia, the three Baltic nations have flat tax regimes, and countries such as Poland and Hungary have corporate tax rates of less than 20 percent. This almost surely will lead businesses to migrate eastward and pressure nations from “Old Europe” to lower tax rates. Another reason to expect further tax competition is that taxation is one of the few fields left where governments in the EU are allowed to compete.

High-tax nations may not have a silver-bullet strategy, but they have no choice but to fight tax competition in every possible way. Welfare states are unsustainable when taxpayers cannot be treated like fatted calves waiting for slaughter. Mobility of labor and capital is a threat to big government. It is much more difficult to rob Peter to pay Paul when Peter can move across national borders. The EU constitution is a statist document, but the failure to dismantle the unanimity rule was a major setback for left-wing politicians. But it is the only silver lining in a dark cloud for taxpayers in fiscal gulags like France, Germany, and Sweden.

Tony Blair is right: the European constitution is a defeat for federalism. It is instead a triumph for centralism.

For several months now, Tony Blair has been insisting that the European constitution would be a defeat for Euro-federalism. Within hours of appending his name to it, he announced that, far from creating a superstate, the constitution was about “sovereign nation-states co-operating together”. Let us play along with the Prime Minister for a moment. Let us imagine that he really has seen off the Euro-zealots and protected the supremacy of national governments. What, in these circumstances, might we reasonably expect the constitution to contain? With this Platonic ideal of a constitution in our minds, let us now turn to what Mr. Blair has actually signed.

This constitution is good for Britain, he says, because of all the things it does not do. There will be no European army; we have thwarted plans for tax harmonization; we have kept our veto in social security. Even if all these things were true -- and, as we shall see, some of them are pretty questionable -- they hardly add up to an argument for ratification. In what ways will the U.K. be positively better off? Are we so reduced as a people that we are expected to thank Brussels for letting us levy our own income tax? And if all these proposals have been kept out of the document, then what is in it? Surely it does not take 333 pages, plus hundreds of codices, to say that there will be no European army.

When the Prime Minister claims that there will be “no federal superstate”, he is half right. It will be a superstate all right, equipped with every attribute of statehood that international law recognises: a defined territory, common borders, a citizenry, a legislature, a legal system and supreme court, a constitution, treaty-making powers, a head of state and a defence capability. But Mr. Blair is right to say that it is not federal. In federations, there is a clear demarcation between central and state authority. Under the proposed constitution, by contrast, the EU can itself extend its jurisdiction without reference back to the nations. This is the constitution, not of a federal state, but of a unitary one. Once it comes into force, the nations of Europe will in many ways have less freedom of action than, say, U.S. states.

Like previous British leaders, Tony Blair is seeking to sell the deal as the opposite of what it really is, claiming, Major-like, to have defeated the Euro-fanatics. His trouble is that, between now and the referendum, people may glance at the text.

THE RULE OF LAW, RUSSIAN-STYLE

Last month Russia’s president, Vladimir Putin, said that the authorities had no interest in seeing Yukos, one of the country’s biggest oil firms, go bankrupt. Investors, scared by the Russian authorities’ relentless pursuit of Yukos and its imprisoned former boss, Mikhail Khodorkovsky, breathed a sigh of relief. But this week’s news has made them wonder whether to trust the president’s words. On Tuesday June 29th, a court overturned Yukos’s appeal against a $3.44 billion claim for back taxes for the year 2000. Though Russian bailiffs can allow up to five days for complying with a court order, they turned up the very next day at the company’s offices to begin enforcing it. And just a couple of hours after they left, the tax ministry announced that it will go to court with a new and almost equally huge tax claim for 2001. Yukos’s shares, which had shot up by more than a third on Mr Putin’s announcement, have since lost almost all of this gain.

The forced annihilation of one of Russia’s biggest and most successful companies would be seen as a damaging sign of how far the Kremlin is willing to bend the law to its own ends: whatever Mr. Khodorkovsky’s guilt or innocence, it is widely believed that his troubles mainly result from his having financed political groups opposed to Mr Putin. The confusion about what is really going on, and what are the authorities’ ultimate objectives, is only adding to the stockmarket’s panic.

Yukos bankruptcy threat as accounts frozen.

Shares in Yukos slid on Friday as investors digested the latest news about the embattled Russian oil group’s tax liabilities and financial outlook. Bailiffs on Thursday gave Yukos five days to pay a Rbs99 billion ($3.4 billion) tax bill for 2000 and froze its bank accounts, in moves that sharply increase the risk of bankruptcy. Court officials accompanied by armed guards went to the Yukos headquarters in Moscow, moving swiftly to implement a commercial court judgment upholding a tax ministry demand brought against the company as part of a campaign widely seen as politically motivated.

Yukos also confirmed on Thursday night that it had been told by the tax ministry of a further Rbs98 billion extra tax assessment for 2001. That would almost double the demands on the company and places extra stress on Yukos, which will probably be forced into significant asset sales to pay the combined bill and remain afloat. Analysts estimate total claims over four years could reach $10 billion. The Moscow Arbitration Court upheld a $3.4 billion back tax claim against Yukos on Tuesday, opening the way for asset seizures and raising the prospect of default on $2.6 billion in international loans.

President Vladimir Putin has said it is not in the government’s interest to bankrupt Yukos, which has been under siege ever since its founder and largest shareholder, Mikhail Khodorkovsky, was arrested last October on charges of large-scale fraud and tax evasion. The legal onslaught against Yukos and its owners has been seen as key in establishing greater state control over big business.

Tax cuts may destabilize Russia’s economy warns IMF.

As the government sets about fulfilling President Putin’s pledge to double economic output within ten years, Russian legislators have approved a raft of tax measures in recent months, including cuts in VAT and the elimination of the 5% regional sales tax. The State Duma also gave its backing recently to a cut in payroll tax. However, an IMF report cautioned against a sudden fiscal loosening, and warned that the policy could drive up inflation and ultimately destabilize the economy. “The notion that cutting high tax rates will quickly spur capacity enhancing investments finds little support in international experience,” the report noted.

CHINA FINDS SOME INGENIOUS NEW WAYS TO FRUSTRATE HONG KONG’S DEMOCRATS

This time, China’s leaders were better prepared. By a series of well-timed moves, they took some of the sting out of a huge demonstration for universal suffrage. The democrats’ protest on July 1st -- a public holiday marking Hong Kong’s handover to China in 1997 -- attracted hundreds of thousands of people. The immediate political impact will not be as great as the fallout from a similar march a year ago. But it will still give China’s leaders and their Hong Kong supporters pause. Last year, the democrats startled both the Hong Kong government and China’s central leadership in Beijing by pulling about half a million people into a protest chiefly aimed at a proposed anti-subversion bill. That display of people power, unprecedented in scale since the handover, led to resignations from Hong Kong’s cabinet and the shelving of the bill.

A year on, Hong Kong’s people still have as much to complain about. In April, China’s legislature, the National People’s Congress, ruled that there could be no universal suffrage in Hong Kong for at least another eight years, despite opinion polls showing overwhelming support for its early introduction. The mysterious resignations in May of three radio talk-show hosts critical of China’s policies in Hong Kong increased widespread suspicion (never proven) of an intimidation campaign by communist sympathisers against democrats. A couple of weeks before the July 1st protest, Hong Kong’s police force detained seven Chinese suspected of being mainland security agents conducting an unauthorised investigation -- a cause of alarm for the many Hong Kongers who regard the territory as a haven from the mainland’s arbitrary legal system.

China cleverly followed up its brusque dismissal of democratic reform with an unexpected display of friendship to its opponents. Critics in Hong Kong of the Chinese Communist Party were invited to meetings with Chinese officials who had previously shunned them. Then came hints that a long-standing ban on visits to the mainland by outspoken pro-democrats would be lifted. To avoid accusations of churlishness, pro-democracy politicians welcomed these moves, and drew up a new list of less provocative slogans for the July 1st march. Signs of economic recovery in Hong Kong also helped improve the mood, though the turnout suggests this has failed to dampen political aspirations. China’s leaders cannot afford to relax. Their battle with the democrats on the streets may have faded, but it lives on at the ballot box.

CAYMAN ISLANDS NON-GOVERNMENTAL ORGANISATIONS ACCUSE BRITAIN OF DECEPTION

A delegation from the Cayman Islands Non-Governmental Organisations (NGOs) recently addressed the United Nations Special Committee of 24 on Decolonization in New York and claimed that there had been “misleading representations” by the British Government dating back to the 1960s regarding its obligations under various UN resolutions dealing with self-determination.

The delegation expressed its concern about the possibility of the outcome of the upcoming general elections being interpreted by the next government and the British Government as a mandate for constitutional change without the electorate receiving the benefit of further education on the options for self-determination and the development of a participatory democratic constitution.

SWISS PROBE BHUTTO LAUNDERING ALLEGATIONS

Swiss investigators questioned Pakistan’s former Prime Minister Benazir Bhutto over allegations she used bank accounts in the European country to launder millions of dollars in kickbacks. Bhutto was convicted of money laundering in July 2003 under a Swiss law that empowers high-level investigators to impose penalties without a court hearing. But the conviction was automatically thrown out when she contested it, prompting a fresh round of questioning.

Swiss authorities said in 1998 they found about 20 million Swiss francs, then worth $13.8 million, in Swiss accounts belonging to Bhutto and her family. The accounts were frozen at Pakistan’s request. Swiss and Pakistani investigators allege much of the money came from kickbacks made by a Swiss company in exchange for business with the Pakistani government when Bhutto was in power. Bhutto, who lives in exile in the United Arab Emirates, has denied the charges, saying they are part of a Pakistani campaign against her.

TAXES

US TREASURY WARNS AGAINST VIRGIN ISLANDS TAX REDUCTION SCHEME

The US Treasury Department and the IRS issued a notice warning US taxpayers against promoters who market arrangements that purportedly provide reductions in federal taxation as a result of the special rules applicable to the US Virgin Islands. These arrangements involve taking positions that are highly questionable with respect to claims that the taxpayer resides in the US Virgin Islands and that the taxpayer’s income is from sources in the US Virgin Islands or is connected with a US Virgin Islands business.

TOP TAX SHELTER LAWYER NO LONGER AT A BIG FIRM

Raymond J. Ruble, 59, was a Manhattan-based partner with Sidley Austin Brown & Wood, one of the nation’s largest law firms. Described by fellow lawyers as modest and genial, Mr. Ruble was nonetheless known for his aggressive work on tax strategies for investors. While abusive tax schemes have increasingly come under government scrutiny, shelters can often be very lucrative for their advisers and sellers, and Mr. Ruble was one of the biggest earners for the firm. He has been cited by the government as a leading promoter of abusive tax shelters.

In October, Mr. Ruble was dismissed, a highly unusual move by such a prestigious law firm. Days earlier, government investigators told the firm that millions of dollars from a San Francisco-based seller of tax shelters had gone -- apparently unknown to the law firm -- into a Delaware trust created by Mr. Ruble, according to lawyers who have been briefed on the investigation. The fall of Mr. Ruble provides a rare window into the sometimes shadowy world of tax shelters and the relationships between the often obscure investment firms that sell them and the better-known law firms and accounting and consulting firms that advise or promote them.

Sidley Austin declined to comment on Mr. Ruble’s dismissal, other than to say he had been terminated not because of his legal opinions but because of his “breaches of fiduciary duty and violations of the partnership agreement.” Mr. Ruble has not been charged with any wrongdoing and is not the subject of any federal investigation. One of Mr. Ruble’s lawyers, Jack Hoffinger, declined to comment on his client’s termination or on his work with tax shelters. “As long as we have a complicated tax code, tax lawyers will advise their clients on how to minimize their taxes,” he said.

NEW STUDY FLAGS BENEFITS OF U.S. DIVIDEND TAX CUT

A new academic study conducted by the National Bureau of Economic Research has found that the 2003 cut in dividend tax has contributed greatly to an increase in dividend payments made by U.S. corporations in the last year. Following the cut in the maximum dividend tax rate from 35% to 15% on qualifying shares as part of President Bush’s fiscal stimulus package, the NBER report observed “a sharp and widespread surge in dividend distributions... along several dimensions.” The research found that after more than two decades of decline in the number of firms paying dividends, 2003 saw a dramatic and almost instant turnaround, with nearly 150 firms initiating payouts, adding more than $1.5 billion to aggregate quarterly dividends.

IRS TO LAUNCH CRACKDOWN ON LAND DONATIONS

The Treasury Department and the IRS announced that the government is embarking on a crackdown to prevent improper tax deductions being taken by people who give real estate and cash to environmental groups. The IRS is specifically targeting gifts of “conservation easements” -- deed restrictions that limit some types of real estate development. The investigations are focusing on easements that have questionable public benefit, or have been manipulated to generate inflated deductions.

Without naming names, the agency has said it is aware that some taxpayers are claiming inappropriate charitable contribution deductions for easement transfers, or are claiming deductions for amounts that exceed the fair market value of the donated easement. In addition, the IRS declared knowledge of taxpayers claiming these deductions for cash payments or easement transfers to charitable organizations in connection with the taxpayers’ purchases of real property. The IRS intends to impose penalties on promoters and appraisers of these schemes and the tax-exempt status of the charitable organizations may also be challenged.

LATVIA AND MALTA LEAST TAXED IN EU

A report released by the EU’s statistical office yesterday showed that the overall burden of taxation across the 25 member states decreased from 41.1% to 40.4% between the years 2001 and 2002, but revealed large differences in the tax burdens between member states. The publication Structures of the taxation systems in the EU issued by Eurostat provided for the first time tax revenue data for the ten new member states and for Norway, and additional implicit tax rates (i.e., average effective tax rates) on corporate income, on capital and business income of households and on energy consumption.

According to the report, substantial differences exist between member states in terms of total tax burden. Sweden recorded the highest tax-to-GDP ratio (50.6% in 2002), followed by Denmark (48.9%), Belgium (46.6%) and Finland (45.9%). The lowest ratios were observed in Ireland (28.6%), Lithuania (28.8%), Latvia and Malta (31.3% each) and Cyprus (32.5%). The tax burden declined in 2002 as compared with 2001 in 16 out of 24 member states with Poland (from 41.2% to 39.1%), Ireland (from 30.5% to 28.6%), Sweden (from 52.2% to 50.6%) and the United Kingdom (from 37.3% to 35.8%) recording the largest reductions.

“NO TAXES” PLAN INVOLVING BOGUS TRUSTS ENDS IN PRISON

Federal prosecutors say Phillip and Joanne Caldwell failed to pay more than $200,000 in taxes from 1993 to 2001 and tried to hide their income through bogus charitable trusts. Both are accused of working with the Freedom Connection, a tax protest group in Greater Cincinnati that offered advice on how to avoid paying the IRS. Phillip Caldwell, 48, was sentenced to two years in prison while his wife, Joanne, 41, was sentenced to one year. U.S. District Judge S. Arthur Spiegel also ordered each to pay more than $100,000 in restitution.

The Caldwells’ attorney, Howard Richshafer, said his clients accept responsibility for their actions but had hoped for shorter sentences. He said Phillip Caldwell did not realize he and his wife were breaking the law when he followed the advice of the Freedom Connection and set up the trusts. Federal prosecutors say the couple hid income in the trusts, used cash to conceal income and attempted to revoke their social security numbers and taxpayer status. At one point, prosecutors say, Joanne Caldwell claimed she was a foreign citizen and a non-resident alien, even though she lived in Ohio.

IRS LENIENCY DRAWS USERS OF SHELTER BY THE HUNDREDS

More than 1,500 taxpayers agreed to pay back taxes and reduced penalties for using a tax shelter called “Son of Boss” that cost the U.S. government at least $6 billion in the late 1990s, the IRS announced. The IRS said about 85% of the taxpayers that it knows used the tax shelter came forward from May 5 to June 21 under the leniency offer that allows them to pay reduced penalties and deduct the deal’s transaction fees. About 300 taxpayers previously unknown to the agency also came forward, IRS Commissioner Mark Everson said. “We can expect to recover monies in the billions of dollars,” Everson said. He said the agency will pursue those who did not come forward.

The offer to settle with taxpayers who used tax shelters is the first time the IRS demanded 100% of the tax owed, plus interest and at least some penalty, part of the agency’s effort to “send a tougher message”, Everson said last month.

ASSET PROTECTION

MARIJUANA CASE TO BRING IN REVENUE WINDFALL FOR LOCAL MONTANA POLICE

Forfeiture of property in a drug case stands to generate thousands of dollars for drug enforcement by Whitefish, Montana police. Property taken from Ron Ridenour includes a house on 2-1/2 acres; a fleet of vehicles; a ski boat; guns; and $30,000 in cash. Ridenour pleaded guilty in March to conspiracy to distribute marijuana. The sentence imposed includes 21 months in a federal prison. Prosecutors said Ridenour received 20 pounds of marijuana monthly between 1998 and the time of his arrest in November, when arresting officers said they found about three pounds of marijuana in a garbage can.

GLOBALIZATION, DEREGULATION ALLOW STOCK FRAUD INDUSTRY TO THRIVE

Smooth-talking brokers, many of them American, use flattery, urgency, and sometimes lies to persuade foreign investors to buy stock in the small U.S. companies they tout as the next Microsoft or eBay. But almost as soon as money changes hands, many of these can’t-miss propositions become sure losers. The value of the stock plunges, and the firms that peddled the shares stop answering the phones, shut down their Web sites and vanish. The prestigious-sounding brokerages are actually unlicensed, offshore “boiler rooms”, selling stock in companies that would have little appeal without a listing on the U.S. market and trading approval by the U.S. Securities and Exchange Commission. The rise of the overseas boiler rooms is an unforeseen consequence of globalization and deregulation.

Just as the U.S. manufacturing and technology industries have gone offshore in search of lower costs and looser operating restrictions, so has the stock fraud industry. The Internet has added a new twist, allowing boiler rooms to create impressive virtual storefronts. Advanced telecommunications also aid in their deception, routing calls, faxes and voice mail from answering services in Hong Kong, Tokyo and other business capitals to their true headquarters in less visible locations. In essence, the operations are everywhere and nowhere, making them hard to find and even harder to stop.

An investigation by the St. Louis Post-Dispatch has identified more than 100 publicly traded U.S. companies whose stock has been peddled by the offshore rings. The boiler rooms profit by obtaining newly issued company stock at discount prices and immediately reselling it at big markups, a practice that is illegal in America. Despite efforts by international regulators and aggrieved investors to disrupt their activities, the number of active boiler rooms appears to be multiplying.

NIGERIA FAILING TO TACKLE 419ERS

Roughly 200 Nigerians are currently serving jail terms for advance fee or 419 fraud around the world, Malam Nuhu Ribadu, chairman of the Nigerian Economic and Financial Crimes Commission (EFCC), told a seminar in Abuja this week. But in Nigeria itself not a single person has been sentenced yet. About 500 suspected fraudsters are currently detained by the commission in various detention centres across Nigeria, but they still await trial. Sixty per cent of 419 scam letters still originate from Nigeria, Malam Nuhu Ribadu told the seminar.

AS SECURITY WOES DOG MICROSOFT’S INTERNET EXPLORER, SOME SAY TIME TO SWITCH

It has been a bad week for many users of Microsoft’s nearly ubiquitous Internet Explorer browser. Two virus attacks exploiting its vulnerabilities have led security experts to recommend that Web surfers consider such alternatives as Mozilla and Opera. Continuing to use Internet Explorer is “like playing the lottery”, said Johannes Ullrich, chief technology officer of the nonprofit SANS Internet Security Center. The respected research center is among security groups recommending other browsers as long as a key vulnerability in Explorer remains unfixed, leaving it capable of running a malicious code that has been hidden at a number of popular Web sites. Switching browsers may cause problems, but less so than following Microsoft’s temporary prescription of cranking up security settings, which may cripple the ability to access multimedia content or fill out Web forms, Ullrich said.

Last week, a computer virus designed to steal valuable information as Web users typed it into their computers -- passwords and the like -- spread through a new technique that converted popular Web sites into virus transmitters. And this week, researchers discovered another password-stealing program hidden behind pop-up ads. Explorer is a frequent target for hacking because of its popularity; WebSideStory, which tracks browser usage, says 95% of surfers use it globally. The browser is closely integrated with Microsoft’s Windows operating system and Outlook e-mail program, creating more room for programming error and making solutions more difficult.

PRIVACY

RFID LACKS CONSUMER APPEAL

Technology companies intent on selling RFID into the enterprise need to better communicate consumer benefits and ease off on the shareholder-pitched balance sheet savings, according to the CTO of supply chain software vendor Viewlocity, Michael Sherman. Sherman said while RFID was being rolled out by globally strategic players such as Wal-Mart and the US Department of Defense, there were still privacy concerns among consumers because most of the benefits of the technology had been marketed to suppliers rather than end users. Sherman predicted that consumer attitudes will gradually mature over the next five years as customers realized, and became more comfortable, that retailers already collect much of the data RFID will provide.

RADIATION AND THE STATE: MINIMIZE YOUR EXPOSURE TO BOTH

Years ago, in another lifetime, I was intimately familiar with the handling and employment of a large portion of the U.S. strategic nuclear weapons inventory. One of the first things that you learn in that arena is how to minimize your exposure to the Bad Thing: radiation. You use three simple methods: time, distance, and shielding. You minimize exposure by minimizing the time spent in close proximity to the warheads and by maximizing both distance and shielding between yourself and the warheads. These same methods can also be employed to minimize one’s exposure to a much more pervasive, but just as deadly, Bad Thing -- the State and its agents. I suggest that you plan and live your life accordingly, if you value your privacy.

FINGERPRINT SCANNERS STILL EASY TO FOOL

A Swedish student wrote her Master’s thesis about current fingerprint technology. After a thorough literature study some live testing took place. Simple DIY fingerprint copies were used. Have current commercial products improved as much as proponents claim? From the abstract:: “The experiments focus on making artificial fingerprints in gelatin from a latent fingerprint. Nine different systems were tested at the CeBIT trade fair in Germany and all were deceived. Three other different systems were put up against more extensive tests with three different subjects. All systems were circumvented with all subjects’ artificial fingerprints, but with varying results.” (Most systems claim to be spoof proof.)

E-MAIL SNOOPING RULED PERMISSIBLE [REMINDER: ENCRYPT YOUR EMAILS]

The First Court of Appeals in Massachusetts ruled (PDF file) in U.S. v. Councilman did not violate criminal wiretap laws when he surreptitiously copied and read the e-mail of his customers in order to monitor their transactions. Bradford C. Councilman, owner of a website selling rare and out-of-print books, offered book-dealer customers e-mail accounts through his site. But unknown to those customers, Councilman installed code that intercepted and copied any e-mail that came to them from his competitor, Amazon.com. Although Councilman did not prevent the mail from reaching recipients, he read thousands of copied messages in order to know what books customers were seeking and gain a commercial advantage over Amazon.

Authorities charged Councilman with violating the Wiretap Act, which governs unauthorized interception of communication. But the court found that because the e-mails were already in the random access memory, or RAM, of the defendant’s computer system when he copied them, he did not intercept them while they were in transit over wires and therefore did not violate the Wiretap Act, even though he copied the messages before the intended recipients read them. The court ruled that the messages were in storage rather than transit. The court acknowledged in its decision that the Wiretap Act, written before the advent of the Internet, is perhaps inadequate to address modern communication methods.

Critics said the decision represents a huge privacy setback for e-mail users. “By interpreting the Wiretap Act’s privacy protections very narrowly, this court has effectively given Internet communications providers free rein to invade the privacy of their users for any reason and at any time," says Kevin Bankston, EFF attorney and Equal Justice Works fellow. “This decision makes clear that the law has failed to adapt to the realities of Internet communications and must be updated to protect online privacy.”

LAW

NO RIGHT TO REMAIN SILENT

You have the right to remain silent -- unless you are asked your name when you are not even charged with a crime. That is right. It can now be a crime to refuse to tell a policeman your name. What is happening to America? Nevada and 20 other states have criminalized remaining silent in the face of a policeman’s question, “What’s your name?” By a 5-4 vote the U.S. Supreme Court said that is okay -- it is no violation of the Fourth Amendment prohibition against unreasonable searches or the Fifth Amendment prohibition against compulsory self-incrimination.

“Obtaining a suspect’s name in the course of a Terry stop serves important government interests,” wrote Justice Anthony Kennedy for the majority, referring to an earlier case (Terry) that permits the police to detain people on the basis of a suspicion that falls short of the traditional standard of “probable cause” for arrest. It may serve “important government interests”, but some of us in the United States still harbor the impression that the rights and interests of individuals trump the interests of state.

It should make the citizens of a putatively free country uncomfortable to know that the police can have the authority to stop and demand identification on the basis of a “reasonable suspicion”, which after all is a highly subjective state of mind. A person is looking at a storefront. Is he admiring the window display or casing the joint? It is up to the policeman to decide. Under the Terry ruling, which was decided more than three decades ago, the cop can stop, question, and frisk the person without probable cause. The latest ruling simply fills in a missing detail. It is tempting and comforting to seek refuge in the notion that only bad people will want to withhold their names from the police. Maybe; maybe not. But even if we grant that, the comfort is false.

He fought the law, and the law won.

In Larry Dudley Hiibel’s own words: A lot of people want to know why I went all the way to the Supreme Court rather than give my name to a policeman. “What’s so important about that?” they ask. “What’s the big principle at stake?” And last week, when the Supreme Court ruled against me, maybe some thought I was foolish to have done it. But I still think I did the right thing and that there were some issues that had to be decided.

... I’m very disappointed by this decision. I think a basic freedom has been lost. What bothers me the most is that my children and grandchildren are going to have to live with this law. It moves us a step closer to control of the people by the government, and I don’t think that’s a step forward.

SUPREME COURT ORDERS (SOME) DUE PROCESS FOR GUANTANAMO PRISONERS

The Supreme Court reaffirmed that U.S. courts have legal authority to rule on challenges brought by foreign nationals held at Guantanamo Bay. The Bush administration had insisted otherwise. The high court also granted access to the courts to Yaser Esam Hamdi, a U.S. citizen captured in Afghanistan. But the president was backed some in that case, as the justices acknowledged that Congress had given him authority to hold the American as an enemy combatant. The high court effectively side-stepped a third case -- that of “dirty bomb” suspect Jose Padilla, another American held as an enemy combatant -- on grounds it was improperly filed and must go back to lower courts to start again.

In a 6-3 ruling, the Supreme Court said foreign nationals at the U.S. Naval Base Guantanamo Bay, Cuba, should be allowed to challenge their treatment in U.S. courts. The dissenters were Chief Justice William H. Rehnquist and Justices Clarence Thomas and Antonin Scalia, who essentially agreed with the Bush administration’s claims that Guantanamo lies beyond the jurisdiction of U.S. courts. In the Hamdi case, all of the justices except for Justice Thomas said Mr. Hamdi had the right to a hearing before the lower courts.

Deborah N. Pearlstein, director of the U.S. Law and Security Program at Human Rights First, an advocacy group that filed briefs with the Supreme Court on behalf of Padilla, Mr. Hamdi and the prisoners held at Guantanamo Bay, stressed the ruling was “not a victory for terrorism suspects,” but “a victory for law and the power of the courts to check the executive.”

Decisions on the cusp of security and liberty.

Even at war, the U.S. government is bound by the law, and the courts determine what the law is. The Supreme Court at least got that part right in three complicated decisions about detainees in the war on terror. These are historic cases. Each side referred to President Lincoln’s prosecution of pro-Confederate “copperhead”q during the Civil War, President Truman’s seizure of U.S. steel mills during the Korean War, and President Roosevelt’s internment of Japanese-American civilians during World War II. In war, security and liberty conflict, and in the long run, the nation requires both.

The court was correct in applying U.S. law to Guantánamo Bay, which Justice Anthony Kennedy declared to be “in every practical respect a United States territory.” It ill becomes a constitutional republic to be squirreling away prisoners on foreign bases in an attempt to sidestep its own institutions. The court was also right to reject the government’s claim that prisoners could be kept in detention on a “some-evidence standard”, meaning that all the government had to do was to show some evidence. “We have long since made clear,” said Justice Sandra Day O’Connor, “that a state of war is not a blank check for a president when it comes to the rights of the nation’s citizens.”

Schutzhaft Light

While L. Paul Bremer was touting the merits of bringing democracy to Iraq, the U.S. Supreme Court was announcing its decision for its own version of the Nazis’ legal concept of Schutzhaft or “protective custody” -- which enabled the Nazis to arrest and incarcerate people without charging them with a crime -- but for American citizens instead. Yaser Esam Hamdi, the American citizen captured on an Afghanistan battlefield, will finally get his day in court, as the Supreme Court ruled that the government can detain so-called ‘enemy combatants’ under limited circumstances during times of war, but that the accused can contest that detention before a federal judge. While most will see this decision as a victory for freedom, I see it as the first step onto the slippery slope.

In Nazi Germany, with the reinterpretation of “protective custody” (Schutzhaft) in 1933, police power became independent of judicial controls. In Nazi terminology, protective custody meant the arrest -- without judicial review -- of real and potential opponents of the regime. “Protective custody” prisoners were not confined within the normal prison system but in concentration camps under the exclusive authority of the SS (Schutzstaffel; the elite guard of the Nazi state).

With this decision the court has approved Schutzhaft Light. It does not require a charge to be brought, only that a hearing be held. Once that hearing is held, a prisoner can still be held indefinitely. What is the likelihood that an alleged “enemy combatant” will be released, especially in wartime? Slim at best. The military’s assertion that Hamdi is an “enemy combatant” will be given more than a fair amount of deference. The judicial review granted in this case will more than likely rise to little more than a legal rubber stamp of the military’s position. When it comes to wartime, the military will always remain superior to any form of judicial review of its actions. With that in mind, Hamdi is clearly not the great civil rights victory that many will attempt to make it out to be. What we could be seeing is the rise of dual judicial systems in America , just like in Nazi Germany: One for political prisoners and the other for common criminals.

The Hamdi, Padilla and Rasul rulings: Game, set, and match to George Bush.

Forget what the media’s talking heads have told you about these three Supreme Court decisions that tested the power of George W. Bush. The President won far more than he lost, so administration “officials” who pronounce themselves victors are more on target than the press who tell you that the decisions represent a defeat for the Administration, or rein in its power. Taken together, the decisions are more important for what they did not do. Their significance for the future, particularly if Bush is reelected, cannot be underestimated.

Reading the cases and placing them in the context of the “war on terror” supports a view that is admittedly contrary to what mainstream media are saying. But if you have been listening to them since September 11, you do not know much about what has happened to the legal system in this country, all in the name of preserving liberty. In these three cases, the Supreme Court did not want to totally abrogate its responsibility (except for one Justice, Thomas, who, as a reluctant justice on a court he often expresses contempt for, not surprisingly wants to be left out of any judicial interference with the almighty President) or the Constitution so it threw a vote or two in the direction of the Constitution.

But it left plenty of room for this despotic President, and all who follow him (you think Kerry cares about civil liberties? You think he would not want the same power Bush is wielding?) to incarcerate Americans at whim, concoct a story about “fighting” against American, and dare you, just dare you, to try your luck at proving your innocence. Game, set, match to George Bush.

SUPREME COURT RULING PROTECTS TRIAL BY JURY

In at least 11 states, judges can increase the sentences of convicted criminals purely on the basis of alleged facts never submitted to trial juries and proved beyond a reasonable doubt. Or they could until last week. On June 24 the U.S. Supreme ruled that practice unconstitutional. The 5-4 decision, the latest in a series of reevaluations of sentencing matters, not only invalidated the state laws, it also cast a shadow over federal sentencing guidelines. Writing for the majority, Justice Antonin Scalia said the Court sought to “give intelligible content to the right of jury trial.” (Scalia was joined by Justices Ruth Bader Ginsburg, David Souter, John Paul Stevens, and Clarence Thomas.)

Scalia dismissed the dissenters’ arguments, summing up, “Ultimately, our decision cannot turn on whether or to what degree trial by jury impairs the efficiency or fairness of criminal justice. One can certainly argue that both these values would be better served by leaving justice entirely in the hands of professionals; many nations of the world, particularly those following civil-law traditions, take just that course. There is not one shred of doubt, however, about the Framers’ paradigm for criminal justice: not the civil-law ideal of administrative perfection, but the common-law ideal of limited state power accomplished by strict division of authority between judge and jury. ...[E]very defendant has the right to insist that the prosecutor prove to a jury all facts legally essential to the punishment. Under the dissenters’ alternative, he has no such right. That should be the end of the matter.”

ANTIGUA LEADS CALLS FOR WTO TO SET MONEY LAUNDERING RULES

A group of eight small offshore and onshore jurisdictions has called for anti-money laundering and terrorist financing initiatives to be established and implemented by the World Trade Organization, of which they are members, rather than the Financial Action Task Force, of which they are not. Led by Antigua and Barbuda, the group comprises Fiji, Guyana, Papua New Guinea, the Solomon Islands, Belize, the Maldives, and St Kitts and Nevis. Antigua and Barbuda’s ambassador to the WTO, John Ashe explained that, “We face a double whammy -- we don’t participate in drafting the rules so our concerns are not taken on board, and to implement them is a costly exercise.”

OPINION & ANALYSIS

A TALE OF TWO MOVIES: MICHAEL MOORE’S FAHRENHEIT 9/11

Michael Moore’s new film embodies all the virtues, and vices, of the American left at the present moment: it is trenchant and wrongheaded, serious and superficial, startlingly original and horribly clichéd. There is humor, sophomoric as well as dark; emotion, spontaneous and staged. Fahrenheit 9/11 is, in short, the best of films, and the worst of films. It is, in effect, two entirely different movies.

Oddly, all the bad stuff occurs in the first 20 minutes or so, as if Moore just had to get the leftie clichés, the partisan Democratic tirades, and the cheap shots out of his system before he could get down to the serious business of telling how and why George W. Bush and his minions capitalized on 9/11 and lied us into war. One might say of Michael Moore: when he is bad, he is very very bad -- and when he is good, he is memorably effective.

On balance, the new upsurge of dissent on the Left is a very good thing. Because when it comes to exposing injustice, the Michael Moores of this world have no trouble understanding the stakes: in the eternal battle of Liberty versus Power, they are on the right side of the barricades.

“Fahrenheit 9/11” or “Farce and Hype 7-11”

The debut of Michael Moore’s film Fahrenheit 9/11 juxtaposed with the turnover of power to the Iraqis by the coalition authority in Baghdad represent the reality and the fiction of the Iraq War. But which is which? It is sad when art depicts reality more closely than one’s own government. Yes, Fahrenheit 9/11 is probably excessively partisan. But even less political citizens, who are trying to make heads or tails of their government’s bizarre entanglement in an Iraqi quagmire, should take the time to wade through that partisanship to appreciate key aspects of the film. The film allows the public to see how the Bush administration cynically manipulated the 9/11 crisis to build public support for invading a country that had nothing to do with that tragic and heinous attack.

Unfortunately, the most important part of the movie shows actual grisly photos of wounded and dying Iraqis and U.S. forces and the grieving families of the dead. Americans are rarely allowed to see such jolting pictures on the main television networks. As a result, for most Americans, war has been sanitized into a glorious and patriotic videogame featuring cool high-tech weapons. That also seems to be the perspective of the senior Bush administration officials who were the architects of the war. Very few of them have seen the horror of war first-hand. Moore’s film brings home that reality in what was an invasion of a sovereign nation that never posed a real threat to the United States. Moore’s film should cause all Americans to share a Big Gulp over the unnecessary war in Iraq.

Good for business, bad for the people.

Even while focusing on what a jackass Bush is -- hey, it’s funny -- Moore manages to delve deeper than his ill-conceived fawning over War Hero Clark last Spring would imply. In particular, the Democrats take the pasting they deserve for the abysmal fact that not a single Senator would come to the aid of the Congressional Black Caucus in officially protesting the 2000 election. Deftly, Moore is able to tie this spineless moral failure in with an even more criminally immoral system where salivating recruiters hunt down (there is no other word for it, as the footage makes clear) brown and poor kids to fight the wars of the rich. The disingenuousness of the “opposition” party is laid bare, despite a few important interviews from members of congress fighting the good fight, as the consummate corporate ass-kisser it is, too addicted to campaign cash to effectively oppose the president’s march to war. War is, as one eager potential profiteer sheepishly concedes on film, “good for business, bad for the people.”

Enraged and ashamed (hopefully), the audiences at Moore’s film can indeed rise up if they seize the opportunity, throwing off the mantra that “we are stuck in Iraq”, along with the sham arguments that sold a pack of war crimes disguised as “liberation”. A friend’s reaction was simple and succinct: “It makes me mad. I probably should have been more aggressive with people at the grocery store, or people at my old job. You know, people you just feel like choking.” Is it too late to turn back the rising tide of ignorance and budding fascism? For the sake of humanity, we have to hope not.

FAIRNESS WITH YOUR COFFEE?

At my neighborhood supermarket the other day, I was at first puzzled, then a bit amused at the sight on the shelf of “Fair Trade Coffee”. This is, I found on inspecting the unusually wordy label in detail, coffee whose supplier claims to have overpaid the producers for it. By this is not meant, of course, having paid the producer whatever he asked, but rather, some (undisclosed) minimum price notionally above whatever the market price for beans at the time and place of sale is supposed to have been. I trekked over to the place for the usual kind of coffee, and found a difference of over $1 per pound to give to the deserving campesino or such who grew that special coffee back on the other side of the store.

The next morning (June 8, 2004), the Wall Street Journal carried an article describing the traffic in “fair trade” coffee, bananas, and who knows what next? It seems this kind of thing has been going on for some years in Europe and, now, just like Keynesianism, is catching on west of the Atlantic. It seems, incidentally, that where the grower was collecting no more than a few extra cents a pound, the retailer was found to be piling a dollar or more onto its profit. This, of course, is nothing more than the usual “charitable skim”, but it was found to dismay the gullible, er, I mean, faithful who bought the fair-trade coffee and soothed their consciences with its fragrant aroma in their kitchens.

This is all voluntary. There are no governments involved and so, as far as I can see, no coercion. No lies have actually been told, and the fools who buy this coffee should be free to be parted from their money in whatever ways they choose, although I admit I would prefer they chose me to waste their riches on, rather than someone (anyone) else. But the yet another Newspeak-style hijacking of the word “fair”, coupled here with "trade", bothers me. Á la Bastiat, it is what is not seen that troubles me worst. Picture the buyer for fair-trade coffee traveling the cool uplands of Colombia or Brazil, ready to pay more than the going price for coffee. How does he choose which grower deserves our largesse? Well, a carefully crafted set of hints at the ugly truth may be found at, the Web site of TransFair USA, the US affiliate of the global FLO (Fair Labeling Organization). For a more complete rendition, consult this Christian Science Monitor article.

DEMOCRAT/REPUBLICAN ROLE REVERSAL

Since 1932 Democrats have been so confident of the inherent virtue of government that they have been willing to trust any amount of power to it. The liberal agenda boiled down to the growth of government power. Republicans were the naysayers, forever quoting the Founding Fathers’ warnings that government power meant liberty’s demise. The administration of President George W. Bush has brought a reversal of these positions. President Bush’s war on terror has resulted in the greatest growth in police state powers since Adolf Hitler subverted German democracy. Republicans cheer this growth as necessary to our safety. It is the Democrats who are having second thoughts.

Senator Robert Byrd (D-West Virginia), the Constitution’s greatest -- and perhaps only [ed: Is he forgetting Ron Paul?] -- defender in the US government, early warned that elements in the Bush administration were using deception to manufacture an Iraq crisis. The consequences would be dire, Byrd predicted. The US would cease to be perceived as peacemaker and be seen as warmonger. To facilitate its conduct of war, Byrd warned that the Bush administration would seek to reduce the powers of Congress and the rights of citizens.

In his June 24 speech at Georgetown University Law Center, Vice President Al Gore detailed the extent to which President Bush has unbalanced the balance of powers and destroyed the US Constitution by his claim to executive dictatorship. Republicans are pleased with Bush’s role as Caesar, arguing that unconstitutional power is necessary to fight the war against terrorism. Conservative media such as Fox News, National Review, Weekly Standard, and the Wall Street Journal editorial page glorify Bush’s exercise of illegitimate powers. It is Al Gore, not conservative Republicans, who invokes George Washington, Thomas Jefferson, Benjamin Franklin, and James Madison. It is Al Gore who says, “We cannot depend upon a debased Department of Justice given over to the hands of zealots,” who are determined to create a presidency unconstrained by law or the Constitution, the better to impose their political will.

Are we witnessing an American version of the Reichstag fire in which dictatorial powers are created and civil rights subverted in the name of crisis? Can the Bush administration be held accountable for unprecedented lies and deceptions? Will the newly asserted powers of the executive survive Bush’s administration and permanently unbalance the balance of powers? The stakes for liberty and political accountability have never been higher than they will be in November.

WHY CAN’T CONGRESS STOP SPENDING?

Congress spent one evening last week debating a token measure to reduce government spending by implementing very slight caps on some future entitlements. Not surprisingly, even this exceedingly modest bill failed overwhelmingly. The process behind the vote, however, reveals just how deeply ingrained the spending problem really is. The pressure to go along with the herd in Congress is intense, regardless of which party is in control. Every member knows that thwarting his party’s leadership, particularly on budget matters, is risky. Any opposition to spending bills can result in veiled or even outright threats to cut funding for the member’s district, to limit the member’s committee assignments, and to bury the member’s legislation. Some members who buck the system find themselves facing primary opponents in the next election as a result. The desire to win reelection is paramount, and those who go along get plenty of help from their party’s fundraising machines.

Predictably, almost all members of the House Appropriations committee -- the committee initially responsible for every nickel of federal spending -- voted against the bill. This simply highlights the institutional problem that plagues Congress and government in general: no politician ever voluntarily relinquishes power. In Congress, control of the nation’s purse strings represents the ultimate power. Appropriators can reward some lawmakers and punish others with the stroke of a pen, by adding or eliminating federal projects in any congressional district. No amount of talk about spending can change the reality that government power naturally grows.

Everybody complains about pork, but members of Congress keep spending because voters do not throw them out of office for doing so. The rotten system in Congress will change only when the American people change their beliefs about the proper role of government in our society. Too many members of Congress believe they can solve all economic problems, cure all social ills, and bring about worldwide peace and prosperity simply by creating new federal programs. We must reject unlimited government and reassert the constitutional rule of law if we hope to halt the spending orgy.

HOW HITLER BECAME A DICTATOR

Whenever U.S. officials wish to demonize someone, they inevitably compare him to Adolf Hitler. The message immediately resonates with people because everyone knows that Hitler was a brutal dictator. But how many people know how Hitler actually became a dictator? My bet is, very few. I would also bet that more than a few people would be surprised at how he pulled it off, especially given that after World War I Germany had become a democratic republic. The story of how Hitler became a dictator is set forth in The Rise and Fall of the Third Reich, by William Shirer, on which this article is based.

THE GAMES PLAYED BY A PUBLIC INTELLECTUAL ARE A MARVEL OF MORAL IRRESPONSIBILITY

If we are not attentive, Bill Buckley’s antiwar pronouncement, issued in an interview with the New York Times, could be relegated to a minor footnote in this week’s news pages, whereas it really speaks volumes about the history of the last 50 years and the fall of American freedom in the push for perpetual war. What he said, in his famously circuitous way, was this: “With the benefit of minute hindsight, Saddam Hussein wasn’t the kind of extra-territorial menace that was assumed by the administration one year ago. If I knew then what I know now about what kind of situation we would be in, I would have opposed the war.” Thus does he implicitly concede that the antiwar forces were right, and the warmongers were wrong, and thus does he implicitly repudiate everything his magazine and website have ever written about this subject, and thus does he add his name to the roster of people who reject the main project of the Bush administration and the main cause of the world’s woe. Perhaps if the interviewer had hung around a bit longer, Buckley would have repudiated the sanctions of the 1990s that helped inspire the events of 9/11, and perhaps even the original Gulf War that started this whole mess and hurled US-Islamic relations onto this destructive path. Why not? It is as easy as waving a hand.

The games played by a public intellectual are a marvel of moral irresponsibility. He casually suggests that a war would be a grand idea. The result is that 10,000 die and life is ruined for the living. Civilization is replaced by shifting stenches of death, disease, and filth. Millions swear retribution. Ah, but then the intellectual changes his mind! War was not all it was cracked up to be, or so he tells a reporter for a newspaper, before clicking off his cell and ordering up a nice lunch. But he cannot bring back the dead. He cannot pay hundreds of billions in debt accumulated to fund the war. He cannot bring back the rule of law to Iraq or solve incredibly intractable economic problems. He cannot heal the wounds, physical and spiritual, of the innocents who were arrested, held in prison, and tortured before being released only under international pressure. He cannot disarm the states that are working on acquiring nuclear weapons as a way of protecting themselves from the US, since everyone knows that US attacked Iraq not because it had nukes but because it did not.

No, he cannot do any of this. But he can walk away from it all, with just a few words. Had he known, he would have opposed it. That he presided over a media empire that made all of this possible, that even turned the opinion of conservatives who should have opposed every bit of this into a chorus of cheers for a regime that has been a calamity for human liberty, for this he cannot be held responsible. He is just a commentator after all. He does not own the wars he advocates, so he bears no liability when they go wrong. He is part of a class of thinkers who treat world affairs like a parlor game: roll the dice, pick the card, take a chance, win some, lose some.

A FREE NATION DOES NOT DO THIS, NOR DO FREE PEOPLE ALLOW IT

The concept of “government” in the United States, a/k/a United Socialist States of America, is skewed beyond belief, intruding into every aspect of our lives whether we realize it or not. Never did the founders of this nation envision a people of such dependence on government less than two hundred years after the American Revolution had freed them from the tyranny of the British Crown. Nor did our founders envision a people who would willingly sell themselves back into such tyranny by allowing government to grow to unprecedented size, with unprecedented expenditures (supposedly for the public good) and unprecedented power to intrude into the lives of the people at every stage from cradle to grave. Such a nation would have been unworthy of the investment they made in the future of freedom and the granting of liberty as the birthright of all Americans and the acquired right of all legally naturalized citizens.

There is nothing in our Constitution that even remotely contemplates a government that is in the business of child care, education, enormous welfare programs, automobile or other transportation design standards, the protection of trees, owls and fish, health and other forms of insurance including home mortgage insurance, the obesity and food consumption habits of its people, underwriting higher education via grants and loans, and the “right” to invade private homes or tap into personal communications without just cause and a proper warrant. Nor did the framers of the Constitution and the Bill of Rights contemplate foreign nation-building by the federal government of this nation at the expense of our citizens, the taxpayers, who inevitably pay the bill, since government has no income of its own. Farther yet from the minds of the founders would have been the idea that this nation would ever surrender control of its treasury to a private institute deceptively named the Federal Reserve Board, made up of private bankers, domestic and foreign.

All of the above has occurred, and most of it in the twentieth century, with the final power being usurped from the people in bills passed, unread, by the elected Congress after September 11, 2001. America is no longer a free nation as freedom is commonly understood and as spelled out in the Constitution and Bill of Rights. Now the government police powers are so enormous, and so all-pervasive, no one can take any steps toward their self-protection without government intervention, not for our liberty, but for our enslavement! America is not the land of the free and the home of the brave. It is a land of those who fear having their creature comforts disturbed now, only to find that down the line, they will all be gone anyway.

REMEMBERING SILENT CAL ON JULY 4TH

Historians have trivialized Calvin Coolidge as a do-nothing President naïve enough to believe that “the business of America is business”, and many have rated him as one of the worst of all time. However, he produced remarkable results without sacrificing our freedoms. And given that he was born on the 4th of July, there is no better time than our Independence Day to remember him. Under Coolidge, the top income tax rate of 65% under Wilson was eventually cut to 20%. The stock market began its unprecedented “roaring 20s” climb as it became clear through 1924 that Coolidge’s tax reduction bill would pass. In both his first and last year in office, federal receipts were $3.8 billion and expenditures were $3.1 billion, and in between, he cut the national debt from $22.3 billion to $16.9 billion.

His policies took more than a million people off the income tax rolls, and 98% of Americans paid no income tax at the end of his term. As a result, America prospered under Coolidge. Real economic growth averaged 7% per year while he was in office (the highest growth on record), while inflation averaged only 0.4%. Investment, manufacturing output, and disposable income rose dramatically, and unemployment averaged 3.3%. That remarkable record explains why, after Coolidge outpolled his Democratic opponent by nearly 2 to 1 in 1924, he would have won in another landslide if he had run again in 1928.

But unfortunately for America, he did not. So why is there such a disconnect between Coolidge’s success and his reputation? In large part, it is because he advocated individualism, as clearly spelled out in his speeches (which he composed himself), and the newspaper column he wrote after leaving the Presidency. But while that seems appropriate for someone born on the Fourth of July, it is so distant from the modern mindset that many now cannot understand why someone who, as Senator, Governor, Vice-President, and President viewed government intervention in broad areas of life as a problem rather than a panacea.

Further, people have attributed to Coolidge the origins of the Great Depression under Herbert Hoover, his Vice-President. But they have not done so because of any evidence that his policies were responsible. Along with monetary policy blunders, the Great Depression was triggered by Hoover’s abandonment of Coolidge’s policies, in favor of disasters ranging from erecting monumental trade barriers to sharply raising tax rates. Never was this divide between the policies of the two made clearer than when Coolidge said of Hoover, “That man has offered me unsolicited advice for six years, all of it bad.” Calvin Coolidge may have been called “Silent Cal”, but his record brags for him, if people would bother to look honestly.