Offshore News Digest for Week of August 30, 2004

GLOBAL BUSINESS

DOMINICAN REPUBLIC’S SWIFT STEP INTO CRISIS

The country has been transformed from the envy of Latin American economies into a nation in the midst of its worst economic crisis in decades. Analysts here trace the fall largely to a single event: a banking scandal that last year cost the government $2.2 billion, or about 15% of the country’s GDP, which sent inflation soaring and severely devalued the peso, the national currency. The result has been an almost overnight reversal in fortunes in this steamy Caribbean country, a top U.S. tourist destination just east of Cuba that shares the island of Hispaniola with Haiti. What was until recently a dependable bright spot in a region of economic and political uncertainty is now another vulnerable nation on the U.S. front porch.

So many Dominicans are trying to flee the desperate conditions that the U.S. Coast Guard is intercepting far more Dominicans at sea than Cubans or Haitians. After a decade of strong growth, the Dominican economy shrank in 2003 for the first time since 1990. Joblessness is soaring and inflation has averaged 56% in the past year, according to the central bank. The peso has lost more than half its value against the dollar, causing deep pain in a nation that imports most of what it consumes. Prices have more than doubled in the past year for food, milk, propane gas for cooking and other daily necessities. Worker strikes and fuel shortages are adding to the sense of paralysis.

The government inherited by President Leonel Fernandez, who was sworn in Aug. 16, is hobbled by nearly $6 billion in foreign debt, making it nearly impossible to provide even the most basic services, from medical supplies at public hospitals to trash pickup.

AMENDMENT TO CAYMAN ISLANDS CONSTITUTION BOTCHED BY CLERICAL ERROR

It has emerged that a clerical error occurring at the UK Foreign and Commonwealth Office (FCO) has resulted in an omission from the amendment to the Cayman Islands 1972 Constitution approved by the Privy Council in July.

According to a statement by the Cayman Islands government, the amendment that has been passed has achieved one aspect of the original intent -- that eligible persons holding both British Overseas Territories Citizenship and British Citizenship (by virtue of the British Overseas Territories Act 2002) are not disqualified from standing for election. However, the statement added that the error has created another unintended consequence that will require the Privy Council to make another amendment to the Constitution.

LOYDS TSB HOMES IN ON BANKING NEEDS OF GROWING EXPAT MARKET

With the advent of the EU, the westernised world has progressed rapidly towards an international economy. This has inevitably led to an increasingly transient population with many people living and working outside their country of birth. The option to work, live and retire abroad has become an attractive lifestyle choice, but an expatriate existence does throw up some unexpected complications. Many financial institutions are beginning to recognize the need to provide this growing market with the products they require, and Lloyds TSB Offshore has chosen the Isle of Man as a base to launch a global assault on this 21st century phenomenon.

EU WOULD NOT ACCEPT VENEZUELA’S ELECTION

Venezuela’s recent recall election, monitored by former President Jimmy Carter, was so rigged in advance in favor of President Hugo Chavez that the EU refused to play an observer’s role. Among the restraints imposed was the fact that observers were not to be allowed to independently audit the entire vote, and both the number of observers and their freedom of movement was to be restricted. Yet in a letter to the Wall St. Journal last week, Carter claimed that his center “observed the entire voting process without limitation or restraint.”

SINGAPORE IS RICH, BUT HARDLY EVER ENVIED

Outsiders have long viewed the gleaming city-state that attained its independence in 1965 as a tidy but soulless place, the nanny state that famously banned chewing gum. The good news is that the new prime minister, Lee Hsien Loong, son of the longtime ruler Lee Kwan Yew, seems to realize that Singapore needs to loosen up. At his swearing-in ceremony earlier this month, he said what not long ago would have sounded like heresy in a nation where the bottom line is the bottom line, “Prosperity is not our only goal, nor is economic growth an end in itself.”

Mr. Lee followed up last week with a more detailed speech in which he announced a long overdue relaxation of some restrictions on freedoms of speech and assembly. That is a start, but younger Singaporeans will expect Mr. Lee to be far more aggressive. It is not clear that he can deliver. Mr. Lee’s notoriously authoritarian father still lurks in the background, with the title of “minister mentor”. If Mr. Lee continues taking only half-steps toward a more tolerant and democratic society, Singapore’s vaunted prosperity will very likely suffer.

As for chewing gum, it is now available, in pharmacies, and only if it is sugarless and “therapeutic”.

ON THE ADVANTAGES OF GIBRALTAR AS A FINANCE CENTER

The Rock of Gibraltar has an area of two and a quarter square miles and is connected by a narrow isthmus to the southern coast of Spain. It has a population of approximately 30,000, of which 20,000 are Gibraltarian. The people are mainly of Italian, Genoese and Maltese descent, and are bilingual in English and Spanish. There is a small but significant Jewish population, a section of Indian traders and latterly a large influx of Moroccan workers. The official language is English and the official currency the pound Sterling, with both UK and Gibraltar coinage in circulation.

Gibraltar is a British Crown Colony and has been so since 1704. The Constitution gives legislative powers to the Governor, who is the Queen’s representative, and the House of Assembly. It is a dependent territory, responsibility for which lies with the British Government. It enjoys considerable self-government, although the formal assent of the Governor is required for all legislation. The British Government has given an assurance to the people of Gibraltar in the preamble to the Gibraltar Constitution, that Gibraltar will remain part of Her Majesty’s dominions until and unless an Act of Parliament otherwise provides, and that Her Majesty’s Government will never enter into arrangements under which the people of Gibraltar would pass under the sovereignty of another state against their freely and democratically expressed wishes.

Gibraltar has its own legal system, similar to that of the United Kingdom and based on English Common Law but with its own statutes, termed Ordinances, which are passed by the House of Assembly. Gibraltar became an associate member of the EEC when the UK joined in 1973 and is included for all matters except Value Added Tax, the Customs Union and the Common Agricultural Policy. The main attraction of Gibraltar as a financial center is that its Exempt Companies can be managed and controlled from within Gibraltar. Also, Gibraltar is not party to any double taxation agreement. There is therefore no exchange of information with any other fiscal authority.

SWISS TRADE WITH U.S. CONTINUES TO DECLINE

The volume of trade between Switzerland and the United States continued to decline in 2003. The Swiss-American Chamber of Commerce says this is an “unsatisfactory trend”. Swiss consumers are not buying as many American cars (-7%) and are purchasing less American wine (-9%). The number of Swiss tourists to the US has fallen by 42% since 2000. The chamber said the decline could partly be explained by the fact that Swiss consumers were turning away from US products in protest against some of the Bush administration’s policies. The chamber said another reason for the decline in imports was that the US had recovered much faster than Europe after the global economic slowdown of 2000 and 2001. It added that the economic impact of the war in Iraq was less pronounced in the US than it was in Europe.

DECLINE OF TRADE UNIONS COULD THREATEN UK LABOUR PARTY’S FUNDING SOURCES

Most of Britain’s big industrial and private sector unions have seen their finances badly damaged by the decline of their traditional membership bases, analysis by the Financial Times reveals. The malaise mainly afflicts Labour-affiliated unions, suggesting the party could face funding problems in the long term. The most recent figures taken from returns to the unions’ Certification Office show a fall in the number of full-paying members among most of the biggest unions with high private sector membership, as thousands of members retire or fall into arrears and are not replaced by people paying the subscriptions which are the lifeblood of union finances.

Four of Britain’s 10 biggest unions showed large deficits in their general fund. All four have suffered a fall in the number of full-paying members. The GMB’s tally of full-paying members fell by 103,864 to 600,106 in 2003. Its £16.7 million deficit the highest of all has prompted a severe cutback, including the departure of many of its staff on early retirement. The draft of a forthcoming letter from general secretary Kevin Curran to members states bluntly, “We have consistently spent above our income for the last 10 years, mainly as a result of our decision to go for growth and our decision to increase the resources dedicated to recruitment and organisation. This was unsustainable.”

Labour relies heavily on union funding, particularly since it tends to offer a more reliable source than donations from wealthy individuals. More than half the money donated to Labour over the past year came from unions. Although some big unions have promised large amounts for Labour’s election campaign, the need for Labour-affiliated unions to cut costs could intensify complaints from members about the use of funds to bankroll Labour, rather than the unions’ own priorities, especially at a time when there is dissatisfaction with the direction of the government at the grassroots.

DARK ECONOMIC CLOUDS MAY THREATEN THE CARIBBEAN

There are more than 20 offshore financial centers (aka “tax havens”) in the Caribbean and Central America, and some commentators are arguing that their day in the sun is nearly done. The list of adverse factors is certainly daunting. The gradual reduction in tariff barriers worldwide has undermined the Caribbean islands’ reliance on subsidized exports of sugar and bananas. Then, the fierce attacks by the USA, the FATF and other bodies on money laundering and terrorist financing have forced the IOFCs to eschew many of their traditional clientele. The OECD is pressurizing many of the OIFCs to harmonize their offshore and offshore regimes, and, to cap it all, a majority of them are dependent territories of the UK and have been forced to adopt the odious EU Savings Tax Directive.

It is this last problem that may turn out to be the most disastrous, at least in the short term, as investors shy away from the EU’s spotlight. With such a wide choice of OIFCs available world-wide, the uncomfortable demonstration that Britain’s dependencies had no choice but to knuckle under to the U.K. can hard help them. An Economist report last week pointed out that all 14 of the independent countries in the Caribbean Community (CARICOM) are among the 30 most heavily indebted emerging-economy governments, and seven of them are in the top ten. The IMF says that the Caribbean economies have managed an average growth rate of barely 2.5% in the last 25 years.

Still, the gloom and doom may be overdone, at least in many cases. The dark cloud of the Savings Tax Directive may not persist: in reality, it is easy to escape the Savings Tax in a number of perfectly legal ways, and the convenience of the Caribbean for US and European investors may outweigh their concerns once the dust has settled.

Eastern Caribbean Central Bank eliminates exchange rate guarantees.

As part of the process to liberalise the financial markets in the region with a view towards stimulating the development of money and capital markets and ultimately economic development, the Eastern Caribbean Central Bank (ECCB) eliminated the guarantee on daily foreign exchange rates to commercial banks effective September 1, 2004. The ECCB had hitherto guaranteed the rates at which it purchased and sold the pound sterling and the Canadian dollar from and to the commercial banks. With the removal of the guarantee, individual banks will set the rates which they will offer their customers, taking into consideration any currency fluctuations that occur throughout the day in the international markets.

European official calls for greater competitiveness in Dominica.

National Authorizing Officer of the European Development Fund (EDF) in Dominica, Mr. Edward Lambert has said that as a result of globalization and trade liberalization, firms need to be competitive in the delivery of services.

Caymans-based movie Haven opens 9/11 in Toronto.

Caymanian film director Frank E Flowers’ film Haven is scheduled to premiere at the Toronto International Film Festival on 11 September at the Ryerson Theatre. The plot of Haven takes place during a single weekend in which two shady businessmen flee from Miami to the Cayman Islands to avoid federal prosecution, but their escape ignites a chain reaction that leads a young British expatriate to commit a crime that “changes the nation”.

When asked if this film may sully the Cayman Islands’ reputation, in the way many Caymanians feel the film The Firm did with its portrayal of the Cayman Islands as a money-laundering haven, Mr. Flowers disagreed. “I think Haven is different. The Firm was a film made by outsiders to the island and the Firm utilised a sensationalized point of view. “Haven is told from a Caymanian perspective, written and directed by a Caymanian, with Caymanians in many roles and on the crew.

STRESSED OUT BERMUDIANS SINK INTO DEPRESSION

More than 6,500 people are diagnosed with depression in Bermuda each year. Glenn Caisey, program manager for mental health services in Bermuda, believes the increase is due, in part, to the fact that the pace of life on the island has caught up with the rest of the world. He said the stresses and strains of increasing violence, workplace pressures and financial problems, were taking their toll in Bermuda just as much as they were in America and the rest of the world. But the effects were magnified because of the size of the island. He said if people ignored the signs of depression it could manifest itself in other ways such as substance abuse, theft and anti-social behavior.

PANAMANIANS THINK (NOW) EX-PRESIDENT SHOULD BE INVESTIGATED FOR CORRUPTION

79% of Panamanians think that Mireya Moscoso, the president of that country, should be investigated for alleged acts of corruption committed during her term in office, which ends on September 1, according to a survey published this past Sunday. Moscoso’s government’s conclusion is marked by claims of corruption, the bribery of legislators to appoint two magistrates to the Supreme Court of Justice and approve an industrial complex, compounded by misappropriation of public funds for the remodeling of the presidential rest house.

Poverty in Panama affects 41% of its three million inhabitants, and Moscoso leaves an external debt of $6.64 billion, up $1.058 billion in relation to 1999.

Son of ex-dictator inaugurated as Panama’s president.

Martin Torrijos, the son of former dictator Omar Torrijos, took office as Panama’s president promising jobs, better relations with Cuba and a referendum on a proposed $8 billion expansion of the Panama Canal. Torrijos said Panamanians should decide on the proposal to widen the canal for a new generation of bigger ships because of its high cost for this poor nation, where 40% of the people live in poverty. He also promised an investor-friendly government that is concerned for the poor. “Doing business in Panama has become a headache,” he said. Mr. Torrijos is a graduate of Texas A&M University with degrees in political science and economics.

Torrijos had tough words for his predecessor, Mireya Moscoso, calling her term “five years of wasted opportunities.” “We receive a country full of youth without hopes,” he added. He also criticized Moscoso for last week’s pardon of four Cuban exiles who had been accused by the Cuban government of trying to kill Cuban President Fidel Castro at a summit in Panama in 2000.

Torrijos inherits a Diplomatic Tempest.

Martín Torrijos, the son of a former dictator, was sworn in as Panama’s new president on Wednesday and walked straight into a diplomatic storm. Last week, Cuba broke relations with Panama to protest a decision by the departing president, Mireya Moscoso, to pardon four Cuban exiles who had been accused of plotting to assassinate President Fidel Castro during a visit here in 2000. Ms. Moscoso said she had decided to pardon the men and allow them to leave Panama because she said she was concerned that Mr. Torrijos might have them extradited to Cuba or Venezuela, where, she said, “I am sure they would have been killed.”

Three of the men flew to Miami. The fourth reportedly flew to Honduras. Their release and Ms. Moscoso’s remarks provoked outrage in Havana and in Venezuela, whose president, Hugo Chávez, recalled his ambassador. In his inauguration speech on Wednesday, Mr. Torrijos, 41, said that he would seek to repair relations with Cuba and Venezuela and he criticized Ms. Moscoso’s decision to pardon the men.

Some political analysts said they saw the hand of Washington in Ms. Moscoso’s actions. Florida, a base for Cuban exiles, is crucial for President Bush’s re-election efforts. So far, the Bush administration has not commented on the issue. Secretary of State Colin L. Powell flew here on Wednesday for the inauguration of Mr. Torrijos, but made few public remarks.

CHINA AND HONG KONG AGREE TO FURTHER TRADE LIBERALIZATION UNDER CEPA

Under Closer Economic Partnership Arrangement II, the Mainland will apply zero tariffs to products under 713 Mainland 2004 tariff codes, which are on top of the 374 products that have been enjoying zero import tariff status since January 1, 2004. For trade in services, the Mainland has agreed to grant preferential treatment in eight new areas, and to broaden liberalization in 11 of the 18 services sectors to which preferential treatment has already been provided under CEPA.

The eight new service areas in which the Mainland has agreed to grant preferential treatment are airport services, information technology services, patent agency services, trademark agency services, job referral agencies, cultural and entertainment services, job intermediaries, and professional and technical qualification examinations.

The 11 sectors in which the Mainland has agreed to broaden liberalisation are legal services, construction services, distribution services, transport services (including road passengers transportation and maritime transport), freight forwarding agency services, medical services, audio-visual services, accounting services, banking services, securities and futures services, and individually owned stores.

EU BATTLE TO IMPOSE FISCAL DISCIPLINE NEARS END

The European Union’s 5-year struggle to impose rigid fiscal discipline on member states will draw to a close with an admission that its rules have “lost credibility”. The European Commission, which has fought in vain to uphold the stability and growth pact, will concede that the rules need substantial reform. Joaquín Almunia, EU monetary affairs commissioner, will announce proposals for a more flexible stability pact, based more on peer pressure and less on mechanistic rules and the threat of sanctions.

The plan is likely to be broadly welcomed by France and Germany, the two biggest eurozone economies, which have fallen foul of the stability pact in the past three years for running “excessive deficits” of more than 3% of GDP. Mr. Almunia’s proposals would allow countries suffering from low growth, such as France and Germany, to escape disciplinary action under the pact. His paper, “Strengthening economic governance and clarifying the implementation of the stability and growth pact”, would also allow countries with big deficits more time to sort out the problem. The draft proposals, to be formally adopted by the EC on Friday, admit that the stability pact, created in 1999, has fallen into disrepute.

EU’s competitiveness council lambasted.

The EU’s main forum for boosting its economic performance was described as a “Mickey Mouse council” by its own chairman. Laurens Jan Brinkhorst said the EU’s competitiveness council created amid great optimism in 2002 “cannot deliver the goods” in pushing forward reform. The Dutch economic affairs minister said the monthly meeting of EU ministers “had no soul”, and was attended by an ever-changing cast of ministers from different policy areas, including industry, science, research and even tourism.

“It lacks totally any team spirit and focus on an issue,” said Mr Brinkhorst, chairing the council during his country’s six-month EU presidency. The council, created in 2002 from the EU’s separate internal market, research and industry councils, was hailed as evidence Europe was serious about its bid to overtake the US as the world’s most competitive economy. But Mr. Brinkhorst said the unwieldy council had become part of the problem in the EU’s attempt to meet its so-called Lisbon agenda designed to improve competitiveness.

He cited recent failed attempts by the competitiveness council to agree a new EU-wide patent covering all 25 member states as a humiliating illustration of its weakness. Mr. Brinkhorst’s comments will raise eyebrows in the office of Gerhard Schröder, the German chancellor. Mr. Schröder wants the competitiveness council to tackle EU red tape and defend his country’s industrial base, with Günter Verheugen, the new German EU enterprise commissioner, playing a key role. Mr. Brinkhorst wants the council to focus on improving the controversial new EU chemicals directive widely disliked in the chemicals sector improving EU regulation, preparing a review of progress under the Lisbon agenda, and preparing a new EU initiative to open up the single market in services.

TAXES

NEW EU MEMBERS BACK TAX COMPETITION

Speaking to reporters, Estonian Finance Minister, Taavi Veskimagi revealed that the 10 new EU member states support the maintenance of differing corporate tax rates in order to boost competitiveness within the Union. “In talks with my colleagues from many new EU member states, I’ve gathered a common understanding that competition between all member states has to be maintained,” he announced. This stance contrasts with the viewpoint expressed earlier in the year by Estonian Commissioner to the EU, Siim Kallas.

LIECHTENSTEIN AND THE EU SAVINGS TAX DIRECTIVE

Liechtenstein has come to an agreement with the EU on the EU Savings Tax and will therefore retain the same withholding tax as Switzerland. As everybody expected, Liechtenstein developed within the frame according to what Switzerland has already worked out. Therefore a short look to what has happened in Switzerland is important to understand the treaty and the differences to Switzerland. Switzerland has finished its negotiations on the nine treaties called “Bilaterals II”. This article will only focus on the cooperation pertaining to the EU savings tax -- a tax on interest of savings accounts of physical persons living in the European Community.

Instead of an automatic exchange of information between national tax authorities within the EU and relevant states being participants to this directive, Switzerland will withhold a 15% tax on interest during 3 years. This percentage will be increased to 20% for another 3 years, and after this period to 35%. This tax is due thereafter for any interest payments by a so-called paying agent to a physical person with tax relevant domicile in the European Community. 75% of the retained tax will be distributed by Switzerland to the EU member states.

Liechtenstein will accept these percentages. However it is still not clear, either in the EU or in Liechtenstein, what exactly a paying agent is. There is much interpretative room left. It is highly probable that the return on such a savings tax is smaller than the EU expects.

It has to be noted that Switzerland has to all intents and purposes practically given up bank secrecy whenever we talk about indirect taxes like subsidies, duties, VAT, excise tax on tabacco, alcohol or mineral oils. However Swiss -- and especially Liechtenstein -- privacy laws do not accept that foreign tax authorities can move in freely on bank accounts of physical or juridical persons. Here such rights should not be touched and it should be the person’s right to decide upon the moment to disclose transactions.

Liechtenstein entities open mainly bank accounts in Liechtenstein or Switzerland or Luxembourg or Austria, and all these countries benefit from the option to withhold tax instead of disclosing information between tax authorities. This withholding tax is only applicable if -- and only if -- payments go to physical persons living in the EU, hence payments to juridical persons are not affected by the EU savings tax directive.

U.S. COURT RULING IN TAX-AVOIDANCE CASE CASTS LONG SHADOW

The U.S. District Court in New Haven, Connecticut, ruled in a civil action that Long-Term Capital, the huge hedge fund that collapsed in 1998, acted in bad faith for the two years before its meltdown, when it took $106 million in tax deductions to avoid paying $40 million in taxes. The decision, which followed a yearlong trial, is thought to be the most significant test case yet of how the IRS will combat sophisticated tax avoidance schemes.

Timothy McCormally, executive director for the Tax Executives Institute in Washington, said in an e-mail message that the Long-Term Capital decision “cannot help but give taxpayers and their advisers pause by underscoring the potency of the tools the IRS has” to attack suspect transactions. Arterton upheld two large penalties against Long-Term Capital, which is defunct -- one totaling 20% of its $40 million tax bill, the other 40%. The judge also wrote that the fund’s partners could not claim they were legally protected by favorable opinions that they had bought from two law firms, Shearman Sterling and King Spaulding, on the tax maneuvers. Such letters have been at the heart of the proliferation of tax shelters since the mid-1990s. None of the institutional investors or wealthy individuals who invested in the fund during its five-year run from 1994-98 are in trouble with the IRS, because the benefits of the tax shelters went to Long-Term Capital’s partners, not to its outside investors.

TRANSACTIONS WITH UK TAX HAVEN ENITIES UNDER SCRUTINY

Tax investigation specialists at Grant Thornton are urging all companies with connections to offshore tax havens to review all relevant transactions in the light of a new Inland Revenue crackdown on cross-border tax fraud. “The aim is to investigate transactions between UK individuals and companies with tax havens on matters such as purchases, sales, rents, management fees and royalties,” said Gary Ashford, senior tax investigations manager. He said the transactions would be open to challenge if they had not been carried out at a wholly commercial rate.

LITHUANIAN INSTITUTE BLAMES SMUGGLING ON HIGH EU TAXES

A new study from the Lithuanian Free Market Institute reports that increased excise taxes imposed as a result of EU membership are leading to an increase in smuggling. Frequent changes of tax laws, numerous tax exemptions and a complicated tax collection system increase the indirect tax burden and lead to the expansion of the shadow economy, says the study. In 2003 VAT was levied on certain goods that previously had been exempt from taxation. The excise tax on tobacco is set to increase 156% by 2009 and the excise tax on liquid gas has been raised by 20% in 2004.

The Institute says that harmonization of excise taxation in the EU is intended to protect the interests of member states with high excise taxes at the expense of the consumers in low-excise countries (who receive lower income than the EU average as a rule). But the study says it would be preferable to reduce excise levels given that the new EU member states now have the responsibility of administering the majority of the EU’s external border with less economically advanced countries which are a ready source of smuggled goods. A survey indicated that the majority of the Lithuanian population believe that the major causes of smuggling in Lithuania are price differences between Lithuania and neighboring countries caused by high taxes (excise duties).

IRS UNABLE TO ACCESS SECURITY DATA

An IRS database that collects information but cannot deliver it to users raises questions about the tax agency’s modernization plans, according to a recent audit by the Treasury Inspector General for Tax Administration. As the IRS finally brings modern systems online, the lack of an effective audit trail review would “be a significant security weakness that should weight significantly on whether to accredit future modernization applications,” the report states. The Security Audit and Analysis System (SAAS) is intended to replace the current system that keeps track of when IRS financial data is accessed -- a necessary tool for fending off hacker attacks or detecting unauthorized internal access.

But even though the audit database can collect records, bad software performance and functionality problems prevent users from querying the information and generating reports, according to the inspector general. As a result, IRS business units cannot use the system to identify possibly malicious actions aimed at updated applications, according to auditors. Since its delivery in November 2002 by Computer Sciences Corp., the security analysis system has collected audit trail information for the IRS’s e-Services and Internet Refund Fact of Filing applications. Both initiatives are part of the agency’s $10 billion upgrade of its tax-processing technology. Auditors charge that agency officials knowingly accepted a defective product.

UK GOVERNMENT PREPARES TO TACKLE MICRO-BUSINESSES

The UK government is considering going after those who choose to launch micro-businesses, or lifestyle businesses, with no intention of growing them into larger organizations. The proposed move, expected to be outlined in a consultation paper in the near future, is the result of increasing concern at the Treasury over the amount of revenue being lost as a result of the creation of such businesses. Self-employed businessmen and women pay national insurance contributions at a lower rate than their employed counterparts (8% rather than 11%), and the Inland Revenue also loses the 12.8% national insurance contribution which would have been paid by their employer. In addition, lifestyle businesses are often run from home, have no employees, and are not intended to grow beyond their start-up size.

REPORT SAYS BLACK AND OTHER TOP EXECUTIVES AT HOLLINGER DODGED CANADIAN TAX

Top executives at the Hollinger newspaper empire, including Conrad Black and his wife, avoided paying millions of dollars in Canadian taxes by funnelling management fees through offshore tax havens, a special committee of the Hollinger board alleges. The scathing allegations in the report prepared by the Hollinger committee have attracted worldwide interest and are expected to catch the attention of Canadian tax officials. According to the Hollinger report, Barbados was the country of choice for the Blacks and their colleagues David Radler, Jack Boultbee and Peter Atkinson. The allegations are unproven.

The committee report alleges that the individuals evaded taxes by receiving part of the management fees they collected from Hollinger International Inc. through two shell companies in the Caribbean island. The shell companies had no employees and did nothing to earn the fees, the report asserts. Paying fees to them on the “pretense” that they performed services allowed the recipients to transform a portion of the fees that would have been taxable in Canada into tax-free dividends received in Barbados, the report alleges.

The committee has determined that the Blacks did nothing meaningful through these shell companies. “Thus, in the special committee’s view, the purported ‘management fees’ were fraudulent in nature,” the report alleges.

Conrad Black and his, or rather, his company’s, millions.

Lord Black used his company as a “piggy bank” to fund his lavish lifestyle. He engaged -- according to the report on his activities compiled by the same corporation -- in “corporate kleptocracy”: Seemingly everything in his life and his wife’s, from accommodation to jogging pants, was paid for by the firm. In all, Black and his close associates are said to have availed themselves of more than £222 million in the past seven years, or 95% of Hollinger’s entire profits.

A Rupert Murdoch he most certainly was not. Yet we chose to elevate Black, publisher of the Chicago Sun, the Daily and Sunday Telegraphs in London and the Jerusalem Post. With his palatial houses around the world, use of private jets and retinue of servants -- not to mention his extravagant banquets (one dinner for his wife’s birthday cost nearly £24,000) -- he lived the life of a billionaire when, in reality, his fortune could be counted in hundreds of millions. The supposed cream of London society dined at his table, went to his grand parties and chose not to ask questions, preferring instead to be blinded by his generous attention to detail, his omnipotence, his arrogance.

We should have known better. Like Robert Maxwell before him, Black apparently took us for a ride. In truth he invited us to share the ride with him, to admire his penchant for the big gesture, to bask in the reflected glory. He hired the best lawyers and accountants. He furnished his boards with men of impeccable standing and influence. It was much easier to shut your eyes than to open them. Still today, there are new Blacks and Maxwells on the make, on the rise.

We should be more enlightened when it comes to our tycoons. Our obsession with money does not help. Alongside their legal eagles they will employ a public relations team who are told what to say and deny access to those who want to discover for themselves. It is in nobody’s interests to cavil and scrutinize. The libel laws in the U.K. work for the rogue operator, not against him or her.

ASSET PROTECTION

TAX HAVEN COMPANIES ENJOY ADVANTAGE IN VYING FOR FEDERAL CONTRACTS

U.S. subsidiaries of corporations headquartered in tax haven countries such as Bermuda are likely to enjoy advantages over American companies when bidding on federal contracts, congressional auditors said. The Government Accountability Office said the subsidiaries have a “tax cost advantage” that enables them to shift income to their tax haven parent companies to reduce income subject to U.S. corporate taxes. Because of that, they can offer lower bid prices on government contracts than their competitors, said the GAO, formerly known as the General Accounting Office.

ATTRACTION OF BVI FOR TRUST ADVISORS LINKED TO ITS LEADERSHIP IN CORPORATION DOMICILES

International tax and estate planning has become an essential requirement for many high net-worth individuals and companies. Increasingly, as more cross-border investments are made and the international mobility of families and executives increases, greater attention is being paid by their advisors to the ways in which taxes can be minimized, assets protected from political upheavals and family wealth transmitted between generations. The common law trust, with its antecedents dating back to the 11th Century, has long been the vehicle through which many of these goals can be achieved. The trust’s flexibility, stability and recognition even beyond common law countries portend an even greater use of trusts in the future.

The attraction of the British Virgin Islands for trust advisors is linked to its pre-eminence as a leader in the number of corporations domiciled there, its political stability, the presence of numerous trust professionals, and the BVI Government’s commitment to maintain a modern trust regime. For many owners of BVI International Business Companies (“IBC’s”), the BVI now provides a modern trust law for the establishment of trusts through which shares in a BVI IBC may be held. In addition, a BVI trust can also be used to hold a variety of assets based outside the BVI.

A BRIEF HISTORY OF THE DEVELOPMENT OF THE TRUST CONCEPT

When you work for twenty years in an industry such as the offshore trust industry, it is inevitable that you start to take an interest in how it all began -- where and when did the trust concept arise? Why did it come into being and how has the concept developed over the centuries. As a fledging trust administrator I was always told parrot fashion -- “It is an English common law concept to do with the crusades when the knights left their land in the hands of trusted people in case they never returned from battle. The ‘trusted people’ (usually the church who turned out to be very untrustworthy and kept a lot of it for themselves) having an obligation to pass on the land to the rightful heir.” I was also firmly told the trust concept did not appear in civil law.

For years, that was my sum knowledge of the development of the trust concept and one I proudly expounded to other colleagues and to clients. Unfortunately, it is not entirely true. In fact, it can be argued that the trust concept did in fact have its origins in Roman civil law and that the trust-like devices that developed through the common law of England actually originated in Rome. Roman law has the notion of trustees, and of trustee duties and obligations, with respect to property in the form of two trust-like devices, fideicommissum and fiducia.

The fideicommissum developed as an extra-testamentary means of a person being able to dispose of property on his death to X who in turn was under an obligation on the happening of a certain event (e.g. his death or re-marriage) to pass on the property to Y. In fact, Y, could also be under an obligation to pass on the property as a part of this chain. Also, it did not have to be the specific property, provided they passed on value -- something you can see in a modern day trust with a portfolio of shares, for example, and a trustee’s power of conversion. The similarity to modern day goes still further because if the current holder of the property became insolvent, then the claim of a beneficiary to the property (i.e., the next person in the chain) prevailed over the insolvents creditors.

In the 13th to 16th centuries in mainland Europe it became increasingly common for people (we can now call them “testators”) to create secret trusts for mistresses and illegitimate children -- in fact, something that is no less common today! At the same time the transfer of land and property through the generations was being achieved via the fideicommissum so they still leaned heavily on Roman law. This remained until the Napoleonic era when he put an end to the transfer of wealth and influence with his Codes Napoleon.

Meanwhile, across the channel in England, common law was continuing to develop and the transfer of ownership was occurring through the feudal doctrine of estates in land. These endured for as long as the testator had direct descendants or as long as he had heirs. As a result of this a lot of land was vested in trustees and as a consequence trust law developed over the centuries to protect beneficiaries, firstly from Trustees who used the property for their own ends and, secondly, against persons who were not real purchasers of the property but had assisted in a breach of trust. In another interesting development, English law developed the general concept of a contract between parties who alone could sue one another under the contract. This is probably near the point where the common law and civil laws started to really diverge.

GUERNSEY TRUST INDUSTRY WARNED TO KEEP AN EYE ON RIVALS

It is vital for the trust industry to keep an eye on developments in other jurisdictions, according to the sector’s representative. But Ian Burns added that the option of introducing foundations -- which act like a trust but have the flexibility of a company -- was not a top priority. Jersey is about to issue a consultation paper on foundations and the managing director of a Panamanian law firm with a branch there is keen to promote them. Nick Poole, of Mossack Fonseca, told the Jersey Evening Post that foundations had to be the way forward. Guernsey Promotional Agency chief executive Talmai Morgan said that industry should not rule out considering foundations.

Jersey’s fund industry needs to keep an eye on the competition as well.

Guernsey Fund Managers’ Association chairman John Le Prevost said that although the constant flow of new money to the island was a good sign, it could not be complacent. He said that, recent high inflows to Jersey funds notwithstanding, “[T]here is no doubt that competition from other jurisdictions for the same type of business is on the increase and we cannot afford to become too complacent about our current healthy position.”

LASTEST OFFSHORE PILOT QUARTERLY IS OUT

Some readers have asked about Panama’s position with regard to the OECD’s -- so far floundering -- tax harmonization program. After all, it did sign a letter of commitment with the OECD, so is the situation not clear? Not really, but what is very clear is that the gap between commitment and compliance remains huge.

The problems encountered by the EU with its Savings Tax Directive gives a strong indication of the difficulties facing the OECD’s larger project. After all, the EU has 25 members plus some participating third countries to deal with whereas the OECD has, perhaps, around 60 countries that must reach a consensus. Four leading OECD members, Australia, Canada, the United States of America and the United Kingdom have created a joint tax avoidance task force (note “avoidance” now seems to have the same connotation as the word “evasion” -- how times have changed) which illustrates the wider problem.

Criticism has come fast and furious from tax professionals. The complaints include a failure to provide adequate information about the project, a lack of consultation with the tax industry, being hypocritical in their approach and having an attitude which will surely alienate tax industry professionals and lead to the quarrelsome quartet being seen as the enemy. Those who have followed the OECD’s own tax initiative will find those complaints to be all too familiar.

EU Commissioner for Taxation Frits Bolkestein, has declared that he was “delighted EU Member States have finally been able to agree after fifteen years of negotiations on the date of application of a Directive to ensure the effective taxation of savings income within the EU”. He sees it as a “remarkable achievement” whereas I see his optimism as being the only thing that is remarkable at this point in time.

PRIVACY

BIG BROTHER IS ALWAYS WATCHING IN BRITAIN

The teenagers who stabbed wealthy Joao Da Costa Mitendele to death before burgling his home were careful to conceal the crime. They used a pretty girl to gain access to his apartment, where they wore rubber gloves while committing their crimes. What they had not counted on was the phalanx of video cameras that silently watched and recorded them leaving the local subway station, buying those gloves and approaching 45-year-old Mitendele’s apartment in suburban north London. The same cameras caught their hasty return journey to the station half an hour later. The tapes sealed the fate of the so-called “Honey Trap” gang when played in court.

An estimated 4.2 million closed-circuit TV cameras observe people going about their everyday business, from getting on a bus to lining up at the bank to driving around London. It is widely estimated that the average Briton is scrutinized by 300 cameras a day. The phenomenon is enabled by the arrival of digital video, cheap memory and sophisticated software. And Britain is acknowledged as the world leader of Orwellian surveillance -- perhaps because it has the experience of Irish terrorism, and is on guard for even worse today.

Authorities maintain the cameras deter crime, and despite some claims to contrary and the outrage of civil libertarians, the public seems willing to accept the constant monitoring for the greater good.

TESTS REVEAL E-PASSPORT SECURITY FLAWS

The Department of Homeland Security’s first tests of electronic-passport interoperability exposed technology flaws, including myopic and dyslexic smart-card readers. Some readers could not detect the presence of e-passport chips, many could detect the chips but could not read them and others were befuddled about what information they were supposed to display. On the other hand, in the absence of a private data encryption requirement under the proposed U.S. scheme, readers in one test were able to spy on and copy sensitive personal data from a distance of 30 feet. That has some security experts and privacy rights advocates calling for a rethinking of the planned system.

The results of last month’s three-day testing event sent vendors scrambling to tweak their products in time for the second round of interoperability testing, which began last week in Sydney, Australia. But most technology providers said the technical difficulties were an inevitability for first-generation products based on varying interpretations of the International Civil Aviation Organization’s e-passport spec.

While ICAO’s proposals do not mandate personal-data encryption or the inclusion of biometric ID data, the spec calls for digital signatures based on the public-key infrastructure. Further, the organization recommends the inclusion of biometric data, although it leaves implementation decisions to its 188 member nations. Some European countries plan to require active authentication schemes on-chip. But the request for proposals issued by the U.S. Government Printing Office for electronic passports, which had a deadline of Aug. 12, sought no additional security measures. Some vendors are moving on their own to enhance privacy protection.

INVESTIGATIONS, ARRESTS HIGHLIGHT HOW TECHNOLOGY AIDS AND WEAKENS TERROR NETWORK

The arrest of alleged Pakistani terrorist Mohammad Naeem Noor Khan, captured this summer with 51 optical discs and three computers chock-full of terror intelligence, is the most recent indicator of just how technically adept terror groups have become. Computer and terrorist experts say Khan is one of many central nodes in a decentralized network of terrorists who have been using the Internet and cutting-edge technology as a way to organize terror campaigns and promote their cause online.

But while terrorists can work invisibly online, Khan’s arrest illustrates that technology can be turned against them. Technology can make it easier to conceal information and communicate covertly using digital tools such as encryption. But it also leaves digital trails of evidence. For example, police hunted down the suspected kidnappers of Wall Street Journal journalist Daniel Pearl by tracking e-mail that was designed to be anonymous. Computer intelligence found on Khan’s computers was instrumental in the arrests of Pakistani and UK terror suspects. Its discovery is credited for disrupting planned terror strikes in the United States.

Josh Devon, a senior analyst at the SITE Institute, a terrorism research group that monitors the Web, says that ever since the United States destroyed Al Qaeda training and recruitment camps in Afghanistan during the 2001 Operation Enduring Freedom campaign, the virtual equivalent of Al Qaeda training camps have been growing online. The SITE Institute has tracked how-to sites that tell how to create a safe house, how to clean a rocket-propelled grenade launcher, and what do you do if you get captured. “Al Qaeda’s online operations in many ways parallel the Internet itself,” Devon says. “Like the Internet, Al Qaeda is a decentralized network of independently operating cells.”

LAW

TURKISH CYPRIOT BANK ACCUSED OF MONEY LAUNDERING IS TO TAKE LEGAL ACTION AGAINST U.S.

The bank’s statement said that the US Treasury Department had put the Merchant Bank on its black list because of a US citizen residing in the United States who was a customer of the bank. The bank stated that it started initiatives through its lawyers in New York to correct what it called the Treasury’s “mistake”.

Washington names Belarus bank as money-launderer.

According to the US administration, Belarus’ Infobank laundered funds from fraudulent transactions involving Iraq. Shareholders of Infobank include many private Belarusian companies as well as the government, which is a principal shareholder of the bank’s capital. In 2001 Infobank sold a 35 percent stake to the Libyan Arab Foreign Bank, which is fully owned by the Central Bank of Libya. FinCEN said Infobank maintains correspondent accounts with several European banks and at least one bank in New York City.

Belarus bank denies charges.

Infobank, a privately owned bank in Belarus, denied U.S. charges it laundered funds for the former Iraqi regime of Saddam Hussein, saying it always followed international agreements “to the letter.” The U.S. Treasury said last week that Infobank “laundered funds for the former Iraqi regime of Saddam Hussein that were derived from schemes to circumvent the United Nations oil-for-food program” and it moved to cut them off from the U.S. banking system. Infobank said it thought the U.S. Treasury had acted prematurely.

PATRIOT ACT DEBATE CONTINUES

The 342-page USA PATRIOT Act, a sweeping piece of legislation passed by Congress one month after the Sept. 11, 2001 attacks, has increased the government’s intelligence-sharing capability and expanded its surveillance powers. The prescribed intent of the act is clearly expressed in the words behind its acronym -- Uniting and Strengthening America by Providing Appropriate Tools Required to Intercept and Obstruct Terrorists -- but its swift passage and subsequent implementation has created a muddy debate with skepticism and outrage coming from one side, endorsement and praise from the other.

Opponents such as ACLU of Connecticut executive director Theresa Younger say the act authorizes law enforcement to trample individuals’ civil liberties by lowering the burden of proof previously needed for wire-taps, home, business or library record searches and other surveillance operations. Advocates of the act, such as U.S. Attorney for Connecticut Kevin O’Connor, say it contains ample court oversight provisions, that the Department of Justice needs increased power during the ongoing war against terrorism. “About 90 percent of the act, not even its harshest critics take issue with. The most significant thing is that the PATRIOT Act broke down the wall between intelligence agencies and law enforcement agencies,” ’qConnor said.

Seemingly refuting O’Connor’s claim that there is a sufficient amount of government oversight within the PATRIOT Act is the recently completed 9/11 Commission’s report on the intelligence failures that led up to the Sept. 11 attacks. While the report is mostly favorable of the act, on page 412 it states, “There is no office within government whose job it is to look across the government at actions we are taking to protect ourselves to ensure that liberty concerns are appropriately considered.”

Another community mulls Patriot Act opposition.

As a U.S. military nurse serving in Vietnam, Diane Carlson-Evans said she was terrified while under attack, seeing the horrors of bodies filleted by land mines. But today’s soldiers are being asked to bleed for freedoms elsewhere while their own are being eroded at home, she said. Speaking for the 250 members of the Helena (Montana) Patriot Committee she said that, “I understand what it means to be a patriot. I am more afraid... of the loss of our freedoms than a terrorist attack. We want our communites to remain safe, but we also want our communities to remain free.”

More than 300 communities have passed resolutions in opposition to the controversial Patriot Act. In Montana, Bozeman and Dillon passed resolutions in opposition to the act. Opposition has come from the American Civil Liberties Union, the National Rifle Association and library associations. In May, Lewis and Clark County commissioners passed a one-page resolution that “reaffirms allegiance to civil liberties guaranteed in the Bill of Rights.” Helena Patriot Committee members said the “Resolution for a Safe and Free Helena” will have more teeth and specific benchmarks.

Their proposal directs the Helena Police Department not to do certain things allowed by the Patriot Act, like enforcement of federal immigration laws, “sneak and peek” searches without notification; investigations based on race, religion or ethnicity, or any initiative that encourages neighbors to spy on each other. In addition, city officials would be required to make public any federal anti-terrorism investigation or surveillance of political, religious or other gatherings. Police Chief Troy McGee said the federal government cannot give his officers orders. And the Montana Constitution prohibits “sneak and peek” searches.

In new ACLU TV ad, ordinary Americans urge curb on extreme portions of Patriot Act.

In a new national television advertisement debuting this week, the American Civil Liberties Union has recruited a diverse group of ordinary Americans -- none of them actors -- to express support for curbs on extreme portions of the Patriot Act due to “sunset” in 2005. The 30-second spot, which began airing this week on three national cable news networks, features 21 men and women questioning whether certain controversial portions of the Patriot Act should be made permanent instead of expiring in December 2005 in accordance with a “sunset” provision. The ACLU said it called on “real people” to appear in the ads in order to reinforce the broad populist support for curbs on the law.

In a series of quick cuts, men and women in a variety of settings express concern about sections of the Patriot Act that allow the government to spy on innocent Americans: “The government can search your house ... without notifying us ... treating us all like suspects.” Questioning parts of the Patriot Act, they said, “isn’t liberal or conservative ... left or right ... it’s American.”

According to a recent national opinion poll conducted for the ACLU, support for changes to the Patriot Act cuts across the political and ideological spectrum. In a July national survey of eligible voters, 73% support the position that the Patriot Act should be reviewed periodically and where necessary amended to bring its provisions in line with the Constitution. 65% of Republicans support this view, as do 81% of Democrats and 66% of independent voters.

BUSH FORMS CIVIL LIBERTIES BOARD. CIVIL LIBERTIES ADVOCATES UNIMPRESSED

In an executive order issued the end of last week, President Bush responded to a key 9/11 commission recommendation by creating a civil liberties board composed of high-level government officials tasked with making sure their agencies’ programs do not violate privacy and civil rights laws. Civil liberties advocates blasted the board, comparing it to the proverbial “fox guarding the hen house,” and questioned how it could be effective without outside appointees and independent investigative powers.

The President’s Board on Safeguarding Americans’ Civil Liberties will be housed in the Justice Department and led by the Deputy Attorney General James Comey and the Department of Homeland Security’s Under Secretary for Border and Transportation Security Asa Hutchinson. Other members include officials from the CIA, the National Security Agency, the Terrorist Threat Integration Center and the Pentagon, along with privacy officials such as Homeland Security’s chief privacy officer, Nuala O’Connor Kelly.

The board's official duties include advising the president on civil liberties, helping craft policy, requesting reports from federal agencies and reviewing a specific agency program when invited to do so by the agency in charge of that policy. The board could not initiate investigations on its own, however, and the order makes no mention of reports to the public. Lara Flint, a lawyer for the Center for Democracy and Technology -- a centrist civil liberties group known for working closely with Congress -- found little of value in the proposal. “This is not what a civil liberties board should look like if it is intended to be robust, effective and independent,” Flint said. “It is made up of people who need civil liberties oversight.”

FEDS ADMITS ERRORS, ASK TO TOSS TERROR VERDICTS

Citing prosecutorial misconduct, the Justice Department asked a federal judge to throw out the convictions of three men charged with supporting terrorism and document fraud. The filing raises serious questions about the conduct of FBI agents and the former lead government prosecutor, Richard Convertino, who is now the subject of a criminal investigation for his conduct during the trial. “In its best light the record would show that the prosecution committed a pattern of mistakes and oversights that deprived the defendants of discoverable evidence ... and created a record of misleading inferences that such material did not exist,” the filing said. “The government believes that it should not prolong the resolution of this matter pursuing hearings it has no reasonable prospect of winning.”

The stunning decision to toss the terrorism charges is the latest in a string of embarrassments for the Justice Department and Bush administration, which had touted the first post-September 11 terror convictions as an important victory in the war on terrorism. In March, The Detroit News disclosed that prosecutors had repeatedly ignored rules intended to ensure a fair trial and withheld numerous documents from defense lawyers.

Two of the North African immigrants were convicted in June 2003 of providing material support or resources to terrorists following a raid of a Detroit apartment six days after the September 11 terrorist attacks. A third man was acquitted of terrorism charges, but was convicted of document fraud. A fourth man was acquitted of all charges. The government is not seeking to retry the two men convicted on terrorism charges, but will pursue charges over phony immigration documents for all three.

OPINION & ANALYSIS

OVERSEAS VOTE COULD TIP US ELECTION

With just nine weeks to go before the U.S. presidential election, American expatriates are registering to vote in record numbers. In Switzerland and across Europe, organizations representing US citizens overseas are reporting a huge surge in absentee ballot requests ahead of November 2. According to both Democrats Abroad and Republicans Abroad, expatriate voter numbers appear to be four times higher than they were at this time in 2000. And they say the overseas vote could prove decisive in deciding whether the Republican incumbent, George W. Bush, or his Democratic rival, John Kerry, emerges as president.

MAYBE BUSH REALLY WANTS TO LOSE THE ELECTION!

I believe that George W. Bush truly wants to lose the upcoming election. I have been suspicious for some time, what with all of the stupid things that he and his incompetent staff have accomplished to alienate his political base. And this does not get into the W-Administration’s errors and omissions of the purely “business” matters of governance, such as the mishandling of war and peace issues, and the neglect or malpractice on bread and butter issues that control the voting decisions of Joe & Susie Six-pack. We will count the votes on election night and see if I am right. W seems to have forgotten to mention any of this to the Republican Party.

The Democrats have nominated for president one John F. Kerry, a U.S. Senator of minimal accomplishment (one of two, by the way) from the Peoples’ Democratic Republic of Massachusetts. JFK’s long but thin political resume makes him one of the weakest candidates, and least qualified men, ever to run for the nation’s highest office under the flag of a major party, at least since the Democrats placed Woodrow Wilson before the voters. The Kerry nomination is such a transparent sham that I am suspicious that the Democrats also are not serious about winning the election, let along attempting to govern the nation for the next four years. What do they know or suspect that they are not telling us?

Someone is going to have to win the next election and take the office of the U.S. President next January. Why anyone would want the job for the next 40 or 50 years, I cannot understand. But someone will get the job, and we hope serve well and honorably in the office. I would prefer neither of the major-party options, but we all know that is not going to happen. And they say that not to choose is also to choose. So what can one do? If good judgment comes from hard experience, and hard experience comes from making mistakes, then W ought to have a PhD in good judgment at this point. We can only hope that W remembers some of his lessons, because I am sure W is going to need a lot of that good judgment-stuff, if he does not manage to lose the election to the other guy.

WHAT EXACTLY IS FREEDOM?

Everybody loves freedom. Everybody wants it. At least, that is a common assumption. But a lot of questions need to be answered. For example: What is freedom exactly, and can it be accurately defined? Is freedom the same as democracy? Is freedom the the right to do anything I want -- regardless of the impact on anyone else? Is there any received moral code that can answer such profound moral questions unambiguously?

In our technologically advanced, but socially backward societies, the answers are usually provided by religious or traditional belief systems. And as such, such issues often end up in a mess of contradictions. If you subscribe to Proudhon’s statement, “property is theft”, then you would obviously think your freedom entitled you to take other people’s money. If you are a welfare-statist, you probably do not consider a person to have the freedom to take drugs, not when the taxpayer has to pick up the tab. And if you are a fundamentalist Christian, it would be safe to say you would not agree that you have the freedom to kill someone, even if they asked you to.

The truth is, all existing systems of belief and morals are simply not up to the task of clearly defining personal freedom and its limits. That is why we have such a moral and legal mess where the issue of freedom is concerned. The question is always, “At what point does my freedom impinge on another person’s freedom -- and therefore nullify such freedom?” If this “point” could be nailed down, unequivocally, then there would be a rock-solid point of reference for dealing with such thorny issues. Fortunately, there IS such a “point of reference” -- property rights.

THE POWER OF THE RICH

The truly rich Americans are those with assets like Bill Gates ($46 billion), Warren Buffett ($43 billion) and Paul Allen ($21 billion). All told, there are about 275 Americans in the billionaire club. The 99% plus of the rest of us can safely ignore the truly rich. Our attention is better focused on issues far more important to us instead of allowing politicians to divert our attention by getting us worked up over whether the rich are paying their fair share and so-called tax cuts for the rich. The reason we can ignore the rich is because they have little or no power over our lives.

Even if Gates, Buffett, Allen and the 272 other billionaires pooled their assets, what could they make you and me do? Could they force you to bus your kid to a school across town? Could they force you to abandon use of your property so as to provide an abode for some endangered species? Could they force you to wear a seat belt when you drive? Or could they force you into the government’s retirement program? All by themselves, billionaires and millionaires have little power over us compared to the awesome power that politicians and midlevel government bureaucrats have over us. They can force us to do many things that we otherwise would not do.

“All by themselves” is the operative phrase. The rich can get power over us, but they must first spend their resources to get permission from our elected representatives to rip us off. Wealthy corporate executives can use their wealth and influence to get politicians to rig markets in their favor -- like keeping foreign sugar out so they can charge us higher prices and earn more profit. They can convince politicians to enact laws and regulations and create special privileges that benefit them and their allies at the expense of the rest of us. We might be tempted to blame the rich. I say no. We should blame politicians much more.

Finally, there is one thing that I truly do not understand. America’s leftists, whether they are heads-full-of-mush college students and their professors, politicians, civil rights activists or union leaders, just love to beat up on the rich. But there is something they need to explain. Why are so many of their heroes rich and super rich?

EMPIRE OF THE 21ST CENTURY

Last month’s announcement that 70,000 U.S. troops would be withdrawn from Germany and South Korea is an event of major geopolitical importance. However, far from reducing the 257,000 U.S. troops overseas in over 100 foreign bases, the Bush administration intends to intensify global military operations even though undermanned, over-committed U.S. armed forces are stretched to the breaking point.

The U.S. will open new bases in Bulgaria and Romania as part of America’s new “imperial lifeline.” They will be linked to new U.S. bases being built across Central Asia, Pakistan, Iraq and the Gulf, designed to cement Washington’s hold on the Muslim world and its natural resources. As a result, the entire armed forces are being restructured for “expeditionary warfare”, (the British used to call it “the imperial mission”). This process began a decade ago, but accelerated under the Bush administration, which has relentlessly militarized foreign policy.

The dramatic new deployments signal further expansion of military operations around the globe as America comes ever closer to resembling its forbear, the British Empire. Most Americans, however, remain unaware of their government’s new imperial plans to rule oil and the Muslim world, and of the unexpected conflicts that lie in wait for America’s increasingly far-flung expeditionary forces.

ARMAGEDDON IN MANHATTAN

Typically, a political convention is an opportunity to promise “peace and prosperity”. Both parties promised prosperity, but forgot peace. But neither judged the wedge of “peace” voters big enough to try for a slice of it. Besides, the conventions are now designed -- like TV itself -- to avoid anything that might light up a brain scan. Mentioning peace could upset the voters, or the delegates, or the candidates themselves. America’s “War on Terror” may be a challenge for intellectuals -- but it has been a big hit with the voters. Terror is not, strictly speaking, something you can make war against. You need an enemy, not a method.

Enemies who use terrorist tactics -- the Chechens in the former Soviet Union, the Basques in Spain and France, the IRA in the UK, as well as assorted crackpots and future national leaders -- are a dangerous nuisance. But they are hardly worthy of a real war. They use terror because they are not capable of a real war... they may threaten republicans, in other words, but not the republic itself. Still, Americans act as though they were on the verge of such Armageddon-like showdown. With whom? Why? They cannot be bothered to wonder.

Nothing is quite so thrilling as being at war... especially with an enemy who can't do you much harm. For every terrorist capable of striking a blow at the United States, there must be at least 10 bodyguards around the convention in New York. Terrorists were rumored to be planning an attack. None appeared. Why they would want to disrupt such a pointless and lifeless event was never explained. Yet Americans like to imagine themselves as if they were engaged in some heroic struggle. They long to bring the enemy to battle and annihilate him on primetime TV. And now, the fever mounts. Americans appear to have decided to give war a chance. The election of 2004 seems little more than a contest of who can promise to make it most fun.