Wealth International, Limited

Offshore News Digest for Week of November 8, 2004


Note:  This week’s Financial Digest may be found here.

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A READER’S GUIDE TO EXPATRIATING

So the wrong candidate has won, and you want to leave the country. Let us consider your options. Given how much the United States as a nation professes to value freedom, your freedom to opt out of the nation itself is surprisingly limited. The State Department does not record the annual number of Americans renouncing their citizenship -- “renunciants”, as they are officially termed -- but the IRS publishes their names on a quarterly basis in the Federal Register. The IRS’s interest in the subject is, of course, purely financial. Since 1996, the agency has tracked ex-Americans in the hopes of recouping tax revenue, which in some cases may be owed for up to ten years after a person leaves the country. In any event, the number of renunciants is small. In 2002, for example, the Register recorded only 403 departures, of which many (if not most) were merely longtime resident aliens returning home.

The most serious barrier to renouncing your citizenship is that the State Department, which oversees expatriation, is reluctant to allow citizens to go “stateless”. Before allowing expatriation, the department will want you to have obtained citizenship or legal asylum in another country -- usually a complicated and expensive process, if it can be done at all. Would-be renunciants must also prove that they do not intend to live in the U.S. afterward. Furthermore, you cannot renounce inside U.S. borders; the declaration must be made at a consul’s office abroad.

Those who imagine that exile will be easily won would do well to consider the travails of Kenneth Nichols O’Keefe. An ex-Marine who was discharged, according to his website, under “other than honorable conditions”, O’Keefe has tried officially to renounce his citizenship twice without success, first in Vancouver and then in the Netherlands. He did succeed in breaking the law, since mutilating a passport is illegal. It says so right on the passport.

Link here.

Americans flock to Canada’s immigration web site.

Canada’s immigration web site has been taking some serious numbers of hits since George Bush won the U.S. presidential election. An immigration ministry spokesperson said that since the election visitors to the website had increased from 20,000 a day to more than 115,016. Canada is one of the few major nations with a large scale immigration policy. Ottawa is seeking to attract between 220,000 and 240,000 newcomers next year, so they are saying the more the merrier.

While the American right might be happy to say good bye to a few lily-livered lefties, we think it is nothing to do with Bush. It is just that there is a deep psychological urge in the American psyche to be ruled by a Queen again and that the recent experiment in Republican democracy is causing them to regret being so nasty to George III in 1776.

Link here.

Mr. Bush’s victory sparked speculation that disconsolate Democrats and others might decide to start a new life in Canada. Would-be immigrants to Canada can apply to become permanent residents, a process that often takes a year. The other main way to move north on a long-term basis is to find a job, which requires a work permit. But please, no sob stories. Asked whether an applicant would be looked upon more sympathetically being a sad Democrat seeking to escape four more years of Mr. Bush, Immigration Ministry spokeswoman Maria Iadinardi replied, “There would be no weight given to statements of feelings.”

Canada is one of the few major nations with a large-scale immigration policy. Ottawa seeks to attract between 220,000 and 240,000 newcomers next year. “Let’s face it, we have a population of a little over 32 million, and we definitely need permanent residents to come to Canada,” Miss Iadinardi said. “If we could meet [the 2005] target and go above it, the more the merrier.” It is too early to say whether the increased interest will result in more applications. The waiting time to become a citizen is shorter for people married to Canadians, which prompted the birth of a satirical Web site, www.marryanamerican.ca.

Link here.

Kerry supporters seek therapy in South Florida.

More than a dozen traumatized John Kerry supporters have sought and received therapy from a licensed Florida psychologist since their candidate lost to President Bush. Boca Raton trauma specialist Douglas Schooler said he has treated 15 clients and friends with “intense hypnotherapy” since the Democratic nominee conceded last week. “I had one friend tell me he’s never been so depressed and angry in his life,” Schooler said. “I observed patients threatening to leave the country or staring listlessly into space. They were emotionally paralyzed, shocked and devastated.”

Schooler’s disclosure comes after the weekend discovery of a Kerry volunteer’s corpse at Ground Zero in New York City. Georgia resident Andrew Veal, 25, reportedly killed himself with a shotgun blast to the head due to Kerry’s loss and a girlfriend problem. Some mental health professionals in South Florida said they have already developed a new category for the Kerry-related stress reactions. Because Palm Beach County voted heavily for Kerry, the therapists said, many residents hurt themselves by so anxiously expecting the Massachusetts senator to win -- especially those who maintained unrealistic recount hopes after their candidate’s concession.

“We’re calling it ‘post-election selection trauma’ and we’re working to develop a counseling program for it,” said Rob Gordon, the Boca-based executive director of the American Health Association. “It’s like post-traumatic stress syndrome, but it’s a short-term shock rather than a childhood trauma.”

Link here.

A CLEAR MANDATE (BUT WILL THE FOREIGN CREDITORS GO ALONG?)

In their collective wisdom, the American people have spoken and, unlike in 2000, it is hard to make the case that the mandate they accorded to the incumbent President was unclear or ambiguous. Arguably, his victory was an even more decisive result than the Reagan landslide of 1984, in that the GOP also increased its majorities in the House of Representatives and Senate on the coattails of Mr. Bush. The upshot is that the President now has little in the way of domestic constraint should he follow through on his pledges to implement radical reforms in social security, taxation, as well as continuing on a dramatically different foreign policy course from his predecessors. But there was one constituency that did not have a vote last Tuesday -- namely, the country’s growing legion of foreign creditors. Arguably their collective voice is more germane to the ultimate success or failure of the Bush presidency than any state in the Union, Ohio or otherwise.

The president’s proposed domestic measures, immediately articulated at his first post-election press conference, would have the effect of perpetuating the country’s acute economic imbalances at a cost of still larger financing requirements on the part of the Asian savings bloc. All this at a time when (as the President never ceased to remind us during the election campaign) the country is at war. Thinking through the implications of the President’s mandate (guns AND butter), the foreign exchange markets have duly taken their cue. The hapless beneficiary of dollar diversification flows, the euro hit yet another all-time high against the greenback last Friday, and the dollar index looks to have broken down decisively from a long term support level of 85 evident since the mid-1980s.

The last time the dollar index reached its current level in the mid-1980s, a period of substantial trade improvement ensued, largely because during much of that decade the yen, and emerging Asian currencies, rose against the dollar, and over the same period their countries mainly ran current-account deficits, not surpluses. In the words of market commentator, Dan Norcini, “the structural defects in the dollar, namely the huge current account, trade and budget deficits, have become the complete focus of the currency markets and it appears that the entire mindset has changed. Forex traders are no longer viewing interest rate hikes as reversing the downward trend in the dollar. The structurals are now dominating.”

Truly, Mr. Bush and his compatriots have been well-served by the kindness of strangers, in spite of the widespread disappointment in Europe with his victory last week. Then there are what former British Prime Minister Harold Macmillan termed “events, dear boy, events.” Few Americans believe that deploying 90% of the troops in Iraq, suffering 90% of the casualties, and paying 90% of the bill represents much of a bargain, given the comparative lack of return thus far. The country’s foreign creditors have hitherto gone along, but one wonders how much longer the President can choose both guns and butter. A full inventory of the costs of war in Iraq goes beyond what happens in that country. Before America went to war in Iraq, its military power seemed limitless. There was less need to actually apply it when all adversaries knew that any time it did so it would win. Now the limits on the country’s military’s manpower and sustainability are all obvious to many. All of this points to more signs of imperial overstretch.

Because of outlays for Iraq, the United States cannot spend $150 billion for other defensive purposes, let alone finance the President’s considerable domestic agenda. If the war in Iraq does not begin to take a significant turn for the better, to what extent can the U.S. expect a continued unlimited overdraft facility from its largely Asian creditors? The increasingly manifest weaknesses of U.S. undercut the ability to enforce dollar hegemony. Political capital, the President clearly has in abundance. It is the economic capital, or the comparative lack of it, which may still prove his undoing if those pesky, uncooperative foreigners do not play along. They are not going to provide a blank check forever. The real campaign to retain their support -- arguably an even greater challenge than the 2004 election -- begins now. Good luck, Mr. President.

Link here.

Forget the election -- economic fundamentals matter most now.

In recent weeks, the financial markets were torn over the different possible scenarios surrounding the outcome of the U.S. Presidential elections. Many assumed that, like last time, the outcome would not be known for weeks and when that uncertainty was lifted, it resulted in some profit taking in the bond market. The relatively quick outcome, with President George W. Bush elected for a second term, has seen the markets behave much as everyone had expected.

Given the President’s pro-business policies, the stock market, not surprisingly, has rallied sharply higher. On the other hand, the bond market and the dollar, which ended the week at a new record low against the euro, struggled. This is because of the widely held belief that Mr. Bush, given his mantra of tax relief, will be more complacent than John Kerry about the widening budget deficit.

Investors should not forget however that the executive branch of the U.S. government is just one of many factors that effect the direction of the financial markets. Looking at the equity market, Merrill Lynch’s Chief Quantitative Strategist Richard Bernstein points out that since 1980, among the best performing sectors of the market under Republican administrations are the auto parts, retail, textile and waste management sectors. Mr. Bernstein also makes the point that consumer stocks actually tend to outperform industrials too, as was the case in Mr. Bush’s first term in office.

Similarly, most people are surprised to learn that overall equity returns a better and certainly less volatile under Democratic administrations. The opposite is true for the bond market, although as Tom Sowanick, the Head of Wealth Management Strategy at Merrill Lynch, points out, over a four-year term, both stocks and bonds tend to show positive returns regardless of the party in charge. In the long run, economic fundamentals are what matter most.

Link here.

U.S. SET TO APPEAL UNFAVORABLE WTO INTERNET GAMBLING RULING

Following the failure of bilateral talks between the U.S. and Antigua and Barbuda over the former’s move to ban its citizens from using internet gambling sites, it emerged this week that the U.S. authorities are readying themselves for a renewed struggle. Antigua and Barbuda brought the case to the WTO in 2003, arguing that by restricting the internet gambling activities of its citizens, the U.S. was unfairly damaging the jurisdiction’s economy, in contravention of the General Agreement on Trade and Services (GATS).

After the U.S. lost an arbitration proceeding under the trade dispute resolution process of the WTO in March, both sides attempted to reach a negotiated settlement. However, following four months of negotiations, Dr. Errol Court, Antigua’s finance minister, revealed last month that all opportunities for a mutually agreed settlement have been “fully exhausted.” The Caribbean jurisdiction has now asked the WTO to rule on the matter. However, the U.S. deputy chief of mission to the Eastern Caribbean, Mary Ellen Gilroy said that, “The WTO has not yet ruled. But the U.S. will look at the ruling and may appeal if the decision goes against it.”

Link here.

WTO says U.S. should drop ban on offshore Internet gambling.

A World Trade Organization panel said Washington should drop prohibitions on Americans placing bets in online casinos. In its final 287-page report, the WTO panel confirmed the preliminary ruling it issued in March in a dispute pitting the U.S. against the tiny Caribbean nation of Antigua and Barbuda, saying the ban represented an unfair trade barrier. Washington has 60 days to file an appeal to the WTO’s trade judges, who then must issue a final ruling within three months. U.S. diplomats in Geneva said they would contest the ruling before the WTO’s seven-member appeals body.

Antigua filed a case before the WTO last year. It contended that U.S. restrictions on Internet gambling violated trade commitments the United States has made as a member of the 148-nation WTO. U.S. trade officials disagreed, saying that negotiators involved in the Uruguay Round of global trade talks, which created the WTO in 1995, clearly intended to exclude gambling. Antigua has been promoting electronic commerce as away to end the twin-island nation’s reliance on tourism, a sector hurt by a series of hurricanes in the late 1990s. Antiguan officials estimate that online casinos employ some 3,000 of the 67,000 residents of Antigua.

The current legal status of Internet gambling in the U.S. is in dispute. Some site operators have been prosecuted under the 1961 Wire Communications Act, which was written to cover sports betting by telephone. The General Accounting Office has estimated there are 1,800 Internet gambling operations. Virtually all of them are based offshore, posing an enforcement problem for U.S. authorities. The WTO panel had turned down a request by the US to use a “public morals clause” in WTO rules to keep the ban, one trade official told Reuters.

Links here and here.

Antigua gets a piece of the action.

What are the odds that a tiny nation like Antigua and Barbuda could take on the United States in an international dispute and win? Though it seems a long shot, that is what has happened so far as the World Trade Organization expounded on its March ruling that the U.S. violated international trade treaties by prohibiting Americans from gambling over the Internet. It ordered the U.S. to bring state and federal law into conformity with its international commitments.

The U.S. says it will appeal the ruling, which is based on a densely worded 273-page opinion -- not counting exhibits -- on the grounds that Internet gambling is a threat to its sovereignty and an invitation to organized crime. “Gambling has been one of the staple activities of organized crime syndicates,” the U.S. says. “Law enforcement authorities in North America have seen evidence that organized crime plays a growing part in the remote supply of gambling, including Internet gambling.”

Thus, the U.S. law on gambling may be summarized as follows: Americans may gamble in state-sponsored lotteries nearly everywhere, they may gamble at racetracks, they may gamble on slot machines installed to subsidize faltering racetracks, they may gamble nearly everywhere in Nevada -- especially Las Vegas, they may gamble in Atlantic City, they may gamble on Indian reservations and on permanently docked riverboats and on cruises to nowhere. But they must not gamble through the Internet because that activity would promote crime. Under U.S. law, Americans are not allowed to place bets with online casinos in the tiny island nation of Antigua and Barbuda, for instance. Antigua says this is an unfair trade barrier; the U.S. calls it a legitimate exercise of state and federal lawmaking.

Link here. CIA’s World Fact Book page on Antigua and Barbuda here.

ESTIMATED CAYMAN ISLAND INSURED HURRICANE IVAN LOSSES TOP $700 MILLION

According to the Cayman Islands Monetary Authority (CIMA) six weeks after the passage of Hurricane Ivan, local insurance companies are indicating estimated losses in excess of $700 million. The cut-off date for notification of claims has expired for all insurance companies, enabling them to focus resources on claim settlement, and as a result, CIMA anticipates that a more accurate report regarding the cost of the hurricane to the insurance industry will be issued in the near future.

The insurance companies were among the many business that sustained damage from the hurricane, and some have been operating under adverse conditions for very long hours. Given the magnitude of the disaster and the significant amount of estimated insured losses, CIMA stated that the insurance companies have worked diligently during the past six weeks to meet their obligations, and the organization will continue to meet with them regularly in furtherance of as smooth a claim settlement process as possible.

Link here.

DOMESTIC AND INTERNATIONAL ISSUES FUEL GANG VIOLENCE IN THE CARIBBEAN

Violence is on the rise all across the English-speaking Caribbean. The murder rate per head is as high in pretty little places like the British Virgin Islands and St. Kitts as in busy Trinidad -- around 40% that of Jamaica. Criminal power eases the flow of drugs through the region from South to North America, and the nastiest gangs have partners in London, New York and the Spanish-speaking mainland.

Caribbean governments complain of a deluge of Caribbean criminals deported, mainly from the United States, on completing their sentences -- 13,000 of them since 1999. Oliver “Bubba” Smith, sent home in 2002 after eight years in New York, used big-city skills and corporate takeovers to build a “One Order” gang, which -- until he was killed in July -- dominated Spanish Town, Jamaica’s crime world. Deportees run gangs on other islands too, or live more quietly as consultants, using overseas contacts to ease export marketing of cocaine, or instructing eager students in credit-card fraud. However, the deportations are not going to stop. Few countries anywhere -- Caribbean islands included -- allow foreign convicts to stay.

Moreover, it is too easy for hardened criminals to stay in the Caribbean. Smart traffickers with expensive lawyers face under-staffed state prosecutors and creaky judicial systems. Noel “Zambo” Heath and Glenroy “Bobo” Matthew have resisted extradition from St. Kitts to America on cocaine charges since 1996. Samuel “Ninety” Knowles, a Bahamian who allegedly ran a cocaine line from Jamaica through Nassau to the U.S. and Canada, has held out since 2001. He now argues that he cannot get a fair trial in the U.S., having been publicly named by the president under the quaintly-titled Foreign Narcotic Kingpin Designation Act. All the same, there have been some successes this year.

Link here.

SWISS LANGUAGE REGIONS CHALLENGE SPREAD OF ENGLISH

Swiss President Joseph Deiss has welcomed the idea of a national law on languages to stem the spread of English in the country. He was speaking after meeting representatives from all four of Switzerland’s linguistic regions who denounced the increasing use of English within the federal administration. The delegation handed over documents to the president showing the extent to which the English language was invading the administration.

“The president agreed with us and said he was concerned that more and more Swiss don’t know their own language properly,” said Jean-Marie Vodoz, the representative from French-speaking Switzerland. Deiss said he was in favour of legislation limiting the use of English, but admitted that the drafting of any new law was out of his hands. The government scrapped legislation earlier this year aimed at protecting the four national languages -- Romansh is not an official language -- claiming it would cost too much. Campaigners say the use of names and words in the three official languages -- French, German and Italian -- should be a priority.

Link here.

EAST ASIA WILL GROW MORE THAN 7% THIS YEAR SAYS WORLD BANK

Led by China’s strong performance, growth in the East Asia-Pacific region will top 7 percent this year -- more than three points higher than in 2001 -- with fewer people than ever living in extreme poverty, the World Bank reported in its biannual economic outlook for the region. The remarkable growth -- 7.1% excluding Japan and 7.9% for developing East Asia -- has reduced the number of people living on US$2 or less a day to about one third -- or 636 million -- from nearly 890 million five years ago. At the same time, the region’s population jumped by about 4 percent, to around 1.85 billion. With an average growth of 6 percent a year since 1999, “there could hardly be more striking evidence as to the power of sustained economic growth to reduce poverty,” the bank said.

“Even excluding China, the absolute number of poor would be at their lowest level ever, finally overcoming the higher poverty created by 1997 crisis,” said Jemal-ud-din Kassum, regional vice president for East Asia and Pacific. He noted that the expansion was taking place “during a time of major political advances with a sweep of legislative and presidential elections, including Indonesia’s first-ever direct election of a president, capping what looks like being a remarkable year for the region.” Efforts by China, which has two thirds of Asia’s poor, to reduce poverty dominated the regional picture, the bank said. Indonesia, Thailand and Vietnam have also made major strides in eliminating poverty, the bank said.

High growth in Asia is led by strong exports, supported by demand from China, the global recovery, a rebound in the global high-tech industry, and strong commodity prices. But the bank warned that the outlook for 2005 looks less favorable because of the spike in oil prices, slower growth in rich countries and downturns in the high-tech and commodity cycles.

Link here.

ON PANAMA’S RELATIONSHIP WITH THE U.S. GOING FORWARD

In the days leading up to the U.S. election, three events highlighted changing Latin American realities. First, Fidel Castro demonstrated his geriatric condition by a sudden fall that left several of his brittle bones broken. Then, on the Sunday before the American election, Hugo Chávez and his followers prevailed in Venezuela’s local elections. That same day Uruguayans turned to the left by electing physician Tabaré Vázquez and his Frente Amplio to run their government. George W. Bush can now say without dispute that this time around he won the presidency with the backing of most of the American people. However, that does not in itself win him obedience abroad. He has to accomodate himself to political tides which, like elemental forces, might be diverted or to a certain extent resisted but are not ultimately his to control.

Martín Torrijos knows that he will have to deal with Bush and his people, but he must also be aware that in negotiating free trade with the U.S. and at the same time trying to have a Free Trade Area of the Americas headquartered in Panama, he will have to balance a desire to please his powerful neighbor to the north against a desire for closer relations with Latin American neighbors who are alienated from the U.S. and its policies. It will be tricky. Meanwhile, it appears that the countries of the Americas -- especially the U.S., where the GOP’s hold on power has depended on the support of anti-Castro exiles -- will sooner rather than later face the knotty problems of a Cuba in transition.

Link here.

The latest “Letter from Panama” is out.

Voltaire suggested that the best government is a benevolent tyranny tempered by an occasional assassination. Democracy, however, would appear to get the support of approximately 50% of Latin America’s population, even though many are suspicious of it and see it as an imperfect solution to authoritarianism. It is constantly challenged in the region by unemployment, poverty, corruption and crime (all fodder for populist politicians promising quick fixes) but it appears to be winning the day in Brazil, Chile and, despite recent challenges to the rule of Hugo Chávez, also in Venezuela. In Central America, El Salvador, Costa Rica and Panama continue to stand out as firm believers too.

Democracy’s bastion, however, the U.S.A., cannot be said to be as popular in South America and besides Central America and some Andean countries, relations with Washington remain strained. Some see the origins of this discord in the 1823 speech to the American congress made by president James Monroe from which the Monroe Doctrine, extending Washington’s sphere of influence to include South America, emerged.

Trade liberalization in Latin America, a central plank of Washington’s foreign policy, has resulted in some bilateral deals but, so far, has not brought about the free trade area of the Americas that was hoped for. The new president of Panama, Martín Torrijos, has said, in fact, that he is interested in South America’s own free trade bloc, Mercosur. However, Brazil and Argentina are looking beyond the benefits of Mercosur. This has been brought about, in large part, by the economic ascent of China which could be the world’s fifth largest provider of direct foreign investment in 2004. Doing business with the Chinese may come at the expense of weakening Latin American ties with North America.

Under Luiz Inácio Lula da Silva, Brazil has become less parochial and both more ambitious and global in its thinking. Its economy has diversified since the time that coffee represented 53% of exports (1964) compared with 1.8% in 2003. Brazil took charge of a U.N. peacekeeping force of 6,700 in Haiti in June -- a defining and confidence-boosting moment for Brazil. Brazil has never suffered Haiti’s seemingly endless catalogue of catastrophes because, through dint of history, it has avoided the turbulence of conquest and liberation that has been the historical norm in Latin America. Even Brazil’s military rulers in the 1960s and 1970s were less ruthless than those in Argentina or Chile. Time will tell, however, if Brazil, with its international ambitions and new confidence, will continue to play ball with the U.S. After all, Voltaire also said that the world is a vast temple dedicated to Discord.

Link here.

DOLLAR REPLACED BY “MONOPOLY MONEY” IN CUBA

The U.S. dollar disappeared from stores, hotels and restaurants in Cuba in what communist leader Fidel Castro has called a move to counter U.S. attempts to stifle the island’s economy. Cuban businesses can now only accept the “convertible peso” which has a face value equal to one dollar but which is worthless outside the country. The colored notes have become known as “chavitos”, or “monopoly money”, by the local population. But most people have accepted the change ordered by Castro.

Castro, shortly after breaking his arm and leg in a fall, appeared on television on October 25 to order the end of dollar transactions, which have been allowed since 1993 under an earlier initiative to boost the economy. His move came as a new jolt to the population which has seen conditions steadily deteriorate in recent years because of the U.S. embargo and the loss of European communist allies in the 1990s.

Link here.

INFORMAL LENDERS IN CHINA POSE RISKS TO BANKING SYSTEM

The Wenzhou “stir-fry” is not a dish you eat. But it is giving indigestion to Chinese regulators and could prove troublesome to many investors worldwide -- from New York money managers, Pennsylvania steel workers and Midwestern farmers to miners in Australia. Here in this freewheeling coastal city at the forefront of capitalism in China, the dish is prepared when a group of wealthy friends pool millions of dollars worth of Chinese yuan and put it into a hot investment like Shanghai real estate, where it is stirred and flipped for a hefty profit.

The friends often lend each other large amounts on the strength of a handshake and a handwritten IOU. Both sides then go to an automated teller machine or bank branch to transfer the money, which is then withdrawn from the bank. Or sometimes they do it the old-fashioned way: exchanging burlap sacks stuffed with cash. The worry for Chinese regulators is that everyone in China will start cooking the Wenzhou stir-fry and do it outside the banking system. In the last few months, borrowing and lending across the rest of China is looking more and more like Wenzhou’s. The growth of this shadow banking system poses a stiff challenge to China’s state-owned banks, already burdened with bad debt, and makes it harder for the nation’s leaders to steer a fast-growing economy.

The problem starts with China’s low interest rates. More and more families with savings have been snubbing 2 percent interest on bank deposits for the double-digit returns from lending large amounts on their own. They lend to real estate speculators or to small businesses without the political connections to obtain loans from the banks. Not only is the informal lending rate higher, but the income from that lending, because it is semilegal at best, is not taxed. For fear of shame, ostracism and the occasional threat from thugs, borrowers are more likely to pay back these loans than those from the big banks.

Tao Dong, chief China economist at Credit Suisse First Boston, calculates that Chinese citizens withdrew $12 billion to $17 billion from their bank deposits in August and September. The outflow turned into a flood last month, reaching an estimated $120 billion, or more than 3 percent of all deposits at the country’s financial institutions. If the bank withdrawals are not stemmed in the months ahead, Mr. Tao warned, “this potentially could be a huge risk for financial stability and even social stability.”

Link here.

IRISH PRIME MINISTER AHERN’S BUSH REMARKS RAISE DEMOCRATS’ HACKLES (AND IGNORE A LITTLE HISTORY)

Remarks by Taoiseach Bertie Ahern apparently praising the outcome of last week’s U.S. presidential election have raised Democratic ire and eyebrows. Ahern’s contention that the reelection of President Bush was the desirable result for Ireland also prompted rapid explanation and qualification from two Irish government departments.

Somewhat ironically, Ahern’s apparent favoring of GOP over Democratic corporate tax policy appeared to ignore a significant initiative undertaken by the president just days before the election. The Dublin-published Sunday Business Post reported that “billions of euro in profits generated in Ireland” would return to the U.S. as a result of a corporate tax amnesty signed into law by the president. The amnesty, the Business Post reported, was raising fears that U.S. multinationals would “slash the amount” they planned to invest around the world, including the Republic, over the next 12 months. The American Jobs Creation Act allowed U.S. companies a once-off chance to repatriate $350 billion in accumulated profits held around the world at a special rate of 5.25%, a huge drop from the standard 35% rate.

Ireland has long been an attractive place for U.S. corporations given that its corporate tax rate has consistently been significantly lower than both the U.S. and other EU countries. Back in 1993, a federal budget provision threatened to dramatically increase U.S. corporate tax rates on American companies based in Ireland, but the late Sen. Daniel Patrick Moynihan intervened on the Republic’s behalf. The so-called Moynihan Amendment allowed U.S. companies to avoid higher rates by routing profits into research and development. This loophole was to become a significant boost for the then emerging Celtic Tiger economy.

Link here.

MAURITIUS TO CRACKDOWN ON INDIAN “BLACK” MONEY

Mauritius will no longer be a safe haven for parking black money from India, said its Minister of Foreign Affairs,International Trade and Regional Cooperation Jayen Cuttaree. Cuttaree said his country has put in place financial regulations compatiable with all the international guidelines to make it a clean offshore for investment.

Investigations by Indian regulators into the stock market crash in 2000 had revealed that Indian businesses had been trading in their own shares through the vehicle of overseas corporate bodies (OCBs) set up in Mauritius. By definition, OCBs include overseas companies, partnership firms, trusts, societies and other corporate bodies owned either directly or indirectly to the extent of at least 60% by NRIs. These private outfits are virtually unregulated either by Indian authorities or by authorities of the foreign lands where they are registered. Some of these OCBs were used to funnel anonymous funds parked abroad back into the stock market.

The visiting minister said, Mauritius by virtue of it being part of the African continent, has a preferential agreement with the African Development Community and products of Mauritius origin attracts zero duty in the 300 million strong Community. Cuttaree said economic cooperation between India and the South African Development Community is also on the cards. This would be formalized during the visit of Indian Prime Minister Dr. Manmohan Singh to Port Louis at the end of this year.

Link here.

U.S. TO EASE BANKS TERROR WARNING LEVEL

The U.S. is to lower the terror alert status -- to yellow, the mid-point on the five-level scale -- for financial institutions in New York, New Jersey and Washington, administration officials say. It was raised to orange, or “high” level, in August amid fears of a possible al-Qaeda attack. The World Bank and New York Stock Exchange were named as terror targets. The August move came after officials said they had intelligence indicating al-Qaeda had conducted surveillance of the buildings. However, later officials admitted that much of the intelligence was at least several years old.

Link here.

YASIR ARAFAT DIES

Palestinian Authority President Yasir Arafat, the longtime symbol of Palestinian nationalism, died Wednesday at 9:30 P.M. ET in France after receiving treatment at a Paris military hospital. He was 75. Arafat dominated Middle East politics by keeping a tight grip on the major Palestinian political institutions over the last three decades, from the Palestine Liberation Organization to the Palestinian Authority. He led a secular nationalistic movement that sanctioned violence against civilians, military confrontation, civil disobedience and diplomacy.

Arafat leaves behind an uncertain political future for Palestinians, who still have not achieved nationhood and whose standard of living in the West Bank and Gaza Strip has markedly decreased due to corruption and ongoing political violence with Israel. His secular brand of Palestinian political leadership is also facing serious challenges from Islamic extremist groups like Hamas.

Link here.

What will happen to Arafat’s millions?

In his four decades as Palestinian leader, Yasser Arafat has run a murky financial empire that includes far-flung PLO investments in airlines, banana plantations and high-tech companies, and money hidden in bank accounts across the globe. Jaweed al-Ghussein, a former PLO finance minister, said it was worth $3 billion to $5 billion when he quit in 1996. No one will say how much it is worth now -- some estimates say as little as a few million. Palestinians fear that what is left will disappear or be pocketed by Arafat cronies.

Arafat has long resisted proper accounting for the funds, which include Arab payments to the PLO in the 1970s and 1980s, and Western aid to his self-rule government, the Palestinian Authority, after interim peace deals with Israel in the 1990s. Arafat lived frugally, but needed large sums to maintain loyalties. He would register investments and bank accounts in the names of loyalists, both to buy their support and protect the holdings from scrutiny and seizure, said al-Ghussein. Only Arafat had the full picture, he said, and it is not clear whether he left a will or financial records.

Arafat never divulged his finances. Pressed at a February meeting with leaders of his Fatah movement, he cut them short, saying “there are no assets”, according to one participant. Mohammed Rashid, Arafat’s financial adviser, denied his boss was rich. However, Forbes magazine ranked him No. 6 on its 2003 list of the richest “kings, queens and despots”, estimating he was worth at least $300 million. Shalom Harari, a former top Israeli intelligence official, said Arafat may have stashed away up to $700 million, part of it for an emergency such as a new exile, especially with Israel threatening to expel him.

Link here.

Mystery Lingers: Whereabouts of Arafat’s hidden fortune.

As Yasir Arafat lay dying in Paris, the battle over his legacy involved an unstated but widely acknowledged concern: He personally controlled several billion dollars, and no one else knew where it all was. The extent and whereabouts of this fortune, which relied on different aides and advisers as co-signers, had been a hidden part of the disputes at his bedside, Israeli and Palestinian officials said, giving the final days of this revolutionary figure the elements of a Victorian novel. Mr. Arafat kept knowledge of the accounts compartmentalized, and only he knew all the details, well-informed Israeli officials said, in assertions confirmed reluctantly by Palestinian officials who did not want to harm Mr. Arafat’s legacy.

Much about the financing of the Palestinian movement in the last four decades has been shrouded in secrecy, and its details are hard to pin down. But Palestinians said Mr. Arafat used the money to finance the Palestinian movement and administration, to pay salaries, bestow gifts, ensure loyalty, establish embassies, buy arms and pay groups ranging from charities to young fighters like Al Aksa Martyrs Brigades.

Mr. Arafat, abstemious, spent very little money on himself, living like a soldier with a narrow bed and a few uniforms in his closet. But the pattern of his revolutionary days in exile -- financing the PLO through secret contributions, the black market and extortion, and being ready to run at a moment’s notice -- persisted most obviously in his refusal to trust others and his desire to keep large amounts of cash available in case of emergency.

There has been much speculation about how much money went to support the lavish living of his wife, Suha, in Paris, with reports from her enemies in the Palestinian Authority of subsidies of some $100,000 a month. But the sums were relatively small compared with Mr. Arafat’s total holdings. But the way he managed money, and the secrecy and corruption surrounding the administration of the Palestinian Authority, have tainted his legacy with ordinary Palestinians and left a burden for his political heirs.

Link here.

TAXES

$500 MILLION FROZEN IN I.R.S. CRACKDOWN IN DOCTORS’ TAX CASE

A federal judge has temporarily frozen more than $500 million in assets owned by thousands of doctors and dentists who bought abusive tax shelters run by a San Diego investment company, the Justice Department announced. The action, one of the largest of its kind, is rare and part of an effort by the I.R.S. to clamp down on tax shelters it considers abusive. About 4,000 doctors and dentists across the nation bought tax-reduction plans in recent years from the company, Xelan, (allegedly) evading $420 million in taxes, not including interest and penalties, a statement from the Justice Department asserted. The I.R.S. is auditing the returns of several hundred doctors and dentists who used the tax shelters.

Xelan had set up several types of plans aimed at helping doctors and dentists lower their tax bills. The government is focusing on two of them, one involving a charity administered by Xelan and the other, disability insurance, which the company said would allow investors to defer taxes on income for seven years. The I.R.S. maintains that the plan was not insurance but a taxable deferred-compensation program. The I.R.S. says that it found some two dozen instances of doctors using the charity to make “contributions” to their children’s college tuition.

Judge Thomas J. Whelan of Federal District Court in San Diego issued the order temporarily freezing the assets after the Justice Department asked him to do so. The order, which also directs Dr. Guess and six other Xelan executives to turn in their passports and not destroy any company records, is in effect through Nov. 18, when the judge will consider whether to extend it. The Justice Department hopes to have the temporary freeze made permanent, so that the assets will be available to cover tax bills. A Justice Department lawyer said that about $50 million of the assets was in various bank accounts in San Diego, while about $505 million was in investment accounts at the Vanguard Group, the giant mutual fund firm.

Link here. NPR report on the matter can be heard from a link on this page.

BUSH’S SECOND TERM TAX AMBITIONS OUTLINED

President Bush began his first term with projections for $5.6 trillion in budget surpluses. Though he will start his second term facing at least $2.3 trillion in deficits, according to the Congressional Budget Office, his tax-cutting ambitions are even greater. Here are some of the initiatives that he is likely to push, and the unanswered questions that go with them.

Privatization of Social Security: President Bush said he wants to give workers an opportunity to divert part of their payroll taxes to individual investment accounts, in the hope that the financial markets would pay higher returns than the existing Social Security system. That money would otherwise have gone to pay benefits for current retirees, however. How would the administration close the gap? Also, who would choose where workers could put their money? Would they have been able to invest in Enron? What about investing abroad? And finally, what would happen if financial markets crashed? In Chile, whose private pension system has been cited as a model by President Bush, some retirees saw their benefits drop by 7% in 2001. Could that happen here?

Simplification of the income tax: It is not completely clear what the president means by this oft-heard campaign promise. Simplification could take several forms, from closing loopholes and streamlining rates (as in the 1986 restructuring), to a complete overhaul resulting in a flat tax. So, which is it?

Link here.

Big tax plans, big tax risks.

Hardly anybody likes the current tax system. But as President Bush undertakes the potentially historic task of coming up with something better, he is confronting an issue that is more ideologically explosive, politically risky and economically complex than he let on during the campaign. In the days since his re-election, Mr. Bush has signaled that he is serious about following through, highlighting the topic in both his victory speech and his follow-up news conference.

He has been vague about what he has in mind, but Republican advisers to the administration say the White House is debating whether Mr. Bush should back ambitious, even radical proposals like a national sales tax or a flat tax on income. By doing so, he would blast away a philosophy that has governed tax policy since Woodrow Wilson was in the White House -- that higher levels of income should be taxed at higher rates.

By the end of the year, Mr. Bush intends to name a bipartisan commission to study the issue and make specific recommendations sometime next year. He has already laid down some markers; he wants to retain two of the most politically popular breaks in the tax code, the deductions for mortgage interest and charitable giving, and he wants any overhaul of the system neither to raise taxes over all nor to cut them.

Even before the election, Mr. Bush’s aides were studying the issue intently, grappling with the most elemental question: should the nation improve the existing tax code, built around the progressive income tax, or throw it out and start over? There is plenty of sentiment inside the administration for going the latter route, but even though the White House has been studying the issue for several years, no decision appears imminent. Among those who favor scrapping the current system -- a group said to include Vice President Dick Cheney -- there is a raging debate over what should replace it, with the basic options being some sort of national sales tax or a single-rate flat tax on income.

Link here.

E.U. SEEKS CONSULTATIONS WITH U.S. ON NEW TAX LAW

The E.U. sought consultations with the U.S. to determine if new U.S. legislation abolishing contested corporate tax breaks is consistent with WTO regulations, an EU commission spokeswoman said. Arancha Gonzalez, speaking for E.U. Trade Commissioner Pascal Lamy, said that while the new law resolved the essential elements in a dispute with the E.U., there remained one portion of the legislation that E.U. says may not conform to WTO rules.

President George W. Bush on October 22 signed legislation that ended export tax breaks for U.S. corporations operating in off-shore tax havens, a concession that the E.U. said amounted to an illegal subsidy. The WTO agreed with the argument and the U.S. Congress, in the face of $4 billion in EU-imposed sanctions on U.S. exports, altered the legislation to bring it into line with WTO regulations.

Link here.

FRENCH FINANCE MINISTER’S TAX IDEAS FAIL TO CONVINCE IN EASTERN EUROPE

During a tour of the new member states of the EU last week, a charm offensive by French Finance Minister Nicolas Sarkozy failed to convince the governments of Central and Eastern Europe that cutting their corporate tax rates to attract investment is a bad idea. Since acceding to the EU in May, many of the former Eastern bloc countries have pursued an aggressive strategy of corporate tax cuts, bringing the average rate in the new member states down to around 20%. By contrast, the average corporate tax rate in the old EU15 stands above 30%.

Sarkozy, supported most vocally by the German leadership, has expounded a number of proposals to level the playing field between Eastern and Western Europe. These have included a proposed tax corridor setting minimum and maximum rates at which corporate tax can be set, and a system whereby structural aid is somehow tied to levels of taxation to prevent the alleged subsidising of tax cuts by the richer nations through the EU structural fund.

Unsurprisingly, the new member states have not been won over by these ideas. According to an AFP report, Polish President Aleksander Kwasniewski labelled the proposals a sign of “egoism” by the western leaders, and Hungarian Finance Minister Tibor Draskovics dismissed them as “completely unacceptable”.

Link here.

HOME, THE MOTHER OF ALL TAX SHELTERS

Owning a home is the world’s greatest tax shelter. You can deduct mortgage interest and property taxes. And almost always, you can keep the gains when you sell your home. Well, thanks to rules made permanent in 2002 and some provisional rules, the IRS has gone and made your home potentially an even greater tax shelter than it was before -- especially if you use your home for your business. Let us look at all the deductions and benefits you get when you pay homage to the mortgage gods and go into more debt than your parents earned in their lifetimes.

Here is where the IRS gave up the farm this past year. Forget about having to roll over your gain into a new home. Forget about the $125,000 gain exclusion if you are age 55 or older. Both are now ancient history. The new rule is good no matter how old you are. And though the IRS has been accepting it for about two years, the new rule is now permanent (with a few new wrinkles -- the type that are good for you). If the property was your principal residence for any two of the five years prior to sale, you can exclude from taxes $250,000 in gain ($500,000 on a joint return). If you qualify under the 2-out-of-5 rule, you normally sign an affidavit at settlement. If the house sold for less than $250,000/$500,000, the sales amount is not even reported to the IRS because you have no tax liability on that sale. This is not a one-time exclusion. You do not have to buy a new house. You can even rent, and you can get another full exclusion every two years, or whenever you qualify. But, if you have a $250,000/$500,000 gain every two years, I want to meet your real-estate agent and get in on the gold mine.

Here is where, in my opinion, the IRS actually crossed the line. But it was in favor of the taxpayer. So I am not going to complain. Let’s assume you use 20% of your house as a home office, and you deduct depreciation and expenses for working in that part of the house. In the past, when you sold your house, 20% of the gain would not qualify for the exclusion because that 20% was not used as a “residence”. (See IRS Publication 946 on office property deductions.)

Now the IRS does not care even if you used your home 90% for business as a home office. You can now exclude as much as 100% of your gain, up to the $250,000/$500,000 limit. You are only going to be subject to tax on the gain to the extent of depreciation taken on the building since May 7, 1997. But that is taxed only at 25%. Wow! That means, if you qualify, there is no reason not to claim a home office. And I know there are any numbers of people who work out of their homes who do not claim home offices now. Dorothy was right. “There’s no place like home.”

Link here.

ASSET PROTECTION

PHISHERS ADOPT SCAM TRICKS FROM VIRUS WRITERS

You know all about phishing scams, right? You know better than to click on a Web link embedded in an e-mail that purports to be from your bank, or to reply to messages requesting your user name and password. But if you think that is enough to protect yourself, think again. A phishing scam currently spreading online works without your ever having to click on a link -- all that is required to activate the scam is for you to open an e-mail. And, many security experts warn, this threat may be a sign of things to come.

The current phishing scam, which has been labeled JS/QHosts21-A by antivirus vendor Sophos, is an example of a blended threat. The scam involves a Trojan horse that combines with an ActiveX vulnerability in Windows to install itself on your machine invisibly, without warning. JS/QHosts21-A arrives in an HTML e-mail that displays the Google Web page. If you have enabled scripting on your PC (Internet Explorer and Microsoft’s Outlook and Outlook Express e-mail clients enable scripting by default) and you have ActiveX security settings configured too low (or if you are running an out-of-date and/or unpatched version of Windows), the Trojan horse installs itself on your PC.

The Trojan horse then makes changes to the Hosts file, a component of Windows that your browser first looks to when it converts a domain name that you enter into the IP address it needs to load a Web page. By entering an IP address of the fraudster’s choosing into your PC’s Hosts file, and associating it with the names of bank Web sites, the phisher can force your browser -- any browser, not just Internet Explorer -- to go to a fake Web site that may look like your bank’s, but is not. Then all they have to do is get you to log in, and the phisher has your username and password.

Link here.

NAURU PASSES NEW ACTS AS DIRECTED BY THE FATF

One of the new Acts passed by the Nauru Parliament aims to prevent terrorists from operating in Nauru and to prevent persons in Nauru from taking part in or supporting terrorist activities. Another, the Proceeds of Crime Act, enables the seizure of property belonging to anybody convicted of receiving benefits from serious crime. The minister who introduced the legislation, Dr. Kieren Keke, says the three related Acts meet requirements set down by the international Financial Action Task Force to stamp out money laundering and they should help get Nauru off the FATF’s black list.

Link here. Nauru background information available here.

PRIVACY

PLANE PASSENGERS SHOCKED BY THEIR X-RAY SCANS

An X-Ray machine that sees through air passengers’ clothes has been deployed by security staff at London’s Heathrow airport for the first time. The device at Terminal 4 produces a “naked” image of passengers by bouncing X-rays off their skin, enabling staff instantly to spot any hidden weapons or explosives. But the graphic nature of the black and white images it generates -- including revealing outlines of men and women -- has raised concerns about privacy both among travelers and aviation authorities. In America, transport officials are refusing to deploy the device until it can be further refined to “mask” passengers’ modesty.

If the new body scanner is able to cope with large volumes of passengers, improves detection rates and, crucially, receives public acceptance, it is likely to be rolled out across all Britain’s airports. At Heathrow, passengers are picked to go through the body scanner on a random and voluntary basis. Those who refuse are subjected to an automatic hand search. The scanner, which resembles a tall, grey filing cabinet, operates in a curtained area and passengers are asked to stand in front of it, adopting several poses, for their “naked” image to be registered. Once checked, the images are immediately erased.

Security officials claim it is a far more effective way of countering potential terrorists because it detects the outline of any solid object -- such as plastic explosives or ceramic knives -- which conventional metal detectors would miss. Managers at Heathrow also say the new technology does away with the need to subject passengers to potentially intrusive hand searches. However, travelers who have been screened -- and have asked to see the images -- have been surprised by their clarity.

In America last year, Susan Hallowell, director of the U.S. Transportation Security Administration’s security laboratory, showed off her own x-ray image to demonstrate the technology to reporters. “It basically makes you look fat and naked, but you see all this stuff,” said Hallowell, who had deliberately hidden a gun and a bomb under her clothes.

Links here and here.

PROTECTING PRIVACY AND PROVIDING SECURITY: A CASE OF SENSIBLE OUTSOURCING

Defending the nation against terrorists, promoting economic growth, and protecting constitutional liberties are all prerequisites for a sound homeland security strategy. At one time or another, outsourcing has been labeled a threat to all three. These criticisms are simply overblown. In fact, if the U.S. partners with nations that share a commitment to the rule of law, transparency, and open competition, it can use sensible outsourcing to enhance the protection of the privacy of American citizens, promote better security practices, and contribute to economic prosperity. Effective outsourcing can provide both cost-effective services and appropriate protections for government and commercial activities supported by overseas vendors.

India is an example of an increasingly important strategic ally that has begun to develop the right capacities in its business process outsourcing (BPO) industry to be a good global economic and security partner. Administration policy should encourage closer cooperation on security issues and encourage India to expand its market reforms of the BPO industry to other economic sectors. Meanwhile, congressional legislation should encourage, not impede, the ability of the government and the private sector to get the best, most reliable and secure technology and services for the best price. Finally, the U.S.-India relationship should become a model for expanding economic and security cooperation between developed and developing nations.

Analysis here.

“PEOPLE DON’T MIND” BIOMETIC INDENTIFICATION METHODS

Biometrics are becoming an accepted form of identification for the general public, according to a recent survey commissioned by EDS and the International Association of Privacy Professionals (IAPP). Just over two-thirds of the US consumers polled said they were open to the idea of using biometric information -- such as digital fingerprints and iris scanning -- to verify their identity. Nearly 90% cited the convenience of biometrics -- compared to remembering passwords -- as the reason they would accept it. The survey also provides evidence that a need exists for improving security measures, as 60% of respondents said they would give out personal information such as their address and account numbers to unsolicited callers or emails.

Link here.

LAW

SWISS FEDERAL PROSECUTOR INVESTIGATED OVER YUKOS PROBE

The Swiss Prosecutor’s Office is being being investigated for breaching confidentiality in its role in a Russian inquiry into the oil company, Yukos. The Office in March froze SFr6.2 billion ($5.3 billion) in Yukos assets held in Swiss banks, but had to release them three months later. The Russian authorities had asked the Switzerland for legal assistance pending a legal investigation into fraud and tax evasion. The Federal Court said the measures taken by the Swiss Prosecutor’s Office had been disproportionate and had lacked sufficient information from Russia for legal assistance. Lawyers for Yukos accused the Swiss authorities of acting with excessive zeal, and of failing to properly invesigate the “insufficient” arguments presented by the Russian prosecutor.

Links here and here.

UNION BANK OF CALIFORNIA CUTS RUSSIAN BANK TIES

Spurred by a summer banking crisis and a post-September 11 money-laundering clampdown by U.S. regulators, the Union Bank of California has cut its ties with some 450 Russian banks. Union Bank of California vice president Roman Kortava said it had been forced to make the move because of “the incompetence and biased attitude toward Russian banks of certain American officials and bankers. ... What we spent the past four years building is being destroyed. We are once again experiencing a crisis of trust toward Russian banks.”

This past summer, the New York division of Dutch ABN Amro quietly closed correspondence accounts with some 100 banks in Russia, Eastern Europe and the Caribbean amid U.S. authorities’ investigations of its dealings with foreign financial institutions. The bank, which is the world’s 20th largest with some $600 billion in assets, did not provide details of the regulators’ investigation.

Union Bank’s decision to close correspondence accounts as of Dec. 20 had in part been caused by a badly timed Russian Summer banking crisis, which came soon after a decision by management to expand its business in Russia, banking specialists said. Richard Hainsworth, head of bank rating agency Rusrating, said the higher costs of monitoring the origins of Russian funds, along with the sour experience of the crisis, had left the California bank feeling “exposed” in Russia.

The Bank of New York scandal in 1999, when billions of dollars in suspect funds from Russia were allegedly laundered through the bank, besmirched the reputation of Russia’s banking system, and led the Bank of New York to terminate most of its correspondence accounts with Russian banks.

Links here and here.

LAW PRACTITIONERS ATTACK EU MONEY LAUNDERING DIRECTIVE

The Council of Bars and Law Societies of the European Union (CCBE) is calling for the requirement that lawyers report money laundering suspicions to be removed from a European directive. “[T]he essence of the lawyer/client relationship has in our view now been infringed upon as a result of the 2001 EU money laundering Directive,” the CCBE said in a statement. However, the CCBE’s submission stresses that where a lawyer provides legal advice to a client on money laundering, they are party to an offence and should face penalties.

Link here.

OECD’s fight against money laundering for terrorism is making little headway.

The fight against money laundering for terrorism is making little headway, and could be diverting attention from organized and corporate crime, experts say. The Financial Action Task Force (FATF) set up by the OECD has found only nominal success, they say. But because the FATF “doesn’t have sufficient means of pressure against states and private financial institutions, it is seen as an inefficient controller,” Gilles Favarel Garrigues from the French Center for International Studies and Research (CERI, after its French name) said. The FATF, he said, could be reducing its activities to no more than a “definition of international standards”. The FATF based in Paris has a staff of just ten, and a budget of less than $2 million. Its assessment of money laundering is based on self-assessment by governments.

The FATF blacklist of countries seen not to be cooperating on money laundering now comprises just Cook Islands (in the south Pacific with a population of 21,000), Indonesia, Burma, Nauru (in the south Pacific with a population of 12,000), Nigeria and the Philippines. “Such a list would mean that money laundering has almost disappeared, which is not the case,” Christian Chavagneux, editor of the French monthly Alternatives Economiques said. Chavagneux says the draft first list produced by FATF in 2001 included 29 countries including European tax havens such as Monaco whose financial system is monitored by France, and Jersey and the Isle of Mann which are both said to be financially independent, but under British political jurisdiction.

“France put pressure to get Monaco off the black list, and so did Britain with Jersey and the Isle of Mann,” Chavagneux said. “In the end the list was reduced to 15 countries, leaving out all the European tax havens.”

Link here.

JOHN ASHCROFT RESIGNS

Claiming that “the objective of securing the safety of Americans from crime and terror has been achieved,” U.S. Attorney General John Ashcroft bid farewell to the Department of Justice to set out toward “other challenging horizons” not yet specified. Ashcroft, who was nominated by President Bush for the top job at Justice after losing his Senate seat to a dead man, has drawn fierce criticism from liberals and conservatives alike.

His legacy includes boosterism of the so-called Patriot Act -- a longstanding federal law-enforcement wish list of legal shortcuts that the atrocities of 11 September 2001 made it impossible for Congress to reject, covering the breasts on a prominent bronze statue of Justice that always made him twitch, gleeful promotion of capital punishment, rounding up thousands of suspected terrorists -- and failing to prosecute any of them successfully, advising the military that torture is fine so long as no one gets caught ... and that the Geneva Conventions do not always apply, advising the federal bureaucracy that DoJ would help it fight any Freedom of Information Act request from nosy reporters, making a further mockery of the Act of Posse Comitatus by actively encouraging military outfits to participate in terror-related law enforcement, wildly overplaying his hand whenever some small-fry terror suspect like Jose Padilla popped up on the radar, warning the public that criticizing the so-called Patriot Act is an act of disloyalty verging on treason, inventing an arbitrary class of person called an “enemy combatant” so that writs of habeas corpus can be ignored at the government’s convenience, prosecuting a crusade against pornography -- apparently another deadly threat to U.S. national security, and turning out the DoJ as a sort of “copyright 911” hotline so that the public might pay the bills of companies that wish to defend their intellectual property.

Clearly, he will be missed.

Links here and here.

Antiterror campaign made Ashcroft a divisive figure.

The 9/11 terrorist attacks and Mr. Ashcroft’s unexpected role as point man in carrying out the administration’s antiterror policies would make him one of the most powerful and divisive figures ever to serve as the nation’s top law enforcement official. To his supporters, Mr. Ashcroft was an aggressive and unapologetic warrior against terrorism, unflinching in his efforts to remake the Justice Department in order to avoid a repetition of the attacks. President Bush, in announcing Mr. Ashcroft’s resignation as attorney general Tuesday, said he had “worked tirelessly to help make our country safer.”

To his many critics, however, Mr. Ashcroft was a symbol of excesses of the antiterror campaign, a man engaged in overzealous prosecutions and insensitive to civil liberties. He became an applause line in John Kerry’s stump speeches. Mr. Ashcroft himself set the tone for the division less than three months after the attacks when he said before a Senate panel: “To those who scare peace-loving people with phantoms of lost liberty, my message is this: Your tactics only aid terrorists, for they erode our national unity and diminish our resolve.”

In his four years at the helm of the Justice Department, Mr. Ashcroft left his mark by promoting a variety of conservative causes. He overruled prosecutors to push for more aggressive use of the death penalty, expanded prosecutions for Internet pornography, advocated a broader interpretation of gun ownership rights and subpoenaed the medical records of abortion providers. But it is his legacy in the fight against terrorism that is sure to be dissected by historians for generations.

Link here. The Cato Institute vs. Ashcroft’s DoJ -- link.

Bush names White House counsel Gonzales first hispanic U.S. attorney general.

Gonzales’s “sharp intellect and sound judgment have helped shape our policies in the war on terror, policies designed to protect the security of all Americans while protecting the rights of all Americans,” Bush told reporters at the White House with Gonzales at his side. Gonzales, 49, was a confidant of Bush when he was governor of Texas in 1990s.

As White House counsel, Gonzales helped develop U.S. policy toward “enemy combatants” captured in Afghanistan and Iraq, writing rules that limited the rights of suspected terrorists at Guantanamo Bay. He helped negotiate the closed-door questioning of Bush and Vice President Dick Cheney by the commission that investigated the Sept. 11 attacks, and he ended the American Bar Association’s role in vetting candidates for federal judgeships. Anthony Romero, executive director of the ACLU, said in a statement that lawmakers should probe Gonzales’s beliefs about the Guantanamo Bay detentions, the legality of torture and the constitutionality of the Patriot Act.

Link here.

JUDGE HALTS WAR-CRIME TRIAL AT GUANTÁNAMO

A federal judge ruled that President Bush had both overstepped his constitutional bounds and improperly brushed aside the Geneva Conventions in establishing military commissions to try detainees at the U.S. naval base as war criminals. The ruling by Judge James Robertson of U.S. District Court in Washington brought an abrupt halt to the trial there of one detainee, one of hundreds being held at Guantánamo as enemy combatants. It threw into doubt the future of the first set of U.S. military commission trials since the end of World War II as well as other legal proceedings devised by the administration to deal with suspected terrorists. The administration reacted quickly, saying it would seek an emergency stay and a quick appeal.

Judge Robertson ruled against the government in the case of Salim Ahmed Hamdan, a former driver for Osama bin Laden in Afghanistan who is facing terrorism charges. Mr. Hamdan’s lawyers had asked the court to declare the military commission process fatally flawed. The ruling and its timing had a theatrical effect on the courtroom here where pretrial proceedings were under way with Mr. Hamdan, a 34-year-old Yemeni in a flowing white robe, seated next to his lawyers. About 30 minutes into the afternoon proceedings, the presiding officer, Col. Peter S. Brownback III, was handed a note from a Marine sergeant. Colonel Brownback immediately called a recess and rushed from the room with the commission’s two other officers. When he returned, he announced that the proceeding was in recess indefinitely and he departed quickly.

Mark Corallo, a Justice Department spokesman, said in a statement, “By conferring protected legal status under the Geneva Conventions on members of Al Qaeda, the judge has put terrorism on the same legal footing as legitimate methods of waging war.” Judge Robertson ruled that the administration could not under current circumstances try Mr. Hamdan before the military commissions set up shortly after the Sept. 11 terrorist attacks but could only bring him before a court-martial, where different rules of evidence apply.

Link here.

U.S. GOVERNMENT: WE SEIZE SERVERS, YOU CAN’T COMPLAIN

The U.S. is attempting to block efforts to find out who seized Indymedia’s servers in London last month. The Government has filed a motion in San Antonio District Court opposing the Electronic Frontier Foundation’s motion to unseal the court order which resulted in the seizures, and arguing among other things that unsealing would “seriously jeopardize” an “ongoing criminal terrorism investigation”. We have of course only the U.S. Government’s word on that, as the foreign country which actually wanted the information checked the no-publicity box, and the U.S. would like to keep it that way.

The implications of the rest of the Government’s arguments are, however, more interesting than the use of the T-word as an all-purpose cloaking device, which is no more than par for the course these days. Primarily, the Government argues that the parties asking for the court order to be unsealed -- in effect the proprietor of the sites and the owner/operator of the specific servers taken from the premises in London -- have no standing to ask this.

The vast majority of web site ‘owners’ (inverted commas introduced courtesy U.S. Gov) should have no trouble at all figuring out where they would stand in such a scenario. You operate a web site which is hosted by an external company, and an unidentified agency of an unidentified government has the power to take data which you own, but which is situated on hardware hosted by the external company, and according to the U.S. Government, it has nothing to do with you, only the external company has the standing to complain. One could speculate why, given the need to maintain some form of ongiong relationship with the FBI, a hosting company might not think it a particularly good idea to complain.

Link here.

OPINION & ANALYSIS

WAS THE ELECTION STOLEN?

One of the saddest lessons of history is this: If we’ve been bamboozled long enough, we tend to reject any evidence of the bamboozle. We’re no longer interested in finding out the truth. The bamboozle has captured us. It is simply too painful to acknowledge -- even to ourselves -- that we’ve been so credulous.” -- Carl Sagan

It appears that we have been bamboozled again in this election. There is too much evidence and I am throwing a yellow flag on the field. Let us take a timeout, have an instant replay and review the evidence from all angles and then make an informed decision. The stakes are too high. Here is what makes me very uncomfortable ...

It appears that every state that had paper trails on their Electronic Voting, the exit poll results match the actual results reported within the margin of error. It appears that they remotely electronically messed with the electronic voting results in every state where they could get away with it (because there was no paper trail to disprove it in those states). Does this sound like something Karl Rove might do to guarantee a victory for Bush? Don’t answer -- it is a rhetorical question. The numbers (so far): 112,596,922 voters counted in the presidential race. Bush had been consistently exit polling at 45%, which should have given him 50,668,614 votes, instead of 58,073,612.

At this point, why has no one raised the specter of criminality or a criminal conspiracy to inflate votes for Bush and deflate tallies for Kerry via hacking the computerized voting machines? In addition, it is highly suspicious to note that the scale of Bush’s vote far exceeded the best of the pre-election polling, which could certainly be explained by this scenario. Time out is over and you have seen the evidence. Is it too painful to acknowledge that we have been bamboozled or are you going to demand the truth?

Link here. Other links here, here, here, here, and here. A skeptical view of whether gross fraud occurred here.

REACH OUT AND SNEER: DEMOCRAT RADICALS SPEAK TO THE RED STATES (SATIRE)

The defeated Kerry may have called for unity last week, but already radical elements inside and outside of the Democrat party are arguing for the abandonment of the old ways of cosy consensus. One such organization, formed even as the last queues for the ballots ebbed away, styles itself “The New Democrat Outreach Program”. The Register has been contacted by one NDOP activist, styling himself Commandante Camembert, with an early draft of the organization’s first communique to the nation. “We must,” says Camembert, “learn to speak to all of the people. But we mustn’t be afraid to sneer when we do it.”

We think they have got that right already, although the “outreach” may need some work. Anway, here it is ...

Link here.

Coastal Snots vs. the Heartland

I have received thousands of letters (all right, three letters, but I am rounding up) asking me to explain the election. Bending to the public will, I will try. The way it looks to me is coastal snots against the heartland. The wine-and-cheese folk against pickups with gun racks. Texas against Massachusetts. Maybe that is too simple, but I am not going to admit it.

It was the cultural divide. The coastal snots have enormous contempt for Texas, Oklahoma, the South, and any other place where people can change a flat tire. Along the Northeast Corridor the snots talk of rednecks, express wonderment that some of them can read, and regard them as barbarians inhabiting blank spaces on the map with dragons drawn in them. For snots in Massachusetts, most of the country is just an inconvenience in getting to the other coast. Flyover Land. The pickup people are tired of it. And the cheese people just found out.

A lot of columnists and talking heads on the coasts thought that the election was going to be a referendum on the war in Iraq. I doubt it was. Nobody in the middle of the country knows, or cares, anything about the world outside the U.S. Nobody in Massachusetts knows anything, or cares much, about the world inside the U.S. The Bush people have never heard of the Crimea. The Kerry people have barely heard of Texas. This is why I would like Texas to make my domestic policy, and Massachusetts my foreign policy. Or maybe have both of them just go away.

It is as obvious as warts on a Prom queen (sez me, anyway) that a whole lot of people are sick of having their lives controlled by people they cannot stand, sick of being messed with from afar, sick of affirmative action and racial preferences and partial-birth abortion, the old Sandy Day O’Connor Brain Suck. Well, they just said so. Me too, by the way. If Bush had campaigned on a promise to toss the Supreme Court into an industrial grinder, I would have voted. For him. And I can’t stand him.

Which brings us to the Feddle Gummint. Between the coasts it is seen as the enforcement arm of the coastal snots -- a gray, repressive, stupid, intrusive, degrading and alien force. To a lot of people, Washington is not the capital of their country. It’s The Enemy. It pushes on them everything they loathe. They hate it. Bush somehow feels as if he were with the people against Washington’s inroads, though he is not. In fact he favors bigger and more intrusive government, and spends as Hillary could only dream. But he is against gun control and abortion, the emotional hot issues. That’s enough.

Link here.

BUSH’S HISTORIC VICTORY SHOULD BE TAKEN MORE AS AN OPPORTUNITY THAN A VINDICATION

So the “accidental president”, who reached the White House last time only with the help of those dimpled chads and the Supreme Court, has a real electoral mandate at last. He deserves congratulations for winning such a vote even in the face of a costly war and a patchy economy. The question is what he will do with his victory; and also how the rest of the world, which had been praying for a Kerry victory, will react.

After all, Mr. Bush has in a sense been here before. In the months after September 11th, he had the support of 90% of a broadly united country (not just 51% of a bitterly polarized one). America also had the backing of most of the world. That was before the war in Iraq, before Abu Ghraib, Guantánamo Bay and Fallujah became household names, before the compassionate conservative lurched to the right on stem-cell research and gay marriage, before the budget deficit lurched out of control. Mr. Bush’s supporters will argue that he is hardly responsible for all these things. But arguing over who did what in the past is beside the point. The question is how to do things better in the future.

Mr. Bush would do well to focus now on pragmatism over ideology. His aim must be not only his own place in history, but also America’s. Both will require more sensitivity and unity, and less shock and awe than in his first term. At home, one early test of his willingness to reunite his country will be whether he will appoint any Democrats to his new cabinet. Another awkwardness could well be the Supreme Court. The chief justice, William Rehnquist, is gravely ill. If Mr. Bush allows the Christian right a veto over his appointments, he will reignite America’s culture wars.

And Mr. Bush will need all the friends he can get to tackle America’s fiscal problems. During his first term, the president went on a spending splurge. That must now come to an end. It is abroad, though, that Mr. Bush has most to do -- the president’s in-tray bulges with problems from Iran to Sudan, from North Korea to Israel. The manifest troubles in Iraq provide an excellent pretext for change. Getting rid of Donald Rumsfeld, who should have resigned after the Abu Ghraib debacle, would be a welcome start.

Link here.

I’M FREE BECAUSE I VOTED, RIGHT?

In the wake of his reelection, President Bush has announced that he remains committed to bringing democracy to the Middle East, which includes the indefinite military occupation of Iraq. In the president’s mind -- indeed, in the minds of most public officials in America -- democracy is freedom. So, given that I voted in the recent election, that makes me free, right? Let us see.

Government officials have the power to take away my income by simply raising the percentage of tax take to whatever extent they wish. So they have the power to destroy me by the unlimited power to tax me. Government officials will take my home away from me if I do not make tax payments to them. Government officials confiscate my wealth simply by debasing the currency by printing lots of it to finance out-of-control government expenditures. Just like in North Korea. But I’m free because I voted, right?

Government officials will put me in jail if I ingest substances that harm my health. Okay, not just any harmful substances -- such as alcohol and tobacco -- but certainly harmful substances that our public officials do not approve of. Just like in North Korea. But I’m free because I voted, right?

Government officials force me to subject my children to a government-approved education. Or they force me to pay for the government-approved schooling of other people’s children. Just like in North Korea. But I’m free because I voted, right?

Government officials regulate my economic activities with other people. Government officials will punish me for engaging in an occupation or business without official permission in the form of a government license or permit. Government officials will punish me if I hire an undocumented worker or even permit him to spend the night in my home. Government officials will punish me for buying, selling, or trading with unapproved people overseas -- or simply for traveling to non-approved countries. Just like in North Korea. But I’m free because I voted, right?

Government officials start wars on the declaration of only one person, our ruler. Government officials can seize me against my will and force me to work for them and even send me thousands of miles away to die for them. Government officials will deny me right to counsel, due process of law, and habeas corpus by simply labeling me an “enemy combatant” before executing me. Just like in North Korea. But I’m free because I voted, right?

The great German thinker Johann Wolfgang von Goethe once wrote, “None are so hopelessly enslaved as those who falsely believe they are free.” I wonder what he meant by that. I’m free because I voted, right?

Link here.

THE UNITED STATES: A HAYEKIAN SOLUTION

What do you do with a state -- a highly centralized and militarized state -- that has unconstrained hegemonic ambitions and is a proven threat to its citizens and other nations around the world? This is a question that has vexed liberally minded thinkers for centuries. In particular, much to the sadness of any real American, it is a question that many people at home and around the world are asking about the U.S., especially since the election revealed explosive political divisions inside the country. We live in a country where slightly-less-than-half is bitterly opposed to the slightly-more-than-half who currently control the levers of power and are determined to use them in ways that designed to teach the minority and the rest of the world a thing or two about American power.

No short-term solution seems possible but at some point in the future, something will have to be done to restrain the problem. The goal should not be so much punitive as preventative. What to do? Let us turn to history. An analogous situation confronted the world after the end of the Second World War, in an issue that came to be called the German Problem. The problem was how to deal with a nation that had, in its history, contributed so brilliantly to science, art, literature, and world prosperity, but which was burdened by a very troubled political history that had made it a threat to peace. The problem stemmed from a conviction that it was not the particular regime as such, or even the individuals who were running the show, but that the structure of the German state attracted dangerous individuals. The existence of a highly centralized and heavily militarized government, lording over a country of people who see themselves as somehow set apart and superior to other peoples in the world, is itself an occasion of sin.

F.A. Hayek dealt very deftly and humanely with the subject in an introduction to a 1946 book entitled The German Question, by Wilhelm Ropke (the author himself had his book banned by the Nazis and found refuge in Geneva, along with Ludwig von Mises). In Hayek’s view, it was best to find a solution that would lead to the safety of the German people and the safety of the world, and one compatible with human rights and the good of all nations. His plan was return Germany to her true self before the centralization and aggrandizement of the state that began with Otto von Bismarck and saw its fulfillment in the rise of Hitler. He sought to reclaim the proper heritage of Germany as “a decentralized and truly federal structure” along the lines of what existed from the middle ages through the middle of the 19th century. He sought to restore the Germany before the second German Reich as a way to prevent a fourth from emerging. To be successful such a policy would need to be supplemented by the enforcement of complete free trade, external and internal, for all these German states.

Then and today, it is generally assumed that prosperity goes together with centralization and consolidated government. Hayek was arguing that, despite appearances, the opposite is more likely true. As for the US today, we see very similar pressures toward militarism, protectionism, and a kind of national belligerence that regards all nations of the world as naturally destined to live under the civilian administrators of the master people. Americans are burying their heads in the sand on this point, but the rest of the world is mighty alarmed. We need a Hayekian solution to the U.S. We need small states trading with each other. Moving the U.S. from a unitary state to a region of a large number of small and independent states would permit prosperity to continue developing without fueling the expansion of an imperial central state. The idea of breaking up the United States might sound radical, but it is, in fact, an entirely reasonable proposal that would be best for Americans and best for the world.

Link here.

REMEMBRANCE DAY

If any question why we died, Tell them, because our fathers lied.” -- Rudyard Kipling

At precisely 11 a.m., on the 11th day of the 11th month, London took time to catch its breath. “We remind you to observe two minutes of silence in honor of Remembrance Day,” came the announcement over the office loudspeaker. No one said a word. The phones stopped ringing. Even the tappety-tappety of keyboards ceased. In the distance, we heard the faint bells of St. Paul’s. For whom did the bells toll? It was precisely this hour on this day of this month in 1918 that bloodiest war in human history came to an end.

The armistice had, of course, been agreed upon days in advance. On that day, soldiers all knew the war was coming to a close. Who would want to catch the last bullet? A reasonable man would have sat it out that day, for there was nothing to be gained and much to be lost. And yet, Max Hastings, writing in the British press, reports that the fighting was particularly brutal on the 11th of November 1918, with more casualties than usual.

But then, war -- like markets, politics and team sports -- has a logic of its own. It is a public spectacle, not a private one. Masses of people are stirred up -- mobs, groups, and crowds -- to do the most remarkable and preposterous things. What man, on his own, would consider walking across open ground while people tried to kill him? Or asking his rich neighbor down the street to give him a portion of his income? Or telling the boys down at the pub that they can no longer smoke cigarettes on the premises?

Privately, an investor buys a business only after a thorough and reasonable study of it, after he has figured out how much it is worth to him. He will pay that much and not a penny more. But the same man, acting as a member of the great mass of investors, will buy a company, in the form of a publicly-traded stock, with hardly a moment’s forethought. Crowds, mobs, masses, and collections of men do not think. They do not analyze. Instead, they only feel and act, and make public spectacles of themselves.

When we open our eyes and look at today’s economic picture ... we cannot help wanting to go behind the screen to see where the wires lead. One thing leads to another. But it all seems to lead back to the Wilson period ... and the biggest public spectacle of all -- World War I. In the period, 1913-18, everything changed. The Fed was created. An income tax was laid on. A whole generation of European men was practically wiped out. Nearly every major government in Europe fell ... and every major combatant, except the United States, went bankrupt. And so, on this Remembrance Day, we wonder: What is it we are supposed to remember? Why had so many young men died?

Blame the fathers who lied, says Kipling, whose own son was killed in the war.

Link here (scroll down to piece by Bill Bonner).

PAWNS IN THE PUBLIC SPECTACLE

Who wanted the war? No one. Who stood to gain from it? Almost no one. Why did it go on for so long? No one knows. But once a great collective enterprise is underway, it goes according to its own plan. It does not listen to reason. It does not permit dissent. And it rolls over anyone who gets in its way. The public spectacle usually begins in comedy, develops into a farce, and often ends as complete tragedy. It does not matter what anyone thinks, or says.

We have, in the United States today, the idea that bad things happen because there are “bad guys” out there. If bad things happen, people believe, it is because bad guys want them to happen. But who can tell who is a bad guy? Who were the bad guys in World War I? Allied propaganda made the Germans out to be the “bad guys”. And since victors write the history books, even today many people think that an axis of evil ran from Berlin through Vienna. But the real evil in Berlin did not come until almost 20 years later.

What a change a few years made. Before World War I, Europeans were practically delirious with confidence. People everywhere were becoming healthier, freer, richer and better behaved, they believed. Crime rates were going down. Engineers were building skyscrapers, subways, automobiles, airplanes, telephone systems -- there seemed no limit to what man and machine might do together. Hardly anyone noticed the machine guns and heavy artillery. Does this sound familiar? Today, Americans are supremely confident. Every poll says so. So do the numbers. The S&P is selling at 30 times earnings. Investors are prepared to wait 30 years to get their money. The U.S. savings rate has fallen to its lowest level in history. Why save for a rainy day?

What is the meaning of the Great War? It is the same message given to us by the Great Crash and the Great Depression. Most often, nothing happens. Things go on, day to day, with little change. The sun shines. But occasionally, not only does it rain, it pours.

Imagine the benighted fool who might have sent a letter to the British, French, and German high commands during World War I, “Well, this is clearly not working out. Why don’t we all go back to our original positions and forget the whole thing?” There is no going back. Once the madness begins -- whether it is a war or a bubble -- it must run its course. In fact, early victories and early profits typically reinforce the trend. That is why, in war and speculation, it is often better to lose the first encounter than win it; it might make you reconsider. Otherwise, you are likely to go on until you are broke, exhausted, or dead.

Alan Greenspan has told us we are headed into the “debt maelstrom”. We do not doubt it. Nor do we think anything can be done to prevent it. When something gets out of whack, it can take a long time for it to get back in whack. Once the governments of Germany and Italy were wrecked, out of the wreckage grew even more absurd forms of government -- National Socialism. It took until 1945 for things to get more or less back in whack. Russia was not so lucky. Communism tooNow here we are ... on the eve our “debt maelstrom”. Never have a people been so fortunate, yet so debt-ridden at the same time. The government runs the biggest deficits in history. The difference between what it has promised voters and what it expects in tax revenue -- the “financing gap” -- has a present value of $54 trillion. Americans spend so much and save so little, that it now takes 75% of the entire world’s savings in order to keep them living beyond their means. Few people in the world can afford to live as well as Americans in 2004, sadly not even Americans themselves.

How will this next public spectacle turn out? Who will be its heroes, its villains? Who will be its winners, its losers? Of course, we do not know. This is the story of the “debt maelstrom” ... a tragedy, most likely, following today’s epic farce.

Link here.
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