Offshore News Digest for Week of September 12, 2005

GLOBAL BUSINESS

KATRINA’S ECONOMIC-DAMAGE ESTIMATES GROW

Firm puts damages at $125 billion, insurance claims may reach $60 billion.

Risk Management Solutions, a leading risk assessment firm, said its revised damage figures reflect, in part, the ravages of heavy flooding in New Orleans, which has prompted officials to try to evacuate the city. That is significantly higher than the previous record-setting storm, Hurricane Andrew in 1992, which caused nearly $21 billion in insured losses in today’s dollars. “About half of the economic losses would be attributable directly to the flooding,” said Laurie Johnson, an RMS vice president. She added that the flooding, which occurred when levies collapsed and water from rivers and canals flowed into the low-lying city, also makes it harder to project final losses. “The longer these flood waters sit there and toxic deposits build up that need to be cleaned up … the longer the recovery line.”

Economic losses include projections of property damage to homes, cars, ports, refineries and public property as well as the disruption of businesses in the disaster area, which extends from Louisiana to Mississippi and Alabama, Johnson said. Johnson said that RMS sent assessment teams into the area on the ground and by air. The latest RMS report put insured losses in a range of $40 billion to $60 billion. Two other risk firms said Friday they were holding to earlier estimates until more information is available.

The four hurricanes last year – Charley, Ivan, Frances and Jeanne – together caused nearly $23 billion in insured losses in Florida and neighboring states, according to figures from the Insurance Services Office, an actuarial company based in Jersey City, N.J. Another risk-modeling firm, Eqecat Inc., has projections of $14 billion to $22 billion for insured losses from Katrina.

THE PATHETIC OFFICIAL RESPONSE TO KATRINA HAS SHOCKED THE WORLD. HOW WILL IT CHANGE AMERICA?

Only those with a special pass, and under armed guard, can now go to the center of New Orleans. The city, officials will tell you, is far more dangerous than is generally believed. But just a few people, such as scientists needing to retrieve experiments, are being allowed in. Much of the city is a sea of filthy water. Cars, boats, trees and power-lines float on it in a tangled mass. The water stinks. On higher ground some parts remain oddly untouched, save for massive oaks lying in the road and huge plumes of smoke from various distant fires. But on every side the city is empty. The only sound is of helicopters overhead, dropping water on the fires. The only people are National Guard companies at the intersections, guns at the ready – and, on St Charles Avenue, one lone jogger, running on the streetcar tracks.

Slowly, falteringly and much too late, America began to respond to the devastation wrought by Hurricane Katrina. As relief stumbles along, the political blame-game is in top gear. George Bush and the federal government have come under fierce attack. Though a poll found that only 13% supposed the president should take most responsibility for the relief effort, or lack of it, both Republicans and Democrats were appalled at Mr. Bush’s failure to grasp the scale of the catastrophe, shocked that his senior staff were absent – or on holiday – while thousands of Americans were stranded without food and water, and aghast at the bumbling response of the Federal Emergency Management Agency (FEMA), which is charged with coping when disasters strike. America’s enemies, from Cuba to Iran, lined up with unconcealed smirks to offer doctors and aid.

The White House spin-machine whirled into action, trying to shift blame to local and state officials. Local and state officials have fought their corner. Pundits explained the government’s failure in every way they pleased. America’s racial rift has been re-opened. Almost all the desperate-looking victims on the television news are black. That partly reflects demography – New Orleans is two-thirds black. It also reflects poverty. Many blacks feel that, had it been whites drowning, the federal government would have acted more swiftly to save them. Amid all this name-calling, there were a few odd winners. Wal-Mart, for instance, a company that is often under fire from the left for the way it treats employees, was widely praised for the efficiency and unusual generosity of its response.

Around 1 million people have been displaced by Katrina. Texas has been the destination of close to a quarter of them. The insurance industry is in shock. Loss-adjusters still cannot get close enough to assess much of the damage. Only about half of property owners in New Orleans hold flood coverage, and even fewer in hard-hit patches of Mississippi and Alabama. The broader economic fall-out of Katrina remains uncertain. Traditionally, big hurricanes – for all their devastation – have had only a small effect on the macroeconomy. Katrina, though, may well be a different case. Forecasters have cut their expectations for GDP for the rest of the year. And the fiscal impact could end up being sizeable. Some politicians talked of spending more than $150 billion on recovery and relief.

A government spread too thin.

Politically, President Bush may find it difficult to recover from Hurricane Katrina, but not for the reasons you might think. Mr. Bush’s real problem is not aiding the hurricane victims or the search for uplifting Reaganesque rhetoric. Instead, it is the weight of an oversized federal government that hindered both preparation for and the response to this tragedy. It is a government that may fail again during this presidency.

Mr. Bush did acknowledge the unacceptable nature of the relief effort. Since then, he has paddled furiously to stay ahead of the media and partisan blame game, but point-scoring should not be the president’s principal political concern. That is because Mr. Bush’s restrained response has not played that badly in middle America. The public’s reaction to the federal government’s response to the physical disaster is highly ambivalent.

Whether government has a role to play in disaster relief is a subject worthy of debate. What is not debatable is the government’s responsibility for enforcing public order and the protection of property rights. Most Americans intuitively appreciate this. It is also apparent that, while government was not responsible for this natural disaster, it may be responsible for making the tragic impact even more devastating. The well-documented deficiencies reflect significant government overreach. The federal government might have been in a position to do more for the 5 million residents affected in Louisiana, Mississippi and Alabama if it had been doing fewer things elsewhere. Rather than doing so many things so poorly, might government do greater good (and certainly less harm) if it just did less?

THE NEW PRINCE OF MONACO CONFRONTS HIS PAST

It has been a punishing six months for Albert II, Sovereign Prince of Monaco, since the death of his father, the dashing Prince Rainier III, whose marriage to the glamorous Grace Kelly created the Monaco that the world knows today as much as any tax laws or stone and mortar. Midway through the official yearlong mourning period for his father, just as the bachelor prince was trying to assimilate his new responsibilities and project the gravitas expected of him as a ruler, a former flight attendant announced with rather graphic detail in Paris-Match that she and Prince Albert had conceived a son, Alexandre, who was born two years ago.

“It was a very difficult moment for me,” he said with characteristic understatement, adding that he is still “coming to terms” with the unintended fatherhood. When asked if he believed he was tricked into having a child, as the mother’s account suggested, he was unflinching. “Yes, I think I was set up,” he said. At 47, with wire-rimmed glasses, American-cut charcoal gray suit and black wingtip shoes, Prince Albert II looks more like a prosperous Midwestern banker than the sovereign of the world’s smallest principality.

He seems aware that much of Monaco’s continuing attraction lies in maintaining the precarious fantasy of royalty in a modern age without turning himself into the central character of a very expensive theme park. He never appears in the public areas of the palace without a tie. All palace correspondence and communiqués capitalize the pronouns when referring to him. He has made one change: tradition long held that the flag flying from the staff on the tower above his office be hoisted when the prince was in Monaco. But Prince Albert flies the flag regardless of whether he is in town or not, preferring to keep his whereabouts, like so much else in his life, out of public view.

PRO-BERMUDA INDEPENDENCE REFERENDUM GROUP TO PRESENT PREMIER WITH PETITION

Pressure group Bermudians for a Referendum will be submitting a petition to Premier Alex Scott next week signed by 35% of the electorate. The group is calling on Government to have a referendum on the question of Independence, rather than make a decision through a General Election. Organizer Michael Marsh said that the directive to the EU issued by the Initiative and Referendum Institute (IRI) Europe stated that only 5% of the electorate was needed to sign a petition to warrant a referendum. The 35% represents a net of 14,008 of registered voters who signed the petition, out of 39,430 registered voters in Bermuda.

The petition states: “I am a registered voter in Bermuda and I believe that the issue of Independence for Bermuda should be decided by way of a referendum and not by a General Election.”

“ANGIE” TO LEAD A REVOLUTION OF THATCHERITE PROPORTIONS IN GERMANY?

Nobody has ever dared call Angela Merkel “Angie” to her face either, but they are playing the old Rolling Stones song of that name at every rally as the leader of Germany’s Christian Democrat Union (CDU) cruises smoothly towards victory in the national election on 18 September. There is, again, a certain difficulty with the lyrics – “All the dreams we held so close seemed to all go up in smoke. You can’t say we’re satisfied” – but most of the words get lost in the distortion from the amps, and they had to do SOMETHING about the woman’s image.

The 50-year-old “Ossi” (former East German) who is almost certain to become Germany’s first woman leader denies any aspirations to be another Margaret Thatcher – “She was a chemist, I am a physicist” – and her earnest, almost dour manner makes even Thatcher seem in retrospect like the life of the party. But many suspect that Angela Merkel intends a revolution of Thatcherite proportions.

She certainly is not saying that, because her election victory depends upon not being too specific about her plans. The German electorate is fed up with a decade of economic stagnation and high unemployment, and equally fed up with the Social Democrats (SPD), who have been in power for the past seven years without managing to fix the economy. But they do not want any pain or disruption in their lives. Almost everybody agrees in principle that “reform” is needed to get the German economy moving again – less rigidity in the labour market, a simpler tax system, and less generous pensions, unemployment pay and other social welfare spending. They agree, that is, until somebody suggests changes that would hit their own interests – and then they resist with fury.

What are her real plans for the world’s third-largest economy? The most intriguing clue was Merkel’s recent choice of Paul Kirchhof, famous for his advocacy of a “flat tax”, as shadow finance minister. Of course, she then denied that she was planning to bring in a flat tax, but it did feel like a hint to the insiders about what is coming. Germany’s decade of economic stagnation is due largely to the cost of absorbing 17 million former East Germans. And who would be more likely to adopt these radical Eastern European ideas than Angela Merkel, who comes from the formerly Communist part of the country? It promises to be an interesting four years in Germany.

EVER THOUGHT OF PUTTING PANAMA IN YOUR TRAVEL PLANS?

Let’s compile a list of everything we know about Panama. Hats, obviously. A canal, of course. General Noriega … ummm … more hats. Ah, the joy of going to a country most people know hardly anything about. Which is what I want to convince you to do.

Panama might be off the radar, but that does not mean it is not a cracking place for a holiday. It has all the unspoilt beaches, wild countryside, exotic fauna and historical richness you could ever wish for, and, as far as travel frontiers go, it is decidedly soft – no tinpot regimes, no gun-toting militia, no famines or plagues. In fact, the only thing likely to interrupt your leisurely terrace breakfast in the warm Central American sunshine is the noisy arrival of a nosy toucan. You can even drink the water.

As for the hats, they’re actually from Ecuador – but unless you are the Man from Del Monte, you can live with that.

Panama City, Panama

Panamanians joke that the McDonald’s franchises and glass skyscrapers make Panama City the “Miami of the South”, except that more English is spoken here. But more than a decade and a half after an American invasion leveled part of the city and about six years after U.S. troops pulled out of the country and ceded control of the Panama Canal, the city is asserting itself as a tourist destination, not just a scenic overpass for an engineered waterway. Fashionable hotels now dot the cosmopolitan skyline. Crumbling colonial homes are being polished into bohemian gems. Emerald rain forests woo eco-tourists. There might even be a Frank Gehry-designed museum in the future, with the hope of sparking a so-called “Bilbao effect” for the port of Balboa. For now, anyway, Panama City has not been overrun by tourists. But with daily direct flights from New York, Newark, Los Angeles, and other U.S. cities, that might not last.

Hutchison to invest $1 billion in Panama ports upgrade.

The Panama Ports Company, a unit of the container terminal arm of Hong-Kong-based Hutchison Whampoa Ltd., plans to invest $1 billion to quadruple capacity at two key ports in Panama over the next 10 years. As global shipping trade grows, Panama Ports hopes its terminals – Balboa on the Pacific coast and Cristobal on the Atlantic Ocean – will become regional distribution centers for cargo, hence the expansion upgrades. “We have the ability and intention to transform both ports into mega-ports that will make them both premier destinations for trans-shipment cargo,” Panama Ports’ general manager Alejandro Kouruklis told Reuters in an interview.

BAHAMAS RESISTS OIL DEALS WITH CHAVEZ

The Bahamas government’s decision not to sign on to a deal allowing regional countries to receive Venezuelan oil on the cheap has disappointed its Caribbean neighbors. Trade and Industry Minister Leslie Miller said discontentment over the decision was obvious in Jamaica earlier this week when a Bahamian contingent traveled to observe other states sign on to the PetroCaribe accord.

While renewing his support for The Bahamas participation in the initiative, Minister Miller said he understood why Trinidad and Barbados decided not to sign up. “Trinidad said they would lose market in the Eastern Caribbean, including CARICOM,” Minister Miller explained, adding, “So obviously it would affect them. They had a legitimate claim to take it easy and not sign.” He said Barbados was in a similar situation as it produces 11,000 barrels of crude oil per day. “It would have not been in their best interest to sign without Trinidad being onboard,” the minister added.

Nine Caribbean countries signed the new agreement in Montego Bay, Jamaica Wednesday including Dominican Republic, Antigua, Suriname, St Kitts and Nevis, Grenada, Guyana, Belize, Dominica, and St. Vincent and Grenadines.

U.K. SHADOW ECONOMY WORTH £141 BILLION

Britain’s shadow economy is worth £141 billion ($259 billion) a year, according to new estimates this weekend which suggest tax evasion is rampant in the UK. Friedrich Schneider, of the Johannes Kepler University of Linz and one of the world’s top experts on measuring the size of the black market, says the shadow economy in the UK is now 12.2% of official GDP. By contrast, the share in the U.S. is a mere 8.4% but in France it is 14.5% and in Germany 16.8%.

The average for 96 developing countries was 38.7% of GDP in 2002-03, Schneider says. For the 25 transition countries studied, the shadow economy was as high as 40.1% while for the 21 OECD countries it was 16.3%. Tax evasion in the three communist countries analysed was estimated at 22.3% of GDP. Schneider’s research only measures otherwise legal activities that are not reported – such as work done cash in hand – and does not include illegal activities such as drug dealing.

SWITZERLAND LIES ON TOP OF THE WEALTH TREE

The World Bank has reported that Switzerland is the richest country in the world, with a per capita wealth of $648,241 (SFr816,913). At the other end of the scale, sub-Saharan African countries are the poorest, with Ethiopia having only a per capita wealth of $1,965. The study, Where is the Wealth of Nations?, was launched in New York on the eve of the 2005 UN World Summit. In it the authors have used new methodology to offer estimates of total wealth, including for example the money value of natural resources and human skills and capabilities, which show that many of the poorest countries in the world are not on a sustainable path. The publication offers a ranking of countries according to wealth, with tables highlighting the 10 wealthiest and 10 poorest countries. Switzerland heads the list of the top-10 performers, the other 9 being European countries, the U.S. and Japan. Sub-Saharan Africa dominates the bottom-10 list.

NEW ZEALAND NAMED BEST NATION FOR BUSINESS

The World Bank has concluded that New Zealand is the most business-friendly nation in the world and that Serbia and Montenegro made the biggest pro-business changes last year. In a study, the World Bank said that New Zealand and Singapore were the easiest countries to do business in. The United States came in third, followed by Canada. In its report, the World Bank ranked 155 countries based on classic American assumptions about economic success, like the idea that less red tape is better than more. The study looked at factors like the number of days it takes to get approval for starting a business, the ease or difficulty of hiring and firing workers, the ability of creditors to recoup their money when a company goes bankrupt, and the ability to enforce contracts in court.

As in the past, most of those at the top of the list are wealthy and technologically advanced, like Australia, Britain, Denmark, Hong Kong and Norway. Hong Kong, a semiautonomous region of China, placed 7th, while China itself placed only 91st out of 155. But the World Bank said the formerly communist nations of Central Europe had made some of the biggest advances in supporting private business. Two former Soviet republics – Lithuania, in 14th place, and Estonia, in 15th – ranked ahead of Switzerland, Belgium and Germany. Among the countries that made the biggest changes in 2004 were Serbia and Montenegro, Slovakia, Latvia and Romania.

New Zealand performed consistently well across all 10 indicators for the survey. It was first for ease of registering property and protecting investors, second for dealing with licences and fourth for starting a business, hiring and firing, and enforcing contracts. It was 15th for trading across borders, 16th for paying taxes and 21st for closing a business. While many countries performed poorly because they lagged in encouraging business with regulatory reform, New Zealand had been one of the more “aggressive reformers” over the past 10-15 years, said Caralee McLiesh, senior economist on the World Bank’s Doing Business project.

New Zealand election goes to the wire.

Labour is hoping to win a third three-year term in office. Labour’s leader, former academic Helen Clark, is an experienced politician and her government has presided over a sustained period of economic growth. But Labour is facing a strong challenge from National on the two big issues of race and tax, and opinion polls put the two parties level. “The polls are reflecting the uncertainty in the electorate,” according to political commentator Colin James. “This should be an unloseable election for Labour because of the strongly growing economy, but cutting across this is the highly contentious issue of indigenous rights. Plus there is a subsidiary issue of large tax cuts promised by National.”

Analysts say there has been a shift in public sentiment against what many see as Labour's special treatment for indigenous Maori, who make up around 15% of New Zealand’s four million people. National has taken a popular stand against what Mr. Brash calls race-based funding, through which Maori receive targeted government funding for health, education and development. Also under fire are new laws allowing same-sex civil unions, a ban on smoking in public places, and a proposed ban on smacking.

While race relations may have soured, the economy has boomed. Unemployment is currently at 3.7%, the lowest in the OECD, and annual growth has been running at more than 4% over the last five years – higher than Australia and the U.S. – although it has slowed significantly in the past year. As a result, the Labour government is now sitting on a budget surplus of around NZ$7 billion (US$4.9 billion). Voters want to know how some of this extra wealth will make its way into their pockets. Both Labour and National have promised tax cuts in their election manifestos.

But this election is not just a 2-horse race. 19 political parties are contesting the 2005 polls, including 6 newcomers. Under New Zealand14s mixed-member proportional representation system (MMP), the larger parties are likely to have to seek support from the smaller parties in order to gain a workable majority in the 120-member single chamber parliament. Whoever forms the new government is likely to face an economic downturn in the wake of sharply higher oil prices and the widening trade deficit.

RUSSIA FACES DEMOGRAPHIC DISASTER

Russia, on average, has a “shortfall” of one child per family – compared to both an ideal number and a desirable number – the one child that Russia lacks to be able to feel secure and look forward, confidently, to the future. This definitely gives some food for thought. The Soviet authorities overlooked the demographic crisis, while the Russian authorities were confronted with it head-on within the first few years of their existence. It was also when the majority of the people also noticed it, learning that the country’s population was shrinking. Meanwhile, the average number of births had fallen below the level of simple reproduction – that is to say, below 215 children per 100 women – back in the 1960s. That was when demographers sounded the alarm, warning the ruling authorities about an imminent demographic crisis. Alas, during the stagnation era, the Politburo’s educational and cultural level was insufficient to understand the country’s demographic problems. It was not until the crisis entered an acute phase – a net population drop – that the authorities had to finally listen to the experts. By now many politicians have heard something about a demographic revolution or a demographic transition.

With the current birth and mortality rates, when Russia is on the upturn of another demographic wave, the country’s population is declining by 700,000 a year. In less favorable years, this decline goes as high as 1 million. Within 30 years, the population loss will be 20 to 30 million. This is comparable to the total losses for the entire Soviet Union in World War II. Perhaps there is cause for serious nation-wide discussion about getting our socio-economic priorities right. Put simply, are we fighting for what is worth fighting for?

RUSSIANS ARE NOT WELCOME IN EU

To make the struggle against terrorism and illegal migration more effective, the EU toughens the visa regime for the third world citizens beginning with the next year. This will first of all concern people in Russia, Ukraine and Belarus, those countries where the getting visa procedures are quite long today. The innovation means that now the procedure may take even several months there. Thus, the EU may in fact nullify a treaty on simplification of mutual trips of citizens from Russia and CIS signed in May.

EU officials give no sufficient reason explaining why the getting visa procedure is made tougher. They say that Russian and Ukrainian passports are easy for forging and that the borders are not secure enough. This is true to some extent. The Russian border with Kazakhstan and Azerbaijan is easy for passing which allows illegal migrants from poor Asian countries invade Russia and Europe as well. Russia President Vladimir Putin already emphasized the problem and even demanded that the border with the mentioned countries must be closed. This is also true that the share of forged passports is rather high in Russia, and the crime rate here is higher than in Europe.

But this is just the reverse of the medal. Honest Russians with not very high incomes but wishing to see European sights have no chance to get to Europe. But those who break the law and have much money may easily get there by bribing consulate officials. Germany has already recognized that its consulate offices are too corrupt. The country has already launched investigations of machinations with granting visas at German consulate offices in Russia and Ukraine.

EU also fears that cheap manpower from former Soviet republics may flood European countries. But this is a rather weak argument because it is well-known that Russians and Ukrainians speak foreign languages badly, that Russian and Ukrainian diplomas are seldom recognized abroad which poses serious problems with getting a job there. At the same time, people from former colonies in Asia, Africa and Latin America, sometimes criminals and terrorists, may easily get to Europe. Is Mr. Clarke unaware of the fact?

So, the visa regime toughening seems to be a purely political innovation. Europe demonstrates it prefers double standards in the relations with Russia. On the one hand, toughening of the visa regime with Russia will make millions of Russian-speaking Europeans indignant; they do have the right to visit their native land without problems. On the other hand, EU will have a huge neighbor which citizens will be negatively minded towards EU despite its obvious advantages.

IN MACAO, GIANT PLEASURE DOMES ARE DECREED

It is 3 a.m. on a humid Sunday in Macao in late July, and hundreds of people, most of them Chinese, are still filing into the gigantic new Sands Macao hotel and casino, making their way up the escalator to the building’s main gallery. Under a 100,000-pound chandelier, on a carpeted floor nearly three times the size of a football field, people stand shoulder to shoulder around the baccarat tables, gambling the hours away. Across the Avenida de Amizade, a sprawling theme park called Fisherman’s Wharf is going up. The neon lights from the Sands illuminate such park features as an artificial 130-foot volcano that rises above a replica of the Roman Colosseum.

Just a few blocks away, construction has begun on the Las Vegas tycoon Steve Wynn’s $700 million hotel and casino project, the Wynn Macao, which is scheduled to open in 2006. In addition, Macao is awaiting the opening of a MGM Grand Paradise hotel and casino, and Stanley Ho, whose name has long been synonymous with gambling in Macao, is trying to update his own casino empire by building the Grand Lisboa on the Avenida Infante D. Henrique. Perhaps the most stunning building projects are going on about four miles away, on what is called the Cotai Strip, Macao’s expensive and hyperambitious answer to the Las Vegas Strip. By 2007, one of the world’s largest and most extravagant building complexes, the Venetian Macau hotel and casino, is expected to open.

It is easy to see why Macao, a small island territory 37 miles southwest of Hong Kong, is already being called Asia’s Las Vegas. For decades, Macao was a sleepy Portuguese colony that offered little more than a taste of European architecture in Asia and an array of smoke-filled casinos catering to gamblers from Hong Kong and Taiwan. Now Macao is racing to build bridges, tunnels, railways and airports. There are even plans to spend $3.8 billion to build a 17-mile bridge across the Pearl River, connecting Macao and the city of Zhuhai to Hong Kong by the end of the decade, making it possible for visitors to Hong Kong’s new Disneyland to also make a quick drive south to the Venetian in Macao.

Last year, a record 16.7 million people visited Macao. This year, tourism officials are forecasting close to 20 million visitors. But there are some problems. Macao has about 10 square miles of land for 470,000 people. And about four square miles of that land was reclaimed from the sea over the past few decades. Though Macao has some beautiful old neighborhoods – in fact, in early July, Macao was added to the World Heritage List – it has found it hard to attract visitors with more than gambling on their agenda. Las Vegas businessmen, however, are betting that all that is about to change.

EXPATS AND AN EXPANDING EU

The early and mid-1990s were a boom period for expatriate assignments in Central Europe. Billions of euros in foreign corporate investment were pouring into the top economies of the region and with these funds came sharp demand for qualified expats to fill upper- and middle-management positions. To sweeten the deal, many multinationals offered inflated salaries to workers who could set up new operations and get local employees orientated. But the demand and prospects for expatriate workers in top investment regions such as the Czech Republic, Hungary and Poland have shifted since this heady period, and one of the reasons for it is EU accession.

Since the fall of the Berlin wall, transnational corporations from Western Europe – predominately Germany, France, the Netherlands and the UK – and the U.S. have invested heavily in Central Europe. But some of these businesses, particularly those in the low-tech manufacturing sector, have already relocated further east and south in anticipation of the increased labor costs that will accompany EU status in the 10 accession nations: Cyprus, the Czech Republic, Estonia, Hungary, Latvia, Lithuania, Malta, Poland, Slovakia and Slovenia. Moreover, many of the expatriate jobs that have not gone further afield have simply been absorbed by local staff. After all, one of the primary roles for expatriates in Central and Eastern Europe has been to work themselves out of a job by getting local workers up to speed.

But not all of the expatriate prospects in the accession countries have disappeared. While some jobs have moved to countries that are not yet due to join the EU (though Bulgaria and Romania have a target membership date of 2007), many expatriate employment opportunities have remained and others have sprung up. “There was a drop off in expatriates in the three big markets recently but apparently their numbers are leveling, so I’d say there is more room for expats to be there,” says Judy Warren, a human capital consultant for consulting firm Watson Wyatt Worldwide.

Warren, who lived and worked for two years as a consultant in Budapest, also notes, “In terms of the skills needed, the ability to speak English, without question, is the biggest requirement, and general business skills… A real strong business approach is what you’re looking at.” But she adds that it is increasingly required to be almost fluent in the regional language, particularly for expatriates who are vying for lower-level positions where the focus now is on recruiting local-language speakers. Outside of these multinational corporations, numerous technical, service and other industry sectors have grown in response to the influx of business investment, increased consumer choice and EU accession.

HEAVEN FOR MONEY, HELL FOR ASIAN WORKERS IN THE UAE

An unprecedented real estate boom is underway in the United Arab Emirates and much of the work is done by workers held in quasi-slave conditions. Some 10 million foreign workers are employed in the country. Many of them working at tens of meters from the ground building the Jumeira Beach Towers, the second most important real estate complex in the world after the one in Shanghai (China). Whether from Afghan warlords or English football teams, local sheiks are drawing foreign investment to the local real estate market in order to turn Dubai into the Mideast’s economic capital.

Dozens of skyscrapers are going up thanks to the legions of workers from India, Pakistan and Bangladesh. Men without a formal education and with little hope for employment back home come to the Gulf to earn $200 a month to feed and clothe their families. Usually, half of their salaries goes for their own meager survival – rice, tea, sugar – in cramped quarters where 6 live to a room. While the 100,000 British expats in Dubai live like nabobs, Asian workers are banned from fancy stores, the new golf courses and the fashionable underwater restaurants. Instead, they have to put up working at 50º Celsius (122º F), going home to see their families only once every two years, and getting injured in frequent work-related accidents.

Westerners barely notice them, only perhaps at the end of the working day when queues of exhausted men in filthy blue overalls wait patiently for their buses home to distant work camps on the city outskirts. These men have no voice and no rights. Trades unions are banned. Workers who have staged protests about their poor conditions have drawn swift crackdowns by police. “Troublemakers” are rapidly deported. In the UAE, of which Dubai is the biggest, guest workers are expected to do as they are told.

POLITICIANS ARE VOTED THE WORLD’S LEAST TRUSTED PEOPLE

Most people believe their government does not act according to their wishes, a worldwide opinion survey shows. Lack of confidence in governments is highest in the former Soviet bloc, where 75% say their country is not governed by the will of the people, but similar views are held by most Europeans (64%) and North Americans (60%). The findings come from one of the largest international polls ever undertaken. Commissioned by the BBC World Service, Gallup International Associates interviewed more than 50,000 people in 68 countries, representative of the views of 1.3 billion people worldwide. The main exclusions were China and most of the Middle East, where government restrictions make polling difficult or impossible. Overall, slightly less than half of those surveyed (47%) felt that elections in their country were free and fair. Confidence in elections was highest in Scandinavia (82%) and South Africa (76%), and lowest in West Africa (24%) and the former Soviet Union (25%).

Worldwide, politicians represent the least trusted occupation in the survey, scoring only 13%. Religious leaders are the most trusted (33%), followed by military/police leaders (26%), journalists (26%) and business leaders (19%). Asked which types of people they would like to give more power to, 35% favored “intellectuals” (writers and academics), followed by religious leaders on 25%.

Almost everywhere, people said family and friends were the most important influences on their personal decisions, but religious leaders were the most important influence for 13% in Africa and 12% in North America. Elsewhere, religious influence was small or negligible.

Europeans are among the most sceptical about people in power.

Some 50,000 people in 68 countries were asked about trust, power, freedom of action and identity in the Gallup International poll commissioned by the BBC World Service. Few Europeans trust the media and many would like to see intellectuals play a greater role, the survey found. Germans appear most tied to their jobs while regional identity is strongest in Portugal and Spain. In the 23 European countries surveyed, a third of respondents said they did not trust politicians or business, religious and military leaders, rising to more than half in central and eastern Europe. Globally, only a quarter of those in the survey held people in authority in similar disregard.

Journalists in particular are held in poor esteem – only one in five Europeans trusts them, if the survey, or indeed this report of it, is to be believed. The survey suggests that Europeans are generally disinclined to give more power to those who have it. If there is one category they think should have more influence than they do at present, it is intellectuals, and to a lesser extent, business people.

Affluence would seem to play a big part in whether people think they are in control of their own destinies. In Britain, Denmark, Norway and Ireland, more than three quarters of those polled said they could change their own lives, but fewer than half thought so in central and eastern Europe. The stereotype of the industrious German also seems to have been borne out by the survey – 11% said their employer had the most influence over their life decisions, compared to 4% in Europe as a whole.

IS GIBRALTAR BEING TAKEN FOR A RIDE?

The long-delayed second meeting with Britain to seek constitutional reform opens with many people wondering why the process is taking so long. The last constitution was agreed in a week or so at a meeting held in Gibraltar in 1968. Gibraltar was seeking constitutional reform which was quite wide ranging and important, such as establishing a link between Gibraltar and Britain which was the subject of great differences and much debate when the talks started. Yet, it all ended happily, albeit after fears that they would break down.

Parallels are being drawn with that occasion which, significantly, was headed by a UK minister, Lord Shepherd, who had the authority to reach agreements or to make personal calls to other ministers in Britain, including the Prime Minister. What we are seeing in the current constitutional meetings is something of a charade, with the proposed new constitution having been agreed locally as long ago as 1999 – and still nothing has happened! The first talks between the UK and Gibraltar delegations go back almost a year. So, is Gibraltar being taken for a ride?

After the first round ended in London last December, a statement said that they had gone through the proposals clause by clause, there was satisfaction with the progress made and the UK side had generally given a positive and sympathetic response to the proposals tabled by the Gibraltar delegation. That being the case, why the snail-pace? The talks should have continued in the first quarter of this year, that is, before the end of March. Why did they not? That there was a general election? But that was later, and a meeting should have been organised well before the election was even announced. And given that Labour were returned to power, it is another red-herring to say that more time was required. Required for what, when London has had the proposals for years – they knew what was being requested and they have long known what is their response.

Britain is on a poor wicket if it insists that there are certain rules and regulations that must apply to Gibraltar, when she does not apply such concepts to herself. Gibraltar does not want to break away from Britain – but wants to break away from a colonial relationship.

Gibraltar celebrates its National Day.

Thousands of Gibraltarians converged on Casemates Square to attend a political rally to mark National Day. Against a gigantic sign proclaiming that “Self-determination is democracy”, there was a united call for the right to self-determination. People dressed in the red and white colours of Gibraltar thronged the city center, with families, friends and visitors joining in the celebrations. British MPs from the main political parties also attended, and spoke in support of Gibraltar’s aspirations. Simon Hughes, Liberal Democrat, spoke of “the people of the nation of Gibraltar”.

For the chief minister Peter Caruana, National Day is the day “when we tell the world that Gibraltar is our homeland. This is our small country, our small nation.” He spoke of moving towards a non-colonial, modern and British constitutional relationship with Britain. As many as 30,000 balloons – representing the 30,000 population – were released at the end of the rally, with the Gibraltar anthem in the background.

TAXES

IT’S GOOD TO BE FLAT

For those, such as this newspaper, who advocated a flat tax long before it was fashionable, it is encouraging to witness the explosion of interest in the idea in Great Britain, Germany and elsewhere in recent few weeks. Even George Osborne, shadow chancellor of a British Tory party which has not espoused an original idea for a decade and a half, supports “flatter taxes”, setting up a commission to study the idea. But proof positive that the flat tax is an idea now being taken seriously comes in the shape of various onslaughts against it from numerous liberal-left think-tanks and commentators who, until now, had thought it too radical or loopy to merit even a dismissive comment; and from the forces of Chancellor Gordon Brown, whose troubled tenure at the British Treasury is the very antithesis of flat or simple taxes.

Critics of the flat tax make two main attacks. They claim that, even though flat taxes have been adopted (apparently successfully) by 10 eastern European countries, the flat tax would not raise enough revenue for a sophisticated and advanced economy like Britain’s. They also claim that flat taxes are unfair because they favor the rich at the expense of the poor. Underlying all the attacks is a curiously static model of a modern economy, no doubt because it suits their case. They forget – or, more likely, refuse because it is inconvenient – to factor in how lower taxes change people’s behavior and hence overall government revenues

The likely Chancellor-to-be in Germany, Christian Democrat Angela Merkel, will appoint Paul Kirchof, a leading advocate of the flat tax, as her finance minister. Even if the notoriously unambitious German political system blocks any proper reform, it still shows that a once arcane idea has now gone mainstream in Europe’s biggest economy. But not yet in Britain, where the official direct tax guide has doubled from 4,555 pages to 9,050 pages during eight years of obsessive, destructive tax tinkering and meddling by Gordon Brown. The Chancellor is as far from flatter and simpler taxes as the Bush administration is from the competent handling of national disasters – which is why, especially given that Mr. Brown is likely to be the next prime minister, the economic prognosis for Great Britain is faltering

SWISS EXPERIENCE PROVES TAX COMPETITION WORKS

Lots of factors influence where people decide to live, and where businesses choose to base themselves. Communications, language, location, infrastructure, culture and language all play a part. But one of them might also be tax. In recent months, tax competition has started to be hotly debated across Europe. Eastern Europe has been conducting a radical experiment in flat taxes, led by countries such as Russia, Estonia and Romania. Now it is spreading to western Europe as well. Greece has already said its planning a flat tax. In Germany, the opposition Christian Democratic Union, which might be in power by the end of this month, has toyed with a flat tax. And while the French have been cutting tax rates, the UK has been increasing them.

But is there really any need for countries to compete with one another on taxes? People or companies cannot easily up sticks and move from one country to another. There are ties of culture, family and language which bind people and businesses to their own country. High tax countries such as Sweden have not seen any more than a modest exodus of people. To push this debate forward, the OECD has done an experiment in whether tax rates determine where people live. Its conclusion is surprising: tax is indeed a big factor in deciding residence. And the more skilled people are, and therefore the higher their earning, the bigger role it plays. The tax laboratory rat was Switzerland.

Switzerland is well known for having low-ish taxes, particularly for wealthy foreigners. More importantly, for the experiment, each canton also levies its own income taxes, with the result that tax rates can vary from place to place. The differences can be quite substantial. With no disrespect to the people of Schwyaz or Berne, there is not a great deal to choose between one Swiss canton and another. There are all clean and efficient, if a tad dull. And people can, of course, move freely from one to another. They can also carry on working in one canton, but live in another, and so pay less tax. That is what makes the Swiss experience so interesting. The data, drawn from Swiss census returns, turned out to show that tax turned out to be a very important factor in where people live. “The most important finding of this study is that the community tax burden has a significant impact on highly-skilled migration,” it says. The implications are particularly worrying for the UK.

ASSET PROTECTION

DOES FLAT TAX REVOLUTION THREATEN BERMUDA AND OTHER TAX HAVENS?

One of the gravest dangers that Bermuda faces is the widespread introduction of “flat tax” in developed countries. The extraordinary complex tax codes in the U.S. and the UK, for example, give endless reasons for tax advisers to recommend incorporation of global holding companies in Bermuda, and in other no-tax or low-tax regimes like Ireland, the Netherlands and Luxembourg. If the major tax jurisdictions were shorn of that complexity, the attraction of jurisdictions like Bermuda would disappear almost overnight. Until now, that prospect has been remote, so international accountants and tax advisers, and their very powerful corporate clients, have had every reason to take advantage of impossibly complex tax codes by making use of low-tax jurisdictions.

However, in a recent edition of the Wall Street Journal, senior economics writer Stephen Moore wrote that the flat tax “was an idea whose time has come”. Meanwhile, in the UK’s Daily Telegraph, George Trefgarne wrote that “whatever (UK Chancellor of the Exchequer) Gordon Brown says, the flat tax is coming. (It) is marching across Europe, just as other ideas have conquered the Continent every generation or so. This time, the revolution is being driven not by loathing of communism or some ancien regime, but by that mysterious magic of markets: competition. … A flat tax regime has been adopted in 11 countries and counting. As each citadel falls, another is forced to respond to the new-found vigour of its neighbour.”

Next up is Greece, which has “unbelievably rickety public finances, (but) the hope is that a flat tax rate of 25% will revive the moribund economy, reduce evasion, attract high earners and send revenues pouring into the coffers of Athens”. But Mr. Trefgarne also sees Germany as “a far bigger prize for the flat-tax revolution”. New Christian Democrat leader Angela Merkel, herself a product of the Soviet Bloc as a former East German, is challenging Chancellor Gerhard Schroder, and is far ahead in the polls. It would be a profound irony if Bermuda’s international position was eroded by Steve Forbes, the New York Times, and a “revolution” begun in the former Soviet Union.

EU SAVINGS TAX DIRECTIVE LOOPHOLES BECOME SUSPECT

The EU Savings Tax Directive, which came into force on 1 July this year, is a mouthful to say and even its abbreviation sounds like a communicable disease … EUSTD. The aims of the tax directive are just as unpalatable to many investors who, for legitimate or murky reasons, squirrel away cash in undeclared offshore savings accounts. The directive forces individuals with offshore cash to have the gross interest taxed offshore or, in some cases, they can elect to let the UK and offshore tax authorities share information about the value of the offshore savings. The directive applies to all EU member states as well as more than a dozen tax havens including Switzerland, the Isle of Man, and the Channel Islands.

Even investors who have homes abroad and accounts in EU countries to finance them, will find the HM Revenue & Customs is taking a much closer look at the interest they earn elsewhere. Not surprisingly, in advance of the 1 July deadline, hundreds of millions of pounds reportedly migrated to more exotic (and unaffected) destinations such as Singapore and the Caribbean. But there has also been a sudden outbreak of interest in offshore insurance bond “wrappers” which are exempt from the directive. There is no doubt that some savers are using these vehicles to shelter cash from the tax office. Historically, offshore insurance bond “wrappers” – known generically as portfolio bonds – have carried huge upfront fees of up to 8%. For cash-holding clients who do not need advice, these wrappers are now being sold for as little as 0.5% – given the gross savings rates offshore, it makes them sound almost too good to be true.

Tim Harvey is a UK-based independent financial adviser who specialises in offshore planning. He says these bonds are being used as a way around the directive for people who still want to keep cash offshore, untaxed, and away from the Revenue’s gaze. But this new interest in offshore bonds may start to attract the attention of the Revenue. It is also a very touchy issue among the life assurers that provide offshore portfolio bonds. They are unwilling to speak openly about this new demand for cash-only bonds. These are longstanding products used by many well-off individuals for legitimate financial planning and the insurers do not want to rock this lucrative boat by being seen to be harboring hundreds of millions of pounds of undeclared cash.

An alternative for offshore savers is to defer paying tax on offshore accounts. This can be done without engaging in “hidden” activities. In response to EUSTD, a little sub-set of offshore savings accounts has been thriving. In these “deferred interest”, money is left to “roll up” gross, and the interest is only paid (and declared) when the account is closed. A canny saver could not only defer but reduce or even eliminate the tax payable on an offshore account by careful planning. But there is even controversy here. One offshore provider suggests that if these deferred interest accounts get too popular, the local tax authorities may start to complain at being made to forgo a share of the annual tax take. There are always clever tax avoidance ideas but very few “loopholes” are likely to be around for too long.

OFFSHORE TRUSTS COULD WELL BE DUE A RENAISSANCE

Are offshore trusts dead? It might seem so as high tax jurisdictions enact ever-more sophisticated anti-avoidance tax legislation and a blanket of bureaucratic money laundering compliance spreads across the globe, increasing administration costs. In fact, the reality is rather different and reports of the death of the international trust industry are perhaps exaggerated. Indeed, a renaissance may be ahead.

Tax-driven uses of offshore trusts continue to be circumscribed, so why do I believe there is a bright future? Because of a renewed interest in asset protection planning as entrepreneurs begin to wake up to the fact that divorce laws can decimate their wealth. As high-net-worth individuals realize that not only their own marriage breakdowns, but those of their offspring, represent a far greater threat to their wealth than any tax liability, so carefully crafted and administered offshore trusts combined with family protocols (“if you want to participate in my wealth you have to abide by my rules”) and prenuptial agreements will become the norm to protect inherited wealth.

Trusts are the modern incarnation of “uses”, a device designed to protect the landed estates of medieval landowners who went on crusades in the 12th century. As we enter the 21st century, perhaps the original purpose of trusts, that of asset protection, will reassert itself over the purely tax-driven planning of recent decades.

BANKRUPTCY LAW DELAY PROPOSED

Some Democratic lawmakers and consumer advocates are seeking relief for Hurricane Katrina victims from a new, more stringent bankruptcy law that takes effect next month. Republicans, who dominate both the House and Senate, are frostier to the plan, while White House officials have indicated the administration is considering the idea. The changes in the U.S. Bankruptcy Code, which make it harder to erase credit card and other debt through bankruptcy, affect an estimated 30,000 to 210,000 people nationwide. Passed by Congress and signed by President Bush in April, the law making the changes already has spurred a rush to the courthouse. New personal bankruptcy filings under the more lenient current law surged to an all-time high of 458,597 in the second quarter.

With Hurricane Katrina’s devastation of New Orleans and the Gulf Coast, hundreds of thousands of survivors have lost homes, jobs and businesses. The personal and economic loss in Louisiana and Mississippi “will take its toll on consumers, forcing many individuals in these affected regions to file for bankruptcy irrespective of more stringent laws,” credit agency Fitch Ratings said. People who lived in the disaster zones and were already in serious debt and planned to file before the new law takes effect Oct. 17 are in no position to hire a bankruptcy lawyer and get their financial records together by then, some lawmakers and consumer advocates say. The new law also requires everyone filing for personal bankruptcy to take courses in credit counseling.

The American Bankers Association, the banking industry’s biggest lobbying group, says most of the people hardest hit by Katrina had incomes far below their state’s median, making them eligible to erase their debt under the new law.

TAX AVOIDANCE “KEEPS DEVELOPING WORLD POOR” (ACCORDING TO RECYCLED LEFTIST SCREED)

Multinational companies operating in the world’s poorest countries are “dodging” around £270 billion a year in tax, anti-poverty campaigners claimed today. By not paying the taxes, rich businesses are depriving developing countries of much needed revenue, according to a report by Christian Aid. The report names no names but says leading accountancy firms, banks and business conglomerates with close links to the UK were implicated.

The study says the businesses are secreting money in offshore banks, trusts and companies, creating tax havens away from Britain. It argues that the shortfall means the developed world will never achieve its stated aim of reducing world poverty. The report coincides with the UN’s review of its Millennium Development Goals (MDG), which is taking place in New York. It argues that responsible tax regimes must be put in place in order to help achieve the MDG aim of cutting poverty by half by 2015.

“Tax is the forgotten issue in the debate about how to tackle poverty, and must be added to trade, debt and aid if the world is serious about meeting the MDGs,” Andrew Pendleton, a senior policy advisor for the charity, said. “For decades, poor countries such as Kenya and Bolivia have been haemorrhaging money to which they are properly entitled. If these leaks could be plugged, it would mean that poor countries would not have to be so reliant on handouts that so often come with damaging strings attached.

“… Tax avoidance by wealthy people and multinational companies is one of the main causes of this. Corrupt leaders, criminals and terrorists are hiding away their ill-gotten gains by piggybacking on the systems set up for tax avoidance.” The Christian Aid report is being published in conjunction with the independent group the Tax Justice Network.

OFFSHORE FINANCE WILL BOOM BY 2008, POLL SAYS

More global financial service companies are jumping on the offshoring bandwagon in a bid to cut costs and keep shareholders happy, a survey has found. A poll of executives at 156 companies indicates that the percentage engaged in offshoring by 2008 is poised to rise to 94% from 82%, according to the survey by PricewaterhouseCoopers LLP. Offshoring is a term used to describe moving jobs to lower-cost countries, such as India and China. “Globally we are seeing that financial institutions are moving more and more offshore,” Robert Scott, a PwC partner and a national leader in information-technology advising, said in a statement. “As Canadian firms compete with these players, it is reasonable to assume that we will see more offshoring from this country.”

While one-quarter of the companies surveyed worldwide is now offshoring between 10% and 20% of their work force, that portion is poised to double within three years, says a study entitled “Offshoring in the Financial Services Industry: Risks and Rewards”. Gartner Group, a research company, estimates the international market for offshore business could reach US$130 billion this year. India’s share of this business from U.S. financial institutions was worth about $1.4-billion in 2004. Despite the trend, the survey also said that about half of respondents were dissatisfied with their experiences because of cost overruns, difficulties in recruiting and retaining staff and concerns about cultural differences between offshore employees and customers.

Cost-saving was the reason cited for offshoring by 79% of the executives surveyed, and 74% of financial services companies did save costs, the survey found. Nearly a third of respondents experienced no change in cost savings in the first year of offshoring, while 15% reported no change even after five years. More than 50% of the groups surveyed are currently involved in information technology offshoring. While 15% of the survey group currently is involved in offshoring “lower-value added” human resource activities, such as payroll, another 31% is expected to do so in three years.

The percentage of firms involved in offshore customer-contact activities, such as scripted sales calls, is expected to rise to 50% by 2008 from 25%. The survey also indicates that “higher value-added” activities, such as financial research, are likely to be transferred offshore over the next three years.

PRIVACY

SWISS POST-9/11 APPROACH FREEDOM AND SECURITY MORE LIBERAL THAN THAT OF U.S.

The Swiss authorities reacted some months after the attack on the World Trade Center in New York in 2001 by outlawing the Islamic extremist al-Qaeda groups and other organisations pursuing similar objectives. In 2003, Switzerland ratified UN conventions aimed at preventing terrorist attacks and the funding of terrorism. These included legal amendments that define the offence of funding terrorist activities and the obligation to identify people purchasing mobile phones for use with pre-paid cards. But on the whole, Switzerland has exercised restraint in introducing anti-terrorism legislation.

Some groups, however, are pushing for an extension of police powers. They say increased surveillance and data-gathering capabilities would facilitate more effective action against terrorism. Last August, the head of the domestic intelligence service called for legal amendments which would allow the creation of systematic records of suspected people as well as the surveillance of telephone calls, postal deliveries and emails, without the prior agreement of a magistrate.

When news of this was leaked to the media, the plan was roundly criticised by the justice minister, Christoph Blocher, who sent the proposals back for reconsideration. But critics fear that even a watered-down version of the legislation will result in an increase in the powers of the secret services to engage in preventive surveillance and investigation activities.

EXPERTS CALL FOR GLOBAL DATA-PROTECTION RULES

Switzerland is for the first time playing host to an annual international conference on data protection and privacy rights. Experts say steps are needed to standardize the different national laws and prevent data abuses in a globalized world. Jean-Philippe Walter of the Swiss federal data protection authorities says new technologies are a major challenge as they make it possible for detailed personal profiles to be created and individuals to be traced. “The new technologies make it possible to collect an ever increasing amount of information on people, without their knowledge. It is possible to collect and pass on information for ends which might not be the identical with the original purpose,” said Walter.

Jacques Neirynck, professor at the Federal Institute of Technology in Lausanne and a former parliamentarian, agrees with Walter in principle. But Neirynck believes that modern technologies are fundamentally a good thing. “You have to create ethical principles for the internet,” Neirynck, who acts as conference speaker, told swissinfo. Data has to be made accessible for those who need it for legal reasons, but not for public use, he added.

Mr. Walter points out that the disparity of legal systems and cultural standards has huge repercussions for the economy and has become a concern for multi-national corporations. “We don’t necessarily need to draw up common rules, but at least we have to try to apply the same concept. This would facilitate the exchange of information [between the authorities].”

Australian data protection laws on ice.

In December, the New York will bring into force strict new laws governing data security breaches. The laws will directly force state-based and interstate companies to disclose virtually all data breaches, no matter how small the companies deem the risk to consumers – and will usurp current California breach notification laws as a national benchmark.

However, despite high-profile cases that have seen thousands of Australians forced to replace personal items ranging from credit cards to passports, Attorney General Philip Ruddock is maintaining the existing Privacy Act, which carries no criminal sanctions, is strong enough to compel companies to keep their data safe from theft. According to information obtained by Computerworld from the office of the Attorney General, no new laws will be considered in Australia to force companies to disclose all details of a breach of data security that could expose personal information to either the general or criminal populations.

DUTCH TREAT: YOUR OWN PERSONAL DATABASE

The Dutch government will begin tracking every citizen from cradle to grave in a single database, opening a personal electronic dossier for every child at birth with health and family data, and eventually adding school and police records. The Health Ministry says the new database will begin January 1, 2007.

As a privacy safeguard, no single person will be able to access someone’s entire file. And each agency that contributes to the records will maintain its own files as well. But organizations can raise “red flags” in the dossier to caution other agencies of potential problems with children, said ministry spokesman Jan Brouwer. Until now, schools and police have been unable to communicate with each other about truancy records and criminality, which are often linked. “Child protection services will say: ‘Hey, there’s a warning flag from the police. There’s another one from school. There’s another one from the doctor. Something must be going on and it’s time to call the parents in for a meeting,’” Brouwer said.

Currently, all Dutch births are registered with local authorities, and children receive tax ID numbers in the mail within several weeks of birth. But their health and other records are not available in a single file. Now each child will get a Citizens Service Number, making it easier to keep track of children with problems even when their families move.

IN AUSTRALIA BIG BROTHER IS WATCHING YOUR EVERY MOVE

ASIO can monitor your phone and e-mail, listen to your conversations in your car or phone, open your mail or enter your home, all without your knowledge or permission. Federal agents can gain access to your voicemail and SMS and use tracking devices to monitor suspects. Suspects, referred to as “people of security interest”, are followed by surveillance teams, whose numbers have been boosted by a strong recruitment drive. ASIO asked for and was given three warrants for questioning suspects in 2003-04. The three were held for, respectively, 15 hours 57 minutes, 10 hours 32 minutes, and 42 hours 36 minutes (where an interpreter was required). Government reports show just over 2000 telephone interception warrants were issued in 2000-01.

An ASIO spokeswoman would not answer any questions about how many terror suspects were believed to be in Australia. She would not discuss any operational matters, including how suspects were identified or followed. The annual report is classified but a heavily censored public version is issued. “Legislation enables ASIO, subject to a warrant approved by the Attorney-General, to use intrusive methods of investigation such as telecommunications interception, listening devices, entry and search of premises, computer access, tracking devices, and the examination of postal and delivery service articles,” the latest annual report says.

The national security hotline, established in December 2002, referred 13,381 calls to ASIO in 2003-04, of which 2602 contained sufficient information to begin investigations. ASIO conducted 58,000 security checks for people working in specified areas such as airports. This week, the Government proposed boosting the powers of the spy agency in the wake of the London bombings.

LAW

POWER TO DETAIN U.S. TERROR SUSPECT IS UPHELD

A federal appeals court ruled today, in a significant victory for the Bush administration, that the president “unquestionably” had the authority to order the detention of Jose Padilla, an American citizen suspected of having links to Al Qaeda. A three-judge panel of the U.S. Court of Appeals for the Fourth Circuit, in Richmond, Virginia, said it was clear that “the exceedingly important question before us” must be decided in favor of President Bush. In so ruling, the panel reversed a Feb. 28 ruling by a federal district judge in South Carolina. “Under the facts as presented here, Padilla unquestionably qualifies as an ‘enemy combatant’,” Judge J. Michael Luttig wrote. Joining in the decision were Judges M. Blane Michael and William B. Traxler Jr.

Mr. Padilla was arrested in May 2002 at O’Hare International Airport in Chicago and was later accused of having planned to detonate a radiation-spewing “dirty bomb” in the U.S. as part of a plot by Al Qaeda. Since June 2002, he has been held in a military brig in Charleston, S.C. Although the federal authorities have asserted that Mr. Padilla, a former Chicago gang member who traveled to Pakistan and Afghanistan, has ties to terrorists and is a threat to the U.S., he has never been charged with a crime. His case is one of several that have stirred heated debate since the Sept. 11 attacks about the extent to which individual liberties can be curbed in the name of national security.

The U.S. Supreme Court declared on June 28, 2004, that “a state of war is not a blank check for the president” and that those deemed enemy combatants by the Bush administration had to be given the chance to challenge their detentions before a judge or other neutral decision-maker. Mr. Padilla’s case was one of three decided on that day, and the ruling on him was much less conclusive than in the other two, giving rise to additional proceedings that may not be over with today’s ruling by the Fourth Circuit.

JUDGE RULES IN FAVOR OF ACLU IN PATRIOT ACT CASE

A federal judge has lifted a gag order that shielded the identity of librarians who received an FBI demand for records about library patrons under the Patriot Act. U.S. District Court Judge Janet Hall ruled in favor of the American Civil Liberties Union, which argued that the gag order prevented their client from participating in a debate over whether Congress should reauthorize the Patriot Act. “Clearly the judge recognized it was profoundly undemocratic to gag a librarian from participating in the Patriot Act debate,” said ACLU Associate Legal Director Ann Beeson.

The ruling would allow the ACLU and its client to identify who received the request for records, but Hall stayed her decision until Sept. 20 to give the government a chance to appeal. Prosecutors said they were reviewing the decision and considering an appeal. Prosecutors argue that the gag order blocked the release of the client’s identity, not the client’s ability to speak about the Patriot Act. They said revealing the client’s identity could tip off suspects and jeopardize a federal investigation into terrorism or spying. Hall rejected the argument that the gag order did not silence the client.

“The government may intend the non-disclosure provision to serve some purpose other than the suppression of speech,” Hall wrote. “Nevertheless, it has the practical effect of silencing individuals with a constitutionally protected interest in speech and whose voices are particularly important in an ongoing national debate about the intrusion of governmental authority into individual lives.” The ruling rejected the gag order in this case, but it did not strike down the provision of the law used by the FBI to demand the library records. A broader challenge to that provision is still pending before Hall.

SWISS TO RETURN MORE ABACHA MONEY

Switzerland has given the green light for the immediate return to Nigeria of $290 million (SFr360 million) in funds seized in accounts linked to the late dictator, Sani Abacha. This is part of the sum that Abacha plundered from the West African country and deposited in Swiss banks between 1993 and the time of his death in 1998. “The transfer became possible following the signing of an agreement with the World Bank to monitor Nigeria’s use of the funds,” said Livio Zanolari, spokesman for the Swiss justice ministry.

A second installment of $170 million will be made when assets have been converted to cash, said Zanolari, adding that he did not know how long this would take. The money has been frozen in Swiss bank accounts since 1999. The Swiss Federal Court gave the all-clear for its return in February when it rejected an appeal by the Abacha family. The Swiss government had sought World Bank involvement in a bid to guarantee that the money will go towards development projects in areas such as health, education and infrastructure, as promised by Nigeria. The agreement with the World Bank has now been signed, said Zanolari.

Swiss bankers warn against foreign political abuse of judicial assistance.

Swiss bankers say that foreign countries must not abuse judicial assistance from Switzerland for political purposes. And they are pressing the Swiss authorities not to “close their eyes” to possible injustices in a foreign prosecution. “Suspect, or at least doubtful, requests should be refused or additional information sought, regardless of fears that this might cause diplomatic friction,” argued Urs Roth, chief executive of the Swiss Bankers Association at a news conference in Zurich. The issue has been raised because of the Swiss authorities’ role in blocking bank accounts and freezing assets, in particular those linked to Russia’s Yukos oil company.

“We have seen various procedures in the past few years when the authorities in foreign states, and that includes not only in Russia but also other countries, asked for legal assistance. In some cases it was doubtful whether it was a criminal procedure or rather a political procedure,” said Roth, adding that his association wanted Swiss judicial authorities to concentrate more on checking the details submitted by foreign authorities to see whether they warranted judicial assistance.

BANK OF CHINA AND TWO MACAU BANKS MAY HAVE LAUNDERED MONEY FOR NORTH KOREA

Bank of China and two banks based in Macau are under U.S. scrutiny for possible connections to North Korea’s illicit fund-raising network, which Washington believes finances Pyongyang’s nuclear program, The Wall Street Journal reported. The banks, which could face stiff sanctions, were caught up in a U.S. operation to shut down lucrative North Korean enterprises producing narcotics, counterfeit U.S. currency and fake cigarettes, the newspaper said. According to the paper, law-enforcement officials from several countries had described the wide-ranging U.S. operation, while several North Korean defectors gave accounts of Pyongyang’s financial network. The U.S. investigation comes as Bank of China gears up for an initial public offering next year.

BRITAIN CALLS FOR CHANGE TO EUROPEAN CONVENTION ON HUMAN RIGHTS

In the aftermath of the July bomb attacks in London, senior politicians are now warning that EU citizens will have to accept curbs on their civil liberties in the fight against terrorism. Addressing the European Parliament on September 7, UK home secretary Charles Clarke said the 50-year old European Convention on Human Rights had to be reviewed. “[EU] states may have to accept an erosion of some civil liberties if their citizens are to be protected from organized crime and terrorism,” said Mr. Clarke. “The reality of the convention’s founding fathers is different from that of today,” he stated in his opening address.

Mr. Clarke said citizens’ right to privacy had to balanced with their right to be protected from terrorism, and that the convention was imbalanced – in favor of the terrorist. The British politician said that the results of the French and the Dutch referendums on the EU constitution before the summer were proof that the citizens of Europe feel that the EU is doing far to little to tackle problems to do with terrorism, organized crime and asylum.

His comments received a mixed response from MEPs. UK liberal MEP Graham Watson said that he welcomed the commitment to fight terrorism, but added the fight could never be at the cost of human rights. “We do not agree … that the human rights of the victims are more important than the human rights of the terrorists. Human Rights are indivisible. Freedom and security are not alternatives, they go hand in hand,” he stated. Conservative MEP Timothy Kirkhope, on the other hand, said that the EU must use new technologies available to track down terrorists “otherwise the terrorists will be ahead of us like they have in the past, in crime and violence,” he said.

THE PRICE OF GOVERNMENT SECRECY

During 2004, the Bush Administration issued more secret court orders, spent $148 creating new classified documents for every $1 spent releasing old ones, invoked the “state secrets” privilege in court cases more frequently than ever before, and received 25% more requests for documents under the Freedom of Information Act. These are among the findings of a new “Secrecy Report Card” prepared by OpenTheGovernment.org, a coalition of organizations dedicated to lifting the “shroud of secrecy” from local, state and federal governments.

The report, written by Rick Blum, the organization’s director, charges that “Secrecy continues to expand across a broad spectrum of activities. Openness in our government and society is increasingly threatened. A keystone value of our democracy, openness more practically helps root out abuse of power, bad decisions or embarrassing facts that may put lives at risk.” Among such “embarrassing facts” is that “the military gave U.S. troops in Iraq body armor vests that failed ballistics tests”. Documented by reports obtained under the federal Freedom of Information act (FOIA), this decision was reversed and the body armor recalled once the story was about to hit the newsstands, the report says.

The report reveals that in 2004, the secretive Foreign Intelligence Surveillance Court – a key tool in the application of the USA Patriot Act – approved 1,754 orders and rejected none. The FBI must request such a court order before it can place anyone in the U.S. under surveillance, but since its founding in 1978 it has denied only four such requests.

For every $1 the federal government spent releasing old secrets, it spent $148 creating new ones – a $28 jump from 2003. In contrast, from 1997 to 2001, the government spent less than $20 per year keeping secrets for every dollar spent declassifying them. The government spent $7.2 billion securing classified information, more than any annual cost in at least a decade. With 15.6 million new documents stamped “secret” in fiscal year 2004, the government created 81% more secrets than it did in the year prior to the terrorist attacks of September 11, 2001. The government spent $460 to secure each of its classified documents, in addition to the cost of maintaining its accumulated secrets.

FEDS GET TOUGH ON MONEY LAUNDERING

Between 1994 and 2001, about 18,500 people were charged in federal court with money laundering, with 16% of the cases associated with drug trafficking. Nine out of 10 defendants were convicted. Last year, the IRS launched 1,789 money-laundering investigations, up from 1,448 in 2002. More than 1,300 people last year were prosecuted for money laundering, and 89% of those convicted wound up in prison. “There has been a recent spike in the use of money laundering charges, most likely to show defendants a serious set of charges with serious penalties as part of a prospective tactic to try to force plea bargains,” said Michael Pasano, a former federal prosecutor and chairman of the American Bar Association’s criminal justice section.

Lawyers in the area say they try to take extra steps when taking fees from clients to make sure none of the money is “tainted” or considered drug profits. “The best advice is: don’t be taking cash,” said Robert Creedon, an attorney and Massachusetts state senator. Kevin Reddington, a high profile defense attorney, said most lawyers who specialize in criminal defense follow that advice and refuse to accept cash for fees. “I tell people, take your fees in checks only,” he said. “It is for their own protection. If you have this hypothetical attorney who is going to represent someone and the fees could be anywhere from $50,000 to $75,000 and the defendant is unemployed, the inference is pretty clear where the money is coming from. When you represent people like that you have to be very careful.”

In the most recent case Lawrence Novak, a Republican Party leader and attourney, was heard in taped conversations mapping out plans with a jailed drug suspect to launder $107,000 in suspected drug money. Novak, 54, who resigned as state vice chairman of the Republican Party, was arrested and charged with federal money laundering offenses, minutes after depositing $107,000 at a Brockton bank, authorities said. Novak, a councilor-at-large candidate in Brockton’s city primary, told the bank teller that “he had found the money,” court papers said. If convicted, Novak could face up to 20 years in federal prison, $250,000 in fines and five years supervised release.

OPINION & ANALYSIS

A MONOPOLY ON LIFE

Like a monkey that has been bitten by a scorpion, the doltish can always be counted upon to entertain the dull-witted with irrelevant chatter following a major crisis. So it is with the catastrophe in New Orleans, as partisan political interests oppose one another on such questions as were Republicans or Democrats more to blame. Or whether federal, state, or municipal governments were most at fault. Or did race or economic factors make for disparate treatment? As Thomas Pynchon so aptly expressed it, “if they can get you asking the wrong questions, they don’t have to worry about answers.”

One of the most important questions – going to the perverse nature of our institutionalized world – occurred in the recent flooding in New Orleans. It grossly understates the significance of this tragedy to focus attention only upon the utter failure of state and federal government agencies to respond. Standing alone, the sheer incompetence of government agencies and officials in the days following the flooding resembled the comic-opera buffoonery of a Marx Brothers film. That Jon Stewart’s insightful The Daily Show was the only newscast capable of putting such behavior in perspective, tells us much about the fallen state of our culture.

The speed and scope of private responses to this devastation contrasted with those of the political establishment, reflecting not simply the greater efficiency of spontaneously ordered systems, but fundamental differences in purpose. Millions of individuals from all over the world began sending food, clothing, blankets, fuel, money, water, medical supplies, and other life-and-death necessities to flooding victims. The disaster in the Gulf Coast is an object lesson in how compassionate and cooperative we can be toward one another when our thinking has not been infected by politically-contrived and manipulated conflicts.

The responses of the state stand in stark contrast to those of individuals. From the moment government officials awoke to the enormity of the disaster – a number of days after private persons had already begun their shipments of aid – their principal purpose has been not to aid, comfort, and rescue the victims, but to establish their authority and control over them. Political systems have always served as strange attractors to the control freaks and other misfits who have never become socially housebroken. People express surprise that government did not come to the aid of stricken people sooner. But aiding people is not what government is about. That is the function of the marketplace and other voluntary activity. The state is about menacing, threatening, commandeering, and killing.

It is interesting – albeit not pleasant – to observe a civilization in freefall. Panglossian optimists continue to hope – as they would at the death-bed of a loved one – for a miracle to reverse the terminal course. The belief that someone in authority can change all of this; that new leadership or new machinery can make us better than we are, continues to drive minds that have been conditioned in institutional thinking. Western civilization will not be saved by the same forces that are destroying it. Einstein said it best: “a problem cannot be solved by the same thinking that created it.”

If people can discover a sense of love and mutuality amongst them, how is the state to maintain the sense of continuing conflict upon which it depends? This is why the state must prevent the private shipment of truckload after truckload of private aid to victims. This is why flood victims – including those who want nothing more than to remain in their homes – must be turned into a criminal class, against whom state functionaries will “lock and load” their weapons and “shoot and kill … if necessary.” In the waning days of Western civilization, you and I are in a struggle between the individualized sense of humanity and the collective forces of structured order. The nature of this struggle has been no better expressed than by Gandhi; “The individual has a soul, but the State is a soulless machine, it can never be weaned from the violence to which it owes its very existence.”

TAKING STOCK OF THE FOREVER WAR

Seldom has an image so clearly marked the turning of the world. One of man’s mightiest structures collapses into an immense white blossom of churning, roiling dust, metamorphosing in 14 seconds from hundred-story giant of the earth into towering white plume reaching to heaven. Looking back from this moment, precisely four years later, it still seems almost inconceivable that 10 men could have done that – could have brought those towers down.

Four years after the attack on Pearl Harbor, U.S. troops ruled unchallenged in Japan and Germany. During those 48 months, Americans created an unmatched machine of war and decisively defeated two great enemies. Four years after the collapse of the towers, evil is still with us and so is terrorism. Terrorists have staged spectacular attacks, killing thousands, in Tunisia, Bali, Mombasa, Riyadh, Istanbul, Casablanca, Jakarta, Madrid, Sharm el Sheik and London, to name only the best known. Last year, they mounted 651 “significant terrorist attacks”, triple the year before and the highest since the State Department started gathering figures two decades ago. 198t of these came in Iraq.

As for the “terrorist groups of global reach,” Al Qaeda, according to the president, has been severely wounded. And yet however degraded Al Qaeda’s operational capacity, nearly every other month, it seems, Osama bin Laden or one of his henchmen appears on the world’s television screens to expatiate on the ideology and strategy of global jihad and to urge followers on to more audacious and more lethal efforts. This, and the sheer number and breadth of terrorist attacks, suggest strongly that Al Qaeda has now become Al Qaedaism – that under the American and allied assault, what had been a relatively small, conspiratorial organization has mutated into a worldwide political movement, with thousands of followers eager to adopt its methods and advance its aims. “We have taken a ball of quicksilver,” says the counterinsurgency specialist John Arquilla, “and hit it with a hammer.”

HIGH GROUND

When a rare thing has not happened for a while, people begin to think it never will. But after it has happened, they expect it to happen everyday. After 9/11, Americans bought duct tape and plastic to protect themselves from sleeper cells they believed lurked in Duluth and Farmington. Now, they keep their eyes on hurricanes and earthquakes. What kind of disaster is next, we ask ourselves? Of course, we do not know. But we will take a wild guess anyway: The disaster people least expect and most deserve, a financial one.

When you build a city below sea level, between two large bodies of water, in a hurricane zone, you have to expect that sooner or later you will get your feet wet. So too, when you live on borrowed time and borrowed money, you have to expect that sooner or later you will have to pay up. That would not qualify as a disaster except for the fact that so many people have staked their finances on the hope that tomorrow would never come. It will come as a disagreeable shock to them when it does.

One thing leads to another. The 9/11 attacks led to two responses – both of which have already weakened the empire. The Feds vastly increased their own spending at home and undertook a series of expensive, disastrous wars overseas. In historical terms, the empire needed to find a way to stay in business. An empire is essentially an international protection racket. It needs something to protect people from. After the demise of the Soviet Union, the American empire had no worthy enemies. It had to create them. As predicted in this space, in those terms, the war against Iraq has been a success: “Under the American and allied assault,” says the International Herald Tribune, “what had been a relatively small, conspiratorial organization has mutated into a worldwide political movement, with thousands of followers eager to adopt its methods and advance its aims.”

That this cost a lot of money goes without saying. The U.S. had little in savings to draw upon, so it drew instead on credit. Now that the storm in New Orleans has passed, the financial nightmare is about to begin, says the Financial Times. There is a big insurance gap, says the paper. Most people had storm insurance, but no protection against floods. Losses are expected to tally as much as $125 billion. Who has got that kind of money? Alas, the empire that sets out to save the entire world has not saved a penny for a rainy day. So, the flood leads to more debt.

All of this debt – private and public – builds up behind the levees like storm water. It rises day and night. We do not know when the dikes might give way, but readers are urged to stay on high ground … just in case.

AMERICA HAS FALLEN TO A JACOBIN COUP

The most important casualties of September 11 are respect for truth and American liberty. Propaganda has replaced deliberation based on objective assessment of fact. The resurrection of the Star Chamber has made moot the legal protections of liberty. The U.S. invasion of Iraq was based on the deliberate suppression of fact. The invasion was not the result of mistaken intelligence. It was based on deliberately concocted “intelligence” designed to deceive the U.S. Congress, the American public, and the United Nations. In an interview with Barbara Walters on ABC News, General Colin Powell, who was Secretary of State at the time of the invasion, expressed dismay that he was the one who took the false information to the UN and presented it to the world. The weapons of mass destruction speech, he said, is a “blot” on his record. The full extent of the deception was made clear by the leaked top secret “Downing Street Memos”.

Two and one-half years after the March 2003 invasion, the U.S. Congress and the American people still do not know the reason Iraq was invaded. The U.S. is bogged down in an expensive and deadly combat, and no one outside the small circle of neoconservatives who orchestrated the war knows the reason why. Many guesses are rendered – oil, removal of Israel’s enemy – but the Bush administration has never disclosed its real agenda, which it cloaked with the WMD deception. This itself is powerful indication that American democracy is dead. With the exception of rightwing talk radio, everyone in America now knows that the invasion of Iraq was based on false information. Yet, 40% of the public and both political parties in Congress still support the ongoing war.

Dead and wounded Americans are too high a price to pay for a war based on deception. This alone is reason to end the war, if necessary by impeaching Bush and Cheney and arresting the neoconservatives for treason. Naked aggression is a war crime under the Nuremberg standard, and neoconservatives have brought this shame to America. There is an even greater cost of the war – the legal system that protects liberty, a human achievement for which countless numbers of people gave their lives over the centuries. The Bush administration used September 11 to whip up fear and hysteria and to employ these weapons against American liberty. The Orwellian-named Patriot Act has destroyed habeas corpus. The executive branch has gained the unaccountable power to detain American citizens on mere suspicion or accusation, without evidence, and to hold Americans indefinitely without a trial.

Foolishly, many Americans believe this power can only be used against terrorists. Americans do not realize that the government can declare anyone to be a terrorist suspect. As no evidence is required, it is entirely up to the government to decide who is a terrorist. Thus, the power is unaccountable. Unaccountable power is the source of tyranny.

As Professor Claes Ryn made clear in his book, America the Virtuous, the neoconservatives are neo-Jacobins. There is nothing conservative about them. They are committed to the use of coercion to impose their agenda. Their attitude is merciless toward anyone in their way, whether fellow citizen or foreigner. “You are with us or against us.” For those on the receiving end, the Nazi and Jacobin mentalities come to the same thing. The Bush administration has abandoned American principles. It is a Jacobin regime. Woe to its citizens and the rest of the world.