Wealth International, Limited

Offshore News Digest for Week of November 27, 2006

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

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If you have funds in Europe, or a ferme in Acquitaine, be vigilant. Keep a close eye on Europe’s press, because you might one day find your money is nailed more immovably to its Continental home than you had thought. Four years ago, a small “cellule” inside the EC was ordered to draft a report, instigated by Paris, examining the legal basis under EU treaty law for 1970s-style exchange controls. It concluded that Brussels may lawfully freeze capital flows in and out of the EU, and within it, and that this could be done by a “qualified majority” of EU finance ministers. One of its authors relayed that this was not an abstract exercise. It was to enable Europe to stem the rise of the euro if the dollar goes into free fall, the underlying argument being that Washington should not be allowed export the consequences of its own reckless spending policies through a “beggar-thy-neighbor” devaluation.

The idea was to stop money coming in, but it could equally be used to stop money leaving. This study came to mind when French premier Dominique de Villepin lashed out this month at the over-mighty euro. “We can’t let the European Central Bank act alone on the exchange rate,” he said. Ségolène Royal, the new Socialist leader, upped the ante a week later, accusing the ECB of “shattering growth”. Then last week the euro smashed through $1.30 to the dollar, crossing the line drawn in the sand by Paris and Berlin. This entails a near equal rise against China’s yuan. Against Japan’s yen, the euro has risen nearly 70% in six years to an all-time high of ¥151. Hence the move by PSA Peugeot-Citroen to build its 4x4 sportif models in Japan.

EU finance ministers have other means short of exchange controls to bring the ECB to heel and cap the euro. The Maastricht Treaty gives them powers to shape exchange rate policy, a detail missed by the markets. If, for example, the Europols strike a deal with Japan to “manage” the euro-yen rate, the ECB has to adjust monetary policy to meet that objective. This is where it gets ugly. The ECB’s Bundesbank bloc would almost certainly resist such a death blow to the bank’s independence, which is why the threat of currency controls may ultimately be part of the mix. There is little Frankfurt can do to stop that.

After combing through court judgments, the report writers concluded that free movement of capital in the EU is not an “absolute freedom” and could be limited in an emergency. Heavens know where this “nuclear option” would leave the City of London, dependent for its life blood on unhindered dollar flows. Obviously, it would precipitate a membership crisis. The free-market Barroso commission would not likely hatch such a Delors-era plot, but the decision is now out of their hands. What matters is whether France could ever muster a majority of EU finance ministers behind such a scheme. The answer is yes, perhaps, in a slump.

That moment has not arrived. Europe’s housing boomlet is not quite exhausted. Yet monetary union is subtly unraveling. French growth fell to zero in the third quarter on sliding exports. Italy is trapped in a downward spiral, doomed by a 20% currency over-valuation. Fitch and S&P have downgraded its debt to Botswana levels.

Airbus may bring matters to a head. Airbus official last year said that if the euro exchange rate went above $1.30 for long, the company was “cooked”. He said the chances of this happening were almost nil. Well, “nil” may be here. While Airbus has an order backlog of 2,177 aircraft worth $220.3 billion, these delivery contracts are in dollars while costs are in euros. In 2004, the group was shielded by currency hedges at an average rate of $0.98. This year the rate is $1.12, and the hedges are expiring fast. Soon Airbus will face the full violence of the spot market. The aerospace champion is so deeply tied up with Europe’s sense of industrial self-worth that it will not be sacrificed lightly on the altar of free currency flows. When the French premier vowed to do whatever it takes to save Airbus, I believed him.

Link here.


Let me tell you one thing I believe – we are living at a time of unprecedented opportunity. Never before has it been more possible to start a new life in another country.

  1. Bonanza for skilled workers. Skills shortages in certain countries will get worse as the population ages and baby-boomers retire, leading to more opportunities for people to emigrate to those countries. Hardly a month went by in 2005 without one country or other telling the world that it is desperate for skilled workers and that it would try to open up the gates of immigration in order to let more skilled workers in. Australia and Canada were top of the list, but so too were New Zealand, some European countries and even the UK. So expect it to get easier to migrate to such countries if you have skills that match the skills that are missing in these nations. There could be opportunities for anyone from truck drivers to IT specialists, to doctors, to tradespeople. Wise potential migrants will keep an eye out for skills shortages and will get any visa and residency applications that are required in early.
  2. Changes in the overseas property market. As the UK housing market slows (and maybe even falls) and the U.S. housing market comes to a shuddering halt, the market for second homes in popular destinations will slow. With people feeling less cash-rich than they were, they will look increasingly at the cheaper property-buying destinations. Expect more opportunities in places such as the Balkans, Eastern Europe, maybe even Morocco, as people search for bargains. Property-owning foreigners will become an increasingly common sight in more far-flung (and traditionally unfashionable) places, leading to a rash of small business opportunities aimed at the local expatriate market. Savvy potential migrants will get familiar with the languages of these destinations and be thinking of business opportunities for themselves there.
  3. Eastern Europe becomes the hottest relocation destination. As the housing market changes and the new Eastern Europe member states settle into life in the EU, expect more foreigners to make a new life there. The Business Process Outsourcing industry will boom in places such as Poland and maybe even Ukraine, leading to a requirement for native-English people to manage call centers and IT operations, as happened in India a year or two ago. Nations such as the Baltic countries will become increasingly popular places to live as they become some of the most modern, high-tech and trendy countries in Europe. Smart potential migrants will get the skills and knowledge that will allow them to position themselves at the front of the queue when jobs are on offer in these places.
  4. Budget airlines roulette. Budget airlines are here to stay – but some people will have their lives turned upside down as destinations come and go. Budget airlines will from time to time pull out of various regional airports, leaving people who have invested in property stranded. Savvy migrants will keep their options open, and not rely on the whims of one airline.
  5. People will create more of their own opportunities abroad. A trend that has been growing slowly over the past 4 years will continue in 2007. More and more people will turn their backs on the world of employment by big, faceless companies and will start their own businesses. With the opportunities afforded by the internet and cheap, often free, telephone calls, more people will be able to work at home – even if that home is in another country. Savvy potential migrants will start to think about businesses they can create at home, and then take with them when they move. Opportunities will continue to open up in the fields of marketing, writing, design, consulting, coaching and international trading that will allow people to use their skills to make ends meet in a destination of their choice. “Mini-preneurs” – people who start their own business on a shoestring thanks to the ease of entry afforded by the internet – will turn into “expat-preneurs” who start their own business abroad. You heard it here first.
Link here.


In 1492, when Columbus spotted the coral-rimmed island he later named Hispaniola, he proclaimed, “This is the fairest land under Heaven.” I have to agree. Home to the highest mountain range in the Caribbean, the Dominican Republic offers some of the most beautiful beaches in the world. Columbus’s journal is full of descriptions of this beautiful island paradise, but he was not looking for verdant valleys or turquoise waters and palm-lined beaches. He was on a mission to find gold.

Noticing that the Taíno Indians who lived there were adorned with gold ornaments and jewelry from the deposits of gold found in Hispaniola’s rivers, Columbus must have thought he had found the mother lode, and he hurried back to Spain to announce his discovery…and acquire a larger expedition. By 1515, though, the Spaniards realized that the gold deposits of Hispaniola were being exhausted. Not long after that, Cortez made his conquest of Mexico, with its fabulous riches of silver. Almost overnight, the colonies established by the Spaniards on Hispaniola were abandoned. Only a few thousand “Spanish” settlers remained behind (mostly the offspring of Spanish fathers and Taíno mothers). The cattle and pigs Columbus had introduced to the island had multiplied rapidly, so the remaining inhabitants turned their attention to raising livestock to supply the Spanish ships passing by, en route to the richer colonies elsewhere. Hispaniola’s importance as a colony declined – so much so that the Spanish did not even bother to try to instill Catholicism there, as they did elsewhere.

Some of the most popular tourist destinations in the Dominican Republic are found along the southern coast between Santo Domingo and La Romana. On the eastern tip of the island is the upscale Punta Cana area, with blinding white-sand beaches and emerald-green Caribbean waters. Punta Cana is quickly eclipsing the rest of the country in terms of luxurious digs and high prices. On the northern Atlantic Coast, the 30-mile stretch from Puerto Plata to Sosua and Cabrete is where you will find most tourist attractions. This area has long been popular with expats, too, and still offers attractive property prices.

The Samana Peninsula, situated along the northern coast, about 130 miles east of Puerto Plata, is the up-and-coming hot spot. I suspect that will all change, but right now, the Samana Peninsula is hard to get to. The beaches along the peninsula’s 90-mile shoreline are mostly uninhabited, apparently because the locals do not want to live near the beaches, but prefer to live close together in towns inland, away from the wear and tear of salt and sea. The beaches are solitary. The blue water is gentle and warm. And because this area is harder to get to than other parts of the island, prices here are lower than you will find further west along the north coast or near Punta Cana.

Las Terrenas is the most popular town on the Samana Peninsula – especially with Europeans. It is estimated that in the past few years the local population has grown from 3,000 to 20,000, with about 5,000 of that number being foreigners. This place is poised to boom. The beaches are too pretty and the property prices too reasonable – and increased accessibility will make it even more attractive. Conde Nast Traveler has called the Samana Peninsula one of the 25 best locations in the world, and named one of its beaches (Playa Rincon) as one of the 10 best in the world. I do not disagree.

Link here.
The Dominican Republic invests in its future – link.


First, border guards shook down Mark Baert for cigarettes before he could cross. Next, he bought a car – which turned out to be stolen. Then, a half-dozen of his new neighbors cheated him by refusing to help pay for a pipe to bring running water to their hillside neighborhood. When he put one in on his own, they happily tapped into it.

Welcome to Montenegro, the latest hot spot for foreigners seeking bucolic charm, lovely seaside vistas and cheap real estate. “Bucolic” also means putting up with hassles. Raw and poor, this stretch of rocky land will not be mistaken for the Côte d’Azur. The electricity is frequently off, the antiquated sewage system stinks and the kitchen tap often runs dry, assuming you are hooked up at all. Still, to Baert, a Belgian retiree, this is all worthwhile because he now owns a 14-room stone mansion overlooking the Adriatic that he paid a mere $90,000 for. And a guy down the road makes a wicked grappa. “Once you get the know the people,” says Baert, “you can’t get angry with them.”

Montenegro has become the new rustic Mediterranean mecca for foreigners’ second homes, a distinction previously held by Croatia, up the Adriatic coast. A haunt of Venetian merchants for centuries, Montenegro (population 650,000) is now drawing Brits, Norwegians and Russians by the thousands. The tony set has started to arrive, too. Independent from Yugoslavia since June, this country is home to the lone fjord on the Mediterranean, has hillsides of olive trees bordering azure waters and mountains rising straight up to 6,000 feet. Life is unhurried.

While Montenegro’s prices are on the rise, they are nowhere near the heights of other seaside hot spots. Taxes in this former Communist country are very low. Home buyers pay a transfer tax of 2% on the value of a purchase and up to $25 per square foot for construction. But the latter is waived if you build on one of the numerous stone ruins dotting the coast. Income earned in the country is taxed at 9%. For property flippers, capital gains is also 9% – if you pay it. A real estate agent in Kotor says he does not know anyone who has.

Alas, a government too lackadaisical to collect taxes is not very meticulous about deeds, either. Bureaucrats cannot keep up with all the land sales in this booming market. David Perrault, an American who moved here two years ago, put down a $20,000 deposit on two acres outside Kotor when he first arrived, then discovered that zoning laws forbade development on half of it and that a planned road would split the property in two. Records on who owns what can be spotty. This is no small matter when buying in a country that still tends to divide a single property among surviving male heirs, leaving it with several owners. A British couple, returning to their new Kotor home were met by two growling German shepherds obstructing the way to their door. Turned out a neighbor owned the courtyard in front of it.

Montenegro has yet to tear down those cement apartment blocks and Communist-kitsch hotels so common in eastern Europe. Earlier this year Richard Bannister paid $450,000 for a five-bedroom stone house with a view of both the water and the drab Hotel Fjord. “This told me I was getting in early,” he says cheerily.

If you want to get in even earlier, drive down the coast to the ethnic Albanian, and mostly Muslim, city of Ulcinj (pronounced “Ol-sen”). Once the pirating capital of the Mediterranean, Ulcinj was where Miguel de Cervantes supposedly was held captive for five years. The Russians now are buying vacation homes there. The Russians may be on to something. The beach stretches unbroken for 8 miles along water warm enough to swim in for two-thirds of the year. In the old stone city overlooking the sea you can buy a 3-bedroom stone home near Cervantes’ cell for $250,000. So what if the central heating is broken.

If you fall in love with the country, get a broker experienced in the region. Like Dream Property Montenegro or Sveti Stefan Real Estate. When you are ready to buy, hire a good Montenegrin lawyer to get the latest cadastre papers, government documents showing the size of properties, owners and liens. If the records are sketchy, get a surveyor at the land registry to track down old owners by digging through property archives stretching back to when the Austro-Hungarian emperor ruled here. And finally, before signing the purchase agreement make sure utility and other home-related bills have been paid. Under Montenegrin law, one apparently enforced, new owners have to pay the old owner’s unpaid bills. And these can add up.

Link here.


With no income tax for her residents, Monaco attracted the new rich Russians a decade ago, but now it is the British – using conventional banking methods and with it a degree of respectability – who are investing in Europe’s top tax haven. While the British have been players in the region for nearly 200 years, with Nice just along the coast being a favorite resort of the genteel Victorian English, they are recently back in numbers not seen for over a century.

The new wave of British buyers is welcomed by Monaco real estate agents as their funds are more likely to be legitimately earned, while some of the 90’s Russian cash was often a little suspect. “Things have changed since the 90’s when the Russian mafia were the big players in town,” explains a Monte Carlo property agency, “Then it was easy to put a few million cash down for a property and not have questions asked. In the last few years the banks have really tightened up due to government pressure because of the ‘war on terror’ and tracking money from illegitimate sources. Estate agents in Monaco know that the chances of a British buyer being able to show the source of their money as legitimate is very high.”

With quite ordinary 1-bedroom apartments at just under €1 million, and a typical 3-bedroom apartment at over €3 million, property prices have more than doubled in Monaco in the last 10 years. In the past Monaco property buyers have often been retired 60-somethings, staying away from their home country to avoid the taxes that come with selling their business. But today’s Monaco buyer is just as likely to be in his mid-30s or 40s, with the middle age British leading the way. “A few years ago around one in ten inquiries we were receiving were from the UK,” the agency continue, “but now it is virtually four in ten ...”

The buyers have often made their money from one of three sources. The traditional company owner with a bricks and mortar business who has sold up, but also younger entrepreneurs, some of whom have made money in e-commerce. A significant number of buyers from the UK have worked in the financial sector, invariably in the City of London. Some British buyers continue to trade or run their businesses from Monaco. Nice Airport is a 10 minute helicopter ride away, and the City of London can be just 3 hours away from their Monaco property with the right connections.

Link here.

Wealthy tax refugees set to push Monaco’s property prices higher still.

Escalating real estate prices in Monaco could mean that even the most modest of properties are out of the financial reach of wealthy individuals seeking to take advantage of the Principality’s favorable tax climes as well as its clement climate, according to a local travel guide. Yourmonaco.com says that some Monaco property buyers are already paying nearly $1,000,000 for studio apartments, and with a rising number of millionaires – particularly from the U.K. – queuing up to apply for residency, prices are only likely to keep rising.

Yourmonaco.com continued, “Inheritance tax in the UK is quite a big issue at the moment as many more people are above the government threshold due to their house price, and in Monaco there is no inheritance tax, which gives an added incentive for some to move to a tax haven. People choose to leave their money to their children, cutting out the government that would take a large share.” Monaco real estate prices now match those of London and Manhattan, according to a CBRE report on world property.

However, personal, as well as financial security, is another key reason why Monaco is so popular with the world’s wealthy, the travel guide concluded. “Perhaps the most telling survey for us was the one by Laura McKenzie, a U.S. travel expert. She rates Monaco as the number one destination for safety. For people with money, preserving and optimising what you have in the bank is important, but so is the ability to walk down the street without fear.”

Link here.


Presenting his Economic and Fiscal Update before the Standing Committee on Finance last week, Jim Flaherty unveiled “Advantage Canada: Building a Strong Economy for Canadians” which he claimed would transform Canada into a “true world economic leader.” Contained within the plan are pledges to eliminate the government’s net debt in less than a generation and to further reduce taxes for all Canadians, including establishing the lowest tax rate on new business investment in the G7. It also commits the government to cutting unnecessary regulation and red tape and increasing competition in the Canadian marketplace.

“Advantage Canada is a long-term plan that will create the right conditions and opportunities for families and businesses to succeed,” declared Flaherty. “Unlike previous governments, we don’t see growth and surpluses as a licence to spend. We are determined to grow our economy, control our spending and give the benefits of debt and tax reductions directly back to Canadian families and taxpayers.”

Link here.


The Cayman Islands has signified its agreement in principle with the U.N. Convention Against Corruption (UNCAC), according to the Governor’s Office. Among the 10 Overseas Territories attending the eighth meeting of the Overseas Territories Consultative Council (OTCC), only the British Virgin Islands had already agreed to sign the UNCAC. The Council, which is held annually in London and provides a forum for consultation with British Government Ministers, was attended by Premiers, Chief Ministers and equivalent senior politicians from all Britain’s Overseas Territories except Gibraltar.

A paper on Good Governance was discussed at the OTCC and suggests that the key element of good governance is the rule of law, including human rights for minorities and those in society that are most vulnerable. The paper also tackles transparency, which, it says, means that decisions by both the executive and legislature should be taken (and be seen to be taken) and implemented in line with defined rules and regulations. The third key area, according to the paper, is accountability, meaning that each organization or institution should also be accountable to those who will be affected by its decisions or actions. The paper stresses the fact that these three issues are interlinked, since accountability cannot be enforced without transparency and the rule of law. Equity and inclusiveness are also guiding factors of good governance.

Link here.



With Democrats set to take control of Congress in January, the estate tax is not going away. That reality – and the approach of December 31 – makes now a good time to consider reducing your estate by passing some wealth on to your kids or grandkids while you are alive. The simple way to do this is via the annual gift exclusion. Any individual can give $12,000 (in cash, stock, property, whatever) a year to any other person, free of gift tax. That means a husband and wife could give their two grown children, and their kids’ spouses, $96,000 a year. Cut in four grandchildren and $192,000 in wealth can be passed between the generations each year. Since gifts are counted by calendar year, if you start now you can make one set of annual gifts by December 31 and another on January 1, 2007. (Note that noncash gifts – say, a family trip to the Bahamas you paid for – count against the $12,000 limit.)

In addition to the $12,000 freebie, which can be repeated every year and for as many recipients as you want, you get a single lifetime gift tax exclusion of $1 million. (You can also make unlimited tax-free gifts to a spouse, provided he or she is a U.S. citizen.) The $1 million exclusion covers all recipients. If you give $500,000 to each of two kids you will have used it up. Every dollar of it you use reduces the amount – now $2 million – you can pass to heirs free of federal estate tax. Do not let that stop you from giving now.

Lifetime gifts above $1 million? They are taxed at rates of up to 46% and up to a confiscatory 113% if the wealth skips a living generation and is passed to grandkids. Which is cheaper for megamillion-dollar transfers, gift tax or estate tax? That depends on your assumptions about when you die and what tax law is in effect. Assuming that you are in the top bracket for these transfer taxes no matter what and that the law does not change, the gift tax is the cheaper of the two. (Note: If you die within three years of making a taxable gift, the original value of the gift and the gift tax get added back to your estate and the gift tax paid is credited toward your estate’s tax bill.) Given the math, why don’t rich people give rather than bequeath millions to their kids? Partly because the tax law might change.

The $12,000 annual gifts are easier to justify on a tax basis, but there remains the issue of whether you feel secure parting with assets and whether you believe your heirs are ready to handle the money. For flexibility, make sure your durable power of attorney – that is, the power that kicks in if you are not physically or mentally able to make decisions – allows the person holding the power to make gifts on your behalf. This can be particularly important if you live in one of the 26 states that imposes its own estate tax. Deathbed gifts can be a useful tactic for saving on state death taxes.

You can pay unlimited current education and medical expenses for anyone else without it even eating into your annual $12,000 gift limit, so long as the check is made out to the prep school, college or orthodontist. What about giving money to minors for purposes other than education? The simplest way to do this is by setting up a Uniform Transfers to Minors Act account at a brokerage, mutual fund company or bank. Unfortunately, when a child turns 18 or 21 (depending on the state), he gains unfettered access to the money. If you plan to give grandchildren substantial amounts, it makes sense to draw up a trust with restrictions on how and when that money can be used.

Link here.

The new rules of charitable giving in the U.S.

This summer Congress passed the broadest revisions in the charitable tax laws since 1969. “The changes will have a very large impact on a low number of taxpayers and are a low-level annoyance for everybody else,” says Laura Peebles, a director at Deloitte Tax in Washington, D.C. To add to the annoyance and confusion, some of the new rules were effective last January, some August 18 (the day after the changes were signed into law) and some will not kick in until next year. These changes are in addition to the congressional crackdown, effective in 2005, on inflated deductions for car donations. And there could be another round of legislation next year. Here is what you need to know now.

Link here.


A shortage of qualified accountants in the U.S. led to as many as 360,000 U.S. tax returns being prepared in India during 2006, according to a new report. But by the year 2011, ValueNotes says that a lack of accountants during the busy tax season could mean that the number of returns processed in India may grow to 1.6 million – an estimates it calls “conservative”.

ValueNotes believes that there is potential for 22 million U.S. returns to be processed in India by 2011, but reservations about “offshoring” clients’ returns will in reality limit the number. A shortage of CPAs in the U.S. has led to increased salaries and firms are discovering that offshored returns are not only turned around faster, but are also 40% to 60% cheaper, the report found. This has led to the sending of other work offshore, such as bookkeeping, financial statements and analysis. “The industry will quickly move beyond 1040s,” observed ValueNotes CEO, Arun Jethmalani.

Link here.


Crackdown on corporate tax shelters seen likely.

The IRS has revealed that publicly traded companies reduced their reportable income by $34.8 billion in 2004 compared with 2002 despite a 40% increase in profits reported to investors, raising once again the issue of the gap between the income that companies report to shareholders and the tax authorities. According to new IRS data for 2004, U.S. public companies reported about $554 billion in pretax profits to Wall Street in 2004, but only about $394 billion to the IRS. The total reported to investors that year by all companies that year was $707 billion, while $523 billion was reported to the IRS.

The figures are likley to lead to a renewed push by the IRS and senior figures in Congress for a crackdown on the use of tax shelters to reduce corporate tax liabilty. Indeed, the IRS has begun to collect such data in an attempt to get a better picture of the gap between taxable and book income, and how this gap occurs. In 2004, companies were required to supply more data on their annual tax returns to explain why this gap might have occured in an attempt to garner clues as to whether companies may have used questionable tax shelters. This data will be used by the agency to help focus its broader campaign against tax evasion towards firms that its considers pose a higher risk. The debate on whether companies should compile a single report to be seen by both investors and the IRS may also resurface in the light of the new data.

Meanwhile, total reported income, including individual income, amounted to $7.044 trillion in 2004, down from $7.143 trillion in 2000. This fall coincided with the bursting of the technology bubble in 2000, which led to billions of dollars being wiped off individuals’ stock investments. Individual income tax receipts also fell over the period in question, although at a much faster rate, largely as a result of tax cuts passed under the Geroge W. Bush presidency.

Link here.


The former head of Tyco International’s tax department has been sentenced to 36 months imprisonment in a Florida court for filing a false corporate tax return. Raymond Scott Stevenson in September entered a plea of guilty to intentionally failing to report more than $170 million in income on Tyco’s 1999 corporate tax return, which would have resulted in an additional tax liability of approximately $50 to $60 million. Stevenson was Tyco’s top tax advisor and served as Tyco’s Vice President in charge of taxation, where his responsibilities included overseeing the preparation and filing of Tyco’s corporate tax returns.

According to R. Alexander Acosta, U.S. Attorney for the Southern District of Florida, as the head of Tyco’s tax department Stevenson directed a series of transactions designed to reduce Tyco state tax liability. Stevenson ordered that certain documents relating to these transactions be back-dated to avoid having to report a $170 million capital gain on Tyco’s corporate tax return. Brian Wimpling, Special Agent in Charge of the IRS, Criminal Investigation, said, “Whether a complex corporate return or a straightforward individual return, if you prepare it or sign it, you are responsible for its contents and will be held accountable for any scheme to defraud the government.”

Link here.


19 top British companies have moved parts of their operations overseas in the past two years and 15 say they may move their headquarters abroad in the near future, according to a CBI survey. The study of 87 senior executives from Britain’s largest companies found business leaders blame high corporate taxes and the aggressive approach of the tax authorities for turning the UK into a less attractive place to do business.

75% of those surveyed said the corporate tax system had changed for the worse over the past five years and a quarter said it was significantly worse. Richard Lambert, CBI director-general, said, “In today’s world of global markets, companies have many more choices to make about where to invest their capital and their talent. Business tax is one of the most important considerations that firms have to take into account, and it is easily measured.”

The survey comes after several high-profile decisions by British businesses to leave the country. Colt Telecom, a company with 90% of its assets outside the UK, announced a restructuring earlier this year that would create a Luxembourg-based holding company. Two Lloyd’s insurers – Hiscox and Omega – are switching domicile to Bermuda, where they expect to halve their effective tax rate. Shell opted for a Dutch headquarters when it overhauled its dual-listed structure last year, with tax residency in the Netherlands. And when Experian, the credit analysis business, was demerged from GUS last month, it located its headquarters in Dublin where the corporate tax rate is 12.5%, compared with 30% in the UK. “There’s a more stable tax regime in Ireland,” Experian said. “A very high proportion of our profits come from outside the UK and therefore it is more advantageous for us to be domiciled outside the UK.”

HSBC, the world’s third largest bank, recently said it could shave £400 million from its annual tax bill by leaving the UK. And many of the businesses in the CBI survey said they were attracted by the tax regimes of other European countries, with the most popular choices being Ireland (37%) and the Netherlands (24%). The most important sources of discontent with the British tax system were the complexity of the tax rules, the aggressive attitudes of tax collectors and high compliance costs. Top of the list for reform, however, was the corporation tax rate.

Link here.

Are taxes killing London as a fund domicile?

The UK has missed out as a domicile for European long-only funds to the benefit of Luxembourg and Ireland because of a burdensome and over-complex tax system, according to a report commissioned by the Investment Management Association. However, say the report’s authors at KPMG, it is not yet too late for the UK to become a significant domicile for alternative investment products including hedge funds, property funds and absolute return funds.

According to IMA chief executive Richard Saunders and Jane McCormick, head of tax and financial services at KPMG, while the UK is demonstrably a vibrant investment management centre and by far the leading European location for hedge fund managers, during the decade to the end of 2005 Luxembourg and Ireland saw domiciled fund assets grow 6 and 31 times respectively, while the assets of UK funds grew only 3-fold. In addition, the report found, since legislative changes in July 2004 lifted tax penalties on some offshore funds, Luxembourg and Irish funds authorised for distribution throughout the EU have started to make inroads into the UK domestic market, which previously had been largely restricted to locally domiciled funds. However, only a handful of asset managers have sought to distribute UK funds in other European markets.

The UK-based asset managers and administrators surveyed by KPMG mostly attribute this apparent lack of competitiveness to an unfavorable and over-complex tax regime. The report quotes one participant as saying, “We are not yet at the tipping point, but the tipping point will be with us within the next five years – UK investors are no longer suspicious of offshore funds.” However, the report’s authors argue changes can still be made in time to secure a significant share of the domicile market for both traditional and alternative funds.

Not everyone believes that the UK need aspire to be a domicile for funds, whether traditional or alternative. Says Andrew Collins, a director at Fortis Prime Fund Solutions, “I don’t see the UK wanting to be a domicile for funds. ... London doesn’t want to be a Cayman and can’t be, from a taxation point of view, a domicile for these types of vehicles. What people want to do in London is run the money.”

The report recommends various changes to the UK’s tax regime, including agreement on an appropriate tax regime for open-ended property funds, allowing authorized funds to trade without incurring a corporation tax charge, and considering the case for full tax exemption at fund level, if the industry can reach a clear consensus on the benefits of such a move.

Link here.
UK set to abolish tax on non-resident ETFs – link.


New research has revealed that HM Revenue and Customs has been taking a much less sympathetic approach to companies in financial difficulties, and is now more often than not the first creditor to seek company winding up orders. According to the report by accounting and advisory firm UHY Hacker Young, HMRC now issues 58% of all petitions to wind companies up, vs. 42% of these requests five years ago. While the overall number of petitions has only increased by 13% over the past five years, the number of petitions launched by the HMRC has increased by 38% over the same period.

UHY says that the HMRC’s more aggressive stance towards businesses that owe it tax or national insurance is partly due to its loss of preferred creditor status in 2003. This gave HMRC priority access to the assets of an insolvent business ahead of other creditors. But under pressure to increase the tax take, HMRC is now taking a much more hard-nosed approach to troubled businesses, and notably so since the merger of the former Inland Revenue and HM Customs, observed Edward Cook, Partner at UHY’s Manchester office.

“If HMRC feel that the company isn’t going to be able to repay them then they are willing to push the button on them a lot earlier,” Cook stated. “Companies will normally have established a good working relationship with most of their other creditors such as trade suppliers. Sadly no such goodwill exists with the HMRC and companies don’t get much sympathy from the taxman when they fall behind on payments. It is only when the HMRC feel certain they will recoup more money by allowing a company to trade out of its difficulties that they will then cut the company slack.” Cook urged companies that find themselves in financial difficulties to negotiate an affordable payment plan with HMRC at an early stage. “There is no point agreeing a payment plan with HMRC that you can’t stick to. It may get the negotiations finished quicker but if you fall behind the new plan then they are going to look at that very unfavourably. It is often at this point that the HMRC decide to wind a company up.”

Link here.

U.K. to crack down on eBay traders over Christmas.

According to accounting and advisory firm, UHY Hacker Young, eBay traders operating on a casual basis over the Christmas period must still register with HM Revenue and Customs, regardless of whether there is any tax to pay, or risk a fine of £100. Following enquiries from the firm, the UK tax authority confirmed that any income earned from trading online, no matter how small the amount, will result in the need to notify the commencement of a self-employment, even if the trader is under the income tax threshold.

According to UHY, thousands of casual traders will be buying and selling online in the period leading up to Christmas without realizing their obligations towards the taxman. Trading includes buying goods with the intention of selling them at a profit, as opposed to selling personal possessions. HMRC is entitled to issue a £100 fine for failing to register. If the individual is already a tax-payer or the profit from trading exceeds the personal allowance then a liability may arise to income tax, and national insurance. Derek Levy, partner at the firm’s London office, said that, “You are allowed to sell personal possessions online without notifying HMRC, but if goods are purchased with the intention of selling them at a profit, you are trading, and you must register and possibly file a tax return.”

Link here.


Next month’s pre-Budget report is likely to see Chancellor of the Exchequer Gordon Brown further tightening the screws on inheritance tax planning, according to accounting firm KPMG. “He could increase greatly the reach of inheritance tax while appearing only to make minor adjustments. For example, the rate at which trusts are taxed could be revised. Now that most trusts are subject to tax every ten years, the maximum rate could be increased from 6% to 12%,” David Kilshaw, head of private client advisory at KPMG, predicted.

The rules relating to “Potentially Exempt Transfers” may also be reviewed, said Kilshaw. “Currently it is possible to give away assets with no charge to Inheritance Tax provided that the donor survives for seven years. This period could be extended to 10 years or the relief simply abolished,” he stated.

Meanwhile, changes introduced in the Budget 2006 mean that business property relief is increasingly important, noted Kilshaw, and he warned that there is a “real risk” that the Chancellor could impose a monetary limit on certain assets currently exempt from IHT, such as shares in unquoted trading companies. The Treasury raised £3.3 billion from inheritance tax in 2005-6, but KPMG predicts that measures already put in place will mean that the Chancellor will “comfortably” beat last year’s figure.

Link here.


Uzbek authorities accused a U.S. nonprofit aid group of tax evasion, a government agency said, continuing a sweeping campaign against foreign groups and media in the tightly controlled ex-Soviet state. The Uzbek tax police said employees of the Northwest Medical Teams International, based in the U.S. state of Oregon, were guilty of “violations in tax payments”, according to a statement posted on a government Web site. The agency also accused the group of cooperating with aid groups that have been fined or closed down for allegedly proselytizing among Uzbekistan’s predominantly Muslim population. Officials with the organization in Tashkent could not be reached immediately comment.

In the past two years, President Islam Karimov’s government has expelled dozens of foreign aid groups and media outlets for alleged legal and financial crimes. The Central Asian state has been ostracized and increasingly isolated by the West after a bloody putdown of last year’s revolt in the eastern city of Andijan.

Link here.


a.) Easy   b.) Difficult   c.) Extremely difficult   d.) Impossible   e.) All of the above.

And the correct answer is ... e.) All of the above. It really depends on what kind of account, at which bank, and from which country you have a passport. The entire process is counterintuitive. In a rational world (the idea of which is pure fantasy) the easiest place for an American to open an account in another country should be at an American Bank or a bank with U.S. branches or subsidiaries. The next easiest bank should be a private, for profit bank. And the hardest place should be a government-owned bank run by civil servants. Right? WRONG! Thanks to international banking hysteria flowing from the Patriot Act.

In Uruguay, for example, if you are an American citizen without Uruguayan residency, none of the U.S. banks here will let you have a bank account, even if you already have an account with the U.S. parent bank! They might let you have an account after you get your residency, but they will still not be thrilled about it. International banks without a U.S. presence are a bit better and seem to be a mixed bag of what they will do and not do, depending upon the day of the week and the phase of the moon. In Uruguay, we have found that the easiest bank at which to open an account is the government owned Banco de la Republica Oriental Uruguay (BROU). If you are willing to start with a savings account with an ATM card that works there and worldwide, you need only walk in with your passport and a $500 minimum deposit and they will open the account.

And Uruguay is better than many other places. Business associates in Panama tell me, “It is easier to get a commercial airline pilot’s license than to open a nonresident account.” Swiss Banks will not even look at you unless you are willing to leave a minimum of $50,000 in an account at all times. Even banks traditionally friendly to nonresident accounts have turned nasty. The Patriot Act and the Basel rules have basically divided world banks into three groups:

  1. Those who over-react because they are afraid of violating the Patriot act/Basel rules.
  2. Those who are using the Patriot act/Basel rules as an excuse to squeeze their customers.
  3. Those who are in countries that do not really give a damn, like China, the Islamic banking Centers, and those banks in Russia with powerful political connections.

Simple transactions, entirely legal and above board are being halted or delayed by banks – usually to earn extra interest on the money without passing any on to the customer – using Know Your Customer (KYC), Patriot Act or Basel rules as an excuse. Regardless of any other consideration, because of U.S. Government pressure, it is harder to open an offshore account as an American Citizen, than anyone else in the world. Because of this, literally hundreds of millions of dollars are flowing into Islamic Banking centers where a more reasonable approach is taken. There are also a growing number of banking alternatives, about which I will write in the future.

Link here.


QUESTION: My father established a non-grantor trust in the Isle of Jersey in 1978. Out of the seven family beneficiaries, three reside in the U.S. My brother, who is not a U.S. resident, is insisting that we may loose as much as 100% of all distributed assets in taxes and therefore he is advising to let him take all the money. My brother is specifically quoting following lines from your website, “Thus, in order to avoid or defer U.S. income taxation to both the U.S. settlor and any U.S. beneficiaries, the foreign trust must be a foreign non-grantor trust with no U.S. beneficiaries.”

Please note, the settlor, my father never resided in the U.S. and these are not expatriated assets. Also, it is likely that no taxes have thus far been paid. If I am going to give it all to Uncle Sam, I might as well let that go to my brother but that constitutes a loss of over $150,000 to me. Do you have any suggestions?

REPLY: First of all, it is extremely unlikely that 100% of the distribution from a foreign trust to a U.S. beneficiary would be consumed by U.S. taxes, even if the income were 100% taxable to U.S. persons. Second, I am not sure what part of my website the above quote was from, but it was either quoted out of context or was misinterpreted. Please note that the above quote refers to a U.S. settlor”. The tax treatment of a foreign trust is very different if there is a U.S. settlor (grantor) vs. a foreign trust formed (settled) by a foreign person. Based on the information you provided, the quote from my web site is not applicable because the foreign trust was apparently formed by a foreign person – your father.

When a distribution is made from a foreign trust to a U.S. beneficiary, regardless of where they reside, the law treats the distribution as ordinary (taxable)income to the U.S. beneficiaries unless the trustee will provide the U.S. beneficiaries with an annual statement of the income earned by the trust. The rules are described in the instructions to the Form 3520 and 3520-A, which can be found at the IRS web site. Please note that this is a very brief discussion of a very complicated subject in the U.S. tax law and it cannot be relied upon as an authoratative source of information about the tax law. It merely represents my personal interpretation of the tax law in the context of the facts described.

Link here.


The first thing to note about the Netherlands Antilles (NA) is that it is in the process of ceasing to exist. It started to fall apart when Aruba left the NA to become a separate constituent kingdom under the Dutch Crown. That left Curacao, St. Maarten, Saba, Bonaire and St. Eustatius in the NA. Under the latest deal, Curacao and Sint Maarten would each become separate Kingdoms under the Dutch Crown, just like Aruba, while Saba, Bonaire and St. Eustatius would revert to direct control of the Netherlands home government. Thus, the position of Aruba, Curacao and St. Maarten vis a vis the Dutch Crown would be similar to the status under the British Crown held by the Channel Islands and the Isle of Man, but without as much independence as Barbados (which shares the British Queen but not its government). The position of Saba, Bonaire and St. Eustatius would become similar to the French overseas departments of Guadeloupe and Martinique.

At present, the NA is negotiating a bilateral Tax Information and Exchange Agreement (TIEA) with the U.S. The NA government also announced that it will continue with its new policy of creating a double tax avoidance treaty network by commencing talks with Nordic countries in February 2007. Many offshore professionals would NOT consider this anywhere near a positive development. In 2004 a new corporate law was introduced which simplified and liberalized some aspects of the formation and operation of most of the corporate entities.

Except perhaps for the NA Stichting (Foundation), “asset protection” does not figure very much in the offshore regime the NA has created and developed to date. (U.S. persons should note that the IRS generally considers civil law foundations as trusts, no matter what someone else calls them. As trusts they bring a tremendous amount of scrutiny on everyone connected to them.)

My analysis is that it is clear from the way the newest legislation is written that the NA wants to continue as an international financial center, but is increasingly directing its efforts towards financial services companies and larger corporate clients. As such, it may not be the best choice for a lone individual seeking asset protection or tax reduction. For the “little guy” this is an expensive an cumbersome place to do business with little real privacy and no substantial asset protection. In additional, we have no idea which way the wind will blow once the breakup is complete. Unless you are establishing an operation that fits within the NA’s targeted industries, I suggest a pass.

Link here.


Austria’s appeal as an offshore jurisdiction is limited to a few people with very particular needs. Austria has four things that contribute to it being ranked as an offshore center: holding companies, private foundations, bank secrecy, and citizenship by investment.

Austrian Holding Companies are better than average for the high tax world of the EU, but certainly not at the top of the list – the Denmark Holding Company is generally considered among the best for a holding company that needs a network of tax treaties to make it efficient – Austria has such a network, but at a higher price than Denmark.

Austrian Private Foundations (Privatstiftung) are yet another civil law version of the common law trust. Assets transferred into foundations are taxed at 5% (8.5% for real estate). Foundations are generally taxed at the 25% corporate rate, but there are major tax concessions on capital gains, dividend income, and income from bank deposits, bonds or mutual funds as well as capital gains. Finally, distributions from the private foundation are subject to a withholding tax of 25%, but this may be reduced by tax treaties.

Austrian Bank secrecy is reputed to be among the best in the world. Austria refused to change its constitution and sell out bank secrecy as demanded by the EU. That being said, private banking in Austria is expensive and will definitely require references and a personal visit in almost all cases.

Austrian Citizenship by Investment requires an active investment in the Austrian economy. Generally a significant direct investment ($1+ million) is required. Passive investments in government bonds, real estate, etc. do not qualify. Successful applicants receive full Austrian citizenship. The grant of citizenship is not published and not reported to any other country. As an Austrian citizen one can live and work anywhere in the EU or Switzerland. Unless you decide to actually reside in Austria, you are not subject to tax in Austria.

Austria’s offerings are very limited in scope, but those offered have very great depth and utility if they fit your specific needs.

Link here.



panopticona circular prison with cells distributed around a central surveillance station; proposed by Jeremy Bentham in 1791 (thefreedictionary.com)

Several years ago word got round that the U.S. government was going to put an RFID chip into a passport. Privacy advocates rallied and ranted about the insecurity of the technology, the lack of standards, the foibles of technological advance, and the massive infrastructure expenses required to build a system to support an RFID passport, and pronounced the idea Dead On Arrival. Congratulations are due to those intrepid folks, because their voices were heard, their concerns noted, and the International Civil Aviation Organization (ICAO) returned to the drawing board and has now issued specifications for an RFID-enabled biometric passport that focuses on the technical concerns and addresses them quite handily. The concept remains intact and is now much stronger for the technical tests it was subjected to, rather than weaker for its violations of human rights principles. I found myself with the opportunity to dig deep into the issue directly from the horse’s mouth, so to speak.

This is no conspiracy. None of this is secret stuff and Interpol really is interested in catching criminals and beating up child molesters and International Civil Aviation Organization really is interested in giving people better methods to guarantee they are who they say they are. There is no “We’re gonna get the peasants now!” mentality. The problem is not insidious intent, but typical scope creep and a basic assumption that differs from those of us in the freedom movement. That scope creep is nothing more than, “Let’s try this one more thing,” over and over again. And the assumption is, quite simply, that we, the peasants, can and should trust them and all of their actions implicitly. There are lots of discussions on privacy of the passport holders, but always privacy between me and you. Not once do they mention privacy from the government or the police forces. It simply does not enter their minds. The concept is as alien as a revolution without dancing.

This is not to excuse any of their actions. On the contrary, pointing out that they do not have evil intentions only emphasizes what the road to hell is actually paved with. And let there be no mistake, this road is indeed paved. Not planned, not under discussion, paved. It is a done deal. The e-Passport specification is law. You never got to vote on it. There were no legislators to petition. No letters to write. No recourse other than a newspaper, if they would even bother with such dry material. ICAO is not an elected organization, and they developed their mandate with only the input they specifically sought. They are not beholden to whatever government claims you, rather that government is beholden to them.

So while we were complaining about Real ID, and National ID, and Piggly-Wiggly Grocery store cards, ICAO simply took the entire debate out of the public view and made it happen. E-Passports, passports with an embedded RFID chip are here and they are here to stay. As of the end of 2006, 16 nations including the U.S. will be issuing the e-Passport according to ICAO specifications. Another 43 nations will be compliant by the end of 2007. And by 2010, all 189 member nations are required to be compliant. Today, there are already more than 50 million e-Passports in circulation, and most people who have them do not even know it. It seems that ICAO wanted to avoid the much maligned “RFID” stigma, so they dropped it from open discussion, changed the name, and the entire thing slipped beneath the radar.

If you want a non-chipped passport, you had better get it now. 2010 may seem like a long way off, but the countries that struggle to meet that deadline are the same ones that struggle for things like food and water. Most of the EU members are geared up for it as we speak and will have it in 2007. As mentioned above, the U.S. is already issuing them. Every day that passes increases your chances of getting a chip in your passport. And even if you do get one without a chip, all you have done is buy some time. By 2020, every legal international traveler will have an e-Passport, as all the non-chipped passports in the world will have expired by then. The e-Passport is here and it is here to stay.

You say you do not travel internationally? Pay attention. Interpol and ICAO both have openly stated that e-Passport is the first step, not the last. Airports are a convergence of security issues as you have people, property, airplanes, airports, and national and international borders all sardined into little aluminum tubes on air. Of course that is the focus today. But the specification for biometrics and the RFID chip structure has been specifically designed to be suitable for use in all travel documents, National IDs, and social service IDs. Indeed, the passport specification itself allows the issuing country flexibility to include any additional functionality they want, including additional biometrics, cross references to social service records such as Social Security, or even allowing the bearer to add in his loyalty shopping cards and bank accounts, if the country allows it. All of it tied directly to your biometric data and uploaded to national and international databases for tracking. Fully implemented, the ICAO specification could be used to secure identity not only at airports, but land and water borders, concerts, sports events, critical infrastructure and industry, and even your local shopping mall. Cameras recording your every public move are passé, last year’s news. The problem with camera recordings is that there are not enough people to watch them. And that brings us to the brilliantly logical and effective piece of the ICAO specifications for biometric RFID passports, facial recognition biometrics. Stay tuned!

Now the fun part. Speculation, rhetoric, paranoia. All of this will be implemented from two directions. Make that is being implemented from two directions. From one direction you will get the “justified” version – international arrivals on flights and border control. From the other side you will get security around social events and infrastructure. How ubiquitous is the corporate ID badge? It will get there too, eventually.

On the travel side you will soon see e-Passport readers on Customs agents’ desks – guaranteed. Also guaranteed within the next two or three years is that you will see kiosks to check-in for flights where you put your e-Passport into the slot and it automatically takes your picture, validates, and prints your boarding pass. Most likely, your boarding pass will include your biometric data as well. Airlines are seen as the first line of defense against international travelers ... er, criminals ... and so they are expected to take on the expense of outfitting every check-in terminal and border station with e-Passport readers, e-Passport enabled kiosks, biometric boarding passes and who knows what else. This will put an even greater burden on your airline employees as they take on an ever burgeoning role as border-agents-with-a-union-paid-smile. You and I will pay for it through higher prices on the ticket and possibly service fees and aggravation and profiling. But folks who trust their government will love the faster lines and easier check-in, even if it costs them their privacy, dignity, and pocketbooks.

And where it is implemented internationally, it is only a hop and skip and reach-around to require it domestically, although this might be harder in the U.S. since Real ID does not conform to the e-Passport specifications. Give it time. Once there are enough e-Passports for the airlines to justify their business cases, the model will be developed and it will scale up and down to all different areas and settings. Almost all major sports events and social gatherings will soon have real-time cameras scanning faces and matching against criminal databases. It has been field tested and it works.

What is really disturbing is that ICAO openly admits that the facial recognition and watch-lists are effective on their own. In fact, they recommend that countries use negative facial recognition testing as a solution to criminal border crossings. This strongly suggests that, if the purpose of facial recognition is to catch criminals, the mug shots and negative testing against the watch-lists are all that is necessary. But ICAO emphatically wants everyone to move forward with positive identification of this holistic, transnational identity. “You are not Osama” is all they need. But they want, specifically, to positively identify you, even if you do not remotely match anyone on a watch list. Why is that, do you think?

Non-digital databases of mug shots will eventually be digitized and added to the global databases. Political rights activists may be able to slow down the adding of driver’s license and other state-created photo IDs, but eventually, I bet it happens. The technology needs some improvements (speed), but it is only a road bump to facial recognition on the highways. On the plus side, this might reduce the number of minor traffic stops to fish for criminals, as the cameras will simply notify the cops which cars to chase when they get a near match. Joe American will love it because he gets surveilled more but probably hassled less, and that is just cool with him. But that assumes your normal traffic stop is actually to fish for criminals and not just a revenue generator. In fact, so far, everyone I have discussed this with seems to love the idea of just scanning their passport and walking onto a plane. The efficiency it provides far, far outweighs any concerns they have over privacy or tracking, even when they are the ones to mention “Big Brother” first. Apparently Big Brother is just fine and the hash result of 2 + 2 is five.

What can you do? To be honest, I am not sure. They have covered many of the bases. There is no public recourse for this, it is a done deal. There is no one to punish, these are not elected officials. Anyone who needs or wants a passport that does not reflect their day-to-day identity better already have their alias identity well established. That is the weakest point in the system. Somehow, they have to get those initial biometrics and identities matched up. That is the opportunity, and you get only one shot at it. Did I mention that one of the checks they do when issuing an e-Passport is to validate that no other e-Passport has been issued with matching biometrics? No double-issuance here.

Even if you get your assumed identity set up with an e-Passport, you will only be able to travel under that identity. It will become your holistic, transnational identity, even if it is not the name your kids call you. Your false identity could easily eclipse the validity of your real identity, and I can only guess at the kind of craziness that could generate. I can just see a bevy of private individuals with successfully false e-Passports on the day the e-Passport and the national driver’s licenses are married together with the bank records and IRS tax rolls and the same biometric shows up on three identities and trips several dozen alarms across a thousand government and corporate databases while they fill up the tractor at the bio-diesel station that just installed a networked photo camera to comply with their insurance policy.

For myself? I came in late to the game, and my state has had digital photos on driver’s licenses for years. I can only assume I am already compromised. So I am going to try and stay away from airports and buy a big, floppy, sexy hat.

Link here.


Thanks to a decision from the 4th Circuit Court of Appeals, U.S. Customs officials can now seize and copy the contents of any laptop carried across a U.S. border. There is no arrest, warrant or probable cause required – just a “gimme”. If you are a defense attorney, your most confidential client files may wind up in the hands of government prosecutors. If you are a political opponent of the Bush administration, your correspondence and the names and addresses of everyone you have contacted can now be used against you to support a “terror” investigation.

The ways that this new authority can be misused are too numerous to count. Basically whatever information you carry with you on your laptop including banking records, client data, you name it, now, in effect, must be shared with the U.S. government. There is one glimmer of hope. A U.S. district judge in California recently issued a contradictory ruling on this issue, concluding that Customs has to have “reasonable suspicion” of wrongdoing in order to search your laptop. That is still a lower burden than “probable cause”, but a big improvement over “gimme”. The “reasonable suspicion” standard is now required before Customs agents can conduct a body cavity search, X-rays, or other invasive examinations. This ruling is only binding in Los Angeles. I suspect that the matter will not be resolved until competing appeals reach the U.S. Supreme Court in a few years.

In the meantime, what can you do to protect yourself? One suggestion is to encrypt all the data on your laptop, or even the hard disk itself, using a program like PGP Desktop. Unfortunately, that may not be an ideal solution, because border officials are also demanding that travelers decrypt any information on their laptop before they are permitted to cross the border. And even if they do not detain you, they just might hold on to the laptop and try to decrypt it themselves. A better idea might be to copy everything on your hard drive to a USB stick and send it via a courier service to your international destination. (Encrypt the data, of course, before you send it.) Then securely “wipe” any confidential information off your hard drive, along with the “free space”, again using a program like PGP Desktop.

If you carry your laptop through Customs, be sure to sanitize it. The ideal solution would to encrypt and copy your data, send it to your destination and then use a utility like Killdisk to securely wipe everything on your hard drive. Then reinstall the operating system according to the instructions in Killdisk or whatever utility you use for this purpose. (There are other possible “sanitation” solutions but none as good as this one.) If Customs asks you to inspect your laptop, let them. They will not find anything but the OS and standard system files. Yes, it is a hassle, but that is what life has come to here in the “land of the free”.

Link here.



Over the past four years, I have written (or co-written) a number of articles dealing with the dishonesty of prosecutors in this country. The Duke Non-Rape case, as I see it, is a logical extension to a pattern that is so egregious that all we can do now is damage control. Justice pretty much is dead in the U.S. The final blow in this death of a million blows has been the increasing use of conspiracy theories by the prosecution, something that the law forbids, but the courts let it go anyway. Like so many other trends, this one has its intellectual underpinnings in that academic refuse pile we call Post-Modernism.

Four years ago, I called then-Attorney General John Ashcroft a “post-modern bureaucrat”. Unfortunately, the post-modern application of law is not limited to Washington, D.C. and federal prosecutors, as bad as they are. State prosecutors are doing their best to match the outrages we see on the federal level, and they are encouraged by judges, politicians, and the gaggle of television talking heads that constitute a legal definition of air pollution.

What do I mean by “post-modern law”? It is the application of post-modern thought to the execution of the law, both criminal and civil. Postmodernism is a line of thinking that denies any possibility of Truth, and is the dominant “guiding light” in academe these days. We know it also as a form of “relativism”, or what Ludwig von Mises described as “polylogism” in his classic book Human Action.

As Paul Craig Roberts and Lawrence Stratton wrote in their book, Tyranny of Good Intentions, the courtroom is a place where we are supposed to find that thing called “truth”, at least how truth applies to the events being examined. Obviously, it often is difficult to find “the truth, the whole truth, and nothing but the truth,” given human limitations and the predilections of people to lie, but nonetheless those people who are officers of the court and those who testify under oath are expected to be truthful. Those who are not can face charges of perjury or other sanctions, and although we know that lies tend to be the staple of courtroom fare these days, truth still is the standard.

Furthermore, the rules of the courtroom require prosecutors to present a truthful rendition, or at least a reasonable account, of what occurred. For example, if I am on trial for robbery, the prosecutor first must establish that an actual robbery occurred, and, second, that I was the one who committed the act. He or she is not legally free to concoct an event that never occurred, and then pick me out at random to bring charges. The rules for the defense are different. True, defense lawyers cannot knowingly present a false defense, but they certainly can stretch that requirement a good bit. (Lawyers rarely are going to ask their clients, “Did you do it?” precisely because they know that if the client replies in the affirmative, they are going to be limited in how they can defend that person.)

Lawyers can try to present conspiracy theories, even if the pieces of the puzzle are not easily fitting. It is up to the judge to set the limits of what attorneys can present in defense of their clients. For example, when O.J. Simpson was on trial for murder more than a decade ago, his attorneys presented the defense that the police conspired to frame him, led by a “racist cop”, Mark Fuhrman. On the other hand, prosecutors are not legally free to act like defense attorneys. Christopher Darden and Marcia Clark would not have been able to claim that Simpson was a member of a shadowy drug gang or team of assassins and not be able to introduce any evidence to buttress their allegations. They had to stick with the real-live evidence, period.

What happens when prosecutors are permitted to introduce wild conspiracy theories? We see post-modern law in action. A telling example is the wrongful prosecution of Roby Roby Roberson and his wife in Wenatchee, Washington, 10 years ago. Roberson was the pastor of a small church in Wenatchee, and the prosecution claimed that he and his wife were leaders of a wild sex ring in which church services consisted of the Robersons and people in the congregation having group sex with little children. The charges came from allegations that police coerced from children. There was no physical evidence of any kind, and after investigators combed the church grounds looking for any hint of semen or other clues that would have demonstrated that sexual activity took place there. They found none. In a world where truth mattered, such results would have meant that the authorities either would drop the charges altogether or at least take a hard look at the allegations. Instead, the prosecutor in the case declared that the absence of physical evidence constituted proof that the sex crimes must have occurred.

One has to step back and realize what took place in that courtroom. First, the prosecution admitted it had no real evidence, but the jury was supposed to ignore that fact and convict because no evidence really meant the opposite. Second, this dishonest nonsense was presented only because the trial judge – who had been extremely hostile to the defense – permitted the prosecution to present its non-evidence as ironclad proof. One can be thankful that the jury in that case saw through the prosecution lies and acquitted the couple. The prosecutor since then has been re-elected three times.

As the Duke Non-Rape case blunders toward an unjustified trial, we must understand that we are now looking at a full-blown application of post-modernism in the legal arena. First, we see many of the Duke University faculty members writing in various venues that while they seriously doubt that the rape, sodomy, and kidnapping charges against David Evans, Collin Finnerty, and Reade Seligmann are true, nonetheless the young men should be put on trial because of their race, sex, and class. Second, as we come to understand the medical evidence being presented, we further understand that the medical reports do not suggest that a rape even occurred. Perhaps the most “post-modern” of the prosecution claims is that the multiple conflicting stories that the accuser told police constitute “proof” that the Duke 3 raped her. The multiple tales would give normal people room for pause, but prosecutors are not normal people. Both Nifong and the gaggle of made-for-television prosecutors are claiming that the rape must have been so traumatic that the accuser simply was thoroughly confused. Had the accuser told only one story which was consistent, one can be assured that the prosecution also would have used the account as proof that the men raped the accuser.

Thus, we see the ultimate post-modern absurdity. Conflicting accounts constitute “proof”, just as consistent accounts also constitute “proof”. In a world where truth means something, people would smell a very large, nasty rat if a prosecutor were trying to say two mutually-exclusive sets of accounts both are true. Unfortunately, that world no longer exists, at least in American courtrooms. Furthermore, Nifong and supporters claim that the indictments themselves also establish “proof” of guilt. Of course, the indictments came as a result of the multiple stories, so we now are expected to believe not only that the mutually-exclusive accounts prove guilt, but also the fact that Nifong obtained indictments using them.

One hopes that if this case comes to trial, that the judge will recognize the dishonesty of Nifong’s charges, or that a jury will understand that absurdities are absurdities. I say “hope”, because right now, the post-modernists are winning battle after battle. It is one thing when post-modern nonsense dominates a history or English class. It is quite another when it becomes the bedrock of modern law.

Link here.


The Massachusetts Supreme Judicial Court recently heard arguments in a matter that could answer questions regarding jurisdiction in divorce cases. In Miller v. Miller, the court will decide whether the Massachusetts long-arm statute gives the Probate & Family Court jurisdiction over a husband whose wife moved from Arizona to Massachusetts and then sought a divorce. “I think the case is going to be important to clarify what the law is on personal jurisdiction with an out-of-state spouse,” said the defendant husband’s attorney.

Two past Appeals Court decisions concerning the long-arm statute “do not square with each other,” commented a Boston attorney who specializes in divorce jurisdiction issues. “[The SJC is] trying to clear up the confusion.” In a 1998 decision, Windsor v. Windsor, the Appeals Court ruled that the courts in Massachusetts did not have jurisdiction in a case where a plaintiff wife separated from her husband, moved to Massachusetts and lived there for nearly 20 years before filing for divorce. However, the court took a more expansive view in its 2005 ruling in Akinci-Unal v. Unal. There the court found that a woman who was divorced from her husband in Turkey could bring a complaint for equitable distribution of assets and alimony in Massachusetts where the foreign court failed to address any economic claims.

The plaintiff wife and the defendant husband in the present case were married in New Jersey in 1979, after which they briefly lived in Massachusetts. From 1989 to 2004, they resided in Arizona, where their children were born. The wife suffered from multiple scoliosis and her doctor recommended she move to a cooler climate. In mid-2004, she accepted a position in Massachusetts where the couple opened a joint checking account. The children moved with their mother and were enrolled in local schools. The wife provided several depositions from friends stating that, during visits, the husband had announced plans to find work in the Massachusetts area and that the bulk of his possessions had been moved here in anticipation of his relocation. According to the wife’s account, the marriage broke down in late 2004 after her husband told her that she was wrong in “violating God’s will” by deciding to move the family without allowing him to make the final decision. In early 2005, the wife filed for divorce in Massachusetts, claiming that an “irretrievable breakdown” had occurred there.

The husband moved to dismiss, arguing that the irretrievable breakdown happened in Arizona, and that the Massachusetts court lacked both subject matter jurisdiction over the divorce and personal jurisdiction over him. Probate and Family Court Judge Gail L. Perlman ruled that the Massachusetts courts had subject matter jurisdiction over the case and the custody of the couple’s children. But Perlman reserved and reported the case to the Appeals Court, finding that it was “impossible to determine” based on the two conflicting rulings.

While the case could impact future jurisdictional issues in other cases where a divorce spans multiple states, it may not mean much for the parties in Miller, Gerald L. Nissenbaum of Boston noted. “Arizona has community property. Everything earned is split 50-50, which is about what would happen in Massachusetts. ... It’s hard to figure out why these people are fighting.”

Link here.


New international rules to fight money laundering will impact the way local businesses conduct their affairs in the future, participants at an anti-laundering seminar were told. Chas Roy-Chowdhury, facilitator at the one-day seminar in Grand Cayman, said the Cayman Islands and the rest of the Caribbean would be seriously impacted. “They need be aware that there will be new rules if they haven’t been introduced already, which will have a direct, serious impact on the way they do business and report on potential suspicious activities of their clients,” he said.

The FATF – the regulatory body, which oversees the rules of money laundering globally – have imposed new regulations to tighten the noose on the illegal trade. Mr. Roy-Chowdhury said that close proximity to the U.S. and South America created a special problem for the region. “In the Caribbean you have a special problem because you have got the vast U.S. market for narcotics and you got the producers in South America and then you have the Caribbean islands in the middle, which can be used for filtering and laundering the money,” he said. Speaking specifically about Cayman, he said, “I think in the Cayman Islands you have very solid financial institutions but clearly they can be infiltrated and used for crediting money.”

Mr. Roy-Chowdhury said the problem is not unique to the Caribbean and that it was difficult to tell where the money launderers would surface. “There is never one jurisdiction, which [organized crime] operate[s] in – they go to where there is the weakest link. ... It depends on which jurisdiction they feel most comfortable in where they can get the money laundered. Clearly, anywhere there’s an opportunity of cleansing drug money then that jurisdiction will be used.” He said the 15 participants were lectured on the new rules, ethics and professionalism, and reporting suspicious activities in their line of work. The participants were also taken through ethical guidelines from the ACCA – an international accounting body – that has 130 members in the Cayman Islands.

Link here.


The Gibraltar Financial Services Commission has announced a comprehensive review of the jurisdiction’s anti-money laundering measures. The review has seen the GFSC redraft the anti-money laundering guidance notes for the finance industry from top to bottom, with the proposed changes intended to clarify the existing laws while reducing paperwork and bureaucracy, and also encouraging finance industry participants to take a more active role in combating financial crime and terrorist financing. Importantly, the revised rules would also bring Gibraltar into compliance with the third money laundering directive, which comes into force next year, and the latest FATF recommendations.

Commenting on the review, Marcus Killick, Gibraltar’s Financial Services Commissioner, said that there is a need to move away from a “tick and bash” approach to anti-money laundering towards a more proactive strategy that anticipates new trends, as criminals use ever more sophisticated methods and complex transactions to cover their tracks. “It’s like a game of chess. We have to think ahead and anticipate what they are going to be doing in two moves’ time.”

Link here.


The world was shocked when the U.S. government arrested a prominent UK businessman for violating U.S. law, even though he runs a perfectly legal UK licensed gaming company. Who the heck do U.S. officials think they are? What jurisdiction do they think they have? No emperor, or commissar, pope or prince in all of history has claimed the kind of jurisdiction the United States government unabashedly asserts for itself:

  1. Every U.S. citizen OR RESIDENT ALIEN is subject to U.S. law wherever he is in the world, and in the case of the citizen, he is subject to that law (and its concomitant taxes) for the rest of his life, even if he never sets foot in the U.S. or has ever set foot in the U.S.
  2. Any transaction in which a single U.S. dollar is used, anywhere in the world by anyone and for anything, is subject to U.S. law. If you buy a grilled piece of Yak tail in Nepal and pay for it with a U.S. dollar, the U.S. government claims jurisdiction!

Remember a country called Panamá and a general called Noriega? Under U.S. law, the U.S. was legally allowed to invade a sovereign nation and arrest and kidnap its head of state, AND sovereign immunity be damned, to try that head of state and throw him in a U.S. prison. This, of course, is the same U.S. government that has exempted itself from the jurisdiction of the International Criminal Court.

That having been said, why is anyone really surprised at the Unlawful Internet Gambling Enforcement Act? This law is so broad that if one were to use a credit or debit card to fly out of the U.S. in order to purchase a prepaid credit card for gambling purposes, everyone involved, the onshore bank, the travel agent, the non-U.S. prepaid credit card vendor, and maybe the taxi drivers at both airports, could all be charged with “conspiracy” or “aiding and abetting”, especially if they had any inkling of the purpose of the trip. The trend is not good, and is only going to get worse. This water is filled with shoals, sunken ships, killer reefs, riptides, and whirlpools.

Link here.



How does taxation and the state even develop? On a purely historical level, no state in history, including the U.S., has ever arisen except out of conquest and domination. The very first states, which were monarchies, developed out of the natural order of societies in which natural elites and aristocrats rose to the top ranks of society who people deferred to in matters of disputes, law, and order, such as tribal chiefs. The elites, who had the favor of the public, simply wanted to stop the entry of anyone else who wanted to provide law and order – becoming aggressive monopolists who could violently suppress competition. This alone is not conducive towards serving the interests of citizens best.

But, monarchs historically have often had favor of the people, and still were restrained by cultural and religious laws, and he had to run his country more akin to his private property, though he was still a monopolist and an aggressor. But such states historically have been redistributionist states only from society to itself. They were consumer states, and were moderated in power because their subjects tended to have an awareness or class consciousness in which they realized that the king taxed only to take money from them and to his private gain. There was not much in the way of redistribution of wealth within society, but only from society to the state.

Moreover, if stealing is a crime, and the state is guilty of it, then the very existence of states is a corruption and an abuse. The only reason stealing is wrong is because it is a violation of property rights, which are an extension of one’s rights of ownership over his or herself. The problem with taxation is that it is inherently a corruption. It is to take someone’s money over their objections with the threat of violence.

The ideas that the state reduces poverty, the state exists to reduce poverty, the state is generous and philanthropic, the state is capable of producing wealth, the well being of the state is compatible with the well being of everyone else, and a state will be driven by motives totally unlike the rest of society, which is greedy and selfish, have not been substantiated. Have states been apparatuses of wealth creation and generosity? If people are so greedy, why would giving them states, in which they may take our money against our will, make their motives good? Will not only the worst plunderers and demagogues get to the top of states, because they wish to expropriate people’s money against their wishes?

The century of statism, the 20th Century, has been the most deadly as far as state wars are in history. A conservative estimate of deaths from state wars in the 20th Century is 170 million, as cited in John V. Denson’s book, A Century of War. History has shown us nothing worse than this. So should we keep giving the state the benefit of the doubt as far as impugning to it good motives and the ability to enrich people? Or have they not already hurt us enough? No state, even the most despotic in history, cannot last without the consent and support of a majority of people, even in the most tacit way. This includes Stalin’s Soviet Union, who had millions of people willing to carry out his orders, and Mao’s China. Who would he have been able to kill without a state, and why do states keep attracting men like them?

You say that people cannot be trusted to be generous and help the poor. Even if we accept that states must exist for this reason – though historically, no state has ever been created towards this end, except perhaps in the rhetoric that Lenin used to form the Soviet Union – how would it work? Is it even possible to tax away wealth to create it? Because taxation, economically, has the same effects as any theft, but in fact even more magnified ones. Under a state, since people know there is no recourse against the theft taking place from a state, they do not attempt to defend themselves, but instead can only attempt to be one of the lucky “have nots” that receive tax subsidies, such as welfare recipients or politicians, or they will have a systematic shift in their time preference schedule, which will reduce their desire to work for providing their future needs better in the first place, because more and more of the labor they do ends up not being for themselves, but for the state.

Because taxation is coerced from unwilling taxpayers, there must be a police force to punish those who violate tax laws. The state must always expand their efforts to catch tax evaders, because they need to tax more in order to apprehend more of them. And when the state punishes and imprisons tax evaders or other law breakers, everyone else in society must be taxed to pay for the convict’s incarceration. More of the resources that a “philanthropist” desires to have produced in the private sector and then expropriated and distributed by the state must be confiscated only to the end of maintaining that very system of taxation in the first place.

Furthermore, in order to prevent tax evasion you must have a public which at least gives some kind of tacit consent to taxation, who recognizes, at the very least, that taxation and the state is a necessary evil, or that it is better than whatever is the next alternative. In order to ensure this, the state increasingly must take over schools to teach that paying taxes is a civic duty, and prevent free entry into the provision of education. This has the additional effect of taking the traditional role of education from the family and appropriating it for the state. Should anyone violate the government’s rules, public opinion needs to be strong enough to approve of police action against innocent people who provide education without the state’s permission.

Taxes need to be increased even more only to the end that the state may perpetuate itself, disorganize society, and benefit itself at the expense of everyone else. Who would join such a system? We see only the worst, most power hungry, manipulative, and demagogic will, who can promise to solve the problems of poverty that the state creates by confiscating wealth, destroys incentives to work and aid the state, only by further intervening into the private sector for its alleged excesses.

To point out the greed and mistakes that people make is not sufficient to object to anarchy. It is necessary to show that, given a certain people, a state society will make them better. To be human is to err. But the question is, do you want recourse against people’s errors? Do you want the market to penalize them for being wrong? Or do you want to hand over to them the reigns to an institution which alone decides what is lawful, interprets its own constitution, may provide more and more destructive forms of “justice” at everyone’s expense, and is immune from the law? If people are as bad as they are, why would you want them to have such a terrible and irrevocable authority? Even if we believed states should exist, we would have to find angels to run them. But even this is not sufficient, for the problem of economic calculation comes into play.

I could go on. I think it suffices to say, I cannot think of any defense of the state, whether on historical, utilitarian, or theoretical grounds.

Link here.


The New York Times ran an article titled “A Free-for-All on Science and Religion” last week. If you regularly read “America’s newspaper of record”, I am sure that you can guess where the piece was going. To expect bias-free reporting from the Times is like asking for a slice of pecan pie with no pecans. The article described a recent gathering of scientists at a conference called “Beyond Belief: Science, Religion, Reason and Survival”. The attitude toward religion there was, basically, that many scientists “Are mad as hell and we’re not going to take it any more.”

One scientist summarized it this way – “With a few notable exceptions, the viewpoints have run the gamut from A to B. Should we bash religion with a crowbar or only with a baseball bat?” Now, whether you are religious or not, there is plenty of amusement to find in this. I could go on for a while about how “the scientific method” and the “rational minds” of scientists were somehow not enough to prevent the DDT scare, the silicone breast implant travesty, etc., etc., not to mention more banal scientific sins that run from plagiarism to doctored evidence to reverse witch hunts.

Instead, I will merely offer this example of earsplitting ignorance from the scientist at the conference who said, “Let’s teach our children from a very young age about the story of the universe and its incredible richness and beauty. It is already so much more glorious and awesome – and even comforting – than anything offered by any scripture or God concept I know.” Learned friend, is there any scripture or God concept that you actually DO know? “The heavens declare the glory of God; and the firmament sheweth his handiwork.” (Psalm 19:1) In other words, the “much more glorious” story is not exactly new. It was offered in scripture about God some 3,000 years ago. If a scientist wants to tell the story, should they not at least know that the best they can do is re-tell it, without the main character?

Social mood is angry these days. The temperature seems to be rising, as do the number of examples of anger – even among professionals who imagine that their education immunizes them from the very emotions they criticize in others.

Link here.
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