Changes to offshore bank accounts

Many people in Northern Ireland have savings offshore - perhaps in Jersey or the Isle of Man. Others
have interest-bearing accounts in European countries, perhaps because they have a holiday home.

All people are affected by the new European Savings Directive - or ESD to its friends ? if it has
any. Its friends will mainly be tax inspectors around Europe who hope to uncover hidden millions,
and may indeed do so.

This new piece of law has been set up to ensure people pay the right tax on their overseas savings.
It provides for a massive exchange of information between countries.

My fellow columnist Nicholas Watts (the Naked Investor) laid bare the workings of the scheme in his
helpful article last week.

Regular readers of my column will know that I have often warned that the UK Revenue does hear of
savings held in the Channel Islands or the Isle of Man. This often sparks a tax investigation if the
interest has not been declared on annual tax returns.

At this stage I would like to make it clear that it is perfectly legal to have a bank account
outside the UK. What is illegal is investing money abroad to hide it from the taxman rather than
declare the income.

Also illegal (no matter where the money came from originally) is failure to declare the annual
interest your overseas savings produce. If you do not receive a tax return then the duty is on you
to write to the Revenue and advise them that you receive this income.

So how will this all affect you? It depends on where your savings are. If they are in the Channel
Islands, Isle of Man, Austria, Belgium or Luxembourg, for example, then read witholding tax option.

If your savings are elsewhere in mainland Europe then read the reporting countries section.

WITHOLDING TAX OPTION.

The countries I mentioned above, including the popular Isle of Man and Channel Islands, offer you a
choice.

Either they take tax off your interest at source, or they tell your home tax authorities. The tax th
ey will take off will start on July 1 this year at 15%, rising to 20% and 35% in 2008 and 2011.
Accepting this loss of tax will mean your interest will not be automatically notified to the UK tax
offices.

The alternative will be to ask that your interest be paid in full and the amount notified to the UK
Revenue. Your bank may ask for you to produce a tax certificate from the Revenue before they will do
this. This is obtained by supplying to your local tax office:

* your full name and address;

* your National Insurance number or, if you do not have one, your date of birth and the town and
country in which you were born;

* the account number(s) of the investment(s) you hold overseas;

* the name and address of your overseas bank, and so on;

* the period (not exceeding three years) for which you want the certificate to be valid.

REPORTING COUNTRIES

If you have money on one of the other countries then you can expect that details of your interest
earning WILL be supplied to the UK tax office. No tax will, however, be taken off the interest at
source. So long as you have declared this income then you have nothing to fear.

This new law is already concerning an awful lot of people who have money offshore. The withholding
tax option makes such savings less attractive, and the reporting option will throw out lots of names
of people who have not declared overseas income before.

This may take years for the UK Revenue to sort out, but I suspect will be a factor in thousands of
tax investigations.

If you have hidden money abroad maybe this is the time to admit it to the Revenue. Then whatever is
left (when they have been paid up) you can enjoy without fear of the future. This is serious stuff
so speak to a tax specialist rather than simply contacting the Revenue yourself.

Adrian Huston, a former tax inspector, is now a partner in Belfast tax and accountancy firm Huston &
Co.

© 2005 Independent News and Media (NI)
a division of Independent News & media (UK) Ltd
http://www.belfasttelegraph.co.uk/news/business_telegraph/story.jsp?story=646615

Will the taxman probe my offshore cash?

Will taxman probe my offshore cash?

I have had an offshore bank account for 30 years. Now the rules on disclosure have changed do I have
to notify the taxman and does this mean I face a huge tax bill? TG, London.

John Whiting, personal tax partner at the accountants PWC, replies:

To start at the beginning, I'll assume that you are UK resident and domiciled, so this is your home
and you live here. In that case, you are liable to tax on all your income, wherever it arises. So,
if there was interest on your offshore account, that should have been declared to the Revenue and UK
tax paid on it.

That has always been the case: it's the taxpayer's responsibility to declare a source of income that
the Revenue doesn't know about such as an offshore account or rental income. By contrast, you don't
have to declare the existence of your salary - the Revenue knows about that from your employer. But
you're also supposed to disclose anything that creates a tax liability they don't know about, such
as UK interest when you are a higher rate taxpayer.

Nothing has changed on this basic duty to disclose. What has - and is - changing is the increased
exchange of information between tax authorities, and the obligation of banks in the rest of the EU
(and some non-EU territories) to either deduct tax at source or disclose information on account
holders to other tax authorities.

If you've had an account for a while and the Revenue hasn't known about it then you really should
write and tell them. It could well result in some questions as to why you didn't disclose, what the
source of the fund is and of course how much interest you have earned. The result is likely to be a
tax bill plus interest (and possibly penalties) covering at least the last six years - they can go
back 20 - but penalties may well be reduced for your disclosure and co-operation.

http://www.thisismoney.co.uk/help-and-advice/ask-an-expert/tax/article.html?
in_article_id=401245&in_page_id=112

Hong Kong's excellent taxes

Alan Reynolds

June 2, 2005

President Bush gave former Sens. Connie Mack of Florida and John Breaux of Louisiana the unenviable
task of trying to say something new and interesting about tax reform.

When it comes to designing a simple tax system that does the least damage to the economy, it would
be difficult to find a better role model than Hong Kong. As The Economist wrote a few years ago,
"The territory's tradition of simple and low taxes ... is widely seen as a main reason for its
stunning rise to prosperity."  Many advantages of the Hong Kong tax system have been widely emulated
in Asia, yet remain poorly understood in this country. One such misunderstanding may have resulted
in an unfortunate spat between two old friends, Steve Moore and Bruce Bartlett.

Moore proposes that individual taxpayers should be allowed to either pay taxes under the current
rules, or instead forego deductions for mortgage interest and charitable deductions and pay 20
percent on that broader measure of income. "Bruce Bartlett attacked this plan as a gimmick," writes
Moore. "But he fails to realize this is precisely how the Hong Kong tax system works. Hong Kong has
a complicated system and a simple flat tax, and filers choose between the two."

Gimmick or not, Moore's "freedom to choose flat tax" is not remotely similar to the Hong Kong tax
system, which is not complicated in any respect. I may have been partly at fault for that
misunderstanding.

Steve Moore and Bruce Bartlett were advisers to Jack Kemp's tax reform commission in 1995, and I
was research director. Asked by one commissioner about Hong Kong's "flat tax," I replied that the
tax on salaries is not flat but steeply progressive. There are four marginal tax brackets of 2
percent, 8 percent, 14 percent and 20 percent. I would prefer a single tax rate, for reasons I
explained last November in "The Case for One Tax Rate." But any tax with a top rate of 20 percent is
hard to fault.

Unlike the United States, Hong Kong is not plagued with tax credits that create random spikes in
marginal tax rates as the credits are phased out. But Hong Kong does allow charitable deductions up
to 25 percent of salary income and a mortgage interest deduction up to about $13,000 (in U.S.
dollars). Other deductions are allowed for adult education, care of elderly relatives and retirement
savings plans.

Personal exemptions are so generous that most employees owe little or no tax on salaries. For those
with high salaries, however, it is cheaper to forego personal exemptions (but not deductions) and
pay a 16 percent "standard rate." Only the top 2 percent usually pay that standard rate, yet they
account for nearly half of all revenue from the salaries tax.

Groping for an explanation of the standard rate a decade ago, I suggested it was something like an
"alternative maximum tax" -- a phrase Moore has used to describe his own, very different tax
proposal. But the standard rate is automatic, not a matter of choice. Taxpayers fill out a one-page
online return declaring their salary and deductions, and the government sends them a bill.

The standard rate does not make Hong Kong's tax system simpler, but it does make it more efficient.
Academic studies of optimal taxation have long concluded that marginal tax rates should be lowest at
the highest levels of income. As Joseph Stiglitz wrote in 1987, "the marginal tax rate on the
highest income (ability) individual should be zero." Hong Kong does not go quite that far, but the
marginal rate is reduced from 20 to 16 at the highest incomes, while keeping their average tax high
by eliminating personal exemptions.

As clever as this is, it is not the most interesting aspect of the Hong Kong tax system. What makes
taxes in Hong Kong so uniquely simple and effective is that businesses pay all the taxes on income
originating in business (profits), and employees pay all the taxes on salaries.

Hong Kong has no payroll tax for Social Security, no general sales or value-added tax, no tariffs
on imports and no personal tax on income from financial assets. What Hong Kong has is called a "Dual
Tax" -- progressive tax rates on labor income but a flat tax of 17.5 percent on corporate profits,
16 percent on property owners and unincorporated enterprises.

The low tax on profits brings in substantially more revenue than the tax on salaries, in marked
contrast to the United States, which collects little from profits taxes that are nominally twice as
high. Corporations in Hong Kong pay the profits tax before distributing dividends to shareholders,
so there is no extra tax on dividends to be collected from individuals. Reinvested profits result in
more business income to tax in the future, so there is no extra tax on capital gains to be collected
from individuals.

Companies in Hong Kong deduct interest payments, however, so it would be theoretically appropriate
to tax individuals on income they receive from local corporate bonds. This exemplifies the key tax
principle of symmetry: Whatever is a deductible expense for those making any payment ought to be
taxable income for those receiving that payment. But there would still be no need for individuals to
report interest income, because a flat tax can easily be collected at the source, before the check
goes out.

The United States could easily adopt something similar to the Hong Kong tax. It would require no
wrenching changes, such as giving up interest deductibility for corporations or homeowners. Some tax
rates would presumably have to be higher (the 2 percent rate is ridiculously low anyway), but not as
much higher as you might think.

Hong Kong's taxes on salaries and profits amounted to about 7 percent of GDP last year, while
combined U.S. corporate and individual taxes brought in only 8.6 percent of GDP. Since a larger
percentage of American employees have higher salaries, a salary tax such as Hong Kong's would raise
more money even without higher tax rates.

The Hong Kong tax system has one major advantage over even the most elegant theoretical
alternatives. It has been tested for more than 50 years. It works.

***

Correction: Where my last column said, "Jobs have not been shrinking since 1979 because (of)
labor-saving devices," the word "not" is not right. Before being shortened it read, "Jobs have not
been shrinking because manufacturing was shrinking, but because (of) labor-saving devices ..."

©2005 Creators Syndicate
All site content © 1995-2005 Townhall.com
http://www.townhall.com/columnists/alanreynolds/ar20050602.shtml

Myanmar, Thailand to cooperate in money laundering suppression

Myanmar and Thailand are due to sign a memorandum of understanding (MoU) here later this month to
cooperate in suppressing money laundering especially against laundering of funds obtained from
transnational crimes, a local weekly journal reported Monday.

The MoU, to be inked between the Central Control Board (CCB) of Myanmar and the Anti-Money
Laundering Office of Thailand, would provide for the two countries in information sharing on money
laundering control, the Department Against Transnational Crimes was quoted by the Myanmar Times as
saying.

According to the journal's earlier report, Myanmar is introducing a plan to fight money laundering
in the country and the draft of the plan, once finalized and approved by the CCB, will be submitted
to the Paris-based Financial Action Task Force (FATF) which had listed Myanmar as among
non-cooperative countries and territories in dealing with money laundering.

The FATF move partly hindered Myanmar's chance to obtain aid from international financial
institutions, the Myanmar police force blamed, saying that although the task force withdrew other
measures against the country after it enacted the Mutual Assistance in Criminal Matters Law in 2004,
Myanmar still remains on the said list until it fully implements the necessary laws.

Myanmar promulgated a law in June 2002 to control money laundering and financial institutions such
as banks are required to report to the CCB their clients' fiscal activities and report any cashes
exceeding 100 million kyats (100,000 US dollars) and any other suspicious account activities.

However, no suspected laundering has so far been reported although the board had monitored over
2,000 reports on cash and property transactions, according to the International Relations Department
of the Home Ministry.

Meanwhile, the CCB has provided trainings to some dozens of officials from more than 20 state and
private banks in Yangon and Mandalay on countering money laundering and financing terrorism.

To step up fight against money laundering, Myanmar has set up an eight-member investigation body
under the CCB to launch probe into matters legalizing money and property obtained by illegal means.

Meanwhile, the Myanmar authorities revoked in the end of March the business licenses of two local
private banks -- the Myanmar Mayflower Bank (MMB) and the Asia Wealth Bank (AWB)-- which had been
under government investigation for allegedly linking with money laundering since December 2003.

As part of its increased international cooperation in the aspects, Myanmar joined in signing the UN
Convention Against Transnational Organized Crime in April 2004.

Source: Xinhua

Ireland Rated as Top Location for Foreign Investors

"Ireland is rated, throughout the world, as one of the best locations for
foreign direct investment", John Dunne Chairman of IDA Ireland, the
country's investment promotion body, told those gathered at the launch of
the organisation's annual report.

According to Mr Dunne, international investors are attracted to Ireland
because it is the most globalised country in the world, with the highest
rate of foreign direct investment flows as a percentage of GDP and also
boasts a low corporate tax rate and a good quality of life.

"Business and community leaders everywhere point to our success as a model
of how a country and its people can transform into a dynamic world-leading
centre for business growth" he stated, adding that:

"Ireland's value proposition today is substantially different from the past.
We have moved away from low cost, low value assembly and service operations
where the primary objective was simply job creation. The Ireland of the 21st
century presents the opportunity for the international business investor to
be part of a leading global business location offering world-class
innovation and development, superior performance and efficiency and cutting
edge business integration and support solutions."

"The benefits of this for Ireland have to be measured differently also. We
should no longer just count the number of jobs created but also measure the
levels of investment, the nature and quality of the employment and the
strategic relevance of the activities. In our report today we have begun the
process of showing our performance in this way."

Describing 2004 as a "watershed" year in terms of investment, Dunne noted
that several high-calibre firms invested in Ireland last year, including
Lucent Bell Labs, IBM, Hewlett Packard, Intel, Centocor, Guidant, Yahoo and
Merrill Lynch.

"Our business in 2005 continues to be buoyant and is on target. The quality
of the investments is being sustained and in particular we have had
considerable success in locating projects in towns throughout the country,"
he observed.

Dubai DIFC to Attract 500 companies in 3 years

At least 500 firms are expected to set up shop in the Dubai International
Financial Centre in the next three years, according to a senior official
from the DIFC.

Speaking to Gulf Daily News, Aseem O. Kabesh, DIFC's chief business
development officer, predicted that the impending opening of the Dubai
International Financial Exchange (DIFX) within the DIFC would be a
significant lure for blue chip companies from around the world.

"In three years of operations I see we (DIFC) would have a minimum of 500
firms, between financial and non-financial institutions. Around 60 per cent,
if not more, would be financial institutions," he told the paper.

The DIFX, which is a wholly-owned subsidiary of the DIFC, is set to commence
trading on September 26. A wide range of financial instruments will be
traded on the market's electronic platform and the DIFC board is looking to
attract listings from companies across the Middle East and the Indian
sub-continent as well as from Europe.

Established in September 2004, the DIFC offers firms 100% foreign ownership,
no taxes on income or profits, no foreign exchange controls and no
restrictions on the repatriation of capital or profits and has already
attracted many big names in the financial services and banking fields, such
as Barclays, Merrill Lynch and AIG.

Ex Swiss ambassador found guilty of money laundering

The former Swiss ambassador to Luxembourg, Peter Friederich, has been sentenced to three and half
years in jail.

The Federal Criminal Court found him guilty of money laundering as well as embezzlement, damaging
creditors' interests and falsifying documents.

But the court in Bellinzona cleared him of accusations of belonging to and assisting a criminal
organisation.

Friederich was ordered to pay a SFr15,000 ($12,000) fine and a number of his assets were seized.

Judges said the former ambassador had accepted SFr2.4 million from Spanish-Colombian drug dealers in
2001 while he was ambassador to Luxembourg.

He deposited the money in various bank accounts and received SFr134,000 as a reward, the judges said
on Monday. They added that he should have known that the money was of criminal origin.

Prosecutors had called for a six-year jail sentence for Friederich who pleaded not guilty to most of
the charges.

Stock market
During his diplomatic career, Friederich invested large sums of money in the stock market on behalf
of friends and associates, promising them a high return on their investments.

But when the stock market crashed in 2000, the former ambassador lost SFr5 million ($4.2 million),
putting him under financial pressure.

The court said Friederich embezzled investors' money to pay off debts and for his own ends. It is
not clear whether he will appeal against the verdict.

Friederich was arrested in July 2002 after SFr2.37 million ($2 million) in cash deposits turned up
in his private account in Luxembourg.

The 63-year-old was held in custody for over a month in the Swiss capital, Bern, before being
released pending court proceedings. Later in the year he was suspended from his post and given early
retirement.

Friederich's 30-year diplomatic career included postings to Vietnam, Cuba and finally Luxembourg in
1999.

swissinfo with agencies

Copyright © Neue Zurcher Zeitung AG
http://www.nzz.ch/2005/06/07/eng/article5847953.html

Tax but dont discriminate

 

by Byong-Ki Lee (eye@donga.com legman@donga.com)Tax agreements and domestic tax laws are being reformed to tax foreign capital that benefits fromprofits gained domestically, even if it was invested through establishing a paper company in a taxhaven. However it is undetermined whether tax agreements will be able to be revised, due to the factthat tax treaties must be discussed with the country in question and it is difficult to getcountries to surrender their vested rights.On June 6, the Ministry of Finance and Economy (MOFE) announced, "We will stipulate precise tax lawsto enable the Korean government to tax incomes that have been invested in Korea through tax havensto evade taxes whether they are foreigners or Koreans."They also added, "We will stipulate laws so that a resident of a third country will not be able toreceive benefits by establishing paper companies in a country that Korea has formed tax agreementswith."Korea currently has tax agreements with 62 countries including Malaysia, the U.S., and Japan.The international taxation manager of the MOFE, Lee Gyeong-geun, explained the situation, saying,"We need to establish definite regulations because there are foreign funds that are insubordinate totaxation on the grounds of tax agreements."This guideline of the government's seems to be a result of the government's awareness of thecritical public opinion that some foreign capital sources are raising an enormous amount of profitby using tax havens and tax agreements.Through June 7 to 10, the MOFE is planning to hold a second round of negotiations with Malaysia todiscuss revising tax agreements to exclude Labuan, which is currently used as a tax haven.Additionally, the MOFE is planning to enable the Korean government to tax foreigners who areoligopoly stock-holders possessing over 25 percent of a company's total stocks or who earninvestment yields by transferring the stocks of a company with over 50 percent of its assets in realestate.Copyright 2002 donga.com.All rights reserved.http://english.donga.com/srv/service.php3?bicode=020000&biid=2005060609518June 7, 2005 KST 14:24 (GMT+9)Tax, but don't discriminateThe government has said that it will develop measures for taxing foreign funds that have madeprofits in Korea after setting up a paper company in a tax haven. The government also said that itwould try to find a way to tax foreign funds' capital gains from acquiring management control inKorean companies and selling the shares back later, or from selling a company in Korea whose valuederives mostly from its real estate.Currently, the Korean government cannot tax foreign investors' earnings from the Korean stockmarkets, or from real estate transactions here. This is because no provisions for doing so werewritten into Korea's tax laws, or because laws dealing with the issue are vaguely written. Anotherreason is the tax treaties Korea has signed with other countries, treaties designed to preventdouble taxation. Thus, it is a relief that the government plans to establish a legal basis forlevying such taxes, though it comes a bit late.But the government should take care that such measures not be seen as an intentional exclusion offoreign funds from the Korean market, or as discrimination against foreign investors.Many of the foreign funds that have made enormous profits in Korea invested here after the 1997-98financial crisis, for Korea's sake. Back then, most of the Korean companies and financialinstitutions that were put on the market would otherwise have been liquidated, or the governmentwould have had to shoulder the struggling companies.Now, some complain that Korean companies were sold to foreign funds at dirt-cheap prices, or arguethat it would have been better if Korean funds had purchased them. But at that time, every singlecent was desperately needed. Of course, there were some cases in which foreign investors here tookadvantage of loopholes in Korea's capital market regulations, knowing that Korean funds could notafford to compete.But as long as foreign funds do not violate laws and regulations, it would be going too far topunish them for making money by excluding them from the market, or otherwise discriminating againstthem. If we do so, the lessons we learned from the difficulties of restructuring, and the fruits ofglobalization that we have acquired since then, will be in vain. Korea needs realistic,sophisticated measures that can expand the government's right to tax foreign funds without inflamingemotions against them.Copyright by Joins.com, Inc.http://joongangdaily.joins.com/200506/06/200506062355054079900090109011.html

Schumacher to lose his tax haven?

(GMM)  The roof on F1 champion and millionaire Michael Schumacher's tax paradise might soon cave in.

A petition before Switzerland's parliament - named 'The Schumi Initiative' - aims to close a
loophole allowing wealthy foreigners to negotiate low rates of tax.

Schumacher, 36, moved near Lake Geneva in 1996 to dodge Germany's 42 per cent income tax.  He now
pays about four per cent ($2m) of his $50m income to the Swiss government.

''We expect a decision in the autumn,'' said the 'Schumi' petition's author, Suzanne Oberholzer, a
social democrat.

''(The current situation) is unfair to the Swiss people and to the people of neighbouring lands.  He
should pay his fair share like everyone else.''

High profile millionaires and Swiss residents like Sir Jackie Stewart, Boris Becker, David Bowie,
Celine Dion and Roger Moore also would be affected.

Written: Mon, 06 Jun 2005 09:23:03

Copyright 2005 UpdateSport. All rights reserved.
http://formula-1.updatesport.com/news/article/1118049783/formula_one/
f1headlines/the-swiss-onto-schu/view.html

Swiss vote for closer ties with EU

 

By Tom Wright International Herald TribuneMONDAY, JUNE 6, 2005GENEVA Swiss voters on Sunday approved plans to join the European Union's passport-free zone, a movethat shows Switzerland is moving further away from its traditional isolation in the region.In a referendum, 55 percent of voters agreed to join the EU's Schengen and Dublin accords, which theSwiss government signed last year.Under the Schengen accord, Switzerland will dismantle passport controls at its borders with othercountries in the zone, and beef up security cooperation. The Dublin accord harmonizes asylumprocedures between members of the group.Samuel Schmid, Switzerland's president, said at a news conference in Bern that the result "willallow Switzerland to intensify its cooperation with the EU."The result goes against the prevailing mood in the EU, which was underscored by the rejections byFrench and Dutch voters of a proposed constitution for the 25-nation bloc.In Brussels, the EU foreign affairs commissioner, Benita Ferrero-Waldner, and the justicecommissioner, Franco Frattini, welcomed the vote on behalf of the European Commission."The ratification of these association agreements is an important step in the relations betweenSwitzerland and the European Union," Ferrero-Waldner and Frattini said in a joint statement to TheAssociated Press. "On the one hand, freedom of movement will obviously be facilitated; on the otherhand, the cooperation on internal security can be strengthened."For Switzerland, which has carefully guarded its neutrality in foreign affairs for much of the past400 years, accords like Schengen and Dublin show how things are changing, analysts say.The Swiss government, which supports eventual EU membership, argues that cross-border threats liketerrorism and organized crime mean that the country has to work with other nations.But a large number of older voters, especially from rural German-speaking eastern parts of thecountry, believe Switzerland should stick to its isolation.Most German-speaking cantons, excluding Zurich, Bern, Basel and Zug, voted no Sunday to the accords.French-speaking cantons, like Geneva, were strongly in favor.The far-right Swiss People's Party, known by its acronym SVP, was able to increase the no vote inthe past few weeks by linking the referendum to voter fears about immigration, unemployment andcrime.The Swiss People's Party accused the government of using the accords to move Switzerland closer tofull EU membership, which it claims a majority of Swiss do not want."People were told this was a security issue," said Luzi Stamm, a lawmaker for the party. "But reallyit was about getting closer to the EU."The government, backed by police and immigration services, sold Schengen-Dublin as a measure thatwas needed to reduce crime and illegal immigration.Authorities stressed that the accords would not mean giving up any power to Brussels, which helpedwin over voters, analysts said.Because Switzerland is still not part of the EU's customs union, border guards will continue tocarry out controls on goods at the frontier.Since the early 1990s, Swiss voters have twice rejected plans to begin negotiations to join theEuropean Union. The government admits that Swiss voters are still far from backing membership.Swiss people have been slow to accept change to their neutrality. Switzerland only joined the UnitedNations in 2002 after voters finally approved the move in a referendum that year.Fewer people support EU entry today than a decade ago, when the fall of Communism created anatmosphere of detente in the region, said Johann Aeschlimann, a political commentator.A sputtering economy and fears that efforts to open Switzerland's economy will lead to greaterunemployment have helped the Swiss People's Party sow its anti-EU message, he said.A second referendum planned for the fall, on a pact with the EU to make it easier for East Europeansto work here, is likely to face stiffer resistance, analysts say.In Switzerland's direct form of democracy, the Swiss People's Party was able to force referendums onboth of the EU agreements by collecting signatures.On Sunday, Swiss voters also agreed to allow homosexual couples to register their relationships.The law gives same-sex couples the same legal rights as married couples in financial matters liketaxes.But it stops short of allowing them to adopt children or obtain access to fertility treatment.The Parliament passed the law last year, but a small conservative religious party forced areferendum on the issue.http://www.iht.com/bin/print_ipub.php?file=/articles/2005/06/05/news/swiss.php

US targets diamond dealers in money laundering laws

 

(June 5, '05, 10:11 Albert Robinson)The U.S. Treasury's Financial Crimes Enforcement Network (FinCEN) has issued an interim final rulerequiring dealers in precious metals, stones or jewels to establish anti-money laundering programs.Dealers affected by the rules based on their business activities this year will be required to setup an anti-money laundering program by January 1, 2006 that comprises at least the following fourelements:Policies, procedures and internal controls, based on the dealer's assessment of the money launderingand terrorist financing risk associated with its business; a compliance officer who is responsiblefor ensuring that the program is implemented effectively; ongoing training of appropriate personsconcerning their responsibilities under the program; independent testing to monitor and maintain anadequate program.FinCEN said it issued the regulation to better protect dealers in jewels, precious metals andprecious stones from potential abuse by criminals and terrorists."The characteristics of jewels, precious metals and precious stones that make them valuable alsomake them potentially vulnerable to those seeking to launder money," said William J. Fox, Directorof FinCEN. "This regulation is a key step in ensuring that the Bank Secrecy Act is appliedappropriately to these businesses."The interim final rule applies to "dealers" who have purchased and sold at least $50,000 worth of"covered goods" during the past year. The dollar threshold is intended to ensure that the rule onlyapplies to persons buying and selling a significant amount of these items, rather than smallbusinesses, occasional dealers and persons dealing in such items as a hobby."Covered goods" include jewels, precious metals, and precious stones, and finished goods (includingbut not limited to, jewelry, coin collecting items, and antiques) that derive 50 percent or more oftheir value from jewels, precious metals or precious stones contained in or attached to suchfinished goods.http://www.idexonline.com/portal_fullnews.asp?id=24133

Korea moves in on Tax Havens

 

Seoul to Close Tax Loopholes for Overseas InvestorsSeoul wants to change double taxation treaties with other countries so it can tax overseasinvestment funds that operate here, under plans that also target Korean and foreign investors whoavoid taxation by setting up paper companies in tax havens.It wants to tax the capital gains of foreign funds that own more than a 25 percent equity in localfirms including financial firms, which under current double taxation treaties are exempt. It is alsotargeting overseas-based funds that invest in Korean companies with more than 50 percent holdings inreal estate and sell their stake in equities.The Ministry of Finance and Economy said Sunday it will supplement local laws and seek changes todouble taxation treaties to stop tax-haven based investors from avoiding duties in Korea.But the proposed changes will have no influence on ongoing tax probes of overseas funds like LoneStar, Newbridge and the Carlyle Group since they would only apply to future investments.The ministry also decided to enshrine in law the practice of tracking down and taxing Koreans andforeigners that operate and invest in Korea by way of tax-haven paper companies.(Park Jong-se jspark??chosun.com)http://english.chosun.com/w21data/html/news/200506/200506050015.htmlKorea Seeks to Tax Foreign Capital from Tax HavenBy Kim Jae-kyoungStaff ReporterSouth Korea seeks to levy a tax on any capital gains made here by foreign funds headquartered in taxhavens abroad, such as Labuan in Malaysia, by modifying double taxation avoidance treaties and localtax rules.The Ministry of Finance and Economy (MOFE) said yesterday that it decided to revise tax treatieswith foreign nations and domestic tax rules to prevent domestic and foreign capital from dodgingtaxes by using tax havens.To that end, the ministry plans to turn in a revision to the National Assembly this year under whichthe tax authority will be allowed to tax any capital gains earned by a paper company headquarteredin a tax haven abroad.It plans to track down the real investor of a paper company and levy a tax on capital gains,interest and dividend income earned by the real investor, if it is found they set up a bogus firm toevade taxes.Under the double taxation pacts, capital gains on the sale of shares and properties are not taxed,and the same is true with respect to Korean investments in foreign countries, including the U.S.Currently, Korea has signed agreements with 62 countries to avoid double taxes, including the U.S.,Japan and Malaysia.As the first step, the government plans to have a meeting with Malaysia from Tuesday to Friday todiscuss a plan to exclude Labuan, a frequently used tax haven by foreign funds when investing inKorea, from the double tax treaties.However, the government's plan to amend double tax treaties seems infeasible, given that such anamendment will only be possible when they sign new tax treaties with counterpart nations.Analysts say that since this is not an issue limited to Korea, the Korean government should be morecautious about dealing with this issue."This issue is very new to Korea and thus generates a lot of attention, but it is a problem thatarises in many places, for example in the U.S.," Institute for International Economics (IIE)senior economist Monty Graham said."Koreans should see the problem in this context, and moreover, my impression is that othercountries, including the U.S. and Canada, that face this issue have all concluded that the benefitof foreign investment is more important than the potential loss of tax revenue," he added.The government's decision to amend tax treaties came as a result of growing anti-foreign capitalsentiment here after a few foreign private equity funds, including New Bridge Capital and Lone Star,made a huge capital gains, without paying a penny in taxes, by bypassing local rules.The Carlyle Group and Newbridge did not pay anything on their capital gains of 700 billion won and1.15 trillion won, respectively, after selling Korean banks under their control, while Lone Staravoided being taxed on capital gains of 260 billion won after selling the landmark Star Towerbuilding in southern Seoul.kjk@koreatimes.co.kr06-05-2005 19:01http://times.hankooki.com/lpage/200506/kt2005060518585710440.htm

Selling house at a loss could have nasty tax implications

 

Kathleen PenderSunday, June 5, 2005Everyone knows residential real estate is a wonderful tax shelter. What's less well known are someof the tax disadvantages that can bite homeowners when they sell at a loss or wind up losing a housethat is worth less than they owe on it.With home prices soaring and foreclosure activity close to nil in the Bay Area, this is notsomething most homeowners are thinking about.In the nine-county Bay Area, there were only 39 residential foreclosure sales in April, down from 46in March, according to DataQuick.By comparison, in March and April 1995, there were 858 foreclosures in the Bay Area.I'm not saying whether the housing market will collapse, but people who are buying at today's loftyprices or who have leveraged their houses to the rafters may want to consider the tax consequencesif things take a turn for the worse.No tax deduction: If you sell your primary residence at a loss -- meaning for less than you paidplus the cost of improvements -- you get no tax deduction.This makes a certain amount of sense because the gain on the sale of a primary residence is tax freeup to certain limits. Assuming you lived in the house long enough, you can exclude up to $250,000 incapital gains if you are single and $500,000 if you are married filing jointly. Any profit overthose limits is taxed as a capital gain.No matter how much you lose on your primary residence, however, your tax deduction is always zero.This seems obvious, but it's not always.Sunnyvale CPA Leonard Williams says, "A prominent attorney referred a client to me. He paid $4.5million for a house that was now worth $4 million. He was going to go through this convoluted thingto sell it at a loss," thinking he could deduct it. "I said, 'This is a personal residence. Youcan't take a deduction.' "On the other hand, a loss on the sale of rental property is deductible. Williams says some peoplewho have a loss in their primary residence think they can move out, convert it to a rental and takea tax deduction."The problem is, if you bought it for $400,000 and it goes to $350,000, your cost basis in therental is not $400,000. It's going to be $350,000."If you sold it immediately for $350,000, you would realize no gain or loss.The value of the rental "would have to continue to go down to get the benefit of a loss," saysspokesman Jesse Weller of the Internal Revenue Service. "You wouldn't be able to claim the portionof the loss that occurred while it was your home."Foreclosure taxes: Suppose your house becomes worth less than you owe, you can't keep up themortgage payments and the lender forecloses on the property.You may be liable for two types of taxes: capital gains and cancellation of debt income. The sameholds true if you abandon the property or voluntarily turn it over to the lender.These taxes depend on whether you have a recourse or non-recourse loan.Non-recourse generally means that if the lender takes over your house, your debt is satisfied andthe lender can't go after your other assets, even if the proceeds from the foreclosure sale are lessthan the debt.In California, if you take out a loan to buy a house or a building with up to four units and youlive in the house or one of the units, the loan is non-recourse.A recourse loan generally means the borrower is personally liable for repayment. If the lender takesover the house that is worth less than the debt, the lender can go after the borrower's other assetsto pay the difference.A home equity loan or line of credit is a recourse loan. So are consumer loans secured by yourhouse.In most instances, if you refinance your house, the new loan is a recourse loan, says MichaelPfeifer, a real estate attorney with Pfeifer & Reynolds.However, Roger Bernhardt, a professor at Golden Gate University School of Law, says there is noCalifornia case law that definitively establishes this as fact.If you borrow money to buy investment property, it is generally a recourse loan unless it wasfinanced by the seller, in which case it is typically a non-recourse loan.-- Non-recourse loans. If you default on a non-recourse loan, you could be subject to tax on capitalgains, but you won't be taxed on the cancellation of debt.When a lender takes over a property, it's treated as a sale. Your "sales" price is the outstandingdebt.Your capital gain or loss is the difference between this debt and your adjusted basis, which isusually the amount you paid plus capital improvements (minus depreciation, if it's a rentalproperty).If the debt exceeds your basis, you will have a capital gain even if you don't get a dime in yourpocket. If this is your primary residence, and the gain is less than $250,000 (single) or $500,000(married), you won't owe tax.If the debt is less than your cost basis, you will have a capital loss.Suppose you buy a house for $600,000 and make no improvements. You put down $60,000 and borrowed$540,000 with an adjustable-rate, interest-only mortgage. Interest rates shoot up, home values falland a year later you can no longer make your payments. The bank takes over your house, now worthonly $500,000.You will have a capital loss of $60,000 ($540,000 in debt minus your cost basis of $600,000.) Youwon't owe tax, but you won't get a deduction if this is your primary residence. The biggest hit willbe to your credit rating.-- Recourse loans. With a recourse loan, your "sales" price is the fair market value of the house atthe time of transfer. Your capital gain or loss is that value minus your cost basis.In the above example, if the mortgage was a recourse loan, you would have a $100,000 capital loss($500,000 in fair market value minus $600,000 cost basis).With a recourse loan, you also may owe tax on cancellation of debt income. If the home is worth lessthan the debt and the lender does not go after you for the difference, that difference becomescancellation of debt income, and it will be taxed unless certain exceptions apply.In the above example, you would have $40,000 of taxable debt forgiveness income ($540,000 in debtminus $500,000 in fair market value), assuming you don't qualify for any of the exceptions.Cancellation of debt is not taxed if the loan forgiveness was intended as a gift (not likely unlessthe lender was a close relative), if the borrower is bankrupt or insolvent and in certain othercases.Cancellation of debt tax is rare, but it usually comes as a nasty surprise to those who owe it."A lot of people don't understand the tax consequences of walking away from their property," saysWeller.Cancellation of debt is taxed as ordinary income. If it exceeds $600, most lenders are supposed tosend you IRS Form 1099-C showing the amount you must report on your tax return.Here's one more example:Pretend you bought a house for $100,000. Its value goes up to $280,000. You refinance your originalmortgage with a new one for $250,000. The value goes down to $200,000, you default and the bankforecloses.This will probably be treated as a recourse loan because it was not acquired to buy the house.Assuming you still owe $250,000, you will have $50,000 in cancellation of debt income and a capitalgain of $100,000 ($250,000 market value minus $100, 000 cost basis.) Once again, the capital gainwon't be taxed because it falls within the exclusion for primary residences.Net Worth runs Tuesdays, Thursdays and Sundays. E-mail Kathleen Pender at kpender@sfchronicle.com.Page E - 1http://www.sfgate.com/cgi-bin/article.cgi?f=/c/a/2005/06/05/bugg5d3fns1.dtl

Tax evaders keep step ahead of EU

 

By Tom Wright International Herald TribuneWEDNESDAY, MAY 25, 2005GENEVA After more than a decade of haggling, the European Union is now just one month away fromstarting its biggest, coordinated assault on tax evasion: a new law aimed at uncovering - andtaxing - interest earned on the hundreds of billions in savings stashed by EU citizens outside theirhome countries.Yet the windfall of new revenue that some cash-strapped countries, led by Germany and France, hadbeen hoping for is unlikely to materialize, according to bankers in Switzerland and other taxhavens.Not only are historic low interest rates keeping the potential pot to be taxed low, but manyinvestors are restructuring their deposits to legally avoid paying anything, bankers say.Others have already moved their money even farther afield - to places like Singapore - where it canremain hidden from tax collectors at home."We should certainly not expect to see any kind of fiscal miracle," said Urs Roth, chief executiveof the Swiss Bankers Association in Basel.Most European nations have been trying for years to recoup some of the lost revenue - estimated atmillions or billions of euros over the years - on interest earned by their citizens in tax havenslike Switzerland and Luxembourg.Tax amnesties offered in recent years have brought some deposits back, with Italy showing betterresults than Germany. Places like Switzerland are now finding it harder to accept money withoutasking questions because of stricter money-laundering rules adopted since Sept. 11, 2001.But huge amounts of potentially taxable funds remain out of reach of EU tax collectors. InSwitzerland, about 1.2 trillion Swiss francs, or $975 billion, was held by foreign private investorsand some three-quarters of that was not declared to tax authorities, Deutsche Bank estimated in areport last year.The new EU law, which takes effect July 1, allows governments to track at least some of that hoard.Negotiations, which started in 1989, bogged down for years over divisions between nations that lostout on taxes, like France and Germany, and financial centers like Luxembourg and Britain thatprofited from the investment business."It's a very political issue," said Roger Kaiser, a tax specialist at the European BankingFederation in Brussels. "From the start it was very difficult to reach agreement."The law was eventually whittled down to aim at only interest income from savings and bonds. Itcovers only individuals, not companies and trusts, and earnings from other assets, like stocks andderivatives, are exempt.Finance ministers gave their final endorsement to the pact a year ago, but implementation wasdelayed to allow time for countries to pass the necessary legislation."At the beginning we wanted much more," said Maria Assimakopoulou, taxation spokeswoman at theEuropean Commission. "That was the best compromise we could get."In 2007, the EU will review the directive with a view to possibly broadening its scope.In the meantime, neither the commission nor national capitals will speculate on how much revenuethey think they will collect.Generally, EU banks must report interest payments they make to residents of other EU nationsdirectly to those customers' home governments.Banks in Luxembourg, Belgium and Austria, which have banking secrecy laws, can levy a withholdingtax on interest income if clients choose not to have that information given to their homegovernments. The rate starts at 15 percent and will rise to 20 percent in 2008 and 35 percent as ofJuly 1, 2011.Three-fourths of the money collected will be forwarded to the country where the account holder is aresident - without identifying the depositor.Countries like Switzerland or Monaco, which are not in the EU, as well as dependent territories ofEU nations, like Jersey and the Cayman Islands, have also agreed to the withholding tax.The German government, which is one of the biggest losers from tax evasion, estimates its citizenshave some €300 billion to €500 billion, or $378 billion to $631 billion, in so-called offshore bankaccounts.But Charles Hermann, a partner at KPMG, an accounting firm, in Zurich, estimates that Switzerlandwill collect only about 30 million francs to 50 million francs annually in withholding tax."The directive is full of loopholes," Hermann said.Rather than spur depositors to bring their money back home, he expects most will rejigger theiraccounts to avoid any tax by such methods as moving them into trusts.Funds that are less than 40 percent invested in interest-paying assets, like bonds, are also exempt,according to Kaiser at the banking federation.The chief executive of a private, Zurich-based bank, who declined to be identified, said largeinvestors have "got their money structured in a way so it doesn't trigger the taxes."Swiss bankers say the new EU law also has sparked an outflow of money to Singapore, a relativelysafe haven that will not come under the withholding tax.Credit Suisse, Switzerland's second-largest bank after UBS, decided recently to move its head ofinternational private banking, Joachim Straehle, to Singapore from Zurich to take advantage offaster growth rates in Asia."We see lots of money flowing in to Singapore from all over the world these days," Straehle saidduring an interview."I feel Switzerland is becoming more part of Europe," he added. "We need to build up an alternativeto Switzerland, to put our eggs in different baskets."While Switzerland is still a huge financial center, little new money is coming into the country amidthe tightening of financial surveillance, bankers say.Kaiser at the European Banking Federation, which represents 4,500 banks, said some parts of thedirective were still not clearly defined, but conceded that there was little chance of postponing itagain.The law was already held up from a planned start date of Jan. 1 as Luxembourg and other countriesasked for more time to get laws through their Parliaments.A banker from Pictet & Compagnie, a private bank based in Geneva, said he is now advising Europeanclients not to bring funds to Switzerland.In the past, a French family that he advises was able to transfer money to Geneva without payingtaxes at home. By linking the account to a credit card, they could spend the money wherever theytraveled.But now, with tighter control by European governments, using a credit card might raise suspicion,the banker said. The family now buys vacation packages from Switzerland as a way of spending themoney."I'm not advising European clients to bring money to Switzerland anymore," the banker said oncondition of anonymity.Swiss banks are instead opening new branches in European capitals to manage their clients' taxablemoney, he said.http://www.iht.com/bin/print_ipub.php?file=/articles/2005/05/24/business/tax.php

Cayman Islands assists in US fraud case

 

Cayman Islands International Cooperation Regime Instrumental in Bringing Two U.S. Fraud CasesSuccessfully to JusticeMore than 15 Years After Its Ratification, Mutual Legal Assistance Treaty Still A Key Resource inthe Fight Against Global Financial Crime    WASHINGTON, May 27 /PRNewswire-FirstCall/ -- The Cayman Islandscooperation with the U.S. Department of Justice on two criminal investigations-- including one that began more than seven years ago -- culminated in aspecial meeting Thursday between senior Cayman and U.S. officials inWashington, D.C.    Cayman Islands Chief Justice Anthony Smellie and Attorney General SamuelBulgin met with U.S. Attorney General Alberto R. Gonzales and other officialsat the U.S. Department of Justice to exchange funds, stemming from the asset-sharing agreement as part of Cayman's Mutual Legal Assistance Treaty (MLAT)with the U.S.    The Cayman delegation received just over US$1.7 million, the result of thesuccessful prosecution of the two fraud cases. For the second case, the CaymanIslands in return presented the U.S. government with US$675,000, to be used asrestitution for the victims of that fraud, which has been successfullyprosecuted and the proceeds confiscated.    "Our relationship with the U.S. and our moral obligations as a member ofthe global community to assist in the efforts to combat the scourge oforganised crime and money laundering are of the highest importance to theCayman Islands," said Chief Justice Smellie. He also expressed Cayman'sappreciation to several members of the Office of International Affairs andcommended the strong working relationship that has developed between the twogovernments.    Attorney General Bulgin made the following remarks: "The occasion heretoday is indeed a reaffirmation of the long history of cooperation between theU.S. and the Cayman Islands -- with able guidance from the U.K. -- in thefight against criminal activities. It is an unequivocal pledge of the CaymanIslands to continue to cooperate with other countries, including the U.S., innot only prosecuting the perpetrators, but in confiscating their proceeds ofcrime."    Since the MLAT's introduction in 1990, in excess of US$10 million, arisingfrom some 230 cases in which the two governments have cooperated, has beenshared with the Cayman Islands. Several million dollars have also beenreturned to the United States for the restitution of victims of fraud andother cases.    The Cayman Islands has an agreement with the U.S. to share any proceedsfrom cases in which the two governments cooperated which are not to bereturned, for various reasons, to victims, shareholders or creditors. The MLATencourages use of funds for local drug rehabilitation, law enforcement andjustice administration programmes.    The Cayman Islands was the first regionally, and among the firstworldwide, to criminalise the laundering of the proceeds of all seriouscrimes, extending such legislation beyond the ambit of drug-money laundering.The legislation gives the courts of the Cayman Islands power to restrain andultimately to forfeit the proceeds of drug trafficking and all other seriouscrime, including fraud and official corruption.    In 2003, the Cayman Islands passed a comprehensive piece of anti-terrorismlegislation in addition to adopting, as part of its domestic law, UnitedNations Security Council resolutions dealing with the financing of terrorism.    The Cayman Islands Government has been continuously working bothdomestically and internationally to maintain a strong regulatory andcompliance framework. Domestically, this includes adherence to the FATFinternational anti-money laundering standards and the Basel Committee, IOSCOand IAIS global standards in the regulation of financial services and updatesto governing legislation.    Internationally, this includes bilateral mutual co-operation arrangementssuch as the mutual legal assistance treaty with the U.S. and variousregulatory co-operation arrangements maintained by the Cayman Islands MonetaryAuthority.    The Monetary Authority Law (2003 Revision) vests CIMA with powers to makelicensing, supervisory and enforcement decisions, and to co-operate withinternational regulatory authorities.About the Cayman Islands Financial Services IndustryBuilding on more than 40 years of steady growth, the Cayman Islands todayis recognised as a sophisticated, mature and diverse financial centre. Overthe past 15 years in particular, the Cayman Islands has focused on two mainobjectives:  building a world-class specialization of institutional businessand developing strong international cooperation agreements with the U.S. andother countries. The Cayman Islands financial services industry encompassesbanking, trust services, company services, mutual funds, insurance, vesselregistration, capital markets products and the Cayman Islands Stock Exchange.SOURCE Portfolio of Finance & EconomicsWeb Site: http://www.gov.kyCopyright © 1996- PR Newswire Association LLC. All Rights Reserved.

Shanghai citizens dumping US dollars

 

Chinanews, May 25 - Affected by the recent anticipated adjustments in the RMB, quite a fewShanghainese residents lean towards getting rid of the U.S. dollars they own. In April this year,many Shanghainese banks have experienced the pressure of rising volume of foreign currencytransactions. Many banks reflected that near end of April and beginning of May, residents' forextransactions amounts were up 30% or more over last year. Certain individual banks even reportedsingle day currency transactions amounting to several hundred thousand U.S. dollars.Because individual forex account holders flock to dumping the greenback, banks have experienced theever more serious issue of losing their foreign currency deposits. The Shanghai branch of thePeople's Bank of China reveals in its latest currency lending statistics that at the end of April,the entire city's Chinese financial institutions have lost a total of US million in their varioustypes of foreign currency balances, with savings deposit accounts losing US million.Many of Shanghai's banks active in forex businesses reflected that based on considerations of forexrisks, long-term forward currency transactions have been very active, with volume rising by themonth. In particular, forward transactions longer than 3 months have been increasing theirproportion of total forward deals.Financial experts point out that concentrated and larger-scale forex transactions enable total forexvolume to grow rapidly and if the Yuan were to be re-valued, banks would face the risks of losingmoney.Copyright© 2004 Chinanews.com. All rights reserved.

Treasury issues anti money-laundering rules

 

The U.S. Treasury Department issued its Patriot Act anti-money laundering rules for the jewelryindustry, the Jewelers Vigilance Committee announced Saturday. The rules require jewelry dealers toset up compliance programs within six months. However, it appears to let most jewelers off the hook.According to the rules, dealers in covered goods (meaning jewels, precious metals, precious stones,and finished goods) will have until January 1, 2006, to implement an anti-money laundering program.Those programs involve:* Performing a risk assessment in order to evaluate their particular risks of being exploited formoney laundering purposes;* Appointing a compliance officer to implement the program;* Designing and implementing an anti-money laundering program, based on prior developed riskassessment;* Training employees;* Testing the anti-money laundering program independently to ensure that the program functions asdesigned.Most retailers appear not to be required to implement the program - with the exception of retailerswho purchase more than $50,000 of covered goods from non-U.S. dealers or members of the public, andsell more than $50,000 of those goods.Pawnbrokers are also exempted from the rule.To help companies design anti-money laundering programs, the Jewelers Vigilance Committee haddeveloped the USA PATRIOT Act Compliance Kit.© 2005 Reed Business Information, a division of Reed Elsevier Inc. All rights reserved.http://www.jckgroup.com/article/ca606299/jck?section=legislative%2c+regulatory+%26+legal

US probes Isle of Man scheme used by Bush donors

 

By Jason Nisse05 June 2005The Manhattan District Attorney, the Securities and Exchange Commission (SEC) and the US InternalRevenue Service (IRS) are jointly probing a tax-shelter plan run out of the Isle of Man.The scheme, devised by one of America's biggest banks and used by two billionaire donors to GeorgeBush's election campaign among others, is being probed for possible breaches of securities andanti-money-laundering rules.The investigating bodies believed that up to $100m (£55m) of tax was saved through one scheme alone,and as much as $700m in taxes may have been avoided over an 11-year period. The scheme involvedexecutives and corporations handing over stock to trusts that they declared they neither owned norcontrolled. When the options were cashed in, no tax was payable. However, the IRS changed the rulesin 2003 to say that tax should be paid anyway.In the previous 11 years, tax schemes were marketed by Bank of America to at least 42 corporations.Earlier this year the Manhattan District Attorney, Robert Morgenthau, started probing allegationsthat some of these trusts were controlled by the people passing on the stock options. Both the IRSand the SEC have now joined in this probe.They have contacted the regulators on the Isle of Man asking for information on one particularscheme used by two Texan billionaire brothers, Charles and Sam Wyly.The duo, who made their money in computing and retailing, not only gave over $200,000 to PresidentBush's re-election campaigns, but also bankrolled TV adverts attacking his rivals, John Kerry andSenator John McCain.Sam Wyly describes himself as "the entrepreneur's entrepreneur" and came to prominence when heunsuccessfully tried to oust the board of Computer Associates in 2001 - only a year after thebrothers sold their Sterling Software business to the group for $4bn.The Isle of Man authorities have passed documents to US investigators relating to 20 differententities linked to the Wyly brothers that are registered in the Irish Sea tax haven. One, DevotionLtd, is a holding company with two directors and no employees; it is run, according to SEC filings,from a remote farm on the island. Another director, who lives in a terraced house, signed a transferdocument for $25m. At one point, Isle of Man entities owned 20 per cent of the shares in SterlingSoftware, as well as 12.8 per cent of another Wyly group, Michaels Stores, and 42 per cent of athird, Green Mountain Energy.The Isle of Man authorities have said they are co-operating fully with the US investigations, as hasBank of America. A spokesman for the Wyly brothers' lawyers said "they felt they only did what wasappropriate".The US authorities said they could not comment on ongoing investigations.©2005 Independent News & Media (UK) Ltd.http://news.independent.co.uk/business/news/story.jsp?story=644159

How the city has become hooked on hot money

 

The ObserverLondon increasingly looks like an offshore centre serving many dubious financiers while at the sametime claiming to have regulation that puts it among the world's top onshore jurisdictions.Its offshore status is underlined by the large number of banks and branches of foreign banks in theCity. More are based there than anywhere in the world. Its onshore claim rests on a long-heldreputation for respectability - who after all would ever cast an aspersion on the Bank of England? -buttressed by a mass of anti-money laundering and anti-fraud regulation as severe as anywhere elsein the world. But as each new scandal breaks, London's status looks increasingly ambiguous.London's vulnerability to launderers is not in its laws but in their implementation. Government hasfailed to invest in sufficient skilled law enforcement officers or regulators to curb its sprawlingfinancial system. But this is no accident. The UK's economy cannot afford to curb its income fromthe 'invisible' financial sector, while its industrial sector becomes anorexic.As the United Kingdom feeds its growing addiction to finance and hot money, its regulators blusterever less convincingly about the security of the UK's financial system and its antipathy tomoney-launderers. Anti-money laundering legislation has mushroomed in the Britain to keep thisoffshore haven in line with international standards.The Financial Services and Markets Act of 2000 (FSMA) provides the legal basis for the FinancialServices Authority, which acquired its money-laundering powers on 1 December, 2001. Supervision ofUK banking had been subsumed into the FSA in 1997, an early initiative driven by the Chancellor ofthe Exchequer, Gordon Brown, and his assistant, Ed Balls, in response to the Bank of England'sfailure to act promptly on the BCCI money-laundering scandal.Action against money laundering gained a new urgency when the FSA took charge, says one moneylaundering reporting officer. 'Prior to 2001, no one did a damned thing. It was another "tick in thebox" exercise. You had a compliance department, you probably had an old bombed-out complianceofficer who was the money laundering reporting officer, who had no resources and no respect. Thebanks saw no risks to themselves, no one was going to fine them and no one was going to give themany grief. They were never going to get caught by the law.'Bankers' dissatisfaction with the UK's anti-money laundering system is fuelled by resentment at thepolice, who appear detached from the realities of the financial markets.Carol Sergeant, the FSA's former managing director for markets and risk (she is now the head ofcompliance at Lloyds TSB), said: 'The information that the banks are providing may not actually meetthe needs of law enforcement. But they are not getting any feedback on what law enforcement peoplewant. One of the main areas that has been successful has been terrorist finance because it has beenmuch clearer as to what the authorities want.'The Financial Services and Markets Act has instilled a sense of fear and foreboding into UK banking.This law allows for banks to receive surprise dawn visits from the regulators to check that theirprocedures correspond with the bank's perceived risk as well as with the regulator's own principlesand regulations. Bank training in money-laundering procedures has mushroomed, creating a demand forconsultants and trainers.The minutiae of the law and regulation are closely watched by the regulator, says one former FSAofficer, but more complex problems of vulnerability to fraud or abuse are overlooked.Bureaucratic competence is valued by the organisation, which answers to Her Majesty's Treasury, butlateral thinking into a bank's deeper weaknesses in knowing client affairs is harder to obtain.One money laundering reporting officer (MLRO) of a foreign bank based in London said caustically:'The people that have been fined so far have made pretty glaring errors in terms of basicidentification of clients. The FSA would probably not feel capable of fining people who had theright documents on file, ticked in the right boxes, but failed to make the conceptual leap tounderstanding the client and the client's business.'The officer continued: 'The FSA prefers to keep people back in the office, doing what it likes tocall desk-based reviews of firms. It is less likely to find wrongdoing in its patch; it has far toomany firms to look after for its complement. More staff would increase the cost to the industry, andthat in turn would increase the pressure on government.'Mike Adlem, the London-based managing director of the consultants Protiviti, commented: 'Have welost the plot? The whole point about AML [anti-money laundering] legislation was to go aftercriminal money, freeze it and take it out of circulation. But we have now got to the point where itis only a compliance issue. The vast majority of the effort is now focused on making sure that theFSA are happy. The sums recovered are negligible and totally out of proportion with the amount thatis being spent on compliance.'Michael Foot, the FSA managing director with responsibility for deposit takers, confirmed in May2003 that the United Kingdom had a considerable problem in maintaining and enforcing anti-moneylaundering procedures.He said: 'Operation of procedures to combat the laundering of the proceeds of drugs and other crimesthrough banks and building societies is not satisfactory. There is a great deal of money-launderinggoing on throughout the UK.'Policing the system is one arm of the government's anti-money laundering strategy. Another is thefight against those who hold the proceeds of crime. This was the context for the establishment ofthe Assets Recovery Agency. But observers say that the ARA compares poorly with its opposite numberin Dublin. Felix McKenna, the chief bureau officer of the Dublin-based Criminal Assets Bureau, sayscriminal prosecutions against gang lords are often cumbersome and unreliable, as the wealthy gangleader is likely to be near-untouchable.He said: 'You're not getting the big boys or the principals of the crime organisations. You won'tget the godfathers or the man who's controlling everything. You won't get him into a criminal courtand have him convicted of his crimes, and he will still be able to enjoy the benefits and profitsthat he has generated through his group or gang of the criminal activities they've been involved in.You'll catch his runners and his people lower down the gang.'The big guy can avoid prosecution through the threat of intimidation, fear, and the reluctance ofpeople to give evidence against him within his own organisation. They have no inhibition abouthiring a contract killer to kill a witness and intimidate witnesses and intimidate their families.They intimidate juries. They go to, not extreme lengths, but they're just the normal run of whatorganised crime does - this fear factor that they instil in people.'Guardian Unlimited © Guardian Newspapers Limited 2005http://observer.guardian.co.uk/business/story/0,6903,1499284,00.html

The financial washing machine

 

In explosive excerpts from his new book, Nick Kochan digs the dirt on how an army of criminals hasbroken into the world's financial system, and investigates the Square Mile's growing addiction tocriminal cashSunday June 5, 2005The ObserverMoney laundered through the world's financial system has now reached stratospheric levels, trillionsrather than billions. Fresh figures from the International Monetary Fund put it at the $2 trillionmark. But when you include the cost of fighting money laundering, the number reaches $2.5 trillion.That is approaching 10 per cent of global GDP, according to the IMF.These numbers indicate the amount of global crime where there is a financial component. Thatincludes everything from tax evasion and very basic fiddles to money made from computer-gamecounterfeiting, people-smuggling and drug-dealing.Big-time launderers pay heavily to deceive police, banks and tax authorities. They hire lawyers,accountants and bankers to make and launder illegal cash to ensure its entry into the legal economy.City professionals are easily tempted. Many of those who co-operated with the corrupt Bank of Creditand Commerce International came from leading firms. When push came to shove, ethics went by theboard and they joined the ranks of sleazy money launderers.The offshore world provides the funnel for most offshore money. This reservoir of anonymous accountsand bogus banks is accessed by institutions for both genuine and illicit purposes. Money passes fromaccount to account to acquire a genuine appearance. It is likely to reach the City of London after along journey to obtain the City's stamp of blue-chip credibility. For many, that is the final stop.Taking peddlers of dirty money out of the system, and out of London, challenges the FinancialServices Authority on a daily basis.Identification checks on small-time bank customers keep compliance officers in jobs but yield fewclues about laundering. An organised criminal worth his salt can mock up, or purchase, a utilitybill or passport.No wonder some suggest the checks are put there as a Revenue ploy to catch tax dodgers. Banks don'tthink the checks are funny. Sir John Bond, chairman of HSBC, was not laughing when he said hisbank's annual compliance bill is £400m.The bureaucracy that haunts the system is resented by the banks. Heavy spending on computers,software and staff yields few money laundering convictions. In theory, unusual payments or deposits,the surprise transfer of funds, or a suspect name will enable regulators, banks and investigators tointercept the money along the way. Red flags alert banks which, in turn, alert the financial police.In practice, the system is faster than the checks. Globalisation benefits all of us, crooksincluded.Terrorist money taxes the system even more. Small amounts of charitable money raise no red flags inbanks or police computers. At best, the money's source may yield a clue. Dispatches from a MiddleEastern or East African bank and bearing Islamic names might alert an official somewhere. Stoppingit in mid-track is possible but catching the payee or the recipient almost impossible.Electronic financial systems move too quickly for hide-bound compliance. This is reflected in thetiny amounts confiscated from terrorists. Breaking into the system today is no harder than breakinginto a bank, and perhaps easier. The criminal who possesses black money fabricates an explanation tomake the source look genuine. Corrupt elements in the financial system are persuaded by a goodstory. That story gains credibility in the telling. As more financial institutions handle money withdirty origins, those origins are lost.Money launderers fall into four key groups: global corporations engaged in fraud; corruptgovernments and their politicians who accept bribes; organised criminals who trade in drugs andother illegal goods; and terrorists. These are nebulous forces, and there will be those who say muchtalk of global money-laundering is fuelled by paranoia and even hysteria. But tyrants have triumphedby having their money laundered, drug gangs have ruined countries by passing their money throughcomplicit banks, terrorists have waged wars on the financial system to fund their outrages andcompanies have made themselves available to organised criminals.Those who perpetrate bankruptcies, frauds, huge share scams and bogus schemes such as Enron andWorldCom exploit the system's crevices. Structures of governance and trust are lost, undermining theintegrity of those who administer a country's economy. When these key roles are suborned by bankersin smart suits, as well as crooks and conmen, participants in the economic system are weakened.Global corporations have key roles in the laundering chain. They provide the services to move blackmoney. Criminals and corrupt politicians in developing countries and the former Soviet Union look towestern banks for a huge array of devices including offshore companies and tax structures, falsenames for their bank accounts, and lawyers and accountants for their complex financial structures.Competitive pressures spread into risky new markets and deals with criminal counter-parties drivebanks to abuse. The taint of corruption is unavoidable when doing business in many parts of theworld. An enforcement vacuum found in many developing countries draws in the criminal fraternity.The criminal who makes the break through into respectability can determine the conditions underwhich western companies do business. Trade with these criminal entities becomes a condition of entryinto the country. Launderers understand the system at least as well as those who work in itlegitimately. The language of the legitimate system enables them to explain the provenance of theirwealth. Technical developments such as the global electronic movement of money and complex financialderivatives turn black money into grey.Police forces lack many of the means to pursue funds as they cross borders or move at speed roundfinancial or governmental institutions. Corrupt money mingled with legal funds complicates theissue.Corruption fuels money-laundering. Bribery puts dirty money into the hands of politicians, butcorrupt politicians are exposed to extortion from mafiosos. Those may be small-time hoodlums oroligarchs (including, most dramatically, but not exclusively, Russians). The two forms of blackmoney-transfer link together seamlessly.Money launderers operating on this global scale have great intellectual ability. They are alsointriguing and complex personalities. Other Russian money launderers have demonstrated considerableintellectual ability before turning their cerebral firepower towards breaking down the financialsystem's controls.Mafia who have gained access to newly privatised state industries in countries experiencingpolitical change are pursued by the West. Financial manipulation can be institutionalised, asdemonstrated by the speed and efficiency with which the West has absorbed capital released from thebankrupt former Soviet Union. Established banks in the West collaborated with some dubious operatorsin Russia under the noses of politicians both in Russia and in the United States.Intelligence agencies, such as the CIA, handling and distributing black money for governments,influence unstable regimes. These shadowy groups are arguably among the most active of all moneylaunderers. The financial resources possessed by Oliver North, the architect of the Iran-Contraaffair in the 1980s, put him in the top echelon of money launderers.The proceeds of the drugs trade or other contraband finance organised crime groups. The moreestablished parts of organised criminal gangs seek to make investments in the 'legitimate' economy,by buying companies or real estate. The less established parts are likely to trade in illegal armswhere commissions and profits are massive.The cash economy is still the criminal's bulwark. Talk of 'dematerialisation', that is, turningmoney into digits and bytes, has not stopped the movement of dollar bills across borders the worldover. Couriers operating for drug dealers or terrorists are routinely caught with dollar bills orlarge-denomination euro notes strapped round their torsos. Launderers took a leaf from the drugdealers' book in devising systems for moving money.Groups perpetrating political violence are key customers for arms dealers. The red flags of criminalmoney-making differ from those thrown up by terrorist money-making, because the first showsexploitation of the financial system for acquisitive ends. Most terrorist money, on the other hand,is spent in the black market buying arms.Intelligence agencies working in conjunction with police are likely to be more effective in stoppingterrorist trades than banks. They are better-placed to understand the political strategy of theterrorist group.Banks can see the upshot of the strategy in the form of a money movement from a suspicious source,but by the time they have seen the money move the banks have lost the plot. The financial systemthat they created has beaten them.Dirty businessThe 10 most common sources of laundered money. US $US 1.3 trillionItaly 150bnRussia 147bnChina 131bnGermany 128bnFrance 124bnRomania 115bnCanada 82bnUK 69bnHong Kong 63bnSource: John Walker Crime Trends Analysis· From The Washing Machine: How Money Laundering and Terrorist Financing Soils Us, by Nick Kochan,Texere, £19.95Guardian Unlimited © Guardian Newspapers Limited 2005http://observer.guardian.co.uk/business/story/0,6903,1499283,00.html

Britain closes expat tax loophole

 

Conal WalshSunday June 5, 2005The ObserverThe Inland Revenue has closed a loophole that has allowed thousands of wealthy Britons to avoidpaying capital gains tax.The measure is part of Chancellor Gordon Brown's crackdown on tax avoidance and targets many Cityinvestors who have achieved 'temporary non-resident' status by living in certain European countries.Treasury officials hope that their action, contained in the small print of the new Finance Bill,will be worth up to £100 million for the Revenue. 'It's a very clear signal that if you make acapital gain in this country, you're going to have to pay tax on it,' said John Whiting, a taxpartner at PricewaterhouseCoopers.Because of bilateral treaties, Britain has agreed with Belgium, Portugal and Austria, UK nationalsliving in those countries have been able to claim 'non-resident' status just one year after leavingthe UK. This enabled them to avoid paying capital gains tax to the Exchequer. Elsewhere, expatBritons have to spend five years abroad before qualifying for this privilege.Closing this loophole is just one feature of the Finance Bill's anti-avoidance effort, which hasattracted criticism from multinational companies. It also contains measures likely to increase thetax bills of insurers and venture capital firms.Guardian Unlimited © Guardian Newspapers Limited 2005http://observer.guardian.co.uk/business/story/0,6903,1499280,00.html

South Dakota man charged in tax scheme

 

CARSON WALKERAssociated PressSIOUX FALLS, S.D. - A former Brookings man who used his parents' address to file a tax return hasbeen charged as the result of a tax shelter scheme, according to federal prosecutors.A grand jury in Sioux Falls indicted Robert Marking, 43, of Scottsdale, Ariz., on three counts oftax evasion and one count of conspiracy to impede the IRS in its attempt to assess and collect hisincome taxes.He pleaded not guilty to the charges Thursday and was released on bond. A trial date has not beenset. If convicted, Marking could get up to five years in prison on each count, a fine and be orderedto pay restitution.According to an affidavit filed in federal court, Marking became involved in 1998 with an anti-taxorganization called Anderson Ark and Associates, or AAA, which sold tax evasion programs.Justice Department officials called the venture one of the most far-ranging tax shelter schemes everprosecuted.The scheme involved investments in shell companies, illusory loans from Costa Rican bank accountsand other superficial transactions to make it appear that clients had legitimate, tax-deductiblebusiness expenses.Marking did not file federal tax returns from 1993 through 1997, and then in 1998 filed a returnthat applied supposed business losses from the three previous years, according to the affidavit.Marking used his parents' Brookings address to file the return, which is why the court case wasfiled in South Dakota. The return included a claim for a refund of $8.12, which was sent to thataddress, the document states.An investigation concluded that Marking actually owed $95,979 for 1998 taxes. The indictment againsthim also accuses him of not paying $78,414 for 1999 taxes and $131,148 for 2000.http://www.aberdeennews.com/mld/aberdeennews/news/11809254.htm

Money laundering ring smashed

 

>From correspondents in MadridJune 04, 2005From: ReutersSPANISH police have arrested 13 suspected gang members who may have laundered up to 100 millioneuros ($163 million) from extortion, bribery and contract killings in Eastern Europe.The Ukrainian-run gang channelled its illegal gains into hotel and property investments fromBarcelona to the southern Mediterranean region of Almeria, before sending the profits into offshoreaccounts in tax havens, police said today.Among those detained in the operation, dubbed "Red Marble", were nine Spaniards, three Ukrainiansand a Russian.Authorities seized a 400 room hotel in Almeria, 50 luxury flats awaiting sale, and art by renownedartists such as Catalan surrealist painter and sculptor Joan Miro.Authorities also froze 60 bank accounts in Spain, the Dutch Antilles, Belize, the Bahamas and theVirgin Islands.Copyright 2005 News Limited.http://www.news.com.au/story/0,10117,15504492-23109,00.html

Two young Indians cash in on online poker

Vijay Dutt

London, June 3, 2005

Two Indian technology graduates, a former Internet porn baron and her husband are about to become
dollar billionaires as a result of the phenomenal growth in online poker. After only seven years in
operation, the four owners of the world's largest Internet poker company, PartyGaming, have a
business worth £5.5bn.

They now plan, the Independent reported, to float it on the London stock market. "It is set to
become one of the biggest companies in Britain by value, overtaking household names such as Boots,
Sainsbury's, British Airways and Cable and Wireless."

The four brains behind the venture are Ruth Parasol, a Californian lawyer who reportedly made her
original fortune in online pornography, her husband, Russ de Leon, and two Indian technology
graduates, Anurag Dikshit and Vikrant Bhargava. They are, according to the daily, "cashing in
£1.26bn between them by selling part of their stakes to outside shareholders. They are holding on to
the rest of the shares themselves - giving each of them a worth of between £750m and £2bn".

Bhargava, 32, is originally from Rajasthan and specialises in banking before joining the
PartyGaming. His friend Anurag Dikshit, 33, is said to be a computer whizzkid who created the
technology behind online poker. He is a graduate of the Indian Institute of Technology in Delhi, and
he was working as a software developer in the US for various companies when he hooked up with Ruth
Parasol in 1998. He owns 40 per cent of the company, which is said to be worth around £2.2bn.

The company's 1,100 staff, ranges from top management to call centre workers in India, who all will
also share in the bonanza. Even those at a basic level in PartyGaming's Hyderabad call centre could
earn more than three times their salary from the windfall.

Richard Segal, the chief executive of PartyGaming, was quoted saying: "What we have done using the
technology of the internet is give people the chance to play whenever they want, in their own homes,
without the intimidating prospect of having to look their opponents in the eye if they were in a
real-life game."

The online poker market has grown by a staggering 466 per cent in 12 months to reach $1.4bn (£770m)
last year. It is expected to double this year to $2.9 billion. Britons are responsible for
four-fifths of Europe's online gambling. More than four million Britons claim to have gambled
online.

Gamblers Anonymous, the gambling counselling service, said it had seen a dramatic rise in the number
of calls it receives from people blaming the Internet for their addiction." Gambling on the Internet
is like pornography on the Internet. Clicking a screen on a computer is much easier for many people
than going in to a sex shop and buying the goods face to face. People who are too scared or
embarrassed to go in to a betting shop will bet online, and they can also bet unnoticed," a Gambling
Anonymous spokesman told Independent.

© HT Media Ltd. 2005.
http://www.hindustantimes.com/news/5983_1386890,00430005.htm

Doing business in Panama

 

Press ReleaseSource: Research and MarketsResearch and Markets: Doing Offshore Business in the Panama 2005Friday June 3, 11:00 am ETDUBLIN, Ireland, June 3 /PRNewswire/ -- Research and Markets(http://www.researchandmarkets.com/reports/c18351) has announced the addition of Offshoring SpecialReport: Doing Business in the Panama, 2005 to their offering.>From small beginnings early in the 20th century, the offshore sector has grown ever faster inresponse to high tax rates in the developed countries, until it is estimated now that more than halfof the world's money is offshore. Offshore has no precise dictionary meaning: the word simplyreflects the fact that most low tax jurisdictions are islands. Loosely, it is used to mean outsidethe control of the highly-taxed Western nations, although those nations could have controlled thegrowth of offshore jurisdictions (International Offshore Financial Centres = IOFCs) much moretightly if they had wanted to. It is an interesting question, why they didn't -- maybe a combinationof individual self-interest and muddle? Our "Offshoring Special Report, 2005" provides in-depthbusiness, legal, political and economic perception as well as attractiveness of this location asoffshore tax haven.    The contents of this report are as follows:     Summary     Geography     Population Language And Culture     Government     Economy And Currency     Entry And Residence     Business Environment     Foreign Investment Regime     Company Incorporation         Corporate         Trust         Partnership         Sole Proprietorship         Branch     Offshore Sectors     Offshore Activities            Banking            Holding Companies       Insurance            Trusts               Case Studies     Offshore Regulations         Table Of Statutes         Banking Law     Law & Taxation         Offshore         Forms Of Offshore Operation         Fees Payable By Financial Institutions         Taxation Of Foreign Employees Of Offshore Operations         Exchange Control     Employment And Residence         Domestic         Corporate     Business License Fees         Payroll Taxes         Property Taxes     Personal         Residence And Liability For Taxation         Payroll Taxes         Municipal Taxes     Labour Environment         Regulations         Work Permits     Foreign Relations         Geopolitical         Taxation Treaties         Trade Alliances     Conclusion     Appendix 1     Process Flow Charts     Appendix 2     Law Firms     Company Formation And Ship Registration     Trust Management     Accounting And Auditing     Tax Planning     Banking Services And Asset Management     Listing Agents And Stockbrokers     Isp/Hosting & E-Commerce Service Providers     Official Regulatory Bodies     Captive Insurance ManagementFor more information visithttp://www.researchandmarkets.com/reports/c18351