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CFP Weekly Update, December 22, 2001

Center for Freedom and Prosperity's Weekly Update

1) Washington Update

2) CFP Strategic Memo:  A Christmas present from Europe . . . The EU's infamous Savings Tax Directive is in disarray

3) CFP Seeks Regulatory Review of Clinton-Era Bank Deposit Interest Regulation

4) Money magazine highlights CFP's lobbying effort to strip anti-low tax language from the recently enacted money laundering legislation.

5) Treasury's Barbara Angus said that the U.S. taxation of foreign income should move toward a territorial system for taxing multinational corporations

6) Poland has named over a quarter of the EU-Germany, France, Netherlands and Belgium-as tax havens

7) Veronique de Rugy on the "case against watching everyone"

8) CFP News Clips

1) Washington Update

The EU Savings Directive is virtually dead, and we can't imagine a better Christmas present for the world economy. For more information, see the Strategic Memorandum below.

Work on the IRS's proposed regulation now is a major part of the Center's work, particularly since there are some people at Treasury that favor this Clinton-era regulation. We will not rest until it is defeated, especially since it is a foot-in-the-door for the EU's Savings Tax Directive. Below we mention the letter we sent to the Bush Administration on the regulation along with recent editorials on the regulation. Also, I would like to mention the hard work of Florida Congressman Dave Weldon. Without Rep. Weldon's tireless efforts, this horrible regulation might already be chasing billions of dollars of investment out of the U.S. We look forward to working with Mr. Weldon in the next year and we thank him for his inspirational leadership.

I would also like to take this opportunity to thank everyone for their help and support this year. With the New Year almost here, we have a lot to be thankful for. With your help we have made a difference this year.  In fact, we look forward to making a bigger and better difference this coming year.  I hope everyone has a wonderful holiday season and I wish everyone a happy New Year.


2) CFP Strategic Memo: A Christmas present from Europe . . . The EU's infamous Savings Tax Directive is in disarray

"What a nice way to end the year. The European Union's infamous Savings Tax Directive is in disarray. It may not be clinically dead, but it is in a coma, kept alive only by a respirator, artificial heart, and the desperate wails of greedy politicians from high-tax nations.

"First, some background: The EU Savings Tax Directive seeks to mandate automatic and unlimited exchange of information between nations with regards to nonresident savings. That is the bad news. The good news is that EU tax harmonization schemes require unanimous support from all member nations, meaning that the handful of EU nations with some respect for financial privacy Austria, Luxembourg, and Belgium have veto power. Moreover, the EU's proposed cartel is contingent on the participation of six non-EU nations, including Switzerland, the U.S., Liechtenstein, and Monaco (plus U.K. territories).

"A strong and principled stand by just one nation is enough to kill this anti-growth initiative. The "veto" can be cast by an EU member nation, or it can be cast by one of the six nations that the EU has targeted. Actually, victory does not even require a strong and principled stand. It only requires that one nation do the right thing, even if it is for the wrong reason.

"In any event, the right thing is happening. The EU cannot get an agreement. The initiative has been shelved for "further study." Translated into real world English, the proposal is "road kill." There are three elements of this issue that warrant further discussion: . . ." Select link below the full complete version of the strategic memo:

News Clips and other on EU tax grab:

December 13, 2001,, EU delays savings tax decision a year after Austria, Luxembourg balk

December 14, 2001,, by Ulrika Lomas, EU Savings Directive Stumbling At Laeken

December 2001, Cato Institute, by Veronique de Rugy, European Union Tax Cartel is Bad for US Economy


3) CFP Seeks Regulatory Review of Clinton-Era Bank Deposit Interest Regulation

CFP asks OMB to review Clinton-era bank deposit interest regulation. The IRS should not harm the U.S.'s economy by helping foreign governments tax income earned in America.

On Wednesday, the Center sent a letter to Office of Management and Budget Director Mitchell E. Daniels, Jr. asking him to review the Clinton-era Regulation (#126100-00), which would require the reporting of bank deposit interest paid to nonresident aliens. CFP Foundation was joined by more than 25 of the countries largest and most prestigious free-market organizations, representing tens-of-millions of Americans.

The signers of the letter believe that by "declaring most of its regulations either 'interpretative' within the meaning of the Administrative Procedure Act or not 'major' within the meaning of Executive Order 12866, the Internal Revenue Service has effectively exempted itself from regulatory oversight."  Link to press release and letter to Director Daniels below:

CFP Press Release:

Letter to OMB Director Mitch Daniels:

Press reports on CFP letter:

December 20, 2001, Bureau of National Affairs, By Brant Goldwyn, Center Urges OMB to Review Reporting Rules For Interest Earnings of Nonresident Aliens

December 21, 2001,, by Mike Godfrey, CFP Attacks IRS Rules On Non-Resident Deposit Interest

New Op-eds and Commentary on IRS nonresident alien regulation

December 2001, The Heritage Foundation, By Daniel J. Mitchell, The Anti-Stimulus Plan

December 20, 2001, The Washington Times, by Veronique de Rugy, IRS global deposit overreach?

November 12, 2001, Investor's Business Daily, by Dan Mitchell, Europe's Vassal: IRS Reg Exposes Foreign Investors To Tax Fleecing

Dan Mitchell on CNN. . . discusses IRS NRA reg. and tax cuts. December 14, 2001, CNN Money Morning Show, Guest: Dan Mitchell.


4) Money magazine highlights CFP's lobbying effort to strip anti-low tax language from the recently enacted money laundering legislation.

[Excerpt from Money article below]


The debate over the amended BSA, like much of the controversy about other kinds of legislation arising from Sept. 11, concerns whether too much freedom and privacy is being given up in the name of catching bad guys.

We won't really know until the new regulations get written and the law actually takes effect--just as we can't confidently estimate what all this is going to cost consumers. (Michael McDonald, a former IRS money-laundering specialist and now a bank consultant, says he's sure only that it will be "a lot.")

Before signing the bill, President Bush hyped the measure, saying, "It will help law enforcement to identify, to dismantle, to disrupt and to punish terrorists before they strike."

Not everybody agrees. Andrew Quinlan is a former congressional staffer who runs a small but loud Alexandria, Va. lobbying outfit called the Center for Freedom and Prosperity with Dan Mitchell, a Heritage Foundation fellow. According to published reports, they've been able to secure meetings with senior Treasury officials and administration economic advisers. They have also taken credit for keeping some language aimed at low-tax countries out of the final version of the new law.

Quinlan and Mitchell argue that the BSA amendments are misguided as an antiterrorist tool because little terrorist money flows through regular banking channels. Michael Zeldin, former head of the Treasury Department's anti-money-laundering section and now a consultant with Deloitte & Touche, says the revised BSA doesn't give law enforcement any dramatic new tools, but he adds that it will create longer and more detailed paper trails, something investigators always like to see.

But it's not terrorism that's the lightning rod for critics of the BSA amendments, it's privacy and, even more, taxes. According to Quinlan and Mitchell, the new limits on correspondent banking will penalize low- or no-tax countries by locking their banks out of the U.S. financial system. They're convinced the new policy serves only the interests of groups like the OECD, which are trying to keep their citizens from taking their capital abroad to places where taxes are lower. The real issue, they say, is the right of any country to set its own tax policy without being bossed around by bureaucrats in Paris.

That's an argument that the U.S. banking industry lobby wants to stay far away from these days. American Bankers Association chief counsel and lobbyist John Byrne downplays the likely impact of the legislation. Most banks, he says, have been getting out of the business of dealing with offshore shell banks anyway, and the "know your customer" measure is no more than what most banks already do.

Byrne clearly resents the efforts of people like Quinlan to turn the money-laundering debate into a fight over international tax policy. Although the ABA has some quibbles with the new law, Byrne says he hopes that most problems will be ironed out when Treasury finally writes the regulations. (The ABA fought hard--and successfully--to get language giving the banking industry input into the legislation.) "From our perspective, we were pleased with the way things worked out," Byrne says.

Other industries have taken similarly muted public positions. A spokesman for the National Association of Securities Dealers would say only, "We're looking forward to working with Treasury on the new regulations."

We'll take Byrne at his word-- although it's worth remembering that last winter bank lobbyists had been vocal in their objection to proposed new anti-money-laundering legislation. Apparently, that's just one more thing that has changed since Sept. 11.

[NOTE: Money saw fit to include a picture of CFP's president Andrew Quinlan.  He is pictured along with Senator Carl Levin of Michigan. The two Captions read: (1) FOR Sen. Carl Levin supports the new money-laundering legislation: "Servicing a [private banking] client almost always means using the tools of money laundering."; (2) AGAINST Antitax lobbyist Andrew Quinlan believes the new laws will penalize low-tax countries by locking their banks out of the U.S. financial system.]

SOURCE:  January 2002, Money, by Peter Carbonara, Dirty Money; Terrorism has shed new light on global money laundering. Here's how it works, why it exists and why the proposed government crackdown could change the way we all do business. Page 90


5) Treasury's Barbara Angus said that the U.S. taxation of foreign income should move toward a territorial system for taxing multinational corporations

Both the Bureau of National Affairs and the Worldwide Tax Daily report that Barbara Angus, the Treasury Department's international tax counsel, believes that U.S. taxation of foreign income should move toward a territorial system for taxing multinational corporations.

BNA reports: "While a pure territorial system would be very different from a system that taxes worldwide income, Angus said many countries mix the approaches, with territorial countries taxing some foreign income, and worldwide tax countries exempting some foreign income.

"Reform should address fundamental issues, Angus said: what income to tax, how to allocate expenses, and how to lessen the impact on companies and the government.

"In the meantime, Angus said, a number of steps can be taken to simplify current law: narrowing of Subpart F, providing an exception for active financial services income, rationalizing the anti-deferral regimes, and revisiting the expense allocation rules."


6) Poland has named over a quarter of the EU-Germany, France, Netherlands and Belgium-as tax havens

Ben Coleman of the ITIO sent this article out as an update last week:

December 14, 2001, Gazeta Wyborcza (Poland), Government Fighting Tax Havens With New VAT Regulations

The Finance Ministry's newest project of amendments to VAT legislation includes a clause prohibiting VAT exemption in transactions of service imports, if the payment goes to a country listed among those engaging in "unfair tax competition." This applies to well known tax havens, such as the Caymans, Bermuda and Andorra, but also to some EU members, such as Germany, France, Netherlands, and Belgium. The latter four were considered "havens" by Polish legislators in terms of "administrative, financial, and intangible services" which include various managerial and consulting services. It is rumored that the representatives of these countries have not been eager to co-operate with Polish fiscal officers in fighting the practice of transferring profits abroad, thus avoiding paying VAT here. The new law should allow the budget to save some ZL60m.


7) Veronique de Rugy on the "case against watching everyone"

"There is nothing like government failures to enhance the power of the government. The Sept. 11 terrorist attacks confirm that. For example, financial transactions in the United States have been monitored for years to combat crime. But that monitoring didn't detect the nine SunTrust bank accounts used by the terrorists. So what does law enforcement plan to do? It wants to use banks to do more of the same thing that didn't work in the past. . ." Link to full article below:

December 17, 2001, National Review OnLine, by Veronique de Rugy, Sam Spys: The case against watching everyone


8) CFP News Clips

December 20, 2001, Jewish World Review, by Nat Hentoff, Rescuing the Constitution

December 20, 2001,, by Mike Godfrey, Ingersoll-Rand Moves Corporate Base To Bermuda

December 19 200, The Financial Times, by Andrew Bounds, SURVEY - BAHAMAS: Flow of hot money dries up: BANKING by Andrew Bounds: Reforms in the sector have come just as private banking has suffered a retrenchment

December 19 200, The Financial Times, by Canute James, SURVEY - BAHAMAS: All comes clean with laws on laundering: FINANCIAL REGULATION by Canute James: New rules and regulations to defeat money launderers are winning support from the international authorities

December 18, 2001, South Florida Sun-Sentinel, by Marcelo Ballve, 9-11 attacks trigger economic crisis in Caribbean, hurting tourism, other industries %2Dheadlines

December 18, 2001,, by Jason Gorringe Ahern Puts Dampers On EU Tax Harmonisation Dreams

December 18, 2001, Cato Institute, by Veronique de Rugy, Banks and the FBI: The Latest Attack on Financial Privacy

December 17, 2001,, Lawyers File Constitutional Challenge to Anti-money Laundering Laws (Bahamas)

Monday, December 17, 2001, Washington Post, By Robert O'Harrow Jr. and Jonathan Krim, National ID Card Gaining Support

December 16, 2001, Los Angeles Times, by Martha Mendoza, RESPONSE TO TERROR: New Anti-Terror Law Brings Consternation --  Security: Officials and lawyers try to decipher complex provisions. Federal guidance is in short supply.

December 14, 2001,, By Maria Hawthorne,  Refugees meeting hears proposal to register every human in Geneva

December 14 200, The Financial Times, by Edward Alden, Broad US rules on foreign, shell banks to be issued

December 14, 2001,, by Jason Gorringe, House Of Lords Expresses Concern Over Sovereignty And Tax In Gibraltar

December 14, 2001, SwissInfo, Britain launches new broadside over banking secrecy

December 14, 2001,, by Ulrika Lomas, Dawn Primarolo Urges Swiss To Lift Banking Secrecy For Tax Evaders

December 14, 2001,, by Mike Godfrey, Details Of The US/Cayman Information Disclosure Agreement,

December 12, 2001, 2001 Creators Syndicate, by Paul Craig Roberts, The End of Sovereignty?

December 11, 2001, The New York Times, By Leslie Wayne, Wall St. Faces Rules on Money Laundering

December 11, 2001, Reason Online, By James Morrow, Across the Pond Scum: The UK and the EU make John Ashcroft look like a civil libertarian

October 26, 2001, Cato Institute, by Veronique de Rugy, Privacy Punished, Not Terrorism


Best regards,

Andrew Quinlan
Center for Freedom and Prosperity
208-728-9639 (efax)

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