================================================= Expat Worlds Bi-Monthly Digest ================================================= 26 January, 2005 Vol. 7, Issue 02 .....IN THIS DIGEST..... ==== THE STORY =================== -=Take The Money And Run Offshore=- ==== OTHER EZINES ================ ==== EW SPECIAL ================== -=5 Years of Expat World=- ==== HUMOR, TRIVIA, NEWS AND MORE... == -=Trivia=- -=News Story=- -=Traveller's Tales=- -=Jokes=- ==== THE RESOURCE TIP ============= -=Cool Communications Software=- ==== INSIDE THIS MONTH EXPAT WORLD == -=Table of Content=- ==== THE STORY ================================== Take The Money And Run Offshore By Lucy Komisar, AlterNet. How insurance companies are aiding tax evasion by over-charging in America and shipping the money to offshore firms. Terry Mills was working in Wilmington, DE, for J. Montgomery, one of the largest insurance agencies in the region, when in 1993 he was called in to get to the bottom of a messy insurance problem. Little did he know that he would uncover a story – as yet unreported – about tax evasion through offshore firms, but with a twist. The scheme Mills came across seemed to be taking place with the aid of AIG, a major U.S. insurance giant. The case Mills was sent to look into had to do with a Delaware holding company named NVF Corp., which owned a vulcanized fiber factory, and which was being reorganized. The reorganization was prompted by a federal court order which enjoined its owner, Victor Posner, from acting as officer or director of any public company. Posner, who died in 2002, long had a reputation as the original "corporate raider," famed for engineering hostile takeovers of companies and looting them. He had a history of corrupt dealings. For instance, Posner and his son Steven, along with Drexel Burnham Lambert, Inc., had been defendants in a 1988 SEC complaint about a "stock parking" scheme to gain control of the Fischbach Corporation that the SEC said cheated investors of about $4 million. But more relevant to what Mills was dealing with in 1993, it turns out that Victor Posner and NVF had a relationship going back at least to 1977. That was the year when the SEC had filed a complaint against Sharon Steel Corporation, its holding company NVF, and several individuals, including Victor Posner, for a litany of corporate and individual misdeeds, including treating assets of public corporations as their private property. In 1987, Victor Posner pleaded no contest to evading more than $1.2 million in taxes and was ordered to pay $7 million in fines and back taxes. Even so, Mills was astonished when he examined the NVF insurance books. "The company I was with [J. Montgomery] had the opportunity to write the insurance for NVF in the period after the SEC gave Posner the cease and desist," Mills told me. He said he found that, "The senior management really didn't have a handle on what the costs were." Mills found a curious pattern: NVF had been paying National Union Fire of Pittsburgh, an AIG company, substantially over market for workmen's compensation insurance. He told Catherine Mulholland, director of the Delaware Insurance Department's bureau of examination, that when he went to buy workers comp, he found it was only half as much as the year before. Mills told me, "The fronting company was AIG. And the broker on the deal was Alexander. It was one of the biggest brokers in the world." Here's how the deal worked: Insurance companies normally insure themselves by laying off part of their risk to reinsurance companies, so if a claim comes in above a certain amount, the reinsurance company will pay it. AIG had reinsured the NVF policy through a company named Chesapeake Insurance, a reinsurance company based in Bermuda. It turned out that Chesapeake was owned by Posner. In essence, NVF, owned by Posner, was buying insurance from an AIG company – which was buying reinsurance for the policy from an offshore company owned by Posner. And Bermuda provided the tax and secrecy haven, so Chesapeake's books were safe from the eyes of American regulators and tax authorities. The transaction meant all the parties came out ahead: AIG would keep a portion of the allegedly inflated NVF premium before sending the rest to Chesapeake, which meant AIG would have a higher commission. Posner would write off the entire amount as a business expense and enjoy the extra cash in Bermuda, tax free. Reduced profits might also mean smaller dividends and share prices. A former insurance department regulator, using hypothetical numbers, explains, "Say the normal premium was $1 million. [If I ran the company,] AIG could charge me $2 million and then send a premium of $900,000 over to a reinsurance company that it has set up for me in Bermuda. I never have to pay any claims, so I get to keep the $900,000 tax-free offshore." "This was not an isolated case with Vulcan. AIG did that a lot," he claims, speaking under condition of anonymity. "AIG helped companies set up offshore captive reinsurance companies." AIG, he alleges, "would then overcharge on insurance and pay reinsurance premiums to the captives, giving the captive owners tax-free offshore income." He adds, "Doug McLeod [editor of Business Insurance] told me that there were captives that hardly ever paid any claims." McLeod told me, "Looking at the schedule F, the reinsurance schedule, of one of the AIG companies, they had a captive. They reported a pretty large amount of premiums ceded, sent to that captive, but very little in claims payments coming back. That is unusual. Why would a captive of a large company collect that amount of premium and not pay any claims? They could have gone through a loss-free year, but it doesn't seem likely." The "captive" scheme is a variant of transfer pricing or "profit laundering," whereby companies inflate the cost of purchases or services from tax havens in order to boost their home country expenses and move profits to tax-free jurisdictions. It might also hurt shareholders, since dividends could be reduced by the company's cost of inflated premiums. Mills cancelled the NVF policy with AIG. "We were able to find them coverage in the standard market," he says. "We started a new policy in late 1993." However, it seems the Delaware Insurance Department took no action against the insurer. Provided the details of what AIG allegedly did, company spokesman Andrew Silver says simply, "We don't have any comment on that." AIG declares on its website that it "pioneered the formation of captives almost 60 years ago," and it offers management facilities to run the captives in offshore Barbados, Bermuda, Cayman Islands, Gibraltar, Guernsey, Isle of Man, and Luxembourg – all places where corporate and accounting records are secret and taxes minimal or nonexistent. There is reason to suspect the pattern discovered by Mills is being duplicated elsewhere. For instance, Marsh, the insurance brokerage recently charged by New York Attorney General Eliot Spitzer with bid-rigging, also runs the Marsh Captive Management Group to help corporate customers set up reinsurance companies in offshore Barbados. There is a link between Marsh and AIG: Maurice (Hank) Greenberg runs AIG, while Marsh was being run by his son, Jeffrey, until he was fired after the bid-rigging charge was made. "There are more captive insurance companies in Bermuda than any place else," says David Schiff, editor of Schiff's Insurance Observer. "The whole purpose is that it's not regulated by the U.S. Rates are not supposed to be too high or low, but [regulators] are usually looking to protect consumers. How do they tell us Microsoft is paying too much for workers comp? There's no way for a regulator to know that." "Fraud is hard to find unless you get tipped off," he adds. An insurance broker and risk management consultant says, of the "captive" arrangement, "It's common; that's the way it's done." He adds that "oil companies all have offshore captives." And McLeod says that several oil companies were joint shareholders of the Oil Insurance Ltd, an oil company group captive. There are more than 1,800 captive insurance companies based in Bermuda with over 60 percent owned by American interests. "A majority of fortune 500 companies have captives," says McLeod. He pulls out a copy of the Tillinghast Captive Directory and ticks off U.S. companies with Bermuda captives: Levi Strauss: Majestic Insurance International; Caterpillar Tractor: Caterpillar Insurance Co. Ltd., FMC Corp (tractors): Financial Reassurance Co and Transcon Insurance, Carnival Corp.: Trident Insurance, all managed by Marsh. Other big firms with captives were Schlumberger (oil field services): Harrington Sound Insurance and Castle Harbour Insurance, managed by JLT, and United Van Lines: Vanliner Reinsurance managed by Codan Management. "Reinsurance has always been a traditional way of moving money," the broker says. "You can do a 'rent-a-captive' where you don't even have to set up your own captive, you just run the funds through a bookkeeping system: it's even cheaper. The question is whether the IRS lets you get away with it." In 2002, the IRS and the Treasury department required transactions with captives to trigger disclosure, list-maintenance, and registration requirements "based on information that many of these arrangements were being used to shift income improperly to PORCs [Producer-Owned Reinsurance Companies] for purposes of avoiding income tax." However, in September 2004, the administration abolished that rule. IRS Commissioner Mark W. Everson explained that, "Based on disclosures by taxpayers and examination of tax returns, we have determined problems associated with these transactions are not as prevalent as initially believed." Of course, fraudulent use of offshore captives is hardly likely to be disclosed by taxpayers or noted on tax returns. Spokesmen at Treasury and the IRS declined to discuss the issue. Following indictments for alleged bid-rigging against Marsh insurance company officials brought by Spitzer, officials in other states are looking more broadly into insurance practices. Asked about whether Spitzer was checking into the abuse of offshore captives, his spokesman declines to comment. It's an area that should be examined by state and federal investigators. ==== OTHER EZINES =============================== ASIAN TIMES ONLINE Asia most trusted source for news, business,commentary and analysis from throughout Asia and our world. (www.atimes.com). ----- Subscribe now to the "Timely Time Management Tips" newsletter. Free tips sent to you to help you get more done in less time, with less stress. Send your email now to: mailto:timemanagement-subscribe@topica.com ----- japan-guide.com Extensive, up to date online guide on Japan living and travel related information. http://www.japan-guide.com/ ==== EW SPECIAL ================================= 5 YEARS OF EXPAT WORLD You can get the last 5 year's back issues of EXPAT WORLD newsletter on a CD formatted for both Mac and PC computers. For readers of the Expat World Digest this is your chance to get the real skinny on international events rather than just the crumbs we send you each week free in the EW Digest to peak your interest into becoming regular subscribers, either electronically or the hard copy version, to the REAL Thing, the EXPAT WORLD newsletter. So much has changed in the amount of freedom, personal and financial privacy, international loopholes and just the operation of the world community in the last 5 years that you need this CD to pretty much get you up to speed. But besides this instant education our newsletter is a cheeky, funny, and spot-on newsletter that leaves you waiting anxiously for the next issue. Don't miss out on this 5 year collection. It's available for only US $75. You can go to www.expatworld.net and "pay-on-line " with our secure server or send cash, check or money order payable to Expat World VIA REGISTERED AIRMAIL to: Max Bushby c/o Expat World, Box 1341 Raffles City, Singapore 911745. Get them while we still have this CD available. Order today! ==== HUMOR, TRIVIA, NEWS AND MORE... ================ NEWS STORIES Do NOT Give This Man Batteries... VANCOUVER, British Columbia (Reuters) - Police were on the search on Friday for a thief who made off with three "male appendages" from a Vancouver-area sex-toy store and may now be looking for batteries. A clerk discovered the man stuffing the fake body parts into his clothes and asked "if he was going to need batteries for these three objects," the Royal Canadian Mounted Police said in a news release. "The male calmly stated 'no' and then panicked and fled, running out of the store with the three objects, minus batteries," the police statement said. --- Newspaper Sacks Reporter Over Fake Yahoo Baby BUCHAREST, Romania (Reuters) - A Romanian tabloid said on Monday it had fired a reporter for making up a story about a couple who named their son Yahoo as a sign of gratitude for meeting over the Internet. Bucharest daily Libertatea published a story this month saying two Romanians had named their baby for the popular Web site and printed a picture of his birth certificate. The news was published internationally, including by Reuters. "It was the reporter's child's birth certificate, which he modified," said Simona Ionescu, Libertatea's deputy editor-in-chief. "We fired him." She said Ion Garnod, who had worked for the paper for several years, had admitted inventing the story to look good. "If it were real, it would have been a good story indeed," Ionescu said. Garnod was not available for comment. --- Finally - why women can't read maps MEN frequently despair at women's map-reading skills - or rather their lack of them. Now scientists believe they have pinpointed the reason for this conflict between the sexes. Researchers say it is all down to differences in the reliance of the sexes on either grey matter or white matter in their brains to solve problems. They found that in intelligence tests men use 6.5 times as much grey matter as women, but women use nine times as much white matter. Grey matter is brain tissue crucial to processing information and plays a vital role in aiding skills such as mathematics, map-reading and intellectual thought. White matter connects the brain's processing centres and is central to emotional thinking, use of language and the ability to do more than one thing at once. Professor Rex Jung, a co-author of the study at the University of New Mexico, said: "This may help explain why men tend to excel in tasks requiring more local processing, like mathematics and map-reading, while women tend to excel at integrating information from various brain regions, such as is required for language skills. "These two very different pathways and activity centres, however, result in equivalent overall performance on broad measures of cognitive ability, such as those found on intelligence tests." Previous studies have shown that women have weaker spatial awareness than men, making it harder for them to read maps. Research has also found that in childhood, girls' vocabulary develops more quickly and that in later life women can speak 20,000 to 25,000 words a day compared to a man's 7000 to 10,000. For the study, published in the online edition of the journal NeuroImage, researchers performed a series of brain scans on 26 female and 22 male volunteers using magnetic resonance imaging equipment. All the volunteers were in good health, had no history of brain injury and the average IQ scores of the two sexes were similar. Their brains were scanned while they carried out tests designed to assess their general intelligence. Researchers then created a map of a brain showing the varying levels of activity in the brains of men and women. About 40 per cent of the human brain is grey matter and 60 per cent white matter. ----- Former Judge Charged with Indecent Exposure OKLAHOMA CITY (Reuters) - A former state judge, who allegedly used a sex toy called a penis pump in court, was charged with three felony counts of indecent exposure by Oklahoma authorities on Thursday. Former Judge Donald Thompson, 58, pleaded not guilty in the Creek County District Court in the northeastern Oklahoma town of Sapulpa. If convicted, Thompson could face up to 10 years in prison for each count. At the courthouse on Thursday, Thompson was taken to a backroom where he provided a DNA sample to authorities. Last year, a court reporter who worked for Thompson was fired after she said she saw the judge masturbate and use the penis pump during hearings. Other witnesses claimed they saw Thompson use the pump in court. Thompson stepped down in August after the allegations came to light and the state attorney general acted to remove him from the bench. Officials searched Thompson's courtroom and chambers, and performed tests on carpet, a chair, a trash can and the judge's robe. A preliminary hearing has been scheduled for March 22. ----- Oxymoron: Plastic Glasses ----- There are more love songs than anything else. If songs could make you do something, we'd all love one another. -- Frank Zappa ----- 'Would the Congregation please note that the bowl at the back of the church,labelled 'For The Sick,' is for monetary donations only.' ----- If the Internet has no boundaries, then why do we need Windows or Gates? ----- Once upon a time the government had a vast scrap yard in the middle of a desert. Congress said "someone may steal from it at night". So they created a night watchman position and hired a person for the job. Then Congress said, "how does the watchman do his job without instruction?" So they created a planning department and hired two people, one person to write the instructions, and one person to do time studies. Then Congress said, "how will we know the night watchman is doing the tasks correctly?" So they created a Quality Control department and hired two people. One to do the studies and one to write the reports. Then Congress said, "how are these people going to get paid?" So they created the following positions, a time keeper, and a payroll officer, then hired two people. Then Congress said, "who will be accountable for all of these people?" So they created an administrative section and hired three people, an Administrative Officer, Assistant Administrative Officer, and a Legal Secretary. Then Congress said, "we have had this command in operation for one year and we are $18,000 over budget, we must cutback overall cost." So they laid off the night watchman ==== THE RESOURCE TIP ============================ Cool Communications Software... Quick Send Quickly Send or Schedule to Send e-mail from the System Tray ! Get it at Mail Cleaner Express Quickly Clean up hard to read e-mail that has been forwarded. Get it at ==== INSIDE THIS MONTH EXPAT WORLD =============== EXPAT WORLD NEWSLETTER (VOL.17 ISSUE 01) Table of Content: - FOREIGNERS CAN LIVE IN LONDON PRACTICALLY TAX-FREE - JUST A HEARTBEAT FROM GETTING IT UP - GORILLA PUBLICITY - OVERSEAS BRATS - JURY SALARIES - LETTER FROM SINGAPORE - EXPAT WORLD'S ELECTRONIC WORLD - WHY PHONE WHEN YOU CAN SKYPE - EW'S VIEW OF THE REPUBLIC OF PANAMA - ID THEFT IS NOT A COMPUTER CRIME - INTERNATIONAL DRIVERS LICENSE THROUGH PATA - THE KNOWLEDGE BOX - READING IS FUNDAMENTAL - TOP TEN WAYS TO RETIRE RETIREMENT - EW'S WORLD OF PRIVACY - MAKE SECRETS STAY SECRET - AROUND THE WORLD WITH EXPAT WORLD - RUDE OR VULGAR BEHAVIOR - BECOME A CITIZEN OF SPAIN - INTERNATIONAL SNIPS AND CLIPS - BANKING AND THE BOOGIE MAN - AVOID RUIN IN LONDON AND GET DIVORCED IN GERMANY, RICH MEN TOLD - CRAPPER RAPPER - WHEN YOU GOTTA GO, YOU GOTTA GO. - CRAPPING YOUR WAY AROUND THE WORLD - BATHROOM NEWS YOU MISSING SO MUCH Each week the EXPAT WORLD DIGEST gives you just a smattering of what you can find in the EXPAT WORLD newsletter that we produce once a month. Why not get the whole story and subscribe now to our electronic version for just US $30 per year. Go to our website: www.expatworld.net to sign up. ********************************************************************* EXPAT WORLD - the newsletter of international living URL - http://www.expatworld.net Email - office@expatworld.net ---------- End of Expat World Digest --------------------------------