Friday, July 12, 2002


in which the NY Post attacks former Tyco CEO Dennis Kozlowski for not hiding in shame.

July 12, 2002 -- Corporate disgrace hasn't cramped the high-rolling lifestyle of Tyco's ex-CEO, L. Dennis Kozlowski.

While the shamed fat cat awaits a Manhattan trial for tax evasion - and Tyco's stock remains stuck in the Dumpster - he's been living it up on his $25 million antique yacht and enjoying the Atlantic views from his $12 million Nantucket mansion.
"It's preposterous that this guy should walk the street," said a fellow businessman who was vacationing on the island. "He's a symbol of the whole culture of greed that has become embedded in our economy over the past five years."
One month ago, a Manhattan grand jury slapped Kozlowski with a 12-count indictment accusing him of evading sales tax when he bought $13 million worth of paintings for his Fifth Avenue apartment.
The criminal charges - coming at a time when corporate titans have been under scrutiny because of the Enron and WorldCom scandals - helped send the firm's stock diving from a 52-week high of $60 to $14.60 yesterday.
If found guilty of all his alleged 12 counts of tax evasion, conspiracy and fraud, Kozlowski, who's free on $3 million bail, could face a prison term of 44 years.

So there he is living it up after evading sales and use taxes on paintings. Meanwhile all New Yorkers blithely evade use taxes on their out-of-state purchases without even knowing they are violating the law. Have you filed a use tax form recently?

Wednesday, July 10, 2002

How to Dodge the National ID Card

Want to avoid the new, improved National ID card.

Simple. Don't pay your child support. In fact, if you don't have any children, get some. And then arrange to be ordered to pay child support. And then don't pay it.

The government won't issue you a National ID Card and you'll have gotten away clean.

No passport.
No Drivers License
No National ID?

Sept. 11 Hijackers Said to Fake Data on Bank Accounts

Sayeth the New York Times:

July 10, 2002
Sept. 11 Hijackers Said to Fake Data on Bank Accounts

WASHINGTON, July 9 — The Sept. 11 hijackers were able to open 35 American bank accounts without having legitimate Social Security numbers and opened some of the accounts with fabricated Social Security numbers that were never checked or questioned by bank officials, a senior F.B.I. official said today.
With no scrutiny from the financial institutions or government regulators, the hijackers were able to move hundreds of thousands of dollars from the Middle East into the United States through a maze of bank accounts beginning more than a year before their attacks.

A spokesman for SunTrust, which is based in Atlanta, said the bank had been cooperating with the F.B.I.'s investigation. The spokesman said it was possible for foreigners without Social Security numbers to open bank accounts in this country, but he could not provide details of what forms of identification the hijackers used to open the SunTrust accounts.
One of the first signs of a large infusion of cash coming into the United States for use by the hijackers appears in bank records dating from 2000, when $100,000 was deposited in bank accounts controlled by some of the leading hijackers, including Mr. Atta and Marwan al-Shehhi, Mr. Lormel said.

Note that it is as legal as church on a Sunday for non-residents to open financial accounts in the US or Switzerland or the UK etc. Many US banks don't accommodate foreigners but that is because of sloth not law. Certainly online brokers (who are quasi banks) do market to foreigners.

One reason that SS numbers were not verified is that the SSA has traditionally refused to verify for privacy reasons and the alternative method involves doing a credit check which takes time and money. And in the case of non-interest-paying current accounts there are no tax issues.

Banks located in the "red states" are not as bureaucratic as banks in the "blue states" and have been much slower to adopt the controls popular on the coasts. This is changing of course but there are still many social differences which make account transactions easier in the free states.

But let's assume for a moment that Homeland Security shuts the banks down and requires verified DNA samples and licenses from 10 separate agencies to open a financial account in the US. So the middle class Egyptians and Saudis with no criminal records who attacked us are faced with the ultimate challenge of getting the $500K they needed into the US.

By dint of heroic effort, the future highjackers manage to open bank accounts in Egypt and Saudi Arabia. They receive ATM, debit, or credit cards to draw on those accounts. Perhaps they encourage their French or British co-conspirators to open accounts in those countries. They arrive in the US and withdraw the $500 to $1000 per day maximum (per account) from ATM machines. Assume they have only managed to open 5 accounts. That's $2500 to $5000/day. Or 100 to 200 days to withdraw $500K. Not much of a trick particularly since they are not limited to 5 accounts and can get cash advances at any bank with any credit cards they have.

But then Homeland Security outlaws ATMs and credit cards (or at least the international connections of same). This is tantamount to imposing exchange controls which the US has never done. So the attackers have to fall back on Krugerrands. At $333 a pop, they have to get 1500 KRs into the country. Since bullion coins are not considered currency, they aren't covered by financial instrument import reporting laws. But you can just mail them one or two at a time. Most of them will get through. No big deal.

The truth is that it's a bit tricky to block the movement of small amounts of money like this.

Tuesday, July 09, 2002

Offshore-Based Firms' Officials Won't Have to Swear to Results

Yet another advantage of a "corporate inversion" -- you don't get on the SEC's hit list. Funny!

July 8, 2002

Offshore-Based Firms' Officials Won't Have to Swear to Results


NEW YORK -- The Securities and Exchange Commission's new order requiring chief executives and chief financial officers of the nation's biggest companies to swear to the accuracy of their financial results was intended to restore investors' battered confidence. But two of the companies that have prompted the biggest concerns don't have to comply.

Why? Because Tyco International Ltd. and Global Crossing Ltd. are based in Bermuda, even though they conduct many of their operations and have main offices in the U.S. and are listed on U.S. stock exchanges. Other companies with large U.S. operations but based offshore, including several big insurance firms, also aren't on the SEC's list of companies that have to send in the sworn statements at the same time as filing their next financial results with the agency.

The exemption for offshore companies is likely to add fuel to an already-vigorous debate over whether companies that have their main operations in the U.S. should be allowed to relocate their domicile to Bermuda and other offshore havens, a practice known as reincorporation. In those locales, the companies may avoid U.S. taxes and, critics say, can shield themselves more effectively from disgruntled shareholders.

Threat of Fraud Charges

The SEC's June 27 order requires CEOs and finance chiefs of U.S. companies with more than $1.2 billion in revenue last year to swear under oath that recent SEC filings are accurate. If they do so falsely, the executives could face civil charges of fraud or criminal charges of lying to the government or possibly perjury, lawyers say. The SEC's motivation, it said in its order, was to "provide greater assurance to the commission and to investors" that executives aren't violating the securities laws that govern accounting and financial reporting.

A SEC spokesman said large foreign-domiciled companies over which the SEC has jurisdiction, such as Global Crossing and Tyco, were excluded from the list because the agency wanted to issue the order "very quickly." Therefore it focused only on U.S. companies. The list of companies that must comply contains 947 names.

"We have no plans at this point to change or revise the list," the SEC spokesman added.

Fiber-optic company Global Crossing, which is in bankruptcy protection, is under investigation by the SEC and the Justice Department for accounting fraud. Tyco, the conglomerate, is under investigation by the SEC for its bookkeeping practices. And its former chief executive, L. Dennis Kozlowski, faces criminal charges brought by the Manhattan district attorney that stem from an alleged scheme to avoid paying New York state sales tax. Mr. Kozlowski has pleaded not guilty. Spokesmen for Tyco and Global Crossing declined to comment.

"Most people think of Bermuda-reincorporated companies as U.S. companies and would expect the same rules to apply," said Ann Yerger, spokeswoman for the Council of Institutional Investors, an association of major pension funds. "There is great concern among our members about the dilution of shareholder rights that reincorporation entails, and this is just another reason why shareholders need to be concerned."

The issue is a particular concern for property-casualty insurance companies. While 20 insurance companies, or insurers with corporate parents, are on the SEC's list, an additional five Bermuda-based insurers whose stocks trade primarily in the U.S. aren't, including Ace Ltd., which had revenue last year of more than $1.2 billion.

Full Compliance

A spokeswoman for Ace said that the company is in full compliance with SEC regulations and discloses a significant amount of information to insurance regulators. She said Ace doesn't believe "Bermuda insurance and reinsurance enterprises have an advantage" from a regulatory perspective.

While no insurer has been accused in the recent round of accounting controversies, insurance accounting has plenty of gray areas because of the way insurers estimate and set aside reserves for claims that may not be paid for 10 years or more. Such leeway makes it more difficult for a company to report results that won't need changing in future quarters, which could raise questions under the SEC's new regime.

William R. Berkley, chairman of W.R. Berkley Corp., a Greenwich, Conn., insurer on the SEC's list, said he expects the stock exchanges where Bermuda companies are listed to require SEC-type signatures from company executives. "It would be astonishing to me if companies that were domiciled in Bermuda and were effectively public through the U.S. capital-market system aren't going to be required to do the same thing," he said.

Write to Paul Beckett at paul.beckett@wsj.com7 and Christopher Oster at chris.oster@wsj.com8

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Monday, July 08, 2002

Enron followed Generally Accepted Accounting Principles (GAAP) in accounting for the activities of its Special Purpose Entities (SPEs) and concealed its true financial status.

Worldcom didn't follow (GAAP) in accounting for expenses and concealed its true financial status.

Federal and state governments and their Special Purpose Entities (like Social Security) have never followed (GAAP) and regularly conceal their true financial status.

If private execs should do time for their lies and concealment so should our political leaders for their much more significant lies and concealment.