Newsletter No 405

                                                                               ISSN 1440-9828
                                                                                                  September 2008
                                                                    No 405

The publication of the US Senate report into tax haven banks spells bad news for Frank Lowry. Lichtenstein bankers are not known for expressing their emotions. The service they provide to wealthy clients is punctual and discreet. Correspondence is marked by a crisp and to the point Germanic briskness. But the size of the Frank Lowry account got the LGT Groups Peter Widmer uncharacteristically excited. Behind the foundation is Mr Frank P Lowy, one of the richest men in Australia. Widmer wrote in an internal bank memo dated January 29, 1998, and headed ‘Lupela Foundation’, “The mandate is to be classified as one of the largest business affairs of the LGT BIL (has up to this point brought CHF7 million!). For exactly this reason it must be ensured that no fees or transactions occur through the Lupela account that makes the clients nervous in principle”, Widmer wrote.

Nervous, however, is probably how shopping centre magnate Frank Lowy has been feeling since the last year when the United States Internal Revenue Service began asking questions about whether one of his family companies had held any off-shore accounts. A few months earlier four DVDs loaded with thousands of internal LGT Bank documents had begun to be passed around tax authorities, sparking tax haven investigation in at least 11 countries.

A sense that something distinctly unpleasant was around the corner has been hanging over the billionaire businessman ever since. And this week it arrived.

The 77-year-old appetite for Liechtenstein accounts has led to public scraps with a taxman before. In May 1995 the details of a long-running tax dispite over a Liechtenstein-based trust account called ‘Yelnarf’ emerged in the Administrative Appeals Tribunal prompting a newspaper article headlined: ‘Tax Office hits Lowy family with bill for $20 million’. Lowy quickly settled the case for $25 million. It was later discovered that another dispute between his Westfield Holdings and the ATO had settled three years earlier.

In June 1995 the Keating Labor Government appointed him to the Reserve Bank of Australia Board. But controversy returns in July when it was revealed that once penalties and outstanding interest were factored in, the ATO claimed Lowy owed $50 million – twice what he settled for. The settlement had reportedly caused concern among tax office staff, with two investigators taking stress leave. In October a federal Liberal backbencher, Ken Aldred, attacked Lowy’s appointment to the RBA and accused him of using his status to obtain a special deal with the tax office.

The next day, after a phone call direct from Lowy, the then leader of opposition John Howard defended him in parliament as a good friend and a man “who has been a great success story and who has made a very philanthropic contribution to the Australian community”.

In a mark of the changing times, this week Prime Minister Kevin Rudd was noticeably quiet.

The ownership of Yelnarf, the trust at the centre of the 1990s tax dispute, had bedevilled tax authorities although its name provided a clue (if you spell Yelnarf backwards it becomes Franley, one of the Lowy’s main companies and the moniker derived from the combination of Frank and his wife Shirley’s name.

But thanks to Heinrich Kieber, a former LGT employee, who stole bank account records and last year sold them to tax authorities, the IRS and ATO this time don’t have to worry about playing word games.

They are sitting on wads of internal bank correspondence in which bank employees discuss Lowy’s affairs. And on Thursday a US Senate sub-committee investigation into tax haven domiciled banks that help wealthy US citizens to evade taxes decided to upload 72 pages of it directly on to the Internet.

Such tactics are unknown in Australia where the federal government’s heavily publicised Wickenby Taskforce is grinding on into its fourth year of investigations into tax fraud by hundreds of Australians – to date there has been only one conviction. Then naming and shaming by the Americans marks a wildly different approach; it may not lead to any charges but it brought an avalanche of bad publicity for Lowy. In response he said he had been denied natural justice and attacked the report for drawing inferences from the documents and stating them as facts, without verifying their contents.

But the documents, if they are genuine, appear to speak for themselves.

They reveal how in late 1996, as his wealth cracked one billion and he was moving into his second year as an RBA board member, Lowy went to extraordinary length to ensure tax authorities would not become aware of the assets tucked away in LGTs vaults.

A report by sub-committee staff concluded that the documents make it clear that LGT was aware that Mr Lowy and his sons were hiding assets in the new foundation from Australian tax authorities. Both the ATO and the IRS are investigating.

In LGT’s headquarters in Vaduz, nothing it seems was too much trouble for Herr Lowy. The businessman received all kinds of special treatments from the LGT Group thanks to his status, as noted on bank documents, as Australia’s second richest man. He was charged a special all-in-one fee of 0.7 per cent levied on the Luperla Foundation’s assets which came to a total of $US68 million ($69.74 million).

He and his family were given special dispensation from having to travel to Switzerland or Liechtenstein to deal with the bank – the bank came to him in Sydney, Los Angeles and London.

And extraordinary efforts were made to hide the Lowy’s dealings. Lowy had been doing business with LTG for some time when in November 1996 he and his son, David, their family lawyer, Joshua Gelbard, and long-time adviser and Westfield director, David Gonski, met LGT staff in Sydney to discuss Luperla for the first time.

The day before, the Lowy’s had raised $94 million by selling shares in their Westfield America property trust. They now wanted the assets from another Liechtenstein entity called Crofton put into Luperla, and Lowy was insistent that all bank records of Crofton and his other accounts were to be destroyed. A memo of a second meeting two months later in Los Angeles explained the Luperla assets were to be invested “very long term and rather conservatively” as they were “insurance” for the Lowy family – seemingly cutting across Lowy’s statement this week that the money was given to an Israeli charity.

The lawyer, Gelbard, was to be the only person connected to the account and had full power of attorney, which meant that the Lowy’s didn’t have to visit Vaduz again. “The Lowy’s have decided that they never want to go to Liechtenstein or Switzerland in connection with these companies”, a memo notes.

It also had the benefit of providing the Lowys with another veil of secrecy. At the last meeting between Lowy and LGT employees in March 1997 in London, Lowy explained that he had recently settled a dispute with the ATO for $25 million and he thought that any transfer of money into Australia would be carefully watched.

“Special caution is to be used”, a memo of the meeting prepared by LGT employees notes. “The entire documentation and assembly is to be done in such a manner that (Mr Lowy) and his attorneys can testify before court in Australia without hesitation.

Luperla was born in March 1997 with $US54.7 million and CHF3.6 million. The US dollars came from Crofton, via a British Virgin Islands company specially acquired to help disguise the transfer of assets into the Luperla account.

The identity of the beneficial owners was hidden further through a device in which a subsidiary Lowy family company, Beverley Park Corp, would have the power to designate the owners. “This structure served the ownership of Luperla assets out of Luperla records and deepen the secrecy surrounding the identity of its beneficiaries,” the Senate report notes.

These efforts – money coming in through a BVI shell company, giving the lawyer full power of attorney, destroying the records of other accounts – all seems like a lot of bother for money that’s earmarked for charity.

But Lowy’s fear that the ATO might come at him again over the $25 million and his desire for family “insurance”, may reflect a Holocaust survivor’s attitude to hiding something away because, when the world changes, it can be stripped away.

Lowy’s father went to work one day and was never seen again. Eventually the family found out he had been killed at Auschwitz.

Despite all these efforts towards anonymity, and as the Senate report observes, internal LGT memos “are clear that Luperla’s financial beneficiaries were the father and his three sons”.

On 25 June, 2001, for undisclosed reasons, the process of stripping Luperla of its assets began. On instructions from David Lowy, the assets, then worth $68 million, were distributed into two accounts at Bank Jacob Safra in Geneva. At that point the paper trail goes cold.

In late 2007 the IRS began asking questions of the Lowy’s as to whether the Beverley Park company ever held off-shore assets. Beverley Parks director, Leon Janks, said it did not and Peter Lowy said while he “does not have sufficient personal knowledge”, regarding Beverley’s interest “no reason to doubt” Janks’ statement.

The Senate report sets out how, given that a subsidiary of Beverley Park was the entity that was given the power to designate the beneficial owners of Luperla, and given that Beverley park is ultimately controlled By Frank Lowy Family Trust in Australia, these answers appear to have been false.

In her 2001 biography on Lowy, Pushing the Limits, Jill Margo notes how the publicity of the 1995 tax case hit Lowy hard. “Frank was distressed – he has always loathed litigation and unnecessary exposure”, she wrote. When a settlement was finally negotiated, Lowy was flooded with relief at being saved from having to defend himself in a public court.

Now without any prospect of a courtroom in sight, the phenomenally successful shopping centre developer has earned the ignominy of becoming a major target in the publication of a US Senate report on abusive tax haven practices.

The tactic marks a new and stunningly powerful tactic in US efforts to stamp out tax haven abusers. Using parliamentary privilege to pour disgrace on such a man would be unthinkable in Australia, where Lowy can pick up the phone and speak to both the prime minister and the leader of the opposition.

Now his name will forever be linked to ‘case study three’ of the US Senate sub-committee’s report into tax haven banks and US tax compliance.

The whistleblower caught in the middle of the Liechtenstein tax scandal confronted his bosses about corruption, links to dictators and shady business deals before going public but was always told the same thing: “None of your business, just stick to your designated job.”

The whistleblower, Heinrich Kieber, an employee of LGT Group has publicly detailed explosive revelations about how LGT, a Liechtenstein bank owned by the country’s royal family, operated an elaborate structure of Swiss bank account and special purpose vehicles to shield more than one hundred billion in Swiss franks ($100.8 billion) of their clients’ cash, securities, paintings and patents from overseas taxes.

He also revealed unusual and secretive internal policies that ensured the bank’s activities went unnoticed by tax agents around the world, including banning emails and mail, swearing clients to secrecy, warning them not to telephone the bank and, if they did, to use a series of secret codes. Kieber’s designated job at the bank before he became nosy and uncovered widespread tax evasion was simply to make sure clients’ files were properly scanned and indexed.

“It was then that I began to realize the very questionable business the LGT was often involved in and the dubious clients they were serving, the kind of business that was going beyond just facilitating massive tax evasions,” Kieber told a US sub-committee investigating the tax scandal.

“I got the very clear picture of the highly sophisticated and sometimes surprisingly simple tricks and methods used.”

Kieber began a deliberate and calculated expose of the bank, obtaining copies of vast internal documents, before leaving the company to blow the whistle.

Kieber says clients of LGT were told to follow specific instructions, including a vow of secrecy from their lawyers, family members, relatives or friends.

“The reason is, any human relationship can go wrong and a client may end up in a situation where blackmailing is possible.” Clients were told not to call LGT from home or from work but to use public phones instead. And while ther bank usually did not send any mail, if it did, it was via the Swiss or Austrian post office to bypass tax enforcement agencies looking for mail from Liechtenstein.

On average, clients were contacted by the bank only once a year. Kieber started work at LGT Trust, part of the LGT Group, in Vaduz, Liechtenstein, in October 2000, when the bank took on 20 employees to help it switch to a paperless office.

LGT Trust core trade was selling and managing Liechtenstein entities, such as foundations and establishments, clients transferred their assets into one or more of the legal entities, becoming the beneficial owner.

Every single legal entity from Liechtenstein pays an average flat tax rate of just SFR1000 a year, regardless of how much it earns or owns.

In a detailed example Kieber says the bank would transfer the bank’s assets out of the United States through a chain of several special purpose vehicles.

First, the money would go through an unsuspecting country such as Canada before being transferred through a series of other countries and jurisdictions, preferable countries with weak or non-existent compliance laws.

Finally, before reaching Liechtenstein, the assets would run through a Swiss bank, whose customers would have reciprocal rights with LGT.

For an additional layer of concealment, the Swiss bank or the LGT would often perform a fake cash-out transaction to make it look like the monies had been paid out in cash over the counter.

After one or two years in use the special purpose vehicles would be put into liquidation, then deleted, and new ones established. “The only purpose of all this is to make it extremely complicated for law enforcement agencies to follow the trail,” Kieber said.

In 1996, the year the Lowy’s began setting up their Luperla Foundation with LGT, tye Westfield empire was expanding rapidly. After the wrong turn into Channel 10 at the end of the 1980s, Frank Lowy had gone back to the source of his wealth. The sole focus was the shopping mall. Westfield was buying more, developing more, and managing more. And the more malls the group managed, the greater was the value of Westfield’s holdings and the family’s fortune.

In 1996, Lowy’s wealth, as estimated by BRW, soared past one billion dollars for the first time. The outline of the Lowy story is well known. After a childhood in Nazi-occupied Europe he went to Israel and, aged 21, flew into Sydney on Australia Day in 1951.

Within two years he had teamed up with long-term partner John Saunders, opened the legendary Blacktown delicatessen, and moved into property development. The first Westfield was opened in 1959 and the next year he stepped into public view when Westfield Development Corporation floated.

Others were developing shopping centres at the time, but Lowy was different.

The long-time head of Westfield’s operations in the United States, Richard Green, summed up the Lowy approach for biographer, Jill Margo.

“He is constantly creating situations people think are not achievable,” Green said. “But he pushes them to the line and beyond it and gets things done, not in a forceful way but in a direct way. He listens, seeks the best advice, minimises the risk, then homes in and makes a decision. Once a decision is made, he locks into it and compresses the time for achieving it to the smallest possible base.”

At the same time, Lowy is the consummate negotiator. In the 1980s he dealt himself into the Coles take-over of Myer. Twenty years later he dealt the tough British tycoons David and Simon Reuben out of the sites that will become the Westfield flagship in London.

Equally important is the Lowy vision. With a dynastic eye he looked beyond simply developing the malls to the value of holding, managing and re-building again.

Of course that requires capital. Last year Lowy again showed his keen appreciation of capital markets when Westfield raised three billion dollars before the credit crisis.

And it needs an understanding of politics, a long-term interest that has taken Lowy to the Reserve Bank of Australia Board and control of Australia’s soccer.

In retrospect of the opportunities of the mid-90s set the group up for a generation. Interest rates were falling and the money was starting to flow into the real estate investment trust.

At the same time huge port folios of shopping centres were being sold in the US at what now looks like bargain prices.

In 1998, the Lowy family sold down a $460 million interest in Westfield Holdings to broaden the family wealth.

Most was invested in the Lowy Family Group, which, according to David Lowy, has delivered a profit of $1 billion since 2000. In 2004, Lowy merged his three listed vehicles, Westfield Holdings, the Westfield Trust, and the Westfield America Trust to create the world’s largest listed mall operation. At last count, Westfield Group managed 118 malls with 22,000 retail outlets in four countries. That’s a port folio worth more than $60 billion.

Westfield Group chairman Frank Lowy asked Liechtenstein-based bank LGT Group to create a secret trust account to be filled with $US100 million and kept hidden from tax authorities as a means of providing “insurance” for his family, according to a US Senate report.

Internal bank documents attached as exhibits to the Senate Report, which found that LGT Group and global bank UBS (Union Bank of Switzerland) had facilitated tax evasion, are in contrast to his statement that funds were distributed to an Israeli charity. The documents state that in 2001, on Mr Lowy’s instructions, the foundation’s assets were sent to Bank Jacob Safra in Switzerland.

A spokesman for Mr Lowy, Australia’s second riches man, refused on Friday to provide details of the Israeli charity or explain where the money went after it entered the Swiss bank.

Mr Lowy said on Thursday that the Senate committee had not given him a meaningful opportunity to respond and had drawn inferences from documents and stated them as facts without verifying their contents.

Internal LGT documents also state that long-time Lowy family friend and Westfield director David Gonski attended a meeting in Sydney in 1996 at which Mr Lowy and his son David discussed setting up a foundation and filling it with assets to be invested long term to serve as an “insurance” for the Lowy family.

“I don’t feel that I should comment on somebody else’s situation”, Mr Gonski said on Friday. Mr Lowy, who is estimated to have a net worth $6.3 billion, has become a victim of name and shame campaign led by US Senator Carl Levine, who has driven a campaign against tax havens.

A US Senate Permanent Subcommittee report concludes that Mr Lowy was one of LGT’s largest client and, by exploiting Liechtenstein’s secrecy laws, hid $US 68 million from Australian tax authorities by parking it a foundation.

A memo prepared by LGT staff for a meeting in 1998 notes that the foundation’s beneficial owner was Mr Lowy and his family.

“The substance of this meeting is that the client cannot officially bring these funds back into his Australian assets. The foundation assets shall come to the amount of approximately $US100 million and originate from a relatively complex transaction, with the goal of bringing shares listed in the stock market back into the family’s possession, which was successfully completed,” the memo notes.

In a statement issued on Thursday, Mr Lowy rejected the reports assertion that he hid assets from Australian tax authorities and said that no tax was avoided.

He has admitted to being audited by the tax authorities in Australia. The report notes that he is also being investigated by the US Internal Revenue Service.

Appearing at the US Senate hearing accompanying the report on Thursday, UBS’s chielf financial officer of Global Wealth Management, Mark Branson, said his bank would cease providing off shore banking services directly to US citizens, in a bid to extract itself from a furore over its practices that has already led one of its bankers facing jail.

The decision follows controversy over the practice of UBS. One employer testified in court that the bank had about $US 20 billion ($20.6 billion) of assets under management in “undeclared” accounts for US taxpayers.

Mr Lowy’s Los Angeles son, Peter, was also due to appear to give evidence at the Senate hearings in Washington, DC on Thursday but did not appear, citing previous business engagements. He has now agreed to give evidence next Friday.

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A.I: When Peter Lowy appeared before the sub committee he refused to answer questions, using the Fifth Amendment of the US Constitution – citing his constitutional right against self-incrimination.

Matthew Drummond, in AFR, July 26-27, 2008, states:

“Ken Aldred, a former Liberal Party back-bencher, was rebuked by then opposition leader John Howard when in a speech in parliament in 1995 he called Mr Lowy’s appointment to the Australian Reserve Bank and the Australian Taxation Office $25 million settlement a “disgrace”. On Friday he said he now felt vindicated and more transparency was needed around how the ATO settles disputes with taxpayers, a process that is confidential and subject to little oversight. “It’s still a concern that the issue has not been satisfactorily resolved,” he said.

On Friday a Lowy family spokesman re-iterated that the Liechtenstein funds were legally held and distributed for charitable purposes in Israel without the family claiming any deductions.

A family of four adults receiving welfare payments laundered $50 million cash through the bank account of a non-existing charity a court heard yesterday.

Enormous cash deposits of up to almost $1 million in a single week were allegedly made in a back room at the ANZ Banks Prahan Branch, Melbourne, and put through the manager’s personal account.

Prosecutor Mr Peter Faris, QC, told Melbourne Magistrate’s court the cash deposits went undetected for at least seven years because internal bank accounts were not subject to mandatory government reporting of cash deposits over $10, 000. He said Nachum Goldberg, 55, his wife, Rita, 53, and his sons Naphtali, 33, and Hershel, 31, ran a business of laundering untaxed and undeclared cash for Jewish people from Melbourne and Sydney from 1983 and 1997.

Mr Faris said the family laundered the money by transferring it

into the names of Jewish charities into accounts of Nachum Goldberg’s name at the major Israeli bank, Bank Leumi, where his brother David Goldberg worked.

The Goldberg family, members of Melbourne’s ultra-orthodox Jewish community Adass Israel, face a total of 476 charges including money laundering and fraud.

A fifth man, Reuben Fleischer, 49, of Carnegie, faces one count of conspiracy to defraud. Mr Faris said Nachum and Rita Goldberg, of Gordon Street, Elsternwick, Napthali Goldberg, of Adley Grove, East St Kilda, and Hershel Goldberg, of Bailey Avenue, East St Kilda, each received social welfare benefits and paid no tax.

He said that between 1990 and 1997, the family made cash deposits as big as $250,000 in $50 and $100 bills belonging to the non-existent and non-registered “United Charity” organisation.

The court heard that despite the enormous size of the donations United Charity was unknown to other members of the Adass Israel community.

Mr Faris said the United Charity accounts received 321 deposits of $50,000 or more, 157 deposits of $100,000 or more and 14 deposits of $200,000 or more between January 1990 and June 1997. Nachum Goldberg was carrying $46,000 in cash when arrested last year, the court was told.

Mr Faris said the distribution of the funds was unknown because Israeli authorities refused to co-operate. He said Grand Rabbi Zvi Eliezer Safrin, from Israel, who made almost annual trips to Australia from 1990, gave money to Nachum Goldberg for the deposits. Several transfer forms were signed by Grand Rabbi Safrin.

The court heard Grand Rabbi Safrin, the president of the charitable and educational Komarno institute in Israel, signing blank telegraphic transfer documents for Nachum Goldberg when visiting Australia each year.

Grand Rabbi Safrin told the court he gave some money to Mr Goldberg to send to Israel on the institute’s behalf because he had heard he was trustworthy. The hearing continues today.

In a gracious villa overlooking the Moscow River in 1994, some of Russia’s smartest comrades held a secret meeting. Communism had collapsed three years earlier and President Boris Yeltsin-state-owned industries. This was Russia’s great leap to capitalism. The agenda of the meeting (as reported in David Hoffman’s book: The Oligarchs) was to decide how to carve up the spoils. They did just that, sometimes using organised crime, assassinations, car bombs, invariably using high-level corruption.

They were helped by the high priests of US capitalism, who – either through benevolence, religion or colonialist aspirations – wanted a rapid obliteration of communism.

These, then, are the Russian oligarchs (members of a small, unelected ruling group). Many had been successful communist party apparatchiks; now they flourished in a new system. One of them, Boris Berezovsky, boasted that he and five of the other oligarchs controlled half of Russia’s wealth. By manipulating export payments, they pushed much of these riches off-shore – to the delight of American capitalism – at an average of more than $15 billion a year. The black gold for the oligarchs was oil.

In the process, Russia was becoming what Swedish novelist Vilhelm Moberg called a ‘democtoship’. Behind the glamorous high-rise apartments of Moscow, the IKEA mega stores and the flash boutiques with their Levi Strauss jeans, Addidas shoes and Bosch electronics, the Russian people have been bleading.

So when President Vladimir Putin, a hard-nosed former secret police chief, came to power in 2000, he started upsetting the cosy arrangements the robber barons had with the Yeltsin regime. And now President Putin – pointed to the Enron and Worldcom face of capitalism in the US – may have his biggest scalp with the arrest of oil magnate Mikhail Khodorkovsky on six charges on fraud and tax evasions.

But a crack-down on capitalist excesses is only one reading of this arrest. Another is that Mr Khodorkovsky is a victim of a power struggle within the government as President Putin cleans out the remnants of the Yeltsin era. Mr Khodorkovsky may be in breach of an alleged pack with President Putin that the oligarchs would not interfere with politics. By another reading, President Putin is tackling an international Jewish conspiracy of power. Or, the arrest could be seen as payback for the industry lobbying that killed a parliamentary bill in June, seeking higher taxes on oil. In any case, it’s now in the hands of the prosecutors. But as you’d expect from the labyrinth of Russia –

A huge country and still a world power, if only through its UN veto, its nuclear arsenal and its oil reserve – there is no simple answer. But the case has already revealed to the world the fabulous wealth at stake among the comrades who became capitalists.

The three engine jetliner, a tidy Tupolev 154, rolled towards the terminal at Novosibirsk’s Tolmachevo airport. It was a routine fuel stop at the cross roads of central Russia. The jet’s owner, Mikhail Khodorkovsky, a Russian oil tycoon and the world’s 26^th richest man, ignored the snow outside as he worked on the speech he intended to deliver later that day in Irkutsk. The speech was titled, ‘Government, Business and Society’.

The gathering Siberian snow outside meant Mr Khodorkovsky had little notice of the shadowy men, masked in balaclavas, surrounding the jet as it came to rest. Their machine pistols said they weren’t refillers. They were government security agents, there to remind the pauper who had become a billionaire of a Russian saying ‘No man is immune from poverty or prison.

Before the day was done, Mr Khodorkovsky’s personal worth, $11.2 billion – would be dining on porridge and fish soup in Moscow’s Sailors Silence prison.

His arrest, on fraud and tax evasion charges sent a shock through the west, through those who had thought Mr Khodorkovsky, one of the cleanest of Russia’s new robber barons, and those who assumed this was a political imprisonment. The boxer-built plutocrat Mikhail Khodorkovsky is indeed a political figure. But it is as a businessman he is best known. The ambitious, Jewish, Moscow-born dynamo started as a loyal communist youth leader and graduate from the Mendeleev Institute of Chemical technology in 1986. As a hint of his future, he set up a youth science club (which was, of course, a front for a private business).

While still in his 20s he founded what would become the Menatep Bank. The principal was that the government didn’t have a treasury so it used private banks such as this to distribute money for official purposes – paying teachers and the like.

And if the teachers got a paid a little late, or perhaps never? A few bribes to the bureaucrats would ensure the profits kept flowing. Menatep was Mr Khodorkovsky vehicle for building a small empire in the rush of privatisations after the Soviet collapse in 1991. He admits he was one of the ‘robber barons’ of the area. Mr Khodorkovsky’s big prize came in 1995, when the near-broke government of Boris Yeltsin let Menatep Bank organise the sale of the Yukos state oil company.

Meanwhile, another Khodorkovsky company bid for Yukos. So – while Mr Yeltsin bought himself a presidential re-election – Mr Khodorkovsky bought himself an oil company for a paltry $40 million. Now capitalised at $43 billion it is the world’s fourth largest oil company.

It recently swallowed rival Sibneft from another oligarch, Roman Abramovich. Helped by Jewish-American financial interests, it also became a leader in Russia for accountability and transparency.

Mr Khodorkovsky bought personal respectability by supporting social and cultural causes. He funded a university, a youth movement and the liberal Moscow School of Political Studies. He has been photographed with George W Bush. He also has been falling out with Russian Vladimir Putin, whose reforms he had appeared to favour earlier on.

Mr Khodorkovsky, whose empire included a loud-mouthed anti-Putin newspaper, supported opposition parties and even hinted at running for presidency. But he might not have had the political savvy to read President Putin correctly, or the shifting politics of Russia.

In one memorable meeting of businessmen in February, Mr Khodorkovsky complained about some murky deals involving a state-owned company. Mr Putin fixed him with a cold stare and said: “Yukos has excess reserves. And how did it get them?”

Mr Khodorkovsky should have read the message in the arrests of some other, lesser robber barons. He should have noticed that these arrests gave President Putin a 73 per cent approval rating in opinion polls. And he might have analysed last month’s call for a parliamentary committee for a criminal investigation into the sale of the state oil company, Sibneft, in 1995.

“All are equal under the law,” said the deputy chairman of that parliamentary committee, Vladimir Judin, hinting a net was closing in. Mr Khodorkovsky may this week be finding out about that equality as he shares a remand cell with four other alleged economic criminals. If the charges stick, Russia’s wealthiest man, a classic case of comrade to capitalist, faces up to ten years in jail.

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Russia’s big league of Robber Barons

1. Vladimir Gusinsky, 53, wealth: $600 million. The former theatre director became rich developing buildings in Moscow and built up media most, a banking and media empire, including satellite TV. He was briefly jailed in 2000 and stripped of the assets he had not channelled off-shore. The former president of the Russian Jewish Congress now lives in exile in Israel and the US.

2. Oleg Deripaska, 35, wealth: $2.1 billion. Aluminium tycoon who also controls Gaz, Russia’s second largest car maker, several bus plants and 25 per cent of Aeroflot. Close to the Yeltsin family. A major beneficiary of Roman Abramovich sale of his Russian assets.

3. Mikhail Fridman, 39, wealth: $6 billion. A powerful vice president of the Russian Jewish Congress, this co-founder of the Alpha Group owns banks and part of oil giant TNK (now a joint venture with British Petroleum).

4. Boris Berezovski, 57, wealth: $4.2 billion. A Soviet-era mathematician who graduated to a car dealership and media empire with interests in Aeroflot, oil and aluminium. Mr Berezovski, was granted asylum in Britain in September and now deals in London property. Forbes called the one-time Russian Jewish Congress Vice-President ‘the godfather of the Kremlin’.

5. Roman Abramovich, 37, wealth: $8 billion. An orphan and college drop-out who accumulated wealth via the inside deals in the oil industry. Got in on the privatisation in Russia and allegedly used state funds to buy a state oil company, Sibneft, later sold to fellow oligarch Mikhail Khodorkovsky. Also a media mogul who had a stake in Russian-aluminium, the world’s second-largest producer, was governor of the Arctic region of Chukotka (home to 79,000 Eskimos). He streamed his profits off-shore and this year sought political asylum in Britain. He bought the Chelsea Football Club for $313 million.

6. Vladimir Potanin, 42, wealth: $2.4 billion. Former deputy prime minister who, from the privatisation scramble, ended up controlling Inerros Group – a media, banking and heavy metals group. It’s Norilsk Nickel subsidiary controls the world’s largest nickel and palladium deposits. He is the only one of the major oligarchs who is not Jewish.

David Brockschmidt comments: After Boris Yeltsin handed over the presidency to Vladimir Putin the whole Yeltsin clan flew in a privately chartered Air Russia passenger plane to Tel Aviv, Israel. What were they doing there?

I don’t believe in chance. I think all of us are born with potentials that wait for the right moment to reveal themselves (at least if we’re willing to let them).

I’m often asked how the boy I was, born in a very good family (my father, a doctor, was also the local mayor and a departmental councillor), brought up in a peaceful village in Calvados (Normandy) far from all the world’s troubles, could become what he is today. Then I tell the following anecdote:

Once when I was still quite young (I must have been nine or ten), my parents took me to Paris for Christmas; on December 24^th we went to see the animated displays at one of the big stores (the Nouvelles Galeries, I think). There I was with my sister, a year older, gazing in wonderment at the mechanical figures moving in their magical setting. The street was crowded with people carrying bags full of presents, food, etc. It was all celebration… At one point, I turned round and saw, sitting on the pavement, a poor old lady in a grey coat and a kerchief. In front of her lay a bit of cardboard with a few small coins. I knew then the meaning of the expression “heart rending”, for my heart was rent.

The child I was couldn’t understand how a society that offered everything to some – amongst whom me – could leave others languishing in blackest misery. Afterwards, at my aunt’s house, Christmas Eve was spoilt for me by the image of that poor old woman, an image that’s stayed with me ever since. Why did I have this thought in my head when it would have been far easier to tell myself: “You’re lucky: make the most of it and never mind that old woman.”? Doubtless because Providence wanted to make me choose a certain path… For I became a socialist – even though I didn’t know the word – from that moment. And although I was to evolve, this socialism has always stayed anchored within me. I dreamed of a society where there would no longer be people like that little old lady… Later on, at about fourteen, I had the occasion to contemplate photos of 3^rd Reich Germany. I quickly understood that true socialism, the one I wished for, had been realised by Adolf Hitler. To me the fact appeared self-evident. When I came out with these thoughts of mine in conversation with adults, they answered by bringing up the “Nazi atrocities”. For a long time I believed in them. But I nonetheless admired Hitler for his social achievements and I used to say: “We’ll have to make a new National Socialist state, without the camps.” I was told it was impossible, for National Socialism led naturally to the death camps. In my mind, however, I couldn’t grasp how such a regime, so good for its people, had been able to lead to such atrocities. The clear-cut dichotomy troubled me, and sometimes even set me doubting. But everyone told me… So then I stayed alone, and a bit ashamed, with my “National-Socialism-without-the-camps.” What’s more, the adolescent I was believed all the “Nazis and collaborators” had been killed in 1945 and that today, everyone thought like those around me. Thus I believed myself to be alone in the world, alone in having understood that a new National Socialism could be made without the camps, alone with the little swastikas I used to draw on sheets of paper. I got no sense of pride from it all but rather an abysmal anxiety. Would I have to spend my whole life without anyone to share my views with?

The reader will understand why the discovery of revisionism and the certainty that it told the truth were a liberation for me. What I hadn’t dared envisage turned out to be correct. The “clear-cut dichotomy” was actually just a symptom of the prevailing lie. I was finally relieved of my misgivings. Then I made my discovery of Maurice Bardèche, which enabled me to develop the concept of deductive analogy.

I of course owe everything to the revisionists who have gone before me but I remain certain today that without the sight of that old woman on Christmas Eve in 1978 or ’79, the Catholic, National Socialist and revisionist Vincent Reynouard would not exist.

Source: Vincent Reynouard, “En passant par Fleury-Mérogis”, in Sans Concession no. 30-31-32, April-May-June 2008 – excerpt from pages 186-188.

On the eve of a Lords ruling over US demands for his extradition, a British computer hacker claims that American prosecutors threatened to haul him before a military tribunal

When he wakes up this morning, Gary McKinnon will be 72 hours from learning whether he is on the fast track to a 60-year prison sentence, thanks to his obsession with aliens.

McKinnon, 42, from Enfield in north London, is accused by American prosecutors of illegally accessing top-secret computer systems in what they claimed in one legal document was 'the biggest military computer hack of all time'.

The self-taught IT expert insists he was simply looking for information the US government had on UFOs and is adamant that he never damaged any of its computer systems. This argument, however, cuts little ice with the Americans, who are trying to extradite him. Five years after being told by British police that he would probably get a six-month community service order for his exploits, McKinnon finds himself still wanted by the US authorities. A 2006 High Court ruling granted the extradition request, and on Wednesday the House of Lords will decide on McKinnon's appeal against that ruling.

That it should come to this is little short of outrageous, say his supporters. Soon after he was arrested in 2002, US prosecutors appeared to offer McKinnon a deal: if he agreed to extradition and admitted his guilt, he would get a sentence of three to four years, most of which could be served in the UK. When McKinnon rejected the offer - made in confidential meetings at the US embassy - his lawyers were told 'all bets were off'. They claim the US prosecutors upped the stakes, suggesting he would be 'treated like a terrorist' if he did not agree to face trial and plead guilty in the US.

McKinnon claims that at one stage there were suggestions that he would face a military tribunal, possibly at Guantánamo Bay. 'They said they wanted to see me fry,' he said.

McKinnon's lawyers claim that attempts to force him to accept a plea bargain constituted 'an unlawful abuse of the court process'.

A Lords ruling in favour of McKinnon, who has become a cause célèbre for UFO enthusiasts, computer users and civil liberties groups, would force US prosecutors to restart their extradition process in the magistrates' courts, a major setback that could have ramifications for other Britons resisting removal to the US. A ruling against him would mean an appeal to the European Court of Human Rights and leave him in legal limbo, banned from travelling abroad, forced to report to police every Friday, and barred from accessing the internet.

In a further twist, it has emerged that a crucial file containing details of the early meetings with the US prosecutors, at which the offers were apparently made, has gone missing from the office of McKinnon's solicitor. A laptop holding details of the same meetings was stolen from the car of one of his barristers.

The revelations have prompted febrile speculation among McKinnon's supporters, who fear that events have taken a sinister turn. McKinnon believes his phone has been bugged and claims to have been followed. As a result of his exploits, no IT company will now offer McKinnon a job. 'I think it's bloody ridiculous,' he said. 'They should employ me to bust paedophile rings or credit card frauds rather than stick me in jail for the rest of my life.'

These days he earns a living driving a fork-lift truck. It seems a mundane job for a man who between 1999 and 2002 broke into the most secure computer systems in the world from his north London flat. Using a computer language called Perl and a cheap PC, McKinnon linked a number of computer systems to search for US databases that were not protected by a password. 'I could scan 65,000 machines in less than nine minutes,' McKinnon said.

McKinnon unearthed unprotected computer systems operated by the US army, the navy, the Pentagon and Nasa. On every system he hacked, he left messages. 'It was frightening because they had little or no security,' he said. 'I was always leaving messages on the desktop saying, "your security is really crap".'

One message has come back to haunt him. 'I said US foreign policy was akin to government-sponsored terrorism and I believed 9/11 was an inside job. It was a political diatribe,' he admitted.

In the end, the ease with which he could hack the systems became his undoing. 'I got sloppy. I went to places directly rather than jump through systems. Nasa tracked back my IP address.'

McKinnon's interest in aliens was started by an internet-based group of UFO enthusiasts called The Disclosure Project. The group had collected more than 200 testimonies - some from people who have served in the US military - that 'confirm' that extra-terrestrials exist. Not only that but, according to McKinnon, some of the testimonies offered proof that 'certain parts of Western intelligence had acquired and reverse-engineered their technology, mainly weaponry and free energy'.

Intrigued, McKinnon used the testimonies to help him search top-secret US databases for information about free energy. 'I felt if it existed it should be publicly available,' he said. He says he came across many other hackers in the supposedly secure systems, many with Chinese and Russian internet addresses. Since his exploits were exposed, consecutive government reports have confirmed that the US military's computer systems remain poorly protected. <