United States: Corporate Ethics And The Magi’s Law

Growing corporate scandals being uncovered through a growing international network of whistleblowers is being enhanced by the rising popularity of bringing about the greater good for the greatest possible number as increasing numbers of individuals become more informed and educated on the broad range of information available on the internet.

In fact the information age has been deemed the predecessor to the beginnings of what is being dubbed the "Wisdom Age", which started at the tail end of the last millennium. Three new words being brought to the forefront of international currency dealings are "wisdomage", "ethicism" and "magicism".

The speed at which information is being transmitted, evaluated, absorbed and duplicated by the collective international mind is mushrooming along the parallel lines of Moore’s Law, wherein the processing speeds of personal computers doubles every 18 months.

Here then we introduce what we will refer to as Magi’s Law, wherein the word Magi is derived from the Latin word "Magus", while current usages include its common antecedents such as Magyar, Magic, Magician and Magi, our definition of the law applies more to the literal interpretation of its original meaning, "wise man", and therefore the true meaning of this law as defined herein is to be interpreted as "Wise Man’s Law", not to be confused with "prudent man rules."

Magi’s Law includes the concept of ethics as being redefined to mean "thoughts, actions, and inactions which result in the furtherance of thoughts, actions and inactions which benefit the greatest possible good for the greatest possible number in the shortest possible period of time".

The individual, the group and humanity as a whole, solely determines what is possible. The three are not only interrelated but also inextricably interconnected with varying degrees of cause and effect trilaterally impacting the parts, the sum of the parts and the synergy of the three.

"Wisdomage" refers to the exponential global expansion of wisdom using and applying Magi’s Law, "Ethicism" refers to the same application by governments, corporations and non government organizations acting as groups or groups within groups and "Magicism" pertains to the use of the law by the individual.

To illustrate Magi’s Law, information delivered to an individual on the dangers of fire might not reach the mind of that person until 18 months after its birth. A child may not be able to put out a fire that threatens to burn or harm its survival. This is magicism at work.

On the other hand, a child of three years old has received sufficient knowledge and gained a certain degree of wisdom and is able to utilize information coming to it about the fire burning in the next room to choose from its own internal information data base the correct thoughts and decisions to take the action of running out of the house to escape the potential harm. This results in the greatest possible good in the shortest possible time. This then is still magicism as no group is involved in the decision making process.

A child in its teens may perceive the same information and decide instead to put the fire out as opposed to running away, resulting in an even greater good being accomplished by its action in reducing the amount of destruction to the property being impacted by the fire.

This becomes an illustration of the beginnings of ethicism as others have been considered in the decision-making process resulting in an action creating a greater potential good than magicism.

Magi’s Law stipulates that the amount of information is not as vital to a higher level of ethics as is the proper ability of the receiver of the data to analyze, decipher, evaluate, process and put the information into action or inaction. The receiver can be an individual, a group or all of humanity.

The ability to take action toward positive change is solely determined by the levels and degrees of wisdomage extant. Mankind is yet to achieve a global majority level of wisdomage, yet we have entered that period in human history where the building blocks for the construction of wisdomage is now available to 7 billion human beings.

It also postulates, along the lines of Moore’s Law in computer engineering, that the speed at which information is properly translated into wisdom, further defined as "certainty of the truth", doubles annually at the individual and mass level. Data and information is not knowledge. True knowledge can only be defined as data in the mind, which has been translated into usable certainties of truths that result in a higher level of individual, group and global ethics.

By "global ethics" is meant that the sum total of human individuals interacting on the information being distributed by the individuals and groups that make up the total is influencing the whole toward a higher level of collective ethics or evolving toward wisdomage.

To analyze Magi’s Law in the context of the current explosion of international corporate and banking scandals is to understand its potential impact on the global economy and those who observe the good coming out of the processes being implemented at local, national and international levels by participants in the Wisdom Age.

Prior to 1999, a large concentration of international information, currency and attention was focused on the issues surrounding Y2K. When those potential problems were solved, information, currencies and attention began to be focused elsewhere and gradually began the more intense scrutiny paid to the stock markets as they lost steam, which resulted in eroded shareholder values.

Adding insult to investor injury was the false knowledge that devastated shareholders could not pursue legal remedies in U.S. courts against unethical companies such as Global Crossing or Tyco International, which had been raided by their managers after they moved the company headquarters to loosely regulated offshore tax havens in corporate inversions.

Such actions taken without shareholder approval to avoid the sophisticated U.S. regulatory, corporate governance, transparency, reporting, and tax laws were a form of magicism as suddenly, and literally over night, a company that appeared in one place, reappeared in another place under the guises of ethicism.

Dennis Kozlowski's move of Tyco's headquarters to Bermuda in 1997 was an act of magicism. Over the next four and a half years he paid himself and other executives hefty salaries, US $600 million in unauthorized bonuses, interest-free and forgiven loans, unexpensed stock options, and generous pension benefits. He even threw a multimillion-dollar private party to celebrate -- all at shareholder expense.

When wisdomage was applied as a result of Magi’s Law, the issues of magicism and ethicism were taken up in the courts to determine the truth. The whole truth is unattainable as an absolute because truth is relative. In the mind of an individual practicing magicism, the individual is taking actions or practicing the art of inaction based on its own estimate of what is ethical.

What is ethical for the individual may not be ethical for the rest of the group, thus information produced by an individual may eventually be completely eradicated through alteration by the group. It is one process by which wisdomage is attained at the group level. What may be true to the individual on one day may not be true to the group the following day through the process of evolving data.

Large accounting firms to Fortune 500 executives are pitching corporate inversion. This then is a form of ethicism, but is based on faulty data as a corporate inversion is a corporate reorganization in which a U.S. company with most of its employees and operations in the United States nominally moves its headquarters to a tax haven to avoid federal taxes on intercompany profits and management fees that are transferred to the offshore venue, out of reach of U.S. regulatory control.

Those transactions are estimated to cost the U.S. government as much as US $50 billion in lost tax revenues per year. There are over 2,000 of such companies headquartered in Bermuda alone. Internationally, the number is closer to 50,000, averaging the avoidance of payment of taxes to the United States Treasury in the amount of $1,000,000 annually.

This form of ethicism, as Magi’s Law is applied to it, eventually will result in the gradual changes in the corporate tax laws, resulting in wisdomage. By closing such loopholes completely, a greater good is accomplished by reducing the national debt by $50 billion per annum, further reducing the cost of goods, property and taxes for the benefit of the greater number.

The U.S. Internal Revenue Service has in fact issued temporary regulations, requiring U.S. companies that move their operations offshore to notify the IRS and their U.S. shareholders about the market value of their stock from mergers, reorganizations, or other large transactions, and allow U.S. shareholders to vote on corporate inversions that may give rise to U.S. tax liability.

Because the U.S. SEC did not take action, and in some instances it is yet to take proper actions against existing offshore corporations who are fleecing the body politic, it has temporarily devolved into a magicismist state with evidence that dates back to 1996.

A massive negligence suit against that agency of the US government is pending as a result of the evidence being produced from the cases of Enron, Tyco and thousands of others being processed where it is clearly provable that the interests of the whole were not protected despite the mandates of Congress to the contrary.

The final outcome of the negligence suit against the SEC will result in wisdomage and pave the way for radical changes in international tax, global currency, worldwide securities and information management laws in the modern day of instant high tech communications.

Vowing to support U.S. shareholder efforts, the largest U.S. pension fund managers of Calpers and TIAA Cref California State Teachers' Retirement System have been gently coaxing U.S. companies with headquarters in offshore tax havens to return to the United States and be held accountable for their actions, despite SEC inactions.

While the current U.S. administration has been embroiled in what is a form of political magicism by increasing the national debt by over a trillion dollars in less than four years, allocating the proceeds to Washington insiders at the expense of those that are evolving their own ethicism just outside the gates of Wall Street, and financing what increasingly is turning out to be a foreclosure action on Iraq with no rates of return anywhere on the horizon, a majority of US pension funds are gradually recouping their losses from the increased actions on the part of three U.S. attorney generals who understand the processes involved in creating wisdomage and Magi’s Law.

As institutional money flows out of corrupted mutual funds and back into the honest individual decision maker’s hands, these funds have gradually increased the demand for stocks through the buying and selling process. The gradual resultant good is that on a group level values have been enhanced, but on a global basis the US dollar continues to reach new lows against the Euro and Yen, despite interventionist measures by the Bank of Japan, and will continue to do so until the current process of wisdomage on the subject of Corporate Ethics which started three years ago completes its course.

While bringing U.S. companies back home will provide shareholders with some relief, the international tax provisions of the Internal Revenue Code and the U.S. tax treaties already allow U.S. shareholders to access an offshore company's accounting and tax records and bring it within the reach of the U.S. legal system.

The SEC has had at all times during the past three decades the subpoena power and the authority to liase with the IRS to collect the information necessary to block movements of money into offshore hands, some of which wound up in the financing of various covert operations against the United States resulting in financial, property and personal injury.

Tax havens have sheltered taxpayers from U.S. taxes for a long time. Acting out of concern for lost tax revenues, in 1962 Congress adopted a complex statutory regime known as subpart F to end the U.S. tax deferral on the earnings of foreign corporations controlled (CFCs) by U.S. persons. Under the CFC regime a foreign corporation is considered controlled by U.S. shareholders if they own by vote or value more than 50 percent of the foreign company.

In that situation, the U.S. shareholders are subject to U.S. taxation at ordinary tax rates on pro rata shares of hypothetically distributed income and are also subject to detailed record- keeping and reporting rules substantially similar to those applicable to domestic corporations, with penalty provisions for noncompliance and a 10-year statute of limitation period for IRS audits. The current annual budget of the IRS exceeds $100 billion. By collecting the $50 billion that has been lost to these offshore jurisdictions annually for the past ten years, a large chunk of the national debt could be immediately paid down and might restore lost confidence in the dollar.

For U.S. shareholders to have jurisdiction over an offshore entity's accounting and tax information, a foreign corporation must meet the U.S. shareholder control test, which requires that either of the following two conditions apply:

U.S. shareholders must own more than 50 percent of the voting power of stock (including stock options) of the foreign corporation and have enough power to elect, appoint, or replace a majority of the board of directors or have veto power to break any board deadlock.

The test is not automatically met by ownership of required voting stock, but other facts and circumstances also determine U.S. shareholder control. For example, Tyco's issuance of generous unexpensed stock option packages to its U.S. managers would increase the numeric U.S. shareholder ownership of the foreign company, as stock options are treated as stock for this test, and would also point to the lack of independent foreign board governance showing U.S. control of the Bermudian headquarters.

U.S. shareholders must own over half of the value of the foreign corporation's stock. Value for this purpose is more an economic concept than a legal one, requiring a private benefits analysis in evaluating U.S. shareholders' claim to the earnings of the foreign corporation.

A premium attaches to the valuation of U.S. shareholders' stock if a foreign corporation's U.S. shareholders have the ability to arbitrarily shift income (for example, as in the Tyco case) by receiving increased management fees, royalty payments, commission income, or corporate profits; or charge above-market transfer prices for their shares; or in the absence of arm's-length negotiations or board approval, pay their U.S. executives excessive salaries, bonuses, and pension plans, or forgive multimillion dollar loans.

The premium factored in to the valuation of U.S. shareholder stock could push U.S. shareholder interest in the Bermudian headquarters above the 50 percent threshold. The class action cases of Global Crossing, Tyco, and several others will be influenced by the application of these laws.

In essence, the magicismistic actions of U.S. managers of offshore corporate inversion under the U.S. tax code have triggered the subpart F tax provisions that impose accounting and record keeping requirements on the offshore corporation that are substantially similar to those accounting principles generally accepted in the United States and applied to U.S. corporations; comprehensive record keeping requirements on the U.S. shareholders; penalty provisions for noncompliance; and subject U.S. shareholders to federal income taxation at ordinary tax rates on pro rata shares of hypothetically distributed income.

The current cost alone of feeding 160,000 soliders on the ground in Iraq is running at the daily rate of $5 million, and if those troops have not been pulled out by March 2004, the total cost of the war will have exceeded $250 billion for the first year alone. By enforcing existing laws, and forcing regulators to act in the face of obvious violations of US tax and Securities laws, it would take five years to cover the cost of the war by shutting down all foreign tax loopholes.

As other data comes to light in the cases of Halliburton and the Carlyle Group, the process of wisdomage will be impacted by the contrary ethicism of new groups seeking to bring about the process of change through the expanded whistle blowing atmosphere. The former Chairman of the SEC, Harvey Pitt, who was forced to resign due to his inactions, has recently taken on a new role as a whistle blower.

Yet the lobbyists on the Hill have until now managed to thwart all such efforts with lavish contributions exceeding $200 million to the current administration, money which has been recycled through the process of ethicism. In the opinion of the current administration, they are doing what they believe to be the right thing, but as greater amounts of knowledge, data and wisdom come to light, once again, the truth may not be apparent until the elections are over. Only then will the US dollar recover from its current plight, because those who are in the forest do not see the trees, while those in the international community are evolving their own levels of wisdomage.

Those U.S. shareholders who were not made aware of offshore corporate inversion may nevertheless protect their stock investment from the lax offshore accounting and corporate governance standards that could subject them to taxation under subpart F. That could be accomplished under article 5 of the Bermuda-U.S. Insurance Income Tax Convention by requesting from the International Director assistance in obtaining the Bermudian company's accounting and tax records.

In the end, Magi’s Law governs the evolution of corporate ethics, and a year from now, the world will be a smarter, more ethical place than today. The Wisdom Age is a process, not a single act. The evolution of humanity is dependent upon the whistleblower communities and other groups becoming knowledgeable and aware of the processes involved in wisdomage and learning the applications of Magi’s Law.

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