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Weekly Update Bulletin On-Line.........  
In The News, Editorials, and Readers Write In (with our answers to Questions)

DOMINICAN REPUBLIC MONEY and ECONOMY:
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Many clients have of course taken notice of the new monetary and economic policy put in place by the new administration of President Fernandez, most notably the severe weakening of the US Dollar and Euro versus the Dominican Peso.  What is going on?  Well, in simple terms, we can say the new policy is an Austerity Program on Steroids (but also proof of what the government and politicians can do when they do what is right for the country rather than themselves).   In other words, the key goals of the new government are the curbing of inflation, paying off the foreign debt incurred under the previous government and restoring growth (and economic stability) to the country.  On the first point, the Central Bank has announced they believe the new inflation figures should come in at about 12 per-cent, whereas there have been other estimates that the inflation rate will drop down to a single digit (perhaps 7 or 8 per-cent) next year (2005).  When you consider that inflation was calculated at about 50 per-cent earlier this year, this is no small feat to consider for a new government that has only been in power since August.  However, the flip side of the coin is that it may have gone too far too fast, or that the Peso has strengthened too much against the Dollar (it is now about 28 Pesos to One US Dollar, where as it was about 52 just this past August).  To be sure, while wholesale imported gasoline has become less expensive (in Peso terms) and foreign imports have become less expensive (also in Peso terms), many stores or services have not reduced their prices accordingly.  In all fairness, some have cut prices by anywhere from 5 to 15 percent, but not 40 or 50 per-cent.  As a result, the government has been publicly chastising private business for not knocking down prices (as opposed to them raising prices very quickly before when the Peso was being devalued prior to August). 
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In any event, new first time visitors to the Dominican Republic will comment that the prices are expensive relative to the current exchange rates, BUT we see this as temporary for a number of reasons.  By many accounts, the true or correct exchange rate should be about 35 pesos for every one US Dollar (or somewhere in that range) but you will probably not see such a rate until after February 2005.  Why?  As is the case every year in December, the country is flooded with US Dollars due to Dominicans abroad sending money back home for Christmas (apart from tourism from North America is at it's peak in December, January, February when it is cold up there in snow bound areas).  Also, we believe the retail stores are going to milk this for all it is worth as their profit margins are soaring due to the cheaper costs for imports (while keeping the same prices or only reducing prices slightly).  With that said, there are some exceptions, such as the auto sector, whereby prices have come down for vehicles and very healthy new car sales are being reported at the moment as well.
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TRENDS TO WATCH:  The Little Penguin Takes On Goliath
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As readers of our newsletter have come to learn, expect the unexpected here.  Meaning, we often try to bring you news and information, which on the surface may not amount to much - unless you start to make the connections and realize why and how such things might impact your privacy, your freedom and your pocket book.  And so, keeping with the - You Heard it Here First Section  - We introduce you to the Penguin.
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If you are an American and are an average Home PC user, chances are that you have never heard of a Finnish man named Linus Torvalds or his wonderful FREE Open Source operating system called Linux that he developed more than 10 years ago, but maybe you should.  If you are a European (or simply live outside of the USA) or involved in the IT industry, then some of this information might be old news for you.  Why is this information important?  Well, there is a storm brewing right now that touches a number of different issues related to your home computer, including personal security (possible government snooping issues), your money (if you re-read the above passage this is not a typing error, I did say FREE) and computer security (there are more computer viruses that attack Microsoft products these days then there are crooked politicians).  And believe it or not, at the center of it all is the Linux operating system, whose symbol or mascot is the penguin.
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Why Linux?  Up until now, there was not too much choice out there (and the US Government knows it by the way), so you were stuck with Microsoft.  Yeah, good old Microsoft - the company that many people would say touts and releases new software products often full of more bugs than can be found in the New York City garbage dump on Staten Island.  Also, this is the same company discovered to have released software in the past that containing programming code that allowed the US Government National Security Agency (NSA) easy access to your computer (to see what you are up to).  Of course, this is not the case today and the US Government would never spy on it's own citizens (excuse me while I cough up a fur ball - ahem, that's better).  Anyway, if you think this is just paranoia, well then the whole world is paranoid too (thinking the same thing), which is why Germany, France, Finland, South Africa and China (just to name a few) have starting using Linux on their government office systems and desktops. 
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But of course that is not the only reason.  According to Dr. Nic Peeling and Dr Julian Satchell's Analysis of the Impact of Open Source Software: There are about 60,000 viruses known for Windows, 40 or so for the Macintosh, about 5 for commercial Unix versions, and perhaps 40 for Linux.  With that said, I often wonder who really is proliferating all these viruses anyway.  And aside from that, why is that you have to constantly upgrade both your operating system, and anti-virus software, to do what the previous version was supposed to do?  Why is it that the new software versions of Norton and McAfee REQUIRE you to use Microsoft's Internet Explorer to get virus signature updates?  Why can't you do it with Netscape or Opera or other web browser applications?  Perhaps there are more questions than answers I suppose.
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In any event, consider taking a look at Linux for your home computer (I can personally attest to the fact that it works) and other FREE applications such as OPEN OFFICE (very good substitute for MS Office), FIREFOX (a free web browser program), THUNDERBIRD (a free email utility like Netscape Mail or MS Outlook), plus a host of other Open Source software applications that are out there these days that actually work very well.  Oh and by the way, did I mention they are free?
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RELATED NEWS LINKS:
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TORVALDS & OPEN SOURCE PIONEERS TAKE ON EU PATENT ISSUE - November 23, 2004 - By W. David Gardner
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A group of open-source software pioneers, led by Linux developer Linus Torvalds, has issued an appeal to the EU Council to block the legalization of software patents.
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http://www.informationweek.com/showArticle.jhtml;jsessionid=T25AC
S0ZXPDXMQSNDBGCKHSCJUMEKJVN?articleID=54200175

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UK TAKES LINUX TO THE HEART OF GOVERNMENT:  British Office of Government Commerce report concludes Linux ready for mainstream - By Robert Jaques, October 29, 2004
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Open source software is a viable alternative to commercial proprietary software, with potential significant value-for-money benefits for government, the Office of Government Commerce (OGC) has concluded.  A newly published OGC report detailing the results of open source pilot schemes has advised that open source software has reached an acceptable level of development to offer a viable desktop alternative for the majority of government users.
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http://www.vnunet.com/news/1159053
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GOVERNMENTS PUSH OPEN-SOURCE SOFTWARE:  Governments around the world have found a new rallying cry--Software libre!--and Microsoft is working overtime to quell it.
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A recent global wave of legislation is compelling government agencies, and in some cases government-owned companies, to use open-source or free software unless proprietary software is the only feasible option.  This legal movement, earliest and most pronounced in Brazil, but also showing signs of catching on elsewhere in Latin America, Europe and Asia, is finding ready converts as governments struggle to close sometimes vast digital divides with limited information-technology budgets. So far, there is no evidence that similar legislation is being considered anywhere in the United States, experts said.
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http://www.openia.com/News/News_Item.2003-02-05.0540/view
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A WINDOWS WORLD? - The battle between Windows and Linux is shaping up, and it's Microsoft's fight to lose.  By John Foley
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In the world of computer operating systems, it's easy to imagine a competitive landscape that's not much different several years from now than today, with Windows on top of the market, Linux coming on strong, and Unix holding on
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http://www.informationweek.com/story/showArticle.jhtml?articleID=
54800091

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LIFE LOOKS GOOD FOR LINUX - January 22, 2003 - BBC News
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For almost every technology company, business is a bit slow at the moment.  Apart, that is, for companies involved with Linux, the open source operating system. Many firms that sell software and services based around the free operating system are doing good business and many large firms and governments are eagerly adopting the software.
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http://news.bbc.co.uk/1/hi/technology/2680955.stm
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CHINA AND LINUX: Microsoft Beware!  November 15, 2004, Business Week 
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While open-source software is new to the Middle Kingdom, Beijing is looking to change that.
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http://www.businessweek.com/technology/content/nov2004/tc20041115
_4873_tc057.htm

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READERS WRITE IN:
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Dear John - Having recently received your newsletter I would like to add the following to your news bulletin. Has anyone mentioned the new laws regarding offshore banking, which are due to be implemented in 2005?  These new banking laws will cover Britain and the whole of the EU to North America, and I believe Canada also.  The law says that ALL offshore bank accounts must be opened for the respective IRS of each respective country and a 20 per cent tax levied and paid to the IRS of each country (in the case when the bank account is owned by it's nationals). I understand that the taxes taken will rise to 40 per cent for the second year and drop to 10 per cent for the third year. At present Switzerland has refused to implement this law and is holding a referendum for its citizens in July 2005 regarding this thorny and controversial law. If the Swiss vote yes, how will the banks in Switzerland survive?
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EDITORS REPLY: Well, I am not familiar with all the details of what you mentioned, but can only say this is the unfortunate trend.  In addition, it relates back to what I have written about previously over the years.  Which is to say that individual citizens, and US citizens in particular, have no economic freedom in the high tax countries (if you want to control people and fool them at the same time, convince them that they are free but put the brakes on their money). Sure, you can board a plane and travel where you want, but what you do with your money is another story - and it is getting worse.  What is the ultimate goal of all this in my opinion?  Keep the public in the dark about the real state of economic affairs in terms of government deficits and problems with the welfare state.  Tell the public you need to fight drug trafficking, terrorism, little green men from mars, or whatever works, while capturing as much of the loot as possible to stem the red ink.  And for Americans, it is really worse.  The way the social benefits programs are structured in Europe is such that college education is free (in many instances) and the government sends students a monthly check to pay for books, etc.  Also, in the Scandinavian countries, the government also sends you a monthly check when you have a baby (to help pay for pampers).  Imagine that!  So, Europeans pay a lot, but they do get it back in many ways.  But the most impressive thing to me is the fact that most European nations allow citizens to opt out of the tax system if the citizen can provide proof of legal residency in another country.  The logic behind this is, if you are not living there, then you are not getting any benefit from the services you would be paying for in terms of taxes, and therefore you should be, shall we say, set free.  Not so for Americans, as Uncle Sam wants to pick your pocket no matter where you are living and no matter where you have your money invested (shut up and pay up).  Of course the result has been, with all these new so-called antiterrorism and anti-money laundering regulations, that many hard working American middle class taxpayers have become to some outlaws to some extent (in terms of the regulations and how they are defined and applied). 
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Another Reader Writes:
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For what reason does the Dominican Republic have 2 currencies?  What do you imagine would happen if the Dollar was discarded as a currency and the Peso remained?
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EDITORS REPLY: First and foremost, it should be made very clear that the Dominican Republic has its own national currency, issued by the Central Bank, called the PESO.   So, technically and legally speaking, the country does NOT have two currencies, just one.  However, due to tourism, trade and Dominicans living abroad, US Dollars and Euros are available in the country as well.  In addition, local banks do offer both savings accounts and time deposits denominated in US Dollars and Euros, aside from offering the same in the national currency, the PESO.  However, if you go to the supermarket, any stores, restaurants, etc. you MUST pay for your purchases in PESOS, the national currency.  All your utility bills will arrive and must be paid for in PESOS.  So, all local commerce is conducted in Pesos.  Of course there are some exceptions, such as tourist hotels, resorts and tourist services whereby US Dollars will often be accepted for payment (and sometimes prices in US Dollars as well).  In addition, just as the case elsewhere in the world, when the local national currency looses it value for one reason or another, people often attempt to convert their savings into a more stable currency to maintain value or purchasing power.  However, regardless, such foreign currency must be converted back into Pesos to pay for whatever local expenses.  What would happen if another foreign currency was not so readily available in the Dominican Republic or if local banks stopped offering savings accounts in foreign currencies? Nothing would happen and life would go on inside the country as it always has.  Although, a country with no currency exchange controls and whereby local banking supports accounts in other currencies (such as the Dominican Republic) certainly has it easier in terms of trade and the movement of capital (both for business and private citizens).
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What would happen if the US Dollar started losing its value versus other world currencies?  What if Americans in turn wanted to switch out of dollars (and into some other currency)?  Wait a minute, I just remembered.  The US Dollar has lost its value against the Euro, Swiss Franc, British Pound, etc. and most local banks in the US do NOT offer other currency options to its customers.  In fact, many people believe the US Treasury has a long-term plan of inflating the US money supply (which means the US Dollar will continue its decline in value).  You could try and open an account in Europe, but then again the US Government has put so much pressure on them in terms of tax reporting that most European financial institutions will not even accept US citizens as customers anymore.  Hmmm, if you lived in the Dominican Republic though, you could run down to the bank and switch all of your money into your Euro Savings Account.   Maybe the Dominican Banking system is better than the US banking system in this regard (more economic freedom in terms of currency and banking options).
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Another Reader Writes:
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Dear John - I am an expatriate living here in the Dominican Republic and let me tell you, I am the mother of twins.  With few resources, I started my own small company here in Punta Cana.  I work when I want and spend all my day (almost) with my kids, which are in a private school (which cost U.S.$ 25.00 a month).  I have someone to clean my house for less than 100 dollars a month and I love it.  If I lived in the States, I would honestly be shuffling two jobs to make ends meet and my sweet kids would be in public school (and daycare) plus I would never see them.  I have given up many comforts of the U.S., but my values are with my kids and for now my time with them beats all, thanks to this country.  One question is that I have been fortunate enough to gain US dollars and I want to know what the best way to see my money grow?
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EDITORS REPLY: Thank you for your letter and am glad to hear you enjoy living in the Dominican Republic (and am glad to hear you are doing well also).  I guess the only comment I can make is that it is a question of what is important to you in terms of lifestyle, etc.  While it is true that it can be almost impossible to find Hires Root Beer or certain other things, the flip side of the coin is you can enroll your child in a private school for the equivalent of US$25 per month.  So, I suppose some things can be considered to be a trade off but it is really a trade off in terms of what is important?  On the issue of investments, local banks certainly offer higher interest rates then what would be available in the US for US Dollar deposits (plus tax-free does not hurt either).  However, since you are living in the country full time, you may want to consider putting some of your money (not all of it) into a Peso denominated bank CD.  At 20 percent interest, the equivalent of US$10,000 in Pesos would give you enough monthly interest to pay your maid, your child's school tuition, with a bit left over for other things (maybe enough to pay utility bills).  Apart from that, I always suggest that clients considering diversifying.  Gold is one idea as are investments into some European mutual funds as well.  Of course, all of these things depend upon how much you have to invest.  Regardless, we have always suggested that clients consider a multi-currency approach to investments and the wisdom of this is very applicable to the current situation (keeping some funds in Pesos, some in US Dollars and some in Euros).
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Another Reader Writes:
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Hi John--If anyone is interested, I've just read "Running on Empty" by Peter Peterson, a former Chairman of the Federal Reserve Bank in New York. It's about all the under funded liabilities in this country and his solutions to these problems. For Social Security, he suggests indexing new benefits to prices (CPI) instead of wages - the latter rising higher and faster.  There would be quite the savings.  In addition he suggests mandating personal retirement accts. Using global financial index funds. For Medicare he has many suggestions, such as a plan more on the order of The Federal Employees Health Benefit Plan, which he says outperforms Medicare by a mile.  He has tackled so many of the problems that in the end you have a feeling that these issues can be conquered if the government would just get with it!  To change the subject--have you heard anything new about Buenos Aires? I see they have furnished apartments that are very reasonable in the heart of town, plus they are energy efficient. Do you know if they have any exchange controls there?  Have you heard of anything really negative?
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EDITORS REPLY: The truth is that nothing is impossible to fix IF the politicians really wanted to.  Many issues are difficult to tackle, and might require perseverance and discipline, but are not impossible.  I could not say if the solutions mentioned would solve the problem, but it is very interesting to note that the US pension system and health care benefits system set up for US government employees are both segregated from what is offered to the general public AND seemingly more solvent.  On the subject of Argentina and Buenos Aires, I have nothing new to add from what we reported earlier this year, other than to say that Buenos Aires is a wonderful city and just one of many choices for expatriates. On the subject of banking, I do know that controls were lifted late last year in terms of Peso Accounts, but to the best of my knowledge maintaining a US Dollar Account is not an option at the moment.  However, you can certainly consider living in Argentina while you do your banking in Europe, the Dominican Republic or anywhere else.  Plus, if you do have dollars or Euros, Argentina is very reasonably priced in terms of cost of living (if you have a monthly income in these currencies and are converting it to Argentine Pesos). 
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Another Reader Writes:
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I agree almost with your description of Dominican Republic, but must say in one point you are not right. Speaking about social situations and family, that the family links are better in DR and crime rate. Fact is that the Dominicans are copying more and more the American dream. This includes BIG "4Wheel" Trucks (Dodge & Co.), Burger King & Co. Fast Food, including more and more separation in Family links and leaving Children in kindergarten as used in US. So at a long-term observation, the Dominican Republic is too much focused to the US and will follow the same way, loosing its own culture. Unfortunately, that is the real sad situation. The impact of this change is difficult to predict.
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EDITORS REPLY: Your letter is very interesting to me because I had almost the same discussion with an employee from the US Embassy in Santo Domingo a few years back.  This person (from the embassy) also proclaimed that everyone else (other nations) wants to become or live like Americans and that they are jealous of American success and lifestyle.  My reply was, hold on a minute pal, you are mistaking desire to own a new Dodge Durango (complete with DVD player in the back seat to keep the kids occupied) with culture, ethics and politics. While the highly advertised Swedish memory foam mattress might be popular in the US, this does not mean Americans want to run out and adopt Swedish style socialism, including the higher taxes to support it (or do they?).  The same can be applied to the Dominican Republic.  Which is to say, Dominicans certainly want the things they see advertised on American television or in American magazines, but this not necessarily warrant a full tilt towards other so-called American cultural, social or political values.
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With that said, I will agree with you that some of the more well to do classes have adopted some very unhealthy American habits.  Fast food is just one of them and in fact obesity in children is on the rise in these social circles.  In contrast, the poorer people do NOT go to American fast food restaurants as they cannot afford it and just as well (it is difficult to justify spending 200 pesos on a whopper when you earn 2,000 pesos per month in salary). 
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In reply to our last newsletter bulletin and discussion about Social Security (or lack thereof), this reader writes in:
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The reason why our government wants us to work until 80 years of age is because they do not want us to have time on our hands (and money) to revolt.  They want total control over us.
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EDITORS REPLY: Well, this could be one possible explanation or maybe they are not that good at managing OUR money as they claim to be.
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Another Reader Writes:
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How do I go about comparing apples to apples between Panama and DR? I want to check them out and I do my homework then make an informed decision to relocate to one of them. Questions like; property ownership, taxes, security, health facilities, citizenship, second passports, etc., etc.  Also, I am interested in obtaining employment as an English language (conversational) teacher to supplement my income. Is this possible in either country? Any input or advice on these subjects would be greatly appreciated. I would like to relocate within the next 1-2 years. There are marketing advertisements on the Internet but who can you really trust?  Please advise!
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EDITORS REPLY:  Well, there are quite a few reports and articles out there about a large number of jurisdictions (Roger Gallo's Escape Artist website is one of many resources to check out).  But generally speaking, you are correct in that there is some information out there, which may make it difficult to compare notes.  For example, there are quite a few reports telling you that Panama is the best place, or Costa Rica or Thailand, etc.  I would say as I always have, that individuals need to make a quick short list as to the unique things that are import to them alone, and then make a decision based on what country scores the highest.  What may be important to me may of course not be important to you, and vice versa.  In addition, visiting the country you may want to relocate to for a month or so is also one of the best ways to see for yourself.  The truth is each author writing an article or book probably has a personal bias, as I do too.  I like the Dominican Republic for many reasons, but it not an absolute utopia in all respects.  I like Panama also, but the DR has some advantages for me over Panama, but this does not mean you will not like Panama better for whatever personal reasons you might have.  In summary, use the public information out there to narrow down a short list of the places you might consider and go visit.  That really is the only way to be sure if the new country fits well with you.  
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The information has been compiled and provided by John Schroder of Ascot Advisory Services.  Ascot Advisory assists clients with the formation of Panama Foundations and Offshore Company Formation, offshore banking introductions, Residency Services and other related services.  For more information:
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Telephone 809-334-5387 or 809-756-1917 
Email: info@ascotadvisory.com