Swiss Banks Shun Americans as U.S. Compels Disclosure

By Warren Giles

June 29 (Bloomberg) -- Swiss banks are shutting the accounts of Americans as the U.S. Internal Revenue Service accelerates the hunt for tax dodgers.

UBS AG and Credit Suisse Group AG, the country's biggest banks, have told Americans to move their money into specially created units registered in the U.S., or lose their accounts. Smaller private banks such as Geneva-based Mirabaud & Cie. are closing all accounts held by U.S. taxpayers.

While the banks declined to say how many people are affected, more than 5 million Americans live abroad, including about 30,000 in Switzerland, according to estimates from American Citizens Abroad in Geneva. Swiss banks must register with the Securities and Exchange Commission to provide services for those customers.

"My bank doesn't want to do that, so we wouldn't accept an investment account for a U.S. person," said Pierre Mirabaud, chairman of Mirabaud & Cie. and the Swiss Bankers Association, during a lunch at the American International Club of Geneva.

SEC registration means clients don't enjoy the protection of Swiss banking secrecy laws, which make it a crime for money managers to disclose the names of clients without their consent. Switzerland said in March it would cooperate with international tax evasion probes after Zurich-based UBS admitted helping U.S. clients avoid taxes.

The IRS has since increased pressure on Americans to disclose offshore accounts as it seeks to recoup an estimated $50 billion in unpaid taxes. The agency set a deadline of Sept. 23 for taxpayers to declare all foreign accounts or face possible criminal prosecution that could result in as much as 10 years in prison and $500,000 in penalties.

'Typhoid Mary'

The U.S. has also proposed increasing reporting and oversight requirements for so-called qualified intermediaries -- foreign banks that withhold taxes on behalf of the IRS. That may increase the cost of compliance and the risk of violating U.S. laws, said Charles C. Adams, managing partner at the law firm Hogan & Hartson LLP in Geneva.

"American citizens are starting to feel like they're Typhoid Mary," said Adams who hosted a 2008 fundraiser for Barack Obama that featured actor George Clooney. "The Swiss simply don't want American customers because it requires so much infrastructure and hassle that they don't make any money."

Sandra Dysli, an American who has lived in Geneva for 40 years, said Bank Zweiplus AG, the Zurich-based joint venture of Basel-based Bank Sarasin & Cie. and AIG Private Bank, and a Geneva branch of Raiffeisen International Bank-Holding AG refused to open investment accounts for her.

"I was told that I cannot legally be a client because I'm an American," said Dysli, who retired from the United Nations in 2001. "I couldn't get an investment account and had everything in cash."

45-Day Notice

UBS said last July it planned to stop all offshore banking and investment services for people subject to U.S. taxes, except through U.S.-registered units.

The company notified U.S. clients in a March 27 letter that it would close accounts within 45 days. Customers were asked to transfer assets to entities registered with the SEC, and asked to consult an adviser about the U.S. tax consequences, according to a copy of the seven-page letter seen by Bloomberg News.

"UBS will no longer be able to continue to provide services to you through your current account," the letter said.

A spokesman for UBS, Dominique Gerster, declined to comment on how much progress the bank had made in moving U.S. clients or closing their accounts.

"We offer domestic and international wealth management services in compliance with all applicable laws, regulations, and policies," said Jan Vonder Muehll, a Zurich-based spokesman for Credit Suisse.

'Prudent' Banks

Mirabaud is closing the "few remaining" accounts held by Americans, a company spokesman said, without providing additional details.

"We have to be prudent," Pierre Mirabaud said during last month's lunch at the American International Club. "There is absolutely no problem for U.S. persons to open an account in Switzerland as long as they are prepared" to sign a form that gives the bank the details it needs to report to the IRS.

Bank Sarasin offers U.S. expatriates investment and asset management advice only through its SEC-registered unit in London.

"It's up to individual banks to work out which citizens it wants to do business with," said James Nason, a spokesman for the Basel-based Swiss Bankers Association. "The reporting obligations certainly aren't going to go down as the IRS is considering extending the QI, exporting its tax laws and trying to turn Swiss banks into agents of the IRS."

Congressional Questions

Two members of the U.S. Congress, Carolyn Maloney and Joe Wilson, wrote a May 27 letter to Treasury Secretary Timothy Geithner saying that if the QI requirements are extended to cash or deposit accounts, "taxpaying Americans living abroad will have no place to bank."

"If neither foreign nor American banks will take American customers, how will the millions of citizens living abroad bank?" wrote Maloney, a New York Democrat, and Wilson, a South Carolina Republican, who are co-chairmen of the Americans Abroad Caucus.

There is "massive" failure by U.S. citizens and green card holders overseas to make filings with the IRS, said Matthew Ledvina, an international tax lawyer in Zurich, adding that Americans have become "pariahs because they're risky."

Presumption of Guilt

U.S. citizens must file tax returns, report offshore accounts that contain more than $10,000 and pay tax on any income earned, no matter where they live. To take advantage of the amnesty program, taxpayers must file six years of returns, plus pay back taxes and a penalty, according to the IRS.

"The presumption is that you're a bad person avoiding taxes if you live overseas," according to Andy Sundberg, who founded Geneva-based American Citizens Abroad in 1978. "The IRS rhetoric is alienating and vindictive."

The deadline and the UBS case have been the catalyst for a stream of Swiss banking clients who are seeking help to ensure they comply with U.S. tax rules, said Milan Patel, a former IRS litigator turned tax lawyer at Geneva-based Withers LLP. That includes "accidental Americans," such as green card holders who live outside the U.S., he said.

"People come in asking, 'How much am I going to have to pay?'" Patel said. "The real goal for voluntary disclosure isn't about how much is it going to cost, but avoiding going to jail. The only legal option is voluntary disclosure."

To contact the reporter on this story: Warren Giles in Geneva at wgiles@bloomberg.net

Switzerland moves to dilute bank secrecy

By Haig Simonian in Zurich

Published: June 23 2009 15:23 | Last updated: June 23 2009 15:23

Switzerland emphasised on Tuesday its willingness to dilute bank secrecy, as the US Department of Justice indicated that it planned to continue with legal action to force UBS to reveal the names of its American offshore private banking clients.

Hans-Rudolf Merz, Switzerland's finance minister, said Bern intended to negotiate 12 revised double taxation treaties this year, extending substantially the range of countries benefiting from greater transparency.

The need for fresh agreements followed Switzerland's acceptance in March of transparency standards set by the Organisation for Economic Co-operation and Development, the industrialised nations' club.

Six deals have already been negotiated, taking Switzerland halfway to the total of 12 required to remove the country from a "grey list" of countries not fully compliant with the new rules.

Talks with the US were concluded last week, surprisingly quickly, suggesting Swiss negotiators were keen to secure a settlement against the background of the UBS case.

The world's biggest wealth manager is to fight a demand by the US Internal Revenue Service that it reveal 52,000 offshore relationships with US clients.

UBS has resisted fiercely, arguing acquiescence would involve breaking Swiss law and that such issues are best negotiated by governments, rather than by legal actions against companies.

The bank's position has been upheld by the Swiss government and important trade federations. UBS is due to go to trial over the issue at a federal court in Miami on July 13.

Bern has also lobbied in Washington, reminding legislators about Switzerland's services in countries such as Iran and Cuba, where the US has no diplomatic representation. The Swiss have also stressed the potential threat to the financial system of destabilising UBS, which has extensive operations in the US.

Legal experts expected next month's court case to be long and complex. An adverse ruling would have triggered an appeal, with the issue possibly lingering for years until going to the Supreme Court.

The New York Times reported on Tuesday the IRS was considering dropping the action. "To have a complete meltdown in Swiss-US relations and go to the mat with Switzerland three years from now when money is getting back into the system doesn't make sense," said an unnamed US official.

However, the US Justice Department on Tuesday said it was not planning to drop its lawsuit. "There is no basis for the report in the New York Times," it said.

UBS and the Swiss finance ministry declined to comment.

Analysts noted that to drop the case would remove a source of uncertainty for the bank – and for Swiss private banking in general.

Switzerland's image as a confidential haven for private assets – whether declared or not – suffered a blow in February. UBS was forced by the Swiss bank regulator to disclose the names of 255 US clients to the American authorities.

The decision was a response to intense US pressure on Switzerland. It reflected fears in Bern UBS might otherwise face indictment. To publish the names was justified by the Swiss on the grounds those involved had used sham companies to evade tax, and so were not covered by the previous – restrictive – interpretation of laws to govern co-operation with foreign tax authorities.

Transfer of names was central to a deal by which UBS paid $780m to settle criminal charges that it had helped rich Americans evade tax. The agreement did not cover the linked – but separate – civil case by the IRS to require the bank to reveal the 52,000 client relationships.

To backtrack on that demand may reflect awareness in Washington of diplomatic and business repercussions. It may also stem from the fact many US taxpayers with undeclared accounts have come forward voluntarily.

Many accounts have also been closed after the bank's decision last year to terminate offshore services for US clients.

UBS has offered to give client data to the IRS on an "anonymised" basis. The information, already assessed by independent auditors, is thought to show only a few account holders breached the rules. Anonymised access would allow the IRS to verify that.

Copyright The Financial Times Limited 2009

Mpls Taxpayer Money to Promote Tap Water

Tap Minneapolis costs $180,000

Published : Monday, 22 Jun 2009, 8:16 PM CDT

MINNEAPOLIS - The city of Minneapolis is spending nearly $200,000 to sell something that would seem to sell itself: tap water.

With her bottle of water in hand, Susan Davis was feeling hot and a little guilty.

"It would be great if everyone did drink the tap water," said Davis. "I think the tap water in Minneapolis is just fine."

Tap Minneapolis is the city's new web site, and PR campaign to promote the city's tap water. But unlike tap water, it's not cheap.

The web site costs $75,000. The total cost paid to the PR firm was $180,000.

It's the kind of thing Governor Tim Pawlenty attacked last week. It also is enough to drive County Commissioner Jeff Johnson to drink.

It takes a $180,000 in taxpayer money to convince those same taxpayers to drink tap water. A reasonable person could ask whether that's wise or not.

But the real problem for some may be the product. The city's water comes from the Mississippi River and a spring run off gives it a taste and smell, that's just a little off.

The water campaign was Mayor R.T. Rybak's idea. He also brought us those decorative water fountains a year ago.

Obama Administration Looks to Colleges for Future Spies

By Walter Pincus

Washington Post Staff Writer

To the list of collegiate types -- nerds, jocks, Greeks -- add one more: spies in training. The government is hoping they'll be hard to spot.

The Obama administration has proposed the creation of an intelligence officer training program in colleges and universities that would function much like the Reserve Officers' Training Corps run by the military services. The idea is to create a stream "of first- and second-generation Americans, who already have critical language and cultural knowledge, and prepare them for careers in the intelligence agencies," according to a description sent to Congress by Director of National Intelligence Dennis C. Blair.

In recent years, the CIA and other intelligence agencies have struggled to find qualified recruits who can work the streets of the Middle East and South Asia to penetrate terrorist groups and criminal enterprises. The proposed program is an effort to cultivate and educate a new generation of career intelligence officers from ethnically and culturally diverse backgrounds.

Under the proposal, part of the administration's 2010 intelligence authorization bill, colleges and universities would apply for grants that would be used to expand or introduce courses of study to "meet the emerging needs of the intelligence community." Those courses would include certain foreign languages, analysis and specific scientific and technical fields.

The students' participation in the program would probably be kept secret to prevent them from being identified by foreign intelligence services, according to an official familiar with the proposal.

Students attending participating colleges and universities who agree to take the specialized courses would apply to the national intelligence director for admittance to the program, whose administrators would select individuals "competitively" for financial assistance. Much like the support provided to those in the military programs, the financial assistance could include "a monthly stipend, tuition assistance, book allowances and travel expenses," according to the proposal. It also would involve paid summer internships at one or more intelligence agencies.

Applicants to the intelligence training program would have to pass a security background investigation, although it is unclear when they would have to do so. Students who receive a certain amount of financial assistance would be obligated to serve in an intelligence agency for the same length of time as they received their subsidy.

Students in the military programs typically participate for all four years of college, but the intelligence program would seek to recruit sophomores and juniors.

Through grants to colleges and universities, intelligence agencies have been building partnerships with academia and specific professors, some of whom in past decades served as channels for recommending applicants to the CIA and other intelligence agencies. The intelligence community already has a Centers of Academic Excellence Program that funds programs in national security studies at more than 14 colleges and universities, with a goal of having 20 participating schools by 2015. The programs receive between $500,000 and $750,000 a year.

The intelligence officer training program would build on two earlier efforts. One was a pilot program, first authorized in 2004, for as many as 400 students who took cryptologic training and agreed to work for the National Security Agency or another intelligence agency for each year they received financial assistance. That program will be replaced by the new one because cryptology is not as needed as it once was.

A second program provided financial assistance to selected intelligence community employees who agreed to study in specialized academic areas in which officials believed there were analytic deficiencies.

Named the Pat Roberts Intelligence Scholars Program, after the Kansas Republican who chaired the Senate Select Committee on Intelligence, over the past four years it has provided funds to some 800 students and current employees.

The director of national intelligence would make the Roberts program permanent under the new proposal and expand it beyond analysts to include personnel in acquisition, science and technology. It also could be used to help recruit employees by reimbursing them for prior education in critical areas.

Minn. lawmaker vows not to complete Census

By Stephen Dinan (Contact)

Outspoken Republican Rep. Michele Bachmann says she's so worried that information from next year's national census will be abused that she will refuse to fill out anything more than the number of people in her household.

In an interview Wednesday morning with The Washington Times "America's Morning News," Mrs. Bachmann, Minnesota Republican, said the questions have become "very intricate, very personal" and she also fears ACORN, the community organizing group that came under fire for its voter registration efforts last year, will be part of the Census Bureau's door-to-door information collection efforts.

"I know for my family the only question we will be answering is how many people are in our home," she said. "We won't be answering any information beyond that, because the Constitution doesn't require any information beyond that."

Shelly Lowe, a spokeswoman for the U.S. Census Bureau, said Mrs. Bachmann is "misreading" the law.

She sent a portion of the U.S. legal code that says anyone over 18 years of age who refuses to answer "any of the questions" on the census can be fined up to $5,000.

The Constitution requires a census be taken every 10 years. Questions range from number of persons in the household and racial information to employment status and whether anyone receives social services such as food stamps.

Mrs. Bachmann said she's worried about the involvement of ACORN, the Association of Community Organizers for Reform Now, in next year's census.

"They will be in charge of going door to door and collecting data from the American public," she said. "This is very concerning."

ACORN has applied to help recruit workers to help conduct the census. Republican lawmakers and some public interest groups have expressed concern over their involvement.

ACORN staffers have ben indicted in several states on charges of voter registration fraud stemming from the organization's efforts to register voters last year.

Mrs. Bachmann, who is in her second term in the House, has become a lightning rod for criticism from Democrats and liberal talk show hosts for her unapologetic conservative views.

She said she considers that "a badge of honor."

"It's clear when a person speaks out against those policies they become a target, and that should be concerning to everyone," she said.

City requires Facebook passwords from job applicants

By AMANDA RICKER Chronicle Staff Writer

If you're planning to apply for a job with the city of Bozeman, prepare to clean up your Facebook page.

As part of routine background checks, the city asks job applicants to provide their usernames and passwords for their social-networking sites. And it has been doing it for years, city officials said.

"Please list any and all, current personal or business Web sites, Web pages or memberships on any Internet-based chat rooms, social clubs or forums, to include, but not limited to: Facebook, Google, Yahoo, YouTube, MySpace, etc.," states a city waiver form applicants are asked to sign. Three lines are provided for applicants to list log-in information for each site.

City officials maintain the policy is necessary to ensure employees' integrity and protect the public's trust, but the American Civil Liberties Union of Montana says they may be crossing the line.

"I would guess that they're on some shaky legal ground with this and we would certainly welcome (the opportunity) to look at something specific from somebody who's impacted," Executive Director Scott Crichton said Thursday.

He said Bozeman's policy is unprecedented as far as he knows. ACLU's legal counsel in Washington, D.C., had never heard of another city asking for log-in information for social networking sites as part of a job application.

"It's like saying, 'Let me look through your e-mails,'" Crichton said.

"The city certainly has access to publicly accessible information, but it gets pretty questionable when they start asking for password-protected things that are created to create privacy for communications between your friends and family," he said. "That seems to be going too far."

City Manager Chris Kukulski said the city checks the sites in order to ensure that employees who might be handling taxpayer money, working with children in recreation programs or entering residents' homes as an emergency services worker are reputable and honest.

"It's just one of the tools, like all the other tools, that we've used to do a thorough background check," Kukulski said.

The city also checks credit reports, criminal history, references and past employment, among other things.

"We have to do some due diligence," Kukulski said.

News of the city's policy went 'round the world via the Internet Thursday, triggering outrage and prompting comments by media outlets and bloggers. Celebrity gossip columnist Perez Hilton even weighed in on the news.

"Big Brother much?" he wrote. "We've heard of employers looking up potential employees on Facebook, but this seems a bit extreme."

The Guardian, a major daily newspaper in London, named the city of Bozeman its "civil liberties villain of the week" on its Web site.

City Attorney Greg Sullivan said in light of concerns being expressed by the public, officials are looking at ways to alter the policy so that they might view an applicant's online information without asking for log-in codes.

"We've already begun that discussion," Sullivan said Thursday afternoon.

For example, city officials said they could ask applicants to log into their Facebook page and show it to a city official during the application process, or add the city as a "friend" so the officials could view the applicant's page.

Bozeman has checked job applicants' social networking sites for about three years, said Human Resources Director Pattie Berg. HR staff or supervisors in the department in which the job is sought are charged with reviewing the sites.

However, Bozeman's city commissioners are exempt from the policy because elected officials aren't subjected to the same background check as city employees, said Chuck Winn, assistant city manager.

City administrators first enacted the policy for police and fire department job applicants, said Mark Lachapelle, deputy chief of investigations for the Bozeman Police Department. The policy wasn't presented to the Bozeman City Commission because the commission typically isn't charged with setting personnel policies.

Winn said that in his former position as fire chief, he was sometimes responsible for looking at potential firefighters' social-networking sites. He said he primarily looked for illegal activity.

"It's not about taste or anything," Winn said.

In at least one instance, an applicant's social-networking site figured into disqualifying the person for a job, Winn and Lachapelle said. Lachapelle said information from the site was one of several components that contributed to the decision. He declined to discuss the case more specifically, citing privacy concerns.

Amanda Ricker can be reached at aricker@dailychronicle.com or 582-2628.

Chicago couple with swine flu say 'I do'

 

HIGHLAND PARK, Ill. (AP) - The bride wore white—and a face mask. A Chicago couple married in surgical masks and latex gloves Sunday after learning less than 48 hours before that they both had swine flu. Ilana Jackson and Jeremy Fierstien went ahead with the ceremony after doctors assured them guests wouldn't be at serious risk.

But to be sure, the 26-year-olds kept a 10-foot distance from family and friends at all times, even walking around the gathering instead of down the aisle at a Highland Park synagogue

Jackson says they'd joked about swine flu after both experienced vomiting, achy limbs and fever. But they never thought they really had it.

She says the circumstances were unfortunate but that they took it in stride.

America's 'Bermuda solution' angers Britain

Decision to send Guantanamo inmates to British colony sours 'special relationship'

By Kim Sengupta

 

Senior aides to President Barack Obama accompanied four Uighur prisoners as they were flown from Guantanamo Bay to the British colony of Bermuda, without the UK being informed, it was revealed yesterday.

In an escalating diplomatic row over the transfer of the former terrorist suspects, US Secretary of State Hillary Clinton discussed the transfer with British Foreign Secretary David Miliband in what was said to be an uneasy conversation. Privately Whitehall officials accused America of treating Britain, with whom it is supposed to have a "special relationship", with barely disguised contempt.

One senior official said: "The Americans were fully aware of the foreign-policy understanding we have with Bermuda and they deliberately chose to ignore it. This is not the kind of behaviour one expects from an ally."

Lloyds Bank hit by Obama tax purge

Banking group drops American customers in UK ahead of costly proposals to stamp out tax evasion

By Louise Armitstead
Published: 13 Jun 2009

Lloyds Banking Group is ditching American customers based in Britain pending a crackdown on international tax evasion planned by President Barack Obama.

This week American private client account-holders at Lloyds's received letters informing them of an "important change in policy regarding clients who are resident, domiciled or linked to the United States by property or asset holdings". They were told the bank had "no choice" but to "cease acting as your investment manager."

 

One letter sent to Bank of Scotland's portfolio management division, which is now part of Lloyds, said: "The USA has a mature regulatory environment governed by its Securities and Exchange Commission. These regulations mean that we are not licensed to manage portfolios for US clients."

The letter added: "Unfortunately we cannot offer an equivalent service from within Lloyds Banking Group." Clients have been advised to transfer their assets.

One recipient, who has lived in the UK for over 25 years, said: "After all this time, I've suddenly been told I must take my money elsewhere and I don't understand why. Now I'm scared that other banks won't take me on either."

In its letters to clients, Lloyds has not referred to specific legislation. But last month, The Sunday Telegraph reported that British banks and stockbrokers were threatening to close down accounts held by American citizens due to concerns over new international tax proposals could make it too expensive for them to service the clients.

The proposals, which were unveiled in the President's first budget, have been designed to clamp down on American tax evaders abroad. But bank bosses say that in practice they could be asked to take on the task of collecting American taxes at a cost and legal liability that make servicing the clients inexpedient. The rules have not yet been finalised and are still subject to debate in Congress.

So far Lloyds has started dropping its "mass affluent" clients who have investment portfolios of up to a few hundred thousand pounds but that its "high-net-worth individuals" are not yet effected.

A source said: "Until the new rules are properly explained, we don't know how expensive they will be to implement. But it's clear that Lloyds believes that any extra cost to the system will be too much when it comes to the mass affluent."

The letters also contained four comprehensive descriptions of the bank's definition of clients that are effected. These included clients that hold green cards, pay American taxes, are American domiciled or even those where there is "any indication" that a client spent more time in the US than "normal holidays currently or in the past or future."

President Obama's proposals are built on the so-called Qualified Intermediary system introduced in 2001 that were intended to ensure Americans paid the correct tax wherever they were domiciled. Under the rules, foreign financial institutions that handle American money have to fill in a US tax form on behalf of the client that has to be audited too.

In return, the banks receive a QI seal of approval as a qualified intermediary. Bank bosses say that under plans to extend the system, which includes paying for the figures to be audited twice, the costs and legal liabilities of the system will soar.

APCIMS, the trade body whose members manage £400bn of Britain's wealth and employ 25,000 people, sent a letter to the US Treasury's Internal Revenue Service (IRS) complaining that the "unfair'' proposals represent "no benefit but . . . significant cost'' to its members.

Last night Lloyds declined to comment.

Son of North Korea's Kim visits China as heir: media

 

By Yoko Kubota Yoko Kubota

TOKYO (Reuters) – The youngest son of North Korean leader Kim Jong-il secretly visited China last week and his hosts were told he had been appointed heir to the ruling family dynasty, Japan's Asahi newspaper reported on Tuesday.

The report, citing unidentified informed sources, said Kim Jong-un met Chinese President Hu Jintao and other leaders of the ruling Communist Party when he flew to Beijing around June 10.

Analysts have said North Korea's nuclear test on May 25 and other belligerent acts may be aimed at a domestic audience, with the elder Kim trying to bolster his position at home to secure the succession of his youngest son. The 67-year-old leader is believed to have suffered a stroke last year.

An aide to Jong-un told Chinese officials the younger Kim had been appointed heir and that he held an important post in the ruling Korean Workers' Party, the mass circulation Asahi said.

"If what was said in the paper is proven to be true, it would not be a stretch to say the decision to make him heir is official," said Ko Yu-hwan, a professor of North Korean studies at Seoul's Dongguk University.

A Chinese Foreign Ministry spokesman said he had no knowledge of the reported visit. North Korean state media has never told the country's public that leader Kim has offspring, let alone report on the journey of a son to Pyongyang's key backer.

Jong-un is the Swiss-educated third son of Kim Jong-il and was born in 1983 or 1984. Earlier this month South Korean media, quoting informed sources, said Pyongyang had asked the country's main bodies and overseas missions to pledge loyalty to him, indicating he will take over from his father.

China is the closest thing North Korea has to an ally, and in theory Beijing wields more influence over Pyongyang than any other power, but experts say the relationship is brittle and China actually has limited room for maneuver.

Hu apparently asked North Korea not to go ahead with another nuclear test or test-fire an intercontinental ballistic missile, the Asahi reported. Jong-un was believed to have asked China for emergency energy and food aid, the newspaper said.

DILEMMA FOR CHINA

Beijing does not want its neighbor to build up a nuclear arsenal that could spark a regional arms race, but nor does it want to risk North Korea falling into chaos -- which could prompt a flood of refugees across their land border.

Reluctant to back sanctions, China agreed to a U.N. Security Council resolution last week that banned all weapons exports from the hermit state in response to the nuclear test, the country's second after one in 2006, but analysts say Beijing may take a soft approach to enforcing the resolution.

The resolution also authorized U.N. member states to inspect North Korean sea, air and land cargo, requiring them to seize and destroy shipped goods that violate the sanctions.

"The danger point is the ship inspections ... China is unlikely to participate in stopping ships on the sea, but on the roads they might become more rigorous about inspection," said Jin Canrong, a North Korea expert at Beijing's Renmin University.

North Korea held a large rally in Pyongyang on Monday to denounce the U.N. sanctions, its official KCNA news agency said.

"In case the enemies foolishly attempt to blockade the DPRK (North Korea), it will respond with resolute and deadly blows," KCNA quoted a senior communist official as saying at the rally.

North Korea has raised regional tensions in recent months by also test-firing missiles, threatening attacks and restarting a plant to produce arms grade plutonium.

The North Korean crisis will dominate talks between South Korean President Lee Myung-bak and U.S. President Barack Obama in Washington on Tuesday.

North Korea had also finished preparatory work at a missile launch pad at Tongchang-ri in the country's north, the South Korean newspaper Chosun Ilbo quoted a Seoul government source as saying. No missile had been set on the pad yet, the source said.

Pyongyang has threatened another intercontinental ballistic missile launch after the U.N. Security Council punished it for firing a long-range rocket over Japan in April.

It takes North Korea several days to prepare long-range rockets for launch once they are on the pad. The rocket, known as the Taepodong-2, is designed to fly as far as U.S. territory.

Japan said it would impose fresh sanctions on North Korea in response to the nuclear test, including what media said would be a ban on all exports. The impact will be limited, with Japan's exports to the North already small and imports banned as part of previous sanctions.

(Additional reporting by Yoko Nishikawa in Tokyo, Jon Herskovitz, Jack Kim and Christine Kim in Seoul, Emma Graham-Harrison and Lucy Hornby in Beijing, Editing by Dean Yates)

Japan Probes Report Two Seized With Undeclared Bonds

By Shunichi Ozasa and Makiko Kitamura

June 12 (Bloomberg) -- Japan is investigating reports two of its citizens were detained in Italy after allegedly attempting to take $134 billion worth of U.S. bonds over the border into Switzerland.

"Italian authorities are in the midst of the investigation, and haven't yet confirmed the details, including whether they are Japanese citizens or not," Takeshi Akamatsu, a spokesman for the Ministry of Foreign Affairs, said by telephone today in Tokyo. "Our consulate in Milan is continuing efforts to confirm the reports."

An official at the Consulate General of Japan in Milan, who only gave his name as Ikeda, said it still hasn't been confirmed that the individuals are Japanese. "We are in contact with the Italian Financial Police and the Italian Public Prosecutor's Office," Ikeda said by phone today.

The Asahi newspaper reported today Italian police found bond certificates concealed in the bottom of luggage the two individuals were carrying on a train that stopped in Chiasso, near the Swiss border, on June 3.

The undeclared bonds included 249 certificates worth $500 million each, the Asahi said, citing Italian authorities. The case was reported earlier in Italian newspapers Il Giornale and La Repubblica and by the Ansa news agency.

If the securities are found to be genuine, the individuals could be fined 40 percent of the total value for attempting to take them out of the country without declaring them, the Asahi said.

The Italian embassy in Tokyo was unable to confirm the Asahi report.

To contact the reporter on this story: Makiko Kitamura in Tokyo at mkitamura1@bloomberg.net.