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AZ,EE,FL,MW,NE,NY,SA,SC,SW,WE
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06/30/2006

Disney’s Fortunes
Depend on ‘Pirates’

The Responsibility
Of the Press

Torn on the
Fourth of July

The cost of back-to-back sequels
is approaching $500 million

A look at what is—and isn’t—
fit to print during wartime

Amid immigration rifts,
new Americans fete the Fourth

MARKETPLACE   B1

REVIEW & OUTLOOK   A12

WEEKEND JOURNAL   W1

Corbis

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s 2006 Dow Jones & Company. All Rights Reserved

WSJ.com

F R I DAY, J U N E 3 0, 2 0 0 6 ~ VO L . C C X LV I I N O. 1 5 2 ~ H H H H $ 1 .0 0

Border Crossing

Trial and Error

Paid Once, Credited Twice
By CARRICK MOLLENKAMP
And GLENN R. SIMPSON
LONDON—At Barclays PLC, a British
bank steeped in 300 years of tradition,
the work of a team led by banker Roger
Jenkins is far from traditional.
For instance, in 2003 his team set up a
company with no employees, no products
and no customers—
just a mailing address in Delaware
and a slate of British
directors,
mostly employees
of his office. It was
co-owned by Barclays and U.S. bank
Wachovia Corp.
The
following
year, according to
documents filed in
the United KingRoger Jenkins
dom, the jointly
owned
company
had $317 million in profits. It paid U.K.
taxes on them. Barclays and Wachovia
were both able to claim credit for paying
all of the tax.
This was one of at least nine such
structures Mr. Jenkins and his team
have set up involving U.S. banks, which
also included Wells Fargo & Co. and
Bank of America Corp. The complex
transactions involve a strategy called
tax arbitrage, which plays off one nation’s tax system against another to reduce the banks’ tax bills.
Barclays is the leader in this esoteric
field. It collects hundreds of millions of
dollars in revenue generated by Mr. Jenkins’s group. His team of lawyers and
bankers has helped turn Barclays from a
sleepy Main Street lender into an investment-banking power.
Critics of tax arbitrage are blunt
about it. “This is just a complete and
utter construct to get around the rules at
both ends,” says Richard Murphy, an accountant and professor who works with a
London nonprofit called Tax Justice Network and has consulted for the U.K. government on financing.
The banks say the cross-border deals
have been cleared by both U.S. and U.K.
regulators and the regulatory review process is rigorous. Barclays says the transactions aren’t designed mainly to reduce
taxes. It says Mr. Jenkins’s group generates a variety of strategies for corporate
clients to lessen risk, maximize profits
and fund balance sheets. Says Mr. Jenkins: “I run a structured capital-markets
business which does a bunch of different
things, and in there is tax efficiency, as
you would expect.”
The U.S. and British governments
have said that while they police their own
home countries, they won’t pursue companies for seeking to avoid taxes owed to
other jurisdictions. There is no indication that any of the Barclays deals might
need to be unwound.
But regulators and politicians in both
countries are paying greater attention to
tax arbitrage. The U.S. and U.K., along
with Australia and Canada, have formed
a body designed to combat cross-border
tax abuses. The British government took
a step against tax arbitrage last year by
adopting a law that disallowed certain
strategies in the U.K. and gave regulators more time to rule on deals when
Please Turn to Page A10, Column 1

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Business and Finance

T

HE FED RAISED rates a
quarter point to 5.25%, its
17th straight increase. But for
the first time since the rate
rises began, the central bank
didn’t explicitly say it was considering another increase. The
Dow industrials surged 217.24
points, or 2%, to 11190.80 on the
shift in language, their best day
in over three years. The Nasdaq
climbed 3%; bond prices rallied.
n U.S. growth for the first quarter
was revised upward to a 5.6%
pace. Second-quarter growth is
expected to be much slower.
(Articles in Column 5 and on Pages A5, C1, C4)

i

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i

n Scrushy was convicted of paying
bribes in return for a spot on an
Alabama regulatory panel, a year
after the HealthSouth founder
was acquitted of accounting fraud.
(Article on Page A3)

i

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Apple reported stock-option
“irregularities,” including a grant
to CEO Steve Jobs. CA said it
found options-dating problems.

n

(Article on Page A3)

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Airbus parent EADS asked
French prosecutors to investigate the leak of a document concerning production problems.
n

(Article on Page A3)

i

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i

BP’s alleged manipulation of
propane prices raises questions
about the firm’s use of its operational information to aid traders.
n

(Articles on Page C1)

i

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i

n Chrysler plans to unveil an
employee-pricing discount plan for
consumers and the release of a
new model in a bid to spur sales.
(Article on Page A2)

i

i

i

n Gasoline futures rose to $2.29
a gallon, a nine-month high, and
oil jumped to $73.52 in the aftermath of an oil spill in Louisiana.
(Articles on Pages A2 and C2)

i

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i

Boeing will take up to $1.1 billion in charges due to delays on
a surveillance-jet program and a
settlement with the government.
n

(Article on Page A2)

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i

The U.S. racked up a record
$2.69 trillion in net debt to the
rest of the world as of the end of
2005, up 14% from a year earlier.
n

(Article on Page A2)

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Northwest is entitled to reject
a labor agreement with its flight
attendants union and impose contract concessions, a judge ruled.
n

(Article on Page A2)

i

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i

RIM reported profit fell 2% as
revenue climbed 35%. The BlackBerry maker said subscriber
growth is continuing to pick up.

n

(Article on Page B5)

i

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i

South Korean prosecutors
raided KEB’s offices in the wake
of accusations that the bank’s
sale to Lone Star was mishandled.
n

(Article on Page C3)

i

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i

Severstal’s owner continued
to work on plans to combine the
Russian steelmaker with Arcelor.
n

(Article on Page C3)

I N D EX

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Sanofi added a new warning
about liver risk to the label of
the drug maker’s antibiotic Ketek.
n

>

–Markets–
Stocks: NYSE comp. vol. 2,724,981,910
shares, Nasdaq vol. 2,150,714,052.
DJ industrials 11190.80, s +217.24;
Nasdaq composite 2174.38, s +62.54;
S&P 500 index 1272.87, s +26.87.
Bonds (4 p.m.): 10-yr Treasury
s +11/32, yld 5.206%; 30-yr
Treasury s + 14/32, yld 5.254%.
Dollar: 115.07 yen, –1.39; euro
$1.2647, +0.94 cent against the dollar.
Commodities: Oil futures $73.52 a
barrel, s +$1.33; Gold (Comex) (Jul)
$586.50 per troy ounce, s +7.50;
DJ-AIG Commod. 170.591, s +2.452.

BLACK
YELLOW
MAGENTA
CYAN

Index to People .........................................................B7
Index to Businesses ................................................B2
What’s News Online ...............................................A9
Global Business Briefs ..........................A8,A10,B7
Classifieds...................................................C10-11,W9

(Article on Page B5)

Composite

Index/Listed Options .........C7
Markets Lineup..................C2
Media & Marketing ..........B2
Money Rates .....................C8
Mutual Funds .................C10
New Securities Issues .......C7
Politics & Economics .......A4
Small-Stock Focus ............C4
Technology & Health .........B5
Treasury Issues ................A11
Weather Watch ...............C13
Who’s News ......................B7
World Stock Markets .......C13
World Watch .....................A8

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Justices Bar Guantanamo Tribunals

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World-Wide

7

n BUSH TERROR POLICY TOOK a

heavy blow from the Supreme Court.
Justices’ 5-3 ruling rejecting Guantanamo tribunals, with Alito, Scalia
and Thomas in dissent and Roberts
sidelined because he adjudicated the
case as an appellate judge, said the
president’s plan for military trials violates U.S. law and the Geneva Conventions. The decision suggested the
court might take a similarly dim view
of other aspects of Bush’s expansive
assertion of executive power. But the
president gave no sign of backing off
from his legal strategy, saying he’ll
ask Congress to try to devise special
trials that can pass muster, and Republican leaders agreed. (Column 4)
The court, on its last day of work
before summer recess, also decided
6-3 that Arizona’s standard for insanity defenses, challenged as nearly impossible to meet, isn’t too restrictive.
i
i
i
n Egypt said Hamas made an offer
to surrender a kidnapped Israeli soldier on unspecified terms. Israel said
it was unaware of the overture, and
launched a series of airstrikes, including one on the headquarters of Palestinian security services. Gaza militants blew a hole in a southern border wall, but Egyptian troops linked
arms to try to bar escapes. (Page A8)
i
i
i
n The House voted 232-187 to lift offshore-drilling moratoriums. Backers
argue states could choose to continue
bans, but critics say the bill’s terms
make that improbable. Coastal states
threaten a Senate filibuster (Page A5)
n Frist yielded to pressure, including
by Nancy Reagan, and struck a deal
with foes of embryonic stem-cell research to set a Senate vote on expanding federal funding. The White House
reiterated its veto threat. (Page A5)
n The House voted 227-183 on largely
party lines to condemn newspaper reports of administration surveillance of
banking transactions, saying they put
“lives of Americans in danger.” Critics see media intimidation. (Page A8)
i
i
i
n The U.S. military reported sharp
gains in rooting out Iraq insurgents
since the death of Zarqawi, killing or
capturing 57 foreign fighters. But violence continued, with 46 Iraqis dead,
many at sectarian death-squad hands.
i
i
i
n A stolen VA laptop was turned in
to the FBI in Baltimore and the bureau said personal data on 26.5 million veterans hadn’t been accessed.
i
i
i
n G-8 countries demanded a detailed
Iranian response by July 5 to U.S.-EU
proposals on nuclear talks. Tehran’s
first reaction was to balk. (Page A5)
i
i
i
n Mexico’s presidential race is tight
heading into Sunday’s vote and some
fear a Florida-style wrestling match,
but with an untested ref. (Page A5)
i
i
i
n Spain began peace talks with ETA
after a violent, decades-long Basque
separatism campaign. Conservatives
said terrorism was being rewarded.
i
i
i
n Susquehanna levees held at WilkesBarre, Pa., allowing 200,000 residents
to return to their homes, as swollen
rivers crested across the Northeast.
i
i
i
n A CDC panel urged cervical-cancer vaccination of younger girls. An
expected fight with religious conservatives never materialized. (Page B5)
i
i
i
n U.S. police departments complain
federal sharing of terror-threat data
remains a shambles nearly five years
after the Sept. 11 attacks. (Page B1)
n A Senate panel backed a $32.8 billion Homeland Security budget, but
delayed tightening border rules amid
administration wrangling. (Page A8)
n Government will be the Freedom

Tower’s big tenant, reprising the public-sector role that allowed the World
Trade Center to be built. (Page A2)

—Online Today—
WSJ.com/OnlineToday

Guantanamo React: How big
a defeat was the court decision
for the White House? Read a
Q&A with a Duke law professor, plus
political analysis in Washington Wire.
i
i
i
n Adcasting: Companies are creating
podcasts to promote items from contact
lenses to dog food, hoping to tap buzz.
i
i
i
n Trading Shots: Despite yesterday’s
rally, a bear market may still be stalking stocks. Three strategists weigh in.

High Court Says President
Exceeded War Powers;
HeMayTurntoCongress

On the Way to Court
n

Events leading up to ruling in the case of
a Guantanamo prisoner:
Reuters

Deals Devised by Roger Jenkins
Of Barclays Capital Lift
Own Firm’s Fortunes, Too

What’s News–

n

Ruling Won’t Free Prisoners
n

By JESS BRAVIN

n

WASHINGTON—In a withering opinion handed down on the last day of its
term, the Supreme Court declared unlawful the Bush administration’s military tribunals, an alternative legal system established to prosecute enemy prisoners without granting them traditional rights
found in courts-martial. The tribunals
were among the first and most far-reaching of White House responses to the Sept.
11, 2001, terrorist attacks.
The 5-to-3 ruling specifically repudiated the tribunals in Guantanamo Bay,
Cuba, finding that by denying fundamental rights to defendants, they violated the
Uniform Code of Military Justice and the
Geneva Conventions. But it also raised
questions about the logic behind the aggressive legal strategy the administration has used to expand executive authority on multiple fronts, including warrantless surveillance of targets within the
U.S., and the broad monitoring of international financial transactions.

Homeless Reporter
Finds Job, and Story,
In Evicting Others
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‘Street Sense’ Investigates
Hiring Practices, Pay;
Restaurant Reviews, Too
7

7

By MICHAEL M. PHILLIPS
WASHINGTON—Early one morning
this spring, Jake Ashford woke up, as
usual, in an alley behind a downtown
office building. He might have taken his
schizophrenia medicine, or perhaps not.
Sometimes,
he
says, he skips a
dose.
Next,
the
43-year-old
Mr.
Ashford headed to
the headquarters
of a nearby charity for a shower
and
breakfast.
Then he joined a
group of men getting into one of several
unmarked
Jake Ashford
vans cruising the
neighborhood and
began his career as an undercover reporter for Street Sense, the city’s newspaper for the homeless.
Mr. Ashford’s work that day helped
the paper break the biggest story in
its three-year history, an exposé of
businesses that allegedly recruit the
homeless to evict people from rental
homes—and allegedly pay them less
than the legal minimum wage to do so.
In light of the article, the National
Coalition for the Homeless, an advocacy group, and a team of volunteer
attorneys from the Washington office
of Cleary Gottlieb Steen & Hamilton
say they are investigating whether to
sue the eviction firms.
“I would hope and pray that homeless
people are not being hired out to make
other people homeless, but if they are,
they should be paid minimum wage,”
says Michael Stoops, the coalition’s acting executive director.
Street Sense was founded in 2003 by
Ted Henson, then 23, and Laura Thompson Osuri, then a 26-year-old reporter
for American Banker, an industry daily.
Both were troubled by the plight of the
homeless and together they raised
money from friends, family and foundations to launch the paper. Mr. Henson,
who bussed tables at night so he could
put in days at Street Sense, now works
as a labor-union researcher and volunteers on the paper’s board. Ms. Osuri
left mainstream journalism and works
as Street Sense’s only salaried employee, earning $40,000 annually.
The monthly paper, run out of a
rented room at the downtown Church
of the Epiphany, follows the general
business plan set by many of the 24
publications in the North American
Street Newspaper Association, a trade
group of papers focused on homelessPlease Turn to Page A11, Column 3

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n

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Osama bin Laden’s former driver
Salim Ahmed Hamdan in a
photograph taken in Yemen in 2000.

The victor in the legal case was a
former driver for Osama bin Laden,
Salim Ahmed Hamdan, who was caught
when the U.S. invaded Afghanistan.
But while he can no longer be tried
before a tribunal, there is little chance
that he—or the approximately 450 other
men held at Guantanamo—will be set
free, either. The court didn’t address the
legality of holding enemy combatants
while hostilities continue, but rather said
that if they are to be prosecuted for war
crimes, the proceedings must obey the
laws of war. The ruling “won’t cause killers to be put on the street,” President
Bush said at a news conference.
The tribunals, known formally as
military commissions, were conceived
as a response to the challenges of prosecuting suspected international terrorists. While promising defendants a “full
and fair” trial, Mr. Bush’s Nov. 13, 2001,
order establishing the panels of military
officers permitted them to exclude defendants from proceedings and deny
them access to prosecution evidence. It
let the panels consider virtually any evidence they considered “probative,” including hearsay. Moreover, the order denied defendants the right of appeal to
independent courts.
The justices made the administration’s choices clear: It can prosecute

n
n

Sept. 11, 2001: Terrorists attack World Trade
Center and Pentagon.
Nov. 13: Bush ‘military order’ creates military
commissions to try non-U.S. citizens
suspected of terrorism for war crimes, with
limited rights and no federal court review.
Jan. 11, 2002: First Guantanamo prisoners
arrive.
June 28, 2004: Supreme Court rules federal
courts have jurisdiction over prisoners.
Aug. 23: Military-commission proceedings
begin for four prisoners.
Nov. 8: U.S. judge rules commission
procedures violate federal law and Geneva
Conventions. Proceedings halt.
July 15, 2005: Appeals court reverses ruling.
Jan. 9, 2006: Commission proceedings
resume.
June 10: Proceedings are suspended after
three Guantanamo suicides.
June 29: Supreme Court rejects commissions.

the enemy prisoners under the Uniform
Code of Military Justice, which effectively requires proceedings akin to a
court-martial. Or it can persuade Congress to adopt a different legal regime
for them. Making its own rules outside
congressional authority was illegal, the
justices found.
Mr. Bush suggested that his next
step would be to try to work with Congress to craft a legally acceptable way
to proceed, an initiative Senate Majority Leader Bill Frist said he would pursue quickly after the July 4 recess. The
president said that “to the extent that
there is latitude to work with the Congress to determine whether or not the
military tribunals will be an avenue in
which to give people their day in court,
we will do so.”
To White House lawyers, the “global
war on terrorism” Mr. Bush declared
invoked his presidential war powers in
a battle that rages continuously around
the world. Administration lawyers contended that the constitutional clause designating the president “commander in
chief of the Army and Navy” should be
read expansively, so that the Executive
Branch could take virtually any steps it
deemed necessary for national security.
At various times, administration lawPlease Turn to Page A9, Column 1

Fed’s Latest Rate Boost Contains
A Hint of a Pause, Lifting Stocks
By GREG IP
And MARK WHITEHOUSE
The Federal Reserve raised interest
rates for the 17th consecutive time, but
its words suggested growing prospects
for a pause in rate increases, helping to
spark a rally in stock markets.
As widely expected, the central bank
boosted its short-term interest-rate target to 5.25% from 5%. But for the first
time since it began raising rates from a
low of 1%, in June 2004, the Fed didn’t
explicitly say another rate increase was
under consideration—and markets took
that as a welcome signal.
“The extent and
timing of any additional” rate increases “will depend on the evolution of the outlook
for both inflation
and
economic
growth,” the Fed
said in a statement. By contrast,
the Fed’s last statement, on May 10,
said “some furBen Bernanke
ther”
rate
increases “may yet
be needed.”
The language shift reflects Fed officials’ decreased confidence that they
know now what they’ll do next, given
how much rates already have risen, its
view that the economy is slowing and its
concern over an unexpected rise in inflation that it nonetheless hopes is temporary. The new language doesn’t rule out
another rate increase, but gives the Fed
added flexibility to base its decision
more on coming economic data than on
any previous guidance it gave to markets.
The Dow Jones Industrial Average,
which was up about 80 points before the
statement was released, soared to close
217.24 points higher, a gain of about 2%,
its best day in more than three years.
The Nasdaq Stock Market was up 3%, its

P1JW1810C3-9-A00100-1---XA

How a U.K. Banker
Helps U.S. Clients
Trim Their Taxes

Abreast of the Market .......C4
Agency Issues ..................B7
Amex Stocks ....................C9
Bond Data Bank ...............C8
Commodities ...............C2,10
Corrections .......................A2
Credit Markets ...............C4,8
Currency Trading ..........C2,10
Deals & Deal Makers .......C3
Dividend News ..................C7
DJ Specialty Indexes ......C10
Earnings Digest ...............A11
Editorials ...................A12,13
Heard on the Street ..........C1

* * * * * * * * *

biggest one-day rally since March 2004.
Long-term bond yields edged down.
“The Fed was not as hawkish as investors expected, and we’re seeing a
‘relief rally’ here,” said David Ader, a
strategist at RBS Greenwich Capital. Futures markets lowered the odds of a

Fresh Signs
First-quarter growth kept a quicker
pace than expected ....................A5
n Stocks soar as Fed cheers investors
with remarks on inflation ............C1
n

quarter-percentage point increase at the
Fed’s next meeting, on Aug. 8, to 60%
from 80%.
The Fed statement acknowledged, as
many Fed officials have in the last
month, that recent measures of inflation have been “elevated.” But it softened the sting by suggesting the Fed
expects inflation to edge lower as the
economy slows. “Economic growth is
moderating,” the statement said. “Although the moderation...should help to
limit inflation pressures over time, the
Please Turn to Page A11, Column 1

INSIDE
Priced to Move—Hopefully
With an uncertain real-estate market,
some home sellers are experimenting
with unusual strategies to put a price
on their property. Home Front, W8

Luring Listings to the Big Board
NYSE Group hopes a Euronext deal
will restore its appeal over rivals in Asia
and Europe. Heard on the Street, C1

Tomorrow: A New Homecoming
For some soldiers
returning from Iraq and
their loved ones, low-key
gatherings are giving
way to more elaborate
parties. In Pursuits

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