Asset Protection BLOG - Mark Nestmann

In Indiana, Prosecutors and Trial Lawyers Conspire to Seize Property

I had to blink twice when I received the news release from Forfeiture Endangers American Rights (http://www.fear.org).

In the great state of Indiana, Henry County prosecutors have contracted with a trial lawyer, who calls himself a "forfeiture specialist," to prosecute its asset forfeiture cases for a contingency fee.

If successful, former prosecutor J. Gregory Garrison, who hosts a popular radio show, will get keep 30% of the forfeited assets—40% if the case goes to trial. The remainder of the money goes to the Henry County Prosecutor's office, where it can be used for "any purpose" related to law enforcement. 

So far, county prosecutors have only committed to give Garrison a single case—but it's a whopper, with the value of the assets seized to date coming to US$3.7 million.

The corrupt practice of "policing for profit" is bad enough—having the assets law enforcement seizes going back to law enforcement creates a "bounty hunter" mentality. You don't need to be a rocket scientist to understand that this arrangement creates a compelling financial incentive for law enforcement agencies to maximize funding for their operations. One small example: many police departments now prefer to arrest drug buyers, rather than dealers, because buyers are sure to have cash with them.

Now, combine policing for profit with the concept of a trial lawyer prosecuting a forfeiture case in exchange for a contingency fee. That's Henry County's innovation. 

The vast majority of Indiana residents appear to approve of appointing a trial lawyer on a contingency basis to handle forfeiture cases, judging from the responses to a story in the Indianapolis Star. 

Personally, I think it's a disgrace. It's a disgrace to the traditional values of law enforcement ("to serve and protect," not to confiscate property), a disgrace to legal profession, and (according to forfeiture attorney Brenda Grantland), a possible violation of the Due Process clause of the U.S. Constitution.

And what's even more frightening: if Henry County gets away with this, the practice will probably spread. 

Just Plain Stupid

I recently learned that most photocopiers manufactured after 2002—especially more expensive models used in commercial copy centers—contain hard disk that records what's been duplicated. Some photocopiers have had this capability for a longer time—from 1999 and perhaps even easier. 

What that means is that if you photocopy tax returns or other confidential information at a public location, on a copier that's equipped with a hard disk, criminals or identity thieves could easily retrieve it.

In certain circumstances, this is a useful capability. If you copy your tax return, send it off to the IRS, and then lose the original, at least you have a copy of it on the copier's hard disk. Some copiers even act like printers in that they are equipped with "document servers" that allow you to print directly from a personal computer. You can even buy copiers even have embedded Web servers in them. That means you can actually retrieve the data on the hard disk over the Internet.

All these features may be useful in a commercial copying environment—but they pose an immense security risk. And while it appears that data on the hard disk on most copier models can be encrypted, or passwords changed, someone needs to turn encryption on, change the default password, and periodically erase the contents of the hard disk. And that raises a question: can you depend on the pimply-faced 18-year-old at the counter paid $7/hour to have the knowledge—or motivation, for that matter—to do any of those things?

In a perfect world, the advantages of having copies of documents photocopied on a hard disk might be worth the risk. But we don't live in a perfect world.

My advice: don't copy anything remotely confidential on a photocopier that's not sitting securely in a locked room in your own home. And make sure that you carefully read the instructions to make sure it's not surreptitiously storing everything you copy in a hidden hard disk. 

Who's Got Your Data?

I don't know you, but if I wanted, I could find out almost everything I want about you with a few mouse clicks.

Do you own a home in your own name? I can log in to your county government's Web site and see its assessed value, square footage, etc. It may even show the floor plan. Moving over to http://www.zillow.com I can pull up satellite photos of your home. Next, Next, I can go to Yahoo! and get driving directions from anywhere in the United States.

But that's just the beginning. With your address, I can use a reverse directory to obtain your telephone number. Then, I can call the telephone company and impersonate you to obtain your telephone records. (Such "pretexting" is now illegal if done by a private party, although not by a government agency.) 

Next, I can go to companies such as ChoicePoint to retrieve your "National Comprehensive Report." This gives me your telephone number (if it's unlisted), where you work, along with your mortgage records, vehicle registrations, court judgments, bankruptcy histories, and any other public information they can gather. It's likely that your Social Security number and date of birth appears on some of these records (although it's supposed to be redacted). Click here to view a sample report. With that information, plus what I already know about you, I have more than enough information to steal your identity.

You don't have to be informed I'm retrieving any of this information—and there's much, much, more available, if I represent a law enforcement agency. In that case, I can retrieve your bank records, credit card records, police records, and much more. And I can use the most modern "data mining" technology to examine this information for possible hidden relationships. 

Perhaps I'll discover that you're not actually John Doe, mild-mannered accountant, but Hamdi bin Saladin, a dedicated terrorist bent on the total destruction of the United States.  However, it's much more likely, as I've pointed out in a previous post, that the data mining software will falsely identify you as a terrorist, when you're not. 

Maybe you think you don't have anything to hide. Maybe you think that no one could ever, possibly, use any of this data in any way to steal your identity, assess your vulnerability to a lawsuit, or identify easily-seized assets.

If that's the case, do nothing. Don't worry, be happy, and hope for the best.

However, if you don't like the idea of having your entire life being an "open book" that can be read by anyone who knows where the pages of the book reside online, you can take some steps to thwart the privacy invaders.

Here are some of the most important steps to take:

• Don't own a U.S. residence in your own name. Use a trust or (better) a limited liability company (LLC) instead.
• Don't take out telephone service in your own name. Again, use a trust or LLC for this purpose.  Get an unlisted number and don't disclose it to anyone. If you have to disclose a phone number to obtain some benefit you can't do without, use the number of a cell phone you purchase over the counter at a convenience store, with cash, that can't be traced back to you.
• Don't maintain bank accounts, brokerage accounts, or credit card companies in your own name. Once again, use an "entity" to hold those accounts. 

Setting up a revocable living trust costs a few hundred dollars. Setting up a LLC is only nominally more expensive, and, if done properly, can also offer significant asset protection in addition to aiding you in achieving "everyday anonymity"—and privacy.

Your Pension Plan Isn't as Protected as You Might Think

It's easy to get lulled into a false sense of security about the asset protection of a US pension plan. After all, O.J. Simpson got to keep his NFL pension, even after he allegedly killed two people, right?

Don't take that protection for granted. While pension plans that qualify for protection under the federal ERISA statute (e.g., 401(k) plans and defined-benefit plans) enjoy very strong creditor protection, that protection isn't absolute.

If a government agency that's after your assets, ERISA protection melts like butter under a hot knife. Federal tax levies and criminal forfeiture judgments are examples of governmental claims that ERISA won't protect against.  Nor will ERISA protect against federal court orders for "restitution" in white-collar crime cases.

If you live in a community property state such as California, the situation is much worse, because an innocent spouse can lose his or her community property interest in an ERISA-qualified plan.

Here's what happened in a recent California case. 

The IRS placed a US$300,000 levy against a man named Jerry McIntyre. When McIntyre didn't pay up, the IRS decided to collect against his pension. 

Jerry's wife, Waltrout, claimed that she owned half of his pension under the California community property law, and since levy was against her husband, half of the pension should not be subject to the IRS lien. 

Good argument, but the 9th Circuit Court of Appeals disagreed. Under California law, the "community estate" is liable for a debt incurred by either spouse before or during marriage, regardless of whether one or both spouses are parties to the debt or to a judgment for the debt.

That's bad enough, but the court went even further to imply that even ordinary creditors can penetrate ERISA qualified plans under California law. In other words, California law actually eliminates ERISA's asset protection!

It remains to be seen whether a similar situation exists in other community property states—although I suspect that it does.

I don't have a quick answer to those who are looking for a way to plan around this horrific decision, except to say that if you want to protect your assets, don't live in a community property state.  If you do live in a community property state, do everything you can to keep your individual property out of the "community estate." (Individual or "separate" property is in most community property states property you owned before you were married, or inherited after your marriage.) 

In the meantime, do everything you can to build a shield around your non-pension assets to protect them from legal predators.

If you don't, any creditor of your spouse can grab your property, too…including your "asset protected" pension. 

The Only Effective Way to Encrypt Your Phone Calls

With the National Security Agency (NSA) and God knows who else eavesdropping on your telephone calls, there's never been more of a need for effective ways to make your conversations unintelligible for anyone who might care to listen in. However, traditional phone encryption systems simply aren't effective, with government officials boasting that they have never encountered a situation where they couldn't recover "plain text" from an encrypted telephone conversation. 

That's beginning to change with the advent of encryption systems for voice communication over the Internet, via the "Voice over Internet Protocol" or VOIP. One of the best-known VOIP systems is Skype (www.skype.net), which automatically encrypts conversations over the Internet. However, Skype won't release its "source code" so there's no way to know whether or not the company has programmed "back doors" into the software. Still, Skype is a good start to protect your conversations against casual eavesdropping.

A better solution may come from civil liberties hero Philip Zimmerman, who almost went to jail for developing Pretty Good Privacy (PGP), one of the first effective and trusted programs to encrypt e-mail messages and computer files.  Zimmerman has now developed a program called Zfone (http://zfoneproject.com) to encrypt VoIP calls. And in an effort to demonstrate that there are no backdoors, Zimmermann has made Zfone's source code publicly available for review by experts.

Zfone's early version aren't easy to use, but they're improving fast. Still, Zimmermann's effort to build encryption into VoIP systems may is on a collision course with new rules that will force VOIP providers to build in back doors for "point and click" Internet surveillance, with a looming deadline of May 14, 2007 for full implementation. 

No SSN Required to Open Bank Account

For more than 20 years, since the 1986 "tax reform" act, banks, brokerages, credit card companies and just about everyone else has demanded I disclose my Social Security Number (SSN) before they'll do business with me.

While I resist as best I can, if it's a service I can't do without (e.g., a bank account, I disclose the number, despite my misgivings about the SSN being a "Swiss Army knife" for identity thieves.

Imagine my surprise when I learned last week that Bank of America has unveiled an ambitious marketing program in southern California to enroll Spanish-speaking immigrants as customers—no SSN required. Apparently, the bank is seeking to attract applications from illegal immigrants, most of whom are Spanish speaking and also lack SSNs.

How is this possible? I went to the Code of Federal Regulations and looked up 31 CFR 103.34; the regulation the banks trot out when I've asked for their authority to require a SSN. But, what the regulation says is that a bank or other financial institution must request your SSN when you open an account. If you won't provide it, or don't have one, the bank has to maintain your name on a list that it must make available, on request, to the IRS.

My suspicion is that most banks don't know this exception to the "no account without SSN" rule exists, especially the rank-and-file employees who deal with the public. But nonetheless, it does. Indeed, you can even open an interest-bearing account. When the bank sends you a Form 1099 reporting the interest your account has earned, it isn't required to list your SSN (see Sec. 6049 of the Internal Revenue Code). However, when the bank transmits the Form 1099 to the IRS, the person forwarding the information must sign an affidavit attesting that the SSN was requested, but not provided.

That's it. I suspect that most banks tell their customers the SSN is "mandatory" because they don't want to deal with the extra paperwork, particularly for interest-bearing accounts.

But lots of people don’t have SSNs, as Bank of America has discovered, and millions of more who do would prefer not to disclose it. And it's perfectly legal not to.

What might you say if a bank or other financial institution refuses to open an account without a SSN?  You might tell them that you have a deeply held religious belief that the SSN is a stepping-stone to the "mark of the beast" described in the Bible, in Revelations Chapter 13, verses 16-17. Should the bank refuse, you might casually mention to them that they might wish to reconsider, based on the great success Bank of America is having with their program (recently expanded from five to 51 branches in southern California).

Now, you want to do this all very respectfully, and provide sufficient documentation to prove you're who you say you are--even if banks aren't required to have your SSN on file, they must verify your identity.  Further, you should open only a small account--certainly well under $5,000—to avoid the bank believing it has a legal duty to file a "Suspicious Activity Report" (SAR) documenting your refusal to provide a SSN. Further, it's possible that being on a list of people who have refused to provide a SSN when opening a bank account might increase the odds of a tax audit.

However, if you're sick and tired of being tracked by your SSN, or do have a religious objection to disclosing it, this strategy might be worth trying. And if it doesn't work….

I don't like lawsuits, but it would be interesting to see the reaction if you tell a bank officer that if it refuses to open an account without a SSN, you will sue them for violating Title VII of the Civil Rights Act due to discrimination based upon your deeply held religious beliefs.

Happy hunting, and good luck!

How an Identity Thief Could Steal Your Home

Be very thankful you're not Susan Lawrence of Toronto, Ontario.

Lawrence, a Toronto widow, had the house she had lived in for 28 years stolen from her in November 2005. Someone using her identity transferred ownership of the property to another person, who applied for and obtained a mortgage of C$291,924, then disappeared.

When Mrs. Lawrence refused to make payments on the spurious mortgage, the mortgage company, Maple Trust Co., tried to evict her from her home. Spending her meager savings, she hired an attorney and appealed. But the mortgage company fought her, and incredibly, it prevailed both in a Superior Court decision and on appeal to the Ontario Court of Appeal.

However, Mrs. Lawrence's outcome is a happy one, sort of. In an unusual declaration, n February 2007, the Court of Appeal reversed its original decision. Mrs. Lawrence can stay in her home, although the outcome is hardly ideal since no one will reimburse her legal costs or the intangible anguish she went through trying to recover her own home.

Could something similar occur in the United States? It's certainly possible, although I haven't heard of any "horror stories" like this one.

What could Mrs. Lawrence done to protect herself? Not much, because property records in Canada, as in the United States, are open to inspection by anyone. And if those records—or other public records—contain sufficient personal information for someone to impersonate you, they just might be able to steal your own home from you!

Obviously, a heavily-mortgaged home would be less attractive to an identity thief than one that isn't—although if you own your home free and clear, I don't recommend running out to mortgage it simply to protect it from identity theft.

A better idea might be to have someone you know, with your approval, record a small lien against the property. Such a "friendly lien" won't be effective for asset protection purposes, but if it's ever paid off by someone other than you, and you're notified of it, you'll know something is probably amiss with the title to your home. To be effective, the lien must be recorded in your county's public records to provide official notice that an "encumbrance" exists on your property that must be paid off before it's sold.

That said, it's not likely that an identity thief will try to steal your home. But better safe than sorry.

Expat Tax—Not?

Several weeks ago, I wrote about a proposal in the "Small Business and Work Opportunity Act" to impose an exit tax on U.S. persons for "tax-motivated" reasons. You can read about it here.

In brief, the proposal would require such former U.S. citizens to pay a tax on all unrealized gains of their worldwide estate. The gains will be assessed based on the fair market value of the assets and the tax due within 90 days of expatriation.

There's actually a bit of good news: Congressional wrangling may make this outrageous idea a non-starter.

The quarreling has nothing to do with the expat tax, which is buried deep in the bowels of the legislation. Rather, it has to do with the main revenue-raising provisions of the bill—of which the expat tax isn't one. (Indeed, the total revenue raised by the exit tax was in 2006 estimated to be US$251 million over five years, a pittance in Washington, D.C.)

Last week, the stalemate continued in a House Ways and Means Committee hearing. Chairman Charles Rangel, D-N.Y., indicated that there are no signs of when, or even if, a conference committee between the Senate and House will try to work out a compromise.

The details of the disagreement aren't important for the purposes of this discussion (although you can read about them here). What is important is that it's beginning to look as if the anti-expat provisions might not be enacted into law in 2007. That means if you're seriously considering expatriation, you might be able to rely on the somewhat less severe rules enacted in 2004, which I describe in my Billionaire's Loophole report.

In brief, the 2004 rules require that persons giving up U.S. citizenship or long-term residence after June 3, 2004 are deemed to do so for tax avoidance purposes if they have assets of more than US$2 million or paid more than US$620,000 in federal income taxes over the five years before expatriation.  The primary consequence of a "tax avoidance purpose" is that you're subject to income taxes for 10 years after expatriation, although for the most part, only on U.S.-source income.

We'll see what transpires in Congress. Personally, I hope that they continue their "Rangling."

A Better Way to Fight the War on Terror

I have two major problems with the so-called "War on Terror.

The first problem is a semantic one: terrorism has long been a politically charged term that is used to identify the enemy du jour. In the 1770s, the British accused American revolutionaries of terrorist acts against the Crown.

The victors in any conflict write the history books, as Winston Churchill aptly observed, and it is therefore little surprise that these acts received very little attention in historical accounts of the American Revolution. Nor do the history books use the word "terrorism" to describe the U.S. and British tactic in World War II of deliberately firebombing German and Japanese cities, resulting in the death of more than 1 million non-combatants.

In the political lexicon, terrorists can also become freedom fighters, almost overnight. Such was the case of Nelson Mandela, labeled a terrorist for his involvement in the battle against apartheid in South Africa, but more recently the winner of the Nobel Peace Prize.

Freedom fighters can become terrorists as well. In the 1980s, Saddam Hussein was one of America's closest allies in the Mideast; an essential bulwark against "terrorist" Iran. Yet, in 2003, one of President Bush's chief justifications for the second U.S. invasion of Iraq was that Saddam was harboring "terrorists."

A second problem is when the politically charged language of terrorism is used to justify a legislative or political agenda, such as the "War on Terror." This is how horrendous laws such as the USA PATRIOT Act and the Military Commissions Act became came into effect, because their sponsors convinced the American people that they would be effective at "fighting terrorism."

Nor is the United States the only country to misuse the word terrorism for political purposes. Within a few months of the attacks of Sept. 11, 2001, China amended its criminal code to define long-time opposition groups as "terrorists." Similarly, Russia calls Chechen separatists terrorists, and has convinced its population that a horrendous invasion of Chechnya to "end terrorism" was necessary.

Calling someone you oppose politically a "terrorist" is a great way to solidify political support. Conversely, standing up to political pressure to dismantle civil liberties, expand surveillance or take other supposedly expedient measures to fight terrorism is, naturally, labeled as being "soft on terrorism."

However, I'm gratified that in one country—Canada—a consensus has developed to soften the rhetoric and end the political brinksmanship that the War on Terror has spawned.

First, on February 23, the Supreme Court of Canada unanimously struck down the "security certificate" system used by the federal government to detain foreign-born terrorist suspects indefinitely. Under this system, there's is no requirement that the detainees be charged with a crime, nor an opportunity for them to challenge their detention in court. Detainees can also be deported, again without any hearing.

Second, on February 28, the Canadian House of Commons voted to allow two controversial measures in the federal Anti-Terrorism Act to lapse without being renewed. The combined opposition defeated a Conservative minority government motion that would have renewed the extraordinary legal powers of authorities to detain and interrogate terrorism suspects.

In the wake of the Canadian Supreme Court decision, these provisions had already been declared unconstitutional. Clearly, the law had to be rewritten. Still, that didn't stop Canadian Prime Minister Stephen Harper from calling opponents of the Act's renewal “soft on terrorism.”

Soft on terrorism or not, the House of Commons did the right thing. If there is even such a thing as a "War on Terror," it must be fought without adopting the tactics of the terrorists. Otherwise, what principle are we fighting for?

So Many Privacy Invasions, It's Easy to Miss Big Brother, Personified

I've been writing about privacy issues for more than 20 years. And while I consider myself fairly well informed when it comes to this topic, I have to admit that right now, I'm completely overwhelmed.

There are so many controversial, secret and/or illegal privacy invading activities being carried out by the Bush administration that I literally can't keep track of them all.

Just since the Jan. 1, 2007—only nine weeks ago—the following scandals have hit the headlines:

• Internet spying. The FBI admitted that it was literally scooping in data on hundreds of thousands Internet users' browsing habits, e-mail correspondence and newsgroup subscriptions simultaneously, using sophisticated data mining techniques to analyze it, possibly in violation of federal law. I wrote about it here.
• More Internet spying.  The Bush administration proposed that Internet service providers (ISPs) be forced to save records of what Web sites you view, the names of people you send and receive e-mail to, along with records of who you've "chatted" with online—for at least a year—perhaps longer. Read more here.
• Lifetime travel dossier. The Department of Homeland Security proposed a database that would contain a "lifetime personal travel history" of visitors to the United States as well as lawful permanent residents ("green card" holders).  Your photograph, your fingerprints, and details of each entry, exit or transit would be part of your dossier in a “biographic and biometric travel history database.” Naturally, the system could be extended to U.S. citizens anytime—as it will be to "deter terrorism." I wrote about it here.
• Eavesdropping operation court-reviewed—or not? In an apparent victory for telephone privacy, Attorney General Alberto Gonzales announced that the Bush administration had suspended longstanding policy of initiating national security related wiretaps through secret executive orders, rather than through the courts, as black-letter law requires. However, Gonzales refused to confirm whether the court that authorizes such wiretaps—the Foreign Intelligence Surveillance Court—was issuing a warrant in each case or rather had given blanket approval to the program—essentially a case of the courts capitulating to an imperial presidency. Read more about it here.
• National ID card alive and well.  Another apparent victory for privacy came on March 2, when the Department of Homeland Security delayed until 2013 the deadline states have to comply with the provisions of the "Real ID Act." This law creates a national ID card through the back door by requiring state driver's licenses to contain standardized information that is machine-readable and linked to a central database maintained by the federal government. Some victory: as before, if you don't have a "compliant" driver's license by that date, you won't be able to be admitted to any "federal facility," including airports, government offices, etc.  Here's what I wrote it previously.
• Mail opening without a warrant.  Through a "signing statement" that overruled the explicit terms of a law he signed providing greater privacy for postal mail, President Bush quietly asserted a government prerogative to open domestic mail without a warrant, probable cause, or even suspicion that it contains dangerous materials or contraband. Bush has issued at least 750 signing statements during his presidency, more than all other presidents combined. Read more here.

Given this onslaught of outrageous abuses of privacy, I hope you'll forgive me for not mentioning until now the most shocking privacy invasion of all. It's a new "profiling" program from the DHS that attempts to spot terrorists by "data mining" vast amounts of information. It's called ADVISE, and I didn't pay much attention to it because it seemed to resemble so many other data mining programs being carried on by various government agencies.

On closer examination, though, ADVISE is hugely important, because there don't appear to be any limits at all on the information to which the system has access. Simply put, ADVISE is the epitome of "Big Brother." Everything about you—your bank records, travel records, Internet browsing records, information you've posted on the Internet, articles about you in the media, you name it—will become grist for an enormous database designed to weed out terrorists.

It's quite clear that ADVISE will catch few, if any terrorists. Data mining simply doesn't work for this purpose because there are too few terrorists and too many non-terrorists. Even the best data mining software with as wide a sweep as ADVISE apparently has will identify hundreds if not thousands of innocent people as terrorist suspects for every actual terrorist it uncovers. (Read why here.) But what ADVISE and similar systems are good at is identifying large numbers of people who share common characteristics—such as opposition to whatever despotic regime happens to hold the U.S. presidency.

No one's talking about this—instead, the controversy seems to be revolving around whether ADVISE was using "live" data on real people instead of sanitized data that stripped out identifying characteristics.

Yes, it's bad if ADVISE was analyzing live data. But that misses the point. How many examples need to be cited to prove the point that "absolute power corrupts absolutely" before Americans begin to understand that there is a tradeoff between freedom and security? Programs such as ADVISE prove that freedom is losing badly. Very badly.