Asset Protection BLOG - Mark Nestmann

Think Encryption Can Protect Your PC's Secrets? Think Again…

One of the best ways to protect the data on your home or office PC, and—especially—your laptop is to encrypt it.

Encryption is a mathematical process that converts your e-mail messages, your disk files, or even your entire hard drive into unreadable gibberish.  Only you—and the intended recipients of your encrypted messages—can decipher the gibberish.

Encryption programs are now available that even the super-computers used by national intelligence agencies cannot decipher messages created with them, at least not without an exhaustive effort.

Unfortunately, recent discoveries by computer security researchers have uncovered a fundamental vulnerability in several popular disk encryption technologies.  This vulnerability can leave your encrypted data vulnerable to attack and exposure.  Basically, what it involves is harvesting your encryption keys from your PC's memory chips, even if your system is turned off.

In a paper published last week, security researchers affiliated with Princeton University announced they had discovered a way to do this, and thus circumventing various disk encryption products.  The researchers say their technique works against Apple's FileVault, the BitLocker Drive Encryption feature included in some versions of Windows Vista, the open-source product TrueCrypt, and the dm-crypt subsystem built into newer versions of Linux.  In theory, the attack would also work against my #1 recommended encryption program—PGP Whole Disk Encryption. 

To succeed in what the researchers call the “Cold Boot Attack,” an attacker must have physical access to your PC or laptop while it is running or within a few minutes of shutting down.  The Princeton researchers discovered that it takes a few minutes after you shut off your PC before the data in your PC's RAM chips is actually gone.  During this period, any information remaining in RAM—including your encryption keys and passphrases—may be recovered.

Once upon a time, computer hardware manufacturers assured us that once you turned your PC off, all the data in its memory (RAM) instantly disappeared.  Only, it turns out this isn't true. 

Here's an example of how your data might be compromised.  You're on a flight from London to New York.  Just before landing, you turn off your laptop, taking care to insure that all your confidential data is encrypted.  You're extra careful, since you know that U.S. customs officials now have the authority to confiscate laptops without probable cause of any wrongdoing.  Once they've done so, they can copy the contents, and use that information for whatever purpose they see fit. 

You enter the customs queue and you're pulled aside for a secondary inspection.  The customs agent asks to see your laptop.  He inserts a USB drive into it and turns on the power.  Software on the USB drive identifies the encryption keys and reconstructs them, along with your passphrase.  Now the agent can read every encrypted file on your laptop. 

I should emphasize that this is a hardware issue—it has nothing to do with the strength or weakness of encryption programs.  But it means that an attacker could compromise all encrypted data on your PC, even if it's turned off!

Fortunately, there are several precautions you can take to avoid having your data compromised in this manner.  I'll describe them in my next blog entry.

Copyright © 2008 by Mark Nestmann

Oh Where, Oh Where Has My Laptop Gone?

Your laptop PC may be the most dangerous item you own.

Laptops are a magnet for thieves, because they can easily be sold to pawnbrokers or others.  But it's the data on your laptop that can be truly devastating in the wrong hands.

In 2006, thieves broke into the home of a contractor for the Veterans' Administration, and stole a laptop containing identifying data on 26.5 million veterans.  The information included name, address, and Social Security numbers—more than sufficient data to carry out a massive identity theft. 

If your company has a new invention, a patent application in process, or other potentially profitable developments underway, it's perfectly understandable that your competitors might be interested in knowing about it.  And what better way to learn more than to peek at the files on your laptop?

Laptop thefts are also increasingly common.  In 2004 (the latest statistics I could find), more than 600,000 laptops were stolen worldwide. 

What's more, when you take your laptop across a U.S. border, customs officials have the right to copy all of the data on it and use it for whatever purpose they wish.  There's no warrant, no probable cause, no arrest—just "gimme." 

How can you protect yourself?  I recommend the following strategies:

* Keep confidential information on an encrypted USB stick—not on the laptop itself. When you've finished using your laptop, turn it off, then put the USB stick in a safe place—your pocket, your key ring, or even on a chain around your neck.  That way, if someone steals your laptop, your data will still be with you.  A good program that supports USB encryption is Pretty Good Privacy Whole Disk Encryption (http://www.pgp.com). 

* Encrypt your laptop's hard drive.  The PGP Whole Disk Encryption suite, along with several other program, can encrypt your entire hard drive.  If someone manages to steal your laptop, the thief won't be able to even boot up the hard disk.  Your data—along with information on your Web browsing habits and other data stored in various locations on your hard drive—is completely secure.

Encryption, though, isn't foolproof.  Last week, researchers found a major security flaw in several popular disk encryption systems that can leave encrypted data vulnerable to exposure.  Laptops are particularly vulnerable. 

More in my next blog entry…

Click here to learn hundreds more ways to protect your privacy and wealth.

Copyright © 2008 by Mark Nestmann

How U.S. Taxpayers Can Safely Purchase Offshore Funds

If you're a citizen or resident of the United States, it's a challenge to purchase many of the tens of thousands of offshore mutual funds traded worldwide—at least not without highly unfavorable tax consequences. 

This is a consequence of the "passive foreign investment company" (PFIC) provisions of the U.S. Tax Code, which I described in my most recent blog entry.

Fortunately, several "safe harbors" exist on which you can rely on to avoid the PFIC rules.

For many U.S. investors, the most practical way to purchase offshore funds is to rely on the Treasury's "mark-to-market" rules to calculate your gains (or losses) in offshore funds.  Under these rules, U.S. investors pay tax at ordinary income tax rates on income or gain from the fund each year. 

Unfortunately,these rules apply only to publicly traded offshore funds listed on a "qualifying" securities exchange.  A long list of additional requirements must be met for these rules to apply, and no official list of approved countries or exchanges exists.  However, many offshore funds traded on major securities exchanges appear to qualify.   

Again, the mark-to-market rules apply only to publicly traded offshore funds.  If you want to purchase offshore funds that aren't publicly traded, without unfavorable tax consequences, there are only three practical alternatives for doing so:

1. Purchase the offshore through your IRA or other type of pension plan. Income or gain within a tax-deferred retirement plan isn't taxed until it's paid out.  When you receive it, it's taxed as ordinary income.  There's no provision in the U.S. Tax Code for income or gain from offshore funds to be taxed any differently.  This offers a convenient and relatively simple way to avoid the PFIC rules. 

2. Purchase offshore funds through an offshore variable annuity. Under U.S. tax law, a variable annuity serves as a tax-deferred "wrapper" for an underlying investment account.  Income or gain in the account isn't taxed until it's actually distributed to the beneficiary.  Again, there's nothing in the Tax Code subjecting offshore funds held within a variable annuity to a different standard.   As with any other investment wrapped in a tax-qualified variable annuity, income or gains from offshore funds is tax-deferred until you receive it, without the PFIC interest charges. 

You should be prepared to invest at least US$100,000 in a variable annuity to make this strategy worthwhile.  Some offshore insurance companies may be willing to issue an annuity for a smaller investment.  Due to state and federal insurance licensing and securities laws, you may need to travel to the country where the annuity contract is issued to put it into force.

3. Purchase offshore funds through a variable offshore life insurance policy.  A life insurance policy provides the advantages of a variable annuity and more: the death benefit received by beneficiaries is not subject to income tax.  The policy can be structured to make the death benefit free of estate and generation-skipping taxes as well. 

This is a more complex strategy that requires substantial customization according to your individual requirements.  For that reason, you should expect to invest a minimum of US$500,000 to make it worthwhile.  Some offshore insurance companies may have lower minimums.  Again, you may need to sign the insurance contract in the country where it's put into force.

WARNING: For a foreign variable annuity or life insurance contract to be "qualified" for U.S. tax purposes, stringent IRS requirements must be followed.  You as the U.S. policyholder may not make investment decisions, although you can make a non-binding request to appoint a particular investment advisor or follow a particular investment strategy.  Consult with a qualified international tax advisor to confirm that any policy offered by an offshore insurance company is U.S. tax compliant.

If you're interested in implementing one or more of these strategies, please contact The Nestmann Group at info@nestmann.com for more information.  We can assist U.S. persons in setting up tax-compliant offshore structures to purchase offshore funds and other international investments. 

Copyright © 2008 by Mark Nestmann

U.S. Taxpayers: Beware Holding Offshore Funds in an Offshore Trust

One of the most unfair and insidious parts of the U.S. Tax Code is Section 1291-1297, which deals with the taxation of offshore mutual funds.

Naturally, the Treasury doesn't call offshore funds "offshore funds."  That would be too simple.  Instead, it calls them "passive foreign investment companies" (PFICs).

For purchases of U.S. mutual funds, the IRS receives a report of income or gain on Form 1099.  Since offshore funds don't file Form 1099, the IRS requires investors to determine their share of the income and pay tax on it. 

That's often impossible for an investor to do.  And if you can't make the necessary calculations, using IRS-approved methods, the IRS imposes punitive taxes and interest payments on whatever taxes you defer.  The details of the calculations are complex, but the result is that for offshore funds held for many years, the tax and interest due can easily exceed the total gain.  However, the law provides that the tax and interest charge shall not exceed the amount of the distribution.  (Gee, thanks IRS!)

Some U.S. investors have tried to avoid these rules by purchasing offshore funds through an offshore trust.  I recommend to my clients that they NOT do so, unless they receive enough information from the fund to use the IRS-approved methods to calculate their gains. 

This recommendation stems from the fact that under the U.S. grantor trust rules (I.R.C. 691-697), income or gain received by a foreign trust is treated as if was received by the grantor (the person who funded the trust).  Since most offshore trusts funded by U.S. persons are taxed as grantor trusts, most of the time, they shouldn't own offshore funds.

Now, the IRS has published an even more extreme interpretation of the PFIC rules.  In a recently released Technical Advice Memorandum (TAM #200733024), it declared that U.S. beneficiaries of a foreign trust are subject to the PFIC rules as well, even when non-U.S. persons established and funded the trust. 

In this case, the foreign trust, established in 1981, five years before the PFIC rules came into effect, owned a foreign corporation (holding company).  The holding company in turn owned the stock of some other foreign corporations. 

The IRS held that the holding company was a PFIC.  When it was liquidated and its assets transferred to the foreign trust, the IRS ruled that it was a taxable event under the PFIC "excess distribution" rules.  This subjected the U.S. beneficiaries not only to tax on the excess distribution, but to interest charges going back 12 years. 

This result doesn't seem to be fair—or in accordance with the rules for this type of trust (called a foreign non-grantor trust).  The beneficiaries may well appeal the ruling.  But it illustrates the extreme dangers of holding offshore funds in an offshore trust without a thorough analysis of the possible tax consequences. 

In my next blog entry, I'll describe a few ways U.S. taxpayers can purchase offshore funds, without worrying about the PFIC rules.

(Thanks to CPA Vern Jacobs for bringing this Technical Advice Memorandum to my attention in the International Wealth Protection Monitor. Link: http://www.offshorepress.com.)

Copyright © 2008 by Mark Nestmann

Offshore Annuities and Life Insurance: Four Key Advantages

Variable annuities and life insurance have a reputation as pretty boring investments.  Yet, they're some of the most flexible contracts available to achieve tax deferral, asset protection, and a degree of financial privacy.  That's especially true if you purchase an OFFSHORE life insurance policy or variable annuity.

Almost every state protects the death benefit of a life insurance policy or payments from an annuity from creditors.  However, the cash value of a life insurance policy may or may not be exempt.  And for distributions from an annuity to be protected, they must be payable to someone other than the contract owner; e.g., your spouse or partner.  Even if a creditor can't get at the money you have in an annuity during the deferral period, it may be able to attach the payments, once they begin. 

State-law protections may not extend to alimony or child support, criminal fines, punitive damages, or federal tax claims, among other possible exemptions. 

A key advantage of purchasing an offshore variable annuity or life insurance contract is that foreign law governs the contract.  By selecting the appropriate jurisdiction, you can achieve a much higher degree of asset protection.  Indeed, in a suitable jurisdiction such as Switzerland, Liechtenstein, or Nevis, an offshore variable annuity or life insurance contract can offer asset protection comparable to that of an offshore trust. 

Offshore variable annuities and life insurance contracts provide numerous other advantages:

• Significantly increased privacy in comparison to domestic annuities;
• Tax-deferred access to offshore securities markets, including hedge funds and other offshore funds;
• Avoidance of possible foreign exchange controls; and
• Tax planning for U.S. citizens or long-term residents considering expatriation.

Numerous offshore commercial insurance companies offer variable annuities and life insurance policies to U.S. clients.  However, if you have a significant amount of wealth to protect, you can create your own private offshore variable annuity and life insurance company.  One way to accomplish this is through a structure called an "International Deferred Private Variable Annuity" (IDPVA). 

Your IPDVA is custom tailored to your needs.  It can stand alone to accumulate tax-deferred income, and provide asset protection and financial privacy for years to come.  It can also capitalize an insurance company that, properly configured, can insure that the assets in the structure pass to your beneficiaries free of estate tax. 

There are many other possibilities.  An IDPVA can also serve as the centerpiece of a tax-deferred international structure.  For instance, it can purchase your domestic or foreign business.  The result: once properly structured, formerly taxable assets grow tax-deferred, for years, if not decades.

Your IDPVA can also capitalize an offshore intellectual property and critical information (IPCI) company.  The IPCI company purchases intellectual property and licenses it back out.  This structure can handle international licenses for copyrights, trademarks, patents, public appearances, etc.  This is a cost-effective solution for licensing intellectual property abroad and deferring tax on the income.

An IDPVA can be cost effective if you have US$250,000 or more to protect.  Costs start around US$50,000, including all supporting structures, agreements, and contracts.  Operating costs are 1%-3% of the funds under management annually, including compliance with IRS reporting requirements, structure fees, and investment management fees.

Private annuity and in particular IDPVA arrangements must in all cases be custom-tailored under the supervision of a qualified tax attorney.  Contact The Nestmann Group, Ltd. at info@nestmann.com for more information.

Note: The term "International Deferred Private Variable Annuity" and abbreviation "IDPVA" are registered trademarks.

Copyright © 2008 by Mark Nestmann

Backbone, at Last

It's about time.  The U.S. Congress finally mustered the political courage to slow down the War on Terror' stampede on civil liberties.

By failing to re-authorize the so-called "Protect America Act," Congress reinstated a deeply flawed legal framework for warrantless surveillance.  Nonetheless, that framework is preferable to that developed by the Bush administration under this act, which expired on Feb. 16, 2008.

In the Protect America Act, enacted Aug. 6, 2007, Congress authorized the Bush administration to continue two electronic surveillance initiatives it authorized under a 2001 executive order:

• Warrantless wiretaps of conversations originating in, or terminating in, the United States, of individuals allegedly connected to terrorist groups; and
• With the cooperation of U.S. telecommunications companies, warrantless mining of data streams to analyze transactional records of telephone and Internet traffic in search of patterns that might point to terrorist suspects.

Despite the "terrorist" appellation, these initiatives weren't limited to terrorist-related intelligence gathering.  Any activity, terrorist-related or not, was fair game if deemed of interest to intelligence officials.  Vice-President Dick Cheney, for instance, apparently used Bush's 2001 executive order to eavesdrop on members of his staff he suspected of talking to the press without advance authorization.

The Protect America Act bypassed a legal procedure set up 30 years ago to review applications for national security and intelligence-related electronic surveillance.  Under the 1978 Foreign Intelligence Surveillance Act (FISA), a secret federal court must review any application for electronic surveillance that has a "substantial likelihood" of monitoring the communications of a U.S. resident.

But with the Protect America Act, the definition of "electronic surveillance" subject to FISA become much narrower, in effect, legalizing the Bush administration initiatives.  What's more, the FISA court played a much smaller role.  Rather than a court, the act gave the attorney general—a political appointee—the responsibility to authorize FISA-related surveillance requests.  The court merely reviewed surveillance already under way. 

The Protect America Act also directed telecommunications companies to assist the government in implementing the Bush surveillance initiatives.  In addition, it protected those companies from private lawsuits for alleged violations of FISA.  Dozens of such lawsuits have been filed.

Despite warnings from the Bush administration of possibly grave consequences if the Protect America Act ever expired, Congress thankfully set a time limit on this authority—February 16, 2008. 

That supposedly would give legislators enough time to come up with a framework that would give back the FISA court some of its oversight.  In exchange, Congress would presumably permanently legalize the Bush surveillance initiatives.

The Bush administration, however, wanted more.  It also demanded that telecom companies receive retroactive legal immunity for their participation in illegal surveillance prior to enactment of the Protect America Act. 

Last week, the Senate caved in to Bush, and included telecom immunity in its amendments to FISA.  However, the House didn't go along.  It adjourned for three weeks on Feb. 16 without renewing the Protect America Act.  In the process, it delivered a rare respite to greater privacy intrusions in the never-ending War on Terror.

This certainly isn't the last word, but as it stands now, the FISA court must once again approve any new applications for electronic surveillance under the "substantial likelihood" standard. 

Despite my grave misgivings about the entire procedure being shrouded in secrecy, and with near-total lack of accountability, this procedure is far preferable to placing the final decision in the hands of the attorney general.  It's hard to forget that only a few months ago, the now thankfully departed Alberto Gonzales occupied this post.

What's more, even though Congress didn't cave in to the Bush administration, the world didn't end on Feb. 16.  No mushroom clouds appeared over Washington, D.C., or New York City.  Now that Congress has displayed a little backbone in defending civil liberties, it will hopefully have the courage to do so again. 

Copyright © 2008 by Mark Nestmann

Welcome to "Ueberveillance"

Since the events of Sept. 11, 2001, U.S. citizens, along with just about everyone else, have become accustomed to greatly increased surveillance of their travel habits, their financial affairs, and their communications. 

But that's only the beginning of what our political leaders have planned for us.  In the name of the "War on Terror," we have entered what Michael G. Michael, a theologian and technology historian in Australia, calls "ueberveillance."  (The word "ueber" means "over" or "super" in German).

In the world of ueberveillance, you're subject to continuous monitoring, from the moment you awake until the moment you go to sleep. 

Let's say you live in the United States, home to some of the world's most pervasive surveillance.  You awake and turn on your PC to read the news and check your e-mail.  Under the "Protect America Act," the entire data stream from your online session is sent to the super-secret National Security Administration for analysis.  Should something you've done prove suspicious, your online session is available for police to examine, without a warrant.  This is courtesy of the "National Security Letter" provisions of the USA PATRIOT Act.

Once you've caught up with the news, you emerge from your flat.  Almost instantly, a closed circuit television (CCTV) camera captures your image.  Face recognition software immediately identifies it.  As you walk to your train station, successive CCTV cameras record your progress. 

Walking by a bank, you withdraw $100 from an ATM.  Fortunately, the amount you've withdrawn is within your financial profile, so there's no need for the bank to notify police of "suspicious activity" in your account.  If you had tried to withdraw over $1,000, however, an alarm would have been triggered.  Your entire account would have been frozen pending an investigation.  Naturally, your banker isn't allowed to inform you of this.  You're not supposed to know.

On the train, commuting to your job, CCTV cameras monitor your every movement.  When you emerge from the station, more CCTV cameras track you as you walk 100 yards or so from the subway station to your office. 

You arrive at the office and log in to your workstation.  Naturally, your employer records everything you do online to insure that you're not violating any policies.  Such monitoring is completely legal under U.S. law.

At lunch, you emerge from the office and walk to a nearby deli for a sandwich.  The clerk doesn't have change for a $20, so you pay with a credit card.  Naturally, your credit card records are also available for warrantless inspection by police, once again courtesy of the USA PATRIOT Act. 

In the afternoon, have an appointment to visit your doctor.  When you arrive, you sign a piece of paper called a "HIPPA Disclosure Notice."  It gives your doctor permission to provide your medical records to your insurance company for billing purposes.  What the notice doesn't mention is that your signature also provides permission for your doctor to provide government agencies, direct mail marketers, and law enforcement agencies access to your confidential medical records.  And doctors' hands are tied—they must turn over your records on request, or face sanctions. 

Emerging from your doctor's office, you stop at a grocery store.  To save money, you pay for your groceries using a "shopper's card."  Unfortunately, you didn't bother to read the "fine print" when you applied for the card, which gives the supermarket the right to use your purchase data for any purpose they see fit.  For instance, if you slip and fall in the store, and sue, the supermarket could use the fact that you'd purchased liquor there as evidence that you were likely intoxicated when you injured yourself.

Fortunately, no accidents occur in the store.  You walk out and are promptly picked up by yet another CCTV camera.  Returning home, you mix a cocktail and log in to your PC to read your personal e-mail.  Which, naturally, is no less monitored than it was that morning.

Welcome to the world of ueberveillance.  And be ready for more to come in the years ahead.

Don't like being monitored?  Be sure to read my next blog entry to learn steps you can take to reduce, if not eliminate, many forms of surveillance.

Copyright © 2008 by Mark Nestmann

You Can Protect Yourself from Identity Theft—Here's How!

In yesterday's blog entry, I described the rapidly increasing risk that identity theft poses to every American.

Fortunately, you can take a simple and nearly foolproof precaution that will virtually guarantee that you won't become a victim.  It takes about 15 minutes to implement this recommendation.  Just don't count on credit bureaus, banks, or merchants to tell you about it though, for reasons I'll describe in a moment.

What you need to do is to place a "credit freeze" on your credit file.  A credit freeze, in effect, places an electronic padlock on your credit report.  No one can review your credit report until you remove the padlock.  And if a company can't review your credit report, it's very unlikely to issue you (or an impostor) credit. 

The best news: all three major credit bureaus now offer credit freezes to anyone who requests it! The service is often free, although in some states, you will need to pay a nominal fee (normally, $10).

To freeze your credit file, send a letter via certified mail to the following addresses:

• Experian Security Freeze, P.O. Box 9554, Allen, TX 75013
• Equifax Security Freeze, P.O. Box 105788, Atlanta, GA 30348
• Trans Union Consumer Protection Center, P.O Box 6790, Fullerton CA 92634

The letter should state your full name, address, Social Security number, and that you wish to place a "security freeze" on your credit file.  (Credit bureaus don't use the phrase "credit freeze," although that's what it is.)  In addition, enclose a copy of a government issued identification card, such as a driver’s license, state or military ID card, etc., and one copy of a utility bill, bank or insurance statement, etc.

For specific requirements from each credit bureau, see the following links:

http://www.experian.com/consumer/security_freeze.html
http://www.transunion.com/corporate/personal/fraudIdentityTheft/preventing/securityFreeze.page
http://www.equifax.com/cs/Satellite?c=EFX_ContentRoot&cid=1165203975981&pagename=5-1%2F5-1_Layout

Why aren't credit bureaus, banks, and merchants shouting from the rooftops the benefits of a credit freeze?  The reason is simple.  Anyone who places an "electronic padlock" on their credit file won't be able to make an impulse purchase by obtaining "instant credit" at an electronics store, car dealership, etc. 

Impulse buyers are the most lucrative prospects of all for any retailer, because they want to buy "now," and aren't that concerned about price.  Sales personnel are trained to say something like, "Don't worry about what it costs—you won't need to make any payments until next year!"

With a credit freeze in effect, you won't be able to make an impulse purchase.  Instead, you'll need to contact the credit bureau to remove the padlock from your credit file.  This costs $10 and a few minutes of your time online or over the phone. 

The biggest practical drawback to a credit freeze is that an increasing number of companies demand access to credit reports to establish service.  For instance, you may find banks, phone companies, landlords, and even your employer want access to your credit report when you set up service or open an account.  On the other hand, companies that have an existing relationship with you can continue to access your credit file, even with a credit freeze in effect.

In addition, if you're planning a major purchase—buying a home, for instance—and require financing for that purchase, you'll want to remove the credit freeze from your credit file. 

Is giving up the ability to purchase a big-ticket item with "instant credit" worth virtual total protection from identity theft?  Only you can answer that question, but for me, the choice is clear:

"Freeze me!"

For hundreds more suggestions on how to protect your privacy and wealth, click here.

Copyright © 2008 by Mark Nestmann

2007: Another Record Year for Identity Theft

It's a piece of cake for someone to steal your identity. And if they do, you can count on spending countless hours dealing with police, credit bureaus, and banks to "prove" you didn't cause the fraud. 

You might even face arrest if police believe that you, rather than the actual identity thief, is perpetrating a fraud against a credit card company, merchant, or bank.

All that person needs to do is to get hold of your Social Security number, or a similar identifying number such as your driver's license number or military ID.  Armed with this data, an identity thief can find your name, birthday, and other identifying information.  That's enough for the thief to apply for a credit card and start making purchases using your identity.

If your personal data was well guarded by those who maintain it, identity theft wouldn't be so easy.  But,  it's not.  For instance, the U.S. Government Accountability Office (GAO) reported in 2006 that state agencies in 41 states and the District of Columbia display SSNs in at least one type of public record.  Most often, they appear in state and local court files and local property-ownership records.

Increasingly, these records are also placed on the Internet.  And, not surprisingly, research has found that identity thieves regularly visit these Web sites to harvest SSNs.

At the same time, merchants and government agencies that demand personal identifying data don't bother to safeguard it. 

For instance, beginning in 2006, hackers managed to steal nearly 100 million customer records from retail giant TJX, the owner of T.J.Maxx, Marshalls and Bob's Stores.  The hackers gained access through a poorly secured wireless network that managed the cash registers and terminals.  Fraud losses to banks and other institutions that issued credit cards to identity thieves who harvested TJX data is now approaching US$100 million, and it's still climbing. 

As for the government "safeguarding" your identifying data, we need go no further than the Veteran's Administration, which uses the SSN as its default ID number for millions of soldiers and patients in its hospital network.  In 2006, a VA contractor took home computer disks containing personal records on more than 26.5 million current and former members of the U.S. military.  Thieves broke into his home and stole the disks.  None of the data was encrypted.

The results are grim.  In 2005, security breaches exposed more than 55 million Americans to identity theft.  By 2007, that number more than doubled: last year, 128 million people in the United States had personal data exposed, according to research from the Identity Theft Resource Center.

Identity theft is a plague, and it's spreading.  However, you don't need to wait to be a victim.  Tomorrow, I'll reveal the single most important precaution you can take to prevent identity theft, along with suggestions about what to do if you've been a victim of this fast-growing crime.

Copyright © 2008 by Mark Nestmann

How to Spot a Passport Scam [Part II]

In yesterday's blog entry, I described Internet scams offering allegedly legitimate "instant passports" from nearly a dozen countries, including members of the European Union and Switzerland.

These documents are all fakes.  And if you get caught with a fake passport, you'll have serious problems!

The world's governments don't like it when scammers sell stolen or otherwise fraudulent passports.  This practice cheapens the value of legitimate documents, and often leads to retaliatory measures by other countries, primarily in beefed-up visa requirements.

For instance, it was once possible for passport-holders from the Dominican Republic to travel to Italy without obtaining a visa.  No longer.  And once one country begins requiring visas, others rapidly follow.  As a result, most European governments now require that Dominican Republic passport-holders obtain a visa  as a condition to entry.

As a result, efforts continue in many countries to crack down on passport fraud.  The government of Guyana has issued warnings against Web sites issuing fraudulent Guayanese passports.  Suriname recently initiated a registration requirement for as many as 15,000 "illegal foreigners," many of whom entered the country using false Suriname passports.

However, my all-time favorite passport scheme is still up and running: the Dominion of Melchizedek.  This is a completely non-existent country existing only on the Internet.  Melchizedek also charters banks, registers companies, and offers offshore trust.  The price is right, too: you can obtain a passport from the Dominion of Melchizedek for a mere donation of your choice.  Just don't try to use this "travel document" for anything other than a coffee table ornament.

How to Obtain a Legitimate Second Citizenship and Passport

The most important precaution to take if you purchase a second passport is to make certain that the document you receive is officially sanctioned in law.  Currently, the only countries with officially sanctioned economic citizenship programs are Austria, the Commonwealth of Dominica, and the Federation of St. Kitts/Nevis.  (It's easy to confuse the Dominican Republic with the Commonwealth of Dominica, but they are two separate countries.

Of these, only the Dominican and St. Kitts/Nevis programs offer a realistic path to a second passport and citizenship.  The Austrian program requires investing millions of euros in an Austrian business, with no guarantee that a passport will be forthcoming.  It's also politically controversial. 

In contrast, when you apply for a second passport in either Dominica or St. Kitts/Nevis, you make the necessary investment only after you receive approval for your application. 

That means anyone offering you an instant passport from The Bahamas, Belize, Burkino Faso, the Cayman Islands, the Dominican Republic, Guyana, Lithuania, Nicaragua, Panama, Switzerland, or any other country is selling fraudulent documents.  Avoid them all! 

For more information on legitimate economic citizenship programs, see http://nestmann.com/passport.html, or contact The Nestmann Group at info@nestmann.com. 

Copyright © 2008 by Mark Nestmann

How to Spot a Passport Scam

Looking on the Internet, you'd think the world is your oyster if you want to purchase a second passport.

Just a cursory search using Scroogle (www.scroogle.org, a private alternative to Google!) reveals "instant passport" deals from numerous countries, including The Bahamas, Belize, Burkino Faso, the Cayman Islands, the Dominican Republic, Guyana, Lithuania, Nicaragua, Panama, Switzerland, and at least two unnamed members of the European Union. 

The price is right, too.  One Web site offers a passport from an unnamed EU member in Central Europe for only US$9,900.  There's even a "family plan" in which you receive a 50% discount for a second applicant.  And that's not all!  You also receive (drum roll, please) a new birth certificate. 

Want to avoid those inconvenient border formalities?  I found a Web site with just the ticket: a "diplomatic passport."  With one of these babies, you can cross international frontiers without having your luggage inspected.  And while you might think that diplomatic passports are issued to, well, diplomats, according to the promotional text, sometimes merely "giving the right amount of money to the right people" can result in diplomatic status.

Hint: These are All Scams!

Every one of these programs is a scam.  Let's start with the "instant passports" from the unnamed EU countries.

The fact that you're offered a birth certificate "proving" you were born in the EU country is one virtually infallible indicator of fraud.  Think about it.  The new birth certificate is fraudulent in itself.  It only follows that the passport based upon the fraudulent birth certificate is fraudulent as well. 

What you're receiving, without exception, are documents that have been lost or stolen, obtained through bribery, or procured fraudulently.  In all cases, the resulting passports are subject to cancellation and confiscation.  Worse, if you use them, you may face fines and even imprisonment for possession of illegal travel documents.  For instance, under U.K. law, entering the country on a fake or stolen passport carries a sentence of 10 years imprisonment.

That's not to say there's a shortage of false passports:

• About 60,000 valid Finnish passports are missing, many of them believed to be stolen
• An estimated 10,000 British passports were issued after fraudulent applications in the space of a year.
• An armed gang stole 9,000 blank French passports in Paris
• More than 2,500 blank Mexican passports were taken from a contract courier service in Mexico City
• About 2,500 Russian passports have been reported missing by the Ministry of the Interior.
• In Thailand, authorities have seized more than 1,000 fake passports.

In tomorrow's blog entry, I'll tell you how fake passports lead to government scandals…and why that means big trouble for anyone unfortunate enough to get caught with one.  I'll also tell you how you can acquire a legitimate second passport. 

Copyright © 2008 by Mark Nestmann

Keep Your Hands off My Gold! [Part II]

In yesterday's blog entry, I described the legal precedent for the U.S. government to again confiscate privately held gold and silver, as it did in 1933.

What are the best ways to protect yourself against such an event? 

One of the most important precautions is to not keep precious metals in a U.S. safety deposit box.  President Roosevelt ordered all safety deposit boxes sealed when he issued his March 9, 1933 gold confiscation order.  My grandparents couldn't retrieve their holdings from their safety deposit box until government thugs had rifled through it.

Also, beware of investing in U.S.-based exchange traded gold funds.  In the event of a second gold confiscation, Treasury agents would clean out any U.S. vaults these services used almost before the ink was dry on the emergency order.

Some coin dealers claim that numismatic (collector) coins would be exempt from any future government confiscation of gold and silver.  This claim is based on the terms of Roosevelt's 1933 emergency order, which specifically exempted "coins having recognized special value to collectors of rare and unusual coins." 

Some firms say that premiums of at least 15% over the spot price of bullion magically turn coins "numismatic."  This notion is based on a proposed federal regulation issued in 1984, but never adopted.  Other dealers claim that coins 100 years or older are automatically converted to numismatic status. 

It's beyond me why anyone takes these claims seriously.  Why would a government that stole its citizens' property in 1933 be consistent when it does so again?

Nothing obliges the federal government to pay by the same set of "rules" it imposed 75 years go.  Nothing obliges the federal government to honor the terms of a proposed regulation issued a quarter century ago.  And naturally, those rules can change at any time. 

However, should such an exemption again come into existence, U.S. law (which could naturally be swept away by legislative or executive fiat) does stipulate which specific coins are "numismatic."  The 1985 legislation that authorized production of the coins now known as gold and silver Eagles stipulates that these coins are to be considered "numismatic items."   

Therefore, if you believe that numismatic coins would be exempt from a future gold (or silver) confiscation, you should consider purchasing the only coins specifically defined in U.S. law as "numismatic."

In addition to gold and silver Eagles, keep some gold and silver bullion outside the United States, preferably in a safety deposit box or a private vault.  That way, if a second confiscation occurs, your holdings won't be immediately affected—although I suspect you'd still be required to comply with the order.

Copyright © by Mark Nestmann

Keep Your Hands Off My Gold! [Part I]

Not many Americans are still living who remember the day that President Franklin D. Roosevelt declared that the "hoarding" of gold and silver bullion by "subjects of the United States" constituted a "serious emergency."

To be exact, the date was March 9, 1933.  And what to do in a serious emergency involving "hoarding" of gold and silver?  Confiscate the offending "hoards," naturally. 

To be fair, Roosevelt only ordered the partial confiscation of gold and silver bullion.  When "subjects of the United States" (which included my grandparents) turned in their bullion, they received U.S. dollars in return, at the official price of US$20.67/ounce.  Once the operation was reasonably complete, the confiscatory part occurred: the government unilaterally revalued gold at US$35/ounce. 

The revaluation was possible because this operation occurred in the days before currencies traded on the open market.  Currencies were fixed in value, generally in terms of specific weights of silver and gold.  The U.S. dollar, for instance, had an official value of US$20.67/ounce, set in 1834, until Roosevelt devalued it 40% in 1933.

The question I'm often asked is, "could gold (and silver) confiscation happen again?"  And, if so, "what can I do about it?"

The answer to the first question is, "yes, definitely."  The legal authority Roosevelt used to confiscate your parents' or grandparents' gold and silver—the "Trading with the Enemy Act"—remains on the books.  Indeed, in a remarkable letter written in 2005, the Treasury Department claimed that it had the power to confiscate gold, silver—and everything else.  (Click here for details).

What might lead to a second gold and silver confiscation?  President Roosevelt's issued his 1933 emergency order when the U.S. dollar was still backed by gold.  At that time, both individual citizens and foreign central banks could exchange U.S. dollars for gold.  Today, no holder of U.S. dollars is legally entitled to exchange their dollars for gold at the U.S. Treasury.  Indeed, only a small minority of U.S. citizens own precious metals in any form. 

However, if a day ever comes where foreign countries demand that the U.S. Treasury pay its debts in gold—not in U.S. dollars—a second confiscation could occur.  I don't see a second confiscation as particularly likely, simply because so few Americans own any gold or silver bullion.  The takings would likely be so slim it simply wouldn't be worth the effort.   

Answering the second question is a lot harder.  Tune in tomorrow for my thoughts on this matter.

Copyright © 2008 by Mark Nestmann