Asset Protection BLOG - Mark Nestmann

Global Tax Wackos at it Again

You have to admit they never give up.  Even if the ideas they're pushing have been thoroughly discredited for decades.

I'm speaking of an idea that even the economist who originally proposed the idea now rejects: a global tax on foreign exchange transactions.

Last week, The New York Times published an article by former French foreign minister Dr. Philippe Douste-Blazy.  It proposes a "tiny levy" of 0.005% on transactions involving the world’s most traded currencies: the dollar, euro, pound sterling and yen.  This tax, Douste-Blazy says, will raise US$33 billion annually to fight poverty and disease in the world's poorest countries.

Imposing tax on forex transactions isn't a new idea.  Back in 1978, economics professor (and Nobel Laureate) Dr. James Tobin suggested that such a tax could potentially help curb volatility in emerging market economies.  This type of tax has come to be called a "Tobin Tax"—over Dr. Tobin's objections.

Dr. Tobin proposed the tax to inhibit speculation in third-world countries, allowing them to pursue more independent economic policies.  But the United Nations hijacked his idea, primarily because the tax offered the agency a funding source independent of individual donor governments.

So beginning in the mid-1990s, the UN made the Tobin Tax the centerpiece of its funding proposals to redistribute wealth and income.  Only it would be imposed at 0.05%, a rate 10 times higher than Douste-Blazy now proposes.   According to a 2001 report from the UN's "High-Level Panel on Financing for Development," such a tax would generate up US$400 billion annually. 

(And just to prove there's nothing new in current efforts by global tax authorities to end bank secrecy in tax matters…there's not.  The same 2001 report proposed that all governments collect private financial data on individual taxpayers and share it with other governments.  It also suggested that governments should have the permanent right to tax individuals who exercise their right to emigrate from their homeland. An "International Tax Organization" would oversee these efforts and "take a lead role in restraining tax competition.") 

It remains to be seen if the countries issuing the currencies Douste-Blazy wants to tax will go along with this idea.  If they do, it will be one more blow against freedom of movement, tax competition, and financial privacy.  But a Tobin Tax, if imposed, will not have the effect its proponents claim.

To understand why, consider how forex markets operate.  Investors risk trillions of dollars in these markets daily, but someone has to take the other side of every trade.  The broker-dealers that do so immediate try to off-load the risks they've assumed to other brokers.  If speculators are short U.S. dollars, brokers may have an oversupply of yen.  The brokers try to sell the excess yen to other dealers.  This practice encourages hedging, increases liquidity, and helps reduce currency volatility. 

Now it's time for a little Economics 101, directed to our former French foreign minister.  Anytime the cost of something increases, people tend to buy less of it.  So if governments impose a tax on foreign exchange, even a tiny one, transaction costs will increase.  That will discourage trading, decrease liquidity, and increase volatility.  It will also lead to a much smaller revenues than Douste-Blazy —much less the United Nations—suggests.

So what's the real purpose of his suggestion?  The only reason I can come up with to resurrect this thoroughly discredited idea is because it presents an opportunity to impose a truly global tax.  And to construct a foundation over which to enforce other global tax initiatives.

Are you ready for a global tax agency that can levy tax payments anywhere in the world?  For global restrictions on emigration?  Or for globally enforced capital controls? 

If you are, then you should love the idea of the Tobin Tax.  But if not, you at least have some intellectual ammunition to take on your friends, business associates, and family members when they suggest that it might be a good idea.  It's not. 

Copyright © 2009 by Mark Nestmann

IRS Demands Super-Invasive Tax Exchange Agreements with Smaller Offshore Jurisdictions

The devil is in the details.  My father, who practiced medicine for nearly four decades, often repeated this truism when confronting a difficult diagnosis.  And the same truism applies in other areas—including "tax information exchange agreements" (TIEAs).

If you have mercifully avoided TIEAs thus far in your life, you may not be able to avoid them much longer.  That's especially true if you invest or do business offshore.  The reason: purportedly to establish a "level playing field" for international investment, high tax countries have forced low tax jurisdictions to sign dozens of TIEAs in recent months.  These agreements make it much easier for revenue authorities in high tax countries to obtain banking records and other financial records in numerous low-tax jurisdictions.

The Organization for Economic Cooperation and Development (OECD) leads this ongoing jihad against low tax jurisdictions.  As they labor in a sumptuous palace in Paris, OECD bureaucrats enjoy diplomatic status.  Unlike most of us, they receive a tax-free salary and benefits.  And while working tax-free, they prepare lists of countries they deem insufficiently cooperative with revenue authorities in OECD—and mostly high-tax—countries. 

Earlier this year, the OECD issued its latest "grey list" of countries that have promised to boost cooperation in tax investigations, but have not yet done so.  One of the most important demands the OECD made to countries on this list is to ratify at least a dozen TIEAs.  Countries that fail to do so may eventually find themselves on an OECD "black list."  And that could result, according to the OECD, in potential isolation from the global financial system.  (Think North Korea or Iran.)  Not surprisingly, countries on the grey list are trying to get off of it as quickly as they can.

OECD efforts to end what it calls "harmful tax competition" began in the 1990s.  But it wasn't until 2009 their efforts came to fruition.  Citing the need to uphold OECD "standards," several high-tax countries pressured Switzerland and other offshore havens on the grey list to amend their laws to require information exchange with foreign revenue authorities.

The United States led this effort.  And the results have been a spectacular success, at least from the U.S. Treasury's perspective.  First, U.S. prosecutors persuaded the Swiss government to release the names and account records of nearly 5,000 alleged tax evaders from Swiss banking giant UBS.  But that was just the beginning.  The United States also forced Switzerland to sign a TIEA. 

The U.S.-Switzerland TIEA isn't that bad, as TIEAs go.  It only obligates Switzerland to release information if U.S. investigators give Swiss authorities a specific name or names of suspected tax evaders.  The agreement doesn't allow the IRS to engage in "fishing expeditions" and ask, e.g., for account records of unnamed U.S. taxpayers in one or more (or all) Swiss banks.  (Earlier this year, the IRS tried, but failed, to get the account records of 52,000 unnamed UBS depositors via a so-called "John Doe" subpoena.)

To get off the OECD's most recent grey list, Switzerland signed this TIEA and 11 other TIEAs with high-tax countries.  All the TIEAs require Switzerland to lift bank secrecy laws in tax investigations of named taxpayers.  None of them permit fishing expeditions by revenue authorities.  And yesterday, Sept. 23, the Swiss government announced that it expects the OECD to promptly remove it from its latest grey list.

Austria, another country with strict bank secrecy laws, completed a similar process.  The OECD dutifully removed it from the grey list on Sept. 22. 

But the devil, again, is in the details.  Numerous smaller jurisdictions also find themselves on the grey list.  And because they lack the diplomatic clout of Switzerland or Austria, it's much harder for them to get off of it.

Case in point is a small independent low-tax jurisdiction that, for the moment, will remain nameless.  I recently had the opportunity to review internal government correspondence on its progress in meeting the OECD's demands.  This jurisdiction already has signed, or is about to sign the requisite dozen TIEAs.  But it's still on the OECD grey list, because it hasn't been able to come to terms with the U.S. Treasury Department.

In negotiations with this jurisdiction, the U.S. Treasury has demanded a super-TIEA.  The proposed agreement would allow IRS authorities to automatically enter the jurisdiction to conduct interviews and gather evidence.  It would also authorize use of John Doe subpoenas for the same purpose. 

Naturally, this jurisdiction doesn't want to sign the agreement.  However, if it fails to do so, the United States may prevent the OECD from removing this nation from the grey list.  Forget the fact that this country has complied with all the OECD's demands.  If it doesn't submit to IRS blackmail, it may stay on the grey list.  

By the way, you might be wondering: what's the world's largest tax haven with the highest degree of secrecy?  Surprise, surprise: it's the United States.  If you're a non-resident alien investor, you can arrange your U.S. investments so that you pay little if any tax.  Except in the case of Canada, the IRS won't tell your home country about the income you earn in the United States.  And you can still set up essentially anonymous banking relationships, perfectly legally. 

Why isn't the United States on the OECD grey list?  That's a no-brainer: it's a matter of might makes right.  And it shows how the game really works, behind the scenes.  The devil, after all, is in the details. 

Copyright © 2009 by Mark Nestmann

Belgium: The Easiest Route to a EU Passport?

I had an interesting conversation over the weekend with a well-connected attorney I know in Europe.  He reminded me that Belgium imposes no capital gains tax, and as a result is attracting an increasing number of wealthy tax exiles.  And not only is it relatively easy to qualify for residence there, after three years you qualify for Belgian citizenship and passport.  That gives you the right to live and work in any of the other 26 EU countries.  You can also keep your current passport. 

The biggest drawback is that you have to learn French, although no one expects you to speak it perfectly.  You also have to show some degree of integration in Belgium.  But if you learn some French, rent an apartment, and appear to be settling down in Belgium, you'll probably qualify for a Belgian passport.  Especially if you're willing to live there most of the time, Belgian residence might be worth considering.

Copyright © 2009 by Mark Nestmann

IRS Extends Deadline for Reporting Unacknowledged Offshore Accounts

It couldn't have happened at a better time.  The IRS today announced an extension of time for "voluntary disclosures" by taxpayers with unreported offshore accounts.  It extended the previous Sept. 23 deadline three weeks, until Oct. 15, 2009.   (I've written previously about this program here.)

Given the overwhelming response to this initiative, the extension couldn't come at a better time.  The IRS has already processed more than 3,000 applications under the program, with many coming in just the last few days, compared to 88 for all of 2008. 

If you're a U.S. taxpayer with unreported offshore income and/or accounts, I highly recommend you consider enrolling in the program.  But speak to a tax advisor first, because there are numerous issues to consider before putting yourself at the mercy of the IRS. 

Copyright © 2009 by Mark Nestmann

Inventor Awarded $388 Million for Taxpayer Abuse

Ordinarily, I despise lawsuits.  But, I just learned of one jury award I can endorse unequivocally.

On August 14, a jury in Nevada awarded inventor Gilbert Hyatt a whopping US$388 million in his lawsuit against California's Franchise Tax Board.  (The FTB is California's version of the IRS.)

The jury award consists of $138 million in liability and compensatory damages and an additional $250 million in punitive damages.  But Hyatt shouldn't start counting his money anytime soon.  The FTB is certain to appeal the award.  Even if it doesn't, the presiding judge may reduce the judgment.  And then, Hyatt has to figure out how to collect against a state that is essentially bankrupt.

What exactly did the FTB do to Hyatt?  The jury found that it committed fraud and other abuses against him during an audit in the early 1990s.  While living in California, Hyatt received a lucrative microprocessor patent for which he eventually received a US$40 million licensing fee.  Prior to receiving the fee, Hyatt moved to Nevada.  

Naturally, the FTB insisted that Hyatt was still a California resident.  It demanded millions of dollars in taxes, interest and penalties.  Then, the harassment began.  Among other allegations the jury found credible, Hyatt claimed the FTB went through his garbage, spread false rumors about him, and repeatedly disclosed his social security number.   

Although the FTB would surely disagree, this is a very encouraging case.  If Nevada is willing to hear lawsuits against out-of-state tax collectors for allegations of outrageous conduct against its residents, other states may follow suit.

What about the IRS?  You can sue the IRS for damages resulting from an IRS employee's reckless or intentional disregard of tax collection procedures.  But it's difficult and expensive to litigate against it.  In one malicious prosecution claim, the IRS paid out US$1.34 million to a Texas couple.  That's the largest payout I've heard of, and every dollar went to pay their legal bills.  

And Gilbert Hyatt?  Unless an appeals court stays (suspends) the judgment, he can try to collect his judgment.  We can only hope…

Copyright © 2009 by Mark Nestmann

U.S. Uses Roving Border Checkpoints to Escalate the War on Cash

I just returned to Phoenix from a week's vacation on the beach in San Diego.  My all-too-brief holiday was very pleasant, with the exception of the time spent waiting in line at checkpoints manned by agents of the U.S. Border Patrol—five in all on Interstate 8 between Gila Bend, Arizona and San Diego.

I'm white as a ghost, and over 50, so I don't fit the profile of an illegal immigrant, terrorist, or drug smuggler.  That allowed me to proceed unmolested after brief interrogations by hulking Border Patrol agents.  But what shocked me was that at one checkpoint, agents brought out dogs to inspect each vehicle passing through.  Presumably, if the dog had alerted to the presence of who-knows-what, I would have been subjected to a thorough search of my vehicle.

For decades, the Border Patrol has operated dozens of these interior traffic checkpoints.  And in 1976, the Supreme Court ruled that warrantless stops and searches near the border don't violate the U.S. Constitution.  But over the last decade the number of these checkpoints as proliferated. 

Today, there are about 30 permanent checkpoints and numerous additional temporary or "roving" checkpoints along the Mexican border, and a few along the Canadian border.  Apologists for the Border Patrol say warrantless searches of vehicles at these checkpoints is necessary to fight the War on Terrorism, the War on Illegal Immigration, and the War on (Some) Drugs. 

However, organized criminal interests learned long ago to post lookouts near the permanent checkpoints.  Whenever they're unmanned, they alert their colleagues that the coast is clear.  In recent years, it appears from press reports that most arrests at these permanent checkpoints are tourists transporting small quantities of marijuana for recreational use.

Which brings us to the roving checkpoints, and the friendly dogs that inhabit them.  These are more difficult for the professional smugglers to avoid, but hardly impossible. They simply send vehicles ahead of a major shipment of narcotics or illegal immigrants and then choose whatever route is unmanned at the time.  Again, press reports indicate that most arrests appear to be of recreational drug users.

I personally think it's ridiculous for the government to prohibit anyone from indulging in their favorite libation, but there's also a much larger issue.  What else are the dogs sniffing for?

It's my guess that it's cash, not drugs, immigrants, or anything else is what the Border Patrol dogs are after.  Since more than 95% of circulating U.S. currency is contaminated with drug residues, it's a lead-pipe cinch for a dog to "alert" on any large quantity of cash you might be transporting in a border area.  And that's backed up by numerous reports of cash seizures at these checkpoints, inevitably accompanied by a press release from the Border Patrol.

U.S. courts have repeatedly ruled that possession of a large sum of currency is "strong evidence" of a connection to trafficking in illegal drugs.  Merely possessing currency provides the government with sufficient evidence to seize it, unless you can provide clear and credible evidence that it's NOT connected to illegal drugs.  And even then, Border Patrol Agents—or any other law enforcement authority—can still seize it, and force you to sue in court to try to get it back.

The creeping militarization of our border areas gives me, well, the creeps.  It's not effective at stopping illegal immigration or illegal drug trafficking.  What it is effective at is establishing a de facto prohibition against moving any meaningful quantity of cash near a U.S. border.

Copyright © 2009 by Mark Nestmann

The IRS and Offshore Tax Compliance: The Next Shoe to Drop

The recent settlement between Swiss banking giant UBS and the IRS is hardly the end of IRS efforts to crack down on Americans' unreported offshore accounts or income.  Indeed, with UBS agreeing to release account details on more than 4,000 U.S. clients, the IRS is just getting started.

In the weeks and months to come, count on more indictments of offshore banks and bank executives; more demands to release account details from other countries; and a blizzard of information requests under newly ratified tax information exchange agreements.

Indeed, the escalation is already underway. Only days ago, the U.S. Department of Justice indicted a Swiss banking executive and lawyer on charges of conspiring to defraud the U.S. government.  They face charges similar to those aimed at UBS: helping wealthy Americans conceal their assets from U.S. authorities in supposedly secret Swiss bank accounts.

The manner in which the IRS is dealing with those coming forward in its offshore "voluntary compliance" initiative also makes clear the agency's plans.  The IRS apparently has a more or less standardized list of 30 questions they require those taxpayers seeking limited amnesty for failing to disclose the income from their offshore account to answer.  (Scroll to the end of this article for the 30 questions.)

Among other things, the 30 questions inquire where amnesty candidates learned about the foreign bank account or investment, whether a promoter involved, if any U.S. or foreign advisor helped them open it, and if they had a debit card on which they could draw against the account.  It's pretty obvious that the agency's next step is to try to shut down anyone willing to help Americans evade tax, anywhere in the world.  And, in the process of doing so, gather the names of additional wealthy Americans who failed to pay tax on their foreign income.

The deadline for the IRS voluntary compliance initiative is September 23.  If you have unreported offshore income and have questions about how the initiative might apply to you, see the answers to the "Frequently Asked Questions" the IRS has posted at http://www.irs.gov/pub/irs-news/faqs.pdf.

Think very seriously about coming clean to the IRS if you find yourself in this situation.  The IRS has fired only the first few salvos in what will be a long and extended "War on Offshore."

Copyright © 2009 by Mark Nestmann

Are You Ready for a "Wealth Tax" from Obama?

Pretend, just for a moment, that you're Barack Hussein Obama.  You have big spending plans—national health insurance, two wars, and a trillion dollar bailout for your friends on Wall Street.  Not to mention paying for the soaring costs of Social Security and Medicare.

Unfortunately, revenues simply aren't keeping up.  Your Treasury Secretary, accused tax evader Timothy Geithner, tells you that the unfolding recession is starving the country for tax revenue.  Indeed, just as you unveiled your trillion-dollar national health plan, Tricky Timmy informed you that federal tax revenues were dropping the fastest since 1932, at the height of the Great Depression.

What to do—cut spending?  Well, Obama did challenge his cabinet in April to come up with a whopping US$100 million in budget cuts.  That's out of an estimated 2009 budget deficit exceeding US$1 trillion, perhaps more.  To put that in perspective, Harvard economics Professor Greg Mankiw commented:

"…[I]magine that the head of a household with annual spending of $100,000 called everyone in the family together to deal with a $34,000 budget shortfall. How much would he or she announce that spending had to be cut? By $3 over the course of the year–approximately the cost of one latte at Starbucks. The other $33,997? We can put that on the family credit card and worry about it next year.”

But seriously, what could Obama do to make a significant reduction in the deficit? Obviously, it won't be to cut spending.  Instead, Obama needs to raise hundreds of billions in additional revenues.  And he needs to do it very quickly.

Tricky Timmy suggests that higher income taxes on rich folks that make over US$250,000 annually may raise a hundred billion dollars or so annually, but at the expense of depressing consumer spending by about the only segment of the population that can afford to spend.  

Well, here's an idea that Obama and Tricky Timmy might be considering, although I must emphasize that nothing official along these lines has yet been proposed: a tax, small at first, but potentially growing, on everything you own, anywhere in the world.  A "wealth tax."  

And when I say "everything," I mean everything:

• The equity in your home
• Your equity in any other real estate you own, anywhere in the world
• The value of any business you own
• The value of your retirement plan
• The cash value of your life insurance policies
• The value of your securities portfolio
• The value of any assets held for you in trust

Indeed, with a wealth tax, you'll need to declare the value of those gold coins buried in your basement, the cash under the mattress, and of course, previously non-reportable offshore investments.  

From Obama's perspective, a wealth tax would have two powerful advantages.  

1. It would generate considerable revenue on its own, although perhaps not as much as Obama and Terrible Timmy would like.  For instance, the French "solidarity tax" on wealth—perhaps the world's most severe wealth tax—raises only the equivalent of US$2.5 billion annually.  The U.S. economy is five or six times larger than France's so Obama might get his hands on an additional US$15 billion or so if he imposed a comparable tax.  That's still only a little more than 1% of the projected 2010 budget deficit, but it's a lot more than Obama's US$100 million challenge to his cabinet.
2. More importantly, a wealth tax would make it illegal to hide wealth in any form from the government.  And Congress can increase the tab anytime it wants. 

Of course, the natural reaction of  many wealthy people to a wealth tax will be to move their wealth, and perhaps themselves as well, out of the United States.  This is exactly what's happened in France, from which thousands of wealthy tax exiles have fled.  And this may be the real reason for the government's greatly increased interest in any assets you hold offshore: to flush out assets for the future imposition of wealth tax.

The possibility of a wealth tax is just another reason why if you're a U.S. citizen or long-term U.S. resident with substantial assets, you need to consider the admittedly radical step of expatriating from the United States.  This means acquiring a second nationality and passport, and then subsequently giving up U.S. citizenship and passport or U.S. green card status.  You also need to live outside the United States. 

Expatriation is the only way that a U.S. citizen or long term resident can legally eliminate their obligation to pay U.S. income, estate, gift, and capital gains taxes.  To learn more about expatriation, and the potentially huge payoff in tax savings, check out my "Billionaire's Loophole" report here.

Copyright © 2009 by Mark Nestmann

Austria Capitulates on Banking Secrecy

For a little while, it looked as if little Austria would be the mouse that roared.

As I previously reported, on July 9, Austria's Parliament failed to approve a resolution relaxing the country's strict banking secrecy laws as the OECD demands.

But yesterday, September 1, the parliament approved a law to ease banking secrecy in the last EU country on the Organization for Economic Co-operation and Development's (OECD) "gray list" of tax havens.  It was a challenge to assemble a two-thirds majority necessary to weaken the law, but Austria's leaders persuaded legislators of the importance for Austria to get off the OECD's odious list.

Under current law, Austrian authorities will only release account data to foreign authorities if a criminal proceeding is underway in that country against a named individual.  In addition, authorities must convince an Austrian court to order the data to be released. 

This simple and common sense system will be replaced with a network of new tax treaties and tax information exchange agreements.  The agreements will call for Austria to release information on financial accounts held by a foreign investor at the request of foreign tax authorities.  The request may be in regard to any tax inquiry—civil, criminal, or administrative.  However—and this is very important—the inquiry must be about a specific investor.  Austria is under no obligation to comply with wholesale "fishing expeditions," such as the infamous "John Doe subpoenas" invoked by the U.S. Internal Revenue Service against banking giant UBS.

Even so, this is a significant setback for banking secrecy.  Nearly a decade ago, the OECD's bastard stepchild, the Financial Action Task Force (FATF), issued a "money-laundering blacklist." The countries on this list, in the FATF's opinion, weren't doing enough to prevent their financial system from being used by money launderers.  Among other requirements, the FATF demanded that these countries (Austria among them) eliminate all opportunities for anonymity in the banking system. 

However, the new anti-laundering rules mainly inconvenience legitimate customers.  Money launderers long ago began using less traceable methods to move money.  It's almost certain the OECD's new rules for greater transparency in tax investigations will have the same effect. 

Copyright © 2009 by Mark Nestmann

Warrantless Laptop Searches at U.S. Borders to Continue

Nearly three years ago, I warned you about the possible consequences of carrying a laptop computer across a U.S. border.  Basically, U.S. courts have said that Customs can confiscate your laptop, make an "image" of the hard disk and all the data on it, and use that data against you in a criminal proceeding—all without probable cause that you've done anything wrong.  (The situation, incidentally, appears to be the same when entering or leaving an increasing number of other countries, including the United Kingdom.)

This authority is deeply controversial, and civil libertarians had hoped that the Obama administration would revise the policy.  However, last week, the U.S. Department of Homeland Security (DHS) re-confirmed the Bush era policy that customs officials can seize and search any electronic device you carry across a U.S. border.  That includes laptops, cell phones, MP3 players, USB sticks, etc.  No warrant is necessary: "gimme" is sufficient.

The good news, if there is any, is that the Obamites have streamlined the inspection process.  In most cases, says the DHS, you'll have your laptop or other electronic device(s) back in 30 days or less.  Presumably, they'll copy whatever you've stored on these devices, and then mail it back to you when they're done, presumably they don't find anything suspicious (e.g., child porn, bomb-making instructions, etc.).  Any files copied may be stored "indefinitely."

Fortunately, these warrantless searches don't occur often.  Over the last 10 months, customs officials have conducted only 46 in-depth laptop searches.  They've examined another 1,000 or so without conducting an exhaustive search. 

One way to protect yourself from this type of intrusion is to encrypt all the data on your laptop, including the hard disk itself, using a program like PGP Whole Disk Encryption (http://www.pgp.com) or True-Crypt (http://www.truecrypt.org).

Unfortunately, this isn't a complete solution, because customs officials may demand that you decrypt any encrypted files before they allow you to proceed.  If you refuse, you might be detained until you agree to decrypt the laptop for inspection.  In that event, though, True-Crypt lets you type in a special access code that provides access only to part of your hard drive.  The remainder of your data remains protected in a hidden hard disk partition.

Another issue if customs officials detain your laptop is access to your data.  One way to deal with this issue is to create an encrypted zip file (again using a program like PGP Whole Disk Encryption).  Then, upload it to a secure location using a program such as Filezilla (http://filezilla-project.org).

If you have a Web site with sufficient free space, you could upload it to that location.  Many Internet Service Providers also provide an online backup service.  If you have only a few megabytes of data to protect, you could even send the encrypted file to a friend, with instructions to send it back at your request.  When you're done, securely "wipe" any confidential information off your hard drive, along with the "free space," again using a program like PGP Desktop. 

Before you cross the border, be certain to "sanitize" your laptop of records of Web sites you've visited, incompletely deleted files, and other detritus that may be incriminating.  A good program to use for this purpose is Window Washer (http://www.webroot.com). 

Finally, don't forget to take the same precautions for other electronic media you carry across international borders.  For instance, if you've downloaded music to your MP3 player in violation of copyright laws, this could potentially cause problems.  Leave your MP3 player at home if there's any doubt.

You can protect your "smartphone" by backing up your data as I've already described, and then encrypting it using a product such as PGP Mobile.  If your cell phone doesn't connect to the Internet, there's less potentially incriminating data on it, but the safest strategy is to delete any photos or text messages you feel to be even remotely controversial, and then reset it to factory settings.  You can find instructions for doing so at http://www.master-reset.com.

DHS officials seem to think these rules will help fight terrorism, but I'm not so sure.  After all, if you were really a terrorist, you'd never bring a laptop with you into another country.  You'd simply e-mail yourself the plans to blow up, poison, or incinerate whatever you wish to target.  As with most anti-terrorism initiatives, this one does little or nothing to fight terrorists.  It merely inconveniences law-abiding travelers. 

Copyright © 2009 by Mark Nestmann