Asset Protection BLOG - Mark Nestmann

Clever Credit Card Scam Preys on Unwary

There's yet another credit card scam making the rounds.  It's slick because the scammers already have 95% of what they need to rip you off.  They're depending on you to provide the other 5%. 

Here's how it works: your phone rings and you pick it up.

Caller: "This is John Doe from the Anti-Fraud Department at VISA International.  My badge number is 864890.  Your card has been flagged for an unusual purchase pattern, and I'm calling to verify that you authorized this transaction.  The card number is 5555-555-555-5555 and was issued by Citibank.  Did you purchase a Sony DVD player for $497.23 from Advanced Marketing Concepts of Denver on June 14?"

 You: "That's the correct card number, but I did not authorize any such purchase."

Caller: "OK, we will be issuing a credit to your account.  Advanced Marketing is a company we have been watching and the charges are always just under the $500, the purchase amount that we flag for further investigation.  Before you receive your next statement, we'll issue the credit.  Please let me confirm your billing address: is it 123 Easy Street in Sucker, South Dakota? "

You:  "Thank you for catching this.  Yes, that is my billing address." 

Caller: "You're welcome, that's what we're here for.  By the way, we'll be starting a fraud investigation right away.  If you have any questions, you should call the toll-free number on the   back of your card and ask for the Anti-Fraud Department.  Please refer to this Control Number: XPJ395.  That's XPJ395.  Do you need me to read it again?'

You: "Yes, I wrote that down, thank you."

Caller:  "OK, we're almost finished.  I need to have you verify that you are in possession of your card.  Do you have it in front of you?"

You:  "Yes, I have it here."

Caller: "Please turn your card over and look for some numbers.  There are seven numbers.  The first four are part of your card number, and the next three are the security numbers that verify you possess the card and that it has not been lost or stolen.  Would you please read me those three numbers?"

You: "Yes, the numbers are 578."

Caller: "That is correct.  OK, that's all—do you have any other questions?"

You: "No, thank you again for catching this fraud."

Caller: "You're very welcome.  You can never be too careful."

That's how the scam works: after confirming information the caller has received from stolen or hacked credit card databases, you're persuaded to part with your security code.  This is the one piece of information needed to make a fraudulent purchase on most Web sites. 

You say very little, and the caller never asks you for your name, address, or card number.  That's because the caller already has that information.  But armed with the security code, the caller can then proceed to make virtually untraceable unauthorized purchases over the Internet.

If you receive a call like this, do NOT give the caller the security code on the back of the card.  If it's truly the anti-fraud department calling, they will already have all the information they need, including your security code.  After all, they issued your card!

Copyright © 2008 by Mark Nestmann

Panama Cracks Down on Cash Transactions—is America Next?

One of the hallmarks of Panama's financial system is the country's justifiably famous bank secrecy law. 

But, when it comes to dealing in cash, the laws are very different.  Like the United States, Panama requires that many types of cash transactions—particularly with financial institutions—be reported if they exceed US$10,000.  But as I found out personally, Panamanian law goes much further.

I just returned from Panama, where I spent the last 10 days to take part in The Sovereign Society's just-completed 20th Annual Total Wealth Symposium.  One evening last week, I walked to a grocery store near the hotel where the conference was held.  My intent was to pick up some snacks along with a six-pack of beer to avoid paying the scandalously high charges for these items in my hotel room's mini-bar.

To pay for these items, I pulled out a fifty-dollar bill—fresh from an ATM near the Phoenix airport.  (Panama's circulating currency is the U.S. dollar.)  And that began a very interesting sequence of events.

The young lady who scanned my groceries took the bill, looked me in the eye, and said "Momento, por favor."  My Spanish skills are essentially non-existent, but I realized that some procedure had to be followed in order to accept my cash. 

The clerk then called a supervisor to the checkout counter.  Shortly thereafter, a female supervisor arrived, armed with a thick notebook.  The supervisor, who spoke excellent English, explained that Panamanian law required logging many types of cash transactions paid for with a $50 or $100 bill, with no minimum threshold.

She offered me an opportunity to pay with a smaller bill or a credit card, but I declined, because I wanted to see what would happen next.  This involved recording my passport number, along with the name and address on my driver's license, in the logbook.  Once she copied this information, the clerk gave me my change, and I was free to go.

When I arrived back at the hotel, I took the remainder of my $50s and $100s to the front desk and exchanged it for smaller bills.  I asked the desk clerk about the ID requirements for paying with bills in denominations larger than $20s. 

He told me that this regulation came into effect because of an increase in circulation in counterfeit $50s and $100s.  I had read that narcotics cartels in neighboring Colombia were producing high-quality counterfeits, and surmised that this is one way Panama is dealing with the problem.

My question is: could these same rules come to America?  Time will tell.  But it certainly wouldn't hurt to begin exchanging any $50s and $100s you hold for smaller denominations.

Copyright © 2008 by Mark Nestmann

Even Elliot Spitzer's No Match for the "Bank Secrecy Act"

Talk about comeuppance.  New York governor Elliot Spitzer, the poster boy for ethics on Wall Street and elsewhere in the financial markets now finds his political career in ruins.  And it's all because of an almost-unknown law: the Bank Secrecy Act.

The so-called "Sheriff of Wall Street" made the mistake of withdrawing large amounts of cash from his bank account and trying to prevent the bank from reporting the withdrawal to the U.S. Treasury.  That apparently set alarm bells off in the bank's software used to identify "suspicious transactions" in customer accounts. 

The bank turned the information over to the IRS.  An investigation began, which included wiretaps of Elliot's phone calls, including a series of conversations setting up liaisons with high-priced call girls. 

And a few weeks later, The New York Times revealed that Spitzer had paid a prostitute US$4,300 in cash for her services.  Apparently, Spitzer had at least seven liaisons with women from the agency over six months, and paid more than US$15,000.

In cash.  And that's what led to the problem.  The Bank Secrecy Act requires that banks report the withdrawal of more than US$10,000 to the U.S. Treasury.  The form used is called a "Currency Transaction Report" or CTR.

Elliot apparently realized that any cash withdrawal over US$10,000 led to a CTR filing requirements.  But, he may not have realized is that any effort to avoid this filing requirement by breaking up a series of related cash transactions into smaller amounts is a federal crime called "structuring." 

If Elliot is prosecuted for structuring, he could face a five-year prison sentence and a US$250,000 fine.  He could also lose every dime in the account from which he structured the funds, under the law's severe civil forfeiture sanctions.  But most likely, he'll receive a fine for the offense, but no prison time. 

In most structuring investigations, the problem is knowing what transactions are "related."  Are a series of 12 withdrawals of US$900 (which collectively exceed US$10,000) related?  Bank Secrecy Act regulations don't address this possibility, or any of an infinite number of other possibilities.  But in Elliot's case, it was clear that the withdrawals had a common purpose: to funnel money to a front company for the prostitution agency.

Elliot's sad story should be an object lesson.  Laws that prohibit you from withdrawing your lawfully earned money in any way you please from your bank account without notifying the U.S. Treasury may be unfair.  But, they are enforced, as Elliot learned to his dismay.

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

USA Monitors Financial Transactions in the Channel Islands

I've long been skeptical about using the Channel Islands—Guernsey and Jersey, both islands off the British coast—as secure offshore financial centers.

My skepticism originated in the so-called "Cantrade Affair." 

In the late 1980s, a group of investors—including a dear, now departed friend—placed several million dollars with Jersey-based Cantrade, a subsidiary of the AAA-rated UBS Bank of Switzerland. 

Over the next few years, the investors lost virtually all their money.  A currency trader the bank recommended turned out to be corrupt.  So did a partner in the accounting firm (Touche Ross UK, now Deloitte & Touche), who falsely confirmed the trader's supposedly stellar long-term track record. 

Lawsuits and a criminal investigation followed.  The investors settled their case against Cantrade in 1997.  Cantrade settled the criminal charges in 1998 in an out-of-court settlement that avoided having the fraud exposed at a public trial.  The currency trader and the Touche Ross partner were sentenced to prison. 

Because of the Cantrade affair, I've pretty much written off Jersey as a serious offshore jurisdiction.  I simply don't trust it, although there have been significant reforms in the last decade.

I don't know as much about the other major Channel Island—Guernsey.  Rightly or wrongly, it's been a case of "guilt by association" with Jersey.  Until now, that is.

Last week, I received several messages from a reader in Guernsey who claims that IRS agents accompany tax inspectors in certain investigations.  He also believes that local police are monitoring telecommunications with offshore services providers, in concert with the FBI and the IRS. 

I have no way of confirming these allegations.  However, I can confirm that the "Tax Information Exchange Agreement" (TIEA) between the United States and Guernsey authorizes the IRS to accompany Guernsey tax officials in tax examinations (Article 6(2)).  And while wholesale electronic surveillance of offshore services providers may not be occurring, a local court may authorize surveillance against any target. 

I'm not picking on Guernsey, by the way.  Under Guernsey law (and the law of many other offshore jurisdictions), this type of surveillance is perfectly legal.  Naturally, U.S. and U.K. tax officials encourage it. 

This is an important reason why The Sovereign Society recommends offshore jurisdictions that impose strict controls on the disclosure of financial (or other) information to foreign authorities. 

In Austria, for instance, there's no Tax Information Exchange Agreement in effect.  If the IRS wants to learn about your Austrian bank account, it can't simply accompany an Austrian tax inspector to the bank, and surreptitiously examine the records.  It must present evidence a crime has been committed, with that evidence confirmed by Austrian officials. Similar laws are in effect in Switzerland, Liechtenstein, and Panama.

For more information about bank secrecy in Austria, click here.

Copyright © 2008 by Mark Nestmann

Shredded Documents Can be Reconstructed

One of the best ways to protect yourself against identity theft is to shred sensitive documents with a crosscut shredder before you dispose of them.

Such shredding is probably sufficient to protect you against a dumpster-diving identity thief.  But, it won't necessarily avoid scrutiny if it's your own government wants to read them.

Researchers in Germany have developed software that can re-assemble shredded documents.  The software will be used to reassemble 16,000 bags of documents shredded by the Stasi, the secret police in the former East Germany.

In the United States, law enforcement and intelligence agencies have long sought tools to allow them to reassemble shredded documents.  "It's been an area of interest for a very long time," says William Daly, a former FBI investigator.  "The government is always trying to keep ahead of the curve."

The lesson is clear.  Don't assume that using a shredder is the "final word" in document destruction.  If you really want to make sure that a document is unreadable, burn it, then stir the ashes. 

That way, you'll avoid being "burned" by having supposedly unreadable shredded documents recovered and possibly used against you.

Copyright © 2007 by Mark Nestmann

The Computer Found You Guilty…How Do You Plead?

Your bank or broker will never tell you, but every transaction you conduct through a US bank or broker--deposits, withdrawals, credit card, currency conversion –creates a secret financial profile of YOU.

The USA PATRIOT Act and similar laws actually require banks, brokers, car dealerships, jewelers, and many other types of businesses to spy on you.  And none of these businesses are allowed to tell you they're doing it. 

If the computer software these businesses MUST use to spy on you triggers a "guilty account" alert, you'll never know until your assets are frozen or confiscated.  The law makes it a crime to tell you if you're under suspicion.

One mistake—withdrawing too much cash, writing a check to the "wrong" person, etc.—and you could be the next victim.

The all-new third edition of THE LIFEBOAT STRATEGY, updated in October 2007, can help protect you from having an innocent transaction from being deemed "suspicious," and deal with hundreds of other threats to your wealth and privacy. 

To learn more about THE LIFEBOAT STRATEGY, click here.

If you purchased any version of THE LIFEBOAT STRATEGY after October 1, 2006, you're eligible for a free update for the electronic version of this report.  If you haven't already received instructions on how to obtain this update, please send proof that you purchased the report AFTER OCTOBER 1, 2006 (e.g., billing receipt, canceled check, etc.) by postal mail or e-mail to:

The Nestmann Group, Ltd.
2303 N. 44th St #14-1025
Phoenix, AZ 85008 USA
info@nestmann.com

When we receive this information, we'll e-mail you a link to the free electronic update.  PLEASE INCLUDE YOUR E-MAIL ADDRESS SO THAT WE MAY SEND YOU THE LINK.

Copyright © 2007 by Mark Nestmann

Court Strikes Down Key Provision of USA PATRIOT Act

Could you be the subject of a FBI inquiry because you checked out a biography of Osama bin Laden at your local library?  Or if you requested a copy of Mao Tse Tung's Little Red Book (an infamous paean to the alleged glories of Communism) through an inter-library loan?

That's exactly the type of inquiries undertaken by the FBI under authority of the "national security letters" (NSL) provision of the USA PATRIOT Act.  This law, enacted by a panicked Congress only a few weeks after the attacks of Sept. 11, 2001, has numerous arguably unconstitutional components. 

Among the most objectionable of these are the NSL provisions, which permit the FBI to demand virtually any record from a U.S. business or organization, without obtaining a warrant based on probable cause of wrongdoing. 

The burden of proof on the FBI to issue a NSL is very low.  It must certify only that the records are "sought for" or "relevant to" an investigation "to protect against international terrorism or clandestine intelligence activities."  This has led to an explosive growth in NSLs, with the number issued increasing from 8,500 in 2000 to more than 47,000 in 2005.

FBI officials may forever prohibit the recipient of a NSL from disclosing its existence "to any person" other than the recipient's lawyer, with five years imprisonment as the prescribed punishment.  The most requested records include library records, telephone logs, e-mail logs, financial and bank records and credit reports.  The FBI may retain the records indefinitely, even when they prove irrelevant to an investigation.  They may also be shared broadly, facilitating the creation of electronic dossiers on tends of thousands of Americans.

Last March, the Department of Justice Office of the Inspector General issued a report in it found "serious misuse" of NSLs on the part of the FBI.  Thousands of NSLs have been issued that didn't even meet the minimal burden of proof the USA PATRIOT Act requires.  (Presumably, these include the library inquiries I just mentioned.)

However, on Sept. 6, a U.S. District Court ruled that the section of the Patriot Act that authorizes NSLs violates the free speech provisions of the U.S. Constitution and unreasonably curbs the authority of the judiciary.  The court barred the FBI from issuing NSLs, but delayed the effective date of the prohibition until Dec. 6, 2007 to give the Bush administration a chance to appeal.

That's definitely a step in the right direction.  In the meantime, Congress has stepped in with a bill that would reform NSL authority to preserve judicial oversight, so that NSL recipients can appeal them before a court.

History shows that democratic societies don't cope well with sudden crises.  The greater the crisis, the swifter and more unthinking the solution politicians concoct.  Thankfully, six years after the events of Sept. 11, 2001, the United States may be returning to a more balanced approach to the "War on Terrorism."

Copyright © 2007 by Mark Nestmann

Would You Pay 25 Cents to Protect Your Privacy?

Information has value, so it's not surprising that a trade in personal information exists.  Technology has made organizing personal information much easier and more thorough.  But it also facilitates invasions of our privacy we wouldn't have dreamed of only a few years ago.

If you live in the United States, just about everything you might want to keep private is for sale: your telephone records; the location and value of your home; your medical records; your financial records; and, much, much more. 

You might wring your hands and despair at this loss of privacy.  But, most Americans won't spend even 25 cents to protect your data from disclosure.  A recent study from researchers at Carnegie-Mellon University and the University of California found that most persons aren't willing to spend anything—even 25 cents—to prevent companies from selling sensitive information about them.  They weren't willing to pay to protect data as sensitive as the number of individuals with whom they'd had sex.

There are a number of reasons Americans aren't willing to trade their depreciating greenbacks for greater privacy.  I'm not a social scientist, but I think the most important one is that they don't understand how information about them is sold, data mined, and otherwise used for purposes ranging from deciding if they're good prospects to purchase aluminum siding to identifying them as potential terrorists. 

On the other hand, when privacy invasion is more visible—telemarketing calls come to mind—Americans will spend a little time (if not money) to avoid it.  Perhaps that's why nearly 150 million Americans have put their names on the Federal Trade Commission's "'Do Not Call" list.  There's no charge to have your name placed on this list. 

In addition, younger Americans have a much higher tolerance for privacy invasion than older Americans.  Recently, I warned the college-age daughter of a friend about how U.S. intelligence agencies were data mining information on social networking Web sites such as MySpace to identify the next generation of terrorists or other malcontents.  She was surprised, but when I saw her two weeks later, she told me she didn't plan to take down her MySpace page.  "That's how I meet all my friends," she told me.  I don't have anything to hide, so why should I worry?" 

The truth is, though, that all of us have things to hide.  The "nothing to hide" argument is specious on its face: would you give a stranger the combination to your safety deposit box?  Would you knowingly give your credit card number to someone an identity thief?  Those who say they have "nothing to hide" also fail to appreciate the fact that data mining may reveal—perhaps falsely—an association with a group labeled as threatening.  Indeed, that's the precise reason why the Homeland Security Administration's terrorist watchlist contains hundreds of thousands of names, when in reality, only a tiny handful of these individuals have seriously considered, much less tried to carry out, a terrorist attack.

However, so long as data mining occurs behind the scenes, and the "average American" doesn't seem affected by it, the nothing to hide argument will continue to have legs.  And that's a shame, because all of us have something to hide, even if we don't know it.

What do YOU have to hide? Click here to learn how the witness protection program and other high-security initiatives protect the people whose privacy must be preserved—perhaps as a matter of life and death.

Copyright © 2007 by Mark Nestmann

Moving Money Privately

It's no longer risk-free to move large quantities of money, undetected, across international borders, are over.

It's true that drug cartels and others still smuggle cash across the U.S.-Mexican border and other international frontiers.  But, they take considerable legal risks doing so, including fines, imprisonment, and of course, forfeiture of the cash.

It's perfectly legal to transport cash across the U.S. border, and most other international borders—you just have to make a declaration of that fact to your national authorities.  When you transport more than US$10,000 in cash or cash equivalents across a U.S. border, for instance, you must file FinCEN Form 105.

However, when you get your cash to your offshore bank or other offshore service provider, you may find that it's not willing to accept it, especially if you don't already have an existing relationship.  That's a consequence of money laundering laws now in effect in virtually every country in the world. 

It was once possible to fund international investments with money orders.  That's still possible in some situations, but international financial institutions are increasingly reluctant to accept funds that originate in any "unconventional" form.  Before you assume you can fund an international investment with money orders, check with it in advance. 

Also be aware that when you purchase money orders with cash, the bank or other service provider that sells them to you will probably be required to verify your identity.  For instance, under U.S. law, if you purchase bank checks, cashier’s checks, money orders, or traveler’s checks, in amounts between US$3,000 and US$10,000, the issuer must verify your identity and retain a record of the transaction for five years.  If the purchase is for more than US$10,000, a record of the transaction must be sent to the U.S. Treasury.   

That leaves funding offshore investment with a check or a wire transfer as the most realistic option for most persons.  Both options leave a paper trail, so I generally recommend that clients simply wire the proceeds directly to their intended recipient, since it avoids the necessity of waiting for a check to clear.  It may be possible to wire funds to an offshore bank's U.S. correspondent account for further credit to a foreign account.  This may be a slightly lower profile way to fund the investment than wiring it directly overseas. 

However you fund your offshore investment, make certain to comply with the reporting requirements for offshore investments.  U.S. persons must file Form TD F 90-22.1 annually for foreign "bank, financial, or 'other' financial accounts" they hold with an aggregate value of US$10,000 or more.  They must also disclose the existing of the account(s) on Schedule B of their tax return. 

Other reporting requirements may apply as well, depending on the type of investments you make, as well as whether you choose to make them through some kind of offshore entity such as an offshore trust or offshore company.

Learn more about the reporting requirements for international funds transfers, offshore investments—and the investments you can legally avoid reporting—by clicking here.

Copyright © 2007 by Mark Nestmann

Turn In Your Friends, Neighbors and Family Members …and Earn Generous Informant Commissions

Want to earn some extra cash?

It's easy…just participate in one of the many "paid informant" program run by various U.S. government agencies.

Think your neighbor…or that brother-in-law you don't like—is a tax cheat?  Call the IRS to report the violation, then download IRS Form 211 to claim your reward—up to 15% of the "additional taxes, penalties, and fines collected as a result of the informant’s information."

Not satisfied with 15%?  If information you provide to the Drug Enforcement Administration or other government agency leads to a property forfeiture, you're eligible for a commission up to 25% of the amount recovered.

Not satisfied with 25%?  In numerous cases, informants have negotiated "sweetheart deals" with government agencies to submit information in return for commissions as high as 50% of the assets seized.

Of course, not all informants act for money.  In Iowa, anonymous tipsters can call a toll-free number to report littering.  In New York, "naughty nannies" can be reported.  In Akron, Ohio, people smoking in no-smoking areas are under the informant's spotlight.  And just about every city in the United States has a "Crimestoppers" number you can call anonymously to report your suspicions that your friends, neighbors, or family members are doing something illegal. 

Sometimes when an informant doesn't exist, police make one up.  Last fall, police burst into the Atlanta home of 92-year-old Kathryn Johnston.  They didn't bother to knock, since U.S. courts have repeatedly declared that "no-knock" raids don't violate the U.S. Constitution.  But when the officers burst in without warning, Johnston fired at them, and they fired back, 39 times in all, killing her instantly.

It turns out that police obtained the warrant to search Johnston's house by falsely declaring that they had confirmed drug dealing at the house through a confidential informant.  After the shooting, the officers involved planted marijuana in Johnston's home to "prove" that she had been involved in drug sales.  They also tried to persuade the informant whose name they used in the warrant to back up their story. 

Naturally, given the "success" of the informant system, the Bush administration wants to expand it.  In 2004, President Bush instructed the FBI to develop a greater "human intelligence capability."  In response, the FBI came up with a plan in late July to recruit 15,000 additional covert informants, at an estimated initial cost of US$22 million.  Their job?  Reporting to FBI officials anybody who is "suspicious." 

If this sounds familiar, it should.  Back in 2002, the Bush administration unveiled its proposed Terrorism Information and Prevention System, or TIPS, in which millions of Americans would be recruited as domestic informants.  Had the program gone into effect, the United States would have had a higher percentage of citizen informants than the former East Germany did through its infamous Stasi secret police.

One consolation, I suppose, is that the FBI's new informant proposal is far less ambitious than TIPS.  A further consolation is that the FBI has decided not to put domestic spies through the same training courses used by the CIA.  That's a good thing, since U.S. intelligence officers abroad can use bribery, extortion, and other illegal acts to coerce informants into working for them.  This is supposedly illegal in the United States, although if the payment of informant commissions isn't tantamount to bribery, I don't know what is.  (No official word on whether commissions will be available in the FBI's new program, but I'm certain they will be, as it's government policy to permit federal agencies to make their own, ad-hoc deals with informants.)

It's also predictable who the informants will tattle on: anyone whose political views or lifestyle they don't approve of.  We can therefore expect reports to pour in to the FBI of the suspicious activities of animal rights activists, fringe religious groups, or anyone else who seems "different." 

Does that make you feel safer from terrorism or other criminal activity?  It shouldn't, any more than the KGB or the Gestapo made citizens of the Soviet Union or Nazi Germany feel safer.

Copyright © 2007 by Mark Nestmann

Your Offshore Numbered Account…What it Is…and Isn't

A few years ago, I read Christopher Reich's massive novel, Numbered Account, billed as an inside look at the "anonymous" world of offshore banking. 

While the book is definitely a page-turner, it's not a particularly accurate portrayal of the Swiss banking industry, which the book portrays as providing dictators, narcotics kingpins, and terrorists with anonymous access to global financial markets and electronic funds transfer networks. 

One of the book's biggest faults—and of most works in this genre—is that that it blurs the distinction between an anonymous account and a numbered account.

An anonymous account is exactly that; the bank at which it's opened has no idea as to the identity of its customer.  While it was once possible to open truly anonymous accounts using attorneys or other intermediaries in Switzerland, Liechtenstein, and other offshore centers, no major financial center still offers them.  Switzerland, for instance, abolished anonymous accounts in 1991; Liechtenstein and Austria did so in 2000. 

Unlike an anonymous account, with a numbered account, you must disclose your identity to a bank, and fully comply with the bank's due diligence and know-your-customer requirements.  However, only a few officers at the bank know your real name.  All other bank employees know you only by a number or a code word.  Transactions are carried out in your pseudonym or number plus a password, not your real name.  Bank statements show only your pseudonym or number.  Even your personal banking representative doesn't know your real name. 

The main benefit of a numbered account is that it avoids the possibility that a lower level bank employee might be coerced or bribed by an outside party to reveal information about your account.  These techniques are well known to kidnappers, for instance.  Another advantage is that bank statements won't actually contain your name.  No one can prove with a stolen bank statement that the account actually belongs to you.

Numbered accounts are available in a number of offshore banking centers, including Austria, Liechtenstein, and Switzerland.  Because administrating a numbered account is more expensive than dealing with an ordinary account, the charges are often several times higher.  Only you can decide if the privacy and security advantages are worth the additional costs.

Copyright © by Mark Nestmann   

U.S. Anti-Laundering Laws are a Colossal Failure

I recently received a letter from a company with which I have a mutual fund investment.  The letter informed me that the fund was sharply increasing its management fees due to sharply increased costs of complying with the USA PATRIOT Act and related anti-laundering legislation.

That letter got me wondering…what exactly is gained by the existence of anti-money-laundering laws?  Even ignoring concerns about the erosion in civil liberties that the War on Laundering ha engendered, it turns out the answer is very little, if anything.

First, a little background: In 2003 (the latest statistics available), U.S. financial institutions spent about US$3 billion on anti-laundering compliance efforts.  That figure doesn't include the billions more annually in taxpayer dollars expended to fund investigations and prosecutions of money launderers, investigate "suspicious transactions," etc.

What benefits are we receiving for this expenditure?  Very little.  The latest statistics from the U.S. Department of Justice—again from 2003—show that total money laundering seizures and forfeitures amount to only about US$700 million each year.  Moreover, the number of money laundering related criminal convictions is actually going down.

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One might think these figures prove that the War on Laundering has been "won."  Hardly.  The International Monetary Fund (IMF), estimates the aggregate size of money laundering in the global economy is from 2%-5% of the world's gross domestic product (GDP).  Applying this figure to the U.S. GDP of US$11 trillion (again, from 2003) generates an estimate of annual laundering activity in the United States between US$220 billion and US$550 billion.

Using the lower figure to provide the most favorable light possible in the ongoing Laundering War means that in 2003, the Department of Justice seized only 0.3% (US$700 million of US220 billion) of the funds laundered in the United States. 

One reason why the Laundering War has failed is because the way that money laundering is investigated.  Leads for money laundering investigations come from "suspicious activities reports" (SARs) submitted by financial institutions to the U.S. Treasury's financial intelligence unit, the Financial Crimes Enforcement Network (FinCEN). 

Since 2003, civil and criminal enforcement of SAR reporting rules has greatly intensified.  Numerous banks have been filed millions of dollars for not reporting transactions that FinCEN deemed suspicious.  Some banks have even set quotas for increased numbers of SARs to be filed each reporting period.  Not surprisingly, that's led to a huge spike in SAR filings—more than doubling from 2003 to 2006.  Financial institutions file more than 1.1 million SARs each year.

However, the overwhelming majority of these reports were for innocent activity.  Indeed, of the nearly 700,000 SARs filed in 2004, fewer than 900 were actually passed on by the collecting federal agency to a law enforcement agency for follow-up.  In other words, 99.87% of SARs don't lead to a criminal investigation. 

What does this analysis tell us?  First, it reveals that the War on Laundering is a complete failure.  Second, it reveals that the SAR apparatus set up to fight this "war" is a farce, and totally useless for its intended use.  Third, it demonstrates that the government is allocating massive resources to analyze completely innocent financial transactions. 

What can be done about it?  Shelving the SAR requirements would be a good start.  That would free up resources to investigate real criminals, not innocent bystanders. 

Learn how to avoid having your bank account transactions targeted as suspicious…and other strategies to protect yourself from financial surveillance.  Click here for more information. 

Copyright © 2007 by Mark Nestmann

Could U.S. Bank Wire Spying Sink the Dollar?

For more than six years, the Bush administration has secretly tapped into a global database of confidential financial transactions. 

Using authority granted under an obscure law called the International Economic Emergency Powers Act (IEEPA), shortly after the Sept. 11, 2001 attacks, the Treasury Department issued a secret administrative subpoena to compel a Belgian-based international banking consortium to open its records.  The Society for Worldwide Interbank Financial Telecommunication, or SWIFT, routes more than US$6 trillion daily between nearly 8,000 financial institutions worldwide. 

U.S. government officials claim that the "Terrorist Finance Tracking Program" (TFTP) investigates only transactions related to terrorist financing, but SWIFT itself says it can't extract the bits of data U.S. analysts seek.  So, it has given the Treasury Department access to its vast database of detailed records on billions of bank-to-bank transfers.  Moreover, the IEEPA statute doesn't require the government to show that specific records are relevant to an investigation of a specific person or group before they are subpoenaed.

There are numerous possible uses of the SWIFT data entirely unrelated to terrorism investigations.  The data would be useful to help enforce U.S. economic sanctions against Cuba and other countries.  It could also be used by the IRS to crack down against U.S. persons engaged in offshore transactions, or by the CIA to conduct economic espionage against foreign businesses competing against U.S. businesses. 

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While the European Union and the United States have reached a tentative deal that would require the data turned over from SWIFT to be used exclusively in anti-terror investigations, the agreement won't apply outside the 27 EU countries.  And there's no assurance that the United States will actually abide by this agreement, since all details of the program are secret. 

Consider the situation in the non-EU nation of Switzerland, where 99 banks and 254 other financial institutions are connected to SWIFT, with a daily transaction value of some US$160 billion.  Although the Swiss Bankers Association claims that the TFTP doesn't violate Swiss bank secrecy laws, there is little doubt that extensive information about Swiss banking transactions have been released to U.S. investigators.

However, behind the scenes, a groundswell of opposition to the TFTP is forming.  The central banks of China and Russia have joined private companies in calling on SWIFT to pull all non-U.S. data out of the United States.  Banks in these countries, and in India, are investigating domestic alternatives to SWIFT that would not be subject to warrantless U.S. surveillance.  Ultimately, the backlash against SWIFT could turn into a backlash against the U.S. dollar if global financial institutions decide that there is no way to conduct dollar transactions without having the details turned over to the IRS or to politically favored U.S. companies. 

Finally, there is little assurance that the TFTP is even remotely effective for its stated purpose.  Underground networks that exist outside the banking system, such as Hawala, have long been used to transfer money internationally.  Terrorists are increasingly using these networks rather than dealing with banks, where their financial dealings are subject to far greater scrutiny.  The inevitable result: non-terrorist bank customers have their transactions placed under the U.S. Treasury's microscope, while the real terrorists get away scot-free. 

Copyright © 2007 by Mark Nestmann