Asset Protection BLOG - Mark Nestmann

Six Top Expatriation Myths

If you're a U.S. citizen or permanent resident, the U.S. government has assigned itself the right to tax your income, no matter where you live.  I sometimes tell U.S. clients that even if they jumped in the Starship Enterprise and traveled to the Delta Quadrant (30,000 light years away from earth at its closest point), they would still be subject to U.S. tax!

In response to the ridiculous—but unfortunately very real—presumption that U.S. citizens must pay income tax wherever they live, an increasing number of U.S. citizens are giving up their U.S. nationality.  Yes, it's a big step, and it means you no longer have the legal rights and privileges of a U.S. citizen.  You can't vote, for instance, and you no longer have the automatic right to live in the United States.  But this process of expatriation is the only way U.S. citizens can permanently sever the obligation to pay tax on non-U.S. income.

However, there are also a number of myths—many of them propagated over the Internet—about expatriation.  I'll be discussing these myths—and debunking them—in one of my presentations at The Sovereign Society's upcoming Offshore Advantage Academy event in Cabo San Lucas, Nov. 3-6, 2010. 

Here's a preview:

Myth #1: "Only a tiny number of people expatriate each year." 

It's true: the "official" number of people who take this admittedly radical step is tiny—only a few hundred annually.  The Treasury Department is supposed to publish their names in the Federal Register each quarter.  But the real numbers are much higher. 

One especially busy U.S. consulate in Switzerland expatriates three people daily with appointments booked a year in advance.  That comes to close to 1,000 expatriations annually—just from a single consulate. 

Another reason the official numbers are so low may be that the law mandating Federal Register reporting by the Treasury Department applies only to "covered expatriates."  These are individuals who have a net worth over $2 million, or who meet other criteria making them potentially subject to an exit tax.  However, none of the covered expatriates my firm has helped expatriate has had their name published in the Federal Register. 

I think the government doesn't want you to know that the number of people expatriating is exploding.  And it's willing to "cook the books" to make sure the information doesn't get out.

Myth #2: "You have to pay an exit tax on your net worth when you expatriate"

I was at a dinner meeting a few months ago where I was introduced to an elderly gentleman who insisted that anyone who expatriated would automatically forfeit 15% of his or her net worth.

When I asked him for a legal citation to this "fact," he simply repeated his assertion.  He also mentioned that he was a major contributor to the organization sponsoring the event we were attending.  That no doubt earned him some brownie points at this organization, but it doesn't make his assertion correct.

The fact is that the exit tax now imposed on U.S. expatriates only applies if you're a covered expatriate.  And even if you are, the exit tax only applies to unrealized gains that exceed $627,000. 

There's no exit tax on your net worth simply because you've expatriated.  Of course, that may change in the years ahead if Congress decides to put the screws to expatriates in some future law.

Myth #3: "You can only spend 30 days/year in the USA."
 
Another misconception is that if you expatriate you can only spend 30 days each year in the United States without becoming subject to U.S. tax on your worldwide income. 

This myth actually has some basis in fact, because it was true under an old law that was abolished in 2008.  And it still applies if you expatriated between 2004 and 2008.  But no longer.  Now expatriates are treated the same as any other non-resident alien (NRA).  In general, a non-resident alien can spend an average of 120 days/year in the USA without becoming subject to tax on his or her worldwide income.  This period can be extended in some circumstances.

Myth #4: "If you expatriate you can't come back."

There's another rumor that once you expatriate you can never return to the United States.  That's hogwash, although again there's a small basis in fact to the rumor. 

In 1996, Congress enacted the so-called Reed amendment to the Immigration and Nationality Act.  The amendment gives the Attorney General the discretion to deny entry into the United States to a former U.S. citizen who renounced U.S. citizenship in order to avoid U.S. taxation.  

Other categories of "excluded persons" are those with communicable diseases or other health conditions; those convicted of crimes involving moral turpitude or illegal drugs or with multiple criminal convictions; prostitutes; spies; terrorists; and draft evaders.

After Congress enacted the Reed Amendment, commentators criticized it for violating US treaties and possibly the US Constitution as well.   And nearly 15 years after its original enactment, regulations under this provision have not been issued, and its power has never officially been invoked. 

"Tax motivation" is no longer a factor in determining the status of a covered expatriate.  For this reason, the Reed Amendment may no longer be relevant, particularly since it has been so long since its enactment, with no regulations in place to enforce it. 

Given this history, it may be safe to assume that one can safely give up U.S. citizenship with no fear of future exclusion, particularly if you choose an expatriation option other than formal renunciation. 

Myth #5: "Expatriates lose Social Security benefits"

Again…not true!  No restrictions exist on Social Security payments sent to non-citizens in most cases.  The only significant restrictions are if you live in a country upon which the U.S. government has imposed trade or financial restrictions; e.g., Cuba, North Korea, or Iran. 

However, if you're not a U.S. citizen, depending on where you live, there may be a withholding tax of as much as 30% on the first 85% of your monthly payment.  This percentage may be reduced or eliminated if there's a tax treaty between the United States and your residence country. 

Myth #6: "Expatriates are automatically targeted for reprisals by the IRS"

Thank goodness this myth is false.  There is no IRS vendetta against expatriates.  Quite the opposite!  The IRS has much easier pickings going after people still living in the United States, with substantial U.S. assets.  It can use its resources more efficiently than to harass former U.S. citizens not living in the United States and with minimal or no U.S. assets or activities. 

Indeed the act of expatriation stops the clock on all future IRS obligations.  You still have obligations to pay past taxes, but the statute of limitations for collections eventually runs out assuming you've filed all relevant returns for tax years prior to expatriation.

Is Expatriation for You?

Exploding expatriation myths is just one part of the presentation I'll be making on this topic in Cabo San Lucas.I'll also be discussing:

• The best options for second citizenship and passport for prospective expatriates
• How to size up an offshore jurisdiction as a prospective low-tax residential haven.
• Tax planning for prospective expatriates with family members remaining in the United States…

…And much more. 

You won't want to miss it.  For more information on this event, click here:

See you in Cabo!

Copyright © 2010 by Mark Nestmann

P.S. To learn more about expatriation, check out my BILLIONAIRE'S LOOPHOLE report in the bookstore on my Web site, http://www.nestmann.com.

The Tax Hazards of a U.S. Passport

By P. T. Freeman

(P.T. Freeman is a pseudonym for a friend and business associate who is a former U.S. citizen.)

Recently, I was having a conversation with a friend of mine who is a journalist here in the Caribbean.  While she grew up in the islands, she was born in Florida. During my friend’s early childhood, her mother divorced and relocated to the Caribbean.  Subsequently, her mother remarried and the husband formally adopted my friend as his legal daughter.

In the course of our conversation, my friend mentioned that she had just re-discovered her long-lost U.S. passport in a drawer at her mother's home.  It had expired a few years ago.  In the intervening years, she had visited the United States several times, but using another passport.  This is a serious violation of U.S. law, because U.S. citizens must always use their U.S. passport to cross U.S. borders.  However, because her stepfather’s last name appears on my friend’s Caribbean passport, no "alarm bells" were ever triggered when she crossed a U.S. border.

But, this was just the beginning of my friend’s problems. I asked her is she was still filing U.S. tax returns.  “No,” she replied. “I left the United States when I was a child.  Why would I have to file tax returns there when I’ve never worked there or even lived there since childhood?”

I patiently explained that the United States requires its citizens to pay tax on their worldwide income, no matter where they live.  I also told her that she possibly faced a long prison sentence for not disclosing each year the existence of all bank accounts she held outside the United States with an aggregate value exceeding $10,000. And I mentioned that while she could make an appointment to give up her U.S. passport at a local U.S. consulate, she would continue to be subject to these taxes and criminal sanctions for all past years.  She could be arrested and taken into custody anytime she visits the United States!

Her response was a mixture of horror and disbelief.  After a few minutes, she replied "well, screw 'em!  They can keep their damn passport." 

I doubt that the Department of State will collect any passport renewal fees from this young lady!  But even if she formally gives up U.S. citizenship and “expatriates,” that still won’t eliminate her past tax or reporting obligations.  She needs legal representation in the United States to deal with these obligations, and it won’t come cheaply.

The moral of this story is that if you are a U.S. citizen, no matter where you live, you must file a U.S. tax return each year. You must also disclose details of every “bank, securities or ‘other’ financial account” to the U.S. Treasury each year, if their aggregate value exceeds $10,000 on Form TD F 90-22.1.  Incidentally, the information on the TD F form may be shared with virtually any government or police agency anywhere in the world!

Being a former U.S. citizen, I am no longer subject to these unreasonable and frankly dictatorial requirements.  Nor am I subject to U.S. jurisdiction, except to the extent of my U.S. investments, or when I visit the United States. 

That’s true freedom, and the essence of being a “sovereign individual.”

U.K.: Dismantling the Surveillance State?

The U.K. government has promised to do something unprecedented since the events of Sept. 11, 2001.  It plans to roll back key aspects of the surveillance state created by the "New Labour" party of Prime Ministers Tony Blair and Gordon Browne.

The coalition of the Conservative Party and the Liberal Democrats has its work cut out for it.  By many measures, residents of the United Kingdom are the most highly monitored in the world.

Under New Labour, the U.K. government enacted laws requiring persons using encryption to reveal their keys and passphrases at government demand.  It was at the final stages of a plan to force Internet Service Provides and phone companies to retain records of all e-mail and telecom data. 

The New Labour government also forced through an initiative to create national ID cards and biometric passports.  It created a national DNA database, with no right for individuals cleared of criminal wrongdoing to have their records expunged.

In addition, New Labour eliminated the right of jury trials for many offenses.  It also became very difficult for citizens to find out what information the government maintained on them.  New Labour's anti-terrorism laws permit terrorist suspects to be put under house arrest or curfew or electronically tagged, without access to the courts.

However, the most visible sign of surveillance is the U.K.'s enormous closed circuit television (CCTV) network.  A nationwide network of smart cameras captures up to 14 million photographs of motorists daily.  Images of vehicle passengers are then stored on huge database linked to license plate recognition software to track vehicle movements.  The most recent innovation in this system combines license plate readers with GPS satellite technology to catch speeders. 

The Conservative-New Democrat coalition promises to scrap key aspects of this surveillance network.  It has already canceled the national ID card scheme.  More importantly, it has abandoned the national identity register, the database on which ID card data would be recorded.  Biometric passports will also be discarded.

The coalition also promises to remove innocent persons' records from the DNA database and cancel the plan to retain e-mail and telephone records.  It also pledges to restore jury trials for some offenses, give citizens the right to learn what information the government maintains on them, and introduce safeguards against abuses of anti-terrorism legislation.  It even wants to "review" the use of CCTV. 

These are all very encouraging developments.  And in many respects, they're due to the efforts of one man, Liberal Democrat leader Nick Clegg.  In Clegg, the United Kingdom has an engaging and photogenic proponent for civil liberties.  Clegg promises U.K. citizens “a fundamental resettlement of the relationship between state and citizen that puts you in charge.”

I hope that's a promise he can keep—time will tell.

Copyright © 2010 by Mark Nestmann

Why I Gave Up My U.S. Citizenship [Part III]

By P. T. Freeman

(P.T. Freeman is a pseudonym for a friend and business associate who is a former U.S. citizen. This is his story of how he reached the breaking point of giving up U.S. citizenship.  In Parts I and II, P.T. described the events that led him to consider giving up U.S. citizenship and the mechanics of doing so.  Here, in this concluding segment, he discusses his experiences during and after expatriation.) 

As I entered the U.S. consulate to give up my U.S. citizenship, my mind was whirling.  Was I doing the right thing?  Would the momentous step of expatriating come back to haunt me in some way later in my life?  Despite these misgivings, I was determined to see this process through to the end.

However, I was surprised how smoothly the process went.  The U.S. consular officer I met with was completely non-judgmental.  He gave me some official government forms to complete and asked me if I understood the consequences of giving up U.S. citizenship.  The forms required me to state that I wasn't expatriating under compulsion, that I was of sound mind, and that that expatriation was, in fact, irrevocable. 

After I completed the forms, the official took my U.S. passport, as well as the forms. He also made a copy my new passport to demonstrate to the State Department that I would not be a "stateless person" upon giving up U.S. citizenship. While the United States (unlike most nations) doesn't prohibit its citizens from becoming "stateless," State Department policy is to discourage them from doing so. He also informed me that in a few weeks, I would receive an official document called a "Certificate of Loss of Nationality" or CLN.  The entire process took less than 30 minutes, most of which were waiting for copies to be made and other administrative processes.

About two months later, I received my CLN.  This was my official notification that I was no longer a U.S. citizen.  Attached was a letter explaining that I could appeal my loss of nationality, if I chose to do so, directly to the Attorney General. Occasionally, I'm asked to show a copy of the CLN to prove my ex-citizen status when doing business or banking internationally.  This is due to the many restrictions offshore institutions place on doing business with U.S. citizens.

Since I still have family and business interests in the United States, my next step was to take my Dominica passport and CLN back to the U.S. consulate and apply for a multiple-entry visa to visit the United States.  In a short meeting with a consular officer, I was asked whether I intended to permanently settle in the United States.  Of course, I had no intention of once again becoming subject to the jurisdiction of OFAC and the IRS!  Once I assured the officer I had no such intention, the visa was issued within a few hours.  This visa gives me the right to visit the United States for up to 90 days at a time, although not to reside there. 

While I completed these steps only a few years ago, I have already experienced enormous benefits both personally and in business. I can travel anywhere in the world with my new passport. And I now have extensive business interests in Cuba and other countries subject to U.S. sanctions.

I started this series of articles at the marker in Key West, looking over the Straits of Florida.  I will end there as well.  In a recent visit to Key West, I turned around and saw a group of tourists who had disembarked from a trolley tour and were snapping pictures of the marker. None of those tourists who are U.S. citizens or residents can visit Cuba. I can. Those who are U.S. citizens or residents also have to file an annual tax return with the IRS. I don't.

That's what you call true liberation—or if you prefer, being a "sovereign individual."

(Editor's Note: For more information on expatriation, please see my report THE BILLIONAIRE'S LOOPHOLE in the bookstore at http://www.nestmann.com.  And, stay tuned for future contributions from P.T. Freeman.)

Why I Gave Up My U.S. Citizenship [Part I]

By P. T. Freeman

(P.T. Freeman is a pseudonym for a friend and business associate who is a former U.S. citizen. This is his story of how he reached the breaking point of giving up U.S. citizenship.) 

Have you ever been to Key West, Florida?

A landmark in Key West is a marker at the corner of Whitehead and South Streets that says in big letters: "Southernmost Point Continental United States." Above it reads in smaller letters: "90 miles to Cuba." Visiting this concrete marker recently made me pause and reflect upon a major decision that I made a few years earlier: the choice to give up my U.S. citizenship.

This process started when I found that there were many restrictions on my ability to travel or do business outside the United States because of my U.S. citizenship. For instance, I had long desired to visit the Republic of Cuba, but because of my U.S. citizenship, I could not do so. Canadians, Mexicans, Europeans and every other nationality may travel and do business there, but with limited exceptions, U.S. citizens have not been excluded from Cuba for nearly 50 years.

As I thought about this prohibition and the many others established by statute or executive order, I became outraged. Finally, in 1994, I read a story that galvanized me to take action. The story was about a group called the "Freedom to Travel Campaign" that sought to end these travel restrictions.  This group had challenged Treasury Department regulations prohibiting such travel.  However, the Clinton Justice Department, perhaps fearing that juries would side with these "tourist lawbreakers," declined to prosecute the cases.

In reaction to the failure of the Justice Department to prosecute these tourists, the Treasury Department amended the regulations to make it possible to fine persons violating travel restrictions administratively, without going to court. The U.S. Treasury Department administers these and other sanctions programs through the Office of Foreign Assets Control—http://www.ustreas.gov/ofac. 

Despite the risks, I decided to secretly visited Cuba.  I flew to Nassau, the Bahamas, and embarked upon the daily direct flight to Havana on Cubana de Aviacion, Cuba's national air carrier. 

While in Cuba, I discovered a wealth of business opportunities. This was the height of the "Special Period in Peace" when, due to the collapse of the Soviet Union and the end of Soviet aid, the Cuban economy was in a tailspin. 

There was a serious need for outside investment on favorable terms. I decided that I wanted to participate in those investments. Returning a few days later to Nassau, I passed through U.S. Customs pre-flight inspection without revealing that I had visited Cuba. (The customs inspector did not ask me if I had done so, and the customs forms in those days did not ask, "countries visited on this trip prior to U.S. arrival," as they do now.)

Upon my return to the United States, I began to read the U.S. Treasury regulations regarding Cuba. I learned that they prohibited virtually all contact with Cuba by any person "subject to U.S. jurisdiction." This included: "all U.S. citizens and permanent residents wherever they are located, all people and organizations physically in the United States or its territories, and all branches and subsidiaries of U.S. organizations throughout the world, corporations, wherever they are located throughout the world."

Criminal penalties for violating the regulations range up to 10 years in prison, $1,000,000 in corporate fines, and $250,000 in individual fines.  Civil penalties up to $65,000 per violation may also be imposed.

The only way to legally travel to or do business with Cuba, or any other sanctioned country, was (and still is) to obtain a license issued by OFAC.  Only journalists and a few other classifications of individuals may obtain a license to travel to sanctioned countries.  For businesses, it is almost impossible to obtain a license.

The only other option was not to be a U.S. citizen. At that moment, I was not prepared to take that step. Instead, I decided to explore the possibility of living outside the United States. However, I quickly discovered that doing so did not exempt me from OFAC regulations. I also learned that there was no escape from the obligation of U.S. citizens to pay tax on their worldwide income, even if they physically resided outside the United States. I began to seriously wonder if my "little blue book" (my U.S. passport) was really worth keeping.

(In Part II of this article, P.T. describes the "nuts and bolts" of expatriation: obtaining a second passport, and the all-important psychological impact of giving up U.S. citizenship)

Preparing for a U.S. Border Crossing

If you're planning to leave—and especially to enter—the United States, you need to take several precautions before you do so.

That's because Customs and Border Patrol (CBP) agents can seize and copy the contents of any electronic device you carry across a U.S. border.  That includes your laptop, your cell phone, your USB flash drives, your digital camera, etc.  Agents don't need probable cause or even reasonable suspicion to conduct a search of your electronic data—just "gimme."  They can copy the data for investigative purposes and then use that information against you in a subsequent criminal case.

Fortunately, such searches are relatively rare.  For instance, logs from the Department of Homeland Security show that agents searched 1,000 laptops between October 2008 and August 2009.  Only 46 of these searches were "in-depth."  From these searches, five travelers were found to have "illicit information" on their laptops.  During this nine-month period, 221 million travelers came through U.S. ports of entry.

Since the odds are low you'll be targeted for a search, you may be tempted to run the CBP gauntlet without taking precautions to protect your data.  That would be a mistake, particularly if your laptop or other electronic device contains any information that you'd prefer not to share. 

For instance, if you're an attorney, your laptop may contain information subject to attorney-client privilege.  If it does…well, too bad.  According to published CBP guidance, "a claim of privilege …does not prevent the search of a traveler's information at the border."  Or perhaps your smartphone contains trade secrets or other data you'd rather not share with the U.S. government.  But when you carry it across a U.S. border, you've given the government permission to review that data and retain it indefinitely. 

The real problem, of course, is that now this policy is in place, it could be greatly expanded.  Of course, this would be impractical without massive increases in CBP's budget—but another 9/11-type attack might be all that's needed to spur Congress into action.

To avoid a border inquisition, the best precaution is not to carry any electronic devices across a U.S. border.  For most people, this isn't practical, so the next-best strategy is to carry only "sanitized" devices.

For instance, you could purchase an inexpensive laptop and use only for international travel.  Keep nothing on it except for the operating system and program files.  Before you cross the border, "sanitize" it using a program such as Window Washer (http://www.webroot.com). When you return to the United States, securely "wipe" any confidential information off your hard drive, along with the "free space," using a program like PGP Desktop  (http://www.pgp.com).

Back up your data to an online backup site such as Carbonite (http://www.carbonite.com).  Encrypt the data before uploading it, using a product such as PGP Desktop or True-Crypt (http://www.truecrypt.org).

Buy an "unlocked" tri-band cell phone with a replaceable SIM card for international travel.  When you arrive in a new country, purchase a domestic SIM card from a local phone dealer.  This not only protects your privacy at the border, but also eliminates roaming charges.

If you must carry sensitive data across the border, encrypt whatever device containing that data.   However, CBP officials may demand that you decrypt any encrypted files before you proceed.  Refuse, and you might be detained until you agree to decrypt the device for inspection.  If you're a foreign national, you might be turned away and informed that you won't be permitted to re-enter the United States.  (One possible solution: 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.)

Blackberries and other smartphones come with built-in encryption.  However, many smartphone encryption systems have significant weaknesses.  A better solution (unfortunately only for Windows mobile smartphones) may be PGP Mobile (http://www.pgp.com/products/mobile/index.html).

The CBP believes these rules are necessary to investigate terrorism, child pornography, etc., but I'm not so sure.  For instance, if you were a terrorist, would you really bring your laptop across the border with your plans to blow up the White House?  No, 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. 

Welcome to the United States!

Copyright © 2010 by Mark Nestmann

Jim Puplava & Simon Black Interview Mark Nestmann

Last week, I sat down for interviews with Jim Puplava of the "Financial Sense Newshour" and "Simon Black" of International Man. 

To listen to the interview with Jim Puplava, go to http://www.financialsense.com/fsn/main.php and scroll down to the April 17 interviews.  The interview will be archived at http://www.financialsense.com/fsn/2010.html.  My segment of the program begins 27 minutes into the clip.

Jim is founder and chairman of the Puplava Financial Services Group, which manages over $325 million for more than 900 clients worldwide.Jim and I discuss the economy, tax policy, expatriation, and other subjects in the interview.  

To listen to the interview with Simon, go to http://www.sovereignman.com/expat/important-information-about-capital-controls. It emphasizes the prospect for U.S. capital controls in the future. 

Simon  is an international investor and global entrepreneur.  He's a bit of a mystery man ("Simon Black" is a pseudonym) with a very keen mind.

Hope you enjoy the interviews!

Mexico Big Brother Flexes His Muscles

If you're a fan of Westerns, you're no doubt familiar with The Wild Bunch, in which a gang of aging outlaws robs a Texas bank, then flees to Mexico to get the police off their trail.

The Wild Bunch is set in the years before World War I—about 100 years ago.  But if you're thinking about escaping to Mexico today to throw the authorities off your trail—think again.  In addition to an extradition treaty that obligates Mexico to return U.S. fugitives to the United States, the Mexican government is also following the U.S. lead in everything from anti-terrorism procedures to stricter border enforcement.

Recently, a friend and business partner visited Cancun, the massive tourist destination on the tip of the Yucatan Peninsula.  Upon his arrival, he was shocked to see the level of "security" to which all passengers on his flight (which originated in Canada) were subjected.  All luggage was x-rayed and, despite a steep drop in tourist visits to Cancun in recent months, he experienced a long delay before clearing Customs. 

While Mexico heightened surveillance of specific flights some years ago (such as from Bogotá), everyone arriving at the Cancun airport is now subject to greatly increased scrutiny.   This begins even before you are asked if you have anything to declare prior to pushing the famous "probability button" in order to get either a green light (free to pass) or a red light (stop for inspection).

Departing Cancun was even more rigorous.  My business partner held tickets for an early morning flight to Panama.  Mexican Federal Police walked around the gate area and examined the passports of all ticketed passengers on that flight.  What's more, during the boarding process, five Customs agents stationed themselves in the jet bridge examining the carry-on baggage of all passengers, even elderly grandmothers and young children.  This was a thorough inspection, not just a cursory check.  When my friend asked for an explanation of the heightened security, one agent told him that they were looking for undeclared cash.  Under Mexican law (as in the USA), you must declare exports or imports of cash exceeding $10,000 to Customs authorities.

Mexico has come a long way since the era portrayed in The Wild Bunch.  Like it or not, be prepared for an inquisition when you cross the Mexican border, particularly when you arrive or depart via air.

Copyright © by Mark Nestmann

How Elvis Presley Got an "Ultra-Secure" Passport

Elvis died in 1977.  But that didn’t prevent hackers from inserting his digital photo into a U.K. passport, and using it at a self-service passport machine at Amsterdam's Schiphol airport to gain clearance to board a plane.

This incident occurred in September 2008.  But this security vulnerability persists, as proven by the recent assassination of Mahmoud al-Mabhouh, a senior Hamas operative, in a Dubai hotel on January 20. 

The alleged killers of Mr Mabhouh included 11 people holding U.K. and other European passports.  All of the killers used passports containing fake photographs and signatures.

Naturally, this wasn't supposed to happen.  When governments began issuing digitally encoded passports a few years ago, it was supposed to improve border security.  For instance, Maura Harty, former U.S. assistant secretary of state for consular affairs, told a Congressional hearing in 2004:

"Embedding biometrics into U.S. passports to establish a clear link between the person issued the passport and the user is an important step forward in the international effort to strengthen border security."

Only, the technology doesn't work.  Indeed, the "ultra-secure" RFID chips digital passports contain can be cloned with about $100 worth of off-the-shelf electronic equipment.  As a result, we have teams of assassins and who-knows-who-else roaming the world with digitally modified passports.  Indeed, digital passports actually are far less secure than their predecessors. 

The reason is that digital passports—and indeed digital data in general—suffers from an inherent security flaw.  If you take a non-digital passport and try to modify it physically, it's very hard to do so without leaving some evidence of what you've done.  There might be smudges, ink marks, or microscopic impressions of a razor blade used to cut out an old photo and insert a new one.  But with our new "ultra-secure" digital passports, if you figure out how to change the data on the RFID chip, the earlier data vanishes.  There's absolutely no trace of the tampering. 

Now of course, encryption is supposed to protect us from this type of tampering.  But even before governments issued the first digital passports, hackers cracked the encryption codes. Indeed, as far back as 2006, hackers demonstrated how a simple microchip reader purchased off the Internet could clone all the information in a U.K. passport's "ultra-secure" RFID chip.

Surely, the governments that assured us that RFID passports represented a huge security advance knew the risks of relying on digital technology.  The only possible conclusion was that they had a hidden agenda for introducing them—an agenda having nothing to do with security.

What was that agenda?  I believe it is to create a "global travel database."  The purpose of the database is to create a "lifetime personal travel history" of anyone who holds a passport.  Your photograph, your fingerprints, and details of each entry, exit or transit will be part of your dossier in a “biographic and biometric travel history database.” This data can be shared with anyone your government chooses.  Potentially, it could be shared with any of the 150 countries that have introduced, or have promised to introduce, RFID-equipped passports. 

The blueprint for this system comes from the International Civil Aviation Organization (ICAO), which has issued a series of "best practice" standards for biometric passports.  One standard reserves memory space on the RFID chip to create a log of border crossings or other situations in which the chip is queried.  Presumably, this data could be read—and potentially modified—by anyone with a passport reader and the appropriate software.  The result would be a permanent log of the date, time, and place of your international departures and arrivals, the hotels you stayed in, etc.

Doesn't that make you feel safer?

Copyright © 2010 by Mark Nestmann

More Useless TSA Rules Won't Improve Airline Security

The Christmas day attempt by a young Nigerian to blow up a Northwest Airlines jet has the Transportation Security Administration in full blame avoidance (CYA) mode.

Travelers flying to the United States can now expect new layers of inconvenience at airline security checkpoints.  None of these new measures have anything to do with security.  Instead, they're the familiar "security theater" initiatives designed to reassure we ignorant proles that the government is "doing something" to fight terrorism.

Here's what you can expect when you fly to the United States.  First, you won't be able to bring as much carry-on luggage onboard as previously.  Most airlines have now imposed a one carry-on bag limit.  At least one nation (Canada) now bans ALL carry-on bags on flights to the United States.  And while some airlines have temporarily suspended charges for additional checked baggage, this won't last forever.  In this way, the airlines will generate more revenue. Doesn't that make you feel better about security?

Second, security personnel will be even more brazen when pawing through your carry-on and checked luggage.  You can also expect more stupid, irrelevant questions about your travel plans, why you're carrying cash, etc.  Not to mention pat-down searches and whole-body imaging.

Once you get onboard, the fun really begins.  The flight crew may force you to stay in your seat most of the flight, particularly the last hour.  They may take away pillows and blankets and forbid you from using the lavatory.  You may even be ordered to keep your hands in sight at all times once your plane begins descending for landing.

The TSA doesn't require any of these  measures, but have informed the airlines they may impose them if they choose.  In other words, the TSA has turned flight crews into petty dictators.  Just pray you don't have a sadistic flight attendant.  If you do, you'll have a very unpleasant flight.

Oh, yes…don't forget to avoid routings from or through countries the United States has branded sponsors of terrorism or nations the U.S. has decided are "of interest."  Naturally, the TSA won't identify those countries.  However, it's safe to assume if your itinerary involves Afghanistan, Algeria, Cuba, Egypt, Iran, Iraq, Lebanon, Libya, Nigeria, Pakistan, Saudi Arabia, Somalia, or Yemen, you should give yourself LOTS of extra time at the airport to answer questions.

Again, none of these initiatives are likely to improve airline safety.  Take the underwear bomber, for instance.  Security screeners found nothing suspicious in his carry-on bag.  It's not likely a pat-down search would found the small amount of explosives in his underwear.  According to experts, even the whole-body scanners that reveal a naked image of each passenger probably wouldn't have picked up the explosives.  But that's not stopping the TSA and security agencies in other countries from investing billions of dollars to purchase thousands of these devices.

I can't think of a dumber way to spend billions of dollars than to invest it in technology that's ineffective against even current terrorist methods.  The only way to really improve airline security is to focus on suspicious people, not suspicious toothpaste, suspicious hair gel, or suspicious underpants.  The "underwear bomber" clearly should have been singled out for secondary screening.  He wasn't, despite repeated warnings from his family that he might be a terrorist sympathizer.  Anything less is just more security theater.

Copyright © 2010 by Mark Nestmann