One of my
long-standing asset protection clients is a wonderful guy I'll
call Gino. Gino made his money in the "adults only" business. He's
close to seventy years old (doesn't look it) and lives in a
beautiful, but modest, home overlooking the ocean in Santa
Barbara, California. The house is tastefully appointed and stuffed
with mementos Gino has collected during his extensive travels. He
rents the home from a Bahamian corporation and sends his monthly
rent payments to the offshore bank account of the landlord
company. He drives a leased Lexus (not a new one) and routinely
eats lunch at Brophy's restaurant in the marina (cioppino, no
cheese) where he always pays with cash. His favorite activity is
golf. He carries a respectable sixteen handicap and hates slow
play. So, he plays anytime he wants as a guest of a corporate
member of a private country club. I'm not sure if he has a
checking account, but he always has 'two inches' of cash in his
left pocket. See, Gino loves to play gin rummy at a buck a point
with anyone foolish enough to think he might be an absentminded
old man. He files all of his tax returns religiously and tips
service people generously. Everyone knows his first name. If you
won a lawsuit against Gino, you might be able to seize his used
golf clubs, but that's about it. He carries an offshore debit card
in a corporate name that works in any ATM machine. Financially
speaking, Gino is invisible. Psychologically speaking, Gino never
worries about lawyers, or the IRS, or much of anything else for
that matter. He's lived this way since I met him in
1990.
Personal
privacy, especially in financial matters, although
constitutionally protected, is routinely violated by collection
agencies, private investigators, and the government, especially
with the advent of the Internet. As a former collection/eviction
attorney, I routinely accessed the following records to learn
about a debtor's asset and personal life:
-
Voter
registration records
-
Worker's
compensation information
-
Sheriff
and county prosecutor records
-
Real
estate recording records
-
Professional licensing boards
-
Professional licensing boards
-
Corporate
registration records
-
Marriage
licensing records
-
Property
tax records
-
Utility
and credit card bills
-
Litigation, divorce, and bankruptcy files
-
Probate
records
-
Medical
records
-
Telephone
records
If your name
appears in any one of these records, it could be linked to the
remainder of the records. It should also be noted that we were
able to get all this information before the advent of the
Internet.
After the
Oklahoma City bombing in 1995, President Clinton submitted a bill
to Congress making it easier for federal authorities to check your
personal records and use electronic surveillance and wiretaps more
freely. The government can secretly obtain
your financial records without accusing you of any
crime.
The loss of
personal financial privacy can be traced directly back to the
1980s and President Regan's "war on drugs." Remember the "Just Say
No!" campaign spearheaded by the first lady Nancy? It was decided
that since the DEA couldn't stop the entry of drugs into the
country at the borders, maybe the feds could disrupt the drug
business by seizing the drug dealers' money. How this policy was
somehow going to decrease the demand for drugs was never
explained. This development was coupled with the fact that the
federal government was forced to take over hundreds of failed
government was forced to take over hundreds of failed banks and
savings and loans during this same period. You may remember the
now defunct Resolution Trust Corporation, better known as the RTC.
This was the federal agency that liquidated hundreds of failed
banks.
As a result of
this widespread involvement of the federal government into the
private banking business, any notion of
banking secrecy or even privacy was washed away. Prior to
this time, a bank's primary obligation was to protect its
customers, privacy and money. But in the 1980s any bank or
financial institution insured by the government (FDIC) became an
agent or extension of the federal bureaucracy. The banks shifted
their loyalty from their customers to the feds. The government
insured their deposits, provided them with liquidity by way of the
Federal Reserve, and cleaned up their mess when they engaged in
reckless lending. The simple depositor or checking account
customer held no such sway. After the S&L crisis of the 1980s
and subsequent bailout, the federal government felt they had
earned the right to meddle into and more closely regulate the
affairs of its member banks.
Couple this
development with the war on drugs, and you can see how the
currency transaction report (CTR), the requirement for banks to
report any "suspicious activities" of its customers, and the
concept of "structuring" entered the banking lexicon. Suddenly,
anyone dealing in cash was assumed to be doing something illegal.
Any customer depositing or withdrawing more than $10,000 in cash
requires the bank to prepare a CTR to be filed directly with the
federal government. Carrying more than &10,000 in cash in our
out of the country requires a declaration of same to the U.S.
Customs Service. Customs agents routinely seize cash, even amounts
less than $10,000, at border entries if they believe the traveler
is "suspicious" looking. The hapless traveler's only remedy is to
hire an attorney, sue the federal government, and beg to get his
money back.
If you deposit $9,000 in cash one day and $2,000 the next,
you can be charged with "structuring" your deposit to avoid the
CTR requirements. This is a felony.
At the
congressional hearings on the abusive activities of the IRS in
1998, a parade of everyday taxpayers testified that the agency had
investigated every aspect of their lives to determine if they
would make profitable targets for an audit. Everyone claimed to be
outraged and Congress promised the IRS would change their ways,
but not a single IRS agent was dismissed as a result of the
scandal. Arkansas Senator David Payor (D) responded to the
hearings by saying the evidence "confirmed the worst fears about
government mismanagement of data concerning private
citizens."
The most recent
justification given by the federal government to further limit our
right to privacy is the "war on terrorism." The Posse Comitatus
Act of 1878 is supposed to protect us against a president using
the army to enforce the law against a president using the army to
enforce the law against civilians, but in 1996 President Clinton
issued a presidential decision directive to authorize military
intervention against terrorism on our own soil giving the military
the power to do anything necessary to stop any perceived threats
from terrorists. It isn't much of a stretch to assume that if any
of your financial activities are perceived to be for the benefit
of terrorists your accounts will be seized.
President and
part-time cigar smoker, Bill Clinton personally ordered a missile
strike on a pharmaceutical plant located near Sudan's capital city
on August 20, 1998, the night Monica Lewinsky's return to the
grand jury and just three days after his pathetic "apology" bombed
on national TV. He claimed the plant was manufacturing components
used to make VX nerve gas and that it was being financed by Osama
bin Laden, the crazy, rich Saudi entrepreneur wanted for the
deadly attacks on U.S. Embassies in Africa. This all turned out to
be another presidential lie, of course (See Vanity Fair, March
1999, "Weapons of Mass Distraction" by Christopher Hitchens).
Clinton's attack destroyed the plant and killed one person, but
Defense Secretary William Cohen eventually was forced to admit
that the plant did make medicine. But as Clinton would say, "Let's
move on."
The part of this
story that went generally unreported was the activities of the
U.S. Treasury Department. The plant was owned by Salah Idris, a
Sudanese native now living in Saudi Arabia. Immediately after his
plant was wrongfully destroyed, the U.S.
Treasury Department's Office of Foreign Assets Control froze $24
million of Mr. Idris's U.S. accounts on the grounds he and
his money were linked to terrorism. After six months of
foot-dragging by the Treasury Department, Mr. Idris was forced to
file suit in U.S. Federal Court on February 20, 1999, to get his
money back. His lawyers made it clear that Mr. Idris was being
made a scapegoat for an American blunder. By claiming that Idris
had terrorist ties, U.S. officials claimed justification for the
bombing and subsequent freezing of his assets. The Treasury
Department clearly violated the law by not laying out beforehand
Idris's alleged terrorist links or formally declaring him a
terrorist.
A short time
later, without any notice to the press, the Treasury Department
quietly returned the $24 million to Mr. Idris, in effect admitting
the bombing was a gross mistake. However, Treasury Department
officials have refused to pay Mr. Idris for the damages to his
plant, clinging pathetically to their original allegation that
somehow the plant was involved with international terrorism. Mr.
Idris was forced to file suit against the Treasury Department in
federal court in an attempt to recover his damages.
U.S. officials
subsequently admitted that they did not know that Mr. Idris had
only purchased the plant four months prior to the bombing, but
they claimed the former owners might have links to Osama bin
Laden. In the meantime, many Sudanese people have died because
their impoverished country had lost its chief source of
medicine.
It should be noted that the word "privacy" never
appears anywhere in the Constitution. It's easy to
understand why Jefferson and the other framers, living in a
predominantly agrarian society in the 1700s, weren't worried about
people being left alone. Privacy only became an issue at the turn
of the twentieth century with the advent of urbanization, the
telephone, national banking, and the Sixteenth Constitutional
Amendment creating the federal income tax.
The primary
safeguard for privacy in the Constitution is the Fourth Amendment.
It states: "The right of the people to be secure in their persons,
houses, papers, and effects, against unreasonable searches and
seizures shall not be violated." The eloquent Supreme Court
Justice Louis D. Brandeis, a champion of individual freedom, said
in 1928 in a dissenting opinion, "The right to be left alone is
the most comprehensive of rights and the right most valued by
civilized men."
The First
Amendment's guarantees of freedom of expression and assembly have
been interpreted by the courts to apply to the collection of data
on political views and associations. Under the free speech
provisions, any person can say or not say anything they choose so
long as their actions don't harm or violate the rights of others.
This includes the right to use whatever name or other identifying
information a person so chooses. Creating an alternate identity is
one of our most neglected freedoms. Everyone has the right to
change their name and identity so long as it is not done for
criminal purposes. For instance, many movie stars, Whoopie
Goldberg, Tom Cruise, and Woody Allen, to name just a few, use a
second identity, not their birth names. Voluntarily becoming a
"missing person" is not a criminal offense.
The Fair Credit
Reporting Act of 1970 prohibits credit bureaus from sharing credit
information with anyone but its authorized subscribers. It also
gives consumers the right to review their credit records.
Consumers are to be notified if their credit is investigated by an
insurance company or employer. So far, so good. The privacy
provisions implicit in this act lost their teeth, however, with
the little known provision stating that credit agencies can share
their information with anyone it reasonably believes has a
"legitimate business need." Virtually anyone can claim they have a
business need to look at your credit, so you can figure any of
your personal information at any credit reporting agency is easy
pickings for any creditor or investigator.
Congress
responded to their constituents' complaints about the lack of
privacy and passed the right to Financial Privacy Act of 1978. It
was designed to prohibit the federal government from perusing
through bank account records without first alleging some kind of
probable cause. But the act specifically excluded state agencies,
law enforcement officials, and private employers. This turned out
be to be more of a public relations ploy designed to placate angry
voters than a meaningful attempt to protect anyone's privacy. A
few years ago, the federal legislative counsel for the American
Bankers Association stated flatly, "There's
not a lot to this act anymore."
In 1987, Robert
H. Bork was before Congress as a U.S. Supreme Court nominee.
Remember him- the brilliant intellectual with the not-made-for-TV
facial hair? Senator Kennedy and other liberal senators attacked
him mercilessly. A Washington, D.C. weekly publication, The City
Paper, went so far as to publish a list of videotapes borrowed by
Bork to further discredit him. After defeating his nomination, the
Democrats claimed they were outraged by his invasion of privacy
and in 1988 passed the Video Privacy Protection Act of 1988. This
act is also known as the Bork Bill and it prevents retailers from
selling or disclosing video rental records without a customer's
permission or a court order. Again, this is a step in the right
direction, but there is no such act providing the same protection
for medical, insurance, or criminal records.
The
Freedom of Information Act
The Freedom of
Information Act (FOIA) was enacted by Congress in 1966 declaring
that government records should be open to its citizens. Before the
act, anyone requesting to see government records had to shoulder
the burden of proving they had a right to see the records. The act
shifted the burden to the government. You now have the right to
access any government record unless the government can prove that
the records you're after are "exempt" by law from
review.
Even so, The
FOIA is limited in scope. It applies only to the records of the
executive branch of the federal government, not to those of
Congress or the federal courts. It does not apply to any records
kept by any state or local government.
The act states
there are nine exemptions or reasons an agency may refuse to
release its records to the public. The general categories
are:
-
Classified
materials relating to defense or foreign materials
-
Geological
information relating to oil wells
-
Any
investigation records gathered for law enforcement
purposes
-
Materials
pertaining to internal personal rules and practices
-
Trade
secrets and other confidential business information
-
Materials
exempted by another statute from disclosure
-
Some
personal and medical records pertaining to certain
persons
-
Some
interagency and intra-agency communications
-
Matters
relating to the supervision of financial institution
Under the
FOIA, you have the right to request and receive any record in the
federal files not covered by one of the exemptions. You can
request to see any file compiled by the Federal Bureau of
Investigation on Vietnam War protesters during the 1960s or 1970s.
You might be amazed at how many files were
compiled by the FBI.
Even though the
FOIA does not apply to any records held by state or local
governments, many states have their own version of the FOIA. You
can write the attorney general's office of any state to request
state records.
Many private
firms and companies routinely submit reports and other information
to specific federal agencies as may be required by law. This is
often the case if the company wants to bid on federal contracts,
receive a subsidy, or obtain a license. Although the FOIA does not
require a private firm to release any information or records to
you, many times the federal agency receiving the information from
the private firm will release the information to you on an FOIA
request.
Each FOIA
request must be made to the appropriate federal agency. The U.S.
Government Manual is the official handbook of the federal
government Manual is the official handbook of the federal
governments. It describes the specific programs within each
federal agency and lists the persons to contact with their mailing
addresses or on the Internet.
By law, federal
agencies are required to respond to your FOIA request for records
or information within ten business days from receipt. If the
agency needs additional time, they must notify you and they can
only extend the deadline by up to ten more working
days.
If your request
for information is denied, you have the right to appeal. Usually
within thirty to forty-five days after you receive your denial
letter, you can appeal by asking the agency to reconsider its
decision. You ought to give specific reasons to support your
appeal. The agency has twenty business days to respond to your
appeal letter. If they continue to deny your request, you have the
right to file a complaint in your local U.S. District Court and
ask for relief. If you prove your case, the judge can even require
the government to pay your attorney's fees and court
costs.
The
Privacy Act
The Privacy Act
was passed by Congress in 1974 in an attempt to limit the amount
of information the government can collect on its citizens. The act
provides for two basic rights: (1) It gives you the right to see
the files collected on you by the government, and (2) it gives you
the right to sue the government if it reveals your files to others
without your permission or knowledge.
The first right
may have some practical value to the extent you can gauge if
you're the target of an investigation depending on how thick the
government file is on you. The second right is utterly
meaningless. No one can afford to wage a legal battle against the
federal government.
Ongoing
Identification Programs
Currently, we
all use Personal Identification Numbers (PIN) to access our credit
cards, but the banking community is working on tighter controls by
using newer identification methods.
The hand-scan
machine has already been developed. You place your hand on a glass
plate and the machine memorizes every mark and crease on your
palm. Your palm print becomes your identification code and
eventually could replace all credit cards. The
machine can "read" your right hand and link it with an assigned
number. I had the opportunity to see this machine in action
at a recent trade show in Las Vegas. As we entered the convention
center, we placed our right palms on the hand-scan machine, which
was connected to the exhibit booths. If an exhibitor was selling a
product and you wanted them to send you additional information you
scanned your hand at the booth causing your business card to be
deposited in the exhibitor's computer database.
Several
multipurpose computerized ID cards have already been developed.
Singapore is a rigidly controlled island nation of three million
people and is widely recognized as the banking center for the
Orient. Although they claim to be a free democracy, the government
has decided it's necessary to keep track of all its citizens to
maintain efficiency. Every citizen of Singapore over the age of
fifteen carries a computerized ID card, which is tied into a
computerized data bank that holds every shred of personal
information on each of its citizens from a police record to a
school loan. (Wouldn't the IRS love to get a hold of this
system?)
A number of congressmen have proposed a national ID
card allowing us to do away with cash, bills, and coins.
When Hillary Clinton single-handedly tried to nationalize the
health care system in 1992, she proudly held up a national ID card
that would be assigned to every citizen. Fortunately, a federal
judge struck that program down. And this from the administration
that declared, "Big government is dead." In every session of
Congress the idea of a "cashless" society is floated around with
the claim that it would make life "easier" for everyone. The goal,
of course, would be to monitor every single financial transaction
as to its origin and destination. It's not much of a stretch to
envision the day when every paycheck is sent directly to
Washington allowing the bureaucrats to remove any withholding,
income or other taxes owing with the net balance being sent to the
taxpayer.
One of the most
recent systems designed to collect information and invade your
privacy is being assembled by Image Data, LLC of Nashua, New
Hampshire. With funding of $1.46 million from no less a snoop than
the Secret Service, this private company is assembling a national
data bank of driver's license photos. They claim the only use for
the data bank would be to combat check fraud and other crimes
involving the misuse of personal information. But as Marc
Rotenberg, director of the Electronic Privacy Information Center
in Washington said, "This is a high-tech wolf in sheep's clothing.
There's a lot more going on here than check verification." At this
time, only a few states have agreed to sell their driver's license
photos to Image Data, but stay tuned. Image Data calls its system
TrueID. When fully operational, the company would send photo
images from its data bank to merchants so they can check the
identification of customers paying with checks. It's already being
test marketed in South Carolina.
Criminal
Justice Information
Our criminal
justice information system offers the greatest potential to damage
people with the information they collect and their ability to
allow access to the data.
The FBI
alone keeps three sets of records:
- Investigative
files
- Identification
records
- Those kept by the
National Crime Information Center (NCIC)
The last category of files kept by the FBI is the
NCIC. These track and record an index of stolen property,
fugitives, and all criminal histories. If you have ever been
pulled over by highway patrolman, you may have seen the NCIC in
action. Before the patrolman leaves his car, you'll see him giving
your license plates to the NCIC to see if your car has been
stolen.
No one will
dispute the need to keep records of criminals, but the abuses come
to the fore when a person has an arrest on his record with no
conviction. For instance, if you're arrested for drunk driving,
but later acquitted at trial, the arrest will not automatically be
erased. You must request that the arrest be removed or it could
come to haunt you when you apply for a job. After a certain time
period, usually three years, many states allow you to seal your
criminal record, including all arrests and convictions. In this
event, you can answer, under oath, that you have no criminal
record and if anyone tries to check they will find
nothing.
The
Internet-Knowing You All Too Well
The Internet is
a terrific tool for information and commerce, but its ability to
invade our privacy is unlimited and growing every day. Internet
commerce has become one of the greatest threats to personal
privacy. The World Wide Web has evolved into a marketplace, and in
the process transformed privacy from a right to a commodity.
High-speed networking and powerful database technologies have made
it possible for business to amass quickly, and at low cost, a
wealth of personal information on over 200 million
Americans.
You want to know
if a potential business partner has a history of bad credit,
lawsuits, or fraud? There are hundreds of investigative sites that
will help you. You went to review the executive travel records of
your competitor to figure out where they're going and whom they're
meeting with? Web companies specialize in "competitive
intelligence" and can find this information on their
databases.
Accidental breaches of security are common.
In August of 1997, the big credit bureau Esperian (formerly TRW)
began offering on-line delivery of credit reports, but shut down
the service two days later due to a computer glitch. Seven out of
106 first-day applicants received someone else's
report.
Deliberate
breaches of privacy are more sinister. Identity theft is a
disturbing example. Someone obtains basic personal information
about you from an on-line data warehouse. Then the person proceeds
to impersonate you using your name, credit cards, credit history,
medical records, and financial information. Approximately 85
percent of all Web sites collect some personal information from
visitors.
Marketing
priorities place an ever greater strain on privacy. The Internet
not only collects and collates data, it creates new kinds of
information. For example, "clickstream" monitoring involves a
page-by-page tracking of people as they peruse the Web. Your
clickstream reveals your interests and tastes with frightening
precision. This information allows merchants to identify the
products you are most likely to buy.
On the other
hand, Web merchants need to have customer authentication to make
sure you are who you say you are. With this in mind, they request
all kinds of personal information to make sure the credit card
you're using belongs to you…and they must determine you are you!
For this reason, our company increasingly gets requests to help
people create a legal second identity; one for regular life and a
second for use on the Internet. The Internet
not only collects and collates data, it creates new kinds of
information.
Justice Louis
Brandeis defined privacy as "the right to be let alone," but in
the Internet world this seems almost anachronistic. Arthur
Bushkin, CEO of Pace Financial Network, said it best, "The
Internet is not just a change in scale or speed, it's a
qualitative change. A car is not just a faster stagecoach. Data
collection before the network computer was like the stagecoach;
data collection in the Internet age is like the car. This is a new
problem, not just more of the old one."
The tools
available to any lawyer or private investigator in searching for
your assets are formidable. If you are at risk from a potential
lawsuit, a divorce, or a government agency, the first question
will be, "Where are your assets?" There are only two responses to
this question and the first one goes something like
this:
"I have assets
but you can't get them. See, I hired a building full of brutally
expensive, silk-stocking lawyers who have assured me that my
assets are safely beyond the reach of any of my creditors. I have
trusts for the benefits of my kids, a Family Limited Partnership
in which I have no control, my house is in my wife's name, and the
rest of my assets are protected by corporation of which I am the
president."
Remember my
friend, the federal judge? I would not want to recite this
response in his court, especially after he'd had a two-brandy
lunch. Once your assets are found, you've got to assume
he'll use his power as only a man in full
can do. Oh, sure, your expensive lawyers will delay their tee time
long enough to tell you, "Don't worry, we'll win on appeal." In
the meantime, all of your assets are frozen, pending the outcome
of the appeal, and don't forget to send $10,000 to your lawyer "to
get things started."
The second
possible response to the question on the location of your assets
goes like this:
"I don't have any assets."
This is the
response I prefer. Short, clean, and direct. Like a perfect
murder, the questioner may have a dead body, but in no way is it
connected to you.
The first step
to privacy and making your assets invisible is the use of a Nevada
corporation. Or a series of them. Or an international corporation,
offshore. First, let's take a quick look at how a corporation
works...
