Asset Protection BLOG - Mark Nestmann

Traveling to Myanmar on a Dominican Passport

By P. T. Freeman

I'm in Yangon, Myanmar after a long airplane ride across the Pacific from Canada and an overnight layover in Thailand. 

Entering Myanmar on my Commonwealth of Dominica passport was uneventful, as it has been for most other countries I have entered using it.  Since Dominica is a small, peaceful country, it doesn't draw undue attention—or hostility—as the U.S. passport I once carried does.  I find I'm much more free and inconspicuous while traveling on a Dominica passport. 

I landed at the Yangon airport, went down the escalator at the new terminal and went to the desk marked "Visa on Arrival".  The uniformed officer behind the desk gave me a one-page application to complete.  I also needed to provide a passport-size photograph.  I've learned to carry several of these with me when I travel internationally.

A few minutes after I submitted the form with my passport and photo, the officer instructed me to pay $30.  When I did so, he returned the passport to me with a Myanmar visa stamp.  Once I gave him my Disembarkation Card, I was admitted to Myanmar.  Next, I went to Passport Control where my particulars were entered into a computer and another photo taken.  Finally, I reclaimed my luggage at Baggage Claim, cleared Customs, and finally exited the terminal.

Many countries have a visa on arrival system.  While you will have a short wait at the visa desk, the system is convenient and relatively hassle-free.  Since border authorities now have the ability to check computer databases within seconds, look for this system to expand. 

Since I obtained citizenship-for-life in Dominica 11 years ago, I have traveled around the world on my Dominican passport.  I've only been questioned about it once, at London's Gatwick Airport, where the immigration officer asked if I still carried my U.S. passport.  After telling him "no," I was admitted into the UK without further delay. Also, on a trip to Switzerland, when I arrived in Geneva, the immigration officer had never heard of Dominica before!  He consulted a manual, verified that Dominica is a sovereign nation, and admitted me immediately.

And Myanmar?  While Thailand calls itself the "Land of Smiles," I find it applies more in Myanmar than in Thailand.  Most people are poor and obedient, but that doesn't take from the friendliness that I encountered.  Very few tourists visit Myanmar, so the people are very solicitous to those who come.  

Until my next post, I wish you pleasant journeys on your Dominican passport!

(P.T. Freeman is a pseudonym for a friend and business associate.  A former U.S. citizen, P.T. now travels on a Dominican passport.  To learn how you can obtain a Dominican passport, contact info@nestmann.com.)

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

Secret Treasury Agency Wants to RETROACTIVELY Expand Offshore Reporting Requirements [Part I]

Last week, the U.S. Treasury finally clarified exactly what it expects U.S. taxpayers to disclose about their offshore holdings.  And—no surprise here—they want to know lots more about what you own offshore.  Beginning last year, in 2009.  And, if you fail to comply, you could face a $10,000 fine and even prison.

In an announcement in the Federal Register, the Financial Crimes Enforcement Network (FinCEN), the Treasury Department's "financial intelligence unit," issued proposed regulations to become effective in the next two months.  That's well before the June 30, 2010 filing deadline for Treasury Form TD F 90-22.1, the "foreign bank account reporting" form, or FBAR.  That means they would apply retroactively to 2009. 

FinCEN's proposed rules present a worst-case scenario for any U.S. citizen or permanent resident seeking offshore privacy.  They greatly expand the types of offshore financial relationships that you need to acknowledge.  Moreover, the FBAR isn't considered a "tax return."  That means that Barney Fife or any other law enforcement officer in the United States can browse through FBAR filings.  So can law enforcement officials in many other countries. 

If you've filed FBARs before, you know that the law requires U.S. persons "having a financial interest in, or signature or other authority over, a bank, securities, or other financial accounts" with an aggregate value of $10,000 or more to report such accounts annually.  It's relatively clear what constitutes a foreign "bank account" or "securities account."  But, what's an "other financial account?" 

With these proposed regulations, FinCEN has finally answered that question.  Not bad, guys—it's only been 40 years since Congress enacted the ironically named "Bank Secrecy Act," the law requiring U.S. persons to submit FBARs.

FinCEN now demands that U.S. persons report retroactively to 2009 and in the future:

• All foreign insurance policies with cash value
• All foreign annuity policies
• All foreign accounts with brokers or dealers for futures or options transactions in any commodity on or subject to the rules of a commodity exchange or association
• All foreign accounts with mutual funds or similar pooled funds that issues shares available to the general public with a regular net asset value determination and regular redemptions.

FinCEN also says it wants U.S. persons to report "an account with a person that is in the business of accepting deposits as a financial agency."  A "financial agency" is “a person acting for a person as a financial institution bailee, depository trustee or agent, or acting in a similar way related to money, credit, securities, gold, or in a transaction in money, credit, securities or gold.”   Basically, what this means is that if you entrust a person outside the USA with your money, securities, or gold, FinCEN wants to know about it. 

The example FinCEN gives of a " financial agency" is an escrow account at a foreign financial institution, but the definition is potentially much broader.  For instance, if you buy gold overseas and pay a custodian a fee for safekeeping it, that custodian is probably acting as a financial agency.  On the other hand, if you keep the gold in a safety deposit box at a bank or private vault facility to which only you have access, the bank or vault probably isn't acting as financial agency.  The final rules may clarify these requirements.

It's almost inconceivable that these rules won't become effective, although FinCEN may not succeed in making them retroactive to 2009.  Indeed, the Obama administration is working on at least three fronts simultaneously to expand offshore reporting requirements:

1. The proposed FinCEN rules. 
2. The proposed FATCAT law that contains many of these same provisions is working its way through the U.S. Senate
3. Proposals in the 2010 and 2011 Treasury Green Book submitted to Congress by the Obama administration

I summarized the proposals in FATCAT and the 2010 Green Book a few weeks ago here.

In my next column, I'll describe some of the other provisions of these far-sweeping rules; in particular, their impact on foreign investors who use U.S. LLCs to conduct business outside the United States.  I'll also discuss the temporary "silver lining" they provide for on individuals holding foreign assets in their pension plans or IRAs, hedge fund investors and for foreign persons doing business in the United States.

Copyright © 2010 by Mark Nestmann

Obama Gives States a REAL New Year's Gift

Imagine walking down the street to the corner store for a newspaper and being stopped by policeman.  He demands to see an official government-issued photo ID.  You don't have it with you.  The policeman tells you you're subject to a fine, and takes you into custody until authorities can ascertain your identity.

Is this a totalitarian nightmare of East Germany or the Soviet Union?  No, this is everyday life in dozens of countries that have issued citizens national ID cards that must be carried at all times.  Failing to present the card upon demand is an offense in many of these countries (e.g., Spain).

Once a system of universal identification is established, it's a short step to requiring people to have and carry ID cards.  And at least in the United States, that's where an obscure law called the "Real ID Act" comes into play.

Enacted in 2005, the Real ID Act established "national uniform standards" for driver's licenses.  Once the law comes into effect, state driver's licenses that fail to conform to federally mandated "minimum standards" will no longer be valid for any federal "official purpose." Examples of "official purposes" include boarding an airplane, buying a firearm, obtaining federal benefits, or even entering a federal courthouse.  

From the outset, state governments hated the REAL ID initiative.  The main reason had nothing to do with any concern about privacy, states' rights, or any other constitutional concern, but a much more immediate problem: money. 

REAL ID is a classic "unfunded mandate," foisted upon the states by the federal government.  Estimates of implementing it nationwide run into the tens of billions of dollars.  That's chump change in comparison with the cost, say, of bailing out AIG.  But for fiscally strapped states, it represents a big stack of mostly borrowed dollars.

But now, President Obama has come to the rescue!  Earlier this month, Homeland Security Administration Secretary Janet Napolitano announced that the Obama administration would abandon the Dec. 31, 2009 deadline for states to adhere to the new requirements.  Presumably, in the next few months, the HSA will roll out its own REAL ID deadline, or push for a less expensive "PASS ID" proposal backed by Napolitano.

As I've pointed out in a previous blog entry, neither REAL ID nor PASS ID will improve security.  Computer experts have easily duplicated virtually every state-of-the-art identification document that current exists.  There's zero proof that high-tech drivers' licenses will be any different.

Indeed, the REAL ID initiative will actually make us less secure, particularly against crimes like identity theft.  The law authorizes creation of a national database to include details on nearly 250 million licensed drivers.  The database will consist of a series of interlinking systems operated and administered by the states.  Each state must provide electronic access to all other states to information contained in its motor vehicle database.  An interlinked system is a far greater security risk than a decentralized one with each state issuing ID cards according to its own rules. 

Call me a cynic, but I think the real reason Congress enacted the REAL ID has nothing to do with security.  The REAL ID system is merely a stepping-stone to get Americans accustomed to carrying supposedly secure identification documents all the time.  Once we've been conditioned to do that, the government can expand the use of a secure ID so that it can also be used as a debit or credit card.  And when that's accomplished, the government could eliminate cash altogether.  It's a short step from "debit/credit cards accepted here" to "Sorry, we only take debit/credit cards." 

This will be my last blog entry of 2009—best wishes for the coming year!

Copyright © 2009 by Mark Nestmann

TSA: Worst than Useless

We all have stories about the Transportation Security Authority.   My "favorite" was the time I waited behind a woman in a wheelchair to pass through the metal detector on the way to board a flight in Miami.  The woman was at least 80 years old and quite frail.  Nonetheless, the security screener confiscated her hairpin.  After all, the woman, while unable to walk unassisted, might have used it as a weapon. 

Airport security in the USA is a joke, and a bad one at that.  It's easy to create a fake boarding pass with Photoshop.  And it's not that much more difficult to steal someone's identity to create fake identification documents.  Indeed, the entire U.S. airline security process is nothing but "security theater," a term coined by programmer and security consultant Bruce Schneier. 

But we still have ID checks, secret databases, and no-fly lists. According to Schneier, it would be much more effective to focus on "suspicious people" trying to board a flight, rather than "suspicious objects."  He would do away with most of the remaining security apparatus, including ID check requirements and the no-fly list.

Why do we bother with them at all?  Mainly, because the population must be convinced that "experts are "doing something" to prevent future terrorist attacks.  Also, if security personnel focus on suspicious people who happen to be members of specific ethnic groups or religions, they're accused of "racial profiling."  And thus we perpetuate security theater.

For these reasons, TSA's intentional posting of a security instruction manual on federal procurement Web site is not only a huge security breach, but highly ironic.  The instruction manual includes pictures of ID documents used by congressional representatives, air marshals and even CIA agents.  It also specifies which passengers are exempt from screening and which should be screened more carefully.  Sensitive sections of the manual were redacted, but a simple copy and paste operation of the redacted sections allowed anyone to recover the deleted material. 

If the TSA didn't rely on ID checks and no-fly lists to identify suspicious people or cargo, posting this information on an unsecured Web site wouldn't be a big deal.  But it does.  In essence, the document could be used as a blueprint to bypass U.S. airport security systems. 

That's not to say this information can't be found elsewhere.  It can.  TSA manuals are available in the aviation community.  The problem, again, is that the TSA's entire security model is defective. 

The TSA, of course, isn't about to admit that.  It's successfully convinced Congress to allocate tens of billions of dollars to erect a flawed security infrastructure.  And so, instead of focusing on the fundamental flaws in its current security model, the agency will probably try to persuade Congress to reinstate the "Real ID" initiative.  This is a plan that would require each state to issue more secure driver's licenses.  This, say advocates of the plan, would make it much more difficult for airline passengers to present a false ID.

Of course, this just perpetuates the flawed system.  The more reliance we place on a single form of ID, the more valuable it becomes.  Even the most secure ID documents are vulnerable.   Last summer, security researchers in the United Kingdom cloned RFID chips used in the newest generation of U.K. passports.  After cloning the chips, the researchers implanted digital images of Osama bin Laden and a suicide bomber.  Then they tested the "passport" using passport reader software used by the U.N. agency that sets standards for e-passports.  It passed with flying colors.

Real terrorists will find ways to create false identities, just as they always have.  If we want airport security, we need to abandon the flawed model we now use.  The TSA and its security procedures are worse than useless.  It annoys the law-abiding while relying on an easily defeated security architecture.

Copyright © 2009 by Mark Nestmann

If You Have any Connection to an Offshore Trust, You Need This Book

Type the phrase "offshore trust" into a search engine, and you'll get a lot of hits.  When I did so a few minutes ago, I found 109,000 matches on Google. 

When I pulled up three of the first 20 matches, I found a lot about the benefits of an offshore trust.  But I found very little about the rather onerous reporting requirements that apply to offshore trusts a U.S. person creates, or with U.S. beneficiaries.  Or, for that matter, about the draconian penalties that apply for non-compliance with these requirements. 

Don't get me wrong.  Offshore trusts can be immensely useful instruments for asset protection, estate planning, and other uses.  But when an offshore trust has any connection whatsoever to the United States, it's important to understand the legal, tax, and regulatory implications.

That's why I was delighted to receive an e-mail message last week from my old friend and colleague, CPA Vernon Jacobs.  Vern and international tax attorney Richard Duke have written the first edition of a new tax guide for the U.S. grantors and beneficiaries of an offshore trust.  It's called The U.S. Tax Guide for Foreign Trusts.  And it's the only practical guide to the compliance rules for the U.S. grantors and beneficiaries of a foreign trust I've found. 

If you're a U.S. citizen or U.S. resident alien who has (or wants to have) an offshore trust, you need this book.  If you're the U.S. beneficiary of an offshore trust, you also need this book.  Indeed, if you have any connection whatsoever to an offshore trust with a U.S. grantor or beneficiaries, you need this book.  That includes trustees for offshore trusts, professional advisors who facilitate the formation of offshore trusts, asset manager for offshore trusts, and accountants who keeps the books for offshore trusts.

For years, I've been trying to get Vern to increase the price he charges for his excellent work.  Unfortunately for Vern—but fortunately for you—I haven't convinced him to do so.  You can purchase a digital copy of The U.S. Tax Guide for Foreign Trusts for only US$65, or a printed copy for only US$87. 

To learn more about this book, see http://www.offshorepress.com/faptax.htm.  Again, if you have any involvement whatsoever in an offshore trust with a U.S. connection, you need a copy of it in your library.

U.K.'s "Ultra Secure" National ID Card Cloned in 12 Minutes

National ID cards are becoming de rigueur worldwide. Governments like them because they replace multiple identification documents with a single, standardized, and widely recognized document.  And this document, so goes the argument, can be designed so that it's virtually impossible to fake. 

Armed with these arguments, the U.K. Labor government has for nearly a decade tried to force national ID cards on an increasingly skeptical population.  They've also tried to justify national ID cards as a means to reduce immigration fraud, welfare benefits fraud, identity theft, and terrorism. 

The problem—completely apart from the many civil liberties concerns that national ID cards raise—is that establishing a single standard document to prove your identity makes that document an overwhelmingly attractive to fraudsters.  For that reason, many security experts oppose national ID cards.  Far better to rely on various forms of ID, none of which are necessarily 100% trusted, than to put your faith in a supposedly secure national ID that turns out not to be not-so-secure.

The proposed U.K. national ID card is the embodiment of these concerns.  Hackers have repeatedly penetrated the supposedly ultra-secure database in which the government will maintain data for the cards.  This database will eventually include your name, birth date, home address, welfare benefit status, criminal records, national security status, and possibly your medical records as well. 

But it's not only the database where security is lacking.  Last week, reports surfaced in London that security expert Adam Laurie had tested the ID card now being issued to foreign nationals and managed to clone it in only 12 minutes. This card uses the same technology as the card that will be issued to U.K. nationals beginning in 2012.

Using only a mobile phone and a laptop computer, Laurie first cracked the code on the card, allowing him to copy the data on it.  He then created a cloned card and changed the data, including the name, physical description, fingerprints, etc.

So much for preventing identity theft or immigration fraud.  But surely the card would still prevent theft of welfare benefits?  Well, not exactly.  Laurie also rewrote these data fields, reversing the bearer's status from "not entitled to benefits" to "entitled to benefits."

But even so, wouldn't the card still make it more difficult for terrorists to operate in the United Kingdom?  Well, Laurie actually created fresh content on the card that would be visible to any official scanning the card.  The content read: "I am a terrorist—shoot on sight."  Of course, the content could also have read: "I am a high-level MI-6 operative with the highest security clearance." 

Given this colossal failure, you'd think that the U.K. government might rethink its national ID scheme.  Not a chance.  The day after Laurie's exploit, a spokesperson for the U.K. Home Office said, "We are satisfied the personal data on the chip cannot be changed or modified and there is no evidence this has happened."

If national ID cards aren't useful to prevent welfare fraud, identity theft, or terrorism, what are they good for?  The only thing left is control.  National ID cards allow governments to control their populations much more closely than they would otherwise.  Through the centralized database accompanying a national ID card governments accumulate an immense amount of private and sensitive information on every citizen.  Anyone authorized to use the database can use it to retrieve information. 

It's no coincidence that the most fervent believers in national ID cards—in the United Kingdom and anywhere else—are politicians.  They understand the advantages of controlling this database and using it for their own purposes.  Perhaps some of these purposes are legitimate, but many are not.  One obvious use of the data would be surveillance of political opponents.  Armed with embarrassing data on a political opponent, inquisitive journalist, citizen blogger, or anyone else, our government masters could quash dissent almost instantly. 

Is this the true purpose of national ID cards?  Given their well-publicized failures, what else could it be?

Copyright © 2009 by Mark Nestmann

Don't Get Caught in a War with the Wrong Passport!

As fighting intensified in the Gaza Strip, Israel last Friday began allowing individuals possessing a foreign passport to leave the crowded Palestinian territory.  Hundreds left before Israel's ground forces invaded the Gaza Strip the next day.

They were the fortunate ones. Ordinary Palestinians have few options to escape the war zone.  Gaza is surrounded on three sides by Israel, and on the fourth by Egypt.  Both countries have closed all border crossings.  And while the Palestine governing authority issues a passport, Palestinians can't use it to leave Gaza.  Only Palestinians fortunate enough to possess a non-Palestinian passport can leave.

Even in better times, a Palestinian passport isn't an ideal travel document.  Only a handful of countries recognize it, although more than 100 countries have diplomatic ties with Palestine.  Even when the borders are open, persons carrying a Palestinian passport must negotiate a labyrinth of legal requirements to depart legally.  And, they may not be allowed to return. 

How you would react if the country you live in now became a war zone?  Would the authorities allow you to leave your own country?  Or, as in Gaza, would you become a virtual prisoner?  Further, what would you do if your own country—or an authority controlling access to it—wouldn't allow you to return home?

One way to protect yourself from this possibility—and to obtain many other benefits—is to obtain a second passport.  If you don't qualify for a second passport by virtue of your ancestry or your marital status, you can purchase one from a handful of countries that offer "economic citizenship."   The Commonwealth of Dominica, the Federation of St. Kitts & Nevis, and Austria all have official, legally mandated, economic citizenship programs.  To qualify under any of them, you must pass a strict vetting process that includes a comprehensive criminal background check. 

The least expensive option is to obtain economic citizenship from Dominica. Under this country's economic citizenship program, you may acquire citizenship and passport in return for a cash contribution.  Total costs including all fees for a single applicant come to about US$103,000.  Add US$25,000 if you need a passport for your spouse and up to two children under 18.  Dominican passport holders can travel without a visa, or obtain a visa upon entry, to nearly 90 countries and territories.

In the Federation of St. Kitts & Nevis, there are two ways to obtain economic citizenship.  The most practical strategy is to make a direct contribution.   Total costs including all fees for a single applicant under this option come to about US$215,000, or US$265,000 for an applicant with up to three dependents. Alternatively, you can purchase qualifying property worth a minimum of US$350,000. However, fees and taxes under this option are much higher than if you make a direct contribution.  St. Kitts & Nevis passport holders can travel without a visa, or obtain a visa upon entry, to more than 100 countries.

Finally, you may be able to obtain Austrian citizenship and passport after making a substantial investment in that country.  Unlike the programs in Dominica and St. Kitts & Nevis, in Austria, you must make your investment first and then apply for citizenship. You don't get your money back if you're not approved.  Generally, you must invest several million dollars to have a reasonable chance at qualifying, and pay legal fees of US$30,000 or more.  Austrian passport holders can travel to more than 120 countries visa-free and live and work in any of the 27 members of the European Union.

Other than giving you an "exit strategy" in case of domestic unrest, having a second passport and dual citizenship has numerous additional benefits. It can expand your travel possibilities, reduce your profile to terrorists, give you the right to reside in other countries, and give you a way to cross international borders if your primary passport is lost or stolen.  For Americans, a second passport has another benefit.  It is an essential prerequisite to expatriation; i.e., giving up U.S. citizenship in order to permanently disconnect from U.S. taxing authority.

The Nestmann Group, Ltd. can assist individuals seeking alternative citizenship and tax-advantaged residence. Please contact us for more information at info@nestmann.com.

Copyright © 2008 by Mark Nestmann