Asset Protection BLOG - Mark Nestmann

RFID Tags on Your Underwear: No Reason to Panic

Lots of things concern me.  Wal-Mart's recent announcement that it would begin inserting radio-frequency identification devices (RFIDs) to tag certain clothing items isn't one of them.

Perhaps it was an unfortunate choice that Wal-Mart decided it would begin inserting what it calls "smart tags" on underwear.  What, exactly, does Wal-Mart want to track in your pants?  Nothing at all, it turns out.  All that it plans to do with the tags is keep better control over its inventory. 

Some privacy advocates have expressed concern that the tags "can't be turned off" and that they're "trackable."  Well, if the tags could be turned off in the store, and weren't trackable, they wouldn't help Wal-Mart manage their inventory. 

Fortunately, you can take off the tag without damaging your new pair of underwear.  But that leads to a new concern from some privacy advocates, who fear that marketing companies will begin scanning your garbage to track what you've purchased by the RFID tags you've discarded.

Well, maybe.  But I think the concerns about RFID tags are misplaced.  The real threat RFID poses, as I've written previously, is their use in identity documents.

Researchers have shown it's relatively easy to read data on RFID chips from a considerable distance.  One researcher recently read an RFID tag from over 200 feet away.  It's also possible to clone the new RFID chips used in supposedly "ultra-secure" passports.  One researcher even succeeded in replacing his own photo in an RFID-equipped U.K. passport with one of Elvis Presley, and even got a boarding pass for "Elvis"—30 years after his death.

And here's where the Wal-Mart initiative gets a little scary.  Once Wal-Mart and other stores apply RFID tags to their entire inventory, they could surreptitiously scan visitors to the store to instantly identify that person from whatever RFID-equipped identification document they're carrying.  They could then custom-tailor offers for the visitor based on past purchasing patterns.

Again, I'm less concerned by this privacy intrusion particular application than with others.  What happens if you're in an airport and terrorists who want to kidnap Americans begin surreptitiously reading RFID-equipped identification documents to identify U.S. citizens or residents?  Or if an enterprising identity thief figures out a way to match the data on your identification documents with your credit card numbers, Social Security number, etc.?

To protect yourself, consider the following precautions:

• If you carry any identification document with an RFID chip, keep it wrapped in foil except when you need to use it.  That makes it less vulnerable to remote cloning.
• When you check into a hotel, rent a vehicle, or carry out any other transaction abroad that requires you to present this document, don't let it out of your sight. 

Unfortunately, I can't recommend the most effective self-defense mechanism: to put your RFID passport in a microwave oven and switch it on for a few seconds.  That will destroy the RFID chip, but tampering with a passport is punishable by 25 years in prison.  Compared to that, identity theft is a small price to pay.

Copyright © 2010 by Mark Nestmann

The Second Amendment Doesn't Apply Outside U.S. Borders

U.S. citizens have a constitutional right to keep and bear arms.  The scope of that right is a source of constant debate, but the Supreme Court recently affirmed the right of individuals to own firearms.  Cities, states, and the federal government are free to regulate firearms sales, transport, and ownership, but America's highest court has made it clear that the government can't ban firearms ownership altogether.

When you leave the United States, however, the laws are very different—and generally, much more restrictive. 

Mexico, for instance, also guarantees the right of its citizens to possess firearms. But in practice, it's difficult to legally own a firearm larger than .22 caliber.  All guns must be registered. And if you're visiting Mexico, forget about bringing in a gun without first obtaining permission from the government.  If police or border agents discover unregistered firearms—or even ammunition—in your vehicle or on your person, you may face up to a 30-year prison term.  Even possession of a pocketknife is punishable by a five-year prison sentence!

Canadian law is more reasonable.  You can import most semi-automatic rifles and shotguns with a barrel length of 18.5 inches or longer simply by making a declaration at the border.  Most handguns are restricted and require transport authorization.  You must transport restricted firearms in a locked case and equip them with locked safety devices to prevent firing.

Gun laws in the Caribbean are very strict.  In the Dutch territories, for instance, to import a firearm you must file a petition with the Minister of Justice requesting an importation permit.  If the permit is granted, you must deliver the firearm into police custody.  You then file another petition with the Minister of Justice requesting permission to possess the firearm, even if you simply with to keep it at home for self-protection.  The Minister forwards the petition to the police, who often require a psychological test as well as a firearms proficiency test.  At least 80% of the time, the petition is denied.  This entire process is repeated annually, as weapon permits are only valid one year at a time.  Possessing a firearm without a permit issued by the Minister of Justice is a criminal offense, which carries a term of four years imprisonment.  However, the permit allows you to carry the firearm as well as keep it at home--it doesn't differentiate between the two. 

Panama, in contrast, makes it relatively easy for residents to own and import firearms.  After qualifying for Panamanian residence, you visit a gun store, consent to a police background check, and submit a blood and urine sample.  Several months later you will receive a permit, which allows you to purchase a registered firearm at a gun store.  Residents may also import firearms, but only after police have taken a ballistic sample.  One you own a registered firearm, you can carry it with you, either openly or concealed.

European laws are generally quite strict when it comes to gun ownership.  Luxembourg bans ordinary citizens from owning any firearm.  France, Belgium, Germany and the United Kingdom permit private ownership of firearms, but only with severe restrictions.  U.K. law, for instance, requires you to apply for permission to own a firearm and list a reason why you need it.  Self-defense is not considered a valid reason.  However, some European countries have more liberal firearms laws.  In Austria and Switzerland, every law-abiding citizen has a legal right to buy handguns, although you must first obtain a license.  Numerous Swiss cantons permit anyone possessing a firearms license to carry a concealed handgun.

As you can see, the situation relating to firearms laws throughout the world is complex.  If you plan on taking a firearm to another country, research the law before you leave.  Don't assume the Second Amendment extends beyond U.S. borders—it doesn't!

Copyright © 2010 by 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

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!