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BULLETPROOF A$$ET PROTECTION
by
William
S. Reed, J.D.
CHAPTER
2
PROTECTING
YOUR PRIVACY
Camouflaging
your assets is the first step in implementing any asset protection
plan. Remember, if a federal judge can find an asset, he can seize
it. Conversely, what he can't find, or doesn't know about, he can't
touch. Although I enjoy advertising bulletproof is asset protection,
the prescription for making an asset bulletproof is to first make it
invisible.
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:
1. Voter registration
records
2. Worker's compensation
information
3. Sheriff and county
prosecutor records
4. Real estate recording
records
5. Professional licensing
boards
6. Professional licensing
boards
7. Corporate registration
records
8. Marriage licensing
records
9. Property tax
records
10.
Utility and credit card bills
11.
Litigation, divorce, and bankruptcy files
12.
Probate records
13.
Medical records
14.
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:
1. Classified materials
relating to defense or foreign materials
2. Geological information
relating to oil wells
3. Any investigation records
gathered for law enforcement purposes
4. Materials pertaining to
internal personal rules and practices
5. Trade secrets and other
confidential business information
6. Materials exempted by
another statute from disclosure
7. Some personal and medical
records pertaining to certain persons
8. Some interagency and
intra-agency communications
9. 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:
1. Investigative files
2. Identification
records
3. 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. First, let's take a quick
look at how a corporation
works.
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