A Warning on the Use of Stolen Bank DataApr 12 • Categorized as Offshore Banking
by David Finzer
Why government should not encourage the theft of financial information
Criminal activity, including common theft, has always been profitable – but crucially has also always been frowned upon by governments, until fairly recently anyway. The more recent trend of stealing confidential bank information has become a thorn in the side of the private banking industry, and provided an opportunity that cash hungry governments have welcomed with open arms – and it is not too difficult to pull it off.
A global hunt for taxes and tax evaders has gathered pace and been high on the G20 agenda ever since the scale of the 2008 global crisis became apparent, with the OECD (Organization for Economic Co-operation and Development) being the organization at the forefront of a global crackdown on tax evasion. The OECD advocates the exchange of information between tax authorities to better equip them to tackle illegal tax evaders but the OECD’s tax standards call only for cooperation with foreign tax authorities if there is a particular and justifiable case, despite the fact that many believe automatic exchange of information to be the only really effective way to end pandemic tax evasion.
There is a question, however, as to the extent to which the authorities should have open access to our private banking details. Any individual would welcome cooperation to combat not just illegal tax evasion – but also money laundering, fraud and terrorism. However automatic information exchange would leave details of one’s finances and activities transparent for government agencies regardless of whether there is any suspicious activity or not.
This issue was forced onto the front pages with the reoccurrence of the story of the theft of client data from HSBC in Switzerland by former employee Herve Falciani (see picture) in 2008, which the bank, Europe’s largest, had previous stated had affected ‘less than 10 clients’. The revelation that up to 24,000 accounts had been affected certainly threw new light onto the story and threw the world of private banking into a state of panic.
It wasn’t certain exactly how Mr Falciani accessed and stole the data, and it was not an isolated incident – similar cases in places such as Liechtenstein have forced banks to take action, but more importantly, led to a disturbing new trend.
Falciani fled to France while under investigation, and handed the information to the French authorities, who indicated that they were prepared to use this information to look into financial activity of HSBC clients to aid its hunt for tax evaders. To add to this Germany’s Finance Minister, Wolfgang Schaeuble, raised the bar in the fight against tax evasion further, saying Berlin was prepared to not only accept and use, but also pay for stolen data on potential tax cheats at an unnamed Swiss bank.
The banks and governments on the receiving end have been united in criticizing the thefts and subsequent purchase and use of such information, with the Swiss government recently seeking the arrest of 3 German tax inspectors who paid $3.3 million for stolen bank information. It certainly strikes a blow to the concept of Swiss Privacy and confidentiality – and one starts to see disturbing trends developing if this becomes common practice.
One of the reasons for the increase in data theft and perceived lack of data security at banks is due to improved technology. When banking secrecy laws were first introduced in 1934 the banking world was one of hand-written ledgers and punch cards, security was simpler. Today we live in a world of CD-ROMs, pen-drives and smartphones, making the ability to copy or steal data easier. Banks have, of course, invested in security measures to counter this technology but a simple mobile phone with a camera can take a screen-shot photo which is practically impossible to avoid. The ability to steal data is not in question, but the reason why it is taking place is, unfortunately, easy to answer – personal gain.
“a simple mobile phone with a camera
camera can take a screen-shot photo
which is practically impossible to avoid”
So why is the theft of bank data such a problem? Well, let us start with a moral glance at the topic, something which the U.S., German, French and British governments will no doubt not even consider.
Under the current system, reputable institutions co-operate, and are required to, in relation to cases where suspected illegal activity is taking place – the basic premise being that there must be some basis for the accusation. If stolen data is used, anyone can be investigated, or have their assets frozen, at any time. It is important to realize that legal tax avoidance is one of many possible motives for placing money in an offshore account, confidentiality and locating assets in a politically and economically stable region are two alternative motives. The use of stolen data places everyone in the same ‘under suspicion’ category. The concept of innocent until proven guilty is truly dying.
This push for financial transparency really began with the enabling of the hastily drafted and approved USA PATRIOT Act and has been further strengthened by the unconstitutional and almost dictatorial FATCA act which is to come into effect at the start of 2013. These are two simple examples of governments eager to hide the fact that the global crisis was a result of over-lending and poor regulation and to recover as much money in tax as they can while destroying all forms of privacy.
Imagine an alternative scenario such as phone bugging. The government authorizes the concept of bugging phones or monitoring emails to search for suspected terrorism or illegal activity. I, for one, am grateful that this takes place, but when the concept is extended to monitoring ALL calls and emails – it starts to make me uneasy. If you have any doubts that this is ready to take place, you should read about the NDAA legislation being proposed by the Obama regime.
Maybe it is time to take an admirable look at the Swiss stance on the subject at hand? After all they are looking after the interests of their clients whilst promising to cooperate fully with the authorities. Are we ready to advocate the concept of paying criminals for data stolen from banks? In my mind it is a highly questionable position to take. The moment you create a market for this type of data is the moment that you actively encourage the theft of such data. This was a crime, last time I checked.
Let’s be quite clear about this, what started off as an opportunistic purchase became an incentive for theft and has reached the point where governments are now openly encouraging this theft by publicly stating that this type of theft brings no penalty, just a financial reward. Governments really seem to ignore the moral values by which most everyday citizens live their lives.
I fully support the attack on terrorism and the underground economy – but one has to ask where it will all end? Once the government is able to obtain information in this way, it presumably will not stop there. Structures and trust setups exist to add extra layers of security to protect private interests. It was a concept that many considered unnecessary for a long time. Government willingness to cooperate with the stolen data concept will certainly push people to look into the type of structure options available to them. Private Trust Banking, which adds an additional administrative layer to protect your financial privacy, as offered by Capital Conservator is one of very few ways still available to protect your financial details as big brother governments look to take away any privacy you (may?) still enjoy.
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