HEIDILAND BLUES
observations to a comrade-in-arms related to the forthcoming
Task Force Report on FINANCIAL PRIVACY, LAW ENFORCEMENT & TERRORISM

Dear Richard,

1.    Salve!  My very best wishes for, and hearty congratulations on the quality of the Task Force on Information Exchange and Financial Privacy your team managed to put together in such short a time.  For this alone already, the beneficiaries of all these efforts owe you a thick bundle.  More than that cursory "thank you" notice which usually comes so cheaply off the lips of too many free-loaders.  And definitely more than that unhelpful but very revealing "we support you, but we can do so only morally, lest the IRS, OECD or FATF will revenge itself on us" (original sound-track which, last week, came out of the board room of some "bankers" with a long-standing and obligeing fiduciary tradition and which - still - seem to have the means to maintain offices in Zurich, Geneva and elsewhere).

2.    Some of the Task Force members I have been privileged to know and work with personally.  And I trust to be able to continue and develop what I consider to be mutually enriching experiences (I leave it up to you, in the event, to forward this note to others not included in the distribution key).

3.    Seth Lipsky and I met Jack Kemp and Senator Bradley at a gold standard symposium in Zurich in the eighties and I remember discussing with him the question of whether the US Senate's constitutional advise and consent rôle applied only to the conclusion of a treaty (Jack then concurred that this competence applied equally to the termination of a treaty, and I trust he will remember and, in the event, seek to have this principle observed, in line with the US Constitution's stipulations: "No State shall ... pass any ... law impairing the obligation of contracts [or reaching beyond its jurisdiction]", which is seen as the real meaning of art.1, sec.10, al.1., and  "This Constitution, and the laws of the United States which shall be made in pursuance thereof; and all treaties made, or which shall be made, under the authority of the United States, shall be [in harmony with the law of nations, thus constituting] the supreme law of the land", which is seen as the real meaning of art.6, al.2.).

4.    In the case of Edwin Meese III, I remember particularly his most effective long arm into Switzerland.  Although at the latest with the notorious Marcos case, Switzerland had already lost its innocence and other Heidiland virtues.  And at least to the close observers at home and abroad, it has given an increasingly disquieting impression of servililty, unwillingness to react to hardball with anything but softball, and other traits normally associated with a banana republic.  Still, from my vantage point of a greenhorn, true believer, blue-eyed parliamentary staffer and adviser, even then it was news to me that Swiss legal procedures could be put aside and a suspected criminel - Vesco - could be freed from a Swiss prison merely because an American attorney general picked up the phone and dialed the right number.  That was a wake-up call, and I'm still very grateful to Ed for that lesson.  And I trust he doesn't mind my mentioning this anectote for illustrating how far things can go if we let sand to be thrown into the eyes of our citizens, with democratic institutions effectively undermined and sidelined, as has happened most recently with the IRS' privately negotiated infamous Qualified Intermediary Regulations.

5.    All of which, of course, doesn't make me more than a mere interested fence-sitter from across the Atlantic.  Nevertheless, at the outset of the Task Force work, I find it worthwhile and may be permitted to make a few initial observations reflecting my own related experiences which I acquired over the past 20 yearsAlthough repetitive, and all-too-well known to both you and others, some of our younger colleagues receiving this note may not mind to complement their own insights with those of others.  Particularly as they have only recently come to discover a few of the horrors some of us have been fighting against - seemingly as lost causes - in uphill battles for decades.  And as they evolved in a culture where the hierarchy of law, sovereignty rules and privacy principles occasionally have given way to what some describe as still surviving wildwest bounty instincts, flat earth mind sets and corresponding lex americana universalis aberrations.

6.    Not meant to demean anybody, I may be permitted to illustrate this latter point by referring to the symptomatic and most telling Aerospatiale case where, on June 15, 1987, the US Supreme Court, in effect, handed down a blanc check for the Administration and the Judiciary for disregarding treaty obligations and channels for obtaining evidence abroad.  As many of us have observed with dismay, that Court, with devastating long-term effects, thus approved recourse to the national means of coercion - such as the subpoena power and contempt of court citations - if they promise quicker results at less costs, i.e. whenever  "Convention procedures would be unduly time-consuming and expensive, and less likely to produce needed evidence than direct use of the Federal Rules." (#85.-1695).  It deserves to be mentioned that Judge Harry Blackmun, speaking for the minority of 4 judges and for most of us, voiced his grave concerns by saying a.o.: "The Court's view of this country's international obligations is particularly unfortunate."

7.    I may thus begin by referring to the old wisdom which calls for deliberately avoiding, wherever possible, all terms which needlessly open one's flanks.  Terms which may draw oneself away from the key objectives, or which may divert and tie up in muddy territory too many of one's always scarce resources.  As an example - i.e. if, literally, you haven't printed stationary yet - the Task Force, for both its defining name and in its presentations may want to consider using as much as possible the more encompassing and less attackable term wealth privacy instead of the more easily smearable term financial privacy.

8.    Making a dent on a given target is the ambition of every enterprising human - lawmakers and lobbyists not excluded.  If the target is a government policy, the closer one gets to the decision-making, i.e. the power center, the hotter it feels and the weaker every "material" gets.  Eventually one's own ideas and agendas will even melt into the power pot where macro-economic and macro-political perspectives - supposedly - dominate special, occasionally even purely micro-economic interests.  In the case at hand, I understand you and your colleagues at the Task Force to naturally want to retain and even strengthen the hard-won privilege to directly dialogue with the Treasury's decision-makers.  Thus, you probably entertain the hope - some outsiders may insist: the illusion - to win them over to our pro-market, pro-sovereignty and pro-wealth privacy stand.  Whether with hope or illusion, the mechanics at work will always be give and take, with the price of one's progress inevitably being compromises.

9.    Indeed, on the way there and while, in your words, the new Administration "has not said they disagree with us, nor are they yet making specific proposals which we find unacceptable", you find yourselves quite naturally already in the midst of seeking common ground with the Treasury.  And you "think that it is undesirable to engage them in a debate at this time", in order not to "force them to make statements in a debate that they might later regret."

10.    Excellent, I fully agree - in as much as this dictum applies indeed only to a clearly limited grace period (e.g. to the Washington Roundtable of 9 August where I trust you and other Task Force members will feel free to fully participate and to make your related positions unmistakably clear).  For history teaches us that we all might otherwise sooner or later find our forces too tied up in one operational theater, and/or too self-muzzled to be effective on other important fronts.  Yes, the cherished and indeed indispensable minimum mutual confidence built up between discussion partners can be a significant drag on external reform forces.  Also, compromises, even bad ones, will become the more inevitable the less independent external forces exist and are capable and willing to bring into the policy-makers' focus fundamentally uncompromisable principles.  The growingly cozy relationship with the power-holders also regularly weakens the drive both for recognizing regulative and other honest and less clear "errors", as well as for promptly drawing the necessary consequences.  The other dictum eventually may thus also get blurred and lost, i.e. in a democracy worth its name there can only be face-saving questions of how, but no compromises on whether to rapidly dispose of fundamentally flawed rules, regulations and practices.

11.    Admittedly, the maximalist call for no compromises has the ring of extremism; it can also be as inflammatory as the riot act call of no prisoners!  Moreover, use of this kind of language is regularly facilitating the task of the faint-hearted and other seekers of excuses for doing nothing.  Yet, not least in order for your Task Force to be able to effectively circumvent inadmissably harmful or even merely unhelpful compromises, it may need objective allies for which it can decline any responsibility.  Also, there comes the time when every citizen must either draw the line and stand up for what he stands for, or face the - mostly less dignified and more burdensome - consequences of steadily eroded constitutional democratic institutions.  This is reflected in the unopposedly growing flood of national and international bureaucratic lawmakings in the form of recommendations, guidelines and ukases, all hatched behind the back of the constitutional lawmakers.

12.    On this background, whose development I have been following professionally over the past 35 years, I may apply to myself what the German Evangelist Martin Luther claimed some 500 years ago: "This is where I stand, I can do no less!"  For in light of their foreseeable devastating effects on the Rule of Law, the international order and other paramount values, I find myself compelled to call for a no compromise stand whenever the sovereignty of another country is to be compromised.  And that includes not least a country's capacity and willingness to set its own tax laws and, of course, to heed its obligation to protect its taxpayers against any and all foreign snooping.  Accordingly, I suggest the Task Force to consider adopting a no compromise stand concerning tax data exchanges, with the clear but sole exception when fraud is justifiably suspected, and when the dual criminality, due course and other principles reflecting sovereignty rights are fully respected.  This would again allow individual countries to fully and responsibly exercise their sovereign rights to set their own standards, including strictly upheld privacy garantees, and to compete among themselves also on account of this investment criteria.

13.    The measures thus to be sought have already been outlined in my note to Howard of 7 July; they concern mostly:
a)    The international bureaucratic power vacuum outgrowths which, in the case of the OECD, are even incompatible with its own statute.  I am, of course, talking of the OECD's INTERFIPOL Convention which provides authority even for spontaneous tax data exchange and snooping by foreign taxmen.  I am pointing the finger at the OECD's international fiscal police arm FATF.  And I am challenging anybody on the legality and market-conformity of the underlying OECD Fiscal Committee mandate which must be fundamentally revised, if need be with the power of the purse, in as much as it calls for "combating tax avoidance", thus providing the generally harmful, yet so far unchallenged fig leaf for the ill-considered international fiscal witchhunt we all have come to dismay.
b)    The IRS' Qualified Intermediary Regulations which must be withdrawn without replacement notably because they are seen to violate
-    constitutionally fixed conditions and limits for the power to levy taxes,
-    the Administrative Procedures Act's provision obliging the Treasury to perform and publish the cost-benefit analysis when proposed regulations are likely to impose costs in excess of $100 million upon the private sector (2 U.S.C. §1532, 1535), and
-    the non-discrimination clause of the friendship, establishment and commerce treaties the United States has in force with many of its trading partners.
c)    The IRS' Fiscal Data Exchange Regulations, which - and here the problem comes full circle - is a logical outgrowth of the INTERFIPOL Convention which, since 1995, is already binding on the US and thus, in Paul O'Neill's apparent way of thinking, is necessarily applicable and which, quite naturally and no matter what, is to be enforced as the law of the land, even beyond the US jurisdiction.

14.    The Treasury's Assistent Secretary for Tax Policy, Mark Weinberger, in his letter of 29 June to Donald Alexander (circulated by Andrew 18 July), clarified that "the Administration wants to refocus the OECD initiative on its core element: the need for countries to be able to obtain specific information from other countries upon request in order to enforce their respective tax laws."  Weinberger should, of course, have added, and might yet be lead to add: "in as much as these laws do not infringe upon the sovereignty of other countries."  Taking into consideration my above observations, common ground might accordingly be identified and proposed by the Task Force for the Treasury to conditionally support OECD work on tax data exchange in as much as it would be limited to cases of justifyably suspected tax fraud, providing all necessary garantees, including dual criminality and full respect for other countries' sovereignty and their privacy laws.  The pre-condition being, of course, for the OECD to first clean up its act by having the mandates, publications and actions and inactions of all OECD bodies promptly reviewed and brought back in line with the OECD's statute as well as with its original intent and purpose.

15.    Accordingly, permit me to stress the need for what I see as an indispensable external credible fighting force which is not hindered in any significant way by the on-going negotiations between your Task Force and the U.S. Treasury.  In this sense I welcome the fact that your Task Force has put together what is easily recognizable as a first-class negotiating team, while leaving enough first-rate experts, organizational talent and intellectual clout available for building up that leverage-providing parallel team.  With my radar traditionally not limited to the American national horizon, I am thinking in particular of such personalities as Bill Archer, Peter Bähr, Jürg Egli, Howard Flight, Jürg Geigy, David Klein, Henri Lepage, Samuel Lohman, Seth Lipsky, Alain Madelin, Leonard Miller, William Moore III, Gilbert Morris, Tracy Paradise, Marie Psimenos de Metz-Noblat, Barry Rider, Wolfgang Ritter, Fred Smith, Stephen Wyman, Bruce Zagaris, etc.  And that we might thus try to work out such coordination and cooperation arrangements which, in the pursuit of the common objectives, promise what's said to be the biggest bang for the buck.

16.    Which brings me back to the coming Washington Roundtable and - hopefully - subsequent events in Cambridge, Virgin Islands, Dublin, etc.  I have struggled to resolve early on the budget question for the originally planned London meeting, and the experiences thus gained are worrying me and have made me weary of the sources tapped so far (I wish you more luck for your most commendable and deserving Task Force enterprise and I will not fail to be of assistance in whatever way the future may allow me to).  As indicated before, I feel very strongly that we must develop adequate and reliable funding sources independently of the financial services community.  This is unfortunate, as the biggest beneficiaries are to be found there, but we cannot tolerate our costly and resources-intensive efforts to depend on the whims of some banking bureaucrats who - as I mentioned at the beginning, often on the flimsiest of excuses - over the past 20 years persistently failed to shoulder their fair share of the burden.  Fortunately, the Washington Roundtable could not be torpedoed by withholding funds, as happened in other cases either intentionally or carelessly.  And things start to look up on the funding front.

17.    Finally, and with a view to eventually assist those scheduled or whishing to attend the Roundtable of 9 August, I may relay on this way the information that just came in from David Pearl who, as previously mentioned, is the Secretary-General of the venerable International Platform Association who commendably arranged for this Roundtable to become a keystone at this year's IPA convention.  In line with your above-discussed observations only OECD representatives and no Treasury people have been invited.  Sandra Wilson who works at the OECD office in Washington (and whom I think I crossed swords with on essentially the same issues already some 14 years ago at OECD headquarters in Paris) will probably by tomorrow announce the names of the three OECD representatives to the Roundtable.  When that is going to happen the battle will be locked alright.  Except that I have no confirmation yet that William Moore III can actually make it and who, in the event, will be his secondant representing US bankers.  May I thus suggest that both you, Richard (202-6593200), and William (212-4937821), try to contact each other and notify David (410-8409992) of the results as quickly as possible in order to permit David to go ahead with his plans of putting out a special press release on the subject and composition of this IPA-sponsored event.

18.    Hoping nobody takes any offense because of what I felt indicated to jot down as helpful background pointers for assisting your Task Force in its formidable work ahead, I remain, with warmest regards, sincerely yours,

Anton
t+f:  +4122-7400362
e:  swissbit@solami.com
20 July 2001