Cambridge International Symposium on Economic Crime (www.crimesymposium.org), Workshop 21, 10 Sep 2004

War on Economic Crime:
Qualitative Cost-Benefit Considerations
by  Anton Keller, Secretary, Swiss Investors Protection Association, +4122-7400362 - swissbit@solami.com
url: www.solami.com/costbenefit.htm ¦ .../crime.htm ¦ .../walderbsi.htm ¦ .../europe.htm ¦ .../goldpossession.htm

The Iconoclast's Ten Economic Commandments

1.   The Citizen is the Sovereign, the source of all power and the ultimate arbiter of legitimacy.  No State power shall exist which has not been properly delegated, nor shall it be exercised unless this is in the citizen's and the people's service.
2.   Individual freedom and privacy, including the right to undisclosed private property, are indispensable for the citizen's sense of responsibility to fully mature, for the citizen's rights and obligations to be exercised responsibly and in harmony with the common good.
3.   Trial and error are key to both the individual's and society's evolution.  The right to error is a fundamental human right, but it is inseparably linked to its Siamese Twin, i.e. the obligation to admit error as a precondition for repairing its effects and for avoiding its recurrence.
4.   The right to tax is a sovereign right.  It has no other purpose than to provide for the common good.  And it implies no lesser obligation than to protect the taxpayer also against foreign snoops and taxmen.
5.   Tax optimalization and tax avoidance are hallmarks of the market economy.  They are a free society's linchpin and each entrepreneur's mobility call; not only are they not crimes, they are part of each citizen's birth-rights, even his obligations which, of course, include the permanent radaring for "greener pastures", for opportunities to invest the fruits of one's labors and other resources with less administrative hassles and better returns.
6.   No taxpayer money shall go to international organizations whose brief it is to combat tax avoidance, or who infringe on the sovereign right to compete for foreign investments.
7.   No tax or other burden shall be imposed on foreign investors or their investments which is not also exacted from local residents or on their investments, all based on a simple, understandable and effective a code as is feasible.
8.   No foreign investment should be liable to sequestration or confiscation unless the underlying information was obtained in strict respect of applicable treaties, dual criminality standards and specialty rules (and, for areas beyond the jurisdiction of the United States at least: notwithstanding contrary U.S. Supreme Court decisions and Federal Rules under whatever pretence).
9.   No law should prevail over better insights, no law should be applied beyond its intended purpose, and no law should be left in force beyond the duration of its public usefulness, particularly not if it discourages foreign investments.  For it is also in each nation's interest to create such conditions which are conducive to attract and keep foreign investments with minimum administrative and fiscal burdens which are competitive.
10.    The Emperor wears no cloth, regardless of universal contrary affirmations by default, and the Piper of Hamelin is neither a guide to a dignified and successful future nor an effective substitute for principled leadership to protect and bring to fruition the nationally available resources and productive forces, notwithstanding gunboat diplomacy, lex americana universalis (www.solami.com/lexamericana.htm) and the associated fiscal and other bounty-huntings and the paralysing compliance mechanisms.

30 August 2004 - Just about a year ago, China was reported to have replaced the United States as the country attracting most foreign investment.  I don't want to go into the math of the matter, as others are more qualified to come up with and to discuss the corresponding figures.  And because figures are hardly ever complete and conclusive.  Still, for those who haven't chosen to put their head into the sand, numbers are at least indicative of trends.  And for those, like me, who are trying to make sense of what's really happening here and there, and how things may evolve because or in spite of the on-going war on terrorism and economic crime, let me point out and link some apparent dots which I find worth pondering about if you are concerned with foreign investment flows.
Traditionally, the US economy has been a mutually profitable haven for foreign investors.  And in turn, it acted as a locomotive for the world economy, with predictable corresponding tripple-down effects on all five continents.  This has been helped primarily by the US dollar as the generally accepted dominant reserve currency, by comparatively favorable US tax rates, and by a generally favorable low-hassle US investment climate.

All this is seen to have begun to seriously unravel when, on 15th August 1971, Nixon closed the gold window, whereby history's most effective and universally accepted constraining measure on government spending, e.g. the gold standard, was unilaterally, myopically and recklessly abandoned without any real substitute.  A somewhat delayed but no less direct and still very much resonating effect of that ill-considered US action has been the coming into being of the oil market as a substitute black gold standard, with a politically driven overlapping spiral of price-hikes unleashed in 1973.  As rightly pointed out by another Iconoclast (www.solami.com/iconoc.htm; Burt Blumert, of the Center for Libertarian Studies, www.lewrockwell.com/blumert/blumert35.html), a lesser known date of equally fundamental significance and global reach is 5th April 1933 "when gold was demonetized, and Americans lost the right to hold 'real' money."  This weakened the citizen's position vis-à-vis the state.  And, most importantly, it also deprived him of the ancient human right to undisclosed private property.

Already many years before 9/11, the United States government relied to finance its traditional balance-of-payments deficits by foreign investors - whether they were aware of it or not.  The available instruments included: essentially unconstraint printing of US dollars, setting of key interest rate, and essentially controlling IMF and World Bank policies and facilities.

After the Second World War, the political clout thus gained came in handy for extending the reach of US laws abroad.  It all started with the seemingly innocent and rational extension of the US Tax Code to US citizens abroad.  Clever-by-half fiscalists had invented the so-called exemption method for purpurtedly avoiding double-taxation - but only from their vantage point.  Making a mockery of the citizens' rights and legitimate interests, they turned the no-double taxation principle upside down with the specious argument that there is no double taxation if you have to put down your pants before both your resident and your home country's tax authorities, and then let them share the maximum tax imposable in either country on your income and wealth.

Behind the back of inattentive constitutional lawmakers everywhere, the fiscalists of the world thus mutually back-scratched each other and, in effect, have ever since been causing double taxation and corresponding administrative burdens on you, the enterprising citizen abroad. Gradually, lex americana universalis was pushed down the throat of both formally sovereign countries and the unsuspecting world business community at large.  Like in the case of the double taxation innovation, Switzerland proved to be a willing ally for making this happen.  Just look at the genesis and the world-wide spread of the anti-insider laws, the anti-money laundering laws (.../armscom.htm), and the Qualified Intermediary regulations (.../QI.htm) which, alarmingly, turned even Swiss bankers into unpaid agents of the US Internal Revenue Service.

To be sure, the US Supreme Court made essential contributions on this unfortunate, unhelpful and even unsavoury pathway.  The infamous Aerospatiale decision of June 15, 1987 (#85.1695: .../walderbsi.htm#AEROSPATIALE), comes to mind with which, in effect, it handed down a blanc check for the U.S. Administration and the U.S. Judiciary for disregarding treaty obligations and channels for obtaining evidence abroad.  The Court then 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."  In fairness to its minority of 4 judges, it deserves to be mentioned that Judge Harry Blackmun observed notably: "The Court's view of this country's international obligations is particularly unfortunate." All this had occured despite the fervent pleas of the British, French, German and Swiss governments, as manifested in their noteworthy amicus curiae briefs.

Uncle Sam thus found an additional and - as long as it lasts - impressive new source for covering America's ever-growing balance-of-payments deficit, namely outright confiscation of foreign assets in the US.  Indeed, behind all-purpose suspicions and allegations of terrorism, money-laundering and corruption - and too often with the effect of sequestration or confiscation of totally legal investments made in the U.S. economy even from unobjectionable sources -, Uncle Sam has turned from protector to prosecutor and even straight-faced robber of foreign property.  Naturally all behind some fig-leaf, some resemblance of legitimacy and legality.  Thus, already with RICO, and now even less restrained with the USA PATRIOT ACT, he lowered or even shifted the burden of proof to the foreign investor in particular.  On the back of free citizens, civil liberties and sovereign rights, and either directly or by way of multilateral "fiscal" redress and anti-terrorism instruments, authorities, banks and other fiduciaries abroad thus found themselves pressured into giving up sovereign safeguards, and to disclose privileged information.

This, of course, presupposed blue-eyed foreign investors.  And that, of course, was a blue-eyed assumption worthy of the members of the Flat Earth Society at best.  For not only foreign investors, but also streetwise American citizens investing by way of off-shore banks, have started to take note - and to "vote with their feet".  Evidently, the rapidly growing U.S. balance-of-payments deficit is not on the radar of the US Attorney General.  And it never will, as long as the reported routine harrassment and occasional beating up of foreign visitors to the US by over-zealous security forces is in fact condoned - if not encouraged.  As Bruce Zagaris and others have reported, the U.S. has already experienced a "dramatic decline" concerning "foreign travel and foreign study in the U.S."  And he goes on observing:
    "In particular, visitors from the Middle East have stopped coming, but so have foreigners generally.  The decline is to a large extent the result of U.S. immigration policies and the wholesale detention and sometimes deportation of Middle Eastern students. While this decline is reflected in short-term statistics of visitors and foreign students, the long-term economic and political impact will be seen in the decades to come when the foreign students are managing companies and government agencies in their countries.  They will no longer be familiar with U.S. technology, ideas, and persons.  As a result, they will tend to look to other places to find technology, services and ideas.  The trend to avoid visiting and studying in the U.S. will exacerbate the U.S. economy and especially the deficit." (private communication)

Moreover, it is as if the Berlin Wall had fallen in the other direction. The originally pro-liberty, pro-enterprise and pro-sovereignty Organization for Economic Cooperation and Development OECD was hijacked by non-elected adepts of discredited anti-liberty, anti-enterprise and anti-sovereignty policies. And though the OECD has been rediscovered as a useful tool in some Washington quarters, Wall Street not least is more than ever dependent on foreigners willing to invest in the US economy.  And as the evolving numbers suggest, that crucial objective is badly served by both Mr.Ashcroft's crusades and some OECD outgrowth.  In fact, the next US President may find it urgent to obtain better counsel.  And he may actually find it by setting up an appropriately composed Presidential Council for Foreign Investors (.../ICONOCLAST.htm).

Similarly, during decades, socialists were gladly sent to "Brussels."  That has left its marks on what now lives on and even seems to thrive as a generally flattening European Union bureaucracy. And in whichever field bureaucratic lawmaking is at work, the United Nations has rarely missed an opportunity to join the fray, "democratically" cherry-pick, and add its weight.

To be sure, upon joining the OECD, the United States commendably saw to it that this free market counterweight to the socialist countries’ COMECON was explicitly prohibited from any work directed at social and economic engineering.  Which is the forgotten real meaning of what, in OECD parlance, its Council has defined in Resolution C(71)41, §2, as "work on the use of fiscal policy for demand management purposes." But inattention by constitutional lawmakers here and there, facilitated by the crumbling of socialist ideas and structures, soon produced such fiscal aberrations as the OECD Fiscal Committee’s formal call of 1977 for measures attacking the linchpin of the free enterprise system, i.e. "combating tax avoidance".

In turn, this provided for the foundations of such secretly developed Orwellian monsters as the INTERFIPOL, i.e. the 1986 OECD/Council of Europe "Convention on Mutual Administrative Assistance in Tax Matters" (.../Orwell.htm).  Prompted by the latter’s initial failure, the taxmen of the industrialized world sprung another OECD-based international fiscal police on the world's business community, i.e. the Financial Action Task Force FATF (.../FATF.htm ¦ .../billiard.htm).  Embolded with its success, the OECD, in 1997, came up with its truly harmful "Harmful Tax Competition Initiative" and its infamous name and shame list of "non-compliant countries".  And to the delight of paper producers and adepts of Orwellian tools, but on the back of constitutional lawmakers everywhere, it continues to churn out ever more burdensome and costly recommendations, guidelines, and other bureaucratically created instruments of coercion.

Regularly, over the past three decades, we have found ourselves in the frontline of the battles against these mostly self-serving bureaucracies. The International Chamber of Commerce, its national branches and related professional organizations used to be effective natural allies in this on-going struggle. And while the citizens have indeed entrusted some among themselves with the noble task of providing for the acquisition, safe-keeping and administration of the fruits of their labors, most lawmakers, bankers, lawyers and other fiduciaries thus called upon to stand the ground on proven and eternally valid principles increasingly seem to fail in this, their major task.

True, not many have been prepared for, or become used to the unipolar bureaucratically-oriented world we now experience.  In this new environment, the political magnetic field - as we may call it - has disappeared.  Those who are equipped with only a political magnetic compass, have lost their orientation - in as much as they are not used to read their own inertial compass, to rely on their inner voice.  And until bipolarity will have been re-established, these leaders, essentially, will find themselves reduced to gesticulations substituting for genuine vision, leadership and guidance.

What's more, in the past, many have often been successful less because than despite of themselves.  And, not unlike some Kuwaitis acting as if they had a birth-right to free-loading, many a former defender of privacy, private property and bank secrecy increasingly is finding himself compelled to give up his traditional and most legitimate role as an ally of the citizen against overbearing bureaucracies here and there.  And whether they admit it or not, they have instead become agents of the state, even of foreign states. The IRS' Qualified Intermediary agreements are a case in point. Just ask your Swiss banker why he sold out and became a QI (.../stammsbv.htm). Why he didn't fight tooth and nail against this further US onslaught.  And how much his current overall compliance budget compares to what he refused then - and still now refuses - to spend on effectively fighting these incursions and bureaucratic cancers.

The ensuing regulations thus generated new jobs, professions and industries all right. But the larger question is whether this compliance sector is not causing an unnecessary, creeping and often unbearable burden on the remaining truly productive forces, thus causing havoc in many places of the industrialized society.  For those considering history not just as "bunk", these developments are reminiscent of the socially, economically and politically unsustainable effects of the US Prohibition. At that time already, compliance activities were the only real growth show in town.  And if you add to that the Musterknabe mentality prevailing in some countries, you are looking at a recipe for a macro-economic tailspin with social, political and economic effects potentially surpassing those of the Depression.

On this already by itself alarming background, 9/11 made matters even worse. But instead of thinking and acting on the level - and necessarily outside the box -, many a former practitioner and defender of civil liberties has thrown in the towel.  Which, of course, is all but helping the remaining and the newly arriving generators of legitimate earnings here, in the emerging economies in Asia and elsewhere.  Left on their own against buraucratic lawmakers and essentially self-serving administrations which are increasingly insensitive to their needs, they cannot successfully, effectively and safely invest their surplus earnings abroad – or at home by way of fiscally and/or administratively advantageous offshore channels. All of which has already significantly affected the global foreign investment flows.

Not surprisingly, China has thus already replaced the United States as the country attracting most foreign investment. And with the help of some allied countries equally willing to buck the generally harmful compliance frenzy, Russia in particular is likely to benefit from the foreign investor’s enhanced sensitivities on privacy-encroaching practices, whether they are peddled under the heading of anti-terrorism, anti-money laundering or anti-corruption.

All of which is not to say that there is no need to fight terrorism, money-laundering and corruption.  But that serious police work cannot be substituted with no-holds-barred pursuit of the money flow, with turning bankers into state agents, and with reverse-Glasnost, i.e. a transparent citizen facing an opaque and thus uncontrollable state.  That to address social and political ills with police means is likely not to cure but to enhance and perpetuate the former.  And that the market itself, more often than not, offers socially, politically and economically attractive alternative solutions to those relying on curtailed civil liberties and on further burdening productive forces with essentially futile constraints and self-defeating compliance measures.  Concrete ideas for those seeking to effectively meet the new challenges under the moto: "When in a hole, stop digging!" can be found notably in works by: Daniel Mitchell (“How the IRS Interest-Reporting Regulation Will Undermine the Fight Against Dirty Money,”:  www.freedomandprosperity.org/Papers/irsreg-dm/irsreg-dm.shtml), Gilbert Morris ("Preliminary Issues in Title III Compliance Under the US Patriot Act": .../morris10.htm), Richard Rahn ("Task Force Report on Financial Privacy, Law Enforcement and Terrorsim": .../RR.pdf), Bruce Zagaris ("Exchange of Tax Information Policies at the Millennium - Balancing Enforcement with Due Process and International Human Rights": .../Zagaris.htm) and others.

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The author, while being alone responsible for any errors and omissions, acknowledges the inputs notably from: Patrick Martin (Geneva), Daniel Mitchell (Heritage Foundation, Washington, dan.mitchell@heritage.org), Gilbert Morris (Landfall Centre, Nassau, morris@landfallcentre.com), Richard Rahn (Discovery Institute, Washington, Novmgtco@aol.com), Philip Wainwright (Geneva), Bruce Zagaris (Washington, bzagaris@bcr-dc.com)