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Cringely Looks at the WikiLeaks Debacle
dtwood writes "Infoworld's Cringely has an interesting take on the Julius Baer bank trying to silence WikiLeaks.org — and how stunningly stupid they've been. 'But the bank's solution is so mind-bogglingly stupid, you have to wonder if these guys need help getting their pants on each morning. First, this is exactly the kind of story bloggers and Net-centric journos crave. Big nasty corporation stomps all over plucky public-serving underdog. Who can resist that plot line? Second, the equation Bank Julius Baer = Money Laundering is now firmly cemented in the minds of everyone who has encountered this story, regardless of whether it's true. Trois: The documents in question, which might have been quickly forgotten alongside the 1.2 million others on the site, are now hotter than the Paris Hilton sex video. Dozens of mirror sites have sprung up, and Cryptome.org and PirateBay have squirreled away copies of the docs for any interested parties. "
I think this is called the Streisand Effect.
Disclaimer: The opinions and actions of the US Gov't are in no way representative of those held by this author or its ci
The site itself could still be accessed at its Internet Protocol address (http://88.80.13.160/) the unique number that specifies a Web sites location on the Internet. Wikileaks also maintained mirror sites, or copies usually produced to ensure against failures and this kind of legal action. Some sites were registered in Belgium (http://wikileaks.be/), Germany (http://wikileaks.de) and the Christmas Islands (http://wikileaks.cx) through domain registrars other than Dynadot, and so were not affected by the injunction.
"Cringley" missed a key element of the story. Bank Julius Baer was preparing to take their US operation public via an IPO for about a billion dollars. They filed the prospectus with the SEC a few weeks ago. "We are an asset management company that provides investment management services to institutional and mutual fund clients. We are best known for our International Equity strategies, which represented 92% of our assets under management as of September 30, 2007." They were going to call the business "Artio" (ticker symbol ART, to be listed on the NYSE). Goldman Sachs and Merrill Lynch were to underwrite the IPO.
So the last thing they needed was to be the subject of a New York Times story and all over the world press, associated with money laundering. Now the deal goes under a microscope. Their underwriters have to take a second look and the SEC may have questions. Julius Baer will probably have to file a "material event" 8-K report with the SEC. Newspaper and magazine reporters will be looking at Baer. The question will be raised that the rather high returns Baer reports may be achieved via money laundering.
All this is happening in a down market, in which it's hard to do an IPO and in which investors are very sensitive to unexpected risk. The whole deal may evaporate, or be repriced downward.
This was a very, very expensive mistake for Baer.
You are mistaking money laundering with tax evasion.
If a US resident has money in a Cayman bank, then there is nothing illegal about this. The resident must declare this money, and the income it earns, to the IRS and they will tax it. If they do not declare the money, then this is tax evasion, and is bad and illegal in the same way if you don't declare the income from your side job where you get paid in cash. But this is the clients problem, not the banks.
Banks in the Caymans (and other countries) are useful because if you are a resident of somewhere that doesn't have income tax on offshore investments, then you will have a nice, legal, tax free income. Remember YMWV, depending on the tax laws of your country.
Money laundering is a different kettle of fish. Basically it is an attempt to solve the problem of how to make illegal income look like it is legitimate. Say you have a prosperous drugs business, then you need a way to legitimise the source of the money, or you will have a large number of agencies knocking on your door, including the IRS.
The other thing that makes countries like the Caymans popular is they have very strict privacy laws, so other authorities cannot find out who actually owns company x. So if you have a big pot of money you made from generic nefarious deals that you want to spend. All you do is borrow a few mil from "pcgc1xn Cayman Lending Inc". If anyone comes knocking and asks how you paid for the Bentley, you can show them the loan documents, and there is a dead end, with no way to prove you have any relation to "pcgc1xn Cayman Lending Inc" other than as a customer.
Money laundering is generally made illegal by requiring banks etc to know who their clients are, where their income actually comes from, and by requiring them to report suspicious activities to various authorities. If the documents showed that the bank did not report suspicious activities to the Swiss authorities, or worse, had a policy of not doing so, then the bank was likely to be breaking Swiss law.
This is a general overview, with some pretty simplistic examples, so don't take it as gospel.
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First, your analysis isn't how most lawyers think; it's how their clients think. And, let me be the first lawyer to say that many lawyers are considerably more cautious than their clients. Most lawyers don't rush to take action unless there's a really good reason.*
Also, many lawyers are familiar with the "Striesand effect" (if not by that name).
And, even if they're not cautious, lawyers aren't usually the ones steering the boat. At best, they're the guy on top of the ship screaming "iceberg!" And, then they're given unenviable task of being the person to also execute the very public actions.
I doubt, very highly, that suing wikileaks into oblivion was the advice given. Rather, the question was how to address espionage and trade secret issues. In most cases, enforcing your rights is the right choice since it'll never be heard (court enforced gag order) and the documents are returned or destroy. The riskier choice is leaving them out there for public consumption.
The problem in this case (as became obvious from the e-mail correspondence between the lawyer and K. Kim) was that 1) the documents here show illegal activity and have public interest; 2) the locations of the documents make enforcing a court order incredibly unlikely; and 3) the documents are housed at a sympathetic organization.
* A special note that trade secret and industrial espionage are usually good reasons to act quickly. As I note later, most of the time, getting a court to impose an order requiring the return or destruction of documents and a gag on further disclosure isn't difficult. Wikileaks, however, is organized in such a way that the typical response was ill-suited.