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Nauru: Real life Kinakuta
23mcgee writes "Today's washington Post has a story about a small Island in the pacific named Nauru. After exhausting it single natural resource, geographically remote Nauru is reinventing itself as an offshore banking center that provides it's customers the means to hide their transactions -- an offshore haven similar to Kinakuta, the fictional data haven in a Slashdot favorite; Neil Stephenson's Cryptonomicon. "
I think this demonstrates that much as we might want the Net to be sovereign, the real world and real geography-specific legal systems are going to dictate the way the web evolves. Nauru's a start, though - an anonymizer for cash! Now that's what I need when my 52% French tax bill comes due.
- Read fiction at www.espressostories.com
1.) Many countries (such as the Cayman Islands) will offer you residency if you purchase property in the Islands. If you've got enough money to hide in the Caymans this isn't a problem. From that point you're a Citizen of THERE, and not of the US and no longer bound by silly IRS codes.
2.) Offshore banking makes it hard for the IRS to prove income. Transactions greater than $10,000 to/from a US bank get reported directly to the IRS. That's not the case in the "money havens", since they are not bound by US law. You could transfer monies to and from your brokerage account (in another country, England maybe? Who knows?) where you could make capital gains on investments, but the IRS has no way of obtaining the information.
Hope this helps clear up the confusion.
I've always been confused by hording dollars to offshore (or Swiss) accounts to avoid taxes, etc. How can it work. You're taxed on the money you make from your paycheck.
I'm not an expert on offshore banking, but I'm pretty sure that if you're drawing a paycheck, you're probably not a candidate.
However, if you have a large income strictly in cash (10s, 20, 50s, 100s), once you find a way to get that cash overseas, without federal knowledge (aka money laundering), you can then safely deposit in your offshore bank account.
There are other situations I can imagine. I'll give your company this contract, at this price, but you have to sweeten the pot with a deposit in this foreign account, and for your own sake you better draw it out of a unaccountable fund (hush fund), maybe lots of petty cash withdrawals, some funky depreciation schedules, oddly priced sales of new equipment, etc.
To use the Cryptonomicon example, a Taiwanese clone maker solds thousands of PC's with unlicensed MW software. All the profits were lost apparently (a good accountant can do this, I know a little of accounting practices, and it seems like fiction writing at times), but they could have ended up in an offshore bank.
In short, if you're a working stiff pulling down a weekly or monthly salary, there isn't much advantage to an offshore bank. If you're a drug dealer/smuggler or high placed government or corporate official, you might have need of sucha thing.
George
offshore banking has been around for awhile. i remember that in The Firm (book not the movie) the Cayman Islands were used as the bank to launder money. but there's also firms that specialize in anonymity. They can forward mail, voicemail, email for you and set up anonymous accounts in different countries that have less restrictive laws about banking. I'd love to get an offshore account (even comes with a Visa bank card), but the $10,000 initial deposit requirement is a little steep.
this is just a placeholder till i send back my real sig from the future.
This would be big news if Nauru decided to alleviate the bank transactions on the island of any international control, including themselves. That was the major point in Cryptonomicon; that the only way to create a true data haven is to put it somewhere outside the influence of any country, period.
That's when it would severely screw up the world's economy, because a perfectly anonymous electronic currency would be untaxable and uncheckable. That is, even by the bank itself, which is not the case of Swiss banks.
And I still think the best place to put a data haven is on the Moon. :)
"Knowledge = Power = Energy = Mass"
My favorite part is:
Nauru's president, Rene Harris, also declined to comment on the island's offshore services. "What's it got to do with you?" he asked angrily before hanging up.
The disturbing thing is that after years of Bill Clinton biting his lip and trying to look remorseful, an attitude like that seems almost refreshing.
What I'm listening to now on Pandora...
I like the idea of tax reform better than OS hording. Imagine dribbling your money back in at 10K chunks... Naaahhh.. Tax reform is the way to go. You guys do vote ; don't you? Jamey
Jamey Kirby
A pacific island paradise for offshore banking is a pretty cool idea, but I'm wondering when we'll see data havens in the strictest sense of the word.
;)
Though it seems like a lot of the need for data storage in a legally-neutral locale could be alleviated by strong crypto, I still suspect that one day, we'll see something along the lines of vast server farms operating in jurisdictions largely untouchable by traditional institutions of law and order. What might some of the applications be? Aside from the obvious use indicated by the subject
Perhaps when coupled with highly secure (and secret) financial transactions, the black market might find itself with a whole new dimension...
-jay
...is not easy...
From the article:
Tracking Nauru banks is difficult, the State Department report said, because all "have the same post office box." The only visible presence offshore firms have on Nauru may be a wall display in a hallway of the Nauru Agency Corp., where their names are engraved in plastic.
So the trick is to open your own BANK, not just an account with one of the banks...
Check this out:
In 1998, $70 billion was transferred from Russian banks to accounts of banks chartered in Nauru, primarily to evade taxes, Victor Melnikov, deputy chairman of the Russian central bank, said in an interview yesterday...The estimated volume of Nauru's Russian capital flow is so staggering as to strain credulity, some analysts said. In comparison, Russia's total exports amounted to only $74 billion last year, according to the International Monetary Fund.
How about a Bank of Andover/Slashdot incorporated in Nauru?
--diva
diva Pasty Drone NewsTrolls, Inc.
With Switzerland no longer the totally safe refuge it once was for tax exiles, the "instantaneously rich", and other such folk, it wasn't going to be long before someone started up an alternative.
It's a pity that it doesn't sound like it's 100% computerised, complete with ultra-strong encryption, but rather a low-tech system. That leaves it very vulnerable, especially to armed nations, or larger criminal organisations. Even the locals might get a tad greedy.
With electronic currancy, there's nothing physical to steal. This reduces the incentive to level the buildings, demolish the safes, and generally make a mess of the place. Physical storage, though, doesn't have that. There's something to see, something to take, and that is worrying. For them, anyway. Doesn't bother me, as I'll never have enough money to make it worth putting there.
I expect one of three things, in their first 2-3 years of operation: An Island-wide civil war, an invasion by a foreign power (possibly the US, though France has never shown itself as caring of national sovereignty, as the New Zealanders discovered), or a heist that dwarfs Brinks-Matt and the Great Train Robbery combined.
It's a small world and it smells funny; I'd buy another if it wasn't for the money; Take back what I paid (SoM)
One simple way of laundering money is to get yourself one of these anonymous offshore bank accounts, then create a fictitious offshore company that hires you to perform expensive consulting work. You have really hired yourself, but it's hard to tell that's what has happened, and harder still to prove it. So you then submit work records and bills to the bogus company and get paid. Your income appears to be legitimate. Of course, this means you have to pay income tax on it, but at least you get to keep the rest, and you can pass an IRS audit with flying colors.
This is great for relatively small amounts of money (say, up to a few million). There are much more sophisticated games you can play with things like currency futures trading if you really need to launder massive sums.
There was a really interesting book (now out of print) called Power On Earth by Nick Tosches (New York: Arbor House, c. 1986) which covered the story of the Italian banker Michele Sindona, who was reputed to have ties to the Mafia and, by his own admission, knew some pretty shady characters. At one point in the book, Sindona gives a good overview of what money laundering is (and isn't) and several ways it can be done.
I wasn't totally sure about the particular's about money laundering, other than it was a way of taking money of dubious origin, and then somehow making it appear to be legitimate income.
George
Not to in any way diminish Mr. Stephenson, who is one hell of an author, he was not the first to come up with the concept of the "Data haven". As early as 1988, Bruce Sterling imagined the concept with his Jamaican "Data Pirates" in Islands in the Net.
However, Neil does get points for predicting the right hemisphere.
--
--
"In Cyberspace, no one can hear you be sarcastic"
Offshore accounts are useful in keeping transfers of funds hidden once that money is sitting offshore.
This would be useful for:
- Making payments for questionable activities such as sales/purchases of illegal substances
- Making payments for "consulting services."
Note that transferring funds to and fro between Transparent Jurisdictions like Canada or the US and Opaque Jurisdictions like Lichtenstein or Switzerland or- Significantly inconvenient.
- You don't use one of the "Hidden Accounts" to pay off your MasterCard bill, as that would expose its existence to domestic authorities.
- Note that interest rates on deposits in these foreign places are not likely to be terribly high.
The net result of all of this is that there's probably little point to opening "tax haven" accounts unless you've got at least a few million dollars kicking around, or unless someone who would find it worthwhile to move money to a tax haven owes you payment for significant services.In order for the important transfers to remain secret, you'd need to have a whole pile of accounts, some to be used for the "Opaque Transactions," and others to be used for "Transfers To/From Canada."
One account is most definitely not enough, and the action of shifting money is also not convenient.
Ditto for any other situations where you need to have money in Canada to spend on things.
The tax havens are "capital rich," which means that based on supply+demand, interest rates will be low to nonexistent.
The net effect of this is that you don't actually make money off of having money in the tax haven; all you do is to avoid being taxed at home.
The people that would thus care about this might be:
If you're not part of the solution, you're part of the precipitate.
Even the working stiffs pay income tax on intrest earned.
With an off shore bank account such as this you could earn your money (paying income tax) then transfer it the the offshore account.
From the offshore account you invest it. Intrest earned goes back to the offshore account. No tax's on the intrest.
Yes this would probably be illegal.
$sig=$1 if($brain =~
But wasn't Freeside in Gibson's Neuromancer (1984 if I'm correct) a data haven, among other things?
And then of course, Nicky Halflinger, computer prodigy, writes a massive tapeworm that protects his adopted community from being cracked as well as breaking into every secret database in the world and releasing it, in 1975's Shockwave Rider, by John Brunner.
George
This is not a data haven in the Kinakuta way at all, its simply a the same kind of anonymous offshore banking that has been done on small island countries for many years now. Nothing actually goes on in the country, but because it can register companies, operating under its flag can be used to overcome all sorts of regulations. Its really not to different from convenience flagging of boats to get around safety regulations. Or cheap domain names (like Nuine, Cocos, and Turkmenistan).
/. is like a steer's horns, a point here, a point there and a lot of bull in between.
In a way its a sad story how this country which overspent its natural resources is now forced to prostitute itself to Russian organized crime in order to fund its budget. Not that I am against offshore banking (I am in principle against taxes), but still...
However, if the article mentions that the country has 190 million dollars in a fund left from its wealthier days. Maybe, if the leaders are willing to play "dirty" against the big guys, doing a Cryptonomicum wouldn't be such a bad idea. How much would putting a good pipe to the island (or a permanent sattelite link) cost?
I am doubtful of the realism of Stephensons vision however. If an offshore datahaven were to succeed with causing an upheaval in the western economies, you can bet your ass America wouldn't think twice before the island had a carrier permanently docked in its harbour. Its funny how much influence that can have over a very small country, huh?
I mean, just look what happens when anything threatens the American oil market...
The true datahaven can't be located in some physical place. It has to be nowhere, and it has to be everywhere. It will not gain its security by mountain vaults but by crypography, and it won't secure its existance by oceans but by being dynamic, distributed, and smart. Lately I have seen a few projects in the open source world aspiring towards solutions in this direction (Freenet, the Eternity system) and they are much better news in this front than the existance of roque island states.
-
If you're a resident of Canada, for instance, Revenue Canada considers your income for tax purposes to include all world income, and that includes whatever you might be trying to hide by flowing it through a tax haven.
Thus, if you don't leave Canada, probably taking on residency in one of the tax havens, the avoidance of tax represents tax evasion which is definitely against the law, and possibly a criminal act (as opposed to being "merely civil").
Becoming an International Criminal may not be on the "top ten list" of things to do this week...
If you're not part of the solution, you're part of the precipitate.
Just a slight difference...
If you're not part of the solution, you're part of the precipitate.
/. has a focus?
I thought we got rid of that years ago.
focus!
hocus focus
Just two quick examples of Rob reeling it in from this category alone.
/. needs focus like I need a real job.
From that point you're a Citizen of THERE, and not of the US and no longer bound by silly IRS codes
Sadly, not so.
(disclaimer: don't get your tax advice from slashdot!)
It's a widespread fallacy that countries only have the power to tax their own citizens. Most countries will tax their own citizens on their income, plus they tax all income earned within their country. If you're a US citizen drawing a salary in the UK, you quite often end up paying two lots of tax. Yopu have to hope for a favourable "double taxation treaty" to rescue you. It's never this simple.
As noted below, offshore havens are of use to people who have substantial sources of income other than paychecks . . . .
jsm
> to hide in the Caymans this isn't a problem.
> From that point you're a Citizen of THERE, and
> not of the US and no longer bound by silly IRS
> codes.
Dream on. I am working here, and I am a citizen
of another coutry, and paying taxes like anyone
else. I suggest to read the appropriate IRS docs
otherwise you are in trouble. Even worse, I pay
three times higher taxes that you on certain
income (the so called "Income not connected with
US business") unless this money goes directly
outside US, for example business deals in my
country and deposited in my country's bank
acount. But in that case IRS does not care anyway.
Also if you lived in US for more that four
years, you are treated as a US permanent resident
for tax pusposes, altough you are screwed as
a foreigner in any other way. When Uncle Sam
wants his cut, nothing can stop him from coming
up with any law that surves the purpose.
> transfer monies to and from your brokerage
...
> but the IRS has no way of obtaining the information.
Worse, each brokerage transaction gets immediately reported to the IRS, not just transactions above 10 grands. Even if you keep money cash, not in stocks, the broker keeps them in a money market account. Where else this interest comes from?
If you really beleive in what you said, and are doing this, I suggest that you get the he.. out
of US before IRS raids your business. You can read
the Senate hearing if you don't believe me,
I just forgot the url with the horror stories.
Best,
Now, there are two ways to go about this. If you're a criminal type, of course, you don't much care what the US government thinks. And you're probably not getting too many of those drug, prostitution, and illicit gambling charges on VISA, these are in cash. Which, of course, is smuggled out of the country hidden in dolls or coffins or whatever, at least according to most of the gangster movies I've seen.
The other thing is to actually become a citizen of a tax haven and remain a non-resident of other countries. An actual case of this is Irving Gould, onetime principle owner and Chairman of the Board at Commodore. At some point in time, he moved to the Bahamas, real house an everything, and I assume became a citizen. But he had to be careful about being percieved as a resident of any country. So he actually had people who kept track of how many days he spent in any given country. For example, it was not uncommon for the PET Jet to circle until after 12AM, when old "Uncle Irv" was coming into the US, just so that fraction-of-a-day couldn't be held against him in US tax court. In other words, maybe a bit shady, but all perfectly legal.
I don't supposed you would do this until you're making enough money to have that kind of lifestyle, but that kind of goes without saying. Most offshore accounts offer little interest, charge high fees for transactions, require opening deposits in the $10-$25 range, etc. It's not likely to attract the typical working stiff, even if you're a contractor or some-such getting lots of payments in cash. On the other hand, a millionaire with lots of foreign income and fewer scruples could well go for such a thing, profitably.
It'll probably only get easier, with the e-banking and e-trading. There are already US-based companies specializing in setting up foreign investors in US stocks and bonds, and it probably won't be long until US folks have the same online shot at some foreign securities. Now, when you're doing the electronic transfer to your bank in New Jersey for that killing you just made on the Newer Markt, ole Uncle Sam will be there to congradulate you. But all you'll hear from that Caymans' bank is the $50 (or whatever) deposit fee.
Which just goes to illustrate the old point that the rich do, in fact, get richer.
-Dave Haynie
One simple way of laundering money is to get yourself one of these anonymous offshore bank accounts, then create a fictitious offshore company that hires you to perform expensive consulting work. You have really hired yourself, but it's hard to tell that's what has happened, and harder still to prove it. So you then submit work records and bills to the bogus company and get paid. Your income appears to be legitimate. Of course, this means you have to pay income tax on it, but at least you get to keep the rest, and you can pass an IRS audit with flying colors.
Ahhhh (this used to be my life, a few years ago). I'm sure that Mendax would like to remind all slashdotters that this is an illustrative example only, and that it should not be tried at home.
The phrase you can pass an IRS audit with flying colors is used here rhetorically -- actually, a half-competent auditor would tear you to shreds if you tried this "thin" scam on any significant tax liability. Real tax avoidance schemes are a lot more complicated and require [ahem] godlike genius consultants to design them (particularly if you want to have a chance of them being declared legal).
Oh yeh, and people who "go to Vegas, buy a load of chips and then cash them in without gambling" get to learn a fair amount about both the IRS and the Secret Service before long. The casino companies have a troubled enough relationship with Lily Law without acting as willing accessories to avoidance or worse.
If you're really interested, the locus classicus is "Secret Money" by Ingo Walter.
jsm
Happen to be short on cash? Has your country, once thriving with entrepreneurs coming in to take out your one and only resource, now been stripped bare of it's past glory?
Then come join the thriving business of MONEY LAUNDERING, or, as we like to call it, Helping out the less fortunate! Come join the hundreds of other third-world countries as they too pick up on what the "economy" is REALLY about! Within months you too will be lying in mountains of money, smoking your Cuban Cigars, surrounded by beautiful women in bikinis!
What's that? You say the rest of the country is angry that you're holding on to all the profits while they're still poor? Well, if you respond to this add within the next 30 minutes, we'll throw in, ABSOLUTELY FREE, a pair of genuine, bona-fide mafia hitmen, voilin cases and all! Now, you too can sit back and relax to endeavor in your mounds of cash while you hear sounds of bones breaking and screams of pain from the next room!
Supplies are limited, order today!
Is this going to be the wave of the future? Once we've sucked the Earth dry of it's resources, we'll move toward starting other business practices that aren't so "legal?"
Couldn't they just get their two letter ISO country code, open a NIC, and extort money out of corporations for domain names, like all the other little island nations?
This isn't designed to avoid the taxes on your paycheck. It's to avoid taxes on "other income".
Example #1, let's say that you run a company worth $500,000,000. Now let's say you want to give yourself a "raise". You hire a "consultant" who happens to bill you to an account fron one of these offshore banks in the amount of $10,000,000. Your company sends the money for "work rendered" and wow, that's odd your company just sent those ten million dollars to YOUR secret account and you've just evaded taxes on $10,000,000.
Example #2: you run a profitable "business" from traditional organized crime, or large-scale drug dealing, or assassinations or even working as $5,000/day call girl. Now you have a whole lot of money and if you legitimize it within the U.S. you'll end up with a lot of taxes on it. But what if this money gets deposited to your offshore account? Well, now suddenly there are no taxes involved. Neat, eh?
As for the laws about foreign income, the IRS even admits it's basically honour system. There's no way to trace this so basically as long as said random rich person reports enough income to be credible, they can hide the rest without fear of the authorities find out. After all, there isn't a real difference in lifestyle between somebody who makes $100,000,000/year and somebody who makes $10,000,000/year, so you hide $90,000,000 and report that you make $10,000,000/year and meanwhile become worth billions without taxation difficulties.
Maybe I'm missing something, but one thing this island seems to lack (besides natural resources) is a good communication system. Not only is it difficult to get to physically, it sounds like Nauru is difficult to reach by telephone. That would seem to make becoming a center of secret international banking much more difficult. Is there an effort to improve Nauru's communication system in all this? Will the people of Nauru benefit by this, or will all the benefits go to their customers and investors?
The Nauruans got burned once, when they sold all their birdsh1t to foreigners. They got rich quick, then got poor again just as quick. Poorer than when they started, since their island seems to have been deforested in the process. I'd expect them to be cautious going into a venture like this one.
If there is are fortunes to be gained by this, and if the Nauruans can use it to improve their lot and that of their children, more power to them.
get a big international data cable strung out there .... keep all the data and money underwater, where a bunch of marines and helicopters can't just waltz in and get it
... long ... fragile .... fibreoptic cable .... with the other end .... in New York ...ohhhh".
"We can't get at the money or data, sir! It's all hidden underwater, at the other end of this big
jsm
Hate to beat a dead horse, but anyway, one of the normal /. topic *is* money. And this story does have something loosely to do with money. Anyway, News for Nerds is a hell of a lot more than just the OSI-Seven Layer model. 'Sides it is nice to tie my /. addiction to something more connected to the real world than an mp3 playing router, and stories like this give me something I can bring up to people at the bar that might not be complete tech freaks. ya know.
It's interesting how various tiny nations have tried to cash in on the net.
.TV country code was a potential goldmine (www.fox.tv ?)
.tv domain from ICANN without informing Tuvalu - further proof that webTV is evil incarnate. Tuvalu's prime minister came to know that something called the "Internet" existed after visiting Australia, and managed to get ICANN to hand them control.
.TV and raise the nation's fortunes. Being honest religious folks, they don't want to do pr0n, shady financial deals, or anything unethical.
.nu (naked in French) domain, or like Tonga, which sells $100 .to domains, no questions asked; they could improve their per capita income 10 times, but instead, they are fumbling in confusion.
:)
Like Nauru, tuvalu is a tiny pacific island, the world's 4th smallest nation. Population : 10,000. When the internet boom began, tuvalu stood to make a fortune on the domain name trade - it's
What happened next was a sad tale of how a pacific nation, remote and unaware of the existence of the internet, was swindled by domain name sharks.
First, webTV grabbed admin. control of the
Good wired story here.
Next, VCs and domain name companies descended on the remote island, courting the confused govt. Ultimately, Tuvalu signed a deal with a Canadian company, which failed to deliver the $50 million it had promised in a year (that's 10 times the country's entire GDP). Sad story.
Now Tuvalu, wiser and bitter, is still looking for a company to administer
If only they could be like Nauru, with its offshore banking, or Niue, which hosts tons of porn on the
I felt particularly sorry for them because they are so naive and quaint. It's a custom on the island to apologize if you walk past someone sitting, since the level of your head is higher than theirs. And hey, you can climb on top of the local church if you ask permission from the pastor. They're so naive their web site is a Yahoo Club.
Poor Tuvalu. Maybe the linux community can help them out by hosting their domain thingie and transforming their island.
w/m.
-- I'm not a freak show, I'm a mammal. --
A data haven is basically nothing more then an FTP-server on which you can safely store and access your data. For this to be possible at an easy and low cost model I think you need to do the following things.
1. Client side encryption. This way you as the provider of the service can not be responsible for the contents, since you have no way of having knowledge of the contents.
2. Multiple locations. Governments change, with that policies change, though this is a good thing in a democracy it might adversely affect your business.
3. The possiblity for VPN so that people can make online changes.
4. The possibilty to store and make available huge amounts of tapes, since the bandwith of a truck loaded with tapes or disks is still unsurpassed.
Basically, this has been done for years by back-up companies. What they need to do is link their sites through a network and make sure that the locations are identical. This way it is almost impossible for a government or even a combination of governments to take over the system. (I thought I read about INTEL entering this market, but I couldn't find the URL on Wired. Anybody got the article on that for me?)
Use Adsense for Charity
They already do.
Tuvalu currently makes a lot of its foreign exchange selling phone numbers (they have their own international phone code) to international phone sex lines. They expect to make a bit more when the global freephone number system is in place.
So there's another place for people with 10x your yearly salary coming in every month to stash some of it. And? You think this is cool because...?
.01%'s money gets taxed, so the rest of us working stiffs can pick up the bill. God help me when my obnoxious neighbour, who spends all his time swimming in his money like ScroogeMcduck gets hold of this, and announces he won't be paying any taxes on the million dollars he made this year... I'll have to rip his eyeballs out. :)
All it does is make sure that even less of the top
? It isn't obvious to me how a tax auditor could determine that an offshore company, paying you from a numbered offshore account, is actually just you in disguise.
Well, the first thing he would do would be to ask you "who owns this company?". If you answer "I don't know", then you have just committed a very serious offence indeed. Depending on circumstances and jurisdiction, the guy may be able to subpoena your lawyer or accountant and force them to grass on you. He can certainly have your house searched for the particulars of ownership. And your bank will usually want to know the background of the offshore company it's dealing with before accepting transfers, which is information it will give up without even protesting.
Your example is absolutely fine in principle. But you have to add a lot more layers of the same thing (so that you can make it much less likely that the auditor will ask you or your friends a killer question) to make it work in practice.
Is this a minor glitch on your part
Yes, sorry. I realised halfway through the post that I didn't want to imply that I'd ever designed laundering schemes. What I did were tax avoidance (!=evasion, although the IR didn't always agree) schemes. But although your objective in these schemes is always that they be legal, there's always a temptation to add a few layers of "security through obscurity", which is the same sort of thing money launderers do, so one gets a fair enough feel for what will and won't work.
jsm