Financial Privacy is Close to Dead, Worldwide

It was just a matter of time, what with all the data-mining possible, and the increasing commoditization of information. Still it is sad to see that banks—once staunch defenders of privacy—have sold their souls for a few bits of coin.

David Galland of Casey Research sounds the alert in a segment of his interesting weekly column, The Room, titled The Other Important News of the Week (scroll down or search on that phrase). I have reproduced that entire segment (without hyperlinks; all emphasis mine) below.

Last week I pointed to the breaking news Fitzroy MacLean of our Without Borders publication tipped me to, about German intelligence officers paying a Liechtenstein bank employee US$5.9 million to steal a disk containing the names of all the German account holders.

In writing this news up, I posited that the Germans likely also got the account names of non-Germans, “...giving the German government a very nice trading card.”

It didn’t take long for my intuition to be proved right, as it was announced this week that the Germans were now cooperating with friendly governments around the world so they, too, could corner tax miscreants.

Confirming the point, one of our subscribers sent along a news item from New Zealand about how that country’s Internal Revenue Department is offering anyone with an offshore account, especially of the Liechtenstein variety to, in essence, come out with your hands up or else. If you are a New Zealander with assets in the pilfered bank, I have no doubt you are sweating bullets.

Here in the U.S. of A., the Internal Revenue Service is also working hand in glove with the Germans to hunt down the tax cheats.

This is a trend firmly in motion, with serious implications.

First, now that executives and even lower-level employees of banks in tax havens with the right levels of access have seen the going market price for client names, and that rather than being brought up on criminal charges for breaking confidentiality agreements, they will be saluted by officialdom around the world, there will be a rush to capitalize. All that the person needs to do is to grab the list, download the file, or whatever, and make it past the front door to collect on the waiting riches.

In addition to the considerable personal problems this will cause the account holders, it effectively spells an end to the idea of financial privacy.

And that is an important battle to be lost by anyone who values individual freedom. Look at it this way, until recently countries knew that if they squeezed too hard, money would begin slipping across the borders to undeclared safety. With that escape route closed, they can now squeeze ever harder.

Even so, human nature being what it is, you can expect the same people – at least those not in jail following the global witch hunt that will soon extend to the Caymans, Andorra, or any other jurisdictions where the bankers have been accommodative to privacy seekers – to look for other ways of hiding wealth.

Of course, gold, diamonds and other readily portable and fungible assets will find favor. Setting the stage for the battle in the war of the state against the individual: a new round of government confiscations of gold and other such assets, “in the public interest.”

I can’t see this happening imminently, and we should be able to see it coming, but the threat that it could happen in the next decade, along with foreign exchange controls and similar acts of desperation by the tax farmers, is real.

Now let me be clear. I am not in favor of tax cheating. Per the fresh example from Liechtenstein, the risks are too high and, in my view, always have been. But that doesn’t mean that I can’t lament the fact that the system is moving closer and closer to the point where you won’t be able to enjoy any level of privacy in relation to your financial affairs.

To me, it’s the scent of “easy money” (if one is without a conscience, that is) that is most responsible for this shift. And that’s also what makes it so dangerous—even in the most customer-oriented, privacy-minded financial institution out there, there’s bound to be an employee with access to files who might begin to feel a little underpaid, maybe a little disgruntled too ... and that’s all it will take for customers’ privacy to vanish.

Maybe it’s time for a history-loving entrepreneur to start making tool molds and/or melting kits for people’s gold and silver caches. Or perhaps people will become so disgusted with the institution of banking that better, private alternatives will spring up. I know of a few people—and probably many more, who just haven’t said anything publicly—who would love to be clear of the Citibanks and Wells Fargos and Chase Banks of the world.