Protect Your Cache

The hows and whys of achieving financial privacy.


What have you got to hide? Plenty! Do you want government agents, jealous relatives and neighbors, high-pressure salesmen and creditors, or professional thieves snooping into your financial affairs? Obviously not.

Yet your financial and personal privacy are more and more threatened as we move to an increasingly government-regulated society. Government, corporations, and the press intrude on every aspect of our financial lives. Hidden cameras monitor your every move in banks, supermarkets, and airports. Your baggage is searched when you travel. Your Social Security number is linked by computer to massive files (over 50 files are kept on every American). Every time you write out a check, or use your credit card, records are made—and are open to the scrutiny of the government. No wonder Harry Schultz has warned that "privacy from government is perhaps the most important thing in life right now!"

You must act now to preserve your financial anonymity. Will you be prepared when a 1984-style government reimposes foreign exchange controls, gold confiscation, exorbitant taxation, and political harassment of "mavericks" who choose to hoard gold, firearms, and food and stash away money in secret foreign bank accounts?

Government is surely the worst offender against privacy, with its ferocious appetite for collecting details on every aspect of a person's life. The primary force contributing to this massive invasion of privacy is, of course, taxation at all government levels. April 15 is a day of infamy when it comes to the government's prying into intimate personal and financial affairs.

Today the federal Form 1040 asks your full name, home address, name of spouse, Social Security numbers, names and ages of your children (never let a future taxpayer go undetected), your occupation, and whether you support the political establishment (the $1 presidential campaign fund). When you itemize your deductions, you reveal the names of charitable organizations, how much gasoline you use, whether you own or rent your home, personal health problems, and the kind of educational classes you take. An IRS agent acquires an intimate profile of your life by examining past 1040s. As one in millions, you may not be too concerned, but perhaps the day is not far away when your profile will be stored on and retrieved from a computer file.

Fortunately, the White House recently decided to scuttle plans for a nationwide IRS computer to monitor taxpayers because it would be "a threat to privacy and civil liberties." The $850 million program involved a huge data-processing system with 8,300 terminals stationed in IRS offices across the country, where over 48,000 IRS employees would have had access to the detailed records of individual taxpayers and corporations.

Despite constitutional guarantees, the IRS has enormous power to audit taxpayers—a power that instills great fear in the hearts of all citizens—as well as the ability to spy on American taxpayers. For years, the IRS had a "secret" handbook used by special agents to track down suspected tax evaders. Through the Freedom of Information Act and a favorable court decision, the IRS was forced to release this secret manual to the public. ("The Handbook for Special Agents" is now available from the Government Printing Office.)

What does this IRS handbook reveal? Here are the highlights:

First, virtually all financial records are open for inspection, whether they be Social Security records, military files, accountant's records, or bank statements. In the case of bank records, Congress recently passed the Financial Institutions Regulatory Act, which requires the IRS—and other federal agencies—to notify you before examining your bank records, giving you 14 days to fight the summons in court. Despite this measure, few if any taxpayers have kept the IRS from examining their bank records. In fact, a federal court recently ruled that the IRS isn't required to show "probable cause" in requesting bank files! (Has the judge forgotten the Fourth Amendment?)

Second, your constitutional rights are severely limited, applying chiefly to criminal audits only. Try pleading the Fifth Amendment during a civil audit—the IRS field auditor will simply disallow all your deductions!

Third, a victim of an undercover agent or paid informant need not be apprised of his constitutional rights.

Fourth, CIA- or FBI-like methods, such as the use of invisible powder on documents and telephone surveillance, are permitted by special agents.

Fifth, you may be guilty until proven innocent. For example, if you choose to fight the IRS in federal court instead of tax court, you must pay the tax first and then sue the IRS. In the case of a "jeopardy assessment," where the IRS expects you to leave the country suddenly or conceal assets, the tax authorities can freeze your bank or brokerage account, place a lien on your home, and impound your car, without a court order.

Finally, the IRS can investigate and audit anyone for any reason, even for political reasons. Recently, a federal judge ruled that the IRS can properly select tax protestors for audit.

The power to tax is, indeed, the power to destroy. And absolute power corrupts absolutely.

The government is not the only privacy invader. We live in a bare-all society, where nothing—whether it be the intimate details of a divorce, a financial scandal, a sexual exposé, or a family tragedy—seems too sacred to be discussed by the press in front of millions of Americans. Today the casual acquaintance asks, without a hint of impropriety, "What's your salary?" "How much did you pay for that car?" "How much did your house sell for?" A decade or two ago, such questions were not asked, let alone answered.

You could be hurt financially if someone didn't like your lifestyle, your personality, or your children. Recently an editor of the St. Louis Post-Dispatch spent four years and $4,000 vindicating himself from a false credit report based on a neighbor's unfair characterization.

More frequently, citizens are bombarded with unwanted mail solicitations and irritation phone calls by boiler-room salesmen. Thus, privacy and the right to be left alone have gained increasing interest. A recent Louis Harris poll showed that, next to inflation, privacy is the single most important concern of Americans.

Litigation is another threat to your privacy. Innumerable battles have been waged in the courtrooms of the world over divorce, wills, and other money matters. Physicians have been besieged with expensive malpractice lawsuits. The propensity to sue at the drop of a hat seems to be increasing dramatically, and the target is the fellow with the "deep pocket."

Finally, there's a growing threat of robbery. Crime is increasing rapidly in the United States, and the rewards are high in expensive residential communities. If you display your wealth—in the cars you drive, the home you live in, and social activities—you're a vulnerable target.

The moral: you must act now to keep your money from being taxed, sued, or robbed!

The key ingredient in preserving your financial freedom can never be overemphasized: maintain a low profile. Years ago people decried the feeling that they were being treated like numbers instead of individuals. But that feeling is changing. For privacy's sake, it might be better to have a low profile, to become an anonymous face in a crowd of millions so as to keep from being selected, honored, or singled out as different, radical, maverick, or dissident, to keep from being harassed or placed under suspicion.

Too many schemes used by privacy seekers ignore this advice about keeping a low profile. Whenever you're considering a technique to keep your affairs secret, ask yourself: Will this arouse the suspicions of friends, business associates, or the government? Take the red checks some people use to keep the bank from microfilming their transactions. Granted, the government won't be able to snoop through your bank records, but nonreproducing checks are bound to raise eyebrows and may even bring on an investigation. "What does this person have to hide, anyway?"

Maintaining a low profile will help you keep from being audited by the IRS. The story of two business partners is a case in point. Both were millionaires. One spent his money lavishly on a spectacular home, expensive automobiles, a second home in Florida, and exotic tax shelters. Not surprisingly, he was audited every year. The other millionaire played it low-key. He remained living in his ordinary middle-class neighborhood, drove a Chevy, and put his investment funds into traditional tax shelters. So far, he has yet to be audited.

In Mark Skousen's Complete Guide to Financial Privacy (Alexandria House Books), I offer concrete advice on how to hide your money in every legal way possible—from snooping government agents, jealous friends and relatives, greedy litigants, and professional thieves. I also offer 24 steps you can take immediately to reduce your profile and obtain financial privacy and freedom. Here are some highlights:

Discontinue using your bank account for "sensitive" purchases, which might include the acquisition of gold and silver, diamonds, food for storage, firearms, and foreign bank accounts. Make discreet purchases with cash, money orders, cashier's checks, and in other confidential ways.

Store money and valuables in a variety of safe places, including safe deposit boxes, foreign bank accounts, and at home.

Stress investments of the "bearer" nonreportable type, such as gold, silver, coins, diamonds, municipal bonds, nondividend-bearing securities, bearer Treasury notes, and stamps. Emphasize liquidity, safety, and capital preservation.

Correspond by mail through a post office box, and avoid having your name placed on mailing lists. (You can get off most mailing lists by writing to the Direct Mail Marketing Association, 6 East 43rd St., New York, NY 10017.)

By establishing registered company names, corporations, and trusts, it's possible to avoid unfavorable publicity about business or investment transactions. This is frequently accomplished by celebrities seeking to avoid gossip.

Most importantly, avoid fraud. Refuse to deal with any investment or business firm that will not reveal to you its office address or salient financial information. Insist on references. Privacy seekers are especially vulnerable to fraudulent schemes, particularly if the fictitious company operates out of a foreign tax haven.

Finally, keep a low profile in your social activities. Try to avoid displaying your wealth. Keep your financial affairs a secret.

These are just a few things you can do to become, once again, a free, private individual.

Mark Skousen, a frequent speaker at financial conferences, is the editor of Personal Finance, a financial advisory letter. He has a Ph.D. in economics from George Washington University and is the author of Mark Skousen's Complete Guide to Financial Privacy and The Insider's Banking and Credit Almanac.