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September 2001
Volume 19, Number 9

Spy vs. Spy
Llewellyn H. Rockwell, Jr.

One of many pastimes of government bureaucrats is forcing foreign banks to cough up tax information on US citizens. This is a disaster for the cause of privacy, the right of contract, and freedom itself. If the campaign, which has been going on for years, finally succeeds, it will mean the end of bank privacy for Americans. It will also devastate foreign economies that see a comparative advantage in offering secure banking to people from around the world.

A priority for totalitarian states is to smash the ability of citizens to escape the reach of government, particularly in their personal finances. The government wants money more than anything else, and the bigger the government, the more willing it is to use unseemly and evil tactics to get it. The US government claims to be the model for free societies but in its attacks on citizens banking outside its borders, it is acting in the tradition of the worst despots.

Adding to the outrage is the typical hypocrisy-insisting on a standard for other countries that the US will not apply to itself. And this is where the subject of bank privacy gets really interesting. It turns out that many citizens of governments around the world like to use US banks because they can be trusted not to steal the money, and also because the US doesn't share tax information on foreigners with their governments. In other words the US, particularly Florida, is a tax haven for many foreign peoples.

Now, this is a good thing, something of which we can be proud. It is the best tradition of freedom to provide a safe harbor from grasping governments wherever they may be. But where does the US get off denouncing every tax haven in the world and strangling any other government that permits private banking? The hypocrisy is obvious, and the way to end it is to allow other countries to be havens from US laws in the same way the US is a haven from other governments' laws.

The Clinton administration, in its final scary days, had the idea that it would deal with the evident hypocrisy by forcing US banks to cough up information on foreigners who do their business here.

This was consistent with the Clinton philosophy: The first and only purpose of any citizen anywhere is to serve the state. To the extent that the US can facilitate this, the Clinton regime believed, it should do so in every possible way.

But here's the trouble. With the regulation poised to go into effect, many domestic banks started to complain. If we start to report interest income earned by foreign depositors to their governments, bankers worried, these people might just take their money elsewhere.

How much money is at stake? One Miami banker said that if new disclosure regulations are imposed, the city of Miami alone would see the withdrawal of $15 billion to $20 billion from the banking system. These are depositors who fear that their governments will persecute them for the crime of making money and not giving their governments a cut. These are governments that hate free enterprise and wealth, that regard any pot of money as the state's for the taking. At some level, of course, all governments are kleptocracies, but these regulations imposed on US banks would make life for foreign despots even easier.

It is very likely that the Bush administration will reverse the Clinton administration's regulation and permit US banks to continue to withhold from foreign governments information about interest-bearing accounts. The administration might just seek to strike a deal with Britain just as it currently has a deal with Canada. This would be a terrible thing, but it is not as bad as the goal of the Clinton administration to turn the entire world-banking sector into a huge tax-collection cartel.

In the cause of freedom and privacy, the US should go further to permit other countries around the world to become tax havens from those oppressed by US taxes, in the same way that the US is a haven from other governments. The more countries compete for depositors' money, the better off we are. And economist Richard Rahn is exactly right that providing privacy in the age of leviathan is a wonderful service that consumers seek and that all banks would provide if the government would leave them alone to do so.

We all go to great lengths to keep our finances private. We have passwords on our online accounts. We worry about the security of online orders. Web sites purchase very expensive software to make this possible. There's a national movement on to prevent businesses from using any knowledge they have of health or purchasing habits. Americans love their privacy.

But you know what? None of the corporations or colleagues we worry about can legally steal our money. That is a power reserved to governments alone. Hence, if privacy from others is important, it is hugely important for the cause of liberty that we have privacy from government. The existence of the income tax itself dealt a deadly blow to privacy-which is just one more reason the income tax should be scrapped.

Another problem is that the banking system has become something of an adjunct of the state, thanks to the Federal Reserve System. Once the large banks sought a government-Bankingbacked lender of last resort, the game was over: as the decades have passed, they are more and more used by their benefactor, the state, to achieve the aims of the political class at the expense of their customers.

There was a time in American history when any banker who turned over information to the government was seen as traitorous and evil. It's hard to blame the banks today for the problem, because they are coerced as much as the rest of us. But let us not ever forget the ideal: a complete separation between banking and the state. May all the world be a tax haven.


Llewellyn H. Rockwell, Jr., is president of the Mises Institute and editor of He may be contacted at


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