Archive for 'agorism'

How online black markets work (bitcoin + Tor)

Monday, April 30th, 2012 at 5:17 pm  
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From csoonline.com:

Corporate investigator Brandon Gregg looks at how bitcoins and Tor make anonymous black markets tick
by Brandon Gregg, CPP, CSO
April 30, 2012

The internet is no stranger to crime. From counterfeit and stolen products, to illegal drugs, stolen identities and weapons, nearly anything can be purchased online with a few clicks of the mouse. The online black market not only can be accessed by anyone with an Internet connection, but the whole process of ordering illicit goods and services is alarmingly easy and anonymous, with multiple marketplaces to buy or sell anything you want.

Understanding how the market thrives—unregulated and untraceable—can give you a better sense of the threats (or resources) that affect you and your business.

[Also read Gregg's 5 free tools to send anonymous messages | How to identify anonymous users online]

In our scenario we are going to legally transfer $1,000 USD out of a regular bank account and into a mathematical system of binary codes, and then enter a neighborhood of the Internet largely used by criminals. This hidden world anyone lets purchase bulk downloads of stolen credit cards, as well as a credit card writer, blank cards, some “on stage” fake identities—and maybe even a grenade launcher they’ve had their eyes on.

A journey into the darker side of the Internet starts with two open-source programs: Bitcoin and the Tor Bundle.

Moving Money

Bitcoin (www.bitcoin.org) is system tool that will act as a personal bank for storing and investing digital currency on your computer. Once it’s installed on your system, it sits empty like a piggy bank, waiting to be filled with untraceable digital cash.

Getting it filled is the tricky part.

The digital monetary system online is predominately operated by the likes of Paypal, Western Union, and banking companies that try to follow government regulations to prevent fraud and money laundering. There are two steps to legally take money and have it converted at the current Bitcoin rate into BTCs in our digital and anonymous bank.

Start by opening a Dwolla (www.dwolla.com) banking account with no fees. You can use your real information—you aren’t doing anything illegal. In about three days you will be given a fraud test and have to identify small transfers in your Dwolla and personal bank account. Once your account is confirmed, wire any amount from your personal bank to Dwolla from a lump sum or the estimated price of your purchase you have in mind. After you confirm the transfers, your legit money will now be stored in a new global bank with less restriction than US banks.

Next you need to set up an account with the largest bitcoin exchanger, MtGox. Due to fraud concerns, MtGox will only allow transfers from banks like Dwolla.

After your Dwolla transfer moves to MtGox, you can use the money to purchase Bitcoins on the open market for a small percentage-based fee. Once this sale is complete, your bitcoins are best stored in your own bank account that is residing digitally on your computer.

The whole process can be completed in less than a week, and the $1,000 USD is now exchanged to $191 BTC. Now you are ready to go shopping on the black market.

Finding Markets

The conversion of dollars to Bitcoins was legal and relatively safe. Actually engaging in black market shopping, though, connects you to various kinds of illegal activities. We’ll continue our walkthrough but we are NOT endorsing these activities.This information can help security professionals understand how stolen identities and credit cards are used, how products are fenced or distributed illegally, and more.

Clearly anyone engaging in black market activity wants to remain anonymous. So the next step in black market shopping is to download and open the Tor Bundle Pack (https://www.torproject.org/).

We have touched on Tor two or three times to protect your identity while online, but Tor includes other functions. Developed by the US Navy for secret communications and now used to circumvent blocked websites at offices across the country and to inspire Arab Springs, TOR has a darker cousin: Hidden Tor Servers.

The same random spider-web routing of Internet traffic that hides an end use’s IP and location from any prying eyes can hide server locations too.

Hidden Tor Servers are now the norm for storing, accessing and hiding illicit activity such as child pornography. The level of protection provided by Tor makes law enforcement’s job tracking such activities next to impossible. (Interestingly, the hacktivist group Anonymous has recently brought attention to such evil servers by controlling them as DDOS servers against some of their targets, including law enforcement and government groups. If the CIA is struck with a DDOS attack, the agency suffers but also, in investigating the source of the attack, discovers the child pornography and hopefully cracks the pornography ring.) Hidden Tor Servers are likewise home to much black market activity.

Where does one find “the black market”? What does it look like? Of course, Google search answers these questions easily. Using your Tor browser (which, yes, is much slower than a standard browser) search for “Tor Directories”. These websites offer a collection of Tor’s hidden web pages for all kinds of storefronts. Here you will find websites similar to the Yahoo’s early days, categorizing storefronts including Drugs, Weapons and other illegal goods and activities. If the directory (or store) is listed with a standard .com or .org domain, it will open in your standard browser; if it ends in .onion then it means it’s a hidden server only viewable on the Tor browser.

One example is the Nobody@Zerodays website (nobody.zerodays.org/hidden-directory/), which offers reviews and direct links to current Hidden Tor sites. In our scenario we are going to check out the Black Market Reloaded and look for the current price of some credit cards and tools.

Using Tor you can quickly jump to the Black Market Reloaded website, register (no real information needed), and start shopping. As on Amazon, sellers show off their products with details, pictures and pricing, including feedback collected from past buyers. On a given day in April, current pricing for bulk credit cards is running at $6.5 BTC with great seller feedback. One seller advertises:

“All of our Products are coming with full given Information. That means: All needed information like cardnumber, security code, expiration date, name, address, city, state, zipcode, country, phone, SSN, DOB, security question etc. is given. Also Track 1+2 data and PIN. All CCs are checked and have a minimum Balance of 1000¬/$, and most of them are from an EU-Country. We also have US-Cards, but it’s easier to cashout the money at ATMs (/buy virtual money online/link the CC to PayPal) with european ones.”

A “Credit card reader/writer, HiCo/LoCo, all ISO complete” is going for 76.60350 BTC (or $366.63 USD at the time of our exchange) and there are also a handful of unregistered handguns, including a brand new M9 Tactical handgun with an illegal silencer, unregistered of course, for 225.00000 BTC or $1,076.87 USD.

Anyone who executes these purchases via anonymous bitcoins will leave no trace of the transaction. All users can send data via Hidden Tor email servers, or ship physical items like drugs and weapons with the US Postal Service to prevent any searches without a warrant. When shipments come from within the US, the illegal goods are likely to arrive at the right mailbox without incident. For those who want an added layer of protection—say in the event that good are being shipped from outside the US—many people in the “Services” section of this site will buy and/or receive items on your behalf using their own bitcoins and addresses, and then remail the goods to you, for a small fee.

(Also, some users of these sites will offer to sell you bitcoins via Paypal so you can skip the two banking steps above and jump right into buying your goods; there is of course no guarantee that you will receive your bitcoins after giving up your cash.)

Tor’s Hidden Servers provide a real insight to an underground world that once was limited to dark alleys, shady places, and dangerous criminals. Much like the Internet has expanded our e-commerce into a borderless global market, bitcoins and Tor have made shopping for illicit goods and services almost as easy as ordering an iTunes song on your computer.

As a reminder, most of the purchases described here are illegal and/or dangerous. While it’s extremely difficult to identify the individuals involved without additional intel, law enforcement personnel and corporate investigators can use these processes to keep tabs on the flow of stolen, counterfeit, or diverted goods.

If these transactions are being executed on your corporate network, that activity can expose your organization to legal and other risks. While network logs will not show the Tor websites, software audits for programs like TOR, network sniffing of actual traffic, computer monitoring and computer forensics can show employers who is using TOR sites and what they are doing.

Brandon Gregg is a corporate investigations manager.

Privacy, Profits and Asset Protection – An Unconventional Plan

Tuesday, March 27th, 2012 at 10:12 pm  
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The following plan is not for everyone. It is only for those those who have a burning desire to life to the fullest. It is for those of you who wish to live your life free from the parasites who seek to live at your expense. It is for those of you who no longer wish to be a slave to others.

Here are the 4 Steps:

Step 1. Move all assets out of your own name and into separate legal entities such as the Invisible New Mexico LLC. Protect your IRA with the Designer IRA strategy.

Step 2. Set up your own internet business as a Platinum Affiliate with our company. This will enable you to earn an online income from anywhere in the world. All you do is give away our FREE Asset Protection Crash Course using your Affiliate Link and you can get paid for referred sales. Your Platinum Membership comes with your own internet business, an Invisible New Mexico LLC, and all of the other benefits listed at this link:

Platinum Membership & Affiliate Program

With your new business you can now legally reduce your taxable income by taking advantage of all of the tax benefits and deductions available to business owners. (click on this link for an example).

Step 3. As your income and assets grow, set up international entities like IBC’s, Trusts, and Foundations to take advantage of asset diversification, jurisdictional diversification, and international tax planning. Most people can stop at this point and be totally happy.

Step 4. For those who want a little more, and don’t mind the extra effort, they can choose to become “Perpetual Travelers”. David MacGregor explains it well:

The essence of this strategy is that you need to divide up your “life” into different jurisdictional bases. For example, you would want to become a resident of a place which requires little or no tax. Ideally, you want to become a resident of a tax haven. This lays the foundation of your lifestyle – for as a legal resident of such a place, you are not liable for any domestic tax on your income.

The next step is to arrange your financial affairs in yet another tax haven, while protecting your assets in a different one again. Finally, you would set up your legal business structure in a different jurisdiction from any of the others. And once you have achieved all of that – you are free to actually live anywhere on earth – as a visitor.

Most reasonable countries will allow you to stay up to 6 months as a tourist – and as a tourist you are not liable for any taxes (apart from various sales taxes etc.) When your time is up, you simply move on to your next favourite destination – and repeat the process. You don’t have to move to a different country all the time, but can choose say three places which you will spend your time in each year (or even two places). The only proviso is that you mustn’t stay longer than the prescribed time that qualifies you as a tourist. Stay longer – and you will be deemed a “resident for tax purposes”, and be liable for tax.

Naturally, this option is not for everybody, as many people would feel uncomfortable uprooting themselves and living as cybergypsies. But it does offer a legal way to live a tax-free lifestyle – and to permanently remove bureaucrats from your life. And perhaps the most appealing aspect of this strategy is its simplicity.

The “PT” option was devised by the famous investment adviser and newsletter writer, Harry Schultz and popularized by WG Hill – in his now-famous book “PT – The Perpetual Traveler”. Note for US citizens: to benefit from this option, you would need to give up your US citizenship and its obligation of filing tax returns, no matter where you are on earth. Unlike most countries, who only tax residents, the USA taxes on the basis of both residency AND citizenship.

The Agorist Approach

The following strategy is not recommended because many of the tactics ignore local laws. Nevertheless, it is worthy of study for the privacy & protection strategies that are utilized.

Step 1. Move assets out of your name using entities like limited liability companies, corporations, and trusts.

Step 2. Quit working for others and go into business for yourself. Many people can simply quit their current job and then contract back with their old company as an Independent Contractor. You can do this in your own name or through a separate, legal entity such as a limited liability company, a corporation, or a trust.

Step 3. Stay out of databases, become “low-profile”, and avoid traditional banking as much as possible.

Step 4. Deal in cash, money orders, recycled checks, precious metals, and barter for local transactions. Use digital currencies like bitcoin for distance transactions.

Here are some written works that explain the philosophy and tactics of Agorism:

An Agorist Primer: Counter-Economics, Total Freedom, and You

The New Libertarian Manifesto

The Second Realm – Book on Strategy

Alongside Night (fiction)

A Lodging of Wayfaring Men (fiction)

Barter emerges in Greece as partial solution to economic troubles

Monday, March 19th, 2012 at 8:02 am  
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The following is a good story about the value of barter. I recommend downloading our Barter Tycoon Report from the Members Area so you can learn how to do it successfully. My favorite quote from this article is this:

“You are not poor when you have no money,” she said, “you are poor when you have nothing to offer – except for the elderly and the sick, to whom we should all be offering.”

You see, money is simply a way to trade what you have for what you want. When you have time, energy, talents and the fruits of your labor and creativity you then have something of value that you can trade with. Money is just a lubricant. Creative barter can be just as good.

Here is the article:

Greece on the breadline: cashless currency takes off

A determination to ‘move beyond anger to creativity’ is driving a strong barter economy in some places

In recent weeks, Theodoros Mavridis has bought fresh eggs, tsipourou (the local brandy: beware), fruit, olives, olive oil, jam, and soap. He has also had some legal advice, and enjoyed the services of an accountant to help fill in his tax return.

None of it has cost him a euro, because he had previously done a spot of electrical work – repairing a TV, sorting out a dodgy light – for some of the 800-odd members of a fast-growing exchange network in the port town of Volos, midway between Athens and Thessaloniki.

In return for his expert labour, Mavridis received a number of Local Alternative Units (known as tems in Greek) in his online network account. In return for the eggs, olive oil, tax advice and the rest, he transferred tems into other people’s accounts.

“It’s an easier, more direct way of exchanging goods and services,” said Bernhardt Koppold, a German-born homeopathist and acupuncturist in Volos who is an active member of the network. “It’s also a way of showing practical solidarity – of building relationships.”

He had just treated Maria McCarthy, an English teacher who has lived and worked in the town for 20 years. The consultation was her first tem transaction, and she used one of the vouchers available for people who haven’t yet, or can’t, set up an online account.

“I already exchange directly with a couple of families, mainly English teaching for babysitting, and this is a great way to extend that,” said McCarthy. “This is still young, but it’s growing very quickly. Plainly, the more you use it the more useful to you it gets.” Continue reading…

Americans Will Need ‘Black Markets’ To Survive

Saturday, March 3rd, 2012 at 4:31 pm  
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From LewRockwell:

As Americans, we live in two worlds; the world of mainstream fantasy, and the world of day-to-day reality right outside our front doors. One disappears the moment we shut off our television. The other, does not…

When dealing with the economy, it is the foundation blocks that remain when the proverbial house of cards flutters away in the wind, and these basic roots are what we should be most concerned about. While much of what we see in terms of economic news is awash in a sticky gray cloud of disinformation and uneducated opinion, there are still certain constants that we can always rely on to give us a sense of our general financial environment. Two of these constants are supply and demand. Central banks like the private Federal Reserve may have the ability to flood markets with fiat liquidity to skew indexes and stocks, and our government certainly has the ability to interpret employment numbers in such a way as to paint the rosiest picture possible, but ultimately, these entities cannot artificially manipulate the public into a state of demand when they are, for all intents and purposes, dead broke.

In contrast, the establishment does have the ability to make specific demands or necessities illegal to possess, and can even attempt to restrict their supply. Though, in most cases this leads not to the control they seek, but a sudden and sharp loss of regulation through the growth of covert trade. The people need what the people need, and no government, no matter how titanic, can stop them from getting these commodities when demand is strong enough.

This process of removing necessary or desirable items from a trade environment leads inevitably to counter-prohibition often in the form of strict cash transactions, barter markets, or “black markets” as they are normally derided by those in power. The problem for economic totalitarians is that the harder they squeeze the masses, the more intricate the rebellion becomes, especially when all they want is to participate in free markets the way our forefathers intended.

The so called “drug war” is proof positive of the impossibility of locking down a product, especially one that has no moral bearing on the people who are involved in its use. Only when a considerable majority of a populace can be convinced of the inherent immoral nature of an illicit item can its trade finally be squelched. During any attempt to outlaw a form of commerce, a steady stream of informants convinced of their service to the “greater good” is required for success. Dishonorable governments, therefore, do not usually engage in direct confrontation with black markets. Instead, they seek to encourage the public to view trade outside mainstream legal standards as “taboo”. They must condition us to react with guilt or misplaced righteousness in the face of black market activity, and associate its conduct as dangerous and destructive to the community, turning citizens into an appendage of the bureaucratic eye.

But, what happens when black markets, due to calamity, become a pillar of survival for a society? What happens when the mainstream economy no longer meets the available demand? What happens when this condition has been deliberately engineered by the power structure to hasten cultural desperation and dependence?

In this event, black markets not only sustain a nation through times of weakness, but they also become a form of revolution; a method for fighting back against the centralization of oppressive oligarchies and diminishing their ability to bottleneck important resources. Black markets are a means of fighting back, and are as important as any weapon in the battle for liberty. Here are just a few reasons why such organizational actions may be required in the near future…  continue reading…

Jon Matonis and “Brain-banking”

Sunday, February 19th, 2012 at 9:09 am  
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Profound implications for individual privacy and freedom:

From quora:

Jon Matonis, e-Money specialist

Brain Banking (or true mobile banking) – I’m not exactly sure where this one is leading us, but BrainWallet, the concept of individually storing bitcoin in one’s own mind by memorization of a passphrase https://en.bitcoin.it/wiki/Brain… was not possible with traditional centralized currencies. Presumably, if the corresponding public key is used as your primary receiving address, then you are walking around daily with access to everything that has been assigned to you on the block chain.

Now, combine that usage scenario with the $10 trillion plus annual shadow economy and you have just facilitated a parallel economy that doesn’t require financial institutions and doesn’t even require physical currencies.  You automatically receive new deposits into your brain; however, you have to locate a cafe computer or Android smartphone to spend them.

The Continued Assault On Financial Privacy And The Need For Better Money

Thursday, January 12th, 2012 at 8:18 am  
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The following recent news articles illustrate the ongoing assault on financial privacy. This explains some of the reasons behind the drive for free-market currency alternatives like bitcoin:

Why 308,127,404 Americans Are Going To Get Hosed

Cash-sniffing dog comes through at Philadelphia airport

Curbing money laundering in Ghana: Financial firms to monitor employee’s bank accounts

Tanzania: War On ‘Dirty Money’ Intensified

Activist discusses effects of halting money transfer services

California targets underground economy

Bitcoin: A New Commodity Created To Serve Market Demand

Bitcoin’s comeback: should Western Union be afraid?

Wednesday, December 21st, 2011 at 6:26 pm  
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From artstechnica.com:

By | Published December 21, 2011 12:40 PM
Bitcoin's comeback: should Western Union be afraid?

A sign advertising the acceptance of Bitcoin at Neil’s Bodega in British Columbia

The last time we wrote about Bitcoin, in October, the currency’s future looked grim. A series of security incidents had created an avalanche of bad press, which in turn undermined public confidence in the currency. Its value fell by more than 90 percent against the dollar.

We thought Bitcoin’s value would continue to collapse, but so far that hasn’t happened. Instead, after hitting a low of $2, it rose back above $3 in early December, and on Monday it rose above $4 for the first time in two months. It’s impossible to predict where the currency will go next, but at a minimum it looks like the currency will still be around in 2012.

This presents a bit of a puzzle for Bitcoin skeptics. The original run-up in prices could easily be explained as a speculative bubble, and the subsequent decline as the popping of that bubble. But if that were the whole story, then the value of Bitcoins should have continued to decline as more and more people lost confidence in the currency. That hasn’t been happening.

Of course, the value of Bitcoin could resume falling at any time, but the currency’s apparent stability over the last month has inspired us to give it a second look. How can an ephemeral currency without the backing of any large institution be worth $30 million, as the world’s Bitcoins currently are? In the short run, a currency’s value can be pumped up by a speculative bubble, but in the long run it must be backed up by “fundamentals”—properties that make holding it objectively valuable.

Dollars are valuable because they’re the official medium of exchange for the $14 trillion US economy; euros and yen are valuable for similar reasons. Bitcoin boosters have traditionally suggested that Bitcoin is an alternative to these currencies. But we’ll suggest an alternative explanation: that Bitcoin is not so much an alternative currency as a “metacurrency” that allows low-cost and regulation-free transfer of wealth between nations. In other words, Bitcoin’s major competitors aren’t national currencies, but wire-transfer services like Western Union.

Bitcoin is a bad currency

While Bitcoin isn’t a very good currency, it has the potential to serve as a “metacurrency”: a medium of exchange among the world’s currencies.

The traditional argument for Bitcoins has positioned the peer-to-peer currency as an alternative to conventional currencies like dollars, euros, and yen. Bitcoin boosters point to two major advantages Bitcoins have over dollars: price stability and lower transaction costs. As we’ll see, neither of these advantages is compelling for ordinary consumers.

The argument from stability mirrors the traditional argument for a gold standard. The dollar has lost about 95 percent of its value over the last century. The Bitcoin protocol is designed to never allow more than 21 million Bitcoins to enter circulation, and supporters argue that this guarantees the currency maintains its value over time.

The obvious problem with this argument is that Bitcoins have lost more than 90 percent of their value in five months. It would be pretty foolish for someone worried about the dollar’s 3 percent inflation rate to put their life savings into a currency with that kind of volatility.

Bitcoin boosters forget that the value of a currency is determined by supply and demand. Demand for dollars is driven by the size of the US economy, which doesn’t change very much from year to year. But the demand for Bitcoins is primarily driven by speculative forces, causing its value to fluctuate wildly.

Another oft-touted benefit of Bitcoin is lower transaction fees. Banks make a tidy profit charging merchants to complete credit- and debit-card transactions, and these fees raise the price consumers pay for goods and services. Fans tout Bitcoin payments as a low-cost alternative to traditional credit card transactions.

But this argument ignores the fact that credit cards provide important benefits in exchange for those transaction fees. If you buy something with a credit card and get ripped off, you can dispute the charge and get your money back. In contrast, Bitcoin transactions are irreversible. If you pay a merchant in Bitcoins and he rips you off, (or someone hacks into your computer and makes a fraudulent payment), you’re out of luck.

Of course, third parties may offer Bitcoin-based payment services that offer features such as chargebacks and fraud protection. But such services don’t come free; consumers or merchants would have to pay fees to use them. And there’s no reason to think Bitcoin-based banking services would be any cheaper than traditional ones in the long run.

Paying with Bitcoins also introduces the inconvenience of fluctuating prices. When people buy things with cash or credit cards, their purchases are denominated in the local currency. Dealing in Bitcoins means customers and businesses must regularly convert between dollars and Bitcoins, and must therefore worry about the fluctuating exchange rate between them. That’s a headache few people want.

So Bitcoins are not a compelling alternative to conventional currencies. Although there are a few isolated examples of traditional businesses accepting Bitcoins as payment, these seem to be driven more by the novelty of the concept than by compelling economic or technical advantages.

Bitcoin as a metacurrency

While Bitcoin isn’t a very good currency, it has the potential to serve as a “metacurrency”: a medium of exchange among the world’s currencies. In this role, it has the potential to be a powerful competitor to wire transfer services like Western Union.

The longer Bitcoins continue to exist, the more confidence people will have in its continued existence.

The wire transfer industry is much less consumer-friendly than the credit card industry. Wire transfer fees can be much higher than credit card fees, and wire-transfer networks offer much less robust fraud protection services than do credit card networks.

Moreover, the flow of funds across national borders is heavily regulated. Governments monitor the flow of funds in an effort to stop a variety of activities they don’t like. In the US, the focus is on terrorism, tax evasion, gambling, and drug trafficking. (Carrying cash across borders in a suitcase invites similar government scrutiny.)

Bitcoin allows wealth to be transferred across international borders without the expense or government scrutiny that comes with traditional wire transfers. An American immigrant wanting to send cash to his family in India needs only to find someone in the United States to trade his dollars for Bitcoins. He can then transfer the Bitcoins to his relatives in India, who then need to find someone willing to take Bitcoins in exchange for rupees.

This decentralized money-transfer process will be much harder for governments to control than a centralized money-transfer company like Western Union. And that will make the world’s governments upset, since the same technology can be used by an American drug dealer to send profits back to his partners in Latin America.

But there may be little governments can do about this. They can attempt to mandate the reporting of Bitcoin transactions, but there’s no obvious way to enforce such a regulation, since Bitcoin transactions are easy to obfuscate. At most, governments could prohibit the conversion of funds between local currencies and Bitcoins, but this will merely push the currency underground, not eliminate it altogether.

If Bitcoin’s value stabilizes, it will also become a way to store wealth beyond the reach of any government. Cash and gold are bulky, hard to move, and subject to confiscation. In contrast, the encrypted credentials of a Bitcoin wallet can be stored securely on a server anywhere in the world. This could make the currency appealing to anyone wanting to place his wealth beyond the reach of the law—a corrupt government official wanting to hide ill-gotten gains, a political dissident who fears his life savings will be taken, or an ordinary citizen worried about the solvency of traditional banks.

Bitcoin’s role as a way to move and store wealth does not depend on Bitcoins being widely used for commerce. For Bitcoin to work as a viable “metacurrency” only requires that there be a liquid market between Bitcoins and national currencies. Such a market already exists for several major currencies.

Chicken and egg

Of course, there’s a circularity to this argument. Bitcoin’s value as a way to move and store wealth depends on the value of Bitcoins being relatively stable against conventional currencies. And the continued value of Bitcoins depends on people finding nonspeculative uses for it. But if the currency continues to retain its value in the coming months (a big if, admittedly) this would be a sign that the chicken-and-egg problem has been solved. And the longer Bitcoins continue to exist, the more confidence people will have in its continued existence.

Western Union moved $70 billion across borders in 2010, earning about $1 billion in profits. There’s no Bitcoin Inc. to compete directly with Western Union, but the owners of Bitcoins can be thought of as shareholders in a decentralized Western Union alternative. If the Bitcoin network captures a small fraction of Western Union’s money-transfer business, the currency’s current “market capitalization” of around $30 million could wind up looking downright puny.

Insight: In Greece, playing cat and mouse with tax evaders

Thursday, December 15th, 2011 at 4:55 pm  
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By Deepa Babington and Lefteris Papadimas

ATHENS | Thu Dec 15, 2011 11:25am EST

(Reuters) – Nikos Lekkas’ team of tax investigators knew they were on to something when they found that a humble Greek farmer on the island of Thasos owned a red Ferrari and a Porsche.

Intrigued by how a farmer who had declared just 100,000 euros in income over the past decade could afford such luxuries, Lekkas dispatched an undercover tax agent to the north Aegean island.

The agent was back soon — not only was the Thasos “farmer” earning far more than he had disclosed to the state, he was in an entirely different line of business: loan sharking.

Greece is now close to a deal to seize 10 million euros from the man, says Lekkas, the no. 2 official in Greece’s newly relaunched Financial and Economic Crime unit. He proudly points to the case as one of many signs Greece is finally serious about hunting down tax cheats and making them pay up.

“Earlier there was no political will by governments to get to the bottom of this,” Lekkas, a tax veteran at 59, said in his office near Athens’s sprawling port.

“Now that we’ve reached the edge of the cliff, they’ve decided to implement measures against tax evasion.”

As Lekkas says, Greece has little choice. Kept afloat only by bailout loans, it must convince exasperated lenders that it is capable of filling depleted state coffers with tax income as part of reforms to get its finances back on track.

Rampant dodging is one of the reasons why a popular tourist destination that enjoyed an economic boom in the early 2000s stumbled into a debt crisis that has since sucked in larger economies like Italy and threatens to break apart the euro zone.

In the midst of Greece’s languid beaches, ancient ruins and craggy mountains is a thriving shadow economy that accounts for about 28 percent of the 220-billion-euro economy — the highest proportion in the euro zone. Annual tax evasion is estimated at 40-45 billion euros, says Lekkas.

Greeks joke that cheating the taxman is the national sport.

POLITICIANS MADE US EVADERS

Just a few blocks away from the finance ministry where European Union, European Central Bank and International Monetary Fund inspectors discuss reforms, illegal immigrants hawk fake watches and handbags in plain view along a busy shopping street.

Down a narrow side street, Dimitris, a stocky 59-year-old in tattered overalls lights a cigarette inside his dingy souvlaki shop and begins a rant. Why should he be honest when he sees politicians milking the state for millions.

“Politicians have made us tax evaders. Why should we follow the law when they are stealing? Let the politicians and the rich lead the way.”

A year ago, tax inspectors in plain clothes showed up at Dimitris’ shop and slapped him with two 300-euro fines for two missing receipts — they had counted the number of seated customers and compared that to the number of receipts issued.

After 35 years in the business, Dimitris now duly prints out a receipt for each customer. But he remains unrepentant, and has figured out another way to make up for the shortfall: making smaller pension and social security contributions for one of his employees by recording just half the hours worked.

“There are other tricks to evade taxes,” Dimitris said, puffing away on his cigarette despite laws against smoking in public places.

“You can pay lower contributions for your staff, for example, or issue other receipts with lower value added tax.”

Down a street selling T-shirts and tacky souvenirs near the ancient Acropolis, a deli shop owner pockets money for bottled water without any mention of a receipt.

Nearby, shop assistant Yiorgos recalls how he worked as a waiter for months earning a pittance off the books. As a 20-year-old hunting for a job in a country where nearly one in two youths are unemployed, he was paid 550 euros a month without any welfare contributions by his employer.

“I knew there was no hope of anything else,” he said. “When you’re young, that’s what they tell you they will offer you.”

On the other side of town in a residential suburb, car mechanic Yannis offers a familiar story of evasion so widespread that it is the norm, and anger at corrupt politicians and punishing tax hikes that heap new burdens on the average Greek.

“Everyone in my line of work evades taxes,” the 49-year-old said. “We are not fools to obey the law when politicians are stealing.”

He says his customers themselves ask for his services without a receipt so they can pay less.

“If I were to be 100 percent legal, I would have to shut my shop,” Yannis said.

STARTING FROM ZERO

Signs of change are slowly beginning to appear, however.

Over the past month, Greeks watched in surprise as a top plastics company executive, a construction firm CEO and a fashion designer were hauled away in handcuffs for tax evasion.

The arrests by Lekkas’ unit and police were unprecedented. Lekkas notes that his agency carried out 16 arrests in the last 25 days — compared to a grand total of zero in previous years.

Although his agency has technically had the power to make arrests since 1995, it took the prospect of a debt default and an exit from the euro zone before the law was beefed up to make it easier to carry out arrests quickly, Lekkas says.

Even more significantly, Lekkas says no-one has interfered with his work in the year he has been at the agency.

“I’ve never gotten a phone call from a politician or a minister to cover up a case,” he said.

In between barking orders to agents on the phone, Lekkas speaks animatedly as he rattles off his unit’s successes in the past few weeks as a new electronic system allowed investigators to cross-check tax filings with property records and bank data.

In one case, investigators found a doctor in an upscale Athens suburb had reported income of 200,000 euros over the last seven years but stashed 5.5 million euros in his bank account, most of which will now be seized by the state.

In another case, a foreign multinational company was pressured into striking a deal to pay 20 million euros of the 35 million euros it owed the government, he says.

Spurred by the spate of recent arrests, 17 others with tax arrears rushed to pay up a total of 5.6 million euros to avoid jail, says Lekkas.

“Our goal is to win the war against tax evasion,” he said. “We Greeks like to win and we will win.”

PURELY SYMBOLIC?

Victory, however, is still a good distance away.

All those arrested over the past month have been released pending trial.

One of them — Leon Levi, the owner of fitness firm BodyLine — was sentenced to three years in jail for owing about 620,000 euros but was allowed to avoid prison by paying 10 euros a day for the duration of his sentence — 11,000 euros.

The To Vima daily wryly summed up the state of affairs with:

“Big name arrests, but bread crumbs for state coffers.”

“The impact of the recent actions is purely symbolic,” said Dimitris Karantinos, director of research at Greece’s National Centre of Social Research, pointing to a slow pace in the Greek court system. “It takes a long time to see something done. And it takes 10 years to clear up a case.”

The European Union taskforce on Greece says the tax dispute system is weighed down by a backlog of 165,000 cases representing about 30 billion euros in unpaid taxes, made worse by the fact that they are usually tied up for seven to 12 years.

The taskforce estimates the Greek state is owed a total 60 billion in tax arrears — worth over a quarter of GDP — but only 6-8 billion euros of that is considered “collectible.”

The European Commission’s latest report on Greece published this month bluntly said results from the country’s fight against evasion so far were “not satisfactory,” despite progress in stepping up audits of the wealthy and self-employed.

With the self-employed accounting for close to 40 percent of the labor market and thousands of small, family-run enterprises forming the backbone of the economy, Greece is particularly vulnerable to evasion, Karantinos said.

Byzantine tax rules that are difficult to implement but easy to ignore and a level of welfare contributions that ranks among the highest in Europe further add incentives to cheat, he said.

Indeed, in a country of about 5 million workers and hundreds of glitzy yachts moored at the Athens harbor alone, only 33 individuals declared income of over 900,000 euros last year.

Just 293 people declared income of between 500,000 euros and 900,000 euros.

“It’s a matter of cultural change and whatever has to do with cultural changes will take years to remedy,” Karantinos said.

“Greeks are very loyal to their families and neighborhoods, but not as much to the state — they don’t trust the state.”

(Editing by Sonya Hepinstall)

Source

The Black Market Always Wins… Even in Communist China

Friday, November 18th, 2011 at 8:55 am  
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November 18th, 2011

Imagine you’re a 26 year old high-school dropout working as a factory grunt for a measly $100 a month. And that’s 2010 dollars, not some distant past when that was worth something. You’d probably be pumping your fist against the bourgeoisie in your Che Guevara T-shirt down at Occupy Wall Street right now. But what if you knew that just 6 years later, if you played your cards right, you’d be managing your own factory employing more that 100 people? And what if this wasn’t some economic miracle, but it was a normal occurrence for enterprising young entrepreneurs? Wouldn’t you want to know how it was possible? Well the answer is the black market.

See, that’s a true story. It happened to Cai Shuxian, and it happens to many entrepreneurs in Wenzhou, China where every road eventually leads back to the company that built it. The saying goes among the Wenzhounese, “the mountains are high and the emperor is far away” because for the past 30 years private citizens have virtually nullified government central planning simply by ignoring it, and the government just doesn’t have the resources to crack down. Private firms now build roads, bridges, highways, and even airports to bring their goods to market, and even though it’s not always pretty it is crudely efficient. There’s still a taxation bureaucracy, but tax evasion is typical, even routine. The primary role of local government has been to protect the city from higher levels of government.

When state-run banks became averse to lending to small private enterprise citizens of Wenzhou developed an underground financial system of their own. So called, “gray-market” lending, though technically illegal, is used by nearly 90% of individuals and 60% of companies according to official figures from the People’s Bank of China (China’s central bank). Non-bank lending of venture capital has been the single most important development to the economic success of Wenzhou, and that combined with a blasé disregard for regulatory laws has produced a business environment that borders on market anarchism.

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“People are bad so we need a government made up of people…”

Thursday, November 17th, 2011 at 7:32 pm  
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