Tag: privacy

Information Regulation that Hasn’t Worked

When Senator William Proxmire (D-WI) proposed and passed the Fair Credit Reporting Act forty years ago, he almost certainly believed that the law would fix the problems he cited in introducing it. It hasn’t. The bulk of the difficulties he saw in credit reporting still exist today, at least to hear consumer advocates tell it.

Advocates of sweeping privacy legislation and other regulation of the information economy would do well to heed the lessons offered by the FCRA. Top-down federal regulation isn’t up to the task of designing the information society. That’s the upshot of my new Policy Analysis, “Reputation under Regulation: The Fair Credit Reporting Act at 40 and Lessons for the Internet Privacy Debate.” In it, I compare Senator Proxmire’s goals for the credit reporting industry when he introduced the FCRA in 1969 against the results of the law today. Most of the problems that existed then persist today. Some problems with credit reporting have abated and some new problems have emerged.

Credit reporting is a complicated information business. Challenges come from identity issues, judgments about biography, and the many nuances of fairness. But credit reporting is simple compared to today’s expanding and shifting information environment.

“Experience with the Fair Credit Reporting Act counsels caution with respect to regulating information businesses,” I write in the paper. “The federal legislators, regulators, and consumer advocates who echo Senator Proxmire’s earnest desire to help do not necessarily know how to solve these problems any better than he did.”

Management of the information economy should be left to the people who are together building it and using it, not to government authorities. This is not because information collection, processing, and use are free of problems, but because regulation is ill-equipped to solve them.

U.S. v. Jones: The Court’s Search for a Rationale

I attended the Supreme Court’s oral argument in U.S. v. Jones today, the case dealing with the Fourth Amendment constitutionality of using GPS to track individuals’ movements without a warrant. Predicting outcomes is fraught, and you’re getting your money’s worth from the following free observations.

It seemed to me that most members of the Court want to rule that the government does not have free reign to attach GPS devices to cars. Justices Kennedy, Breyer, and Sotomayor, for example, noted the vast consequences if the government were to win the case. Law enforcement could attach tracking devices to people’s overcoats, for example, and monitor their movements throughout society without implicating the Fourth Amendment. Voluble as he often is, Justice Scalia did not say that the Fourth Amendment doesn’t reach GPS because GPS data wasn’t around for the Framers to insulate from government access.

Justice Alito’s thinking seemed to venture the furthest. He noted how insufficient it would be if the Court were to decide the case based on the narrow ground that attaching a GPS device to a car is an unreasonable seizure. Doing so would not account for the vast amount of personal data the government might access without attaching something to a car, clothing, or other property. If not in this case, the Court will soon have to face the (pernicious) third-party doctrine, which holds that a person has no Fourth Amendment interests in information shared with others.

If the Court desires to rule against the government, the one thing it lacks is a rationale for doing so. When it was time for Jones’s counsel to argue, the Justices seemed frustrated not to have a principle on which to base a decision.

Justice Scalia early-on declared his concern with GPS tracking and his dismay that the “reasonable expectation of privacy” test from Katz v. United States (1967) might shrink the zone of privacy the Framers sought to protect in the Fourth Amendment. But he later retreated into a sort of catch-all posture: the Congress can control GPS tracking if it wants. (Jones’s counsel cleverly suggested that there were 535 reasons not to do that.)

Other Justices’ questions danced awkwardly with the “reasonable expectation of privacy” test. Justice Kennedy was equivocal once about whether it would apply. Chief Justice Roberts seemed acutely aware of the Court’s incompetence to make judgments of such broad societal sweep. This is for good reason: there is no way to determine what society thinks, or what is “reasonable” in terms of privacy, when new technologies are applied new ways.

The solution to this conundrum can be found in the Cato Institute’s amicus brief in the Jones case. The Court should not use the “reasonable expectation of privacy” test from Justice Harlan’s Katz concurrence. Rather, it should follow the majority holding, which accorded Fourth Amendment protection to information that Katz had kept private using physical and legal arrangements. The government stands in the same shoes as the general public when it comes to private information—that is, information that can’t be accessed legally or with ordinary perception. When the government accesses information that was otherwise private, those searches and seizures must be reasonable and must almost always be based upon a warrant.

This way of administering the Fourth Amendment is not a snap of the fingers. There will be details to hash out when the Court eventually finds that having a Fourth Amendment interest in information turns on a factual question: whether someone has concealed information about him- or herself.

The biggest impediment to adoption of this rule may be getting lawyers to realize that “reasonable expectation of” is not a prefix required every time they use the word “privacy.”

I Told Ya So

The Children’s Online Privacy Protection Act became law just over thirteen years ago, passed in the name of protecting children online. It imposes various obligations on Web sites providing content to children thirteen and under.

So? How’s it doing?

danah boyd (she doesn’t capitalize her name) is a skilled researcher into the worlds of social media, youth practices, “public” and “private,” social networking, and other intersections between technology and society. In a Huffington Post article published this week, she reveals conclusions from her research into COPPA and its results. Here are some choice lines from “Why Parents Help Tweens Violate Facebook’s 13+ Rule”:

COPPA is a well-intentioned piece of legislation with unintended consequences for parents, educators, and the public writ large. It has stifled innovation for sites focused on children and its implementations have made parenting more challenging. …

Rather than reinforcing or extending a legal regime that produces age-based restrictions which parents actively circumvent, we need to step back and rethink the underlying goals behind COPPA and develop new ways of achieving them. This begins with a public conversation about what it means to parent in a digital world.

That is a non-libertarian’s research-based conclusion about the COPPA law and its poor fit between means and ends—using federal Internet regulation to protect children. It echoes the words of a report issued a decade ago finding that the White House Web site had violated a Clinton administration policy applying COPPA to federal Web sites.

The difficulty of applying the Children’s Online Privacy Protection Act to just one leading federal Web site … shows how governments rob people of power over information about themselves and their children. It also suggests that future privacy laws and regulations should be studied much more carefully before being put into effect. On government or private-sector Web sites, they can be deeply burdensome and have dramatic unintended effects.

That’s yours truly in a report entitled “Making the Rules, Breaking the Rules: How the “White House for Kids” Web Site Violates Federal Privacy Policy.” The report helped generate a USA Today editorial, which in turn drew a response from White House Chief of Staff John Podesta. Pretty good for a kid trying to break in the debate about privacy policy.

boyd’s research has borne out what this student of privacy told you a decade ago: Policymakers don’t know enough about society to decide how the manifold interests people pursue online can properly be protected. We have parents for that.

Our free society should decide how the Internet works and how people communicate on it.

Biometrics Collection = Risk Creation

Why shouldn’t the government collect biometric data unless absolutely necessary? Things like this can happen to it:

The stolen database contained the name, date of birth, national identification number, and family members of 9 million Israelis, living and dead. More alarmingly, the database contained information on the birth parents of hundreds of thousands of adopted Israelis—including children—and detailed health information on individual citizens.

It’s a good, short write-up from Fast Company. Read the whole thing and pass it along.

Will GPS Tracking Render the Fourth Amendment Quaint?

If the government put a GPS monitor on your car and used it to track every vehicular movement of yours for four weeks, do you think that would violate your Fourth Amendment rights? The government would like to be able to do that kind of thing without getting a warrant, and the Supreme Court will soon decide whether it can.

On November 8th, the Court will hear oral argument in U.S. v. Jones. Yours truly was the lead author of Cato’s amicus brief in the case, which may have a significant effect on how Fourth Amendment law intersects with new information technologies for decades to come.

In 2004, suspecting that Antoine Jones was dealing drugs, the FBI secretly attached a GPS tracking device to his car without a valid warrant. The FBI used this device to monitor and record the car’s movements, noting its location every ten seconds when it was in motion, for nearly a month before finally arresting Jones. The U.S. Court of Appeals for the D.C. Circuit found that the FBI’s action was unconstitutional because it violated Jones’s “reasonable expectation of privacy”—the two-part Fourth Amendment standard developed in the landmark case of Katz v. United States. Though he traveled on public roads, the totality of his movements was available to nobody and thus was private.

Our brief argues that the government’s conversion of Jones’s vehicle into a surveillance device was an unreasonable seizure under the Fourth Amendment. Even though he didn’t lose a “possessory” interest in his car, the government invaded Jones’s various property rights, including the right to exclude, the right to manage, the right to use, and the right to the profits. Similarly, using his car to collect detailed data on his movements over this extended period without getting a warrant was an unreasonable search. The data reflecting his movements would never have come into existence without the government attaching its GPS device to his car. These are tough, interesting issues arising in the new circumstances created by information technology.

We spent as much time in the brief on the “reasonable expectations of privacy” test. The product of one Justice’s lone concurrence in the Katz case, it holds that if a person has an actual (subjective) expectation of privacy and that expectation is one society is prepared to accept, then the Fourth Amendment protects the object of that expectation.

Courts have never faithfully applied this test, and for good reason: it’s a doctrinal mess that reverses the Fourth Amendment’s focus. Courts have second-guessed what the citizenry thinks in terms of privacy rather than examining government action to see if it is reasonable. Under “reasonable expectations” doctrine, things that are left in plain view are always available to the government while things that are hidden—well, the Court will look to see whether keeping it private comports with “reasonable expectations.”

The majority ruling in Katz rested on physical and legal protection that Katz had given to the sound of his voice when he entered a telephone booth. Because Katz had secured the privacy of his conversation, the government wasn’t allowed to access it using a wiretap—not without a warrant. That’s the rule the Court should apply here. The government can’t use uncommon surveillance technology to access private information, including private information about things that happened “in public,” without a valid warrant.

With information technology still rapidly increasing in power, it is critically important that the Supreme Court update Fourth Amendment law while maintaining its consistency with ancient property principles. Doing so will ensure that technology doesn’t render the Fourth Amendment’s protections for our “persons, papers, houses, and effects” quaint.

You can read more, and our brief, on the Cato.org page about U.S. v. Jones.

Kozinski on Privacy at Constitution Day

The Hon. Alex Kozinski gave the annual B. Kenneth Simon lecture at Cato’s Constitution Day conference on September 15, 2011. He spoke about changing cultural expectations of privacy regarding new technologies and how judicial applications of the Fourth Amendment have changed over time to reflect these expectations. Judge Kozinski is the Chief Judge on the U.S. Court of Appeals for the Ninth Circuit.

Are Tax Havens Moral or Immoral?

Being the world’s self-appointed defender of so-called tax havens has led to some rather bizarre episodes.

For instance, the bureaucrats at the Organization for Economic Cooperation and Development threatened to have me thrown in a Mexican jail for the horrible crime of standing in the public lobby of a hotel and giving advice to low-tax jurisdictions.

On a more amusing note, my efforts to defend tax havens made me the beneficiary of grade inflation and I was listed as the 244th most important person in the world of global  finance — even higher than George Soros and Paul Krugman.

But if that makes it seem as if the battle is full of drama and (exaggerated) glory, that would be a gross exaggeration. More than 99 percent of my time on this issue is consumed by the difficult task of trying to convince policymakers that tax competition, fiscal sovereignty, and financial privacy should be celebrated rather than persecuted.

Sort of like convincing thieves that it’s a good idea for houses to have alarm systems.

And it means I’m also condemned to the never-ending chore of debunking left-wing attacks on tax havens. The big-government crowd viscerally despises these jurisdictions because tax competition threatens the ability of politicians to engage in class warfare/redistribution policies.

Here’s a typical example. Paul Vallely has a column, entitled “There is no moral case for tax havens,” in the UK-based Independent.

To determine whether tax havens are immoral, let’s peruse Mr. Vallely’s column. It begins with an attack on Ugland House in the Cayman Islands.

There is a building in the Cayman Islands that is home to 12,000 corporations. It must be a very big building. Or a very big tax scam.

As I’ve already explained in a post about a certain senator from North Dakota, a company’s home is merely the place where it is chartered for legal purposes. A firm’s legal domicile has nothing to do with where it does business or where it is headquartered.

In other words, there is nothing nefarious about Ugland House, just as there is nothing wrong with the small building in Delaware that is home to more than 200,000 companies. President Obama, by the way, demagogued about Ugland House during the 2008 campaign.

Let’s see what else Vallely has to say:

Are there any legitimate reasons why anyone would want to have a secret bank account – and pay a premium to maintain their anonymity – or move their money to one of the pink dots on the map which are the final remnants of the British empire: the Caymans, Bermuda, the Turks and Caicos and the British Virgin Islands?

Actually, there are lots of people who have very compelling reasons to keep their money in havens, and only a tiny minority of them are escaping onerous tax burdens.What about:

  • Jews in North Africa and the Middle East?
  • Persecuted ethnic Chinese in Indonesia and the Philippines?
  • Political dissidents in places such as Russia and Venezuela?
  • Entrepreneurs in regimes such as Venezuela and Zimbabwe?
  • Families threatened by kidnapping failed states such as Mexico?
  • Homosexuals in homophobic regimes such as Iran?

As this video explains, there are billions of people around the world who are subject to state-sanctioned (or at least state-permitted) religious, ethnic, racial, political, sexual, and economic persecution. These people are especially likely to be targeted if they have any money, so the ability to invest their assets offshore and keep that information hidden from venal governments can, in some cases, be a life-or-death matter.

And let’s not forget the residents of failed states, where crime, expropriation, kidnapping, corruption, extortion, and economic mismanagement are ubiquitous. These people also need havens where they can safely and confidentially invest their money.

Vallely is apparently unaware of these practical, real-world concerns. Instead, he is content with sweeping proclamations:

The moral case against is clear enough. Tax havens epitomise unfairness, cheating and injustice.

But if he is against unfairness, cheating, and injustice, why does he want to empower the institution — government — that is the largest source of oppression in the world?

To be fair, Vallely does attempt to address the other side of the argument.

Apologists insist that tax havens protect individual liberty. They promote the accumulation of capital, fair competition between nations and better tax law elsewhere in the world. They also foster economic growth.

…Yet even if all that were true – and it is not – does it outweigh the ethical harm they do? The numbered bank accounts of tax havens are notoriously sanctuaries for the spoils of theft, fraud, bribery, terrorism, drug-dealing, illegal betting, money-laundering and plunder by Arab despots such as Gaddafi, Mubarak and Ben Ali, all of whom had Swiss accounts frozen.

He can’t resist trying to discredit the economic argument by resorting to more demagoguery, asserting that tax havens are shadowy regimes. Not surprisingly, Vallely offers no supporting data. Moreover, you won’t be surprised to learn that the real-world evidence directly contradicts what he wrote: the most comprehensive analysis of dirty money finds 28 problem jurisdictions, and only one could be considered a tax haven.

Last but not least, the author addresses the issue that really motivates the left: the potential loss of access to other people’s money, funds that they want the government to confiscate and redistribute.

Christian Aid reckons that tax dodging costs developing countries at least $160bn a year — far more than they receive in aid. The US research centre Integrity estimated that more than $1.2trn drained out of poor countries illicitly in 2008 alone. …Some say an attack on tax havens is an attack on wealth creation. It is no such thing. It is a demand for the good functioning of capitalism, balancing the demands of efficiency and of justice, and placing a value on social harmony.

There are several problems with this passage, including Vallely’s confusion of tax evasion with tax avoidance. But the key point is that the burden of government spending in most nations is now at record levels, undermining prosperity and reducing growth. Why add more fuel to the fire by giving politicians even more money to waste?

Consider some real-world evidence: The Wall Street Journal has an article on the Canton of Zug, Switzerland’s tax haven within a tax haven. This hopefully won’t surprise anyone, but low-tax policies have been very beneficial for Zug:

Developed nations from Japan to America are desperate for growth, but this tiny lake-filled Swiss canton is wrestling with a different problem: too much of it. Zug’s history of rock-bottom tax rates, for individuals and corporations alike, has brought it an A-list of multinational businesses. Luxury shops abound, government coffers are flush, and there are so many jobs that employers sometimes have a hard time finding people to fill them.

Here’s some more evidence of how better fiscal policy promotes prosperity. This is economic data, to be sure, but isn’t the choice between growth and stagnation also a moral issue?

Zug long was a poor farming region, but in 1947 its leaders began to trim tax rates in an effort to attract companies and the well-heeled. In Switzerland, two-thirds of total taxes, including individual and corporate income taxes, are levied by the cantons, not the central government. The cantons also wield other powers that enable them compete for business, such as the authority to make residency and building permits easy to get.

…[B]usinesses moved in, many establishing regional headquarters. Over the past decade, the number of companies with operations of some sort in the canton jumped to 30,000 from 19,000. The number of jobs in Zug rose 20% in six years, driven by the economic boom and foreign companies’ efforts to minimize their taxes. At a time when the unemployment rate in the European Union (to which Switzerland doesn’t belong) is 9.4%, Zug’s is 1.9%.

It turns out that Zug is growing so fast that lawmakers actually want to discourage more investment. What a nice problem to have.

Describing Zug’s development as “astonishing,” Matthias Michel, the head of the canton government, said, “We are too small for the success we have had.”

…Zug has largely stopped trying to lure more multinationals, according to Mr. Michel.

It’s worth pointing out that the residents of Zug are not some sort of anomaly. The rest of Switzerland is filled with people who recognize the value of limited government:

[T]he Swiss are mostly holding fast to their fiscal beliefs. Last November, in a national referendum, they overwhelmingly rejected a proposal that would have established a minimum 22% tax rate on incomes over 250,000 francs, or about $315,000.

Sadly, even though the world is filled with evidence that smaller government is good for prosperity (and even more evidence that big government is bad for growth), statism is not abating.

Indeed, the anti-tax haven campaign continues to gain steam. At a recent OECD meeting, high-tax nations (with the support of the Obama administration) put in place a bureaucratic monstrosity that is likely to become a world tax organization.

This global tax cartel will be akin to an OPEC for politicians, and the impact on taxpayers will be quite similar to the impact of the real OPEC on motorists.

If that’s a moral outcome, then I want to be amoral.

To conclude, here are two other videos on tax havens. This one looks at the economic issues:

And here’s a video debunking some of the usual attacks on low-tax jurisdictions: