The Marine Corps Times

RALEIGH, N.C. —

Military authorities have recovered about $1.8 million in stolen property as part of an ongoing investigation that so far involves almost 70 civilians and active-duty Marines and sailors.

Commanders from Camp Lejeune and the 2nd Marine Expeditionary Force are supporting the investigation, a base spokesman said in an email Tuesday. The Naval Criminal Investigative Service is leading the investigation, which began more than a year and a half ago.

“This is some damn fine police work and two years of undercover — $1.8 million is pretty sizable,” NCIS spokesman Ed Buice said by phone from Quantico, Va. “That said, this is not the first time such crimes have occurred with military members selling government-issued combat gear.”

Base spokesman Nat Fahy said the 66 NCIS investigations involve 47 active-duty Marines and sailors, along with 21 civilians who sold stolen property. About half the cases have been settled in court, Buice said.

“This is guys stealing stuff and selling it at garage sales and out of the back of their cars” and other places, Buice said.

In addition to identifying property stolen from the Marines and the Navy, NCIS agents also found property stolen from the U.S. Air Force, the U.S. Army and other federal agencies, Fahy said. That information was forwarded to the Bureau of Alcohol, Tobacco, Firearms and Explosives, the FBI and North Carolina’s State Bureau of Investigation, among numerous other federal and local agencies.

Buice and Fahy did not say whether weapons were among the items stolen.

The ongoing investigation was first reported by The Daily News of Jacksonville and WNCT-TV.

A sergeant with Marine Corps Special Operations Command, which is located at Camp Lejeune, was convicted in March of stealing and reselling property.

Sgt. Daniel Adam Reich was a member of 3rd Marine Special Operations Command when he was convicted and sentenced to 40 months in prison and a dishonorable discharge, said Maj. Jeff Landis, a spokesman for the command.

Landis wouldn’t say what type of property Reich stole but did say that weapons were not involved. All of the property was recovered, he said.

The thefts came to light after NCIS got a couple of tips, Buice said. Crime analysts did research that suggested more property was being stolen, he said, leading to the investigation.

Jelinek reported from Washington, D.C.

Direct Link:  http://www.marinecorpstimes.com/news/2012/05/ap-ncis-recovers-2-million-stolen-military-property-051512/

WBIR.com

NBC NEWS

May 6, 2012

Gallatin Police Officer Tony Wrinkle’s patrol car has four scanners that can read license plates in front of, behind and beside his car.   Photo”Larry McCormack / The Tennessean

GALLATIN –

Sumner County law enforcement officials are using high-tech cameras to create a detailed picture of the whereabouts of thousands of cars, regardless of whether they are suspected of any link to criminal activity.

Police say that this ability to capture license plates is among the most powerful new crime-fighting tools at their disposal, and that it has already led them directly to vehicles used in crimes.

It’s also a type of government surveillance – spreading quickly, thanks to federal grants – that has raised privacy concerns across the country and pushed police departments to consider how the cameras and records should be used.

“I’m sure that there’s going to be people out there that say this is an invasion of privacy,” said Gallatin Detective James Kemp. But “the possibilities are endless there for solving crimes. It’s just a multitude of information out there – to not tap into it to better protect your citizens, that’s ludicrous.”

As a traffic officer, Kemp learned how easy it is to gather license plates and their locations. All he had to do was head out on routine patrol while special cameras mounted atop his cruiser captured thousands of images in a day – a task that would otherwise be prohibitively time-consuming and labor-intensive for an officer.

A computer inside the car checks the nearby license plates against various crime databases, including wanted suspects, stolen vehicles and sex offenders. It can also check for tax dodgers. If the computer finds a match, a beep alerts the officer.

But that’s just the start for a rapidly expanding program.

Police see far more potential in a related map database that catches all of the scanned license plates in Gallatin, Hendersonville and Sumner County, even those that didn’t match the criminal lists. With that map, a detective can type in a license plate number seen at a crime scene – or even just a partial tag – and search for places where it has been spotted by cameras.

“That’s the whole key: the databases,” said Hendersonville police Lt. Paul Harbsmeier. “If we collect so many tags just for Hendersonville, it doesn’t do any good for anybody else. Let’s say we catch somebody that was involved in residential burglaries, we might check that tag to see if they were in the vicinity of any other burglaries.”

That raises the question of whether a wider set of data can be built, but that’s a subject law enforcement officials are only just beginning to talk about. For now the conversation hasn’t crossed county lines in Middle Tennessee.

The cameras, in use in Europe since the 1990s, first appeared in Middle Tennessee in 2007 in Franklin and have become common throughout the region. But the new batch coming to Sumner County will include the first three in the region to be permanently mounted alongside busy roadways, instead of being attached to police cars.

Police said stationary scanners will read more total plates, and at all times of day, and will still send alerts to emergency dispatchers if a wanted vehicle enters the area.

According to the company behind the systems, PIPS Technology in Knoxville, a majority of reader system sales are now for fixed locations. The opposite was true when the company launched in 2005, when 90 percent of systems were attached to police cruisers, said Bryan Sturgill, company sales specialist.

Each system costs between $9,000 and $15,000. Officials in Sumner County who are overseeing the $125,000 Department of Homeland Security grant paying for the cameras said they’ll get as many as their money can buy.

Legal, ethical issues prompt new policies

Harbsmeier said he has pushed for more cameras because of crime-fighting successes.

News reports show that in the first year Memphis police used plate readers, they wrote almost twice as many citations for revoked and suspended licenses than the year before. In Montgomery County, Md., police used a reader to find a suspect in the killing of a university professor. Last month, police in Downey, Calif., said they rescued a woman and her two daughters from a hotel after a plate reader pointed them to the car driven by their abductor.

But reports also point to the legal, practical and ethical questions raised by the evolving technology.

Officials in Columbia, Mo., required police to purge the plate database every 30 days, and lawmakers in Maine passed a law requiring that no plate be kept more than 21 days.

Harbsmeier said local police expect to discuss a purging policy when new installations are complete. And he said database searches are not open to all officers.

“We don’t want to violate privacy and don’t intend to do that,” he said.

Police and Sturgill defended the readers as a tool to gather what is already public.

“A license plate is what’s called plain view,” Kemp said. “It’s displayed right on a vehicle. It’s no different than officers driving around town and looking at your tags.”

“This license plate reader has no prejudice,” he added.

The readers have withstood at least one legal challenge. Authorities say privacy is not guaranteed in public places – photojournalists and satellite image creators like Google have argued the same.

The difference, said Vanderbilt University law professor Christopher Slobogin, is that “the government has a lot more power that it can abuse.”

“The avowed purpose is to catch people, but (police) could use the information for other purposes,” he said.

Courts are starting to show reluctance toward allowing governments to continue increasing surveillance. Slobogin said gathering of information on people who haven’t done anything wrong could lead to further challenges.

“We are seeing more and more government dragnet operations,” he said.

Other cities also have had to figure out whether their databases are publicly available, which could open up the program to further misuse. In Connecticut, a group of 10 towns that shared their records were forced to give the American Civil Liberties Union three year’s worth of records, totaling 3.1 million scans, after a request under the Freedom of Information Act.

Once the database goes public, police department restrictions about who can search through it lose their meaning, opening possibilities for commercial ventures, and also for anyone who might be looking to find where someone shops each day or parks each night.

The Sumner County Sheriff’s Office oversees the local database and would fight to keep it from becoming public, said Don Linzy, chief of detectives.

“Right now it’s something that we’d definitely have a problem releasing,” he said. “The information is being gathered to prevent crimes. We wouldn’t want anyone utilizing it just to find out something that they’re curious about.”

Linzy and County Attorney Leah Dennen could not rule out the possibility that scans would be subject to the state’s open records act, depending on whether the information is kept in a way that connects the plates with vehicle owner names or the confidential law enforcement databases that the system uses.

“If it’s just keeping a list of license plates and where they saw them, you might be able to make an argument,” Dennen said.

Frank Gibson, who monitors open records issues for the Tennessee Press Association, said he had not heard of a public records request for a license plate database – but he compared the situation to a request out of Jackson, Tenn., that resulted in a court case that went before the Tennessee Supreme Court.

In that case, The Jackson Sun and the American Civil Liberties Union sued police for the right to look at a card file that officers created by stopping cars and interviewing people who happened to venture into particular parts of the city.

“The court held that those files would be a public record except in cases where the card was part of an ongoing criminal investigation,” Gibson said.

Always searching

The Tennessee Highway Patrol has used license plate readers for about one year, finding more success than the departments in Sumner County.

Using 24 readers in cruisers across the state, the THP has arrested wanted suspects and sex offenders and recovered stolen vehicles, said spokeswoman Dalya Qualls.

In more than a year in Gallatin, Kemp hit on just one stolen license plate – sort of.

When the computer alerted him, he made a traffic stop and, like the camera, saw that the numbers on the plate were a match. But it was made out of cardboard, an imitation created by the man who had reported his plates stolen.

“It looked really realistic,” Kemp said. “With black Sharpie marker he made it just a perfect fit.”

Kemp did assist on a reader-related arrest out of Franklin. He said a witness to a hit-and-run at a Target store gave police a partial tag number.

Police ran it through the database and found all records of that combination captured by their cameras. One plate showed up often in that area, leading police to a suspect who happened to live in Gallatin.

Direct Link:  http://www.wbir.com/rss/article/219020/2/High-tech-license-plate-readers-aid-police-but-raise-ethical-questions

DOJ Says Requiring Warrant for Cell Phone Tracking Would ‘Cripple’ Law Enforcement

The Justice Department told a congressional committee that law enforcement and prosecutors would be crippled if they were required to obtain a search warrant for cell phone location tracking information. What happened to probable cause, the Fourth Amendment and a reasonable expectation of privacy?

Computer World

By Darlene Storm

May 8, 2012

KAKOLA, Uganda — American military advisers in Uganda are drawing on lessons learned from Iraq and Afghanistan to help train African Union soldiers to fight Somalia’s most powerful insurgent group, al-Shabab.

Earlier this year, a small contingent of U.S. Marines joined American military contractors at a training base nestled in Uganda’s rolling countryside about 2 1/2 hours drive from the capital, helping fill gaps where the al-Qaida-linked fighters have found weaknesses. The base, called Singo, was built by the U.S. and is a key part of the Obama administration’s strategy to bring stability to Somalia.

The United States has sent in only small units of Special Forces to attack al-Qaida members in Somalia or hostage-taking pirates since U.S. troops withdrew from the nation in 1994, while other African countries have deployed thousands of troops to bring order to a country plagued by lawlessness, insurgents and hunger.

Many of the American trainers give firsthand knowledge of what works and what doesn’t from years of learning to deal with improvised explosives, fighting insurgents in cities and other experiences from Iraq and Afghanistan.

Al-Shabab militants recently figured out how to take out AU tanks with the help of makeshift obstacles and traps, so a group of about 20 Marine reservists is now in the middle of a 10-week program teaching Ugandan forces combat engineering skills, like ways to quickly bridge trenches to permit the tanks to pass.

On a recent day at the base, three U.S. military medical specialists showed how to properly apply a tourniquet in a combat situation and other medical skills. The State Department’s training program also includes marksmanship, urban warfare and explosives handling.

“We’ve been experiencing some really ugly things for the past 10 years, so we’re taking that experience over here,” said Maj. Mark Haley, 41, from Knoxville, Tenn. “We’re giving these guys some real important skill sets to keep them alive when they get sent over there.”

Inside the base is a training area known as “Lil’ Mogadishu” or the “Tin Village” — stacks of shipping containers making up a small “town” built by U.S. and British trainers for the Ugandan soldiers to practice house-to-house fighting. Soldiers move in and out of doors cut into the containers — which have been garishly spray painted with violent or provocative slogans like “death is here,” “war only” and “we hate the AU” — and practice maneuvers along dirt streets and paths.

“This has taken us a long way, especially in achieving the operations in Mogadishu,” said Singo’s Ugandan commander, Col. J.B. Ruhesi.

About 3,500 Ugandan troops are currently undergoing training at Singo under the State Department’s Africa Contingency Operations Training and Assistance program, which also trains soldiers from Burundi and several other African nations. The training should allow the soldiers from different countries to operate with each other more smoothly after they’re deployed to Somalia. The contractors have been training African Union forces since 2007.

Paddy Ankunda, spokesman for the African Union mission in Somalia, known as AMISOM, said Ugandan forces there currently number about 6,000 and make up the largest contingent.

Virginia-based MPRI has the current contract to conduct the program at Singo, and up to two dozen trainers work along with French, British and Ugandan military personnel. The contractors were not permitted to speak on the record to reporters during a recent media visit to the base, but one said all are ex-military and most have had experience in either Iraq or Afghanistan.

U.S. funding for the program is expected to be $3.8 million this year for the training, with another $300,000 for the non-lethal equipment that will be given to the Ugandan forces — things like body armor, helmets and mine detectors.

Ugandan forces commander Gen. Aronda Nyakairima said the urban warfare exercises have proved invaluable for soldiers to meet “fresh challenges” when they’re deployed to Somalia. Despite the danger, he said the soldiers have been eager to participate in the AU peacekeeping mission.

The average soldier can make several times his normal salary by serving with the AU — which pays about $1,000 per month.

Somalia has been mired in conflict since the 1991, when long-term dictator Siad Barre was overthrown by warlords who then turned on each other. Al-Shabab has had a grip on much of south-central Somalia for the last several years but security in Mogadishu has improved markedly over the past year after AU and Somali government troops pushed al-Shabab insurgents out of the capital.

The militant group has also been facing increasing military pressure from Ethiopian troops in the west and Kenyan troops in the south.

Direct Link:  http://www.marinecorpstimes.com/news/2012/05/ap-americans-train-ugandans-somalia-mission-051412/

Marine Corps Times

By Gina Cavallaro – Staff writer

Two California-based Marines are scheduled to receive Navy Cross awards on Friday for their actions during separate battles in Afghanistan’s Helmand province.

Sgt. Cliff Wooldridge of Twentynine Palms, Calif., is one of two Marines scheduled to receive the Navy Cross on May 18 for actions during a 2010 battle in Afghanistan’s Helmand province.

The recipients are Sgt. Cliff Wooldridge of Twentynine Palms and Sgt. Christopher Farias of Camp Pendleton. The Navy Cross is the nation’s second-highest award for combat valor, below only the Medal of Honor.

Wooldridge, a member of 3rd Battalion, 7th Marines, is credited with fending off a Taliban ambush in close-quarters battle on June 18, 2010, in Musa Qala.

During the engagement, Wooldridge snatched a machine gun from the hands of an enemy fighter and, following a tense struggle on the ground, killed his opponent by striking him in the head with the weapon’s butt stock. The remaining Taliban then retreated, ending a potentially deadly ambush against Wooldridge’s platoon, according to an account of the battle provided to Marine Corps Times in late 2010.

Wooldridge is scheduled to receive his award from Navy Secretary Ray Mabus.

Of his performance under enemy fire, Marine Sgt. Christopher Farias, 26, of La Porte, says, “I didn’t think it was such a big deal. … I was doing what I had to do.”

Farias, a member of 1st Battalion, 11th Marines, is credited with repelling a Taliban ambush Oct. 5, 2010, that threatened to overrun his unit’s patrol base in Helmand’s Kajaki district.

During the battle, Farias and several other Marines were severely wounded by explosive rounds fired from a recoilless rifle. Nevertheless, Farias pulled himself up, directed triage efforts and then called for suppressive machine gun fire, according to a news release from the 1st Marine Division, his unit’s parent command. His actions as an assistant squad leader allowed for the safe evacuation of his wounded comrades.

Farias is scheduled to be recognized by Navy Undersecretary Robert Work.

Direct Link:  http://www.marinecorpstimes.com/news/2012/05/marine-corps-navy-cross-christopher-farias-cliff-wooldridge-afghanistan-051412/

In the wake of the biggest dump of classified information in the history of the Army, the brass is searching for ways to watch what every soldier is doing on his or her Army computer.

The Army wants to look at keystrokes, downloads and Web searches on computers that soldiers use.

Maj. Gen. Steven Smith, chief of the Army Cyber Directorate, said the software was one of his chief priorities, joking that it would take the place of a lower-tech solution: “A guy with a large bat behind every user as they go to search the Internet.”

“Now we’ve been in the news — I don’t know if you’ve seen it — with a little insider threat issue,” Smith continued.

Smith did not mention Pfc. Bradley Manning by name. However, the effort comes in the wake of the former intelligence analyst’s alleged leak of hundreds of thousands of pages of classified documents to the anti-secrecy organization WikiLeaks in 2009 and 2010. Manning faces a military trial on 22 counts, including aiding the enemy.

According to Smith, the Army will soon shop for software pre-programmed to detect a user’s abnormal behavior and record it, catching malicious insiders in the act. Though it is unclear how broadly the Army plans to adopt the program, the Army has more than 900,000 users on its computers.

Smith explained how it might work.

“So I’m on the South American desk, doing intelligence work and all of a sudden I start going around to China, let’s say,” Smith said. “That might be an anomaly, it might be justified, but I would sure like to know that and let someone make a decision, almost at the speed of thought.”

The scenario echoes the allegations against Manning: As an intelligence analyst charged with researching the Shiite threat to Iraqi elections, Manning raided classified networks for State Department cables, Afghanistan and Iraq war logs and video from a helicopter attack, according to courtroom testimony.

Software of the type Smith describes is at various stages of development in the public and private sectors. Such software could spy on virtually any activity on a desktop depending on its programming, to detect when a soldier searches outside of his or her job description, downloads massive amounts of data from a shared hard drive or moves the data onto a removable drive.

The program could respond by recording the activity, alerting an administrator, shutting down the user’s access, or by feeding the person “dummy data” to watch what they do next, said Charles Beard, a cybersecurity executive with the defense firm SAIC’s intelligence, surveillance and reconnaissance group.

“It’s a giant game of cat and mouse with some of these actors,” Beard said.

What’s exciting, Smith said, is the possibility of detecting problems as they happen, on what cybersecurity experts call “zero day,” as opposed to after the fact.

“We don’t want to be forensics experts. We want to catch it at the perimeter,” Smith said. “We want to catch this before it has a chance to be exploited.”

A government wide effort

The Army’s efforts dovetail with a broader federal government initiative. President Obama signed an executive order last October that established an Insider Threat Task Force to develop a governmentwide program to deter, detect and mitigate insider threats.

Among other responsibilities, it would create policies for safeguarding classified information and networks, and for auditing and monitoring users.

In January, the White House’s Office of Management and Budget issued a memo directing government agencies that deal with classified information to ensure they adhere to security rules enacted after the WikiLeaks debacle.

Beyond technical solutions, the document asks agencies to create their own “insider threat program” to monitor employees for “behavioral changes” suggesting they might leak sensitive information.

The interagency Insider Threat Task Force is aiming to complete work on the new standards by October. These standards may address training and employee awareness protocols, said John Swift III, senior policy adviser to a task force now working on the draft policy.

Deanna Caputo, lead behavioral psychologist for Mitre Corp., said both technical solutions and monitoring of human behaviors are needed for a successful detection and prevention program.

“To think that we can tackle the problem simply by technical solutions is a mistake,” Caputo said.

A “culture of reporting” is essential, she said. “We need to up the ante and expect a little bit more from our people” to report abnormal behaviors among their co-workers. However, “there is a fine line with that [reporting]. People need to trust they are in a safe environment to do their job.”

Carnegie Mellon’s Software Engineering Institute has compiled 700 insider threat case studies, and come up with two broad profiles of insiders who steal intellectual property in business settings.

One is an “entitled independent” disgruntled with his job who typically exfiltrates his work a month before leaving. The other is an “ambitious leader” who steals information on entire systems and product lines, sometimes to take to a foreign country, such as China.

According to Patrick Reidy, who leads the FBI’s insider threat program, such users may be conducting authorized activities for malicious ends, and their actions would not register on intrusion detection or anti-virus systems.

“People look at computers and networks but not people and data,” he said. “The insider threat is all about people.”

Reidy, Swift and Caputo discussed the effort at a defense industry convention in Washington, D.C., on April 4.

The ‘Pre-Crime’ division

Private industry and the Defense Advanced Research Projects Agency are among the entities that have technological solutions in various stages of progress.

Raytheon’s SureView software captures any security breach or policy violation it’s programmed to find and can “replay the event like a DVR,” for a local administrator or others to view, according to the company’s website. The software’s trigger is programmable and can be set to any behavior considered suspicious or not.

Working with Raytheon, a group of cadets from the U.S. Military Academy at West Point last year conducted a simulation of an insider attack at a forward operating base. Cadets looked at how to fine-tune the way SureView detects potential threats and eliminate false positives for innocuous behavior, said West Point computer science professor Col. Greg Conti.

“It was very powerful, very flexible and allowed you to monitor with very fine resolution activities on the desktop, and the real trick becomes how you detect anomalous behavior,” Conti said. “Predictive models are kind of the holy grail. When you see that no one else has done something but bad guys, you can start being predictive.”

At SAIC, which is testing a behavior analytics system, Beard likened behavioral modeling to the Pre-Crime unit from the science fiction movie “Minority Report.” Instead of using psychics to stop crimes before they occur, the software would be programmed to detect behavior that has preceded malicious acts in the past.

In real life, researchers are examining the behavior of malicious insiders to see what actions they took before they acted out. That in turn would be used to teach the software what behavior to flag.

“We may want to administer policies that say, ‘Gee, gosh, why do you really want to download 300 [megabytes] of stuff or a gig of data in a single session?’ ” Beard said. “We look for the antecedents of behavior that would suggest based on past history that bad things are going to take place.”

That could be visiting restricted websites, requesting access to information outside of one’s job description or asking for large amounts of storage media — or likely some combination of the above. Individually, the actions may not seem problematic, but combined and in the context of human intelligence, they could raise alarms.

“We start taking those things and recombining them to say, ‘What is going on in the environment?’ ” Beard said. “Any one of those things independently can be totally innocuous and innocent, but when you put them together — plus their job, plus their access, plus the things they are working on — you may be looking at it as a counterintel kind of thing.”

Drawbacks and challenges

Cybersecurity expert Michael Tanji, an Army veteran who has spent nearly 20 years in the U.S. intelligence community, said he sees potential drawbacks and unanswered policy questions. He asked how the Army would implement such technology without unintentionally stifling cross-disciplinary collaboration among soldiers.

Knowing they are being monitored, personnel might avoid enterprising or creative behavior for fear it would be flagged by monitoring software, he said.

Tanji also predicted the technology would come at a considerable financial cost, both to warehouse the data collected by the software and to pay the added staff needed to monitor the reports it generates.

“A brigade-sized element that uses computers on a regular basis would probably need a company-sized element just to keep up with the data that comes in,” he said.

Reidy, the FBI official, said such concerns were valid. Because software may report benign behavior as malicious and vice versa, he cautioned against using technical solutions alone to solve insider threats.

“After a major incident, and no offense to any vendors, but the charlatanism always goes up,” he said. “It’s absolutely amazing how many phone calls I get from people who say they have solved the WikiLeaks problem or solved this or that problem. Everybody’s got to eat, but it’s simply not true.”

Finding bad behavior amid the vast sea of keystrokes, downloads and Web browsing on military computers is no easy task, DARPA acknowledges.

A DARPA solicitation for Suspected Malicious Insider Threat Elimination, or SMITE, announces it is attempting to recognize “moving targets” — telltale patterns of behavior amid “enormous amounts of noise (observational data of no immediate relevance).”

The program, based in behavioral science, would have to distinguish anomalous behavior from normal behavior, and deceptive and malicious behavior from anomalous behavior, the solicitation reads.

A solicitation for another program — Anomaly Detection at Multiple Scales, or ADAMS — uses accused Fort Hood shooter Maj. Nidal Hasan to frame the problem. It asks how to sift for anomalies through millions of data points — the emails and text messages on Fort Hood, for instance — using a unique algorithm, to rank threats and learn based on user feedback.

The program is trying to look beyond computers to spot the point when a good soldier turns, whether that means homicidal or suicidal or ready to dump stolen data.

“When we look through the evidence after the fact, we often find a trail — sometimes even an ‘obvious’ one,” the solicitation states. “The question is, can we pick up the trail before the fact, giving us time to intervene and prevent an incident? Why is that so hard?”

Direct Link:  http://www.armytimes.com/news/2012/05/army-wants-to-monitor-your-computer-050512w/

Eduardo Saverin, the billionaire co- founder of Facebook Inc. (FB), renounced his U.S. citizenship before an initial public offering that values the social network at as much as $96 billion, a move that may reduce his tax bill.

Facebook plans to raise as much as $11.8 billion through the IPO, the biggest in history for an Internet company. Saverin’s stake is about 4 percent, according to the website whoownsfacebook.com. At the high end of the proposed IPO market capitalization, that would be worth about $3.84 billion. His holdings aren’t listed in Facebook’s regulatory filings.

Eduardo Saverin, co-founder of Facebook, in New York City.

Photographer: Jason Kempin/Getty Images for Common Sense Media

 

 

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May 11 (Bloomberg) — Results of a Bloomberg investor poll show that 79 percent of respondents say Facebook is overvalued at $96 billion. Dominic Chu reports on Bloomberg Television’s “In The Loop.” (Source: Bloomberg)

Saverin, 30, joins a growing number of people giving up U.S. citizenship ahead of a possible increase in tax rates for top earners. The Brazilian-born resident of Singapore is one of several people who helped Mark Zuckerberg start Facebook in a Harvard University dormitory and stand to reap billions of dollars after the world’s largest social network holds its IPO.

“Eduardo recently found it more practical to become a resident of Singapore since he plans to live there for an indefinite period of time,” said Tom Goodman, a spokesman for Saverin, in an e-mailed statement.

Saverin’s name is on a list of people who chose to renounce citizenship as of April 30, published by the Internal Revenue Service. Saverin made that move “around September” of last year, according to his spokesman.

Besides helping cut tax bills stemming from the Facebook, the move may also help him avoid capital gains taxes on future investments since Singapore doesn’t have a capital gains tax.

Exit Tax

Saverin won’t escape all U.S. taxes. Americans who give up their citizenship owe what is effectively an exit tax on the capital gains from their stock holdings, even if they don’t sell the shares, said Reuven S. Avi-Yonah, director of the international tax program at the University of Michigan’s law school. For tax purposes, the IRS treats the stock as if it has been sold.

Renouncing your citizenship well in advance of an IPO is “a very smart idea,” from a tax standpoint, Avi-Yonah said. “Once it’s public you can’t fool around with the value.”

Saverin’s estimated gain, and subsequent tax bill, would be based on an appraisal by his tax advisers. They could have valued his Facebook stake at less than it will be worth once shares trade publicly, reducing his liability. For tax purposes, Saverin could say that the value of his stake should be discounted because of the potential difficulty of selling the shares while the company remains private.

Zuckerberg Scuffle

Saverin previously scuffled with Zuckerberg, his Harvard University classmate, over his ownership in Facebook. Saverin sued him and settled for an undisclosed amount.

The 2010 movie “The Social Network” added to Saverin’s fame after it portrayed him as a scorned friend who provided the company’s early financing and then was squeezed out. In the film, written by Aaron Sorkin, Saverin was portrayed by Andrew Garfield, who will play Spider-Man in “The Amazing Spider- Man,” due to be released in July.

Saverin moved to the U.S. in 1992, and became a citizen in 1998, his spokesman said. He has invested in Asian, U.S. and European companies, according to his spokesman.

He plans to invest in Brazilian and in other global companies that have strong interests in entering the Asian markets. “Accordingly, it made the most sense for him to use Singapore as a home base,” Goodman said in the statement.

Jumio, ShopSavvy

His U.S. holdings include Jumio Inc., an online payments company, and ShopSavvy Inc., a price-comparison service.

Renouncing citizenship is an option chosen by increasing numbers of Americans. A record 1,780 gave up their U.S. passports last year compared with 235 in 2008, according to government records.

Income-tax rates for top U.S. earners will rise to 39.6 percent from 35 percent next year and rates on capital gains and dividends also are scheduled to rise, unless Congress blocks the increases.

“It’s a loss for the U.S. to have many well-educated people who actually have a great deal of affection for America make that choice,” said Richard Weisman, head of the global tax practice at Baker & McKenzie in Hong Kong. “The tax cost, complexity and the traps for the unwary are among the considerations.”

Combating Evasion

Some of the world’s largest wealth-management firms have ramped up efforts to fight tax evasion ahead of Washington’s implementation of the Foreign Account Tax Compliance Act, known as Fatca, which seeks to prevent tax evasion by Americans with offshore accounts. HSBC Holdings Plc, Deutsche Bank AG, Bank of Singapore Ltd. and DBS Group Holdings Ltd. all say they have turned away business.

The 2010 law, to be phased in starting Jan. 1, 2013, requires financial institutions based outside the U.S. to obtain and report information about income and interest payments accrued to the accounts of American clients. That means additional compliance costs for banks and fewer investment options and advisers for all U.S. citizens living abroad, which may depress banks’ returns.

Facebook plans to price its IPO on May 17, offering 337.4 million shares at $28 to $35 each. The shares will be listed on the Nasdaq Stock Market under the symbol FB. Morgan Stanley, JPMorgan Chase & Co. and Goldman Sachs Group Inc. are leading the sale.

Direct Link:  http://www.bloomberg.com/news/2012-05-11/facebook-co-founder-saverin-gives-up-u-s-citizenship-before-ipo.html

1,175 Social Security numbers and 435 credit card numbers may have been accessed.