From: Robert Hettinga <rah@shipwright.com>
Date: Mon, 7 Sep 1998 00:46:07 +0800
To: cypherpunks@cyberpass.net
Subject: IP: Encryption Expert Says U.S. Laws Led to Renouncing of  Citizenship
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Date: Mon, 07 Sep 1998 11:29:29 -0500
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Subject: IP: Encryption Expert Says U.S. Laws Led to Renouncing of
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Source:  New York Times
http://www.nytimes.com/library/tech/yr/mo/cyber/articles/06encrypt.html

September 6, 1998

Encryption Expert Says U.S. Laws Led to Renouncing of Citizenship

By PETER WAYNER

Most people who leave the United States and move to the
Caribbean dream of the freedom of perfect beaches, warm
winters and tropical fruits. Vince Cate says he sees a world where he has
complete freedom to write computer software and send it around the
world.

In 1994, Cate moved to
Anguilla and helped bring
Internet service to the tiny
island. Last Sunday night, he
went a step further and flew to
Barbados, site of the nearest
American consulate, to fill out
the paperwork to renounce his
U.S. citizenship.

Cate, an encryption expert and
one of the sponsors of an
annual academic conference on
financial cryptography in Anguilla, said he made the decision because he
is setting up a new company, Secure Accounts, that will design and build
basic software to handle electronic transactions. The software will rely
heavily on encryption to scramble the data traveling between users in
order to prevent fraud, theft and embezzlement. After renouncing his
citizenship, Cate said in an e-mail message that he wanted "to be free
from the silly U.S. laws on crypto."

Normally, setting up an international company does not require forgoing
citizenship in the United States, but Cate's expertise in creating
encryption software places him in a special class. If he were to offer any
advice to non-U.S. citizens about the encryption work built into his
financial transaction software, he would violate U.S. laws, which treat the
transfer of such encryption as illegal international arms traffic. These laws
apply throughout the world and are intended to stop U.S. citizens from
assisting others in developing encryption software.

"I'm not actually writing any crypto code," Cate said in a telephone
interview on Thursday. "But I'm supervising people who are."

The U.S. government treats secret coding software in the same way it
treats howitzers, tanks and chemical weapons because it can allow
foreigners to hide their communications from U.S. intelligence-gathering
organizations. In past wars, the United States gained important
advantages in the field of battle through carefully gathered information,
and the government does not want to lose what it sees as technical high
ground.

Many American software companies, however, see themselves losing
market share to foreign competitors who are able to create encryption
products unhampered by U.S. laws. They argue that good cryptographic
expertise is already well distributed around the world and that the laws
only give foreign competitors an advantage.

"We can provide a solution that works over the whole planet." Cate said
of his company. "U.S. companies can only provide a solution that is U.S.
only. We certainly have a competitive edge by being offshore."

Recently, many leading software companies like Sun Microsystems and
C2 Net have opened branches outside the United States, hiring foreign
nationals to do the work. This has required a complicated dance to avoid
breaking U.S. export laws like the ones that Cate is escaping.

Steve Walker, the former president of the encryption manufacturer
Trusted Information Systems, said of Cate's move, "All of us have
thought from time to time that we're fed up with things, but in reality it
doesn't accomplish much and you give up a lot."

Sameer Parekh, the president of the Web server company C2 Net, said:
"I think it's essential if you want business that you're doing your
development overseas. It's pretty clear to anyone internationally that
anything exportable [from the United States] is a joke."

C2 Net has development offices in Anguilla and Newbury, England.
Parekh says that there is great demand overseas for programmers who
know cryptography.

Walker agreed that American companies are hurt by the existing laws.
"There are foreign companies out there who are doing very well," he said,
"in part because they're selling products out there that the U.S. can't sell."

Rozell Thompson, a lawyer who specializes in negotiating export licenses,
said of Cate's decision: " I think that's pretty unnecessary in this
particular
case. If you're developing crypto for financial applications, it's exportable
anyways. There's a recognition that cryptography for electronic
commerce applications is going to be exportable."

The government is more lenient with software used by banks and other
financial institutions, in part because it recognizes the great need for such
software and in part because it already receives reports about much of
the transaction data cloaked by the encryption. Thompson said that Cate
would probably have been able to negotiate some sort of license with the
U.S. government, although this would have taken months and would
need to be repeated for each new project.

Cate's move also illuminates a bit of the international market for
citizenship. Before renouncing his U.S. citizenship, Cate became a citizen
of Mozambique for a fee of about $5,000. "This makes me an
American-African," he joked.

Cate's current home, Anguilla, requires people to wait 15 years before
applying for citizenship. He moved there in 1994 and has worked to
establish strong ties. In his spare time, he runs a computer club that
places old computers in the island's schools. "The computer club is also
my best source of talent searching," he said. "I have hired three students
right out of high school because I knew them from the computer club."

Edward Betancourt, a lawyer for the U.S. Department of State, said that
the notion that a person could freely choose their citizenship dates back
to the war of 1812, when British warships would often capture
Americans under the argument that they were really British subjects. He
said: "Most people seem to renounce for family reasons. They haven't
lived in the U.S. for some time and they don't want to deal with another
bureaucracy. Whether a person articulates [the decision] to us or not is
up to them. In most instances, people say 'I'm grateful to the U.S. and it's
not done in anger.'"

In 1996, the latest year for which data is available, 612 people lost their
citizenship. This number includes people like Cate who renounced their
citizenship, as well as others who expatriated themselves by serving in
foreign governments. The government requires a lengthy interview, in part
to determine whether people are leaving for tax reasons and to ensure
that the decision is made correctly.

Right now, Cate sees several advantages in his choice. "There's less
chance of getting in any trouble with the U.S. government and there's also
less chance of getting shot by a terrorist," he said, referring to the recent
actions targeting U.S. citizens.

 Copyright 1998 The New York Times Company
-----------------------
NOTE: In accordance with Title 17 U.S.C. section 107, this material is
distributed without profit or payment to those who have expressed a prior
interest in receiving this information for non-profit research and
educational purposes only. For more information go to:
http://www.law.cornell.edu/uscode/17/107.shtml
-----------------------




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-----------------
Robert A. Hettinga <mailto: rah@philodox.com>
Philodox Financial Technology Evangelism <http://www.philodox.com/>
44 Farquhar Street, Boston, MA 02131 USA
"... however it may deserve respect for its usefulness and antiquity,
[predicting the end of the world] has not been found agreeable to
experience." -- Edward Gibbon, 'Decline and Fall of the Roman Empire'