June 07, 2005

Identity is an asset. Assets mean theft ... and Trade!

This is a good article. It describes what happens when you make a simple number the core of your security system. If you control the number, it becomes valuable. If it becomes valuable then it will either be stolen or traded. Valuable things are assets - which means trade or theft. (See also EC.)

In this case we we see the trade, and this sits nicely alongside the identity theft epidemic in the US: all there because the system made the number the control.

All security is based on assets. Perversely, if you make a number the core of your security system, then it becomes an asset, thus adding one more thing to protect, so you need a security system to secure your security system.

The lesson is simple. Do not make your security depend on a number. Identify what the asset is and protect that. Don't protect stuff that isn't relevent, elsewise you'll find that the costs of protecting might skyrocket, while your asset walks off unprotected.

Some Immigrants Are Offering Social Security Numbers for Rent

Published: June 7, 2005

TLALCHAPA, Mexico - Gerardo Luviano is looking for somebody to rent his Social Security number.

Mr. Luviano, 39, obtained legal residence in the United States almost 20 years ago. But these days, back in Mexico, teaching beekeeping at the local high school in this hot, dusty town in the southwestern part of the country, Mr. Luviano is not using his Social Security number. So he is looking for an illegal immigrant in the United States to use it for him - providing a little cash along the way.

"I've almost managed to contact somebody to lend my number to," Mr. Luviano said. "My brother in California has a friend who has crops and has people that need one."

Mr. Luviano's pending transaction is merely a blip in a shadowy yet vibrant underground market. Virtually undetected by American authorities, operating below the radar in immigrant communities from coast to coast, a secondary trade in identities has emerged straddling both sides of the Mexico-United States border.

"It is seen as a normal thing to do," said Luis Magana, an immigrant-rights activist assisting farm workers in the agriculture-rich San Joaquin Valley of California.

The number of people participating in the illegal deals is impossible to determine accurately. But it is clearly significant, flourishing despite efforts to combat identity fraud.

Hundreds of thousands of immigrants who cross the border from Mexico illegally each year need to procure a legal identity that will allow them to work in the United States. Many legal immigrants, whether living in the United States or back in Mexico, are happy to provide them: as they pad their earnings by letting illegal immigrants work under their name and number, they also enhance their own unemployment and pension benefits. And sometimes they charge for the favor.

Martin Mora, a former migrant to the United States who these days is a local politician preparing to run for a seat in the state legislature in next October's elections, said that in just one town in the Tlalchapa municipality, "of about 1,000 that fixed their papers in the United States there might be 50 that are here and lending their number."

Demand for American identities has blossomed in the cracks between the nation's increasingly unwelcoming immigration laws and businesses' unremitting demand for low-wage labor.

In 1986, when the Immigration Reform and Control Act started penalizing employers who knowingly hired illegal immigrants, most employers started requiring immigrants to provide the paperwork - including a Social Security number - to prove their eligibility to work.

The new law did not stop unauthorized immigrant work. An estimated 10 million illegal immigrants live in the United States today, up from some 4 million before the law went into effect. But it did create a thriving market for fake documents.

These days, most immigrants working unlawfully buy a document combo for $100 to $200 that includes a fake green card and fake Social Security card with a nine-digit number plucked out of thin air. "They'll make it for you right there at the flea market," said David Blanco, an illegal immigrant from Costa Rica who works as an auto mechanic in Stockton, Calif.

This process has one big drawback, however. Each year, Social Security receives millions of W-2 earning statements with names or numbers that do not match its records. Nine million poured in for 2002, many of them just simple mistakes. In response the agency sends hundreds of thousands of letters asking employers to correct the information. These letters can provoke the firing of the offending worker.

Working with a name linked to a number recognized by Social Security - even if it is just borrowed or leased - avoids these pitfalls. "It's the safest way," said Mario Avalos, a Stockton accountant who every year does tax returns for dozens of illegal immigrants. "If you are going to work in a company with strict requirements, you know they won't let you in without good papers."

While renting Social Security numbers makes up a small portion of the overall use of false papers, those with close ties to the immigrant communities say it is increasingly popular. "It used to be that people here offered their number for somebody to work it," said Mr. Mora in Tlalchapa. "Now people over there are asking people here if they can use their number."

Since legal American residents can lose their green cards if they stay outside the country too long, for those who have returned to Mexico it is useful to have somebody working under their identity north of the border.

"There are people who live in Mexico who take $4,000 or $5,000 in unemployment in the off season," said Jorge Eguiluz, a labor contractor working in the fields around Stockton, Calif. "They just lend the number during the season."

The deals also generate cash in other ways. Most identity lending happens within an extended family, or among immigrants from the same hometown. But it is still a hard-nosed transaction. Illegal immigrant workers usually earn so little they are owed an income tax refund at the end of the year. The illegal immigrant "working the number" will usually pay the real owner by sharing the tax

"Sometimes the one who is working doesn't mind giving all the refund, he just wants to work," said Fernando Rosales, who runs a shop preparing income taxes in the immigrant-rich enclave of Huntington Park, Calif. "But others don't, and sometimes they fight over it. We see that all the time. It's the talk of the place during income tax time."

Done skillfully, the underground transactions are virtually undetectable. They do not ring any bells at the Social Security Administration. Nor do they set off alarms at the Internal Revenue Service as long as the person who lends the number keeps track of the W-2's and files the proper income tax returns.

In a written response to questions, the audit office of Social Security's inspector general acknowledged that "as long as the name and S.S.N. on an incoming wage item (i.e., W-2) matches S.S.A.'s record" the agency will not detect any irregularity.

The response noted that the agency had no statistics on the use of Social Security numbers by illegal immigrants. It does not even know how many of the incorrect earnings reports it receives every year come from immigrants working unlawfully, though immigration experts estimate that most do.

Meanwhile, with the Homeland Security Department focused on terrorism threats, it has virtually stopped policing the workplace for run-of-the-mill work violations. Immigration and Customs Enforcement arrested only 450 illegal immigrants in the workplace in 2003, down from 14,000 in 1998.

"We have seen identity fraud," said John Torres, deputy assistant director for investigations. But "I haven't heard of the renting of identities."

Immigrants on both sides of the transactions are understandably reluctant to talk about their participation.

A 49-year-old illegal immigrant from Michoacan who earns $8.16 an hour at a waffle factory in Torrance, Calif., said that she had been using a Social Security number she borrowed from a friend in Mexico since she crossed illegally into the United States 15 years ago. "She hasn't come back in this time," the woman said.

There are risks involved in letting one's identity be used by someone else, though, as Mr. Luviano, the beekeeping instructor, learned through experience.

Mr. Luviano got his green card by a combination of luck and guile. He says he was on a short trip to visit his brother in California when the 1986 immigration law went into effect and the United States offered amnesty to millions of unauthorized workers.

Three million illegal immigrants, 2.3 million of them from Mexico, ultimately received residence papers. Mr. Luviano, who qualified when a farmer wrote a letter avowing he had worked for months in his fields, was one. Once he had his papers, though, he returned to Tlalchapa.

He has entered the United States several times since then, mostly to renew his green card. But in the early 1990's, concerned that long absences could put his green card at risk and spurred by the chance to make a little extra money, he lent his Social Security number to his brother's friend. "I kept almost all the income tax refund," Mr. Luviano said.

Mr. Luviano decided to pull the plug on the arrangement, however, when bills for purchases he had not made started arriving in his name at his brother's address. "You lend your number in good faith and you can get yourself in trouble," he said.

But Mr. Luviano is itching to do it again anyway. He knows that Social Security could provide retirement income down the line. And there's always the tax refund.

"I haven't profited as much as I could from those documents," he said ruefully.

Copyright 2005 The New York Times Company

Posted by iang at June 7, 2005 09:51 AM | TrackBack

It is not only in the US just more exposed. Of course many of the issues have never been revealed here and elsewhere. Identity scenarios differ only mildly in other nations and serve an additional purpose beyond financial transactions. The US system for financial purposes ran along seperate lines than the governmental purpose but they are (like other nations) merging to be more comprehensive and unified.

The new measure that is being launched is that payments made to unauthorized and unqualified entities (as per social security, birth certificate, photo id, and proof of residence) will become a fined event. So all the employers hiring illegal immigrants will now face fines per event.

Banks will recieve a piece for their trouble. The fines will be based on the dollar value of the transaction. So numbers EINs, SS#, Work Visas, and so on will be required for all transactions that require a bank in the US or for any US reporting entity. The IRS along with the banking regulators are crafting this now and will implement it probably in 2007 along with a national id card.

Posted by: Jim at June 7, 2005 11:42 AM

It's not the identity, per se. The transaction is driven by two features: the buyer wants the right to work, and the seller wants the short term tax refund, and the long term SS benefits. The buyer is willing to give up certain rights they aren't able to claim anyway. The seller is "investing" in the buyer's labor by providing the necessary "capital". The social utility analysis requires having a clear idea of the contrapostive: if the seller would otherwise work, and the buyer would not be in the labor market, the SSA's balance sheet doesn't change.

Jim O'Donnel observes on IP that 9 million bad SSN transactions is 6% of the employed. Even if everyone has three earning statements, 2% is still one hell of an error rate.

Posted by: allan at June 7, 2005 02:02 PM

The SSN is a bundle of assets. Each asset has a unique value. You can trade on these values:
- right to work
- tax refund associated with such work
- ability to obtain credit

So the market for SSNs has matured enough to have derivatives.

" A derivative is a risk-shifting agreement, the value of which is derived from the value of an underlying asset. The underlying asset could be a physical commodity, an interest rate, a company’s stock, a stock index, a currency, or virtually any other tradable instrument upon which two parties can agree."

The owner and the purchaser decrease their specific risks, but the owner of the SSN picks up a new set of risks. What do you think?

wrt identity theft, the IRS it has never and should never be a criminal investigative body. Indeed in TransAmerica Insurance v. Long (1970) Mr. Hanzl robbed a bank, paid his IRS agent with the thousands in cash. The IRS marked his debt as paid, kept the cash, and told the bank, essentially, fooey. Mr. Hazl may be a bank robber, but he paid his taxes.

Posted by: Jean Camp at June 8, 2005 03:10 PM

Jean, I would have said that the SSN was a (single) asset that represents a bundle of _rights_. A property, in other words. But this is nitpicking.

The owner of the SSN picks up new risks, but that's the way of things, surely? One thing -- the SSN does not represent a *single* right to work; in fact an SSN can be used many times over. There are some well known issues with a single SSN being used as many as 30 times in the same area. The basic requirement is to have a valid SSN. Beyond that, it seems that there isn't much caring.

Whether and what the IRS should be is obviously a messy issue. My guess is that they want it both ways, so they should be denied both! In terms of their ability to take taxes that are stolen goods, not to have to return them, and not be deemed accessories after the fact, then this puts them above the law. These days, if any other entity in the world were to take stolen monies and declare them as non-returnable, they'd be done for money laundering as well.

(Reputedly, the Dutch have very strong precendences in this issue; criminals are expected to pay their taxes and the info is not available to the police. They also get deductions on their tools of trade .... But the Dutch revenue also play fair, in that if they discover that a person had no right to pay taxes, the taxes collected are all returned.)

Posted by: Taxman at June 8, 2005 05:16 PM

Allan, I don't think it is realistic to call it an "error rate". By all reports it is all quite intended, it is better to think in terms of gray markets for labor. If all the informal workers went home that would be more than the unemployment rate, thus putting the lie to that fantasy that immigrants take jobs. If they take them, they'll be taking them home.

Posted by: Taxman at June 8, 2005 05:20 PM
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