|
August 22, 2005
A Response to the Treasury Dept's
Proclamation of Confiscatory Powers
by Michael J. Kosares
Centennial Precious Metals, Denver
This following commentary was
provided to offer some initial guidance for an investor looking
to form a strategy in consideration of the stark realities of
government confiscation powers recently touted by the U.S. Treasury
Department as put forth by the letter and GATA press release,
both cited in the box below.
Though the threat to gold owners is real, there is a workable,
low-cost strategy available which effectively addresses
1) the problem of government over-reach, and
2) still puts the gold owner in the best possible position to
weather the
storms ahead.
We invite you to read on.
|
Letter from the Treasury Department
August 12, 2005
Mr. Chris Powell
Gold Anti-Trust Action Committee Inc.
Manchester, Connecticut
Dear Mr. Powell:
Your letters to Roberta McInerney,
assistant general counsel
(banking and finance), dated January 20 and July 17, 2005, have
been
forwarded to me for response. I recently became the chief counsel
(foreign assets control).
The U.S. Code provision that
you reference, 12 U.S.C. Sec. 95a, is a
duplicate codification of Section 5 of the Trading with the Enemy
Act of 1917, 50 U.S.C. App. Secs. 1-44 ("TWEA"), with
respect to
which my office bears responsibility for interpreting.
As you may be aware, Congress
enacted TWEA during World War I to
prevent certain transactions that might be of advantage to an
enemy
during wartime. During World War II the Treasury Department
implemented extensive punitive blockings of Axis assets and
protective blockings of Allied assets.
In 1950 the United States imposed
economic sanctions against the
People's Republic of China as a result of the Korean emergency
to
prevent, among other things, Chinese acquisition of foreign exchange
through transactions with Americans. The Department of the
Treasury's Office of Foreign Assets Control ("OFAC")
began enforcing
foreign asset control programs in the 1950s. Today the only economic
sanctions programs administered by OFAC under TWEA are with respect
to Cuba, North Korea, and certain third-country transfers of
sensitive materials.
You have asked how the Treasury
Department construes the term "the
time of war," which appears in section 5 (b) (1) of TWEA.
Although
TWEA does not include a definition of the term "during the
time of
war," it does include definitions for the terms "the
beginning of
the war" and "end of the war." The words "the
beginning of the war"
are deemed to mean "midnight ending the day on which Congress
has
declared or shall declare war or the existence of a state of
war."
The words "end of the war" are deemed to mean "the
date of
proclamation of exchange of ratifications of the treaty of peace,
unless the president shall, by proclamation, declare a prior
date."
Thus the phrase "during
the time of war" would seem to cover the
period between "the beginning of the war" and the "end
of the war."
Since this period cannot come
into existence without some form of
congressional declaration, it would appear that TWEA -- with
the
exception of its present applicability to the Cuba, North Korea,
and
transaction control programs referenced above* -- applies only
to
situations involving a declared state of war. In exercising any
of
the specific powers available to him under TWEA during the time
of
war, the president would issue an executive order or other similar
instrument generally made available through publication in the
Federal Register.
(* -- From the early 1930s
until 1977, when the International
Emergency Economic Powers Act was enacted, TWEA applied not only
in
times of war but also in situations in which the president declared
a peacetime national emergency. Pre-existing emergencies declared
with respect to Cuba and North Korea and certain transaction
controls were grandfathered, which explains why TWEA still serves
as
the basis for those sanctions programs, even though the United
States is presently not in a state of war with respect to any
of the
affected countries.)
The construction of the term
"hoarding," as used in section 5(b)(1)
of TWEA, would depend on how the president chooses to exercise
his
authority with respect to hoarding in any particular instance.
In making any decisions under
the authorities conferred by TWEA, the
president would, of course, be taking steps to address threats
to
our national security during a time of war. In the past, the
president has used TWEA or TWEA-like authorities to criminalize
hoarding. See generally Bauer v. United States, 244 F.2d 794
(9th
Cir. 1957). Today, however, such activity is not restricted under
the only sanctions programs in effect pursuant to TWEA -- i.e.,
the
Cuba, North Korea, and transactions-control programs.
If, during a time of war, the
president expressly chose to restrict
the hoarding of gold or silver, he could do so.
Among the many factors the
president would likely consider before
taking such action, however, is the fact that the U.S. Government
now mints and issues gold and silver coins to meet public demand
for
both numismatic and investment purposes.
(See 31 U.S.C. § 5112(a)(7)-(10)
& (e)-(i).)
You also have asked about the
president's ability to "interfere with
the ownership of shares in gold and silver mining companies merely
because shares of such companies also might be owned by foreign
nationals or foreign governments, at war with the United States
or
not."
Under TWEA during times of
war -- and also under the International
Emergency Economic Powers Act, 50 U.S.C. Secs. 1701-05 ("IEEPA")
during peacetime national emergencies -- the president has broad
powers to regulate property in which there exists a foreign
interest. See TWEA § 5(b)(1)(B); IEEPA Secs. 1702 (a) (1)
(B).
Consequently, the president
may restrict shares in any company owned
by foreign persons consistent with the purposes of any declared
emergency.
In this respect, foreign-owned
shares in gold and silver mining
companies are no different from foreign-owned shares in companies
in
any other industry.
Finally, you raise concerns
about the "instant destruction of gold
and silver investors and the precious metals mining industry
in the
United States." In the establishment and implementation
of
sanctions, the U.S. Government is always mindful of the domestic
impact of restrictions meant to serve national security and foreign
policy purposes. Just as the U.S. Government has been mindful
of the
practical impact that sanctions have on various service and
manufacturing industries, it would also be mindful of the potential
impact of sanctions with respect to the markets and industries
associated with precious metals.
I hope you find this letter
instructive. Thank you for your
interest. If I can be of any further assistance, please call
me.
Sincerely,
Sean M. Thornton
Chief Counsel (Foreign Assets Control)
U.S. Department of the Treasury
Washington, D.C. 20220
PRESS RELEASE: Treasury Department
Claims Power to Seize
Gold, Silver -- and Everything Else, GATA Says
GATA Press Release via Business Wire
Monday August 22, 2005
The U.S. Government has the authority to prohibit the private
possession of gold and silver coin and bullion by U.S. citizens
during wartime, and, during wartime and declared emergencies,
to freeze their ownership of shares of mining companies, the
Treasury Department has told the Gold Anti-Trust Action Committee.
But gold and silver owners aren't alone in such jeopardy. For
the U.S. Government claims the authority in declared emergencies
to seize or freeze just about everything else that might be considered
a financial instrument.
The Treasury Department's assertions came in a letter to GATA
dated August 12 and written by Sean M. Thornton, chief counsel
for the department's Office of Foreign Assets Control, who replied
to questions GATA posed to the department in January. It took
GATA six months and some prodding to get answers from the Treasury,
but the Treasury's reply, when it came, was remarkably comprehensive
and candid.
The government's authority to interfere with the ownership of
gold, silver, and mining shares arises, Thornton wrote, from
the Trading With the Enemy Act, which became law in 1917 during
World War I and applies during declared wars, and from 1977's
International Emergency Economic Powers Act, which can be applied
without declared wars.
While the Trading With the Enemy Act authorizes the government
to interfere with the ownership of gold and silver particularly,
it also applies to all forms of currency and all securities.
So the Treasury official stressed in his letter to GATA that
the act could be applied not just to shares of gold and silver
mining companies but to the shares of all companies in which
there is a foreign ownership interest.
Further, there is no requirement in the law that the targets
of the government's interference must have some connection to
the declared enemies of the United States, nor even some connection
to foreign ownership. Anything that can be construed as a financial
instrument, no matter how innocently it has been used, is subject
to seizure under the Trading With the Enemy Act and the International
Emergency Economic Powers Act.
Having just gone through a controversy about a Supreme Court
decision about government's power of eminent domain, most Americans
may be surprised to learn that the Trading With the Enemy Act
and the International Emergency Economic Powers Act could expropriate
them instantly and far more broadly without any of the due process
extended to parties in eminent domain cases. All that is needed
is a presidential proclamation of an emergency of some kind --
and of course Americans lately have been living in a state of
perpetual emergency.
When the Trading With the Enemy Act was passed in 1917, gold
and silver formed part of the official currency of the United
States and were essential to ordinary commerce, so perhaps an
argument could be made then against "hoarding," even
if "hoarding" could not be well defined. That is no
longer the case; the United States has officially disavowed gold
and silver as money and they no longer have a meaningful role
in commerce. (GATA is working on that.) So gold and silver investors
may want to ask their members of Congress to seek repeal of the
statutes that give the government the authority to interfere
with the private ownership of gold and silver, emergencies or
not.
And ordinary citizens with no particular interest in gold and
silver may want to ask their members of Congress to reconsider
these statutes simply for being wildly tyrannical.
GATA's correspondence with
the Treasury Department is posted on the Internet here:
http://groups.yahoo.com/group/gata/message/3276
|
Long-time respected gold
expert and author, Michael Kosares, offers the following perspectives:
That the government retains the power to confiscate gold has
been well-known to clients of this firm for some time. Gold ownership
in the United States is a privilege, not a right, and as distasteful
as that might seem, confiscation is a potential reality, like
it or not, that all prudent gold owners should incorporate into
their thinking.
But lest any of us should lose
hope, I hasten to point out that there is a way anyone who wishes
to own gold can implement an effective, low-cost, low-profile
strategy within the current rules of the game that greatly elevates
the chances of surviving a potential gold confiscation. That
strategy involves the ownership of pre-1933 gold coins -- an
area of the gold market previously recognized by presidential
executive order and government regulations as historical collectors'
items and thus defined and treated differently than gold bullion.
THE "NORMAL" CONSTITUTION
VERSUS THE "CRISIS" CONSTITUTION
Before we outline the reasoning
and prededent which we believe protects this type of gold ownership
from confiscation, some historical background is in order.
Most of us who own gold do
so for asset preservation purposes in the event of a financial
or economic crash. I would estimate that a good 75 percent of
the physical gold owned in the United States is held for this
purpose. A confiscation, if there is one, will not come when
the economy is humming along on all cylinders. It won't even
come when the economy is bad. It will most likely come when the
economy is horrible; when the gold owner most needs his or her
gold -- in the early phases of a major currency and/or financial
collapse; when investors are fleeing the banking system and Wall
Street, looking for a safe haven for their money. In other words,
it will come during a national economic emergency.
In an article for Reason magazine dated October
17th, 2001, conservative economist Robert Higgs differentiates
between what he calls the "Normal Constitution" and
the "Crisis Constitution" -- the crisis constitution
being the one applied under "emergency conditions."
Dr. Riggs is well-known for his rigorous scholarship in this
area of the economy and the law.
In that article titled "In
the Name of Emergency" he makes reference to the gold confiscation
of the early 1930s:
The Great Depression, which
Justice Louis Brandeis called 'an emergency more serious than
war,' prompted a welter of actions by government at all levels.
In 1932-45, 25 states enacted a moratorium on mortgage foreclosures.
Such laws appeared to be unambiguous impairments of the obligation
of contract and therefore in clear violation of the U.S. Constitution.
But when Minnesota's moratorium law came before the Supreme Court,
the majority pronounced this self-declared emergency legislation
as a valid exercise of the state's police powers...
Also in the depths of the Great
Depression the federal government abandoned the gold standard,
nationalized the monetary gold stock, and abrogated the gold
clauses of all contracts, public and private, past and future.
This 'act of absolute bad faith' astonished even some members
of Congress. Senator Thomas P. Gore declared it 'just plain stealing.'
But the Supreme Court held
that 'if the gold clauses ... interfere with the policy of the
Congress in the exercise of the [monetary] authority they cannot
stand.' The Court argued that 'contracts, however express, cannot
fetter the constitutional authority of Congress.' The outcome:
thousands, perhaps millions, of parties to contracts containing
gold clauses, including the many holders of U.S. government bonds
stipulating payment in gold, were deprived of property rights,
victimized by their own government.
Later, he says,
When the Court ruled on the
gold-clause cases, early in 1935, it faced -- as it often does
in cases involving public policies with pervasive impacts --
an executive fait accompli. Was the Court to say that the government
must return gold coins and certificates to millions of citizens
who had surrendered them and that all those who had paid legal
tender instead of gold must turn around and pay the gold as initially
stipulated in their contracts? The far-reaching economic consequences
of such a ruling must have given the justices pause. (So disastrous
did the president consider an adverse ruling on the gold clause
that, in anticipation, he prepared a radio address announcing
that he would not enforce it.)
Beyond the utter confusion
of the marketplace lay the disruption of the administration's
monetary policy, now almost two years old. The attorney general's
argument before the Court emphasized the doctrine of emergency
powers and the gravity of the prevailing depression crisis; the
'power of self-preservation,' he declared, required transcending
the 'supposed sanctity and inviolability of contractual obligations.'
Again, given the prevailing economic and political conditions,
the remarkable aspect of the decision is that four justices dissented
-- Justice James McReynolds read their objections with muttered
asides that 'the Constitution is gone' and 'this is Nero at his
worst.'
He concludes,
"In the 1970s, the National
Emergencies Act (1976) and the International Emergency Economic
Powers Act (1977) imposed new procedural requirements but did
little to detract from the substance of presidential emergency
powers, which continue to be employed routinely. Recent Supreme
Court rulings have sustained a wide scope for the exercise of
these powers."
And,
"Effective protection
of private rights against future government invasion under color
of emergency is unlikely. The experience of the past decade has
shown that the procedural safeguards stipulated in the National
Emergencies Act have no real effect. In any event, the problem
is not procedure; it is substance-and the abuse of substantive
powers."
In a recent letter to the Gold
Anti-Trust Action Committee (GATA), the Treasury Department's
chief counsel for the Office of Foreign Assets Control affirms
the president's broad authority to act in financial markets under
emergency conditions. Surprisingly he informs us that under the
law the confiscation option is alive and well at the Treasury
Department, based on the same national emergency protocols (1917
Trading With the Enemy Act) employed when the Roosevelt administration
closed the banks and confiscated gold in 1933. He then takes
the logic a step further by citing the the International Emergency
Economic Powers Act (1976), referenced in the above quote from
Higgs, which gives the president under a declared "emergency"
wide-ranging power to regulate financial assets and property
for the most part as he sees fit.
For years, we have warned about
this interpretation of presidential powers and the potential
for a future gold confiscation as a result. The Treasury counsel
letter to GATA in some respects is confirmation that these concerns
were not misplaced and should be viewed by gold owners as a wake-up
call.
HOW YOU CAN SURVIVE A POTENTIAL
GOLD CONFISCATION
The most comprehensive, educative,
and reliable work done on gold confiscation was compiled by George
Cooper, an attorney and client representative at USAGold-Centennial
Precious Metals. I played a role in this study as co-author/content
editor and by advising on the structure of the monograph, but
the legal research was largely developed by Cooper, who has sustained
a long-time interest in constitutional issues as they relate
to finance and economics.
For the most part, Cooper picks
up where Ayn Rand's attorney, Henry Mark Holzer, left off on
this issue in the early 1980s. Holtzer's original research was
published under the title "How Americans Lost Their Right
to Own Gold and Became Criminals in the Process." Holtzer's
work was forwarded to me many years ago by the widely-respected
Elizabeth Currier of the Committee for Monetary Research and
Education.
In the monograph "How
You Can Survive a Potential Gold Confiscation," Cooper republishes
Holzer's original legal chronology and then brings it current.
James Turk and John Rubino recommend this monograph in their
important recent book, "The Coming Collapse of the Dollar
and How to Profit from It."
Like Holzer, Cooper does not deny the government's ability to
confiscate gold, nor does he sanction it. Instead, he confronts
the legal issues and then outlines a course of action that puts
the gold owner in the most favorable position should the government
decide to curb gold ownership as a portfolio alternative.
The "confiscation memo", as we refer to it, was first
published in 2000. It has served as a guiding light for a large
number of sophisticated investors -- so much so that pre-1933
gold coin ownership, the recommended course of action against
confiscation, has become the primary business of USAGold-Centennial
Precious Metals.
There is no perfect, all-encompassing solution to the potential
problem of confiscation, and pre-1933 gold coin ownership is
not a magic bullet. But of all the alternatives, it is the one,
in our opinion, with the best chance of seeing people through
a potential confiscation.
There is long precedent -- first established in 1933 and going
forward from there -- favoring these coins as collectors' items.
They were in fact "re-legalized" by executive order
after the gold confiscation in 1933. That executive order was
a result of the government recognizing the cumbersome problem
of assessing individual gold coins at fair-market value. Few
people know that gold ownership was completely legal in the United
States between 1933 and 1975, the year gold bullion was
re-legalized. Specifically, gold ownership was legal in the form
of pre-1933 gold coins.
Holzer makes reference to the monetary crisis that began in the
late 1960s, when gold bullion ownership was still illegal
in the United States, as a time when pre-1933 European gold coins
skyrocketed in value.
"In May 1968," he points out, "the German 20-mark
piece had been selling at a 75 percent premium. In May 1971 the
premium was 175 percent."
The German 20-mark gold coin (.2304 net fine ounces) is well
known to USAGold clientele. (Interestingly, the premium on that
particular coin has risen about 5 percent in recent weeks.) I
would add that the German 20-mark gold coin was not the only
pre-1933 gold coin that appreciated markedly during the last
full-blown monetary crisis. Most other items in this genre experienced
rapid premium growth as well. At present, many pre-1933 gold
coins can be acquired at minimal premiums over the gold content.
The original confiscation executive order was issued by President
Franklin Delano Roosevelt as one of his initial acts as president
to turn around the Great Depression. The order went hand-in-hand
with the closing of the national banks (also directed by executive
order). Roosevelt derived the authority for this action under
the Trading with the Enemy Act. Roosevelt in essence declared
a national emergency and used that as legal leverage to confiscate
gold. All of this is covered in detail in the "confiscation
memo".
THE CONDITIONS UNDER WHICH
AN EMERGENCY MIGHT BE DECLARED
I believe that any future confiscation
will be preceded by a banking and international monetary crisis.
It will come as a means to keep the public from fleeing the currency
and banking system for gold. If there is no monetary crisis,
it is unlikely that there will be any gold confiscation.
Gold confiscation will not occur "because the government
needs the money," as many have proffered over the years,
but to eliminate gold as an avenue of escape. Once you incorporate
that concept into your thinking, you understand why a government
might confiscate gold. It boils down to politicians acting in
what they believe to be a reasonable and responsible fashion
when faced with a breakdown of the financial system.
If Roosevelt were questioned today on gold's quarantine in 1933,
he would most likely justify his actions as "in the public
interest" and "for the greater good" of all the
American people. That, in a nutshell, is why the privilege to
own gold has not become a right.
In the face of far-reaching government confiscatory power over
property and financial contracts, the investor need not throw
in the towel in pursuing his best interest. With respect to gold
specifically, there is an alternative -- a reasonable course
of action that will put gold owners in the best position to weather
potential government action. That course of action involves the
ownership of pre-1933 gold coins.
Confiscation is a controversial subject to which many would just
as soon turn a deaf ear. But, in my view, the better course of
action would be to become fully informed on the subject, form
your own opinion, and act accordingly. As George Cooper says
eloquently and succinctly, "Don't get mad; get even."
"How You Can Survive a Potential Gold Confiscation"
is available as part of USAGold's free online introductory information
packet here:
http://www.usagold.com/order_form.html
A companion booket, Collecting
Historic European Gold Coins for Fun, Profit and Asset Preservation,
is also available free of charge for a limited time. Contact
admin@usagold.com or phone 1-800-869-5115, Ext. 106. Available
in hard copy only.
For personal consultation I
recommend contacting our Trading Desk at 1-800-869-5115, Ext.
100. Ask to speak with one of our representatives -- all
knowledgeable in pre-1933 gold coins. Those now holding bullion
gold coins might under the circumstances consider a trade --
a course for which we have provided guidance and utility for
a number of years.
Please Note: The foregoing commentary is meant
to further the discussion of the issues and not to be taken as
legal advice. For that we recommend that you consult with an
attorney. As stated above, owning pre-1933 gold coins is not
a fool-proof strategy. In other words, nobody can guarantee that
they would be automatically exempted from a future confiscation
measure. We simply believe it is the best strategy available
for those concerned with the potential for gold confiscation
for the reasons stated briefly above and more comprehensively
in How You Can Survive a Potential Gold Confiscation.
|
