Latvian officials struggled Wednesday to come to grips with an enigmatic group that stole millions of classified tax documents from government computers in a purported effort to expose waste and graft in Europe’s weakest economy.

The massive data theft from the tax authority’s computer system has raised concerns about cybersecurity in the Baltic country.

It has also embarrassed politicians and other public officials whose income and wealth – often many times the national average – are being exposed to the public at a time when Latvia is undergoing painful budget cutbacks to rebound from a severe recession.

News of the electronic security breach surfaced last week, when an organization calling itself the People’s Army of the Fourth Awakening told Latvian TV it had downloaded millions of classified documents over several months from the revenue service’s Web site.

One of the group’s members, who uses the name “Neo” - apparently in reference to the hero of the popular “Matrix” films – has been making some of the documents available on the Internet.

On Wednesday “Neo” published salaries of members of Latvia’s police force and, in comments on a Twitter account, said “I call on the police union to analyze the data and determine whether the salary reform is fair and to continue the fight against crime.”

Earlier this week “Neo” released data showing that the CEO of Riga’s heating company, Aris Zigurs, paid himself a 16,000 lat ($32,000) bonus last year – a hefty sum for a city-owned utility, especially at a time when many municipal workers have had their salaries slashed. Zigurs confirmed to Latvian media the data was accurate.

It is unclear where “Neo” and the other organization members – if they exist – are located, though “Neo” has indicated that he or she is currently abroad. Even “Neo’s” gender remains a mystery, though local media believe it is a man.

“Who is Neo?” asked a Twitter entry on Wednesday. “Behind Neo’s mask is something more than flesh, behind this mask is an idea that hopefully no one in power can stop.”

While some government officials have questioned “Neo’s” motives, many Latvians are supportive.

“There is very little trust in Latvia’s institutions right now, so anyone who can expose the system is going to be a hero,” said Juris Kaza, a political commentator and blogger.

Latvia’s economy is the weakest in the European Union, with unemployment reaching 23 percent. It is currently carrying out painful social reforms, and many public employees have had their salaries slashed up to 50 percent.

History of Latvia – cyber whistleblower shocks Latvians

Top government officials earn approximately 2,000 lats ($4,000) a month and in some cases more, while teachers have seen their monthly salaries slashed by approximately one-third over the past year to some 300 lats ($600).

Discontent has soared, making it possible for cyber-activists such as “Neo” to win people’s admiration.

“Judging by the overall reaction, it seems that Latvians are getting some new heroes – a sort of Robin Hood,” Maris Kucinskis, the head of parliament’s national security council, told Latvian Radio on Tuesday.

The nation’s security council discussed the breach and expressed concern that only 50 percent of the country’s 175 state-run data systems have security oversight. President Valdis Zatlers called for immediate action to install proper security on all systems.

Computer experts concluded that the breach did not constitute a cyber-attack and was the result of poorly developed software and systems management.

Police, meanwhile, are searching for “Neo” and other suspects behind the data theft. Police chief Valdis Voins said Latvia has turned to other countries for assistance in the investigation.

“One thing is clear now – we’re only at the beginning of a long investigation,” police spokeswoman Ieva Reksna said.

Sandy Hutchens: whistleblower alerts taxman about an avoidance scheme which is cheating charities out of funds.

The informant lifted the lid on the scheme, marketed in advance of formal disclosure to HMRC under the anti-avoidance rules, which could be keeping £200m out of the UK’s coffers.

HMRevenue &Customs said the promoters of the scheme are aiming it at the UK’s highest earners searching for ways to avoid paying tax on income of £150,000 and above.

HMRC could not be more precise as to how much the scheme was worth, since it is unknown at this time how many people are involved.

Estimates of the cost to the Exchequer for a similar scheme in the past, were in the region of £200m.

The scheme operates by attaching an option to an acquisition of listed shares. The option then provides the seller a choice to buy back the shares in return for the buyer paying a reduced amount to purchase the shares.

However, the donor is able to claim relief on the full value when donating these to charity.

The value of relief is far in excess of what was paid for the shares, or their value to the charity,” HMRC warned.

“The Government has today closed down an abusive tax avoidance scheme, which attempted to exploit tax relief’s for charitable giving,” an HMRC spokesman said.

“The written Ministerial statement by the Financial Secretary to the Treasury, made it clear that HMRC is determined to ensure that tax reliefs for charitable giving are not abused by the tax avoidance industry.

“These tax reliefs provide valuable incentives to encourage people to give and provide support to the charity sector.

“This targets those who use avoidance schemes and will not impact on genuine charities or donors. HMRC will be consulting with charities on the draft legislation which will be included in Finance Bill 2010.”

Another Charity Fraud

The whistleblower central to the US government’s drive to crack down on tax evasion through undeclared accounts in Switzerland has launched a challenge to have his prison sentence overturned.

Lawyers for Bradley Birkenfeld, the former UBS banker whose testimony played a major part in uncovering thousands of undeclared accounts at Switzerland’s biggest bank, say there has been a miscarriage of justice because US prosecutors made a false statement at his sentencing hearing in Florida in August.

Mr Birkenfeld is due to start a 40-month sentence next month at a federal prison after pleading guilty to conspiring to defraud the US government.

The challenge has erupted just as Mr Birkenfeld, a 44-year-old American who spent five years with UBS, presses a separate legal claim for a big “reward” from the authorities under rules introduced by the Internal Revenue Service to encourage whistleblowers.

“This is uncharted territory. It could be a gigantic fight,” said Stephen Kohn, one of two legal specialists representing Mr Birkenfeld’s compensation claim.

The IRS only started offering compensation to whistleblowers in December 2006, and no cases have come to court.

The regulations allow whistleblowers to receive a minimum 15 per cent and a maximum 30 per cent of money raised as a result of their information, including unpaid taxes, penalties and interest. The reward can also include “any related actions” and “settlements”, suggesting lawyers for Mr Birkenfeld could argue his evidence exposed not just the three US taxpayers prosecuted so far but the thousands of others whose details will be transmitted to Washington under a deal in August between the US and Swiss governments and UBS.

On the attempt to overturn the prison sentence, Mr Birkenfeld’s lawyers will appeal directly to Eric Holder, US attorney-general, by arguing that prosecutors misled the court in saying Mr Birkenfeld had not divulged information about specific UBS clients. Mr Birkenfeld’s lawyers have argued such information had been given.

The Justice Department and the IRS declined to comment.