WHAT DO THEY MEAN BY “OFFSHORE?”
Very simple. An “offshore” bank, trust, corporation, or other business entity is one that is located outside the country of residence of the depositor.
What is the reason for anyone to “go offshore” with their assets?
There are several good reasons to get your assets out of your country (before your country gets your assets out of you).
For example:
- INSULATION AGAINST PERSONAL LIABILITY AND IMMUNITY FROM LAWSUITS.
Anyone who has no visible assets is an unattractive target.
- ASSET PROTECTION & JUDGMENT PROOFING
Even if there is a judgment against you, it usually can’t easily be collected from a foreign legal entity.
- PRIVACY
Nobody can find out what you own, where it is, or what you do to earn it. The USA is one of the world’s best offshore HQs, but only for non-USA citizens and non-USA residents.
- EASY ACCESS
The ability to move, withdraw, and/or conceal assets wherever you are in the world.
- AVOIDING CONFISCATION AND REGULATION
“Offshore” offers protection against local political or financial instability. Many governments will freeze the assets of residents or citizens if a lawsuit is filed against them or even on vague “suspicion.” Other countries have governments that, when in need of funds, simply confiscate all private bank accounts. Mexico and Russia among many others have done this to private accounts in recent years.
- LOW OR NO TAXATION
Many jurisdictions like Ireland (and Nevada, Wyoming, and Delaware within the USA) are known as “Tax Havens.” They make their money from incorporation and other low fees –not taxes. Offshore marketing corporations for instance may pay zero or low income and sales taxes.
WARNING: Unless you like Russian Roulette, be aware that for USA citizens/residents, failure to report and pay taxes on profits from offshore corporations is a major felony crime. Big Brother currently gives catching and prosecuting tax evasion similar priority to catching terrorists and drug lords. Murderers are far less important.
If you don’t like it, “write your congressman!” Hah hah. It won’t make any difference but it might make you feel you are doing something. If you don’t want to pay taxes, the only really effective thing to do is to move your ass AND your assets out of the jurisdiction. Many countries have no income taxes.
We can understand if you reject that solution (moving yourself offshore) as being too drastic. Thus we propose half-measures. But know this: If you live in a Big Brother country, we urge you to avoid conflicts and confrontations of any kind. Keep your mouth shut. Don’t join any protest movements of any kind. Stay below the radar. Don’t own any attention-getting assets like planes or expensive cars. Forget that you live in a “free country.”
The only reason you are not in jail is that neither the government nor a contingent fee plaintiff lawyer has seen fit to go after you – yet!
CHAPTER 1
WHAT DO THEY MEAN BY OFFSHORE?
The terms ‘offshore’ is said to have been first used to describe the English Channel Islands of Jersey, Guernsey, Herm, Alderney and Sark. These “offshore” islands have always had a different and less burdensome tax system than that of Great Britain proper.
During the dark days of post WW2 socialism in the United Kingdom (the 1960s and 1970s) when income tax marginal rates reached 98% and exchange controls were strictly enforced, the Channel Islands grew a booming business. Bank deposits offshore were a loophole for Brits seeking to escape the grip of their “Inland Revenue.”
Whilst the super rich had always looked to Switzerland or Liechtenstein, the Channel Islands provided a convenient, close, English-speaking alternative for overtaxed middle class Brits looking to move more modest wealth “offshore.” Offshore trusts were used to legally escape income taxes.
Still today, many offshore banks are located on islands. You have doubtless heard of Hong Kong, Singapore, Cook Islands, Cayman Islands and the British Virgin Islands in an offshore banking context.
But the term “Offshore” is also used to refer simply to “foreign” banks -regardless of location. Switzerland, for example, enshrined privacy in its 1934 Banking Act. Switzerland is one of many landlocked banking havens (others being Andorra, Emirates, Liechtenstein, Luxembourg, and San Marino for example). These places are also referred to as ‘offshore.’
Despite negative publicity, even today offshore banking havens will respect your confidentiality. Offshore banks may report some type of income to tax authorities, but what they report and what they won’t report are known or easily ascertainable. In most offshore jurisdictions, bank officers would face jail time if they leaked any information on their account holders. Fishing expeditions seeking names of “all” customers are forbidden.
But beware! If specific names and account numbers are known to Big Brother, or even private attorneys, they can usually get further information and attach or even seize assets.
Terrorist attacks on the Twin Towers in 2001, and more recently the global financial crisis of 2008-2010, have resulted in calls from high tax countries for ‘transparency’ in offshore banking havens. Defenders of offshore banking, however, claim the negative publicity is prompted, not by security and financial concerns, but by the desire of domestic banks and tax agencies to grab their citizen’s money held in offshore accounts.
During the 1980s and the 1990s, dozens of Caribbean island nations renounced their status as colonies and broke away from Britain. On becoming independent sovereign nation-states, they, too, saw financial services as a way to generate income. Within easy reach of North America, they focused more on the US and Canadian markets, offering “no questions asked” banking services for those wishing to hide cash.
We’ve all seen the 1970-1980 era movies about millions of “tainted dollars” in cash moving to brass plate banks in the Caribbean. Thence, being transferred to other places to finance such serious crimes as video piracy! (Being sarcastic, of course!) The inevitable response of Big Brother was money laundering laws and the aggressive pursuit of those with offshore accounts – by fair means or foul.
OFFSHORE TAX HAVENS – HOTBEDS OF CRIME, OR CRADLES OF INNOVATION AND ENTREPRENEURIALISM?
Leftist or populist politicians (think Obama!) have tarred and feathered all offshore centres. They are painted black with the brush of money-laundering, organized crime and tax evasion.
The mainstream media would certainly have you believe that only terrorists, drug dealers, white slave traders and corrupt politicians use offshore banks! The reality, of course, is that these bad guys own or control banks often in Big Brother countries!
Most money laundering, in fact, goes on in places like London and New York. It’s logical when you think about it, that drug money laundering takes place where drugs are consumed because – well – that’s where the money is!
There will be rotten apples in any basket (especially if the basket is big enough), but 99% of all business transacted through offshore banks is in our experience, legitimate. The banks need to keep their reputations squeaky clean. Thus, tax haven countries (with a few exceptions) have much more effective systems to detect and prevent financial crime and money-laundering than the big, powerful nations who are constantly pointing fingers!
Offshore banks today are generally prosperous and well regulated international financial centres. Besides that, they contribute in a meaningful and beneficial way to oiling the works of global commerce.
For instance? USA banks and Insurance companies can legally own captive companies who make tax free profits legally by going offshore. If they had to pay high domestic taxes, and abide by union rules, they simply could not compete with foreign companies in the same businesses. The entire business would be lost, just because of the government trying to charge taxes. So going offshore actually lets these companies preserve jobs and stimulate growth in the USA.
High USA taxes and complex labour rules are one of several factors that have driven the USA auto industry and construction industries into bankruptcy. Germany has
similar rules and like in the USA these have forced many productive individuals and indeed whole industries to move most operations to other countries.
Today most offshore centres prefer to be known as International Financial Centres, avoiding the “offshore” or “tax haven” appellations which they believe have negative connotations. But Big Brother doesn’t care what they call themselves. He wants their customers to desert them. Yes, Uncle Sam wants them dead!
LOCAL BANK SERVICES COMPARED WITH OFFSHORE
There are other reasons that local banking today in places like the USA and the UK are a disaster: in terms of customer services, banking clients with questions or complaints today may have to contend with call centre employees in India or the Philippines!
And with over eighty banks and brokers in the USA having collapsed in 2009 alone, the myth that banking at home is “safer” has been exploded.
TAX AVOIDANCE, TAX EVASION, AND THE BASIC HUMAN RIGHT OF PRIVACY
Offshore jurisdictions have in the past offered attractive instruments, structures or opportunities for personal financial privacy, asset protection and tax avoidance. Tax avoidance is downplayed these days.
The draconian penalties have worked – tax evasion is often a minor factor today in people’s decisions to go offshore. Yet, ironically – by treaty, and for other reasons – completely legal tax avoidance is still possible if you are prepared to look behind the negative hype! In my series Bye Bye Big Brother we give you a detailed blueprint to legally reduce or even eliminate taxes!
The popular media simply reprints government handouts to the effect that offshore banks facilitate “tax avoidance” or “tax evasion”. They go on as if it was the same thing. But you must understand that there is a big difference.
Tax avoidance is legal, while tax evasion is a crime. Basically, tax avoidance is structuring ones’ business affairs in such a way that minimum possible amount of tax is payable, without breaking the law.
In a famous USA Supreme Court judgement Judge Learned Hand wrote what is still the law today: "Any one may so arrange his affairs that his taxes shall be as low as possible; he is not bound to choose that pattern which will best pay the Treasury; there is not even a patriotic duty to increase one's taxes… " Gregory v. Helvering, 69 F.2d 809, 810-11 (2d Cir. 1934).
So if you are concerned about protecting assets, legally cutting taxes, and safeguarding your right to privacy... offshore is still very much an option to be explored. Maybe you have nothing to hide, but you have no reason to broadcast your financial affairs in public either!
An account in Big Brother Land is about as private as your profile on Facebook or Twitter. Yet often your offshore arrangements can be fully reported to your local tax collector and you still get substantial tax benefits.
THE MISTAKES MADE BY TAX EVADERS
People who followed our advice back in the nineties, and continued to monitor their offshore accounts on an ongoing basis, will be sleeping soundly tonight and every night… simply because they kept their personal offshore banking affairs within the realms of reason and law. They didn’t make the foolish mistakes that the accused ‘tax evaders’ did.
The most important rule: Never discuss your offshore affairs with anyone in your home country. The recent big troubles of UBS, for example, are due to the fact that they seem to have actually sent representatives into the USA to conspire and talk “tax evasion” with 52,000 customers. It was only a matter of time until a sting operation or an informant blew the whistle.
The bank rep was arrested, and facing a jail term he gave up the 250 or so American customers in his address book. This lead to a big fine for UBS and further pressure on UBS to give up all their American customers. A compromise deal was reached in August 2009 to settle the case. UBS will give up “selected” names. In reality, the situation is no different than it was 10 years ago when we wrote the story of “Nevada White.” (see The Invisible Investor by Grandpa and Others)
The more people (think domestic lawyers, accountants and bankers) who know your affairs, the more likely it is that you will have trouble. You may be as innocent as an angel, but you will be Bar-B-Q if these people have any problems of their own, that they can solve by giving Big Brother another fish to fry.
To avoid sleepless nights wondering if and when your tax frauds will be revealed to the IRS, all you need to do is to stay within the law and report things properly. The psychological pressure on many of the 52,000 clients and the thousands of other customers of other banks was made very heavy by the barrage of publicity. Many have decided to “fess up” pay the fines, and face the consequences.
Here, for example is a recent headline from that bastion of the wealthy—the Wall Street Journal:
“OFFSHORE TAX EVADERS DESERVE NO SYMPATHY!”
Yes! That’s an actual header from a Wall Street Journal article published July 2009. The writer, one James B. Stewart, compares those bad, secret offshore banks with the “good” U.S.A. banks: He says: “[USA banks] don’t offer ironclad secrecy in the face of a legitimate, court-sanctioned subpoena. [This] means [the USA] doesn’t lend itself to tax evasion.”
Stewart can’t think of even one tiny reason that any patriotic American should have assets abroad.
We wonder what dream world James B. Stewart lives in. The truth is that USA banks protect millions of foreigners with bank secrecy, but they offer no confidentiality and little or no protection against theft or frivolous lawsuits to Americans. Under the PATRIOT Act, any plaintiff lawyer, or teen-age punk who works for the IRS can – with a simple form – sniff into or “freeze and seize” any stateside bank account of any amount for any reason – without any court orders or hearings!
Anybody, and that means any private citizen or corporation, with any claim, no matter how far-fetched, can easily get a temporary ex-parte (one sided without any opportunity to defend!) injunction to freeze any USA bank account. Then, it may be years and thousands in legal fees until it can be unfrozen.
Anyone (think private investigator) can get info on your accounts from an American bank by just asking or using simple subterfuges. Any identity thief can empty a USA bank account pretty easily. There exist industrial scale web-hacking operations in places like Ukraine, Nigeria and Indonesia dedicated to doing just that to American depositors.
In fact, anyone seeking information on your bank account doesn’t even need to go to your bank. Credit bureaus are a huge repository of financial and other information, all conveniently indexed by ‘social security’ number. They may show the existence and balances of your bank accounts. Anyone can run a credit check online instantly on anyone who banks in the American system.
A credit card company can grab essentially as much from your bank accounts as they claim is due, without any hearings, court orders, or anybody stopping them.
Any onshore bank can call any slightly unusual or irregular transaction “suspicious” That alone will possibly trigger a seizure of that account.
Yet Stewart of the Wall Street Journal can’t think of any reason why you shouldn’t have absolute confidence in USA banks. Wow!
The only solution to any American’s quest for privacy or security is NOT to EVER use any USA bank except for anything other automated bill paying with ”pin money.”
The bottom line is that serious banking, credit and identity security doesn’t exist in the USA. Period. Of course anyone with half a brain and substantial assets should try to get some additional protection by keeping some assets parked “offshore” – not subject to theft and arbitrary seizure. Saving on income taxes often has little to do with a legitimate desire for safety and privacy.
THE GLOBAL CONFISCATORY CONCERTO
The USA is by no means the only unsafe place for banking by its own citizens. Wherever Uncle Sam leads, the UK, Australia and Canada follow. Some countries like Germany, Russia, Sweden, Spain, Mexico and Norway are also good at regularly prying away private assets and spying on their citizens’ finances.
But in America, the media’s Confiscatory Concerto plays on and on. Any publicly identified individual who chooses to opt out of the system is portrayed as a heretic, a traitor, and an unpatriotic leech living off the back of the hard working American workers. Sure!
The truth, as you well know dear reader, is otherwise. Too many of the “people” are unproductive leeches – supported only by “transfer payments” from the state. In fact, well over 50% of the U.S.A. population lives on federally or state issued checks. This means that over half the population either works for the state directly or is a parasite on the public teat.
The upper 10% of the population pays two-thirds of all taxes. What would happen if they all moved offshore? This is what actually happened in places like Sweden. All the rich Swedes moved to London. Without the North Sea Oil owned by the state, Sweden would be a failed state by now.
Who don’t we need? Maybe politicians on exorbitant pensions. Maybe public sector employees who (figuratively speaking) lean on shovels all day and pretend to be working.
OFFSHORE SAFE HAVENS
A lot of offshore investments used to come from countries where persecution or political turmoil and civil strife threatened the wealth of productive people. For example, Miami became a major regional financial centre. It offered the security, safety and stability of the United States of America to businessmen and wealthy families from Latin America at a time when the region was characterized by devaluations, rampant corruption, ruthless military dictatorships, and the likes of Che Guevara!
Today, the tables are turned. We see many Americans seeking a safe haven for their money outside the USA. Some individuals see the USA economy imploding and the dollar losing its value. Whatever the future may hold, one good thing to come out of the financial crisis, is that more Americans have started thinking ‘what if?’ These days a flood of productive people are making reasonable and sensible precautions to have “packed suitcase” assets abroad, and the right paperwork to be able to make a getaway.
I’ve always recommended to my clients that they become aware of the PT path, fully explained in Bye Bye Big Brother, and have it in reserve. Jews in Nazi Germany who made these sorts of arrangements prior to 1940 avoided the Holocaust. After 1940 it was too late. We don’t know the cut off date for escaping from America. Hopefully
that date will NEVER come. But if there is even a 1% chance of despotism in America, we feel it is worthwhile insurance to be able to follow the ideas you’ll read about in Bye Bye Big Brother.
CHAPTER 2
FOLLOW THE SMART MONEY
In a global economy, you need global expertise. Until you get the smarts and the contacts you need, where do you find it?
Smart money doesn’t depend on the economy of just one country or indeed one currency. Offshore havens like Singapore or Switzerland – neutral countries with very conservative economies – can offer diversification, safety and security.
Swiss banks for instance, simply don’t collapse. They are absorbed by stronger banks. Dozens of bank collapses in the USA have left many depositors hoping for reimbursement from the FDIC. They didn’t know that only smaller accounts are fully insured. The same is true of stock-broker failures. Smaller account holders are going to get some money. But these days, the insured or reimbursable amounts are not enough to buy a quality house.
We’re not saying that you will “definitely” lose money in major western banks or dollars, but we are only being prudent in suggesting diversified investments in other places. We won’t get into predictions, but there is without doubt, a high risk that the USA dollar will soon be worth less than half of what it is worth today.
OFFSHORE EXPERTISE – AND ELITE SWISS AND EUROPEAN PRIVATE BANKS
Would you prefer to buy a watch made in China, the US or Switzerland? Without any research, you would probably go for a Swiss made watch because of their worldwide reputation. But if you were knowledgeable, you might know of some Chinese made watches that offer better value than their Swiss counterparts.
And if you were a real insider, you might find out that some of the best “Swiss” watches are made of Chinese parts. USA products are not even in the same ballpark any more.
The same applies to banking – something else the Swiss have been good at for centuries. Switzerland and London are much more international in their outlook than New York or Paris. The service is simply better – and way more sophisticated.
To correctly visualize the places where serious money and assets are discreetly managed, consider this: All the money managed in the Riviera and Monaco’s glitzy banks, is far less than what is managed in one small obscure town in southern Switzerland called Chiasso. And all the money managed in Chiasso is a mere speck compared to the assets run from Zurich. Switzerland still is the country for private banking. It is the place where the ultra rich have their secret accounts. But what is rich? And how secret is secret? Today the ground rules are more flexible than ever…
There are more than 400 different banks in Switzerland. That is banks, not branches. The bigger banks have hundreds of branches.
Every single bank tries to specialize in something to differentiate themselves from the crowd. One may have a fine art department to finance, bid on, store and otherwise help collectors of expensive paintings. Another may specialize in lending money and taking care of clients who own forest land or international hotels. Several pride themselves for having expertise on mergers, arbitrage or acquisitions. Others may specialize in handling container loads of dollars for the Cuban, Libyan, Iranian and North Korean governments.
Appreciating their strengths, differences, and internal policies is the key to finding a bank that will provide you with the best possible services for your circumstances.
Good private banking service is just another reason why so many people choose (or are forced) to go offshore. But the surprising truth, little known outside a small circle of insiders, is that the better Swiss banks have been quietly moving branches and their best customers to other locations – outside of Switzerland. From Brunei to Panama, Singapore to Montevideo, Swiss banks are diversifying geographically.
The Swiss have the expertise to offer what the client demands. Personal service to high net worth clients is what they offer. If they can do that better from jurisdictions outside Switzerland, they won’t skip a beat.
This is in contrast to retail or onshore banks who serve clients impersonally through hundreds or thousands of branches and vast call centres in low wage countries, but would never think of moving their top management overseas.
HOW PRIVATE BANKING CLIENTS BECOME SERIOUSLY WEALTHY
No Main Street banker in the USA has even the slightest clue on how you can safely maximize your returns by taking a 1% per annum interest loan in Japanese Yen then investing the loan proceeds in 19% Mexican Peso bonds, fully hedged, for a higher return.
There might be a few partners at Goldman Sachs who would do this for hundred-million dollars discretionary accounts, but don’t expect to find such expertise in your hometown. Yet you can expect these services easily from private banks.
We know the managers of (and sometimes even refer clients to) one such bank that has a special department to serve only straight arrow Americans who want to report their profits and pay taxes. One of those clients has averaged 30% return for a dozen years. The minimum to open an account $100,000 last time we looked. If you appear to be a smart young guy with potential, they will even accept less.
Is there risk in these so called currency sandwiches? Of course. That client we mentioned has had one down year (2008). But all losses and then some were made up in 2009.
We also advise “Diversify – Don’t keep your eggs in one basket” no matter how good it seems. Had the clients of Madoff’s massive Ponzi Scheme kept only 10% of their assets there, with annual rebalancing they would have had (after about 7 years) no losses at all.
We don’t want to get too technical in this free report, but making money and protecting your assets requires intelligence, experience and adult supervision. We offer this and point you in the right direction for good deals and objective, responsible advice. The next step, if you are interested in learning more about this, is to read Bye Bye Big Brother.
OFFSHORE ACCESS TO FORBIDDEN FRUIT
You may not have realized this. Indeed this information may shock you. The unwashed masses will never know this secret.
All major Big Brother governments including those of the USA, Japan, China, India, the UK and Australia – among others – prohibit their citizens from participating in the best international investments. Even if “everybody knows” the dollar is in for a bout of severe inflation, neither USA nor foreign banks are allowed to advertise the kind of currency sandwich deals mentioned above in the USA.
But that is just one example out of thousands of deals that governments have decided you must never hear about.
Why? Some attractive investments are off-limits to you because of regulatory requirements. We’re not talking about protecting you from swindles or dodgy schemes. We’re talking about good, solid investments – many managed by big American or British financial institutions – things like mutual funds. The cost of the extra paperwork of getting them approved and regulated by the US Securities and Exchange Commission, for example, is simply too high to make it worthwhile.
Even before the USA started freezing and seizing American owned accounts, it made more business sense for investment managers simply to reject prohibited business from Americans. The Swiss bank UBS sought to circumvent these laws, and the result was a disaster for the bank and for investors.
That is why most (but not all) foreign banks will simply reject all business from USA citizens or residents.
Of course, excessive regulation and going after unreported account holders is presented as being ‘for your own good and for the good of the country.’ Your government is protecting you from unscrupulous foreigners! Nothing of course could be further from the truth. Your government doesn’t want you to take your money out of the country… because if your assets are within the jurisdiction it’s easier for them to get your money out of you!
The net result of this is that all Americans, as well as Brits still living in Great Britain, have become ‘non-persons’ in the offshore banking world. It’s perhaps ironic that while money from Saudi Arabia, China, or India is actively courted by offshore banks, an American will just get a not-so-polite cold shoulder when trying to open an offshore account.
Foreign banks dealing with Americans must either sign up for “qualified intermediary” status with the US authorities (which basically means signing away bank secrecy) – or their clients must endure roughly 35% withholding taxes.
There is plenty of smart money already floating around offshore, and it’s easier for many banks simply to reserve their best investments for sophisticated offshore clients while offering less well managed funds to their domestic markets.
The UK’s “Money Laundering Regulations 2007” have driven a lot of expat and non-resident trust business offshore. London used to be the major international financial centre for the offshore world, a safe haven where wealthy foreigners knew they could rely on English common law to protect their confidentiality. The same protections were of course never available to resident British Citizens.
Under the 2007 rules, however, businesses such as company formation agents, trust providers and even mail-drops are required to keep information on their clients available for inspection any time – no need for a warrant or even “suspicion“ or just cause. Following the American model, due process has become a thing of the past in England, Germany, Spain and much of the E.U.
The good news is that even today, there are simple solutions once you define your own goals, look at your options, and figured out the solution to any problem in your path!
Ironically, even as Swiss banks are pushing long-established clients out of the front door, you – even as an American – can walk straight in the back door. How? Simply be “reflagging” your funds. There are several straightforward legal steps you can take to do this. One way we can mention here (that will work in some cases, if done correctly) is by using an offshore company, trust or foundation. You’ll find more detail on this in our other works such as Bye Bye Big Brother.
There are still other methods we dare not put into print. Why? Politicians might consider them “loopholes” that must be closed immediately. To find your own personal loophole you must think creatively, read between the lines, and/or become one of Grandpa’s inner circle personal consulting clients.
LOOSE LIPS SINK SHIPS
This phrase was a slogan during the Second World War. The Office of War Information attempted to limit the possibility of people inadvertently giving useful information to enemy spies. “Unguarded talk may give useful information to the enemy”. This was the message behind the catchy phrase that is now part of the English language.
Yet it can apply to YOU! The single biggest mistake – the undoing of those people you read about in the press – is always one thing: having a big mouth!
Anyone who has hidden assets anywhere must avoid loose lips. A secret is not a secret if you blab about it. If you ever visit a prison, you’ll find the inmates are seldom in jail because of clever police work. No! They trusted someone with their secret, and that someone turned them in.
No offshore bank account is secure from creditors or government claims unless assets are held in the name of a separate person or entity (think a corporation, foundation or similar) that is not associated with you.
Obviously, to repeat: the first rule is that the name the assets are held under, absolutely positively must not be known to your creditors or enemies. You may nod your head in agreement and move on to the next paragraph here…
But remember this: Even today the vast majority, something like 98% of people who lose their offshore assets in domestic law suits, do so because they themselves revealed the existence of the assets and the name, bank or account numbers they were held under.
What about possible ex-spouses? Can you really trust your spouse to keep a secret if she is put under pressure later? Or would you be doing everybody a favour by not telling her in the first place about where the family treasure is buried?
If your ex-spouse to be (for instance) knows the name of your offshore bank, your account number and/or the corporate or trust name, your goose is cooked – unless your account is in Peking. In that case your “duck” is cooked. [Joke]
Few account holders have problems because bank secrecy was penetrated, or because of tax information interchange agreements, or electronic surveillance, or even Big Brother’s investigative prowess and power. Therefore this point really needs reinforcing. Having a big mouth, or just being sloppy with paperwork or internet communications, is the single biggest mistake people make.
Your international assets must be confidential. If they are known to creditors, business partners, spouses or anyone who might betray you, you might as well keep the money is a glass case on your front lawn.
Let’s be more specific here. Owners, may, and probably should report their holdings as legally required – to tax authorities. We cannot help anyone evade taxes. But there are ways to report and still keep your affairs private for other purposes, “A fish gets hooked because it opens its mouth.” Never brag, never tell anyone about your offshore accounts.
CHAPTER 3
A LITTLE KNOWN LEGAL TRAP THAT GOVERNMENT AGENTS MIGHT TRY TO TRICK YOU WITH
While we’re on the subject of keeping your mouth shut, the following advice, that we first printed back in 2006 in the first edition of Bye Bye Big Brother, applies mainly to USA readers. It is very relevant as of 2009 to those in all countries who already have undeclared offshore bank accounts, and are now contemplating whether to “fess up” and take advantage of one of the “amnesty” deals on offer.
Basic rule: Never, under any circumstances, answer questions put to you by any government agent – unless you have a competent lawyer at your side.
In the USA there is a section in the federal code, referred to as ‘1001’ by legal eagles. This law makes it a crime to lie to a federal agent. The agent doesn’t have to put you under oath or even have to tape the conversation. All he or she has to do is produce handwritten notes that indicate that you made false statements.
There is a big risk that you will mis-speak, or that the government agent will mishear. Or maybe there is an ambiguity that the agent chooses to interpret in an unfortunate (for you) direction, based on his handwritten notes.
‘Lying to a federal agent’ does not have to mean telling lies in an important criminal cases or when you are under arrest. IRS officers are federal agents too.
There’s always the possibility that you might be tempted to shade the truth a bit when an IRS agent is quizzing you about that tax deduction you took for a trip to Vegas. So our advice to you is: Keep Your Mouth Shut!
Let`s repeat that in other words. To be on the safe side, when confronted by a federal agent, don’t say anything at all. Well, not exactly. You need to ask them to sign a letter so that they can’t later lie about what happened. Keep reading.
Take, for example, the highly publicized case of lifestyle guru Martha Stewart, who was jailed in 2004. Her case reflects what has happened to thousands of other less high-profile cases – normal, respectable, honest businesspeople. Maybe friends of yours were already caught in the net.
She was caught out by rule 1001. She was convicted of lying about the reason she sold her shares in a biotechnology company.
She said she sold the shares because they had fallen to the price where she had told her broker to sell. She claimed that she recalled having placed a ‘stop loss’ order with her broker. The government argued (and the jury accepted) that she sold only because her broker passed on some inside information that the stock was going to plunge in the next couple of days. She lied, said the Federal Agent.
True, her stock trade, one of many she had made, had a smell of illegal ‘insider trading’ about it. But, the prosecutors did not charge her with insider trading. They only charged her with lying about it, under ‘1001’. Stewart was convicted of lying about a crime. But the government did not have to prove that any actual crime ever happened. Merely stating her recollection of a single small (for her) transaction was enough to get her a jail sentence.
What lesson can we draw from this? Besides keeping your mouth shut, it’s a good idea to have evidence that you have indeed kept your mouth shut. That’s why in Bye Bye Big Brother we actually include a draft letter you should carry on your person at all times, in case you are ever questioned by a government agent.
CHAPTER 4
OPENING AN OFFSHORE BANK ACCOUNT
How do you choose an offshore bank?
For most people there are two key factors to consider. Security of your money is paramount – and not something that can be taken for granted these days. And the same applies to privacy. Let’s look first at the privacy aspect.
The typical newbie question I get asked all the time is “will my new offshore bank report that I have an account with them?”
The usual answer will be “no.” There are notable and important exceptions, particularly the EU Savings Tax Directive if you are a European Union citizen, but you can count them on the fingers of one hand. You can read about them in Bye Bye Big Brother.
The Tax Information Exchange Agreements that are currently being signed by many offshore centres do not normally allow for automatic reporting. Like the agreement between the USA and Switzerland, they do not allow ‘fishing trips.’ The government requesting information under these treaties must already know the name, bank and account number they are seeking information about.
So the more important question is this: will they give up every bit of information they have if Big Brother finds out about the account? Because Big Brother will always request information on accounts (they say) are suspected of laundering money, or profiting from crime, the answer is an almost universal “yes.”
You can search around to open your account in a jurisdiction like Liechtenstein with the strictest privacy laws. However, if Big Brother is on the warpath against a specific name or number, it doesn’t make a lot of difference. Any bank, anywhere in the world, will ‘sing like a bird’ and/or freeze your account.
Big Brother uses the carrot and the stick. For co-operation, the banker is typically allowed to make a ‘service charge’ of around one-third of the account. The bank must then turn over the rest to their branch in the Big Brother country. For non-co¬operation, the bank will be blacklisted and find ALL of its assets frozen in short order!
Get that: nowhere in the world has privacy laws that will protect you against direct enquiries from a major western government. But, get this too: they will need to know that the account exists, under what name, and in which bank. Without that information, investigators can do very little. That still gives you a lot of potential privacy.
Once again: the only real way to keep a bank account private is to tell absolutely no one about it. Paper records of the account should never leave the bank. Keep any electronic records encrypted and hidden on secure servers in cyberspace (Bye Bye Big Brother readers will find a lot more detail on how to do this in the section on Secure Communications, Volume 2)
THREE KEY INDICATORS TO LOOK FOR IN AN OFFSHORE BANK
OK, you have done your research and have found some banking ‘possibilities.’ They look fine to you and you appear to be acceptable to them. With that first hurdle over, you need to apply some more selection criteria. When choosing an offshore bank, there are three criteria to take into account:
- Stability -is it a well established, solvent bank?
- Discretion -do they offer the right culture of banking secrecy?
- Quality of Service -are they fast, efficient and honest?
Senior bankers, if you talk to them candidly, are not particularly bothered if they suspect a client is into tax evasion. Nor are they interested in your gas bill. What they are worried about is going to jail for breaking Big Brother’s rules. So every bank these days puts strict procedures into force. The paperwork has to be right.
It’s up to you to make sure you fit the model client role established by the newest rules and procedures. This is almost an exercise in marketing on your part. For this, you need to manage your offshore banking profile. You’ll find a lot more detail on how to do that in our strategic plan, Bye Bye Big Brother. To cut a long story short, you must match the profile of the honest, wealthy clients the bank is looking for. They will all say, “we just want good clean business.” You fit yourself into the matrix.
Different people have different ideas of what quality service means. To some, it might be a friendly old Swiss banker who will sit down with you to chat for a few hours. He will want to learn all about your financial, business and social situation. Then he will advise you on finances, take over management of all your investments. If desired he will discuss cultural offerings in his city and life in general. He may even offer to diversify your holdings into old or modern master paintings or other art objects. Needless to say, these services would be available only to the high net worth individual.
If this is your style, we have a choice of money-manager banks that are so exclusive that they don’t even have a plaque on their door. They have secret underground entrances in Swiss side-streets and have been in business serving the ultra rich for 700 years!
Other people may prefer a banker who just does as he is told and never suggests that you have any personal meetings. You may prefer it if your banker doesn’t know what you look like. If he asks no questions you needn’t tell him any lies! He won’t know much about who you are, what you do or where your money comes from. Maybe all you want is a good internet interface enabling you to wire money in or out in the middle of the night if you want to. If this kind of privacy (combined with safety of you capital) is your cuppa tea, there are plenty of banks offering good internet services these days too.
Our readers and personal consulting clients will have privileged access to both types of banks.
HOW TO AVOID DEALING WITH THE “WRONG KIND” OF OFFSHORE PROVIDER OR BANK
Most bankers, consultants and corporate service providers are good guys. Some have been beaten down over the years and have a negative attitude, while others really believe in what they do. But unfortunately, the offshore world also has its share of scams.
Even worse are ‘honeypots.’ These are sting operations set up by Big Brother in order to find out who is expressing an interest in offshore banking services.
By way of example, I recently saw the website of a so-called Panamanian law firm – apparently really operating out of Guatemala – which was offering all manner of illegal-sounding services. For crooks such as fraudsters and tax evaders, the services offered appeared ‘too good to be true.’ No reputable firm would have ever admitted, even in private to their best clients, to providing the services that this so-called ‘law firm’ was openly advertising on the internet.
Any person who tries to “hide” his interest in assets held abroad is a criminal facing humongous penalties if something goes wrong. Yes, there are still some legal ways to get around this… but I have learned that if a loophole exists, you never put it into print, as it will then promptly be closed or soon made illegal. The fact is that for Americans, merely holding (most but not all!) assets abroad and not reporting them is now a big crime…. Never mind if there is any tax evasion taking place!
The arrangements suggested by this law firm are anything but secure. Because they openly seek such business, they will be the first to be raided. Their principals will be kidnapped and taken to the USA in bags to face criminal conspiracy charges. Then they will be jailed, be forced to turn over their records, and pressured to “sing” about any and all their clients.
In fact, I don’t know if this law firm is a honeypot sting operation. Maybe it’s just a swindle to get people’s money and then make it impossible for their depositors or clients to ever get back control over their own assets. Or, these could even be well intentioned guys – but if so they will surely fold under pressure!
There are still many ways to “get your ass and your assets out of the country” and to do it legally – but the client must have the correct mental state (no intention of tax evasion) and be willing to do it in a serious way.
Our advice is simple: “do it yourself… trust no one!” Never entrust control or signing power over his assets to any trustees, representatives, lawyers or otherwise. Such trust always means there is a substantial risk that you will lose your money.
An unreported, conventional Swiss, Cayman, Panama, Guatemala, Cook Islands or any numbered “secret” bank account in any financial or tax haven that is not structured to be fully compliant is potentially dangerous – especially for Americans. Citizens of other countries are in a different position. Some much better, none worse.
If this law firm is willing to open a trust relationship without “knowing the customer” it means they are willing to accept serious criminals using false identities as clients. If anything will bring heat on them, that will. Unless they already are “the heat.” Bottom line for us is that “it just doesn’t smell right.”
CHAPTER 5
SIX TIPS FOR GETTING THE MOST FROM YOUR OFFSHORE ACCOUNT
1. OFFSHORE CREDIT AND DEBIT CARDS: AN ESSENTIAL PRIVACY TIP
Most people that open offshore accounts are keen to obtain a plastic card so they can quickly and simply access their offshore cash from anywhere in the world. There are even more variations on these cards than there are banks. But these days, cards represent a real threat to your privacy. Plastic cards are like tracking devices, allowing Big Brother to track you around the world in real-time.
What your banker will probably not suggest (because it would be bad business for him) is one simple step that could be key to keeping your account secret: You can obtain a prepaid, semi-anonymous card from a completely different bank, in a different country.
Why would you do this? The moment you use a card issued in your name by your principal offshore bank, you are creating a permanent electronic trail internationally. Your banking records are no longer held only by your offshore bank. By using a prepaid card that is not directly linked to you or your main offshore bank, you can obscure this trail.
There are various ‘prepaid’ or ‘secured’ offshore credit cards on the market these days. These look and feel just like any other credit card. They can be used for both purchases and cash withdrawals in almost any part of the world. Bye Bye Big Brother readers have access to information on how to find them, via a special free factsheet available to all book buyers.
2. INTRODUCING THE MULTI CURRENCY ACCOUNT
Anyone looking for currency diversification strategies should consider a multi-currency bank account. This is simply a bank account, with a single account number, in which you can hold balances in various currencies.
Instead of having lots of different account numbers and passwords, you keep everything on one convenient screen. You can easily exchange one currency for another. Banks normally permit you to go overdrawn in one particular currency, provided your overall ‘global’ balance is in the black. This is the basis of the foreign currency arbitrage or “currency sandwich” deals as discussed earlier in this report.
How can you open a multi-currency account? Quite a number of banks in some European countries offer multi-currency services by default, as soon as you open account. Readers of Bye Bye Big Brother are welcome to contact Grandpa for a consultation on this matter.
3. KEEPING A LOW PROFILE
Being ‘normal’ is not as difficult as it might seem, even to our extraordinary readers! If you want to keep your bank account running smoothly, take care to avoid doing anything out of the ordinary.
Big Brother is surely watching your bank account. But you are in control of the paper trail (or these days electronic trail) that you leave behind. Big Brother can only profile you based upon information you give him.
What can you do to avoid being profiled as suspicious?
First, fit the profile you establish. When you open your account you will be asked how you intend to use it. Whilst such paperwork or interviews can be tedious, opening a new account offers a window of opportunity to establish a new profile.
Suppose you say it will be used mainly to receive your monthly salary and pay certain bills. Then, one fine day, you sell your rare coin collection for cash. A large cash deposit would be unusual activity, and that is grounds for suspicion. Far better would be to either keep the cash unbanked, or if you do deposit it, write your banker exactly what happened. It would be rare for a banker to file a suspicious activity report when he has letters in his files giving a reasonable explanation for any unusual transaction.
Another thing: avoid bad guys. Give known criminals, scammers and troublemakers a wide berth and never do any banking transactions with them. If a Nigerian contacts you by e-mail with a scheme to split millions in illegal kickbacks by simply giving him a blank sheet of paper with your signature on it, don’t be foolish enough to fall for it.
The final rule is: Different bank accounts for different purposes. For example one for business expenses, and another for the weekly supermarket run. NEVER be tempted to dip into the wrong one for the wrong purpose.
With the proper PT Flags in place, suspicious activity reports, taxes and all that Big Brother nonsense will be a thing of the past. You will have said “Bye Bye Big Brother.”
4. ARE YOU BEING MILKED BY YOUR BANK? OR CHURNED AND BURNED?
Private banks and stockbrokers (especially those having discretionary investment powers over your money) will always have a conflict of interest. Your broker or banker has to put the profits and interests of their employer before yours. It’s important to your financial well-being that you are aware of this.
What is not generally known is that banking customers are divided by their advisers into several groups of fools. Most of us fall into the largest group: those who will accept without argument or negotiations, any old and new fees, surcharges, high bank commissions on every trade, etc. And dummies who will ‘invest’ in any ‘product’ recommended — no matter how foolish.
Many stockbrokers and bank advisors speak of their favourite so-called “Milk-Cow-customers” from whom, besides typical management fees, they often get another 2¬15% of their total assets, year on year.
These “Milk Cow clients” are often older, trusting, long-term clients who never question their statements and give their advisors control over their money. Their accounts often perform worse than if they simply through darts to choose their investments. That is because the investments are chosen because they yield the best commissions – not the best returns for the customer.
This is also known in the industry as “churning and burning.” This is a high trading frequency. Frequent churning or trading (without a clear strategy) means only new commissions for your bank or broker – and extra costs for you without corresponding benefits…
What can you do about it? Do not have discretionary accounts unless your personal rep has a good long-term record of accomplishment in outperforming the market. That will be very rare!
What if you don’t know the first thing about investment? Consider investing in economical Exchange Traded Funds. Inexpensive, diversified strategies can be found at a minimal cost. Forget most “structured products.” If you don’t understand them, don’t invest. You can be sure they have been engineered to make the banks and brokers money – not you.
5. THE BEST WAY TO HOLD GOLD OFFSHORE
Without question, the best way to hold gold offshore is by owning bullion, coins etc outright and hiding it in a secure location that only you have access to. Forget about digital gold schemes. They might have been good a few years ago, but several major players in that ,field like e-gold and Liberty Reserve were raided by Big Brother. Following a predictable pattern, the principals were jailed, forced to turn over their customer records, and the gold was seized by Big Brother.
Bullion ETFs on the stock market have become popular in recent years, but some probing questions have been asked (and not satisfactorily answered) about the gold held by major ETFs and whether it really exists.
Besides, all the above, if purchased offshore would be considered reportable foreign financial accounts for USA readers. Holding physical gold bullion in a safe deposit box is not reportable.
6. INHERITANCE PLANNING: ESTATE, GIFT TAX AND RETIREMENT PLANNING SIMPLIFIED
There is an old saying that there are only two sure things in life: death and taxes. I disagree, as taxes can be legally avoided.
But it is sure that you will die one day. And if you don’t have things properly set up, the tax man and the lawyers will get their claws into the lion’s share of your estate. So don’t put off making simple preparations like those described below.
Billions of dollars every year go into the pockets of lawyers, accountants, and state and federal treasuries as the result of administration fees, planning and probate costs. Ultimately, no matter what you try to do with domestically located assets, the greater portion of your life’s work may be flushed down the toilet with estate and gift taxes.
You may still be one of those who think you cannot afford good offshore planning. But my question to you is, can you afford not to explore your options? Do you want to choose ignorance of the possibilities and risk lawsuits eating up your estate? Or do you want to leave half or more of your estate to governments and lawyers?
I say half because it’s a nice round figure. But sometimes (as in the famous Dorrance-Campbell Soup heirs case), more than 100% of an estate can be claimed! State and federal tax collectors along with lawyers can eviscerate a large estate.
How does a savvy entrepreneur handle these ‘problems’? How can you ensure that the fruits of your life’s work will be distributed according to your wishes after your death?
There are several ways. Boy Scouts might go for Offshore Philanthropy, one of the hot tax planning tools that high-priced onshore lawyers are hyping to the super-rich these days.
The good news is that you can do it much more privately and at a much lower cost. You can transfer assets abroad and set up your offshore foundation or trust to escape all taxes legally. You control (but no longer own) the funds for your lifetime, during which you can use or distribute the funds as you see fit. You appoint a carefully chosen few to run the whole shebang after you die. Like the Nobel Foundation with its famous ‘Peace Prize,’ your name (if you wish to be a public benefactor) can continue on forever memorialized by your money! Offshore Foundations are subject to no taxes and little or no regulation.
Suppose you want to retire and study the sex life of plants. You could fund a research organization to pay your salary and expenses. At the same time, you spend the rest of your life working on this project from the penthouse suites of the various Intercontinental Hotels. Howard Hughes did exactly that!
But for those readers who like to keep things very simple, there is another way that will cost you next to nothing in legal fees (For that reason, your lawyer is unlikely to mention this possibility to you!) And there’s an added benefit to this method, too – in terms of asset protection during your lifetime.
You simply put the money with a financial institution that accepts death instructions in a tax haven that eliminates probate. There are no death taxes of any kind on foreign-owned assets. Upon death, the bank will just pass your money or securities in full directly to the chosen successor(s), with no extra formalities and no probate required.
CHAPTER 6
FOREIGN BANK ACCOUNT REPORTING REQUIREMENTS –
AND SIX LEGAL WAYS TO AVOID THEM
We probably don’t have to remind you about new, more intrusive reporting requirements that have recently kicked in for US citizens with foreign bank accounts.
Americans must file a report to the IRS each year if they have “financial accounts” totalling more than $10,000 at any time during the year.
How does the IRS define financial accounts? Very broadly. The term includes savings, demand, checking, deposit, securities, brokerage, or any other account maintained with a financial institution anywhere in the world. Also declarable are holdings in mutual funds and securities, derivatives or forex trading accounts, debit and prepaid credit cards maintained with a financial institution, and even certain types of annuities or pension accounts. And those are just examples!
It doesn’t matter whether the account holds cash or non-monetary assets such as gold (though there is a loophole for gold – see below!)
“Foreign account owners must remember that they may have to report their accounts to the government, even if the accounts do not generate any taxable income,” say the IRS.
So what kind of investments do not trigger reporting requirements? Here are six to get you started!
- Buy securities from an offshore bank or brokerage in an old-fashioned way – over the counter from a bank, with a paper certificate issued in return. Store the certificate securely offshore. To avoid doubt, the IRS website clearly states: “ Individual bonds, notes, or stock certificates held by the filer are not a financial account…”
- Real Estate: as one of our friends recently stated, “It’s hard for the IRS to tell you to repatriate a house”. Of course, reporting requirements kick in if you derive income, from the property, for example by letting it. But the mere fact of owning a property that is sitting there increasing in value is not reportable.
- Cash. Keeping money in an offshore bank account is reportable. But keeping cash in an offshore bank vault is not! Rent a safe deposit box and store banknotes in your preferred currency. Neither the box itself nor the contents of it are a reportable account.
- Valuables such as gold coins, gold bars, or diamonds kept in a safe deposit are not reportable either. If you enjoy collecting things, you can expand on this theme with rare coins, rare stamps, artwork, and even whiskey barrels or fine wines – but be aware that such trinkets are rarely good financial investments.
- Warehouse or depository receipts. Certificates representing a specific asset (typically precious metals) are not reportable. A certificate should provide for “allocated” storage – that is, specific bars, coins, barrels, etc in a specified warehouse. A “pooled” account like those offered by Perth Mint is reportable as a financial account – but specific gold bars represented as certificates are not.
- Unsecured Loans. The IRS website clearly states in its FAQ section that “an unsecured loan to a foreign trade or business that is not a financial institution” is not regarded as a financial account.
Of course, you’ll find more information like this in Bye Bye Big Brother.
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