BY GRANDPA, UPDATED TO Sep. 2013
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A PT chap who used to be a client ten years earlier called me recently with a new and unexpected problem.
His Swiss bank had just sent him a letter that said essentially this:
“We are closing all accounts of Americans with our bank. Your securities will be sold at market prices and converted to cash unless you notify us within 30 days where to transfer those securities. Please instruct us also where to transfer your money. You will not be allowed to take more than €20,000 in Cash. This decision is final”
One of the advantages of me, Grandpa, being an old geezer who has been dealing with Swiss banks for 50 years, is that young kids I started dealing with ages ago, are now big shots. So I assured my friend I could probably get in touch with a long time personal friend (a senior officer at his bank) and iron out his problems. I had not heard the expression “Toxic Americans” yet.
This particular ex-client was and is a dual citizen of the USA He held a second passport and citizenship from a major E.U. country. He had a “B” residence permit and a home in Switzerland that he used six months a year for the last ten years. In other words, he was a legal resident of Switzerland and a respectable retired former CEO who had cashed out of his company decades ago. I felt there was no way a bank would knowingly simply dump a very good client with a high 7 figure balance. We are talking of nearly ten million Euros ($15,000,000)—a very profitable account for a Swiss bank to have.
I was surprised at what I found out!
Many Swiss banks have announced that they will terminate all American clients, close all USA branches. They have stopped doing any business in the United States and will not invest in any American securities or USA related deals.
Wegelin & Co., a St Gallen-based bank, Switzerland’s oldest, said their decision had been taken in response to many criminal lawsuits against Swiss baners and measures like FATCA introduced in the US against tax dodgers. Among other things, the new laws would make some non-US citizens liable to tax if they inherited US securities and would impose impossible, costly reporting procedures on any banks having American clients or American investment holdings.
In a letter to American clients Wegelin said Swiss banks were placed in an untenable position, as they would be expected to know which clients were liable to pay US tax – “an impossible undertaking”, given the lack of clear definitions in the matter.
The bank added in a letter to all clients, that it believes the US overestimates its attraction as a financial centre, and is advising its non-USA clients to dump all US securities.
“Farewell America” said the bankers.
The agreement between the USA and Switzerland under which Switzerland is to provide administrative assistance with regard to UBS clients suspected of tax fraud is, in our view, remarkable in three ways.
Firstly, we note the way both parties are dressing it up in the aftermath of the battle. Everyone is talking of a “success”. The IRS, the American tax authority got what it wanted, namely access to a large number of specific client names and files, combined with persisting uncertainty on the part of some 50,000 others as to whether they are among those names.
It is astounding, and this is the second interesting observation, how completely naturally those who claim the moral high-ground rush to join forces with the authorities and their financial requirements. At the risk of once again offending certain specialists in business ethics, let us briefly recall the sort of tax authorities we are dealing with, and the sort of state they serve: The USA is a country that, over the last 60 years, has unquestionably been one of the most aggressive nations in the world.
The USA has fought by far the largest number of wars, sometimes with, but mostly without a UN mandate. It has broken the international laws of war, maintained secret prisons, and fought an absurd war against drugs, with serious consequences both abroad (Columbia, Afghanistan) and at home. According to reliable sources, the tentacles of the narcotics mafia now reach well into political circles in many countries, including the USA itself.
With breathtaking moral duplicity, the USA maintains enormous offshore tax havens in Florida, Delaware and others American states. The moralizers have joined sides with one of the last democratic nations that still makes extensive use of the death penalty. The USA is remarkable in that it has a legal system under which lawyers get rich on the misfortunes of their clients. Liability cases often end in verdicts with exorbitant damages. This makes business activity extremely risky, for medium-sized enterprises in particular and has raised the consumer prices of American cars to the point where the major auto producers and other manufacturing industries have been bankrupted.
The moralizers provide intellectual support for a country that allows its infrastructure to collapse, and then stuffs convicts into hopelessly overfilled jails, after what are not infrequently dubious proceedings. They fund a nation that tolerates – or rather, causes – regular crises in the global financial system that it manages. A country whose underclass enjoys neither the benefits of an adequate education, nor a halfway functional healthcare system; a country whose economic system is increasingly inclined to overconsumption, and in which saving and investing have increasingly become alien concepts, a situation that has undoubtedly been one of the driving forces behind it’s current recession, with catastrophic consequences for the whole world.
The USA’s Achillies heel
A look at who are the most important creditors of America’s highly indebted public finances reveals something truly remarkable. It is the public authorities themselves! A study by Sprott Asset Management, a Canadian asset management firm distinguished for its intelligent macroeconomic analyses, showed that in 2008 over 4 trillion of the total outstanding public debt of some 10 trillion, or around 40 percent, was in the hands of so called “intragovernmental holdings”.
These holdings include social welfare institutions, whose assets, accumulated in order to be (halfway) able to meet future liabilities, are invested in special Treasury debt instruments, known as “intragovernmental bonds”. In other words, the paying recipient of, say, Medicare, the American health service, is an indirect source of finance for the Treasury. Unusual, remarkable, or rather, alarming? Debtors are now simultaneously creditors.
It is obvious that, for about 30 years now, USA growth has only come at the cost of ever-higher debt. Today, every dollar of growth comes with about 4 dollars of debt. And note this: We have not yet discussed the quality of the growth. Over the last 15 years it has, as we know, increasingly come mainly from consumption and state expenditure; investment in the USA is extraordinarily weak. Far too little potential for the future is being created.
The financial crisis has given momentum to anti-capitalist, anti-banker and anti-market forces in the USA (and elsewhere). That promises little good for this part of the world, but it makes it somewhat easier for investors to take their leave.
Our bank is recommending that our clients exit from all direct investments in US securities.
The USA will remain the unquestioned military power and also an enormous repository of debt and other problems. Because this debt is painful, there is always an inclination to shift the blame for them onto third parties Switzerland is currently experiencing just this. But it won’t end there.
Which is why we are well advised to say farewell to America and all American clients. This will be painful, for us and for the USA — once the most vital market economy in the world. But for now, it’s time to say goodbye.
My friend’s bank was not the same one whose president had written the (paraphrased and shortened) statement above. For a link to the full document
My Senior Swiss banker friend told me that his bank didn’t have the balls to issue a public statement as strong as Wegelins, but that most non-USA banks, not just Swiss, we terminating all relationships with Americans.
His own seniors had during the last 6 months (of 2011) had decided to not touch anyone with any American connection… They looked at birthplace, spouse, investments, green card.
In January 2013, the US will implement a new law called the Foreign Account Tax Compliance Act. …the new rules leave some financial officials fuming in places such as Australia, Canada, Germany, Hong Kong and Singapore. …implementing these measures is likely to be costly; in jurisdictions such as Singapore or Hong Kong, the IRS rules appear to contravene local privacy laws. …Terry Campbell, head of Canada’s banking association, points out, the rules are essentially akin to “conscripting financial institutions around the world to be arms of US tax authorities”. …the IRS is threatening to impose a withholding tax of up to 30 per cent on sales of US assets by groups that it deems to be “non-compliant” – and the assets could include US shares or US Treasury bonds. Hence the fact that some non-US asset managers and banking groups are debating whether they could simply ignore FATCA by creating subsidiaries that never touch US assets at all. “This is complete madness for the US – America needs global investors to buy its bonds,” fumes one bank manager. “But not holding US assets might turn out to be the easiest thing for us to do.” …
“Right now my board is also concerned about political risk in America, but losing 30% of any American asset we hold is too big a threat to ignore.”
Any ex-USA-citizen or ex-USA-resident, is now scheduled to be terminated. Even renunciation of USA citizenship not enough to erase the stigma of being a “Toxic American.”.
I asked my friend what were the bankers really afraid of? He said that if a USA citizen who renounced American Citizenship was a bank customer, the American authorities could accuse the bankers of conspiring to get that customer to renounce and thus evade taxes. An Offshore Banker who never set foot in the USA and refused to talk to American citizens could still be possibly kidnapped, tortured and criminally prosecuted in the USA because he had something to do –however vague—with the USA. He felt the uncertainty of the new laws giving the USA power to kidnap foreign bankers and charge them with money laundering or aiding or abetting terrorists meant that they had to terminate all connections if they wanted to avoid such risks. However, the 30% tax on USA assets is a certainty to be avoided.
He said “Crazy huh?” I could not believe what I heard, but when I inquired about moving my client’s money to several other banks in Monaco, Andorra and finally some Caribbean Islands, I heard the same thing!
Then today we visited the Bank of China branch in Milan Italy. We heard that China is not intimidated by the USA.
Wrong! They hold too much American paper to risk dealing with Americans until they can unload their American assets
The Manager of the Bank of China in Milan said we don’t want any Americans but we are not even allowed to take on our own Chinese local biz people as clients unless they can prove legal residence in Italy, No non-Italians or illegal aliens are allowed to have an acct at Bank of China.
I called a friend in Shanghai and he told me things were different inside China proper, but he didn’t advise moving money to China because “It is hard to take it outside the country.” So for the time being we dropped the idea of moving my client’s money to a Chinese bank.
Finally we tried anther bank in Switzerland that let it be known they would accept Americans. On the telephone they said OK, come in, but we will file a W-9 form & make full disclosure of all forms and paperwork with IRS to comply with FATCA for any person with any American connection no matter how slight. He again said “any American connection!” Like an American birthplace, American spouse, property in the USA, a current or past green (legal residence) card. An accepted renunciation of USA Citizenship was not enough to erase stigma and everything about such clients would be fully reported to the USA for this bank to take on a “Toxic American.”— Suspects will be looked at carefully for all factors –including appearance or accent . The papers filed by the bank will just provide a double check against the additional forms that are required of Toxic Americans whether they live in the USA or not.
This kind of discovery was like a dream or rather—nightmare!
Will travel and exporting money or assets be the next thing to be banned or regulated even more strictly for Americans?
Imagine not being able to receive a passport until you obtain police clearance. Or perhaps a certificate of tax compliance. Or a DNA sample that ties in with your government medical record. Or having to pay an exorbitant fee to leave the USA.
Grandpa says, I don’t consider myself to be an alarmist or a doom and gloom guy. Yet it appears to me that Big Brother is already in nearly full control, and running a police state.
All I want to do is to be able to help those readers who want to retain freedom to travel and financial independence.
One way to mitigate the constant encroachment on freedom is to obtaining multiple citizenships. It would be better to have zero contact with any government, but it’s impossible to be stateless and also travel and live well today. It is possible now to obtain multiple citizenships. This will keep your options open. You can always ‘opt out’ and leave if & when life in your home country submerges your comfort zone. It makes sense to have at least have at least one—but better several alternate passports, assets abroad –and an escape plan. The Big Brother State is here, just in case you didn’t notice. See the next article on what defines a police state.
Is the PT lifestyle something for you to look at? Many people qualify for dual nationality without even realizing it thanks to marriage or a distant relative. Poland, Ireland, and Italy are common examples of countries who pass out passports fairly liberally. A few countries will not put your birthplace on your new passport.
You owe it to yourself to look into the possibilities. Either do the research yourself, or hire a competent person to avoid becoming a Toxic American, or a Toxic Citizen of some other Big Brother Country.
What America does, other countries imitate.
Renunciation of USA Citizenship
This is not an easy choice to make, but one reader says:
Being a former US citizen gives me more rights and privileges than what I had as an American.
- I am free of the issue of having to file tax returns to the IRS.
- I can invest in any security I wish to purchase, without fear that it suffer from punitive taxation.
- I am free to bank or conduct business in any place I wish, without concern that my bank or business partners may decline to deal with me due to U.S. citizenship.
- I am free to travel anywhere I want to go without fear of prosecution, including, if I choose, the United States. When I travel, I don’t encounter checkpoints where police “randomly” search vehicles.
- I don’t worry about police seeking to seize my property through the odious legal process of civil forfeiture.
- I don’t worry about a snooping government, frivolous lawsuits, surveillance cameras, and the like.
NEW Offshore Reporting Requirements
If you’re a “U.S. person” and hold foreign assets with an aggregate value of $10,000 or more, you are already required to file a form with the U.S. Treasury. If you don’t file you are a criminal by USA definition –subject to huge fines and long jail terms.
Cryptically named “Form TD F 90-22.1,” this “foreign bank account report” (FBAR) gives the Treasury a birds-eye look at any foreign “bank, brokerage, or ‘other’ financial accounts” you held during 2010. For the moment, there are a few types f assets still exempt from reporting – like vacations homes, empty land, and valuable personal items like watches, gold or silver coins, etc. However, it doesn’t take an Einstein to predict that eventually, every American will have to account for everything over a certain low value threshold. And then, a wealth tax will be imposed, taxing the mere possession of such things. Right now, if you have a financial interest in, signature power or other authority over any foreign bank account, securities or “other” financial accounts with an aggregate value exceeding $10,000, you must file the FBAR. That’s true even if the account contains only precious metals or other non-cash assets, and even if generates no income. Alas, the FBAR isn’t the only reporting obligation for your offshore investments. That would be too easy. You must also report your foreign accounts each year on Schedule B of your federal income tax return. On top of that, to flag the high rollers, the IRS has created a special additional reporting regime for Americans with more than $50,000 in non-U.S. assets. Your financial privacy has already vanished. But there’s a few offshore investments that you can still hold privately but, in oiur opinion, only temporarily.
As a U.S. person, you must deal with it. The tax penalties for failing to file FBAR forms are draconian. For those who don’t like big words, this means “pretty bad.” You could end up paying a $10,000 fine per unreported account for each year you neglect to file the required FBAR. Far worse, if you “willfully” fail to file the form, you face a fine up to $500,000, five years imprisonment…or both.
Owning though a corporation, foundation or a trust does not relieve you of these reporting requirements.
In addition, if you own more than 50% of the shares of any financial entity like a corporation (U.S. or foreign) with a foreign account, the corporation must file a FBAR. You must also file a separate FBAR in your own name acknowledging these accounts. Similar rules apply to partnerships. Even a single-member LLC, taxed as a “disregarded entity,” is a “U.S. person” for FBAR purposes. Reporting rules apply to foreign accounts held by trusts as well.
Expanded Disclosure for Offshore Interests Exceeding $50,000
- Last March, President Obama signed the Hiring Incentives to Restore Employment (HIRE) Act (H.R. 2847). The HIRE Act significantly expands the scope of offshore reporting requirements if you hold more than $50,000 of “foreign financial assets.” In that event, you must disclose on a yet-to-be-created IRS form: Any ownership of non-U.S. securities. This represents a crackdown on the use of “bearer shares.
- Any financial instrument or contract held for investment from a foreign issuer or counter-party. This appears to require the reporting of all offshore life insurance or annuity contracts.
- Any interest in any foreign entity. Reporting provisions in current law impose an obligation for U.S. persons who acquire or dispose of a 10% or greater interest in a foreign corporation or partnership to disclose that transaction. However, no disclosure for smaller interests was required—until now.
Thus, in the new “full disclosure” world, you are apparently required to make four or more separate disclosures of the same investment or account. For instance, if you own a foreign account through a foreign entity such as a Nevis LLC, you’ll need to:
1. File the FBAR for yourself.
2. File the FBAR for the LLC.
3. Check “yes” on Schedule B.
4. And possibly disclose your interest in the LLC according to the new HIRE Act requirements.
Plus, you must file a separate annual disclosure form for the LLC – the specific form depends on how you’ve elected for it to be taxed.
Offshore Investments You Don’t Have to Report
Despite these far-reaching reporting requirements, there are several offshore investments you can still hold privately. As these exemptions are temporary, we feel you should read the book The Invisible Investor, and get your “ass and your assets” out of the country, before your country gets the money out of you and claps you in jail…
For information on how to cope, contact [email protected]
Notes  Winnipeg Free Press, “Americans renounce citizenship over taxes.”
 Yahoo! Answers, “How can you get a dual citizenship between United States & Canada?”
 The Globe and Mail, “U.S. tax crackdown hits Canadian residents.”
 FoxBusiness.com, “IRS Rounding Up Offshore Tax Evaders”
 Forbes.com, “Expats Call For FATCA Repeal”
 Edmonton Journal, “Flaherty takes on IRS over tax crackdowns in Canada.”
 Financial Post, “TD resists U.S. plan to catch tax cheats.”
 International Liberty, “FATCA Law Is an International Version of Obamacare’s 1099 Provision, a Nightmare for Cross-Border Economic Activity that Is Undermining Investment in America.”
 The Globe and Mail, “How to renounce a U.S. citizenship.”
 Reuters, “Analysis: Critics say new law makes them tax agents.”
Is This the Most Valuable Piece of Paper on Earth? “CERTIFICATE OF LOSS OF NATIONALITY OF THE UNITED STATES” Getting it was worth well over a billion USA dollars to each of the following: Eduardo Saverin, Facebook Founder- Denise Rich widow of Marc Rich Steve Wozniak – a future Austrian
All it takes is the top 1% of USA Citizens to give up their passports & renounce citizenship; at that point the USA would have lost about 2/3rd of its wealth and about 90% of its most productive taxpayers. This fact is forcing Big Brother to make it even more difficult to obtain this piece of paper, which in turn, makes it ever more valuable. I now also have a copy of one that has been officially issued, stamped, signed sealed & delivered. Going to the USA Government sites, I went on a ring -around -the-rosy for several hours without finding a copy of this document (relating to approved USA Citizenship Renunciation) It should be a public record. But if it is online at all, it was not anything I could find easily. “CERTIFICATE OF LOSS OF NATIONALITY OF THE UNITED STATES” Renunciation Certificate – get it here! FOR MANY AMERICANS, ACQUIRING A NEW CITIZENSHIP, RENUNCIATION OF AMERICAN CITIZENSHIP AND MOVING ABROAD SEEMS TO BE THE ONLY WAY TO SURVIVE FINANCIALLY.
FATCA type laws don’t apply to non Americans living away from their own country because all others are not taxed…
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