As if you needed a reason to get a second passport!

by Peter Macfarlane

With the weather so unpredictable in Europe, we will soon be headed back over to the Caribbean. Next month we are planning fresh new, on-the-ground updates on the Dominican Republic residence and second passport program, as well as the scoop from diver’s paradise San Pedro, Amergris Caye on Belize’s superb new offshore LLC laws that will soon be giving the established offshore LLC leaders Nevis and Cook Islands a run for their money! So, make sure you are signed up to our free Q Bytes newsletter, and if you have friends who are interested in this topic please be sure to tell them to google Q Wealth Report and follow the free Q Bytes sign-up link!

This week we have several important items of news for you… starting with even more evidence of the need for a second or third passport. We had already been planning our new report on Dominican Republic’s changing citizenship laws when the US announced that it is suspending freedom of travel rights for those who are in dispute with the IRS! That’s right, if this bill becomes law then the USA will join the list of countries like Cuba and North Korea that do not automatically issue passports on demand to their citizens.

As has become the norm, this controversial proposal was buried inside other legislation – Senate Bill 1813 to “reauthorize Federal-aid highway and highway safety construction programs, and for other purposes”.

In addition to authorizing appropriations for federal transportation and infrastructure programs, the so-called “Moving Ahead for Progress in the 21st Century Act” or “MAP-21″ includes a provision that would allow for the “revocation or denial” of a passport for anyone with “certain unpaid taxes” or “tax delinquencies”. There does not appear to be any specific language requiring a taxpayer to be charged with tax evasion or any other crime in order to have their passport revoked or limited — only that a notice of lien or levy has been filed by the IRS.

Not too many people know that the US already has an official “Passport Denial Program” in place – this one for parents with child-support arrears. In fact, when we wrote about it once before, we received letters denying that such a program existed – so here is the link. The “Passport Denial Program,” which is part of the Federal Offset Program, is designed to help states enforce delinquent child support obligations. Under the program, noncustodial parents certified by a state as having arrears exceeding $2,500 are denied U.S. passports.

Our comment: this is another terrible development for personal liberty and the presumption of innocence. Whilst we are certainly not in favour of tax evasion nor deadbeat dads, surely most of us know someone who has legitimate financial disputes during divorce proceedings, and/or who have differences of opinion with the IRS. In the old days, disputes like this were decided through due legal process. With these passport denial laws, it simply takes the say-so of a bureaucrat to deny someone a basic liberty – the freedom of travel. If there are indeed any procedures to dispute such an arbitrary decision in a court of law, they are very unclear and would require retaining a lawyer which costs tens of thousands of dollars. The potential for official abuse is enormous. The US constitution never thought of tax inspectors, most of whom don’t even have any legal background, filling the roles of judge and jury rolled into one.

Where the US leads, other countries like the UK and Australia are already thinking of following. Recently, we wrote about France wants to “do like the Americans” and start taxing its non-resident citizens on their worldwide income. The only logical way to protect yourself from such laws is to acquire a legal second or third citizenship, before it’s too late!

Q Wealth Report is your specialist and reliable source for up to date information on second and third passport programs, including economic citizenship programs like the St Kitts and Nevis program, the Dominica second citizenship program, and passport by residence systems in Latin America.

by Peter Macfarlane (reproduced from our free Q Bytes newsletter)

Anyone who reads much about international tax law knows that the USA is the only country on earth that taxes its citizens on their worldwide income even if they choose not to live there. This situation, though the US government don’t want to admit it, has led to long waiting lists at US consulates abroad as America’s brightest and most productive citizens queue up to renounce their citizenship.

As a British citizen, I still have the freedom to leave the UK, and as long as I don’t have any UK income then I don’t even have to file British tax returns any more, never mind pay taxes.

This, however, may be changing soon. French President Nicolas Sarkozy’s recent outburst on television exemplifies this. France may not be a country we normally expect to follow the US example, but Sarkozy clearly stated on French TV on Monday of last week: “We’re going to apply what the Americans apply… a tax based on citizenship.”

I call it Sarkozy’s ‘outburst’ because it was apparently a spur of the moment thing, not thought out at all. He wants to tax “tax exiles” but not French expat workers. Good luck drafting laws that make that distinction work! I somehow doubt this proposition will come to fruition too quickly.

However, the language used was nothing short of extremist. “Is it normal,” he went on to ask, “that one can have French citizenship but exonerate oneself of French taxes? It’s profoundly shocking!”

Profoundly shocking to crazy Sarkozy perhaps, but I would say it is completely normal given that it’s the status quo in every country of the world except the USA.

I am wondering what advantages there really are to having French citizenship, if one does not live in France? And I guess a lot of French expats are having exactly the same thoughts right now.

Granted, it’s a pretty good passport to travel on. And if you get into a spot of bother in Colombia or Afghanistan they might send some commandos from Paris to help you out. But is that worth paying more than half your income for? If you frequent risky places you can pretty good kidnap and ransom insurance for a lot less money elsewhere and it won’t be politically motivated either.

France was also in the news this week due to a lone Al Qaeda gunman who went on the rampage in Toulouse, killing seven people including two children. A very, very sad case, but it shows again the probability that terrorists will single out French citizens just as they will single out American (or British) citizens.

You probably don’t need the implications of this news spelt out. Other countries have crazy politicians too. Will the UK, Australia, or Canada be the next country to propose worldwide taxation for its citizens? Or will it be Brazil or Russia or China? I don’t know, but I would say it is highly on the cards that this will happen.

WHY WOULD ANYONE WANT A SECOND PASSPORT?

That is a question I am frequently asked. My standard response is: “You either get it or you don’t.” Unless you are a US citizen about to renounce, the numbers might not stack up. You might not find more profits on your balance sheet the year you acquire a second passport.

“But,” said a US lawyer friend during a conversation this week, “everyone I know who got a second passport is REALLY glad they got it.”

A little example of my own is the visa I need for my trip to Moscow this spring. I have a British passport as I was born there. Due to all kinds of reciprocal measures, obtaining a visa in this passport, from outside the UK, required an enormous paper chase, a few hundred dollars in fees, and a 10-14 day wait. Fortunately I also have a South American passport in which I could get a Russian visa in 3 days with less hassle for a fee of under $50.

WHY NOW IS THE TIME TO GET A SECOND PASSPORT

Why should you get a second passport now? Simply, because if you don’t get the process started now, it may be too late. Second passports are not issued instantly. The absolute quickest you can get a legal second passport is about 90 days. Better, much cheaper options might take five years. The trend is undoubtedly that things will become more difficult and more expensive.

I would say there is at least a 50% chance that some European nations, Canada or Australia will move to worldwide taxation of citizens in the next five years. Some might argue the chance is much higher.

One significant reason this might happen is simply that it is getting more possible to track international assets. Before there was not much point in worldwide taxation because it was unenforceable from a practical point of view. With information exchange on assets and bank accounts becoming the norm rather than the exception, this has changed. The US is blazing the trail with FATCA and will likely share the FATCA information with other friendly governments, who will thus have even more incentive to introduce worldwide taxation for their citizens.

I am not here to preach doom and gloom. I hope I am wrong and that taxation of worldwide income for expats does not become the norm. But having a second or third passport up your sleeve would definitely seem like a smart strategy at this stage.

How to get one? The articles on Q Wealth Report and in the members’ area are a good initiation. We have explained both the current economic citizenship programs, like St Kitts and Nevis and Dominica, and the second residency programs that can lead to citizenship, like Paraguay and Dominican Republic. We’ve even touched on other citizenship regimes that are relatively easy going, like Montenegro, Belize, Uruguay and Grenada. When you are ready to move forward, feel free to contact our offices for referrals to suitably qualified professionals who can help you. (The referral service is limited to paid up members – thank you for your understanding)

Note: the following article was originally published in Mountain Vision. We thought it was useful, timely and important and reproduce it here with the permission of our friends at BFI Capital Group.

The long-established and noble rule of Law, one of the greatest products of the character and tradition of British history, has suffered a deadly blow. Blackmail has become respectable.

~ Robert G. Menzies

Switzerland and its banks have been in the news a lot over the past few years. Lately, it has gotten even worse. Living in Switzerland and running a company in the wealth management ‘arena´ (emphasis added), does at times feel as if Switzerland were under siege.

The latest attacks by the US Justice Department, which ultimately resulted in the breakup of Wegelin, the oldest private bank of Switzerland, do create a considerable level of aggravation. I will refrain from commenting on the details of the Wegelin situation, or the general and dubious assault on Swiss banks here. However, I do want to emphasize the following fact to our international readers and clients: Banking secrecy was not founded on the premise of tax evasion. And, privacy is NOT illegal!

Swiss Banks, and Switzerland, in the Crosshairs of America

The Wegelin story is one that raises many questions. Some are related to the power of the media. Some relate to the rule of law. How far are bankrupt countries allowed to go in their pursuit of tax revenue?

Nothing has been proven and no one has gone to court. Nevertheless, a solid private bank like Wegelin, founded in 1741, can be driven to the point of surrender by the mere announcement of lawsuits, investigations, IRS penalties and criminal charges, and without a court ruling or proof of crime. Furthermore, the US froze Wegelin´s US dollar remittances in the US. Few international banks can live without the capacity of making and receiving USD-denominated payments. Many of Wegelin´s institutional clients, out of fear of frozen USD assets, or out of concern that they would be left out of USD foreign exchange transactions, were leaving the bank in droves.

In response, Wegelin decided to split off the non-US business and sold that part of Wegelin to Raiffeisen Group. US clients remain in Wegelin. Their names are not being handed over to the US. Wegelin is going to fight in court. Hopefully, rule of law will exist there, in the realm of US courts. We shall see.

But there are other questions that are hard to neglect: Is this really about tax dodgers? Is this really about fighting crime? Or, are their other agendas?

The diagram here depicts the long-term solvency positions of European countries. It is easy to recognize that Luxembourg and Switzerland stand apart from the rest. Frankly, I expect that as long as the debt and deficits in the countries around Switzerland, in America and the UK, continue to grow, the pressure on Switzerland will continue to grow as well.

Switzerland, in 2011, has again had a budget and trade surplus. Switzerland allows its people a say in political decisions via its system of direct democracy. It stands for sovereignty, for independence, for freedom, and for privacy. Switzerland, in the midst of insolvent OECD countries, in the midst of social unrest and unprecedented debt elsewhere, stands out like a sore thumb.

The Essence of Privacy

Anyone who understands anything about wealth preservation and asset protection also understands the importance of privacy. It is primarily privacy that protects you from the intrusions of frivolous lawsuits, greedy attorneys and other predators. Asset protection laws and structures are only the second line of defense. A good asset protection plan should aim at first avoiding, or at least minimizing, exposure and visibility.

What this DOES NOT mean is that you must break any laws. To the contrary, we recommend doing your offshore planning compliantly. However, in reading the newspapers, one could come to the conclusion that privacy is criminal. It is not. Governments around the world are running into fiscal problems, particularly the governments of Germany, the United Kingdom and America. Thus, they are setting off on an aggressive hunt for tax money, increasingly employing methods that are at the limit, if not beyond, legality.

When your government acts ‘above the law´, it is time for serious planning. In the absence of rule of law, the most fundamental prerequisite of a functioning free country is undermined. At that stage, protecting your freedom and your property within that country becomes a gamble. Privacy and property are in jeopardy and need to be protected OUTSIDE of your country.

Key Principles of Offshore Privacy

This is the point where you enter the realm of offshore (i.e. international) wealth management and tax planning. A few principles in this context must be understood by all of our Mountaineers, no matter which jurisdiction they come from:

•     Safekeeping and investing assets offshore – in other words, outside of the borders of your country – per se is NOT illegal. What may be required though is regular reporting of those assets, depending on where and how your assets are deposited and managed abroad. Not declaring assets held overseas is what can get you into trouble.
•     Making ‘offshore´ (i.e. international) arrangements for the deposit and management of your assets does not mean that you can thereby leave the tax rules of your country of residence behind. They will generally apply elsewhere, too. Therefore, one should aim at implementing an offshore plan that achieves asset protection and privacy in compliance with the rules of one´s country of residence.
•     The purpose of privacy is to protect the well-being and fortune of you and your family. Privacy does not necessarily require a numbered account though. It starts with your going about your affairs ‘quietly´, particularly in jurisdictions with a high level of litigation. It is important to keep a low profile if interested in avoiding unnecessary risk exposure.
•     Privacy amongst tax authorities within a country that is fiscally bankrupt will generally not exist. Countries like those mentioned earlier have given up such privacy protection long ago. Banks, accountants, and other financial professionals have, to a large degree, become tax agents. The transparent citizen has become the norm. This has become a fact of life already, or will be the common denominator across indebted countries in the near future.

Can Americans Still Own Swiss Bank Accounts?

The answer is a clear and simple yes. Don´t let anyone tell you otherwise. Nevertheless, the question is justified. In fact, and unfortunately, I know of several additional Swiss banks that have now decided to no longer accept American clients. Some of them will even send American clients away, whether those clients declared their account in their tax returns or not.

However, there are several good banks, asset managers and insurance companies that do accept American clients. As part of that group, we at BFI Wealth Management work with American clients, and will continue to do so. We help Americans open bank accounts. We manage their assets. And, we help them diversify their wealth internationally.

The reasons for our clients to work with us? Their primary objectives are safety, wealth preservation, and risk management – all kinds of risks.

Sincerely,
Your “Swiss Mountain Guide”

Frank R. Suess

The following is extracted from Q Bytes dated 11th Fenruary, 2012. We thought it was important to republish it here on the blog. To be sure you don’t miss out on matters like this (including the full text of the newsletter, that has been redacted here to remove some references to individuals) then please sign up for Q Bytes – it’s free!

In the article below:
… WEGELIN: THE IRS CONTINUE TO ATTACK SWISS BANKS

… COURT VICTORY FOR BANKING SECRECY IN FRANCE

… MAJOR DEVELOPMENT ON FATCA IN EUROPE
“What’s new? Quite a lot this week!” says Peter Macfarlane

I am just back from my trip to the BFI conference in the Bahamas, followed by a whirlwind visit to several Caribbean countries working on the ground on hot topics affecting readers: in particular, economic citizenship (that’s second passports to those unfamiliar with the euphemism), and the use of offshore LLCs in IRAs for Americans and in SIPPs for Brits.

In fact, we are currently putting together a deal on the latter that will be very useful to our many readers who have onshore retirement accounts. Retirement nest-eggs are easy, low-hanging fruit for governments to seize (err, I’m sorry, to safeguard) – we’ve already seen this happen in France, Hungary and Argentina and I believe it is only a matter of time before it happens in the USA. More on this in the next month or two. Meanwhile, any feedback and ideas would be appreciated while we are putting this together. Contact us here.
WEGELIN IN THE SPOTLIGHT: THE IRS CONTINUE TO ATTACK SWISS BANKS

The US Justice Department created quite a stir last week by filing charges against Wegelin, Switzerland’s oldest private bank. The DoJ alleges that, from 2008, Wegelin followed a deliberate policy of attracting former American clients of UBS who were alarmed by the US action against UBS and were looking to move their funds elsewhere. Wegelin has no branches outside Switzerland, making it difficult for the US authorities to seize its assets. (They seized $16 million from a US correspondent account, but that’s pocket change for a bank that had about $25 billion under management)

The technique used, says the DoJ, involved creating nominee accounts for clients in other jurisdictions such as Liechtenstein, Panama and Hong Kong, held in the names of offshore companies and private interest foundations. Thereby, although the accounts were managed from Switzerland, they were not actually Swiss accounts. None of the charges, of course, have been proven as yet.

Our take on this is not one of surprise. Nobody thought the Americans would stop at UBS. And Wegelin’s bosses had been quite outspoken in criticizing US actions, so it’s hardly surprising that they would be targeted first. Anyone who, incredibly, still has an undeclared Swiss bank account needs to take appropriate professional advice urgently, that is right now! We can make necessary referrals for Q Wealth members. There are still things that can be done, but time is running out.

COURT VICTORY FOR BANKING SECRECY IN FRANCE

In a less reported court action, however, came some good news for those of us who still support due process and the rule of law: France’s Supreme Court has ruled that information stolen from HSBC Private Bank’s Geneva branch cannot be used in the prosecution of alleged tax evaders.

The facts of the matter are that in 2007 an HSBC employee, Herve Falciani, illicitly copied the details of thousands of client accounts and took the stolen to France, where he tried unsuccessfully to sell it. The Swiss government issued a warrant for his arrest for theft of the data. In a convoluted action, the French authorities then used this warrant as an excuse to raid Falciani’s home and seize the data in question. Falciani is now hiding out under a witness protection programme.

France subsequently made the confidential information available to tax enforcement agencies of many other countries, as well as using it to investigate its own tax residents, including searching their homes.

However, it now turns out that these searches were all illegal. One of the targetted individuals complained to France’s lower appeal court and in February last year succeeded in having the tax authorities’ actions ruled unlawful. The French Budget Ministry appealed that ruling but has now lost in the country’s highest court.

A spokesman for HSBC Private Bank Geneva is reported as saying: “We are pleased with the judgment which confirms that the data was illegally acquired, as we have always maintained.”

The Budget Ministry issued a statement to the effect that the Supreme Court decision would only have a limited effect by restricting its search powers. It is likely that the French authorities always knew the information could not be used in evidence, but have used it to pressure suspects into making admissions.

MAJOR DEVELOPMENT ON FATCA IN EUROPE

This week the governments of Germany, France, Spain, Italy and the UK agreed to collect information from banks within their borders and pass it on to the US tax authorities on the banks’ behalf, as from January 2013. Banks in these countries will apparently no longer have the option of ‘opting out’ of FATCA, and neither will they need to sign individual agreements with the IRS.

This will require a change to the 1998 EU Data Protection Directive, which includes a blanket prohibition on the passing of any kind of private information to the USA.

In return the USA has agreed to collect information on US bank accounts operated by European residents and automatically pass it to the relevant national tax authority.

The European Commission claims a huge benefit, in that if European banks had been forced to comply individually with FATCA it would have cost them around $100 million.

The US Treasury, meanwhile, stressed that it is not contemplating an exemption from FATCA “for any jurisdiction”. This may not please the Canadian government, which has been lobbying for exactly that. The implication is that Canada will be offered the same kind of agreement as the five European governments have accepted. We would also expect to see similar developments soon in Asian banking centres like Singapore and Hong Kong, as well as major Latin American countries like Brazil, Argentina and Mexico.

That’s all we have for you this weekend, but we’ll be back soon with more important freedom, wealth and privacy information! If you would like to be kept up to date, don’t miss out on our free Q Bytes weekly newsletter.

No country on earth will admit to selling passports. It just wouldn’t be politically correct! But there are two sovereign countries that have ‘economic citizenship’ programs, meaning that you can obtain citizenship fast by contributing to their economies.

Those two countries are The Commonwealth of Dominica, and the Federation of St Kitts and Nevis, both English speaking nations in the Caribbean who have found a niche and filled it. They offer internationally mobile, high net worth individuals who pass stringent background checks the chance to obtain citizenship within a few months. The St Kitts and Nevis program has the better reputation, having been run continuously since 1984 and currently attracting wealthy Chinese… and increasingly Americans seeking the only legal escape route from worldwide taxation. St Kitts and Nevis citizens also have the benefit of visa-free travel to all of Western Europe and Canada.

These two countries may soon be joined by a third: Grenada.

Grenada is not a new player in this market. Up until 2001 this Caribbean nation ran an economic citizenship program, but shortly after the events of 9/11, the then Finance Minister, Anthony Boatswain announced the suspension of this program, claiming that it became “too risky”. Belize suspended its citizenship program at the same time, although rumor has it that it is still quite easy to obtain a Belizean passport.

However, in Grenada things have changed. Perhaps they are looking jealously at the success of the St Kitts and Nevis program and believe they are now in a better position to tackle the due diligence and political challenges that a citizenship-by-investment program carries with it. A recent report by news service Caribbean 360 states that, “the harsh economic realities now facing Grenada has led government to consider offering overseas investors citizenship in exchange for large financial injections into the island.” So perhaps, as the report would seem to say, they are just desperate!

Anyhow, the outline plan was officially announced by Tourism Minister Peter David last month. “We have listened with interest to the proposal for an Investment Incentive Package for qualified applicants,’’ says the Minister.

The Grenadian government have yet to announce details of the plan, but you’ll be pleased to know that your Q Wealth team are hard at work on a new ‘economic citizenship’ report exclusively for our paid up members that will look in depth at the advantages and disadvantages of the Caribbean citizenship programs. Stay tuned.

We will also be giving a presentation on second citizenships at the BFI Inner Circle Briefing in the Bahamas in just over a week. There is still time to register for the Briefing, and we still have a few slots free for in-depth (paid) consultations on citizenship and offshore issues with Peter Macfarlane and Richard Cawte. Contact the Q Wealth Offices if you are interested. If you can’t make it to the Bahamas, consultations by telephone can also be arranged. And finally, remember that all paid-up members of Q Wealth are entitled to a free consultation by e-mail with one of our recommended experts.

Guest post by Terry Coxon, Casey Research

By keeping all your assets in the country where you live, you commit, ahead of time, to ratify whatever policy your home government might adopt, no matter how objectionable, unreasonable or pernicious that policy happens to be. If the next new mandate is “Register today to get a nail pounded into your head,” you’re already signed up.

Americans, by and large, run all their affairs within the confines of the US. The US economy is so large and so varied that it’s easy to assume that everything you want to do with your wealth can be done without crossing any borders. And people in the US, like people anywhere, live with the habits and attitudes developed over generations. They’re only human. In the case of Americans, those habits grew out of long experience with a government that was small and that generally practiced the rare virtue of following its own laws. In a happy exception to mankind’s experience with rulers, there was little to fear from it.

Stay at home is still the norm for Americans, but it’s a norm that is slowly fading. Every billion-dollar tick of the government debt clock, every expansion of the government’s regulatory apparatus, every overreaching judicial decision made in the name of a compelling public need, every inversion of protection for citizens into license for the state and every intellectually tortured discovery of a new meaning in the Constitution’s 4,400 old words leaves a few thousand more people wondering how prudent it is to consign all their eggs to a single national basket. Encounters with high-handed IRS agents and eager TSA gropers do nothing to ease that concern. And for those who listen thoughtfully, the messages from our designated leaders and their would-be replacements only hurry the dawning sense of unease.

Specific worries include exposure to predatory lawsuits, especially claims that could draw extra go-power by association with politically favored causes or legally favored groups; fear of where income tax rates might climb; the prospect of losing a family business in a regulatory battle or simply through estate tax; the fragility of financial institutions that have operated for forty years with the assurance that the Federal Reserve would rescue them from any folly; the possibility that a government desperate to protect the dollar from collapse might impose foreign exchange controls or capital controls; the memory and precedent of the forced gold sales of 1933; and the thought that a government floundering in deficits might start pilfering from IRAs and other pension plans.

But beyond those particular worries and perhaps more important than any of them is the sense that from here on, anything goes. The politicians will do whatever they find convenient, because there is no longer anything to stop them – not an electorate that is jealous of its freedoms and certainly not the Constitution, which is now just a playhouse for judicial imagineering. No one can know what’s coming next from the government and the financial system it has fostered, but for many of us there is an awful suspicion that we are not going to like it.

Most Americans still have yet to stick a single financial toe across the border, but more and more are considering it. Many, perhaps millions of toes are now twitching at the thought. Their owners want to end their absolute dependence on what happens in the US. They want to prepare for whatever is coming down the road, even though they don’t know what it will be. They want to be as ready as possible, even though their worries can only guess at what’s ahead.

Because internationalizing your financial life means dealing with the unfamiliar, the project can seem more complex than it really is, so it’s best to start with the simplest measures, even if by themselves they don’t give you all the safety you’re looking for. Even from a simple beginning, what you learn with each step will make the next step easier to plan. Start with the first rung on the ladder of internationalization. Then climb, at your own speed, to reach the right level of protection.
Rung 1: Coins in Your Pocket

Gold coins that you’ve stored personally give you something whose value doesn’t depend on the health of the US economy, doesn’t depend on any financial institution in the US and doesn’t depend on any US government policy. Gold coins are portable and hold their value no matter where in the world you might take them. They’re internationalization in a wafer. Safety cookies.

It’s best to buy the coins for cash, for maximum privacy. And there is a good reason to favor one-tenth-ounce gold Eagles. Gold coins mean readiness for troubled times; if you ever need to dispose of the gold in an informal market, it will be easier to do so with small-denomination coins that are widely recognizable and whose value matches the scale on which large numbers of people normally trade.

The premium on one-tenth-ounce coins (the price compared with the value of the gold content) is higher than on the larger coins – usually about 15% for the small coins vs. 5% for one-ounce Eagles. But the premium isn’t a dead cost, like a commission or bid-ask spread. The premium is a second investment; it’s what you pay for the packaging, and you can expect to recover it when you sell or trade. And in the circumstances when you would have the strongest reasons for thanking yourself for having bought some gold, the premium you paid will look like a bargain.
Rung 2: A Foreign Bank Account

On its own initiative, the IRS can freeze any bank account in the US without warning. The action might arise from mistaken identity, from an erroneous filing by some other taxpayer, from your failure to respond to an IRS notice in time or even from a postal error. And that’s what can happen without malice. Other government agencies have similar powers to act on their own, without giving you an opportunity to object in court. And any one of them might act against you for any of their specialized reasons – perhaps because someone resents your inattention to the needs of the migratory birds that visit your property or perhaps because someone thinks it would be fun to point to you as a terrorist, drug smuggler, arms dealer or child-porn merchant.

In principle, there are legal avenues for undoing a freeze or a seizure. But you’d need a lawyer, and being suddenly penniless could get in the way of hiring one.

A foreign bank account protects you from being trapped in such a nightmare. The US government can get to your foreign bank account eventually, because it can get to you. But a lightning seizure is very unlikely, because it would require a foreign government to override its own legal processes, which it generally wouldn’t be willing to do except in a grave emergency. So if your liquid assets at home were frozen, you would have cash outside the US to fund the legal cost of untangling the problem.

A foreign bank account is also a way to step back from the uncertainties of the US dollar, since the account could be denominated in another currency.

The US government has seen to it that Americans are no longer welcome customers at foreign banks. So forget about opening a Swiss bank account in your own name. However, if you apply in person (not by mail), you still can open a bank account in Canada. Be prepared to show your passport and to give the bank an original utility bill that confirms your place of residence.
Rung 3: Gold Abroad

The forced gold sales of 1933 were the work of an executive order signed by President Roosevelt. The purported legal basis for the order was the Trading With The Enemy Act, a legislative artifact of World War I. I have yet to find an explanation of how the authority for an order requiring Americans to sell their gold to the government at the government’s official price of $20 per ounce could be found in the Trading With The Enemy Act, but the fact that the enemy in question had gone out of business 15 years earlier didn’t seem to interfere with the legal logic.

The forced sale was a prelude to an increase in the official gold price to $35. The government’s reason for wanting that price rise was to gain leeway for a substantial, though limited, inflation of the dollar while keeping the dollar on the international gold standard. The forced sale was a way for the government, which operated in a political environment that still disfavored deficit spending, to capture the profit from the price rise. That profit would be a kitty for more spending without more borrowing.

Today there is no gold standard for the government to stay on. And deficit spending isn’t something politicians especially want to avoid; they’ve promoted it as a civic duty, to stimulate the economy. So the depression-era motives for a gold grab don’t seem to apply. Yet you can’t listen to a conversation between two gold investors without hearing the seizure topic coming up.

Are they just scaring each other? I don’t believe so. There are two potential motives for the government to again treat gold differently from everything else.

If the dollar’s slide in foreign exchange markets threatens to turn into a panic, the government might want to use gold sales to foreigners to mop up foreign-held dollars – in which case it might see a need to mop up the gold owned by its own citizens. That’s bad enough, but a second motive is a good bit nastier. At a visceral level, people who have centered their lives on government just don’t like gold. It’s an affront to the government’s authority to command and control and an insult to government’s supposed aptitude for solving economic problems. So disrespectful. From their point of view, every ounce purchased by an American is another tomato hurled at the political class. And the purchasers still constitute a tiny minority of the voting population. What could be more satisfying and convenient for the politicians than to kick sand in the face of gold investors for being such lousy citizens?

A new attack on gold ownership probably wouldn’t be a point-for-point reenactment of 1933. There are many weapons for mugging gold investors. It could be a prohibition on gold ownership coupled with a prohibition on sales of gold to foreigners. The only one left to buy would be the government, and being the only bidder, it would be a very low bidder. It could be a commandeering of privately owned gold, with token compensation like the $15 per day paid for jury duty. It could be a super tax, say 90%, on gold profits, which would get the job done slowly… or quickly if it were accompanied by a mark-to-market rule. Or it could be something none of us has thought of yet.

Not only can’t we know the shape of a future gold grab, we can’t know whether or how the rules would touch foreign-held gold. Owners of gold stored outside the US would be a minority of a minority. Their gold wouldn’t be the low-hanging fruit – it would be higher up in the tree and more trouble to get to. That’s why, in a casino sense, gold overseas is a different bet and a better bet than gold at home.

Maybe it will turn out that storing gold overseas won’t matter at all, in which case a little effort will have been wasted. And maybe it will turn out to matter a great deal.
Rung 4: A Swiss Annuity

A conventional annuity contract is a device for accumulating investment returns and eventually converting the value into a lifetime income. The investment return on an annuity from a US insurance company is tax deferred until it is paid out to you. If you buy an annuity from a foreign company, tax deferral is available only if the annuity’s value is tied to the performance of a pool of investments (a variable annuity).

Swiss annuities have long held a special place in personal financial planning. Such an annuity is denominated in Swiss francs, i.e., it’s francs, not dollars, that are owed to you. The Swiss insurance industry has a perfect record; policyholders have never been hurt by a default. And a Swiss annuity comes with an element of protection from would-be lawsuit creditors.

The Swiss franc is, like every other modern-day currency, just a piece of paper. It’s not redeemable for anything, not even a piece of chocolate. But the Swiss National Bank has a remarkable record of restraint in issuing new francs, which means that the franc’s prospects for holding its value have long been rated better than for any other currency.

I believe that is still the case, despite the Swiss National Bank’s current policy of suppressing any further increase in the price of the franc. In September, in order to save export industries from being crushed by the franc’s rapid appreciation against other currencies, the Swiss National Bank announced that it would purchase euros without limit to enforce a minimum exchange rate of 1.2 francs per euro – which implies printing enough francs to pay for those euros. By itself, it is an inflationary move, but it’s not a suicide pact with the European Central Bank (the issuing authority for euros). If the ECB turns to a policy of rapid inflation, I would expect the Swiss National Bank at some point to decouple the franc from the euro and let the franc’s price rise. So owning some Swiss francs, whether directly or through an annuity, is still a good step toward internationalizing your financial life.

Under Swiss law, an annuity is protected from the owner’s creditors if the beneficiaries consist of family members or if the owner has made a beneficiary designation that is irrevocable. For an owner in the US, that protection is not an impenetrable barrier to the winner of a lawsuit, but it is a barrier, and it makes the annuity a less-than-ideal prize for an attacker.

Earnings that are accumulating in a Swiss annuity are not eligible for tax deferral for a US taxpayer. The advantages are currency protection, the reliability of Swiss insurance companies and a measure of asset protection.
Rung 5: Foreign Real Estate

Owning real estate in another country gives you a suite of protections that distinguishes it from other steps toward internationalization.

First, the property’s value will depend on economic conditions in the country you’ve chosen, not on what happens in the US. If the economy of the foreign country grows and prospers, there is likely to be a spillover effect on the market value of your house, apartment, farm or patch of land – regardless of what is going on in the US.

Second, a foreign real estate investment would be hard to digest for any future capital controls imposed by the US. New rules could compel you to repatriate the cash you have in a foreign bank; rules forcing you to liquidate your foreign real estate and bring the money home would be another matter. Selling real estate isn’t quick or easy. How does the government compel an unwilling citizen to do what an eager seller often finds difficult to accomplish?

Third, as a potential prize for a lawsuit attacker, foreign real estate is a stinker. Even if he wins a judgment against you, foreclosing on your foreign property would be difficult to impossible, since it would require the cooperation of the courts in the foreign country, about whose rules and procedures the attacker’s attorney probably knows nothing. But he does know that even if he persuades a court in the US to order you to sell the property, the inherent illiquidity of real estate would give you plenty of opportunities for foot-dragging.

Where to buy? The whole world is open to you… which can be a problem. So many possibilities and no obvious place to start. One approach is to think about where you’ve been that you’d like to visit again or about some place you’ve long wanted to see. Plan to spend a few weeks there. Minimize your hotel hours, to maximize your exposure to the rest of the locale. Try to meet Americans, perhaps expatriates, who know their way around the place and who can point you toward a real estate broker who won’t try to treat you as an out-of-town sucker.

Buying foreign real estate isn’t for everyone. It requires a big investment in time and effort, but it could repay you with an asset that is low on the list of things anyone might try to take from you.
Rung 6: A Foreign LLC for Investments

A limited liability company organized under the laws of a foreign country is easy to set up and not too expensive. To bring the company into existence, you (or a service you hire) would file a simple form with a government office in the country you’ve chosen and pay a small fee. Then you as the LLC’s Manager and you as the LLC’s owner would enter into an agreement (the “operating agreement”) that would be the company’s governing instrument.

As the LLC’s Manager, you would open a non-US bank account or brokerage account in the name of the LLC and transfer your personal cash and investments to that account. Again as Manager, you would make all the investment decisions.

For a US person, a foreign LLC can be a powerful door-opener. It is welcome at many banks and brokerage firms where you personally would be turned away. This enables you to keep a wider range of assets outside the US, which puts more wealth beyond the reach of any arbitrary bureaucratic action. It also gives you investment choices that aren’t available at home.

Access to foreign investments and overseas financial services is reason enough to consider using a foreign limited liability company. But it can do much more for you, although at the cost of some complexity.

Notice the fundamental difference between a foreign LLC and what is going on at the first four rungs of the ladder of internationalization. With the LLC, you no longer personally own the assets you are trying to protect; the company owns them. This makes the LLC a powerful device for reducing your family’s expose to gift and estate taxes. And with the right provisions in the operating agreement, it can provide strong protection against loss to any malicious lawsuit.

If you are the sole owner of a foreign LLC intended for holding investments, you can and almost certainly should file an election for the LLC to be treated as a disregarded entity (indistinguishable from you for income tax purposes). If your spouse or anyone else is going to share in ownership of the LLC, the company can and should elect to be treated as a partnership for income tax purposes.
Rung 7: A Foreign LLC for Business

A business that operates outside the US does even more than a portfolio of foreign investments to give you the benefits of internationalization.

By its nature, a foreign business lives in a different environment than a business in the US. Economic troubles at home might not touch it. If it’s a business that depends on your personal efforts, it’s even less attractive as a lawsuit prize than foreign real estate. Being foreign, it would be outside the range of capital controls in the US. And many of the financial institutions that might turn away an investment-owning LLC because it is owned by an American will welcome an LLC that makes or sells goods or services.

If you already have a business in the US that has foreign customers or foreign suppliers, you may be able to relocate the business’s non-US activities to a foreign LLC. Internet-based businesses are especially amenable to internationalization.

Locating your business in a low-tax or no-tax jurisdiction, if it is practical to do so, can reduce your overall tax burden. In many cases, a foreign LLC that operates a business should elect to be treated as a foreign corporation for US income tax purposes. That can allow the business to reinvest its earnings while it pays little in current taxes and you personally pay nothing.
Rung 8: An International Trust That You Establish

Establishing a trust outside the US is the strongest internationalization step you can take for yourself and your family. Doing so costs more than any other measure, but the costs needn’t be prohibitive if your goal is to move $500,000 or more into the safest structure possible. What you achieve is a very high level of protection from aggressive lawsuits, from potential capital controls and from the possibility of a gold seizure. The trust also puts your wealth in a far better environment for income tax planning and for estate planning.

To serve the purposes of protection and tax savings, an international trust is irrevocable (you can’t simply call the institution you’ve chosen as trustee and say you’ve changed your mind) and discretionary (meaning that the trustee has a responsibility to decide when to send a check to you or to any of the other beneficiaries you’ve included). Putting assets under the control of a trust company under such an arrangement is a big step. You’re not going to do it unless you’ve done the homework needed to understand how and why you can count on the trustee to handle the assets in the way you intend.

Getting the protection and tax savings of an international trust doesn’t require you to give up management control of the assets. The trust can be limited to owning just one thing – an LLC that you manage. The LLC owns all the investments, under your supervision as LLC Manager.

If you establish an international trust, it will be tied to you for income tax purposes. But at the end of your lifetime, it will completely disconnect from the US tax system. At that point, for the benefit of your survivors, it becomes…
Rung 9: An International Trust Someone Else Established

Being a beneficiary of an international trust established by someone other than a living US person is as good as it gets. It’s not linked to you by any transfers you’ve made to it, and you don’t have a determinable percentage interest in it (since it’s a discretionary trust). So until you actually receive a distribution, there is nothing for you to report, nothing for you to pay tax on and nothing a potential lawsuit creditor can hope to take from you. And, having no living connection to the US, the trust is as far beyond the orbit of any conceivable US gold seizure or currency controls as the former planet Pluto.
One Toe over the Line

It’s a long way from walking into the local coin shop and buying a few one-tenth-ounce gold Eagles to setting up a trust in a foreign country. But the distance isn’t nearly as great as you might imagine, and it will get shorter both in fact and in apprehension with each step you take.

As you move up the ladder, you’ll learn about the reporting requirements for US taxpayers. Rung 1 (gold coins in your pocket) entails no reporting, nor does Rung 8 until you actually receive a distribution. Rung 5 (foreign real estate) also is free of reporting requirements, at least for now. But under rules in effect now or soon to come, everything else covered in this article entails filing a form with the US government. The most reliable way to make sure that you stay within the rules, so that internationalization adds to your safety and not to your problems, is to let your accountant know what you are doing. Keep him informed, so that he can see to it that all the reporting requirements are satisfied.

[Every day you delay beginning your internationalization strategy is another day your bank accounts are hemorrhaging. Learn how to protect yourself.]

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