Many of our US readers are concerned about whether to ‘check the box’ on the FBAR (Foreign Bank Account Reporting) form, also known as  TD Form 90-22.1 There has been particular concern that the regulations covering FBAR reporting for last year, 2010, were not clear.

In our free Q Bytes newsletter this week, our resident non-resident banking expert Peter Macfarlane reviewed the new regulations, including a link to a detailed summary of the new FBAR regulations carried out by our friends at Mountain Vision. Since this is such an important topic, we decided to reproduce Peter’s article in full here on the blog.

On February 23rd 2011, the U.S. Treasury Department released its (new) final regulations regarding the obligations to file an FBAR. These final regulations follow the respective proposals issued roughly a year ago on February 26th, 2010. These new rules finalize and clarify several of the proposed provisions. As can be expected with any and all tax rules, they also leave a number of open questions.

Our friends at BFI have written a detailed practical analysis of the new rules here in a special Mountain Vision alert. We strongly suggest you read it. In the meantime, here are a few key things you should know:

• The final rules apply to financial accounts maintained in 2010 and require an FBAR filing by June 30, 2011.
• All LLCs formed under U.S. laws are treated as U.S. persons who are subject to FBAR reporting requirements, even limited liability companies that are treated as disregarded entities for U.S. tax purposes. This puts an end to the use of American LLCs from states such as Delaware, Nevada and Wyoming for international tax planning.
• Unallocated precious metals programs such as the Perth Mint Certificate Program or GoldMoney are now definitely reportable. Physical precious metals held in, for example, a Swiss or Austrian safe deposit box with relevant foreign private banks are also now reportable, at least in those cases where such safe deposit boxes are linked to the ownership of a bank account and a private banking relationship. This is a major change to the old rules.
• The new treasury FBAR rules still do not clarify whether allocated and segregated precious metals programs such as Global Gold or a personal overseas vault that is NOT linked to a banking relationship are reportable. At this point, BFI have concluded that the Global Gold program is reportable, at least in its current form, although there is an allocated segregated storage program run by Global Gold for institutional clients that may not be reportable.
• Only individuals, not entities, have FBAR filing requirements on account of “signature or other authority”. Individuals who merely participate in decision-making, or who instruct or supervise persons with signature authority, are not themselves treated as having “signature or other authority” that trigger an FBAR reporting requirement. This is very odd provision, that might be taken to create a huge loophole.
• Gold has been singled out specifically as reportable under the new regulations. Other precious metals would not appear to reportable on FBAR. Thus, silver, platinum or palladium held in the Global Gold program would be non-reportable.

The new rules on what constitutes a ‘foreign account´ that is reportable, once again raise the question as to what the true agenda behind FBAR rules really is. Is it really about the drug trafficking and terrorism they keep using to justify it? Or is to do with taxation and capital controls?

I’ve noticed that a lot of my colleagues who came out and said that the HIRE Act was not about capital controls when it was first released (refer to our article here) have now quietly changed their minds.

I will not beat about the bush. These rules are about the US government taking control of what American individuals do with their money. They are designed to deter the little guy from going offshore. In the meantime, they leave some big loopholes open for the big guys.

The reason for turning up the heat is that more and more little guys are going offshore. Because it make sense. The tighter they turn the screws, the more it makes sense to go offshore. Fortunately it is still possible within the rules to keep assets securely offshore legally. The Q Wealth Report will continue to bring you practical information on this. Meanwhile, we would advise you to seek urgent professional advice if any part of the Foreign Bank Account Reporting requirements and your obligations thereunder are unclear to you. Paid up Q Wealth members are entitled to free referrals to relevant professionals.

If you’ve ever considered going offshore, banking, living, investing or doing business internationally in Latin American offshore financial centers like Panama and Uruguay,  or on one of the Caribbean islands (Cayman, Bahamas etc), I’ve got some important news for you below.  As Swiss banks are under pressure as never before to lift the veil of bank secrecy, places like Panama have become to look like more attractive options. But how does this work in practice? What is going on today in the secretive world of offshore banks?

The following missive was sent out in our free Q Bytes newsletter a week ago. Response from readers has been phenomenal so we decided to publish it here on the blog, in order to make it available to a wider audience. (If you would like to receive news like this in advance, directly in your e-mail box, be sure to sign up for Q Bytes – remember it’s free!)

As we noted in our last article on the benefits of Panama Corporations and Bank Accounts, Q Wealth has quite a strong Latin American bias when it comes to investing and carrying out offshore business. Although this may surprise some readers, especially in the face of the world-shaping events and undeniably huge money-making opportunities in the Far East that we’ve also recently covered in Q Bytes, we can assure you that ours is a well thought out and considered policy.

Some places in Latin America are very liveable – Panama, for example, for those who dream of living tax-free near a tropical beach, or Uruguay for traditional European style city living at a fraction of the cost of the original version.

This week we are pleased to announce a brand new report prepared by Alternative Latin Investor magazine in association with Peter Macfarlane and The Q Wealth Report. This brand new report covers in-depth the state of offshore banking and wealth management in Latin America and the Caribbean – from a completely new, independent perspective.

It’s based on exclusive interviews with hands-on people in the know, movers and shakers like top bankers and business leaders. And best of all, this report is available entirely free of charge to Q Wealth members. You can download your copy right now in our Members’ Area.

If you have ever considered setting up a Panama bank account, retiring to a vineyard in Argentina, or opening an offshore internet  bank account (or an e-commerce offshore merchant bank account), then you need to read this report. It will help you understand how offshore banking in Latin America and the Caribbean works today – not so much the nuts and bolts of how to do it that you can already get from our Practical Offshore Banking Guide, but things like why different jurisdictions offer different services, how and what the local people, expat bankers and retirees are thinking right now, how governments in the region are reacting to political pressure from the USA, G20 and OECD, and how to ensure the security of your bank deposits… this report will give you the geopolitical depth behind the headlines, essential information for anyone considering living, investing or doing business in the region. You might also enjoy reading our post on the best offshore banks.

We would especially recommend this report as essential background reading alongside our Practical Offshore Banking Guide 2009.

HERE’S WHAT YOU WILL LEARN IN OFFSHORE BANKING LATIN AMERICA 2009

Will reading this report be a good investment of your valuable time? I’m sure that’s what you want to know. So here are a few of the key points and quotes specifically covered in this report, that I thought you might find particularly interesting. I’ll try to expand on these in future articles, but in the meantime you can read the details in this Offshore Banking Latin America 2009 report…

• Diversifying location for capital is a significant trend in both the Americas and Europe. Those new to offshore banking may be thinking twice about moving in that direction, but those familiar with its mechanisms feel it is a haven in the present climate. You’ll find out why.
• Whereas before most people thought the worst couldn’t happen, now smart people are planning for worst case scenarios. For Americans, that means a total collapse of the dollar. While inexperienced investors may feel that foreign markets are risky during times of crisis, smarter investors are well aware that risk can be substantially reduced by diversifying offshore.
• Instability provoked by the financial crisis could spark the return of economic nationalism like currency controls or even expropriation around the world. This may be carried out via the back door. Learn how investors and banks in the region are protecting themselves and their assets. For example, learn why corporate accounts at Brazilian-owned banks in New York and Nassau have grown ten-fold since the beginning of 2008.
• Find out more about the breakdown between corporate and personal accounts, and how clients typically achieve stronger asset protection through the use of corporate structures
• Read candid interviews with bankers about how European tax directives could affect European banks with branches in Latin America… this is stuff you won’t read on banks’ corporate websites.
• Why Panama is “not so artificial” and has “a solid economy” – compared to certain Caribbean jurisdictions that might look great on paper, but where the rule of law may not be respected. What image do you want to project when people do due diligence on your offshore corporation? One offshore provider gives a few warnings about things that don’t appear in the official brochures, and names a couple of jurisdictions (including one island that is particularly popular with Americans) that have a less than positive reputation.
• Learn more in-depth about the Panama banking system by reading interviews with local bankers and business people. Legally speaking, there are three different types of banks in Panama – what are the differences? Which should you choose, if any? How does Panama provide security for bank deposits?
• Why asset protection is so important: “If you want to sue someone in the States it doesn’t cost you anything but you can go bankrupt defending yourself.” Learn how Caribbean jurisdictions easily prevent this kind of fantasy lawsuit from ever being filed.
• “Before you had to be a multi-millionaire to make it worthwhile. Now there are people with $100,000 looking to diversify into foreign currencies or invest overseas. This has been made possible by offshore internet banking.” Read about the latest internet banking technologies, debit and credit cards, and multi-currency accounts in the region.
• Read an exclusive interview with Gaetan Bucher, Swiss-Dominican banker and the founder of the $850 million ‘International Financial Centre of the Americas’ – the first financial free zone in the world. This is literally a new ‘financial city’ due to start construction by the end of 2009 with completion scheduled for 2012. IFAC will offer real time offshore banking as well as an electronic clearing and settlement house LAIFEX – backed up by sophisticated financial services from big names. The regulations are being drawn up by Washington law firm Patton Boggs and Deloitte Consulting in London. Lloyds of London are also involved in the project.  Crucially, it is completely aligned with ‘best practice’ guidelines from the OECD and G20. This interview in my view represents a fascinating vision of the future of offshore banking and investing, where borders become insignificant. What will the offshore landscape look like when IFAC opens in 2012? Anyone thinking of going offshore now should think very seriously about this last question.
• Discover a new free online networking opportunity aimed at Baby Boomers retiring offshore, where they can search for international real estate, ask questions of experts, and meet people with similar interests. It’s a chance to connect with people who have ‘been there and done that.’
• Nothing beats doing your homework on an offshore jurisdiction before you finally select. One banker comments how smaller banks are often more orderly than big banks. He says, “Look for a historic bank that has worked well for many years, that has a strong balance sheet and doesn’t do strange things.” And you’ll learn other due diligence tips too.
• Do people who are retiring in the region need offshore accounts, or can they get better services from local banks? An important question for those applying for residence or buying property. It’s answered in this report.

All the above and more is covered in Offshore Banking: Latin America 2009, available free for download in Q Wealth’s Members Area. If you are not yet a member, you can buy access online now for just $87 for a year’s membership. Sign up now and get this info while it’s hot of the press!

Offshore hedge funds, mutual funds and so-called high yield investment programs could be next on the IRS hitlist. That’s the conclusion of a recent Wall Street Journal article. After the recent events with Swiss banking behemoth UBS, other large offshore banks and financial institutions are ‘low hanging fruit.’ What does this mean for you as an offshore investor? Peter Macfarlane explains below.

Alex Raskolnikov, a professor and offshore tax expert at Columbia University Law School quoted by the Journal, believes that the IRS and US Justice Department will try to identify tax evaders who invest with offshore hedge funds managed by offshore banks. This will play out as as part of the US government’s ongoing effort to have big foreign financial institutions, which are incorrectly regarded by many as the best offshore banks, to provide them with confidential information about Americans who open offshore bank accounts.

Legislation recently introduced in the US Senate by Finance Committee Chairman Max Baucus would go beyond the existing FBAR (Foreign Bank Account Reporting) requirements, which are filed by taxpayers only on annual basis. It would require U.S. financial institutions to report to the IRS transfers of money into any foreign financial account in real time. The IRS would therefore automatically receive electronic information on new offshore bank accounts as soon as they were opened. Scary stuff, for sure! But that is exactly the purpose of it.

Until recently, US tax attorneys  understood that FBAR requirements did not apply to interests in off-shore hedge funds. However in June of this year, according to the article,  an IRS official stated that the term “financial interest” would include hedge funds that “function as mutual funds.”

Ironically, anecdotal evidence suggests that the majority of investors in offshore hedge funds are in turn US tax-exempt hedge funds such as charitable organizations and pension funds. However, while hedge funds were once the domain of sophisticated investors playing with millions, there is no doubt that many are now operating more like regular mutual funds.

Of course, it is by no means clear how this information on transfers of money into foreign bank accounts would help the IRS. Millions of international transactions clear in New York every day and surely few investors seeking confidentiality offshore would directly transfer money between accounts held in their own names.

How could investors avoid popping up on the IRS radar? Simple. By transacting business in currencies other than the US dollar. This will surely be an advantage rather than an inconvenience for most American offshore investors. The major motivation for going offshore these days is not tax at all, but rather protecting the value of assets against the terminal decline of the dollar and the collapse of the US financial system.

Many of the more private European banks are now actively trying to dissuade clients from transacting business in US dollars at all, preferring that their customer data doesn’t have to be sent to New York. For example, one private banker recently told me that when a client wants to transfer dollars to another bank, they typically fix a EUR-USD rate in advance with the other bank. The transaction settles in Euros, and then is converted back to dollars on arrival in the internal books of the beneficiary/receiving bank. Importantly, my banker prefers to absorb the additional costs of the spread, rather than expose clients to dollar transaction clearance in the US.

Gold is also emerging as a settlement currency for interbank transactions in the mainstream banking system. This is a pleasing novelty that I hadn’t expected to see. Whilst regular readers know I’m a big fan of holding physical gold bullion as opposed to paper or electronic gold liabilities, such liabilities are certainly useful for short term transactions.

Raiffeisen Zentralbank Austria, which with its Eastern European and Asian clients has one of the highest volumes of US dollar clearing outside the USA, has been pioneering this. Since earlier this year they have been offering regular bank accounts denominated in gold ounces, which have prompted a number of offshore banks to offer such services to their clients, using RZB as the correspondent and clearer. A number of banks are now offering gold as a regular currency option in the currency portfolio of their multi-currency bank accounts. Yes, that means you can actually send and receive SWIFT transfers denominated in gold, provided both the sending and receiving banks have appropriate correspondent accounts.

Of course, for many Americans – those most affected by this clampdown – opening bank accounts denominated in other major world currencies appears to be  just a pipe dream. Very few American banks even offer Euro accounts. That’s a far cry from some of the banks we routinely refer clients to, which allow you to hold balances in more than thirty currencies conveniently managed under one account number. And then, there is the problem that many foreign banks simply refuse to work with US clients.

The fact is, however, that despite the government propoganda, opening an offshore bank account is a lot easier than you might think.

It is perfectly legal for Americans to hold as many offshore bank accounts as they wish. And there are still distinguished private banks in reputable tax havens that welcome American clients – especially those who don’t wish to do business in dollars. You will a special note for US Citizens (together with another special note for European Union Citizens) in Q Wealth’s Practical Offshore Banking Guide 2009. Best of all, it includes specific contact details of various banks and brokerage houses. In many cases you can use this information to open your account with no need for hiring an intermediary, and to open an account without even leaving home! You can download this 40-page manual absolutely free with your membership of Q Wealth.

If you are not signing up yet but are interested in hearing more about this topic, don’t hesitate to sign up instead for our Free Q Bytes e-mail newsletter, your weekly guide offering analysis of what’s going on in the offshore banking and asset protection world.

September 23rd will be an important date in the calendar of many of the USA’s most productive entrepreneurs and businessmen – people who sought to protect their assets against America’s out of control government and court system, through offshore (mainly Swiss) private bank accounts.

For those agonizing about whether to come forward in the amnesty, those merely contemplating doing so, or those in other countries like the UK and Australia wondering if and when their governments will be doing the same thing … I have discovered an excellent new contact who could help you sleep sounder at night (and no, he’s not a doctor!)

Although the IRS extended again in some limited circumstances the deadline for US taxpayers to file their 2008 FBAR forms  (Foreign Bank Account Reporting) forms otherwise known as Form TD F 90-22.1, the deadline for the amnesty looms.

The IRS has stated that US taxpayers who didn’t file FBARs for any of the prior six years (2003 to 2008), but nonetheless reported and paid tax on all taxable income, should file FBARs for such years by September 23, 2009. In such cases, the IRS has advised that no late filing penalties will be imposed. Note that the mailing address for submitting the amnesty is different from the mailing address for filing the regular FBAR return. A copy must be mailed to the IRS’s ominous sounding ‘Philadelphia Offshore Identification Unit.’

Fortunately, yours truly, Q Wealth’s offshore banking commentator Peter Macfarlane, has been busy in this regard on behalf of his many American friends and readers. I have identified and done due diligence on a US licensed attorney who spends about half his time working offshore, and half his time working from his law offices in the USA. The advantage of this, over contracting a US attorney directly in the US, should be obvious – besides his experience in offshore matters, you can actually talk to him securely while he is offshore, or even fly to meet him offshore. If you wish, you can even hold an initial meeting anonymously.

Of course, as you know from many of my recent articles, I believe most of the IRS’s crackdown consists of bluff. But still, it’s important to be compliant and to sleep soundly at night. Most of us I am sure would rather pay up some extorsion money rather than risk having armed thugs breaking in to our home in the early hours of the morning!

As you can imagine this lawyer is extremely busy at the moment. He is one of the best and is well ahead of the crowd of other lawyers who have recently jumped on the bandwagon in order to profit from representing clients in this amnesty. In fact, I believe he’s the only one who has an established base offshore.

So, in order to allow him to maximize his time, we are currently only referring clients to him after they have had an in-depth consultation with one of the Q Wealth Experts. We remind you that in-depth consultations are free with membership of the Q Wealth Report – simply contact the front desk and ask to be referred to an expert for an e-mail consultation. If your case is particularly urgent, there are other options for expedited or personal consultations.

If you are not yet a member of Q Wealth, the very first thing to do is sign up and study our material. It is not specifically US related and we don’t give tax advice – but our offshore banking and asset protection material is surely essential reading for anyone with offshore assets.

If on the other hand your answer is “Not now thanks, but I’d like to keep in touch” then simply sign up for our free Q Bytes, and receive our free five-part e-mail course Secrets of the Super Rich. e-mail newsletter

When your government acts “above the law”, it is time for serious planning…

The following is reproduced with kind permission from Mountain Vision, the newsletter for clients of BFI Capital in Switzerland. The idea of privacy being a cornerstone of asset protection is very simple when you think about it. Long before banks even existed, people protected their assets by hiding them!

But sometimes we get so bogged down in legal details that we can’t see the wood for the trees. Legal protection is only as good as the legal system (and aren’t you trying to protect yourself against the legal systen?) This article discusses how you can achieve the goal of total privacy and confidentiality for asset protection purposes, while remaining compliant with the law in your country of residence. It discusses the use of physical precious metals such as gold bullion, and international life insurance and annuities of the type offered by BFI.

Anyone who understands anything about asset protection also understands the importance of privacy. It is primarily privacy that protects you from the intrusions of frivoluous 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 exposure and visibility altogether.

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 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.

• 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.

• 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 ingredients of a solid plan

The ultimate objective of a solid international wealth management strategy should be to incorporate the benefits of overseas privacy while respecting the rules. The key elements of achieving that strategy are to implement a plan that provides for TAX DEFERMENT and NON-REPORTABILITY.

In most jurisdictions, there is no reporting required unless there is a taxable event. Thus, countries with a wealth tax, such as France or Switzerland, will require annual reporting of all assets. Most other countries, for example Germany, the UK, the United States, Spain or South Africa, do not have wealth taxes. Therefore, the employment of investment vehicles and structures that offer tax deferment will generally not be reportable.

The United States presents a bit of an exception here. Treasury Department Form 90-22.1 requires the reporting of all offshore accounts. The form was adjusted recently provoking widespread commentaries. One question that has been raised frequently was whether the new form requires the reportability of international life insurance policies and annuities. The answer, based on a legal opinion we’ve obtained from a top-notch international legal firm, is clearly NO. As long as the policy is tax-compliant, i.e. provides for compliant tax deferability, the state of non-reportability continues as in the past.

While other countries still have a number of strategies, including private placement life insurance and tailored annuities, the US is pretty much left with two strategies that offer compliant privacy and tax deferment:

1. physically stored precious metals without using a bank account
2. compliant life insurance “wrappers” and annuity policies.

Editor’s note: You can obtain a free subscription to Mountain Vision here. Don’t forget if you haven’t already done so to sign up also for our free Q Bytes newsletter from The Q Wealth Report.