Financial frauds and scams may not be a nice topic to close on before Christmas. But it’s an important one. I think even more so than in past years, I’ve talked to many investors this past year who have lost money – sometimes large amounts – in offshore investment scams of one type or another. They and their families won’t be having a great Christmas. So I think it’s an important topic.

It’s certainly not that offshore is full of scammers or even risky. Scammers are everywhere. But offshore investors often make an easy target. Forewarned you can go out and make money offshore without worrying about such things. That is why it’s important you read this article if you want to avoid forex scams, ponzi schemes and the like.

Back in the summer I was invited by a rather mysterious company to a ‘forex luncheon’ in a building in Panama City (Ocean Business Plaza to be precise). I thought it a little odd, since I have nothing to do with forex, but in the spirit of investigative journalism, I went along…

Over ordered-in sushi, which was rather good by the way, the host proceeded to make a presentation about dodgy-sounding hedge funds, roll over programs and a lot of other stuff that had absolutely nothing to do with forex.

I was not the only financial professional there – and whilst everybody was very polite it was clear that nobody in the room was taking the presenter seriously. Some people simply got up and walked out after finishing their sushi. Why they invited me I have no idea, since surely I have a certain reputation as a scam investigator by now and we have an article on our site warning against exactly this kind of scam: Due Diligence for Offshore high Yield Investment Programs. This particular scheme predictably went down a few months later.

During 2009 some of the opaque offshore investment schemes that have collapsed include:

• Hatfield Oak International
• Venture Resource Group (VRG)
• GCI
• Finanzas Forex
• Global Prosperity Plan a.k.a. Global Pension Plan (Belinda Eigenman)
• and several Swedish Credit Unions

Sweden, while a very stable and reputable country, has spurned a minor industry in scams with its credit union legislation. I’ve come across various Swedish Credit Unions over the years and not one has been legitimate.

There are doubtless many others of which I am not even aware. But they all share the same characteristics: above average (unrealistic) rates of return offered, not marketed through conventional channels, based offshore and relying on secrecy to attract clients… and if pushed, they claim that they achieve their returns using forex trading.

Forex trading is extremely high risk. If you have a good, honest broker, you can either make or lose a lot of money. The problem is that few people really understand forex trading so it is an easy play for scammers. There are mysterious entities like CLS Bank and the DTCC that I have written about previously that really do settle multiple trillions of dollars per day in transactions.

Obviously, if you have a dishonest broker, you get the potential downside without the potential upside. Though in reality, the vast majorioty of these scams are classic ponzi schemes that have absolutely nothing to do with forex.

Over the years, clients of Q Wealth have lost millions to scammers of this type. I know, because I’ve seen the proof. Unfortunately these people came to us after they had problems getting their money out.

Others have been smart enough to come to us before putting their money into such schemes, and we can honestly claim to have saved those people millions over the years too. For those who don’t know, one of the benefits of Q Wealth membership is that you can contact us any time for impartial, informal advice on any investment you are thinking of participating in. That alone could be worth thousands of times the cost of membership to you, so I know some members see their $87 annual subscription as a kind of insurance policy.

Doubtless in 2010 we will continue to see lots of similar schemes. Offshore is not full of scammers. If you follow the advice here and in our free weekly e-letter Q Bytes you can easily reach the best reputable offshore banks and offshore brokerage houses. Although we don’t get into investment advice as a business, when we see something good from a reputable source, we do let our members know – recently we’ve been recommending resource and gold mining stocks for example.

What are the trends in scams? What do I expect to see in 2010? The classic ponzi will always be around, because there are always new marks who will fall for it. Probably the forex tag will continue to be applied to these scams.

However, there are some new emerging trends that I have seen in recent months. One is forestry investments – high yields guaranteed from the Brazilian rain forest or from noni or teak plantations in Panama. Following the Copenhagen summit, expect to see more scams revolving around carbon credit trading. And following the surge in gold prices, I am already seeing ads online from penny stock pushers (boiler room penny stock scam operations) who are literally touting the latest ‘undiscovered’ gold mine!

We will also continue to see fraud attempts surrounding documentary credits. Letters of credit and bank guarantees are legitimate instruments used in international trade. But serious international traders have never heard of things like prime bank guarantees, roll-over programs, bank debentures, proof of funds leasing, standby letters, seasoned notes or anything of that nature. Also look out for anything that describes itself as a ‘HYIP.’

So don’t be scammed in 2010. Avoid anything mentioned above like the plague – and if you’re a Q Wealth member who is not sure about something, just write me or Richard and you will get an individual reply in due course. Final piece of advice: if you haven’t yet read our free five part course ‘Secrets of the Super Rich’ you should do so. It is without obligation, and did I mention it’s free? Just enter your e-mail address in the sign-up box above to receive yours.

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.

Late in June another ponzi scheme went belly up. It didn’t receive the same media attention as Madoff’s, probably because it didn’t involve financial institutions as victims. But once again people’s lives have been destroyed by malicious scammers playing on people’s greed. In this case we are talking about Prosperita Group also known as PGI International, run by a shady character named ‘Belinda’ (allegedly one Belinda Eigenmann with addresses in Switzerland and Canada) who has been associated with other similar scams in the past.

It turns out this Prosperita scheme was responsible for all the enquiries we started receiving recently about Hatfield Oak (also known as Hatfield Oak International or Hatfield Oak Savings and Loan) This financial group, with addresses in Panama City, New Zealand and Norway was thesubject of our earlier blog posting entitled Comments about Hatfield Oak International.

Whether Hatfield Oak are directly associated with “Belinda” and the perpetrators of the Prosperita Group scam, we are unable to say. But even if they are innocent of any wrongdoing, they are certainly guilty of very bad judgment in the company they keep.

The scam followed a common pattern: investors were told to keep their involvement in Prosperita Group a secret and not to post anything on the internet, or even mention the name to companies like ourselves offering due
diligence services for offshore investments. They were told that their returns would only be paid out to accounts in a certain financial institution – in this case Hatfield Oak. Victims were therefore instructed to open accounts at
Hatfield Oak, something which of course involved additional upfront fees – about $700 each we hear.

More and more Prosperita people were setting up corporate structures with Hatfield Oak until June 18th, when Prosperita deleted all previous messages, disabled their e-mail and support ticket systems, and posted a message that begins as follows:

Approximately two (2) weeks ago we sat down across the table with one of our banks and handed them our paperwork (your transfer request forms) for the initial test run of €1,000 EUR. During our meeting with this bank we also held a telephone meeting with our other bank whom was going to take care of the so long-awaited draft.

All time lines were set out and all preparations were made accordingly. Everything was indeed going as per plan! … Our Senior Management then flew halfway across the globe to finalise everything.

So far, so good. What happened hereafter is absolutely mind blowing and shocking. Someone whom could not keep their mouth shut has managed to temporarily ruin everything for everyone! Posts started to be made on various forums, which one of our banks found out about. As a result of this the bank has chosen to freeze our accounts and everything has come to a complete standstill.

(If you would like to read the whole thing, it is posted here at World Law Direct.)

This above roughly translates as “the game’s over… we’re keeping the money… adios suckers!”

Richard and I can realistically claim credit for having saved our readers and clients millions over the years by warning them against variations on ponzi scams like Prosperita, Global Pension Plan (GPP), OSOpps, The Hope Foundation. Our motto has always been “return OF your money is more important than return ON your money.”

Unfortunately we have seen millions more stolen by scammers during this time, and many people have found Q Wealth Report too late – only after they have been scammed.

Bank Debenture Trading Programmes, Roll-over programmes, Instant High-Return Investments, Standby Letters of Credit – Do these terms ring a bell? And how about the great new financial terms I was alerted to the other day by a reader – Freshly Cut Securities, issued by a ‘cutting house’ then supposedly ‘Seasoned’ by a Forfaiting Bank and Extra-Seasoned Securities? Of course, if they keep rolling over too much, the eventually end up over-done and somebody gets burned…!

As Richard says in his report HYIP-Hype (available free of charge in our members area):

“Do roll-over trading programmes really exist?” It’s a question I’m often asked.

“Yes,” I answer, “They do. An associate of ours was paid a high sum to ascertain exactly whether they exist, and where they are operated from.”

“Great! How do I get involved?”

“You don’t!”

That is all there is too it. Or to use another cliche, if it seems too good to be true, it probably is.

We frequently write about scams by the government, and there are certainly plenty of those. The Social Security system, for one, is a big ponzi scheme that simply pays out old investors from new money coming in. The US dollar itself is a giant ponzi scheme too. But at least with government-operated ponzi schemes… well, you have a better idea where you stand! Governments do tend to act predictably.

All I can do is repeat our advice. Richard and I are more than happy to look at and review and investment schemes you are presented with. If it is so secret you are not allowed to tell us about it, well you
can be sure you want to run – not walk – away from it. Anything else we will take a look at and nine times out of ten we can give you an answer on the spot. Likely, we’ve already seen it. If we are really not sure, we have contacts in the serious due diligence world, former police and intelligence officers who are licensed as private investigators and specialize in due diligence on offshore hedge funds and the like. We will get them to work on it for you.

This service is restricted to our members – but if you are looking at this kind of alternative investments, $87 for a
year’s membership is possibly the best value insurance you can buy. Not only can we protect your assets, but we can show you real, legitimate and honest ways to make money too.

In the meantime, if you found this article because you’ve been scammed by Belinda and her Prosperita Group, all I would say is please sign up for our free e-mail newsletter and our ‘Secrets of the Super Rich’ course. It’s all about offshore asset protection and wealth building… and did I tell you it’s free? I think you would find it useful, and it might save you making another expensive mistake.

The author, Peter Macfarlane, is an offshore banking and asset protection consultant, and joint editor of wealth management and offshore wealth building newsletter The Q Wealth Report.

We all know that there are investment scams out there, both offshore and onshore. Almost every week we come across a new scam (and that is not counting the electronic e-gold money games and the like that are barely even worth mentioning). That is why we offer our Q Wealth Report paid-up members a free due diligence consultation within our area of expertise which includes international and offshore investing, as well as so-called High Yield Investment Programs (HYIPs). In fact, members also benefit from a free downloadable report called “HYIP-Hype”

In recent months we have been contacted many times by members enquiring about a company known as Hatfield Oak (website: hatfield-oak.com) or Hatfield Oak International. This website belongs to a financial services company based in Panama with the motto “Your Partner for Asset and Tax Planning, Corporate Structures, Payment Solutions and Investments.”

We don’t want to keep answering the same questions over and over again. The large volume of enquiries we have received about them has led us to publish some findings in public for the benefit of our members. The information below is gleaned only from public records in Panama and the company’s own website.

Please be clear that we are NOT accusing this company of any wrongdoing. However, we draw our members’ attention to the following:

• Hatfield Oak are apparently offering services very similar to a bank, though they are at pains to point out that they are a payment processing company. Their website suggests that they are licensed to provide financial services. We consider this to be an attempt to mislead. Yes, they do have a document that appears to be a license for third party payment processing (amongst other things like business consulting and courier services.) However this is NOT a financial type license. In Panama every business must have a commercial license, and this kind of license (that Hatfield Oak has) is the same type of license you need for say a grocery store or a hairdresser. Financial entities are regulated under a completely separate licensing system. You can verify this at the website of the Panama Financial Regulator (in Spanish only).
• Hatfield Oak apparently have a New Zealand financial company as well. It’s worth pointing out that this kind of financial company is not regulated like a bank in New Zealand either. That is why it is not called a bank. Neither is it permitted to carry on banking business in New Zealand.
• The company’s domain name is registered to Domains by Proxy Inc (an associate of Godaddy) This is very unusual procedure for a company offering financial services. More to the point, is that it places the domain and the business firmly within US jurisdiction.
• Their internal law office “Hatfield Corporate Law Firm” appears to be run by nominees.
• The company do not appear to have any valid contact information.

Hatfield Oak appears to be a private company offering certain services that cannot be considered a substitute for a proper offshore structure with a bank account.

Q Wealth Report members requiring further information are welcome to contact us. If you would like to learn more about a few pitfalls of doing business in Panama, please check out our article Panama Offshore Banking and Corporations: Hidden Truths Revealed

Just when the mainstream media were trying to persuade us that things might be getting better again, comes the news of the world’s largest ever Ponzi scheme run by the now infamous Bernard Madoff, who (forgive me) “made off” with $50 billion. More victims are coming forward every day. Isn’t it incredible that some of the biggest banks in the world can be scammed?

Well, yes and no. It appears that City and Wall Street financiers had not had found the time to read our page on Due Diligence for Offshore High Yield Investments. On that page we have a 5 point offshore due diligence checklist that could, by all accounts, have saved investors millions in this case. For example, Madoff paid out returns in good times and bad, without ever explaining how he was making the money. As we’ve always said, beware of secrecy – something may be the best investment in the world, but if you don’t understand how it works, you will most likely lose your shirt. And that’s just what all these bankers, plus a lot of individuals and charitable foundations, have just discovered to their cost.

How did Madoff get away with this? Because if people see others flooding in to an investment, they assume it must be good. We call it following the sheep.

CNN, interestingly enough, just prepared their own 5 point due diligence checklist, that puts much the same ideas in a different way. For example, their first rule is “Don’t invest in anything you don’t understand.” Very good advice. I would recommend you go and read that too.

There will be a lot more like this. I am convinced that there are numerous other Ponzi schemes out there, being run by supposedly respectable institutions and individuals. Not to mention the internet based High Yield Investment Schemes known as HYIPs. Ponzi schemes work great while people don’t ask for their money back. In good times, people just roll over and re-invest the returns, so the supposed returns are nothing more than numbers on a spreadsheet.  In bad times, people try to redeem – and a run on the Ponzi scheme leads to its collapse. If news reports are to believed, that’s exactly what happened in the Madoff case.

So if you have your money invested in any scheme you don’t understand or have even the slightest inkling of a doubt about, get your money out now before it’s too late. If in doubt, go back and re-read the due diligence checklists linked to above.

In other news, Ecuador just defaulted on its bonds. The markets had been expecting this for some time, but yesterday it was finally confirmed. Gary Scott, an international investor who spends much of his time in Ecuador, when asked whether this was good or bad, answered:

This is a question much like, “Is the US federal $800 billion bail out, good or bad?”

The answer is yes and no.

First, remember that Ecuador defaulted on bonds once before in 1999.   Everything fell apart. Bank’s shut down. The country ran out of gas.  Times were terrible.

The country remained a great place to live. The cost of living collapsed. Help was easy to get. You could buy real estate for a song. So the answer to “Is this good or bad?” depends on who you are, how much money you have and where it is invested.

Gary showed pictures of smiling potato farmers, people who won’t be directly affected by the crisis, telling us that “the smiles won’t go away.”

Of course, this doesn’t just apply to Ecuador. Ecuador defaulted yesterday, but who knows wat country will default tomorrow, or when the USA will default on Treasury bonds. Probably those who really suffer more from these devaluations are the ones living in ‘sophisticated’ financial service based economies like the USA and the UK. Devaluations aside, people will carry on eating, smiling, living… and they will need places to live. Things like real estate have an intrinsic value that cannot be taken away by devaluations, defaults or financial crisis.

And there are some great bargains around right now in offshore real estate. Of course, there’s little chance of mortgage financing, so you need to pay cash. Then again if you have even $20,000 cash there are some great bargains around just waiting to be snapped up. More on this in the next Q Wealth Report – so if you are not already a member, sign up today!

Q Wealth is with you – your reliable guide through the offshore maze, in good times or bad. Remember, our aim is to help you not just survive the recession, but prosper! For Q Wealth readers, the default in Ecuador is very much good news.

Update:  Catherine Austin Fitts asks:

And we are to believe that one guy could run a brokerage and money management firm with two sets of books and siphon off $50 billion? And no one knew?

This is the financial cover story equivalent of the yarn that a few devout Muslims hijacked two planes that hit skyscrapers that then magically collapsed leaving their passports and a copy of the Koran sitting on the sidewalk.

So…who has the $50 billion?

Hmmm…