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.

by Peter Macfarlane, Joint Editor

Most continental Europeans like to take an extended vacation in August. But for those of us in the offshore banking and asset protection business, that just hasn’t been possible this year. I’ve also been relatively quiet in terms of my blogs recently, but it’s not because I’ve been on holiday. Quite the opposite. I’ve been beavering a way at full inboxes and stacks of paperwork from clients. In fact, business this August has been busier than most busy months in other years. It seems people are finally getting the message. Your assets are safer offshore! This in spite of a huge publicity campaign suggesting the opposite and backed by all the media resources the government could muster.

One of the main focuses has been the war of words this summer between Switzerland and the United States. But what practicaln implications does this have for those who already have Swiss bank accounts, or for those who are considering opening a Swiss account for the first time? That is what I will examine in this article.

Last week we heard the news from Swiss private banking giant UBS that they had finally reached agreement with the US IRS. Of course, nobody seriously expected a banking, watches and chocolate trade war – an agreement had to be made after appropriate posturing for a while on both sides. The terms of the agreement are still unclear – probably as part of a face-saving exercise for the IRS. My guess is they really didn’t get much actual data on account holders. Maybe a few thousand blatant tax evaders who had been stupid and lazy enough to evade taxes by holding assets in their personal names in undeclared accounts were turned over. If these people had been following our advice from even ten years ago they wouldn’t have had a problem!

However, the IRS got exactly what they set out to get in the first place. This case wasn’t really about information at all. It was about publicity.

Appropriately for those who speak with forked tongues, the IRS sent out a two-pronged warning message: first, to the US public and the world at large, that ‘Big Brother’ doesn’t approve of offshore banking. Thousands of American citizens with accounts at UBS suffered a lot of sleepless nights, and perhaps quite a few have decided to ‘turn themselves’ in anyway via the current tax amnesty arrangements even though their information never had been revealed and never would be. That is why it is so important, if you want to go offshore, to make sure you have access to the right information (shameless plug for our services here!) Those Americans who still believe and trust their own government – a fast shrinking minority – might be dissuaded from opening further offshore accounts.

The other prong of the IRS war of words was a message to Swiss banks, and to a lesser extent offshore banks in general. Banks across Switzerland and elsewhere have been busy closing the accounts of US citizens, based on ‘policy decisions.’ This again, of course, was part of the IRS’ plan all along. Other banks and governments have been taking note too: for example I’ve been hearing reports from Singapore and Hong Kong of banks closing offshore accounts belonging to Australian citizens, as the Australian government is showing of every sign of stepping up the attacks… probably emboldened by the success of the IRS publicity machine.

UBS was taught a lesson. An interesting article in this week’s Economist entitled Offshore Private Banking: Bourne to Survive, “UBS has been haemorrhaging funds, with an outflow of SFr30 billion ($28 billion) so far this year. But the country’s next four biggest listed banks, Credit Suisse among them, have had private-bank inflows of SFr31 billion.” A point of the Economist article is that people have abandoned the bank (UBS) but not the country or the concept.

Another of the Economist’s points is that most people are not actually in Swiss banks for tax reasons. I’ve long written that tax stopped being the major factor in driving people offshore years ago. Sure, people don’t like to hand over half of the fruits of their labour to the state. I can understand that and I’m sure you can too. But in the bigger picture, it is the distrust of big government that is driving people to protect their wealth offshore.

Tax, just like say electricity or salaries, is an expense people will pay if the environment for doing business is right. It would be a stupid person who would lose 100% of something just to save 50% of it. But what governments don’t get is that they have to make the whole business environment attractive. And the way the government should do this? Just keep their noses out of people’s private business and lives!

As more and more business can be done from anywhere on the planet, why would people stay in a hostile business environment? It’s not just money that economies like the USA, UK and Australia are haemorrhaging at the moment. It’s the smart people like you and me who follow the money.

These days as the Economist says, banking clients are  “mainly in Switzerland for its political stability and well-run banks.” (Since early 2007, 135 banks have “imploded” in the USA, but not one in Switzerland) Nothing to do with taxes. They are trying to escape an unhealthy business environment with factors like inflation, devaluation, bank collapses, civil asset forfeitures and the like.

Why oh why then, and this pains me… would people move their assets into the four largest banks? I’m on record as saying Credit Suisse will likely be the next target. It may be this year, or next year, I don’t know. But Credit Suisse already agreed, for example, to some information exchange with the French government. If you are a new reader here, I invite you to explore this blog and the related articles and you’ll find some of my advice on alternatives to UBS for Swiss private banking. For example my articles on the Best and Safest Offshore Banks and Countries and Alternatives to Swiss Banks for Wealth Management.

The bottom line, however, is that there are better alternatives than big Swiss banks like UBS and Credit Suisse for your offshore accounts – whether you are looking for an active business account, an online trading account, or a more hands-off style traditional Swiss wealth management account. If you would like to know more, that is what we are here for. Our membership costs just $87 per year and entitles you to immediate access to a number of informative downloads – for example our recently updated Practical Offshore Banking Guide. If you are not yet a member, go ahead and sign up right now. Or if you are not yet ready to make that commitment,  sign up for our Free Five Part Course on Offshore Banking and Asset Protection first of all to get a feel for our material…

Anyway… I’ve gone on long enough, but for sure we will be hearing more about this topic. A lot more! I’m just on the way over to Panama City, Panama now and will shortly be reporting more from there on some interesting developments in the way the Panamanian government and banking system is handling the heavy-handed OECD and G20 threats. If you would like to receive this update on the offshore scene in Panama, sign up for our special Free Panama Offshore Report and I’ll be sure to get it to you. There’s no charge – all you need to give us is your e-mail address!

If you’ve been studying the offshore and asset protection arena for a little while, you might well have heard a lot of good things about the strong privacy benefits of the Panamanian Private Interest Foundation. As an asset protection and estate planning vehicle, it’s second to none.

Most of my consulting clients who choose this vehicle are seeking to create a legal structure that will reduce tax liabilities, protect their hard-earned assets from lawsuits or claims, and make sure that on death, their estates pass to their chosen beneficiaries without unnecessary legal disputes or fees.

The Panama foundation is based on the legendary Liechtenstein Foundation or Anstalt, the preferred wealth management choice of generations of continental Europeans. But it is not so well known or understood in the English speaking world. And these days, Panama offers better offshore secrecy and confidentiality than Liechtenstein.

You might well have Googled a few websites and read articles about Panama Foundations in rather confusing terms. Such articles are often written up either by internet marketers who have little idea about law, or by Panamanian lawyers who have little idea about Anglo-American common law and whose first language is not English.

But few people understand what kind of legal animal a Panama foundation really is. That’s probably a very good thing for those of us using them! The difficulty for many clients is of course deciding upon the best course of action or structure to use. But I am about to let you in on the secret… my new free report sets out to demystify the Panama Foundation, explain the concept in plain English, and explain the differences between a Foundation and a Trust of the Anglo-American variety.

Should you set up a Corporation… or a Foundation? Or both? You will find the answers in my latest report specifically about Foundations. It’s called “Panama Foundations: Use and Benefits Manual” and subtitled ‘Panama Foundations and Trusts Demystified.’

Once again, this report is FREE OF CHARGE. I will explain below how you can obtain your copy.

But what exactly is a Foundation? A Panama Foundation combines some of the best parts of a trust, and the best parts of an IBC or Offshore Company into one legal entity. A Foundation is typically set up to passively hold assets like bank accounts, stocks and shares, and real estate.

The key thing is that, unlike corporations, Foundations do not have owners. They have beneficiaries instead (for example, your heirs). The interesting thing about this is that in most countries it legally sidesteps reporting requirements.

Even in the USA, there are ways you can structure a Panama Foundation to legally avoid IRS reporting requirements. Because US tax law doesn’t specifically recognize Foundations, it is quite flexible on this – you decide how to declare your Foundation. (This only applies to US taxpayers. Other nationalities have it much easier…)

In my report I also explain the ultimate asset protection strategy… by keeping the assets in another country on another continent, you are protected not just by strict Panamanian secrecy and asset protection laws, but by something even stronger… what somebody doesn’t know, they can’t tell. You can make sure that your Foundation are structured so there is absolutely no record held in Panama of what the assets are and where they are located.

This new report, free of charge to registered Q Wealth members covers five topics. You will learn:

• What is a Panama Foundation. What is the difference between a trust and a Foundation, and why is a Foundation often more secure and private than a trust?

• Panama Foundations for Estate and Inheritance Planning

• Panama Foundations as an Asset Protection tool

• Banking for Panama Foundations

• Taxation of Panama Foundations

As always, I’ve kept things simple. This report is written in plain English, designed to explain legal concepts in simple terms. It is not an in-depth legal textbook…. But it has been reviewed by both Panamanian and British lawyers.

This report on Panama Foundations could be yours free in the next five minutes or so. All I ask in return is that, if you’ve not already done so, you sign up as a full member of The Q Wealth Report. You will be granted instant access to the Members’ Only section where you will be able to download this report in pdf format. Of course, if you’re already a QWR member you’re ahead of the game – just log in as usual and you can download it right now.

Of course, this brand new report is only one of the many benefits you will receive as a Q Wealth member. We’re not just about Panama – we’re focused on protecting and creating wealth internationally. We do all the hard work, costly research and due diligence for you – to take you from the overload of the information age directly to where you need to be. As a publishing company, not an offshore services provider, we deliver impartial advice from a global perspective – not biased advice from a Central American perspective, which is what you might well find elsewhere. Need I say more?

As a member you’ll also have access, for example, to the Practical Offshore Banking Guide, the report on buying and holding Precious Metals offshore, a report on Due Diligence on High Yield Investment Programs, and much much more… including the free consultation benefit I mentioned above. You’ll also receive every quarter our flagship publication, The Q Wealth Report.

All this, for less than a good lawyer would probably charge just for talking to you and giving you a fraction of this information. $87 per year to be precise. And if you are not 100% satisfied, you can cancel your subscription at any time and request a full refund. No quibbles, no questions asked.

To sign up right now you just need a Visa, Mastercard, American Express, JCB or Discover card. (If you prefer you can also download a mail-in subscription form to pay by cheque or money order)

Sign up online right now at http://www.qwealthreport.com/signup.php

Kind regards,

Peter Macfarlane

Offshore Banking Consultant and Joint Q Wealth Editor

P.S. Don’t forget we also offer separately an absolutely free report on the Hidden Truths Behind Panama Banking and Corporations. You can obtain the Banking and Corporations report without any need to sign up even. If you haven’t got yours yet, get it at the link above.

says Peter Macfarlane, Offshore Banking Expert at The Q Wealth Report

The recent scandal involving Swiss bank UBS and the closure of 19,000 offshore bank accounts for American account holders has people running scared. It’s been a big publicity coup for the IRS and indeed for European tax authorities too. However, I was interviewed the other day for a forthcoming magazine article, and the interviewer asked me bluntly whether offshore banking, and more specifically Swiss private banking, is “over.” This got me thinking.

The why and the how of offshore banking for security and asset protection is alive and well. In fact, for American and European Union citizens, banking offshore is more important than ever. Here’s why:

1. First of all, the hype in the media suggests that those 19,000 account holders will be in trouble with the IRS. This is not true. Sure, it’s what the IRS want you to believe, because they don’t want you to bank offshore. If you bank offshore they have less control over your money – so bad news for governments. But provided you have done nothing illegal, those people have nothing to fear. Even if those people have been illegally evading their US tax obligations, most likely they still have nothing to fear – though they should be taking urgent steps to put things right. The truth is that IRS attempts to learn the identities of the 19,000 account holders will be handled by UBS on a case-by-case basis strictly in accordance with both Swiss and American law and the respective international treaties, with UBS refusing to cooperate in any wide-net fishing expedition. By closing the accounts, UBS have done the right thing in helping to protect their clients.
2. UBS clients will need to move their accounts to other banks, or the clients will receive checks in the mail. Obviously, depositing the checks in a home bank would leave a paper trail – playing right into the hands of the IRS. The IRS hopes that those affected who might not have declared their Swiss bank accounts will be scared and own up. If they don’t, however, the chance that they will be ‘caught’ is almost nil. Fortunately, there are still plenty of lower profile, secure offshore banks out there who are willing to take on the new business – even from American or European citizens.
3. The mistake these people made was banking with UBS in the first place. It is stretching things these days even to call UBS a Swiss bank. It would be better described as an international bank, and it has a huge presence in the USA. It is therefore vulnerable to pressure being put on its US operations to breach Swiss bank secrecy laws. If you want further proof, Senator Carl Levin of Michigan said “We can’t get every bank in front of us to do what they did,” referring to UBS rolling over and apologizing. Very true words from the Senator! The basic rule in choosing an offshore bank is to go for one that has no offices or employees in your ‘home’ country. Another basic rule is “you don’t know until you go” – in other words, if you want to open a serious Swiss or other offshore bank account, get on a plane!

I mentioned above that affected account holders should be taking “urgent steps to put things right.” What are those steps? The fact is there are plenty of ways you can achieve the goals you are seeking, serious asset protection, and full compliance with all applicable laws and regulations. Those are topics we frequently write about here in The Q Wealth Report, and you will find some starting points in my Practical Offshore Banking Guide 2009 which is available right now for free download in the Members’ Section. The Practical Offshore Banking Guide includes some offshore banking notes especially for US citizens and residents, and another section especially for European Union residents and citizens.

Q Wealth Report is your resource for offshore asset protection, banking privacy, and wealth creation information. A subscription costs just $87 per year, and if you don’t feel  our service is worth a lot more than that once you have signed up, you are covered by our full no-quibble money back guarantee! Plus, as soon as you sign up you gain instant access to our members section to download a series of free reports including the Practical Offshore Banking Guide 2009. What are you waiting for? Join today!