Peter Macfarlane talks about ‘plain sight’ strategies for international private banking.

‘How to hide money offshore’ is not something many bankers or offshore writers would dare to choose as a topic these days. ‘Financial Privacy is Dead’ would certainly be a more politically-correct topic. Here at Q Wealth we sometimes push the limits, but we don’t have a death wish either… so let me make clear right now that this article is not about how to evade taxes. It is about the best ways to achieve financial privacy in 2011, assuming you are fully compliant with all applicable tax and reporting requirements, but you still want to keep your affairs private for asset protection or catastrophe-planning purposes.

We do not condone tax evasion. It is well known that we are not big fans of tax in general, but the fact is if you think you are paying too much tax there are plenty of ways to reduce your tax bill legally. We write about these techniques from time to time in general terms in The Q Wealth Report, but since we write for an international audience, and everybody’s circumstances are different, you need to talk to an expert who is familiar with the laws in your home country about your individual situation if you want to know how to reduce your tax bill legally. That much should be obvious. The most basic option to reduce your tax bill is to physically change your residence to one of the many countries in the world where you can live happily and tax-free. (And, only if you are a US citizen, you need to change your citizenship as well, which means starting the process of acquiring a second passport.) But I digress…

OK, so provided you comply with your tax obligations at home, beyond that it is your money and you jolly well have the right to do what you like with it, including hiding it. People have hidden valuables for centuries, simply because it is common sense – if you put your assets on public display it won’t be too long before someone tries to take them away from you.

There are dozens of reasons why an individual would want financial privacy. I would turn things around and place the burden firmly on the other side – if someone believes an individual should not have financial privacy, it is up to them to prove why. Many people have a moral objection to having their personal financial information shared internationally, with the presumption of guilt that is implied. One thing is to require individuals to report foreign bank accounts. If the individual consciously chooses to commit the fraud of not filing, he or she takes a big risk and should be aware of the consequences. But for governments to go on fishing expeditions based on mere presumptions is wrong.

Fortunately, despite what the OECD or the IRS want you to believe, financial privacy is far from dead. In fact, that’s why there’s so much fuss about it. If financial privacy were really dead, you wouldn’t hear about it, because it would be a non-issue. But scare tactics are very effective.

The fact is, most countries, even the USA and the UK, acknowledge the right to bank secrecy. Even now, the USA does a big business in secret bank accounts, especially for Latin Americans – famously refusing to turn over information on the secret bank accounts of wealthy Mexicans for example. For those banking in Switzerland, the alpine country strenuously guards the right to bank secrecy, even to the extent of agreeing to collect taxes anonymously for foreign countries like the UK and Germany. Others, like Panama and Singapore, prefer the path of least resistance, signing the Tax Information Exchange Agreements (“TIEAs”) required of them, well knowing that it only takes a few smart lawyers to figure out how to maintain total bank secrecy for their clients in spite of the agreements. I’ve written articles elsewhere on this topic, so won’t go into that now.

We get questions all the time from people who want to know how to open an offshore bank account in a jurisdiction that has not signed a tax treaty with such-and-such a country. For example, Americans are all in a panic about the TIEA signed by Panama with the US recently, and the latest trend seems to be to bank in Singapore instead. If they are choosing Singapore because it’s a financial hub in a growth area, or because Singapore banks are just more efficient and better at service than Panama banks, that’s fine. But if they are choosing Singapore simply because it has not signed a tax treaty with the US, they are making a mistake in my view. Singapore has already signed many TIEAs and there is every reason to believe they might sign one with the USA soon.

The trend is for more and more exchange of information. Eventually, those who keep moving every time a new treaty is signed will have to end up banking in somewhere like North Korea or the Turkish Republic of Northern Cyprus. The latter, a territory that is recognized only by Turkey, is already cashing in on that status but most of the banking industry there is less than reputable. You don’t want a bank account there, trust me. (The southern part of Cyprus is fine, however.)

So, where is the right place to hide your money? I think in plain sight. Here’s an offshore Private Banking and Wealth Management strategy in two easy steps:

1) First, for a layer of privacy you need a tax-neutral legal entity of some sort, like a trust or a corporation. The result of this is that the offshore bank or brokerage account is not held in your name, even though you might be the signatory or beneficial owner. This avoids your name leaking out to the rest of the world on wire transfers etc, and this step also effectively neutralizes most TIEAs at a stroke. If you are American, it also opens up a world of investments that are closed to individual US citizens.This is about the only way to open an offshore brokerage account for US citizens.

LLCs are good for this purpose as they are inexpensive and can generally be treated as simple pass-through entities for tax purposes. Trusts, controlled by a Private Trust Company, are good for slightly more complex situations, such as where you are seeking to pass assets on to your children, or for situations where particularly strong asset protection is necessary.

Of course, you should go ahead and report your ownership of this legal entity if you are required to. Will this raise a red flag? Not as long as you choose a country that is not blacklisted for your LLC or trust. I recommend for example Nevis LLCs, as described in my free Untouchable Wealth report. Major western countries do lots of international trade and it is quite normal for their residents to have business interests in other countries. This way your report will blend in with the masses and you are no more likely than normal to be singled out for audit.

2) You use your offshore entity to open a private offshore multi-currency bank account in a respectable country that is not known as an offshore tax haven, again to avoid raising red flags. The best foreign bank accounts for privacy are the ones in low-profile countries. Denmark and Spain, for example, are two good countries with accessible banking services for expats with foreign companies, that are not on the radar, and where offshore bank accounts can be opened without any need to travel there. Wire transfers to and from these countries will not be subject to the same level of scrutiny that would be found with say Panama or Belize offshore banks. You’ll also find European offshore banking services are generally better.

So it’s really quite simple. The right place to hide your money is a place where you won’t be asked too many questions. By filing the right forms, you will be fully compliant, and you’ll sleep soundly at night without having to worry about future TIEAs that tax inspectors goodness-knows-where might be cooking up. And your bank account will be well hidden in plain sight.

From there of course you can also take things to the next level – for example by buying precious metals in Switzerland. As an internal transaction within your entity, that doesn’t change the value in any way, you can avoid any additional reporting requirements.

If you are new to Q Wealth and would like to know more, check out our free five part e-mail course: Secrets of the Super Rich.

Frank. When I think of America I always keep a pocket of optimism alive somewhere in my soul. To be honest, I think this bill [the Healthcare bill] is the straw that breaks the camel´s back. We are already technically insolvent, and yet keep inventing ways to spend money (and raise taxes). This Healthcare bill precedes a debt downgrade, massive inflation, and the demise of the dollar. What was likely to happen is now written in stone. Seeing what is ahead, I am now afraid.

This article by Frank R. Suess is reproduced by kind permission of BFI’s Mountain Vision newsletter.

HIRE, FATCA, QFFI – BEWARE OF RAMPANT LAWS IN RESPONSE TO RAMPANT SPENDING

My friend´s concerns in the quote above are a reflection of the concerns and fears many of you may be experiencing these days. Here at BFI, we get numerous e-mails and comments that express a growing concern over government insolvency, debt, inflation and the increasing fiscal repression found in most of the G7 countries.

Indeed, over the past few weeks, an amazing sequence of laws, treaties and acts have been put in place to facilitate more deficit spending and more big brother powers. None of these laws enhance your liberties. None of them are aimed at protecting fundamental rights of freedom, property, or privacy. None of them enforce government fiscal discipline and accountability. On the contrary, they are tailored toward a continuation of out-of-control Keynesian madness — more public spending, more deficits, more debt, and of course, more taxation.

Instead of fixing fiscal and monetary issues at their roots, an internationally concerted crusade against ‘tax evaders´ and ‘offshore investment strategies´ has been launched. However, what may be considered as enforcement of law has long become a game of capital controls, protectionism and taxation horror.

In the UK, for instance, as part of the UK 2010 Budget, the British government last week decided to come down yet a little harder on offshore tax evasion. Penalties for offshore evasion were increased to a maximum of 200% of the unpaid tax. Penalties of up to 150% will apply where exchange of information is on a “upon request” basis rather than automatic. The stiffest penalties apply where non-compliance arises in jurisdictions that have not signed exchange information agreements with the UK.

Meanwhile, in Germany, the Anti-Tax Evasion Act was passed. This Act, approved by the German Federal Council, entails new regulations that deal with tax evasion and “unfair tax practices” (translation: low-tax jurisdictions with healthy balance sheets, such as Switzerland). Even in Israel, the Parliament permanently approved regulations for “enhanced” reporting requirements, as well as regulations against “aggressive” tax planning measures.

Finally, the worst — and most amazing — law of all was passed in the US under the very marketable title (you have to give them that) of ‘HIRE´. I briefly discussed this phenomenal law and particularly its section on foreign accounts in the last Mountain Vision Update.

After reviewing HIRE again and thoroughly studying its implications, I am convinced this law could actually be a blessing. I will tell you why in just a moment. But first, a bit more background…

HIRE – or simply another layer of hidden capital controls

Last month, President Obama signed into law possibly the “worst bill ever” (Wall Street Journal, November 1, 2009). Some predict that it will inevitably lead to full-scale socialized medicine. Then, shortly after the Health Care Bill had passed, Obama slipped in another silent bomb.

On March 18th, with little if any pomp and circumstance — downright unnoticed by most — he signed off on the US$ 17.5 billion ‘Hiring Incentives to Restore Employment Act´ (H.R. 2487), in brief ‘HIRE´. Amidst a long mire of legal gibberish that few would ever bear the pain of reading, provisions on ‘Foreign Account Tax Compliance´ (FATCA) were hidden.

With these provisions, the noose on capital mobility has certainly tightened a little more for Americans. But, the implications are much broader and may well, and possibly should quickly, affect the wealth management decisions of investors worldwide.

In brief, these provisions require that foreign financial institutions (so called FFI´s — and not just banks!) not only withhold 30% of all US source capital flows (remitting the collection promptly back to the US Treasury) but also to disclose the full details of non-exempt accountholders to the US and the IRS. In order to avoid the 30% withholding tax, an FFI would have to agree to become a QFFI (a Qualified Foreign Financial Institution). Of course, under such circumstances, a QFFI must fully report all “non-exempt US accountholders”, i.e. give up any and all client confidentiality against US tax authorities.

A concise and understandable summary of the law is provided by Withers at this link. Let there be no mistake, this latest AMERICAN law may have implications for ALL of us. It may very well affect YOUR portfolio very soon. Therefore, I strongly recommend that ALL Mountaineers study this thoroughly!

So, why on earth would I consider this horrific new law a potential blessing?!?!

The FATCA provisions are draconian. America´s current administration leaves George Bush looking like a whimp. These guys really push a heavy pencil. In fact, these laws are so blatantly coercive and outrageously encumbering for these so-called “Foreign Financial Institutions” (FFIs) that I don´t think they will accept it. In fact, I think there is a considerable chance of an international backlash. And that backlash might well severely impact US financial markets.

After pushing their QI (Qualified Intermediary) rules down the throats of banks worldwide, the US Administration now aims at creating a ‘co-operative´ global network of QFFIs (Qualified Foreign Financial Institutions). In other words, this network of institutions would administer America´s desparate search for tax dollars in every nook and cranny, spying and reporting on their client´s in the interest of squeezing that wealthy taxpayer lemon yet a little harder.

I don´t think this will happen. To use my friend´s words at the beginning of this Update, I believe this law is the straw that breaks the camel´s back. Even if all these FFIs were highly willing and dedicated to supporting America´s wild goose chase, the problem is that they would not know how to do it, and even if they did, they might not be able to afford it.

First of all, these rules are not practicable. For instance, these rules would require a hedge fund with QFFI status to identify on each subscription to the fund whether the ultimate beneficial owner is a ‘US person´. Now, this might be fairly straight-forward in a constellation where the investor is an individual who subscribes directly to the fund. However, what if another fund invests in this fund? And then, what if the investor in the second fund is not an individual but rather a foundation? What if this foundation is held by an international conglomerate of corporations? You get the idea.

Secondly, let´s assume that via the proper standards, procedures and, of course, in conjunction with the required IT systems, FFIs worldwide could in fact fulfill Mr. Obama´s daydreams, most FFIs would not be able to afford it. And many will not be WILLING to afford it.

I´ve discussed this with several top Swiss bankers and legal experts. They all agree that this law leaves many unanswered questions. If indeed the US is hellbound on pushing this through as defined, there will be a backlash, and soon. As stated in our last Update, non-US banks, asset managers, insurance companies, hedge funds and financial advisors may — once and IF the law is implemented as foreseen — very well simply stop investing in US assets altogether.

There´s a world of investment opportunities that are non-US. Why bother with American markets?!?!

Further reading: Peter Macfarlane has also written at length on this topic in edition 54 of The Q Wealth Report, which will be released in the Members Area shortly. If you are not yet a member and would like to find out what you are missing out on, please check our membership benefits page.

I’m reminded today of the phrase “Get Your Money Out of the Country, Before Your Country Gets Your Money out of You.”  The expression was coined years ago in one of the old PT books, I forget exactly which. Specifically, you have a deadline: December 31st, 2012, when most of this legislation is due to come into force.

“This is in fact the capital constraint legislation that seasoned economic experts have been predicting” says one commentator.

I’m not easily shocked, but after reading the HIRE Act (Hiring Incentives to Restore Employment Act) just passed a little over a week ago by the US Congress, I am convinced that the US has already introduced currency controls. That was even sooner than I expected and this is an extremely serious concern for anyone who holds any assets in the USA, or even in US dollars (read on to find out how this also affects you even if you are not American and have never even set foot in the United States…)

The HIRE Act sounds harmless enough, right? It sounds like something to do with job creation, yet another round of incentives. It was passed quickly and quietly by Congress around the same time as all the hullabaloo about Obama’s healthcare reforms. Healthcare reforms are another of those things I honestly don’t understand, and I haven’t yet met anybody who does… that’s why I didn’t write an article about it adding to the noise. Suffice to say it’s definitely bad news. But this HIRE Act is even worse. It introduces strict currency controls in all but name.

I’ve read some of the HIRE Act and if you download the pdf file here and skip to page 27, you will see my reason for concern:

Title V – Offset Provisions

Subtitle A: Foreign Account Tax Compliance …

Taxes to Enforce Reporting on Certain Foreign Accounts

The Act adds a whole new chapter to the 1986 Internal Revenue Code, which introduces a whole new tax… a tax on foreign bank accounts. In a nutshell, here’s what it says:

Any funds transferred from the US to any overseas account are subject to a new tax equal to 30 percent of the total amount of the payment – unless the payment is sent to a foreign bank that has agreed to report all American-owned accounts automatically and electronically to the US government.

What kind of payments are included? Almost anything. The act specifically mentions “interest, dividends, rent, salaries, wages, premiums, annuities, compensations, remunerations … and any gross proceeds from the sale or other disposition of any property of a type which can produce interest or dividends from sources within the United States… ”

This is incredible stuff. The section after the section about foreign bank accounts goes on to talk about foreign financial assets, including for example stocks, not just offshore bank accounts. Any holdings of foreign stocks over $50,000 will have to be reported by US taxpayers. And this provision kicks in earlier – starting with the next tax year.

It then continues to talk about foreign trusts, dividends… before drawing to a sudden close, and disappearing to where it came from!

It’s early days yet to give you a full analysis of this new law. We will have a detailed article on this topic in the next edition of Q Wealth Report, which is due out next week (if you join now you will receive it automatically… and see what else you are missing if you’re not already a member). But it’s clear that Americans have serious decisions to make – and fast!

If you are a regular reader of our reports, this news won’t come as such a surprise to you. A group of our readers discussed this very scenario earlier this month at our Strategies for Success event in Cancun. And we’ve been predicting this kind of extreme measure for some time – it’s a sign of sheer desperation. The US government must surely understand that they are fighting a losing battle with free markets – but they are certainly determined to fight to the bitter end. And believe me, the worst is still to come.

As the effects of this legislation sink in, a lot more Americans will be looking for second passports as a first step towards renouncing citizenship.

There will be a huge knock-on effect too, however, for foreign banks and their account holders. Bankers have tolerated a lot, even the new far-reaching qualified intermediary (QI) rules imposed by the US. But how much more will they tolerate? Is continued access to the US financial system from 2013 onwards worth the price the US government is now charging? I would think for many offshore banks, this is just one step too far. A lot of banks will now be saying “to hell with the US government.” Is compliance even possible any more?

We’ll have more detailed analysis as promised in the Q Wealth Report very shortly. But in the meantime our advice is:

• Don’t panic – stay calm
• If you don’t have an exit strategy for getting all your assets out of the US, start planning one now. You need to protect your assets against burdensome taxation and the devaluation and decline of the dollar.
• Consider expert advice and invest in self-education about these matters. Don’t rely on the mainstream media as they won’t give you the full story.
• You have the rest of this year – nine months – to have appropriate offshore asset protection structures in place. Consider things like offshore gold bullion and international real estate investing.
• Don’t waste time. Don’t procrastinate.
• If you haven’t already, sign up now for Q Bytes, our free weekly newsletter, in which we will give you lots of additional tips gratis.

Related article on a Panama blog here: Disturbing new U.S. law aims to end individual foreign bank accounts

Following is an edited version of our Press Release announcing the new 2010 edition of our ever popular Practical Offshore Banking Guide which is now available….

While the days of James Bond-style numbered Swiss bank accounts may be over, the world of discreet private banking and offshore wealth management is growing apace as financial uncertainty continues to make people seek safe havens.

Despite highly-publicized government crackdowns on tax evasion around the world during the past year, spearheaded by the G20-OECD “anti tax haven” blacklisting and the US attack on UPS after defection of Bradley Birkenfeld,  more billions are headed for offshore banks and tax havens than ever before – with good reason, and it’s all completely legal. That is the conclusion of the new Practical Offshore Banking Guide 2010, advising high net worth individuals and entrepreneurs on offshore banking and asset protection, that is released today. In it you will find information on nine of the best offshore banks.

In the 2010 update of his annual Q Wealth Practical Offshore Banking Guide, offshore banking expert Peter Macfarlane points out that tax evasion is far from the only factor encouraging smart individuals to go offshore. “There are more good reasons than ever to go offshore. Taxes are certainly a factor, but many people these days are motivated by deeper feelings – they just don’t trust the system any more,” said Macfarlane today. “Basically, they are demanding full control of their own money. The human right to privacy is definitely part of the equation. Why should an individual´s finances be an open book?”

“Bank failures and bailouts are on everybody’s minds, and rational individuals are looking to open accounts at conservative and respectable banks, in countries that respect the rule of law and private property, that do not have this toxic exposure. Clients seek to protect their assets not just against the perceived injustice of many lawsuits, but more fundamentally against a decline in the value of the dollar and other major currencies like the euro and pound. Expecting the imminent devaluation or collapse of the dollar, they are diversifying into better-backed currencies, and of course into precious metals like gold and silver – something made easy by offshore multi-currency bank accounts,” comments Macfarlane, adding: “We’ve all heard about the risks of keeping eggs in the same basket.”

The Practical Offshore Guide 2010 includes special sections for US and European Union citizens, explains information exchange in detail, and proffers practical advice on choosing, opening and operating an offshore bank account.

The Practical Offshore Banking Guide 2010 is published FREE for readers of The Q Wealth Report, a privately-published newsletter covering to offshore banking, asset protection and wealth management. The Q Wealth Report was established in England in 1996 and has a global readership. Englishman Peter Macfarlane, 38, is joint editor, besides running his own professional practice in Panama City, Panama and being a regular speaker at offshore events.  Further bio on Peter Macfarlane is here. The free Secrets of the Super Rich course edited by Peter Macfarlane and others is available here.

Over the last few months and in the wake of the OECD crackdown on tax havens, when talking to my personal consulting clients and handling the free anonymous e-mail consultations we offer to members, I’ve been asked numerous questions about participating in offshore tax amnesty programs like the IRS’s ‘Offshore Voluntary Compliance Program‘ (OVCP), the UK’s ‘New Disclosure Opportunity‘ (NDO) and equivalent programs in many other countries.

Some surprising countries like the Netherlands – including Netherlands Antilles – and Argentina are also getting very agressive with their non-compliant taxpayers and are busy signing Tax Information Exchange Agreements (TIEAs) with offshore havens.

First of all, the usual disclaimers. There is no easy to answer to this question as it depends very much on personal circumstances. International tax lawyers I have talked to are divided in their opinions too. My job here is simply to report what I’m hearing on the offshore grapevine. Nothing here should be construed as tax advice.

The USA  Offshore Voluntary Compliance Program has attracted the severe criticism for being highly ambiguous – even those participating in the amnesty and filing their FBAR forms have received no guarantee that they will not be subject to criminal prosecution later. So, one might ask, what is the benefit of participating in the amnesty? The IRS are effectively saying to taxpayers “you just have to trust us.” Hmm. Any good lawyer will tell you not to trust the opposition. And on that basis many good lawyers have advised clients that it is not in their interests to participate in the amnesty.

Although it has now technically finished, we hear that the IRS may still be offering informal ‘deals’. And the main point of such deals is to collect intelligence on offshore bankers, lawyers, accountants and others who have assisted US taxpayers in tax evasion in the past.

In this regard, I have specifically warned a few clients about undeclared accounts they have in banks that I won’t name in public, but which are likely to be high on the IRS radar. Certain European banks, mainly banks in Switzerland, Austria and Denmark, that I could probably count on the fingers of my two hands, have been very active in the past in terms of marketing their services to Americans. UBS was one of them, but there are others, including some small boutique private banks with mainly American clients.

If the IRS didn’t know about these offshore banks before, they certainly do now. So which banks do you think will be top of the list for auditing with a fine tooth comb once the new QI rules are agreed sometime next year? (More on the new 2010 QI rules coming up shortly in Q Bytes – we are working on that now)

You already know if you are a client of one of these banks or not. In the past, they had representatives travelling worldwide – even to the USA – meeting American clients, often at gatherings frequented by libertarians, banking privacy enthusiasts and the like.

If your hidden account is in a bank with few US clients that has not popped up on the radar, you are undoubtedly in a much more advantageous position. But it’s still not too late to close out your accounts with the affected banks and move assets into a more robust, legally watertight asset protection structure – hopefully including assets that do not trigger reporting requirements (physical gold comes to mind.) By closing such vulnerable accounts as soon as possible, you can minimize (but not eliminate) the risk of detection, since audits should hopefully cover only active accounts.

A second, unstated, purpose of the amnesty programs and the IRS spin machine (press releases etc) is simply to scare people with bluff. A lot of the most productive Americans, who have been the stimulus that brought prosperity, jobs and wealth to their country over past decades, won’t be enjoying a relaxing holiday season this year. We don’t think this is fair, of course.

Although bank secrecy is under attack, it’s certainly not dead yet. On the other hand I’ve been saying for years that it is a BIG MISTAKE to hold unreported bank accounts in your personal name. There are much better ways to legally hide money and protect what is yours. Which are the best offshore banking countries for 2010? We regularly write about such solutions and about the safest and best offshore banks here at Q Wealth Report. We believe in practical, positive advice – not scare tactics.

If you don’t see what you want in our publications, paid-up members are entitled to a free e-mail consultation (subject to the natural limits of my time) and/or to a referral to an expert US tax lawyer we know and recommend based in Panama who can also help with disclosure and amnesty matters.

The IRS have declared the US amnesty a huge success. The UK tax authorities, however, have openly admitted that they are disappointed with the number of people coming through under the NDO. In an effort to attract more, they have extended the deadline through to January 4th.

A separate UK tax amnesty is one negotiated exclusively with Liechtenstein, which it is generally agreed by experts offers very favorable terms to taxpayers. However, only 27 people have come forward so far under this amnesty. From this month, the Liechtenstein disclosure amnesty is being extended to allow UK taxpayers who hold undeclared accounts in other jurisdictions to move those accounts to Liechtenstein and then take advantage of this special amnesty.

Anyway, if you want to be kept informed on this subject it is a regular topic in our weekly Q Bytes newsletter. It is absolutely free, just sign up and confirm your e-mail address. We will not spam you and you can unsubscribe instantly at any time. To sign up to Q Bytes click here.