Offshore Bank Accounts and Second Citizenship in 2013

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Greetings and a Happy New Year to all! I hope you are as refreshed as I am after a week’s sun and a week’s skiing with family and friends… combined of course with visits to a couple of new offshore banks. And above all I hope that 2013 will be your most prosperous and successful yet. It has the potential to be – if you are nimble and flexible enough to take advantage of the opportunities presented by the current crisis.

In this, my first posting of the year, I want to look at the big picture regarding second citizenships and offshore private banking – two of our key topics that are inextricably intertwined and of paramount interest to our readers.

Let’s start with opening bank accounts. Since we published our Practical Offshore Banking Guide 2012, things have changed a lot. We are working on hard on releasing the 2013 edition, but in the meantime, here’s what happening. For ease of reference, I’ve divided the first part of this article into a section about Americans (by which I am referring to US citizens, including the millions who don’t really consider themselves Americans but carry the blue-covered passport due to an accident of birth), and a section about non-US citizens. I suggest, however, that everybody reads both sections in order to get a full understanding of what’s going on in the offshore private banking world.

OFFSHORE PRIVATE BANK ACCOUNTS FOR AMERICANS IN 2013

For Americans, diversification into foreign banks has become more essential and even more difficult at the same time. This is the natural result of long-term US policies, started about a decade ago, designed to stop the free flow of capital out of the US.

After a several generations of wealth creation in America, following the events of 9/11/2001 and the resultant attack on American civil liberties, Americans – who grew up with no need to invest outside their home country – were gradually discovering that their capital could in many cases be safer and generate better returns overseas. George Bush saw this as a threat to American superpower status and started introducing policies designed to stop the flow of investment capital out of the US. These policies were continued by Clinton and Obama… showing that whatever party is in power, the result is really the same.

The latest development in this campaign is FATCA, an evil piece of American legislation that affects every bank and financial institution in the world. 1st January 2013 is a key date in the implementation of FATCA (although the US Treasury keeps pushing back their own deadlines) since it is now that Foreign Financial Institutions are expected to start making their contracts with the IRS to be unpaid spies of the US tax administration.

The net result is that very few foreign banks now want to deal with US citizens – even the growing number of them who have second passports via dual nationality. This amounts to outright discrimination against American citizens, but who can blame the banks? It is the American government’s fault. That’s why, for example, American Citizens Abroad has waged a tough campaign to get FATCA repealed.

Originally the problem was with secrecy and undeclared accounts. The result now, is that even if Americans can prove that they want foreign accounts only for investment diversification purposes and they are quite happy to report them to the IRS, they are still being turned away en masse from foreign banks, offshore brokerage houses, private banking outfits and the like.

As of today, we do still know of reputable and secure foreign banks, that will accept US clients, and provide a full range of multi-currency offshore banking services. They are located in Europe and the Caribbean region. However, bank policies are changing by the day. One of the banks where we have been sending many US clients has promised a meeting this month to decide if they will continue to accept American clients or not.

There are some other solutions: one of particular interest to American citizens is internationalizing IRAs via an offshore LLC (Limited Liability Company). This gives you a chance to diversify your retirement account into things like foreign currencies and precious or strategic metals (gold, silver etc). We’re planning to release a report on this in the first part of this New Year, but for those who don’t want to wait until it’s ready our front desk is already in a position to refer members to experts on a case-by-case basis.

OFFSHORE PRIVATE BANKING FOR NON-US CITIZENS

It’s still relatively easy for non-US Citizens to open offshore private or corporate bank accounts. This includes offshore accounts for entities like corporations, LLCs, trusts and foundations.

Unfortunately, however, it’s getting more difficult: especially for Brits, Canadians, Australians, Germans, Spanish and Italians, who unsurprisingly make up a large proportion of our readership. The UK and Germany especially are following the US lead, having mooted their own extra-territorial versions of FATCA. Banks from Switzerland to Singapore are under extreme pressure and have even been closing accounts of Brits and Germans.

As I’ve said, I don’t think Singapore is an attractive banking haven any longer. Hong Kong is too complicated as an alternative, since there are only a very few banks there and they are not really interested in attracting foreign clients.

Right now, it’s a tie between Europe and the Caribbean which are the best places to open offshore bank accounts for non-US citizens. I am in almost daily contact with good banks in both regions.

New Zealand deserves a special mention as something of a wild-card – it’s been through a few scandals with unlicensed offshore banks and dodgy nominee directors in recent years, but it has a very professional community of offshore service providers, modern and attractive legislation, and we will be shining the light on some excellent opportunities for going offshore in New Zealand over the coming months.

SECOND PASSPORTS AND CITIZENSHIPS

Everybody needs a second passport. Period. Amongst our readers, Americans need them more urgently than most. There is only one way an American citizen can legally opt out of paying taxes in the USA – and that is to renounce American citizenship.

Most Americans love their country and renouncing citizenship, a permanent move that is very hard to undo, is a radical step. However, it sure is nice to sleep well at night knowing that you have a second passport in the drawer in case you decide to renounce in the future.

Non-Americans have it much easier: they just need to move to another country to opt out of taxes. But that could change anytime: I see France, the UK, Australia and Canada as the most likely to introduce worldwide taxation based on citizenship, in that order. So for non-Americans too, a second passport is an excellent ‘Plan B.’

So how do you go about getting a second passport? Things have changed a lot in this field too.

In 2004, I visited both Paraguay and the Dominican Republic. I had identified these countries as the easiest places to get citizenship relatively fast, relatively inexpensively, and completely legally. This was based on naturalization by residence: you went to the country and established official residence, but under local laws there was no obligation to spend time in the country. Over the following years, a good number of our happy friends, readers and clients obtained citizenship in Paraguay and the Dominican Republic. Naturally, they are still benefiting from those citizenships today, and they can pass them on to their children.

Today, however, both these options (Paraguay and Dominican Republic) are firmly shut. Dominican Republic passed specific laws in late 2012 that changed their traditionally liberal constitution, making it much harder even to get residence there, never mind citizenship. These laws were mainly inspired by the number of illegal immigrants in that country (typically poor Haitian immigrants) but also by international pressure.

Paraguay has not changed its laws, but I no longer regard it as an easy citizenship. Newsletter writers have changed that. I guess I share some of the blame, but at least I wrote about Paraguay discreetly and respectfully, and sent a small number of good clients. I genuinely love Paraguay – it’s a fascinating place to spend time and is full of investment opportunities.  For those who are interested, The Economist published a great article on Paraguayan history in their holiday edition.

In recent years, however, a whole stream of newsletter writers and bloggers have been down there and ruined the deal for everybody. Like citizens of any other country, Paraguayans have national pride and don’t want to see their citizenship advertised on the internet to the highest bidder. They are simply refusing any more naturalizations unless there is a clear commitment to the country – such as a substantial investment, or putting down real family roots. And in case you think it’s just a case of paying off a corrupt bureaucrat, you should be aware that all naturalizations now have to be signed off by nine separate government ministers and the supreme court.

Are there other countries where naturalization is still easy? It’s all relative. There are some, mainly in Latin America. They are not as easy as Paraguay and Dominican Republic once were, but they are possible. You can bet this time, however, I’m not going to make the mistake of writing about them on the internet for all to see. I will keep them for private consulting clients who have the necessary money, time, and inclination to learn languages.

Oh, and please be extremely careful of some dodgy Latin American passport offers on the internet… if somebody offers you an instant Latin American passport, run a mile (or more if you can!) After a decade of global crackdowns on corruption, illegal passport offers from Central American countries and also from Venezuela are beginning to come out of the woodwork again. One of our clients who bought such a passport against our advice spent this last Christmas and New Year in jail, and I’m sure he’s not the only one.

 

GOOD NEWS ON ECONOMIC CITIZENSHIP – FAST SECOND PASSPORTS

Anyhow, if time and language-learning abilities are not your thing, there is finally some good news on the horizon. Economic citizenship (second passports by investment) is becoming much more popular and more widely accepted. The only downside is its cost. To qualify for economic citizenship, you will need at least $100,000 and possibly nearer to a million in free capital to invest. If you are in this category and you want to obtain a citizenship, new options are opening up. And I think the investment opportunities are getting better: governments around the world are beginning to understand that someone who comes and invests a million in their own business, that has a high chance of being a success and contributing in a meaningful way to the local economy, is worth more than somebody who makes a one-off smaller payment to government coffers and never even visits the country.

The cheapest country in the world to get a second citizenship by economic means these days is Dominica (an English-speaking Caribbean island, not to be confused with the Dominican Republic). It just got a lot better, too, because in late 2012 they signed a visa-free travel agreement with the European Union. The bad news is that the program is still not really well administered, and they have a vast backlog of applications at the moment that they are working through. My prediction for 2013 is that the out-of-pocket cost will go up sooner rather than later, but the Dominican government is likely to introduce more of an investment element to it. So there will be more cash outlay at the beginning, but a greater potential for seeing some or all of that cash back again at a later date.

St Kitts and Nevis is the other major economic citizenship program. This is definitely better administered and has a better reputation than Dominica’s… but again it’s more expensive. The good thing is you get either some real estate, or shares in a company that is operating in the local economy, as part of the deal. My prediction again is that the investment thresholds will soon be raised. If you need information on this program, check out NTL Immigration’s site.

Antigua and Barbuda, another Caribbean nation, is the new player in the economic citizenship field. Their laws have not been finalized yet, but we are expecting that to happen this month. We’ll bring you more information as we receive it.

My general prediction is that we will see more and more countries offering economic citizenship. Portugal and Ireland have already discreetly introduced some laws akin to economic citizenship, that are very attractive due to their membership in the European Union. Neither Portugal nor Ireland is offering instant citizenship, but they are offering a reasonably speedy and efficient application of their normal naturalization laws – with the added benefit that you can qualify without ever having to be tax resident in their territories. Basically the deal is you invest in some real estate (that potentially generates an income), you are not subject to their tax regimes, but you qualify for naturalization after about five years.

These programs are probably more attractive these days than the old way of getting a second passport via Paraguay or the Dominican Republic. I know for a fact that other European countries are planning similar passport-by-residence programs: starting with Spain, Hungary and Bulgaria.

None of these programs, however, will be highly publicized, because it’s not in anyone’s interest. It will be done discreetly through ‘consultants.’ And you will need a healthy six figure investment sum to qualify. The days when you could get a second passport for $20,000 are truly long gone.

What’s the bottom line? If you have missed opportunities in the past for international diversification of your finances and your citizenship, 2013 is the year in which you can still take action. You owe it to yourself not to wait longer!

Editor’s note: Peter Macfarlane is a Q Wealth expert and international consultant. Q Wealth members are entitled to a free e-mail consultation with Peter’s firm, Peter Macfarlane and Associates. Please note this offer only applies only to those who are full paid-up members. If you are not yet a member please go here.

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1 thought on “Offshore Bank Accounts and Second Citizenship in 2013”

  1. Your article mentions that people with dual citizenship (U.S. and other) with more than one passport are having a hard time opening bank accounts off shore. The whole reason for dual citizenship is to hide the fact that one has American citizenship from any offshore bank, so in their eyes one is "NOT" American, but just like any non U.S. citizen.

    Can you clarify your statement ?

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