Offshore Asset Protection BLOG - Bob Bauman

Brown & Sarkosy Lead G-8 Insanity

Outlaw legal tax avoidance? Nonsense, you say! Makes no sense! Read on dear friends...

Every other month the world must suffer learning another numerical tag for a bunch of politicians getting together at the taxpayers' expense to issue meaningless statements.

In April it was the loudly anti-tax haven G-20 meeting in London, at which the all-time single year American budget deficit spender, President Barack Obama, restated his plans to destroy tax havens and his opposition to world tax competition.

Jackson Dead: G-8 Lives

This week, sandwiched in between endless TV coverage of the still dead Michael Jackson, the world is supposed to have its collective eyes trained on a meeting of the G-8. Q: Who or what, you ask breathlessly, are the G-8? A: The United States, Canada, France, Germany, Italy, Japan, Russia, and the United Kingdom.

Next question: why should we care? For some time now, the very existence of the G-8 has been in question, with a good many folks arguing that a group of leaders largely plucked from declining, heavily indebted Western countries can hardly provide a truly representative view on the world's problems.

Berlusconi to the Rescue

Thanks to the effervescent, ebullient, sometimes evasive prime minister of Italy, Silvio Berlusconi, the host of this week's G-8 circus, this august gathering is being held in the Italian mountain town of L'Aquila, in the Abruzzo region, which was struck by a 6.3 magnitude quake in April that killed nearly 300 people.

To help revitalize the region, where more than 50,000 residents remain homeless, Berlusconi moved the G8 summit there, although locals don't understand how a bunch of foreign politicians and their security details will help build houses for the homeless. As they used to say on the Rocky & Bullwinkle TV show: "Whatzamattau?"

With Silvio Berlusconi as his guide, President Barack Obama toured the L'Aquila earthquake zone, which may have reminded him of his current poll approval numbers. We don't know if the U.S. Secret Service brought along earthquake-sensitive animals said to detect earthquakes well before tremors strike.

Destined to Fail

Even before the G8 met, Newsweek suggested it already seemed destined to fail. After all, how can you tackle the global financial crisis, world poverty, and climate change when China, central to all these problems, isn't even there. (President Hu Jintao had to rush back home to kill more protestors in the bloody ethnic clashes in remote Xinjiang province). Then there's His Holiness the Pope who chose this moment to issue a muddled, contradictory attack on global capitalism.

Indeed, one of the only interesting G-8 passtimes is observing the event's host, Silvio Berlusconi, a man who has his mind on other things -- namely that he might get thrown out of office at any moment, following months of a cash-for-sex scandals.

Skip Iran & North Korea

Right away the G-8 leaders decided they would not support tougher sanctions against Iran for its post-election violence, nor sanctions against Iran and North Korea for their expanding nuclear weapons programs.

Instead, the assembled statesmen issued yet another broadside against what every sane person knows to be the true threat to the future of all mankind -- offshore tax havens!

Avec Gaz

While president Obama basks in natural press and popular adulation wherever he goes, the lesser political likes of UK prime minister Gordon Brown and his shorter, cross-Channel colleague, French president, Nicolas Sarkosy, have to claw for press attention when Obama is around.

So these two political pygmies held their own summit meeting, (2,400 feet above sea level in the French Alps), two days before the G-8, in the home region of that expensive mineral water, Evian, (both sans and avec gaz).

And in hopes it would bolster their failing polls at home, Brown and Sarkozy had no praise for the several tax havens that, since the London G-20 meeting, have fallen all over themselves to do the bidding of the Organization of Economic Cooperation and Development (OECD). No, the OECD Bobbesey Twins want to up the ante on those offshore jurisdictions that have already met the OECD color coded tax standards (those ever-changing, imaginary lists of black, gray and white).

Outlaw Tax Avoidance! (Huh?)

Brown and Sarkosy want the OECD bar to be raised still higher and the goal posts widened to include tax avoidance – which is not a crime – and not just tax evasion. How and why individual taxpayers or tax haven jurisdictions should be required to ban legal avoidance of taxes that are not owed is a mystery -- but this inane demand did get the press coverage for which they thirsted in Evian.

Name, Shame & Blame

The G-8 is also proposing that the OECD's Financial Action Task Force (FATF) once again be used to "name and shame" any “uncooperative” jurisdictions with financial regulatory failings. Although it seems highly unlikely that the major onshore countries, led by the U.S. and the U.K. which have allowed major failings in their financial regulation systems, would be included on this list.

Some years ago my Sovereign Society colleague, Mark Nestmann, spoke for me when "Every taxpayer has a right to try to avoid taxes. But when does complete legal tax avoidance turn into illegal tax evasion? The answer seems intuitive: evasion is driving around a tollbooth to enter a toll road without paying. Avoidance is taking an alternate free route."

Mark also noted that the highest courts in both the U.S. and the U.K. had endorsed this view, expressed by U.S. Supreme Court Justice Felix Frankfurter when he wrote: "Nobody owes any public duty to pay more than the law demands. Taxes are enforced extractions, not voluntary contributions."

Another Deadline

To lard their Evian anti-tax haven statement (avec gaz) Brown and Sarkozy called for "sanctions" to be imposed on tax havens beginning in March, 2010. "The world should be in no doubt that the writing is on the wall for tax havens wherever they may be," Brown said at a joint news conference with the French president. "Tax transparency, full exchange of tax information and reducing tax avoidance are crucial for the health of the global economy," Brown claimed. Sanctions could include restricting investment, imposing taxes on funds transferred to or held in tax havens, or the withdrawal of government aid, he suggested.

Listing to Port

In a game of Gallic oneupsmanship, Sarkozy called on tax havens to go even further, and to commit to greater transparency on all fiscal matters. "Tax havens have shifted from the black list to the gray list, now fiscal cooperation conventions must be signed...they need to exit the gray list," he railed.

And so dear readers, the global anti-tax haven campaign continues, tax oppression grows, freedom be damned.

 

* The Sovereign Society is a recognized voice in the complex offshore world. Join the Sovereign Society and keep informed.

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New Panama President Challenges Latin American Left

Ricardo Martinelli, backed by an unprecedented 60% election victory, was sworn for a five-year term in Panama City on July 1st, becoming the 5th democratically elected president since the dictatorship of Manuel Noriega was ended by a U.S. military invasion in 1989.

The new president, with a reputation as a fighting political conservative, wasted no time in letting his Latin American neighbors know where Panama now stands. Said he: “Panamá has to be a leader of freedom and justice, not only here in our home, but in our region and our continent. As president, I will do everything within my power to advance the ideals of a free economy, defying the ideological pendulum in Latin America."

From Left to Right

This must have produced a mixed reaction from the many Latin American officials present, ranging from the far left vice president of Communist Cuba to president Alvaro Uribe of Colombia, a staunch ally of the U.S. Others dignitaries included the Prince of Asturias, Felipe de Borbón of Spain and the presidents of Mexico, Guatemala, the Dominican Republic, El Salvador, as well as ousted Honduran President Manuel Zelaya.

The deposed leftist Zelaya, disciple of  the radical leftist leader of Venezuela, Hugo Chavez (who was not present), has President Barack Obama's endorsement. But by insulting contrast, the Obama/Clinton State Department only managed to send as the official American representative at Martinelli's inauguration, Ken Salazar,(right) the U.S. Secretary of the Interior, (perhaps because Salazar speaks Spanish?).

To emphasize regional cooperation, Martinelli held a special meeting with president Alvaro Uribe of Colombia, and Felipe Calderon of Mexico, who jointly pledged to work together on security and anti-drug measures.

Hope & Change

As I reported earlier this year, Martinelli conducted a dynamic U.S. style presidential campaign with Obamaesque rhetoric of change and hope, two things Panamanians badly need and want. One of Panama's richest men, with interests in a major Panamanian bank, real estate, hydroelectric energy, plastics and sugar, Martinelli's wealth is estimated at hundreds of millions of dollars. The son of Italian immigrants, (he holds dual Panama/Italian citizenship), the U.S. educated business leader's fortune is self-made.

Cleaning House

In his inaugural address, Martinelli outlined his populist conservatism, emphasizing that his government would be provide new style government combining administrative experience from both private and public sectors. He said that he will end the tradition of elected leaders "arriving clean and leaving millionaires," one of his most popular campaign slogans.

Towards this end Martinelli announced an immediate reduction of $200 million in the budget of the National Assembly and an end to the “botellas” (staff sinecures with no work) in the legislative branch. Henceforth legislators will be paid only if they are present.

Martinelli's "Alliance for Change" coalition now controls both the executive and legislative branches with 44 seats in the National Assembly.

Tough Economy

Martinelli will have his hands full in guiding Panama through the current economic recession. In recent years Panama's GDP growth has averaged  8%, but that is expected to fall by half in 2009.  Part of that spending will go for the $5 billion+ cost of the Panama Canal expansion.

Martinelli's new cabinet members were quick to follow the president's conservative policies in announcing their programs. Minister of Economy and Finance Alberto Vallarino (left) said that adoption of a flat tax, which was one of Martineli's major campaign promises will come after a thorough analysis.

Sharp Response

The new Minister of Commerce, Roberto Henriquez, (below right) gave a sharp response to Ecuadoran president, Rafael Correa, who recently won re-election vowing to push forward with a "socialist revolution." Correa, another Chavez backer, had threatened to ban companies with links to Panama from business relations with Ecuador because he claimed Panama is a tax haven. Henriquez said of  if Correa imposes trade restrictions, Panama would file a formal complaint with the World Trade Organization (WTO). Henriquez said bluntly: "The Panamanian government will apply equal restrictions against Ecuador.”

Free Marketers Bullish

Local and foreign investors are bullish on the outlook for Panama and its new government. “I’m very positive on Martinelli,” says Kathryn Rooney, senior emerging markets strategist at Bulltick Capital Markets. “He’s extremely market friendly and will continue the positive trend of the economy.” She especially single out his plans to lower taxes and improve relations with the United States.

Robert McMillan, a former chairman of the Panama Canal Commission, is also upbeat: “Martinelli is pro business,” he says. “Not only is he a businessman, but he was also chairman of the Panama Canal Commission.”

Panama is a leader in the offshore financial world, and the leading banking center in Latin Americium south of Miami. Its financial privacy laws have played a major part in its success. One issue Martinelli's government is expected to defend strongly Panama’s traditional offshore financial and banking sectors.

 ** To learn about the many offshore opportunities offered by the Republic of Panama, my book, Panama Money Secrets, is a helpful guide.

** The Sovereign Society is a recognized voice in the complex offshore world. Join the Sovereign Society and keep informed.

233 Years of American Independence: Our Freedom Preserved?

In CONGRESS, July 4, 1776
The unanimous Declaration of the thirteen united States of America,
When in the Course of human events, it becomes necessary for one people to dissolve the political bands which have connected them with another, and to assume among the powers of the earth, the separate and equal station to which the Laws of Nature and of Nature's God entitle them, a decent respect to the opinions of mankind requires that they should declare the causes which impel them to the separation.
We hold these truths to be self-evident, that all men are created equal, that they are endowed by their Creator with certain unalienable Rights, that among these are Life, Liberty and the pursuit of Happiness.

Drafted by a distinguished committee headed by Thomas Jefferson, of Virginia, the Declaration of Independence is one of the most memorable freedom documents of all time, proclaiming as it does, every human being's right to "life, liberty and the pursuit of happiness."

One of our Nation's Founding Fathers and our second U.S. president, John Adams of Massachusetts, left us some words to consider on this Fourth of July: "You will never know how much it cost the present Generation to preserve your Freedom! I hope you will make a good use of it. If you do not, I shall repent in Heaven that I ever took half the pains to preserve it."

Adams and his political rival, Jefferson, our third U.S. president, both died on July 4, 1826, after several years of a fascinating correspondence in which they reconciled their differences.

Ten days before he died at Monticello, Jefferson sent a remarkable letter to the citizens of  Washington, D.C. saying he was too ill to honor their invitation to be with them for their 50th anniversary celebration of the Declaration of Independence.

While his words were addressed the citizens of Washington, Jefferson speaking to all future generations of Americans – to you and to me. You can read his letter here.

Jefferson's letter is considered one of the sublime exaltations of individual and national liberty -- his personal vision of the Declaration of Independence he helped to write and of the American nation as examples to the world of the blessings of self-government. In that last letter Jefferson expressed his wish that "the annual return of this day" would "forever refresh our recollections of these rights, and an undiminished devotion to them."

What Would He Think?

It is disquieting to speculate, in light of Jefferson's admonitions about preserving our rights, what he would think should he return to see what has happened to those cherished rights in modern America.

Jefferson was a man of the world, a brilliant intellectual, but also a wily politician. I suspect that the third president of the United State might be surprised to see an African American serving as one of his successors.

Years before the Constitutional Convention in Philadelphia in 1787, Thomas Jefferson, a slave owner himself, admitted the horrible nature of this institution. In his 1782 "Notes on Virginia" he made a prophetic statement in regard to U.S. slavery: "Indeed I tremble for my country when I reflect that God is just."

Three Fifths of a Man

When the Founders wrote the Constitution in 1787 the compromise they reached arbitrarily counted each slave as 3/5 of a person. That allowed slaves to be counted in determining how many representatives the free whites would have in the House of Representatives; hence the name "3/5 compromise." Not wanting the word "slave" in the Constitution, the delegates agreed to say that population would be determined by counting the number of "free Persons...plus three-fifths of all other Persons..."

As surprised as he might be at see one of these "other persons" had achieved the U.S. presidency, I think Jefferson would be even more astonished, even sickened, at what has happened to the rights about which he spoke in last letter -- the liberties for which Adams noted such great sacrifice had been made by so many.

Do We Care Any More?

Ask yourself, have we as a nation and as a people shown "an undiminished devotion" to the rights Jefferson, Adams and so many others fought for -- rights for which over a million Americans have died in all our wars?

How could the 3rd president comprehend that a "conservative" 43rd president and a "liberal" 44th president both had forsaken the constitutional rights about which he spoke so eloquently?

Bipartisan Shame

President Barack Obama, a lawyer and professor who taught constitutional law, has failed to live up to his campaign pledge “to restore our Constitution and the rule of law,” both of which President George W.  Bush, certainly no student of the law, did so much to weaken and distort.

On civil liberties issues, Mr. Obama has quietly, even sanctimoniously, solidified most of the worst legal positions and anti civil liberties policies of the Bush administration. He even chose to stand in front of the original Constitution and Bill of Rights at the National Archives as he announced his agreement with certain of these Bush policies.

Mr. Bush claimed to have sweeping powers as commander in chief that allowed him to bypass the Constitution and other legal constraints when fighting terrorism, an approach that trampled individual rights. Mr. Obama’s policies have not changed that approach.

Torture, State Secrets, Surveillance

Mr. Obama has continued Bush policies such as the C.I.A.’s “extraordinary rendition” program in which detainees are transferred to other countries, possibly to be tortured. Mr. Obama has invoked the overly broad “state secrets” privilege to shut down some lawsuits, as did Bush.

Mr. Obama proposes a system of unlimited preventive detention for terrorism suspects who, he says, would be hard to prosecute and dangerous to release, as did Bush. Forget guarantees of confronting one’s accusers, a speedy trial and a jury of one’s peers.

Mr. Obama’s has ratified the basic outlines of the wiretapping, surveillance and detention policies he inherited from Mr. Bush. In a "signing statement" last week Mr. Obama even echoed Bush's repeated claim of a right to ignore laws passed by Congress, in this case, five sections of an appropriations bill related  to international financial institutions.

A Tragic Mistake

A leading constitutional scholar suggests that Mr. Obama's embrace of Mr. Bush's radical policies will reverberate dangerously down to future generations. By bestowing bipartisan acceptance on these serious violations of individual rights guaranteed in the Constitution and embodied in the Bill of Rights, he suggests (and I agree), that Mr. Obama is making the tragic mistake of consolidating these enormities as entrenched policies of government.

American independence from Great Britain was fought and won against great odds. But to an incredible degree the U.S. government, under both political parties, has now replicated and become even more destructive of American liberties than King George III and the British ever were.

Political Wars Against Our Freedoms

Under the undefined, open ended "war on terror" and the failed "war on drugs" politicians have steadily eroded our American liberties. The PATRIOT Act brought back the hated colonial British Writs of Assistance and has all but destroyed Fourth Amendment protections against unreasonable searches and seizures. Indefinite detentions and military commissions resemble the Crown’s secret Star Chambers that had ended before the Revolution began in 1776.

Undiminished Devotion Needed Now

On this 233 anniversary of our Declaration of Independence, 184 years after Jefferson expressed his dying wish that "the annual return of this day" would "forever refresh our recollections of these rights and an undiminished devotion to them," no honest observant American can say with any certainty that we have honored his wishes.

Yet is not too late for Americans to reclaim and reassert the rights for which so many gave their last full measure of devotion.

 May God bless America – now more than ever.

IRS Apartheid Blocks Americans from Swiss Banks

The word "apartheid" means "separateness" in Afrikaans, once the official language of South Africa and the native tongue of many of its minority white citizens. As the world knows, it also describes an official policy of racial segregation formerly practiced in South Africa.

But the meaning of apartheid has broadened over the years and now includes any official government policy or practice of unjustly isolating or segregating groups of people from others.

You may not have experienced it yet, but there are tens of thousands of Americans already suffering under what can best be described as a diabolical "financial apartheid" -- disruptive rules being imposed on Swiss and other offshore banks by the U.S. Internal Revenue Service (IRS) and the U.S. Securities and Exchange Commission (SEC).

These IRS-SEC policies are wrecking havoc among Americans who live or bank offshore. Many justifiably upset Swiss and other offshore banks are closing existing accounts of U.S. persons and refusing new American clients. Unless there is some change, other offshore banks soon may follow suit.

Yankees Go Home

In my opinion, Swiss bankers have concluded they don't need or want Americans any more, with all that costly and legally dangerous U.S. government red tape.

Despite fears, Swiss private banking is in better shape than it looks. Swiss private banks have pulled in a lot of new money over the past two years, despite the recession and controversy over bank secrecy. Most Swiss private banks continued to report inflows even as assets under management lost market value.

Much of the new money coming into Switzerland is from regions such as the Middle East, Russia and Asia, where personal tax rates are low. Obviously foreign clients continue to value Switzerland for its security, political stability and stable currency.

But for Swiss banks the IRS and SEC are making Americans into financial pariahs.

Five Million American Expats

It is difficult to say how many people are affected, but more than 5 million Americans live abroad, including about 30,000 in Switzerland.

The unreasonable U.S. government demands caused UBS and Credit Suisse, Switzerland's two largest banks, months ago to order Americans to move their money into specially created banking units that are SEC registered or located in the U.S. Failing that, the banks closed the accounts. UBS alone has cut loose its 52,000 U.S. clients.

Many smaller private banks, such as the respected Geneva-based Mirabaud & Cie, also are shutting down U.S. accounts.

As part of a U.S. Department of Justice deferred prosecution agreement on charges UBS conspired to defraud the U.S. of taxes, the bank gave limited U.S. client data to the IRS and paid a fine of $780 million. The unappeased U.S. DOJ then sued UBS again, this time demanding 52,000 names of alleged American clients. A hearing on this demand is scheduled in federal court in Miami in a few weeks.

Compounding the nervousness of notoriously conservative Swiss bankers, the IRS is threatening to sue other Swiss banks to obtain their U.S. client records. Apparently the IRS assumes any American with an offshore bank account is a tax evader.

Americans as Typhoid Mary

The IRS also has increased pressure on Americans to disclose offshore accounts, setting a deadline of Sept. 23 for taxpayers to declare all foreign accounts or face possible criminal prosecution that could result in as much as 10 years in prison and $500,000 in penalties.

IRS proposals on new QI rules (see below) will increase the cost of compliance and the risk of violating U.S. laws, says Charles C. Adams, (right) managing partner at the law firm Hogan & Hartson LLP in Geneva.

"American citizens are starting to feel like they’re Typhoid Mary," said Adams who hosted a 2008 fundraiser for Barack Obama. "The Swiss simply don’t want American customers because it requires so much infrastructure and hassle that they don’t make any money."

U.B.S. Loved Obama

As I noted here last year at a U.S. Senate hearing in July, 2008 then Senator Barack Obama complained that "Ordinary Americans pick up the slack for tax cheats who hide assets in offshore tax havens, often with the help of foreign banks like UBS…"

When he made this pious statement now President Obama knew that one of the most prominent UBS executives, Robert Wolf, CEO of UBS Americas, (above with the President at the White House recently) already had collected and bundled more than $370,850 in campaign contributions for Obama’s presidential campaign, making UBS Obama's fifth largest corporate donor.

Judging from what Obama’s government has done to U.S. since taking power, this was yet another very bad investment for the geniuses at UBS.

Qualified Intermediaries or Spies?

The current unprecedented disruption for Americans banking in Switzerland results in part from the little known IRS "qualified intermediary" (QI) program that began in 2001.

In its current form, the QI program allows participating IRS-approved foreign banks to maintain accounts for American clients without having to disclose their names to the IRS. (U.S. persons already are required by law to report all offshore accounts on their annual income tax IRS Form 1040 and on Form TD F 90.22-1 – Report of Foreign Bank and Financial Accounts).

Until now the IRS has required the offshore QI banks to promise to identify U.S. clients, withhold any taxes due on U.S. securities in their accounts, typically a 30% tax, and send the taxes owed to the IRS. More than 7,000 foreign banks participate in the QI program supposedly helping the IRS to keep track of American offshore investors. But now the IRS claims each year it is losing millions of taxes owed under the QI system.

As I explained here, in 2009 the IRS proposed tough new QI rules, to take effect in 2011. Under these much stricter rules foreign banks in the QI program will be forced to investigate, determine and report to the IRS, not only the names and information on individual U.S. offshore account holders, but also on any legal entities (trusts, corporations) Americans control as beneficial owners.

In effect the IRS wants offshore banks to act as financial spies on Americans who bank offshore, just as the PATRIOT Act already requires U.S. domestic banks to spy on their clients and report "suspicious activity" to the U.S. Treasury crimes unit.

SEC Extends U.S. Law Offshore

But there's another cause of this Swiss-American banking mess and it comes from the same U.S. SEC, that wonderful bureaucratic agency that wouldn’t investigate Bernie Madoff even when his fraud was explained to them in detail.

The SEC accused UBS with helping its U.S. clients to evade taxes, but it also charged that the bank’s actions that had occurred within Switzerland amounted to the bank acting as unregistered investment advisers and broker-dealers in violation of the U.S. Investment Advisers Act of 1940 and SEC rules. Using this novel extraterritorial approach, the SEC thus has extended its jurisdiction to include any person anywhere in the world who dares to advise Americans about investing before registering with the SEC.

In settlement, UBS paid $200 million to the U.S. and permanently was barred from acting as investment advisors or broker-dealers for American clients in Switzerland.

Blackmail by Regulation

Up until now offshore banks and investment advisors could avoid SEC registration by having absolutely no contact with and never soliciting potential U.S. clients. Because of this previous SEC interpretation of registration rules, careful offshore banks and financial advisors would not even respond to inquiries from a U.S. postal or email address.

The UBS case seems to mean that Swiss or other offshore banks now must register with the SEC, an onerous and costly process, in order legally to provide advice to American customers with offshore investment or bank accounts.

"My bank doesn't want to do that, so we wouldn't accept an investment account for a U.S. person," said Pierre Mirabaud, chairman of Mirabaud & Cie (left).

For Americans with Swiss accounts, SEC registration by their bank also means they must waive the protection of the 1934 Swiss bank secrecy law that makes it a crime for money managers to disclose the names of clients without their consent.

It appears that international blackmail by U.S. regulation is achieving what the IRS and the OECD has long demanded – an end to Swiss bank secrecy, at least for Americans.

Obama’s Tax Hunger

How can these astonishing developments be allowed to occur in a modern banking and financial world system linked by globalism?

Ravenous for tax dollars to finance President Obama's costly remaking of America, it appears the IRS has orders to adopted as official policy the kind of radicalism expressed by Jack Blum, (left) a paid IRS "consultant on tax evasion," who told The New York Times: "There is no legitimate reason for an American citizen to have an offshore account...When you go offshore, you are doing so to evade rules, regulations, laws or taxes."

Indeed, I personally heard a top U.S. Justice Department official make a similar statement that traditional internal DOJ policy assumes that any American engaged in offshore financial activity is probably doing something illegal.

So much for presumed innocence until proven guilty!

Over the years the IRS repeatedly has tried to scare all Americans with deceptive publicity campaigns that insinuate that banking and investing offshore is somehow un-American and even illegal -- when in fact it is fully legal (a least for now), so long as offshore activities are reported and taxes paid on all worldwide income.

Congress Wakes Up

So drastic have the IRS/SEC extraterritorial measures become that even the U.S. Congress has taken notice.

In bi-partisan opposition two members of the U.S. House, Rep. Carolyn Maloney (left) and Rep. Joe Wilson, (below) wrote a May 27 letter to Treasury Secretary Timothy Geithner pointing out the obvious, that if QI requirements are extended beyond investment accounts to cash or deposit offshore accounts, "taxpaying Americans living abroad will have no place to bank" -- which is exactly what is happening.

"If neither foreign nor American banks will take American customers, how will the millions of citizens living abroad bank." asked Maloney, a New York Democrat, and Wilson, a South Carolina Republican, co-chairmen of the congressional Americans Abroad Caucus? (Email your U.S. senators and congressman and let them know your opinion).

Legal Solution for You

At the Sovereign Society fortunately we saw this coming. Over many months we have responded to scores of complaints from Americans affected by these outrageous Obama policies.

Our executive director and marketing directors, Erika Nolan (left) and Shannon Crouch, meet regularly with Swiss and other offshore bankers. We now have in place agreements with reputable Swiss banks willing to accept new accounts from those who identify themselves as Sovereign Society members.

These arrangements are in full compliance with IRS and SEC rules and with other U.S. laws. It also means that a U.S. client must sign an IRS Form W-9 that allows an offshore bank to report required information to the IRS.

As it has been since our founding 11 years ago, our staff is available to assist in opening a Swiss or other offshore account.

Take advantage of these special Swiss banking arrangements -- sign up here for Sovereign Society membership. Once you are a member, you can contact us for help via email at info@sovereignsociety.com

Who Is John Doe?

Have you ever heard of the "Partnership for Public Service"?

No, neither had I, until a few days ago when I read an article in The Washington Post, which that venerable liberal journal freely admitted was written by an anonymous author at the PPS. I know that newspapers are having a difficult time financially these days, but must they used canned articles(although this one was revealing)?

Distinguished Folks

The PPS has both a "Board of Governors" and an "Advisory Board" studded with big and middle-size names that range the political spectrum from Right (Sen. John McCain [R-AZ](left), Fred Thompson) to Left (Sen. Dick Durbin [D-ILL], (below) Larry Summers), plus a lot of inside-the-Washington-beltway types. I would guess from own experience that most of these worthies have no idea what the PPS does from day to day, but perhaps the conservatives should take some note.

The PPS bills itself as a group that "works to make the government an employer of choice for talented Americans...a nonprofit, nonpartisan organization that works to revitalize our federal government by inspiring a new generation to serve and by transforming the way government works."

Having served as an attorney for a short time in the federal executive branch, I heartily agree that the bureaucracy badly needs more brains and talent.

Mash Note for the IRS

What burned me about the PPS/Washington Post "news" article was that it was pretty much a mash note, a puff piece for a gentleman identified as a U.S. Internal Revenue Service "special trial attorney" John McDougal.(below).

The article claimed that: "Tax cheats have brazenly hidden billions of dollars in offshore bank accounts for decades, but this ruse has become harder to pull off, thanks to John McDougal [trumpets, please!]... McDougal and his IRS team have recovered tens of millions of dollars for the government... breaking down a veil of secrecy that has long cloaked the identities of offshore account holders. Offshore tax evasion, a 2008 Senate report said, costs the U.S. Treasury $100 billion [emphasis mine] per year."

That $100 Billion Lie

As you can imagine, that $100 billion offshore tax evasion claim caught my eye.

A few weeks back I reported on this $100 billion amount having been exposed as a blatant lie by a recognized tax authority, none other than U.S. Internal Revenue Service Commissioner Douglas Shulman (right). Whoever wrote this IRS promotion blurb should have checked with McDougal's boss.

At a May hearing of the U.S. House of Representatives appropriations subcommittee on the IRS $12 billion budget, Commissioner Shulman said that claims that the government and the IRS lose $US100 billion annually because of tax evasion by Americans who use offshore tax havens are "wild estimates" that "don't have much basis". "Those numbers are pretty broad numbers," Shulman said.

Levin a Liar?

Whether he realized it or not, Shulman was in effect calling Michigan's radical leftist Democrat U.S. Senator Carl Levin (below), a liar, and a repetitious one at that.

Sen. Levin, the self-appointed destroyer of Americans' financial freedoms in general (and offshore freedom in particular), has repeated this spurious number ad nauseam and it's been echoed by his left wing media sycophants. (There's no proof for this mythical US$100 billion figure, in spite of a four inch long footnote #1 in one of Levin's subcommittee "reports").

Levin is also fond of repeating the nonsensical claim that, "tax havens are engaged in economic warfare against the United States, and honest, hardworking Americans." If anyone is engaged in warfare, it is the Senator from Michigan -- legislative warfare against honest, hardworking Americans and their freedom to do business offshore.

Partners in Legislative Chicanery

According to the PPS/Post article, Levin and John McDougal are old pals, quote: "McDougal's service also included an 18-month stint as an investigator on the staff of Sen. Carl Levin (D-Mich.), where he helped draft the pending legislation that would create a list of foreign tax havens and give the Treasury department new tools to impose sanctions on them."

An yes, that's Levin's proposed legislation deceptively entitled: "A bill to restrict the use of offshore tax havens and abusive tax shelters to inappropriately avoid Federal taxation, and for other purposes."

S. 506, the "Stop Tax Haven Abuse Act", would unconstitutionally condemn all American users of offshore tax havens, (and the havens themselves), by creating a radical presumption in the law that any American engaging in offshore financial activity is a tax cheat. (Yes, you read that correctly!)

The Levin (McDougal?) bill also gives the income tax dodging U.S. Treasury secretary, Tim Geithner (left), free reign "to take special measures against foreign jurisdictions and financial institutions that impede U.S. tax enforcement" and requires all U.S. financial institutions to report to the IRS any offshore financial activity by their clients.

IRS Scare Circuit Star

Indeed, McDougal has become an IRS star on the "scare the public" talk circuit.

With his boss, Daniel Reeves, (left) a lead IRS agent in the UBS case, McDougal spoke about the IRS pursuit of tax cheat at the Offshore Alert newsletter conference in Miami last April.

It appears that McDougal may have been the mastermind behind the much ballyhooed, 2001 IRS smear campaign that labeled as tax evaders all Americans who exercised their legal right to have offshore bank-issued credit or debit cards. See my comments at the time.

Millions of John Does

The Post claims McDougal began using a "novel approach" to offshore investigations in 2001. Without showing probable cause of any specific crimes, the IRS demanded and received court approval to review the offshore credit card records of what the IRS at first allege to be "millions" of Americans. (Although the courts often have given the IRS some latitude in issuing summonses, courts usually decline to enforce John Doe summonses that are overly broad and vague).

When banks in foreign countries refused to provide information about their depositors, (as bank secrecy laws in their countries required them to do), McDougal and the IRS went after the U.S. credit card companies that processed the offshore card transactions for Americans.

Scattergun Fishing

I said then that this IRS scattergun demand for the private financial records of millions of Americans was (and is) unconstitutional on its face.

Opening an offshore account and using an offshore-issued credit or debit card is fully legal under U.S. law (at least for a while more). In spite of that unquestioned legality, the IRS campaign labeled all offshore credit card holders as suspected tax evaders.

McDougal recalled that the IRS and the U.S. Dept. of Justice served John Doe summons on MasterCard International, Visa, and American Express processing companies located in Florida and California. The IRS demanded all transaction records on credit cards issued by foreign banks, even though the card records were identified only with numbers, not names of card holders.

Based on the opinions of a few IRS agents that the cards might be used for tax evasion, U.S. courts in Miami and San Francisco approved these broad summons. Afer IRS agents examined card transactions and identified a limited number of offshore U.S. card holders, they conducted audits and took a small number to court to make an example of them.

Another Coffin Nail

Both as an attorney and an American concerned about violations of constitutional rights, I find the use of a "John Doe summons" highly objectionable. This is a last resort court-ordered summons in which the name of the taxpayer(s) under investigation is (are) unknown, thus not specifically identified.

In the pending UBS bank case to be ruled on in mid-July, the IRS again has requested a Miami federal court to approve a John Doe summons without any specific facts alleged concerning any of the 52,000 Americans said to have UBS bank accounts.

As in the 2001 offshore credit card cases, the IRS obviously assumes all UBS account holders to be guilty of mass tax evasion. The UBS case is the first time the IRS has sought a John Doe summons to investigate a foreign bank, but Agent Reeves says it may be used against more offshore banks he declined to name.

Proof or Shut Up

If the IRS has proof of its claims of billions of dollars lost itaxes owed on thousands of U.S. persons' offshore accounts, why not go ahead and prosecute these people?

The answer is that the IRS has very little proof of individual tax evasion. As in the current pending UBS case, the IRS uses John Does summons in order to engage in the very "fishing expeditions" that the U.S. Congress warned against when they authorized such subpoenas.

Indeed, the U.S. Government recently entered into a new treaty on tax information sharing with the Principality of Liechtenstein that requires IRS requests to include the identity of each taxpayer whose tax or criminal liability is at issue. The current Swiss-American tax treaty has similar provisions, but the IRS wants to ignore that inconvenient document, even though it has the force of U.S. law.

IRS Numbers Games

So lets look at the IRS record.

When he quit in 2002, then IRS Commissioner Charles O. Rossotti (right) said the IRS had identified 82,100 taxpayers whom he said used offshore accounts to evade taxes, with an estimated annual tax loss at $447 million, about $7,000 per taxpayer. In so doing he unwittingly revealed the IRS publicity staff (or someone at the IRS) as intentional deceived, not only of the public, but also the federal courts.

Back in 2000 the IRS estimated that 505,000 taxpayers had offshore bank accounts. By early 2002 the IRS upped that number to 2 million. But Commissioner Rossotti in May 2001, demanding John Doe subpoenas for offshore credit card records, had claimed in the IRS court complaint seeking John Doe subpoena power that offshore tax evasion was costing the government $20 billion to $40 billion in 2000 alone!

When this IRS farce ended a few years later, a deflated IRS admitted it only snared about 1,500 offshore credit card tax evaders who had to repay a few million in back taxes

Figures Don't Lie, But...

Should we really believe that the IRS Commissioner couldn't figure out whether it was $447 million or $40 billion that allegedly was being lost, or whether supposed offshore evaders numbered 82,000 or 505,000 or 2 million?

No, this is consistent with the way in which IRS traditionally misstates numbers to bolster their shaky campaigns and cases -- to the and detriment of millions of falsely accused Americans and to the deception of us all.

The U.S. government and the IRS, led by well meaning folks like special tax attorney McDougal, is again taking the preposterous position that any U.S. person with a UBS account in Switzerland is a tax evader.

This is an alarming and ugly replay of the same high handed position the IRS took in 2001. If the courts ratify this radical position, throwing out an international tax treaty with a respected ally, then no American is safe -- but then we knew that when our courageous Congress and George W. Bush rushed the PATRIOT Act into law in 2001.

The Right Way

Of course there is a simple way for you to avoid personal tax troubles - file the proper reports on time and pay your taxes when they're due. Hopefully, some day the IRS will also abide by the law and the U.S. Constitution.

Also, understand what you get by taking some of your wealth offshore. Securing "financial privacy" never has meant hiding your wealth from the U.S. IRS. That simply doesn't work. As evidenced by the tax witch hunts I describe here, those ravenous IRS agents, like the relentless Mr. McDougal, will find you.

No -- financial privacy means keeping your wealth private from those who covet it. That includes nosy business associates, identity thieves, irresponsible relatives, and anyone else who is likely to be litigious.

And yes, by going offshore, your wealth is much safer than here in the United States.

Sovereign Society membership guarantees to keep you up to date on all tax obligations, the best tax havens, banks and all the offshore news. Join us. 

Michael Jackson: An Estate to Die For

Someone has observed: "Death is more universal than life. Everyone dies but not everyone lives."

Although there are many opinions about how the late Michael Jackson lived his life, no one can say he didn’t live – and live large. But one of the many headlines after The King of Pop died last week told of what may be a sad and expensive story: "Estate Has Piles of Assets but Loads of Debt"

What a Mess

"It’s all a mess," said an unnamed executive involved in Jackson’s financial affairs. "No one really knows what is going on, but these are early days."

Mr. Jackson’s business life, like his private and public life, was a mass of contradictions. Administering an estate such as Jackson's requires a military-style operation with scores of lawyers, pro and con, reviewing over reams of contracts.

Shrewd but Sloppy

Unlike many show business performers, Michael Jackson was a shrewd negotiator and investor; in 1985 he pulled off one of the great deals in music business history when he bought the publishing rights to the Beatles songs catalog for $47.5 million. Today it is part of a larger collection of songs worth more than $1 billion that he owned in partnership with Sony.

But it was no secret that his personal finances in recent years were a mess. He spent millions of dollars on frequent art and shopping sprees. Neverland, his California ranch, had a zoo, an amusement park and as many as 150 employees, costing millions annually. He nearly lost it last year when he defaulted on a $24.5 million loan.

Millions Spent, Scores Advising

Worse still, he burned through financial advisers almost as swiftly as cash, with a revolving door of characters coming in and out of his life, several of whom were hired only weeks ago, in Jackson’s latest round of managerial housecleaning. And he was the defendant in numerous personal and business lawsuits, some of which he was forced to settle for millions.

"Michael never thought his personal finances were out of control," said Alvin Malnik, a former adviser who is godfather to the youngest of Jackson’s three children. "He never kept track of what he was spending."

What’s Next

The big question now is what happens to whatever remains of his assets. So far, that is unclear even to Jackson’s closest advisors. They say it could take years to sort through the financial and legal mess left after his death, with a predicted price tag for legal fees alone in the double digit millions.

It is also unclear how much will be left for his heirs. The estimate is that Jackson earned about $700 million as a performer and songwriter from the 1980s on, much of it already spent. His debts have been estimated at form $400 million to $500 million or more.

To complicate things further, the rumor is that Jackson left behind at least two wills. (In such cases, the law usually recognizes the latest will as controlling if it can be shown to be valid).

Lesson for Others

Now why have I gone into such detail about the King of Pop’s untimely passing?

Because some day we all will die and the question you should ask right now, today, is whether you’re going to leave behind a financial mess for your heirs?

If you're even modestly wealthy, an important component of a successful life is planning what happens to your wealth when you "shuffle off this mortal coil," as Shakespeare said in Hamlet.

Trillions & Billionaires

A senior U.S. Federal Reserve economist estimates that by 2050, the so-called U.S. "baby boom" generation will pass some US$41 trillion in assets on to their heirs. That's the largest potential inter-generational wealth transfer in world history.

Forbes magazine estimated that in 2007 there were 482 billionaires in America. A record nine million U.S. households had a net worth of US$1 million or more in 2006, numbers that likely have been reduced considerably by now. Yes, the richest people have gotten poorer, just like the rest of us. In 2009 the world's billionaires had an average net worth of $3 billion, down 23% in 12 months.

Estate Draining Death Taxes

There are many good reasons why you should pay close attention to your estate planning. -- Reducing taxes has to be a major consideration.

A big portion of the federal income tax burden is paid by a small group of the richest Americans. The wealthiest 1% of Americans earn 19% of the income but pay 37% of the income tax. The top 10% pays 68% of the taxes. The bottom 50%, those below the median income level, now earn 13% of the income but pay just 3% of the taxes. In other words, the rich pay almost double their share, based upon the income they earn. Add to those numbers the fact that about 120 million Americans, 40% of the population, pay no federal income taxes at all because of exemptions, deductions or income level.

Both "wealthy" and the "middle class" Americans get socked with high income taxes in life – and then more taxes in death, but these can be lowered with smart estate planning. Indeed, you can reduce the death tax just by using trusts or gifts during your lifetime. You can give away $13,000 a year to each individual free of any federal gift tax, thus reducing the size of your taxable estate at death.

Death Tax Muddle

Keep in mind that the present U.S. estate tax law is a major muddle. By law, estate taxes have been declining since 2001 when the Bush administration and a Republican Congress authorized a gradual phase out of the tax. But estate taxes could be snapping back to the old high rate levels in 2011, especially with Democrats in control of both the White House and Congress.

The amount each individual can leave to heirs free of federal estate taxes in 2009 is $3.5 million (up from $2 million in 2008). For any estate valued over that amount, the IRS gets a flat tax of 45 cents of every dollar. Die next year if you want to save taxes for your heirs because from, January 1st through December 31, 2010 the federal estate tax is repealed – zero! But if Congress fails to amend the current law, on January 1, 2011, the old, pre-Bush federal estate tax will be reinstated with an estate tax exemption of only $1,000,000 and a maximum estate tax rate of 55%.

Still, with retirement accounts, homes and life insurance death benefits thrown in, it's easier than you might think for a working couple to be hit by the federal estate tax. And this tax can be brutal.

Nobody’s Business

Privacy is another major reason for estate planning now.

Jocko Jackson was almost fanatical about his privacy and his lawyers are likely to try to preserve that legacy. As a California resident, the singer may have left a revocable trust, the administration of which can keep many details of the estate secret, compared to a last will and testament that must go through probate court with detailed publicity and accounting.

But while you, too, should consider a creating a trust, it's difficult to place all the assets in a huge, complex estate into a revocable trust. Contracts, royalties, partnerships and other elements of the estate may get left out.

A few years ago a study examined travelers' attitudes and behavior. The study concentrated on individuals from the top 5% of U.S. households with annual incomes of over US$150,000. The study listed these wealthy individuals' tastes and meticulous demands. According to the findings, these wealthy travelers seem to know exactly what they want when it came to service and comfort.

So one must wonder why so many wealthy people are not so meticulous when it comes to their personal estate planning. Perhaps they think they’ll live forever if they just don’t think about it.

Post Mortem Messes

Jack Kent Cooke (below) was a leading U.S. businessman in the 20th century. He grew rich in life, but created financial chaos in death.

The Wall Street Journal reported that when "...he died of a heart attack in April 1997, the 84 year old Mr. Cooke...had amassed a US$1.3 billion collection of media companies, sports teams and real estate. But he also left a convoluted will, amended eight times, that named seven executors..." The dust finally settled seven years later, after numerous lawsuits and US$64 million in lawyers' fees.

If ever there was another convincing case for prior estate planning, Anna Nicole Smith's notorious death should be a clincher. She left behind a poorly drafted "last will and testament" for her young daughter, Dannielynn Hope. It's a classic example why all of us should act now to avoid such a legal swamp.

On Thursday of this week the 9th U.S. Circuit Court of Appeals will have the honor of hearing the latest episode of the long-running (14 year) litigation saga that's become the legacy of Anna Nicole. Smith, the former model and reality show star, had been fighting for years over the estate of her late second husband, Texas billionaire J. Howard Marshall, when she died in February 2007.

Act Now - Before It's Too Late

These sad examples call for good estate planning advice and prompt action. After all, you've worked hard all your life. Why not devote that same energy to making certain your wishes are followed after you're gone?

At the very least, you should have a will or other means to transfer property to protect your loved ones. Otherwise the state law where you live will decide who gets what. A "means of transferring property" could be a trust, family foundation or jointly title property or financial accounts. (If you're the young one in the family, talk to your aging parents!)

Otherwise, assuming your business and other assets are worth more than US$3 million; your family could be stuck with a considerable estate tax burden. In fact, your heirs could be forced to hand 55% of your total estate over to the IRS just to pay income and estate taxes.

Protection Offshore

By all means, when you create your estate plan, consider an offshore solution.

By taking part of your estate offshore, to some degree you increase asset protection from domestic U.S. creditors and lawsuits. Your estate can grow safely offshore for your heirs to use later in life. More importantly, your assets can remain confidential offshore; none of the glare and hassle of the U.S. probate process.

If you set up an offshore vehicle like an annuity or life insurance, you can easily pass the title of those vehicles onto your heirs at your death. Best of all, both of these vehicles allow you to defer taxes during your lifetime.

An offshore asset protection trust (APT) is another device that both protects assets during life, and provides for heirs afterwards.

Better Dead Than in the Red

Michael Jackson could be richer in death than he was when he his life ended. In the last few days his songs have generated millions of dollars in record, CD and DVD sales, downloads and radio and TV royalties. Elvis Presley hadn't had a hit in years and was worth just under $5 million when he died at the age of 47 in 1977. Today his name and music earn as much as $50 million a year. Together, the sales from Jackson’s own recordings, plus income from Sony/ATV and his own song catalog would be worth $30 million a year. And the amounts he spent on his lifestyle would be gone.

Quite frankly, he may be worth more dead than alive," said Jerry Reisman of the Hit Factory recording studio, where Michael Jackson produced Thriller, his 1982 best-selling album (109 million sold).

May Michael rest in peace -- even if his estate cannot.

**In THE TRUST REPORT, Bob Bauman demystifies the process of creating and maintaining an offshore trust, outlining its many benefits.In addition, you'll automatically receive a FREE subscription to the world’s most popular offshore e-letter, The Sovereign Society Offshore A-Letter. With more than 160,000 readers worldwide, it will keep you in touch with global events that can affect your wealth and safety.

** For a valuable consultation on your estate plan contact: N&C International Wealth Consultants, LLC. 777 E. Atlantic Ave, Suite C2-295, Delray Beach, FL. 33483 Email: info@nolan-crouch.com Web: http://www.nolan-crouch.com/

Switzerland: Bent but Not Broken

The Swiss Finance Ministry announced on Friday (June 19) that it had agreed to a new tax treaty with the United States, a step that the Swiss sincerely hope will ease major nation pressure on their banking industry and help in maintaining the country's reputation as the world's leading offshore financial center.

My own opinion is that the Swiss, under real economic threats, did what they had to do in order to protect their interests -- in the short run. In the long run, these leftist, anti-freedom pressures will continue. Hopefully, at some point the Swiss will draw a line that dare not be crossed.

After all, a tax hungry U.S. administration that will double cross a faithful ally such as the Swiss, that shamelessly participates in a global smear campaign and threatens unprecedented economic sanctions, all to force a change in Swiss privacy laws and get more taxes, cannot be trusted.

OECD Article 26

The details of the new tax agreement will be made public when signed by both countries. It is expected to follow the outlines of Article 26 of the model tax information exchange treaty of the Organization for Co-operation and Development (OECD), the leftist group that has been the chief promoters of anti-tax haven blacklists on behalf of their G-20 government paymasters.

But the procedural path to tax treaty approval by the Swiss may be rocky.

Switzerland’s Federal Council and Parliament must approve the agreement. It will also need the backing of the Swiss cantons and it could be petitioned to a national referendum. The conservative Swiss Peoples Party, the leading party in recent parliamentary elections, may oppose the treaty.

Tax Evasion Added

If the agreement is approved, Switzerland will cooperate with the U.S. Internal Revenue Service in investigating suspected cases of tax evasion by Americans with Swiss accounts. Under an earlier existing agreement with the U.S., Switzerland only cooperated in cases of "tax fraud," since foreign tax evasion is not a crime there.

Although Swiss banking secrecy is legendary, (those "numbered accounts"), that secrecy never has been the most important reason for Switzerland's standing as the leading offshore financial center.

Of far greater significance has been the country’s political, financial and economic stability and strength. Many of the world’s leading companies and hundreds of thousands of non-Swiss persons chose to bank with the Swiss because they trust them and know their reputation.

Blackmail Threats

This latest move comes after the Swiss government pledged in March to relax their statutory banking secrecy and re-negotiate double taxation agreements they have with 70 countries.

And they came only after what politely can be called "international blackmail."

Under pressure, threats and an anti-Swiss media propaganda barrage orchestrated by the OECD and the high tax G-20 countries, the Swiss yielded in order to avoid blacklisting and unspecified sanctions.

Pot and Kettle

Under the new agreement Swiss officials made clear that individual tax details would only be exchanged with the U.S. "in individual cases where a specific and justified request has been made". The government said it would only respond to "concrete and justified" requests for personal banking data. In other words, no IRS "fishing expeditions" will be allowed.

But that is the Swiss view.

In an ironic case of the pot calling the kettle black, the notorious U.S. income tax evader, U.S. Treasury secretary, Timothy F. Geithner, crowed: "This treaty will increase our ability to enforce our tax law and will help bring an end to an era of offshore accounts and investments being used for tax evasion."

Illegal Fishing

Unfortunately for the Swiss, the Obama administration is presently pressing just such a massive fishing expedition, demanding the giant Swiss bank, UBS, hand over the names of 52,000 American clients the IRS suspects (without offering any individual proof) of tax evasion.

A federal judge in Miami has scheduled hearings from July 13-15 on the IRS effort to get the 52,000 account holder names. The Swiss government has responded that that UBS turning over the names would violate Swiss law. It also pointed out that the existing U.S.-Swiss tax treaty provides a means to obtain the names of any individuals about which evidence of tax fraud can be shown.

Double Cross

In a good faith effort to end the dispute, UBS already paid $780 million in fines and restitution to settle accusations that it helped American customers evade taxes. The day after the payment, the Obama Justice Department filed the suit seeking the names.

My Swiss sources tell me that parliamentary approval of the new tax agreement could be denied if no political solution is found to the UBS court case. It is clear that Swiss law and the current tax treaty are in direct conflict with what the IRS law suit demands.

Tax Hungry Obama

It’s obvious that President Obama, ravenous for taxes to finance his socialist agenda, is allowing the IRS to ignore the law and the current U.S. – Swiss tax treaty.

The IRS doesn’t want to go through messy "due process," actually having to prove individual cases. They would rather grab 52,000 names and scare those who might be tax evaders to take advantage of a tax amnesty the IRS has offered for those who failed to report their UBS and other offshore accounts.

Switzerland’s Future

The larger question is what all this means to the future of Swiss banking -- and how it will affect the nation’s well earned reputation for offering the very best financial services, including privacy guaranteed by law.

My answer is that none of this should disparage, nor does it change, the attractive attributes that the professional work of Swiss banking has established over centuries. The change is that the government will cooperate in cases of alleged tax evasion by a non-Swiss with a Swiss account, if a prima face case can be shown by the IRS.

In all other respects, under the law a Swiss court still will have to authorize any release of an account holder’s information to others – an irate spouse, a business claim, a law suit or a dispute over an estate.

Don’t They Wish

The Chicken Little approach (promoted by many anti-Swiss competitors/detractors) is to claim that "the sky is falling" -- that this is the end to strict banking secrecy that has been enshrined in law – ergo, the end of Switzerland as that hated major offshore financial haven.

The Confederation of Switzerland and it people are survivors, and rich ones at that. This is a reputable nation that manages over US$4 trillion in cash and assets for people all over the world, and has done so successfully for centuries.

Napoleon and Obama

The U.S. – OECD assault on Switzerland’s sovereignty, in principle, may be the worst foreign violation since 1798, when the French overran the country, leading to Napoleon’s forced creation of what became modern Switzerland.

Despite World Wars I and II, for 250 years, as European empires rose and fell, Switzerland’s official neutrality and determination to defend its sovereignty have made it an unusual island of stability.

Economic Terrorism

Napoleon did the Swiss the favor of unifying the nation. Obama and the tax marauders at the OECD may have done the same for future determined Swiss self-defense.

I happen to believe that Switzerland has the strength to withstand future unreasonable and radical demands to compromise when they are in the right. It remains the world's leading offshore center.

But then, who foresaw the day when an American administration would say "to Hell" with international law and allow the IRS to engage in economic terrorism against an ally?

Need good reasons to join The Sovereign Society? How about 58 of them…

Wealth Advisors As Federal Snitches

Recently Gideon Rothschild, (below) partner in the New York law firm of Moses & Singer LLP and a recognized leader in estate planning, (as well as a long time member of the Sovereign Society Council of Experts), wrote an article in Trusts & Estates that got my attention.

Gideon said: "The feds may soon try to turn wealth advisors into snitches."

I have worked with Mr. Rothschild on a few occasions over the years and I respect his judgment. He is listed in Chambers USA (2009) as one of the nation's leaders in wealth management, is among the "Top 40 Tax Advisors" named by CPA Magazine, In Citywealth's Leaders List (2009) he appears among leading international lawyers who are "generally acknowledged to possess a sterling reputation for expertise in their respective field."

An Expert's Warning

In the article Gideon warned: "The world’s financial system is getting tied more tightly together -- making it far more difficult to hide money anywhere in the world. And, take note, some countries are forcing wealth management advisors to report on their clients. "

He added: "Many types of wealth advisors soon may be required -- that’s right, required -- to report clients who are evading taxes. Sometime later this year, guidelines, and maybe even laws, will be issued in the U.S. requiring 'gatekeepers' to report suspicious clients to the federal government."

Conscripted Gatekeepers

"Gatekeepers" the law says are anyone whose position might allow them to help people launder money. That includes lawyers, accountants, trust company service providers, casino owners, jewelers and just about any professional who helps people form trusts, foundations, LLCs or corporations.

Mr. Rothschild's statement was followed by an article by Vern Jacobs CPA, (left) in the June 15 edition of his International Wealth Protection Monitor that predicted: "IRS Will Be Conscripting Tax Preparers: If you sometimes think that your tax preparer is really working for the IRS instead of for you, 'you ain't seen nothin' yet'. The IRS is currently proposing to regulate return preparers in addition to their present regulation of advisors who represent taxpayers in disputes with the IRS."

Vern also pointed out to me that under current IRS rules, CPAs, such as himself, already must report to the IRS certain "listed transactions, reportable transactions, transactions of interest and -- in some cases -- transactions that do not meet the standard of being supported by 'substantial authority'".

No Privacy Anywhere

If the IRS issues rules mandating that tax professionals report anything that even smells like possible tax evasion, or even actions that smack of possible criminal tax evasion, how could any American taxpayer feel safe consulting a tax professional?

No sane U.S. taxpayers would try to decipher how the 50,000 page Internal Revenue Code applies to them. That's why billions of dollars and millions of man hours are expended each year by taxpayers trying to compute their tax liability. Professional tax advisors, lawyers, accountants, and tax preparers make up a multi-billion dollar industry that thrives on the tax code’s complexity.

IRS Half Wrong

Not even the U.S. Internal Revenue Service (IRS) understands the tax laws it is supposed to administer. Every survey I've seen checking the accuracy of IRS answers given to taxpayer questions finds well over 50% of those answers are wrong.

How would any rational person know, except in an extreme case, that a client was proposing to engage in tax evasion when so many tax issues fall into a gray area?

But you can bet that a great many professionals, faced with such a rule, would err on the side of reporting a client to the IRS, if only to cover their own butts.

Planned Confusion

In both the U.S. and the U.K. national tax authorities have made a conscious effort to equate legal tax avoidance with illegal tax evasion. Charles Cain, a respected editor of Offshore Investment, charges that "the line between tax avoidance and tax evasion is purposely being blurred by governments, with honest people (and their tax advisors) being jailed for failed attempts at tax avoidance while tax evasion is put down on a moral level with heroin and cocaine pushing."

Good-bye Confidential Privilege

Then too, an IRS rule making tax professionals into government informers would clash with the doctrine of attorney client privilege. When you retain a licensed attorney, you generally have the right to refuse to have disclosed all "confidential communications" you share. You also have the right to prevent others from disclosing these confidential communications. The only time an attorney has an obligation to inform the police is when he knows for certain that a client is contemplating committing a future serious crime.

Under current U.S. laws bankers and other financial system "gatekeepers" already have an obligation to file "suspicious activity reports" (SARs) with the U.S. Treasury if money laundering is suspected. In fact, every U.S. banker is a de facto government spy.

Guilty Until Proven Innocent

The IRS perfected this "guilty until proven innocent" tactic a few years back when it attacked all Americans with offshore bank, investment or other accounts that issued credit cards as probable tax evaders. While the IRS did concede offshore credit cards are legal, they insisted some people "might" use offshore accounts and the cards to hide unreported income. At the moment it using this same presumption of guilt smear against 50,000 Americans who had UBS accounts.

Indeed, IRS Commissioner Doug Shulman (LEFT) praised President Obama’s plan that he said "would create a legal presumption against users" of certain offshore bank accounts who would be presumed guilty under proposed legislation.

The Nazification of America

Tax evasion is a crime.

But it is also an unconstitutional fishing expedition when a government agency demands the private financial records of thousands of law abiding citizens.

It is even worse when the IRS turns professional tax advisors into forced informers about matters that are far from clearly criminal. Due process requires that unless and until probable cause can be shown by the IRS of some illegal tax evasion in an individual case, no American's confidential files or conversations should be surrendered to the IRS.

What we see here is yet another giant step in the Nazification of the U.S. financial and tax system.

This latest IRS outrage fits in with billions in civil forfeiture of property, money laundering as an all purpose indictment, bankers and lawyers forced to act as government spies, continued clandestine NSA Internet and phone wiretapping; or in other words -- the Obama surveillance society -- precisely the same tactics for which he attacked President Bush.

Is it any wonder Americans are going offshore? Expatriation anyone?

Need another reason to join The Sovereign Society? How about 58 of them…

Are You Mad as Hell Yet?

Are you going to take this anymore?

Howard Beale is a fictional TV news anchor in the 1976 movie Network played by the late Peter Finch, who won a posthumous Oscar for his role.

In the movie, Beale struggles with depression and insanity, but his producers, rather than give him the medical help he needs, use him to get higher TV ratings. The image of Howard Beale, in a beige raincoat with his wet, gray hair plastered to his head, standing up during the middle of his newscast hollering,"I'm as mad as Hell, and I'm not going to take this anymore!" ranks as one of the most memorable scenes in film history.

Flash forward to June 2009.

Americans who have any sense of what is happening to this country under the current government might consider not just adopting Beale’s words as their credo, but, more importantly, acting upon them in constructive ways in order to change things -- and change things fast.

Before It's Too Late

What brought this to mind was an article from the London Daily Telegraph (6/13/09) sent to me by one of my blog readers.revealing that the venerable Lloyds Banking Group is ditching American customers because of another crackdown on offshore tax evasion by the U.S. Internal Revenue Service (IRS).

The article suggests the true reason for Lloyd's decision is the pending Levin anti-tax haven bill in the U.S. Congress and related IRS proposals backed by President Barack Obama.

Lloyd's American private client account-holders received letters informing them of an "important change in policy regarding clients who are resident, domiciled or linked to the United States by property or asset holdings". The bank claimed it had "no choice" but to "cease acting as your investment manager." Lloyd's logo is a prancing black horse, the rear end of which might be an appropriate new logo.

Lloyds Bank is a major U.K. financial institution whose origins go back to 1765. It has branches in 30 countries, including the U.S. (Will they close?) As a result of accepting U.K. government bailouts of billions of pounds sterling, the British government now owns a 43% share of the bank That uncomfortable situation might also have contributed to its anti-American client decision.

Anti-American Dumping

Why gives with Lloyds? In their letter the bank lamely claimed U.S. Securities and Exchange Commission rules were the reason. "These regulations mean that we are not licensed to manage portfolios for US clients." That excuse doesn't wash because there is no U.S. law preventing foreign banks form managing Americans' investments. Only open soliciting for investment business within the U.S. is banned.

In its "Dear John" letters to clients, Lloyds didn't refer to specific legislation. But published reports say that many British banks and stockbrokers were threatening to close down accounts held by American citizens due to concerns over new U.S. tax proposals that would make it too expensive for them to comply with.

These new rules are embodied in an expansion of the Qualified Intermediary rules thatI explained here in October 2008. Indeed, these Obama expanded QI rules seek to turn offshore bankers into spies for the IRS -- and punish them if they don't do as they're told.

Under Threat of Severance

Start with the established fact that President Obama and his rabidly anti-tax haven policy wonks really believe that almost any American who dares to engaged in offshore financial activity is a likely tax cheat. These folks have no qualms in trying to extend American power beyond our borders and into the tellers’ cages of other nations' banks.

Using the "Qualified Intermediary" system, under which the IRS decides which offshore banks are acceptable to them, foreign banks will be forced to disclose any and all information the IRS demands, under the implied threat of being cut off completely from the entire U.S. banking system.

In theory, QI's offshore banks will be required to report information on their U.S. customers to the same extent that domestic U.S. banks and financial intermediaries must-- on other words, to tell all.

The proposals, which were unveiled in President's Obama's trillion dollar deficit budget, are aimed at Americans with offshore accounts. U.K. bank officials say they are being asked to become collectors of U.S. taxes at a cost and legal liability that make servicing the U.S. clients more trouble than they're worth. 

Anti-American Trend

One American recipient, who has lived in the U.K. for over 25 years, said: "After all this time, I've suddenly been told I must take my money elsewhere and I don't understand why. Now I'm scared that other banks won't take me on either." He has a right to be upset.

Sadly, in dropping American clients, Lloyds is following in the nervous footsteps of other offshore banks that have dumped American clients, including the beleaguered Swiss giant, UBS and Credit Suisse, among others. In the UBS case, the bank paid a hefty fine of $780 million after admitting it systematically aided U.S. clients to evade taxes.

Unintended Consequences

I'll repeat what I said six week ago: Obama's radical political crusade against tax havens and Americans' offshore activity could produce unintended effects he and the IRS won't like.

There are many very important and useful paths of offshore financial activity Americans can pursue; much stronger asset protection, better investment possibilities, real, though now more tempered financial privacy, tax deferred life insurance and annuities, offshore residence and second citizenship -- all providing physical and geographic distance between Obama's tax police and your assets.

U.S. persons who have bank accounts or who are active in established offshore financial centers, such as Switzerland or Panama, or those planning future activity, probably wont suffer from Obama's and the IRS political attacks, as long as they follow the law. We can help you do exactly that.

And they are a good many reputable offshore banks which, unlike Lloyds, are willing to accept U.S. clients. We know who they are, we work with them on a direct basis and Sovereign Society members have access to those banks.

We don't need to be "mad as Hell" because our cool calculations offer you fully legal offshore solutions far removed from tax hungry Obamaland.

We Can Help

The general move toward greater scrutiny of tax havens undoubtedly will give pause to some, but it is unlikely to discourage those intelligent enough to understand and employ offshore's real advantages.

With our respected council of advisors, offshore professionals, books, special reports, newsletters and conferences, the Sovereign Society will keep you posted and tell you how to "go offshore" -- strictly within the ever changing law.

P.S. Need another reason to join The Sovereign Society? How about 58 of them…

Правда and Consequences

Forgive me, dear readers, but my absence from these pages reflects another bout with my life-long battle with periodic acute sinus infections attendant to occasional head colds, a doosey of which I suffered with last week.

Although absent from blogging, I got very little good rest but, yes, thank you, with the help of private, un-socialized health care and unsubsidized modern pharmacopoeia, I'm feeling better. (Walgreens did give me a senior discount).

Which explains why, until now, I missed an arresting essay entitled, "American Capitalism Gone With a Whimper", authored by Russian writer Stanislav Mishin and published on the web site of the electronic tabloid, Pravda.

Descent into Marxism

Wrote Mishin: "It must be said, that like the breaking of a great dam, the American decent into Marxism is happening with breath taking speed, against the back drop of a passive, hapless sheeple, excuse me dear reader, I meant people."

One of the basic tenets of Marxism calls for a classless society where all means of production are commonly owned, a system to be reached as an inevitable result of the struggle between capitalists and workers.

Of course, there is an ironic novelty when a post-Soviet Russian warns America about our descent into Marxism. I warned of these tendencies a year ago when an Obama administration was just a bad dream and the Bush administration was sliding into state fascism.

News and Truth

Pravda is the Russian word for "truth" -- and what's scary is that there is far too much truth in what Mishkin observed about the rush of events in the United States today.

Pravada

was also the name of the official newspaper of the Soviet Communist government from 1912 to 1991, when it was shut down by President Boris Yeltsin (left). It's sister publication was Izvestia which means "news." The old joke in Soviet Russia was that there was no pravda in Isvestia and no isvestia in Pravda.

The online Pravda that published Mishin's article is not a Communist Party or Russian government publication, but it does reflect a Russian nationalist view that says unapologetically that: "The Russian people are not...a part of the West – we are Russians! ...please do neither lecture us, nor interfere with our affairs."

Wide Circulation

Mishin's essay gained wide notice by accusing the United States of a rapid "descent into Marxism". The essay has been circulating among American conservatives on the Internet including The American Spectator, Cybercast News Service (CNS News) and Fox News TV host Glenn Beck.

Mishin accuses the Obama administration of turning America into a Marxist country along the lines of the old Soviet Union. He also attacks what he perceives as a general moral decline in America, including fake evangelical mega-churches, empty debt-enabled consumerism, and corrupt government bailouts in America. Interestingly, he accuses "Wall Street" of propping up the old Soviet Union for seventy years, and predicts that Washington is making inevitable Weimar Republic-style hyperinflation of the dollar.

But isn't this Russian observer too close for comfort in too many respects?

Nationalization

Banks, insurance and auto companies have been nationalized. The U.S. government owns a majority share of General Motors. A sitting president has force a law-abiding CEO of a major company to resign. Instant government "experts" suddenly are running what were private companies and dictating salaries. Smelling political handouts, all sorts of businesses are clamoring for stimulus cash. The rights of preferred bondholders, with what once were presumed to be legal and binding contracts, are pushed aside by a government that hands over their rights to labor unions that backed Obama for president.

Mishin isn't the only one who sees some apt historical parallels.

Putin Parallel

Representative Eric Cantor (R-Va), (left) the number two Republican in the U.S. House of Representatives, has compared President Barack Obama to Russian leader Vladimir Putin in an interview with the Associated Press. Cantor did not mean the comparison in a flattering way.

While criticizing the Obama Administration's handling of the bankruptcy of General Motors and Chrysler, Cantor declared: "They said, 'Set aside the rule of law, let's strip secured creditors, bondholders, of their rights. Take them away outside of the bankruptcy process and give them to the political cronies and the auto workers' unions...it's almost like looking at Putin's Russia...you want to reward your political friends at the expense of the certainty of law?"

Time to Go

All of which supports my repeated thesis -- now is a good time to do more than just consider moving at least some of your cash and assets offshore to relative safety. Become a member of the Sovereign Society and we will tell you how.