Offshore Asset Protection BLOG - Bob Bauman

Labor Day

The first American Labor Day holiday was celebrated on Tuesday, September 5, 1882, and very soon acquired a political connotation.

Samuel Gompers, founder and longtime president of the American Federation of Labor (AFL) said: "Labor Day differs in every essential way from the other holidays. Most other holidays are connected with conflicts and battles of man's prowess over man, of strife and discord for greed and power, of glories achieved by one nation over another. Labor Day is devoted to no man, living or dead, to no sect, race or nation."

The Women's Auxiliary Typographical Union float in the New York City Labor Day Parade in 1909

In fact, Labor Day is a creation of the American labor movement and is dedicated to the social and economic achievements of American workers.
It constitutes an annual national tribute to contributions workers have made to the prosperity of the country.

Not long after the first Labor Day, marked with parades by the Knights of Labor in New York City, national agitation began to reduce workers daily job time to a maximum of eight hours from the back breaking, dawn 'til dusk hours so many laborers had been forced to work.

National campaigns were underway to restrict rampant use of child labor, to provide safe working places and to raise low wages. Business resisted such reforms and these demands were portrayed as alien, radical, even un-American ideas stemming from the large number of European immigrants pouring into the U.S. through Ellis Island.

The "Haymarket Riot" Fails to Achieve a Goal

During a nationwide strike for the eight hour workday that began on May 1, 1886, a mass meeting was held in the Chicago Haymarket. The meeting was held to protest the police action of the previous day that killed several workers.

When police ordered the peaceful protest meeting to disperse, an unknown person threw a bomb and killed several police officers. This sensational event became known as the "Haymarket Riot." And when this riot ended, the eight hour day movement was discredited in the nationwide hysteria. Only decades later would this goal be achieved.

"The Haymarket Riot" Sketch by Thure de Thulstrup (Harper's Weekly 5/15/1886)

With the Haymarket riot, President Grover Cleveland, a rare Democrat in the White House in those days, decided to assuage this tension with a holiday. He believed that a May 1st holiday, already being celebrated in European nations, might become an opportunity to commemorate the riots and strengthen the socialist movement. In 1887, he supported the Knights of Labor and their date for Labor Day. And thus it has been ever since.

Labor Unions Lose Their Cache

With continuing relative prosperity, labor unions in the United States have declined in membership and political influence.

Traditionally supportive of Democrats, Ronald Reagan converted may blue collar unionist into "Reagan Democrats" by emphasizing family values, opposition to gun control, anti-Communist and a strong U.S. defense posture.

Union "leaders" often have been at odds with the political views of the rank and file. Both my late father and brother were long time union members and they, like most union members, made up their own minds politically.

Politics aside, the philosophical basis we should recognize is that physical labor is both honorable and rewarding. It is also socially defining. Indeed, it is an American habit upon first meeting to ask: "What do you do?" - meaning what's your job, how do you earn your money?

Modern-Day Robin Hood Lies

The modern welfare state and the politicians that promote socialism preach the lie that there is a free lunch, that you can get something for nothing.

"Vote for me and I'll take from the rich and give to you (poor suckers)," they promise, with all the bluster of modern-day Robin Hoods. They forget Proverbs 14:23 that tells us that: "In all labor there is profit, but idle chatter leads only to poverty."

Honest work gives us learning, wisdom and provides solid life experience. It allows us to discipline our minds, to learn and acquire useful skills.

Without useful work, we can end up spending our lives in mindless labor without much pay or recognition. Proverbs 12:24 also tells us: "The hand of the diligent will rule, but the lazy man will be put to forced labor."

Labor should be honored collectively, but more importantly, in our own lives individually.

"Does UBS Have the Guts to Fight?" -- Part III

Two months ago a U.S. District Court judge in Miami, Florida, wrongfully in my opinion, authorized the U.S. Internal Revenue Service to seek information from Switzerland's largest bank, UBS, concerning American taxpayers the IRS claims may have evaded income taxes. I have already stated my views of the invalidity of this court and IRS action and the applicable Swiss law.

The court order allowed the IRS to serve a summons on UBS, which has extensive operations and thousands of employees in the United States, to obtain information on possible tax fraud by an alleged 19,000 Americans with UBS accounts whose identities the IRS is seeking.

The predicate for this court order was the stupidity of UBS private bankers who, over a period of years, may have advised wealthy Americans on how to evade taxes. The UBS situation was the subject of a series of noisy, demagogic anti-tax haven hearings in the Democrat-controlled U.S. Senate last month.

At the time I wrote: "The big question now is whether UBS, the supposed giant of Swiss banking, will have the guts to take a strong stand based on the Swiss bank secrecy laws and fight for the principle of its clients' financial privacy...Even if UBS is willing to abandon its American customers to the IRS, I suspect that official Switzerland...[is] going to stand and fight for their basic bank secrecy laws -- laws that have been revised and updated to accommodate reasonable law enforcement requirements."

Well, UBS went beyond abandoning their American clients in one respect -- they announced then and there that the Swiss bank was abruptly ending its private banking services that had served U.S. clients from Switzerland. As a result, thousands of Americans with UBS accounts were suddenly left high and dry -- and our Swiss banking contacts tell us that other Swiss banks are refusing to accept UBS American clients seeking new banks there. They obviously don't want to inherit alleged UBS tax evasion problems with the IRS.

What had U.S. clients especially nervous, was the UBS statement that it would work with the U.S. government to identify the names of its clients who may have engaged in "tax fraud." (That phrase has special meaning in Swiss law because tax evasion per se is not a crime in Switzerland).

Swiss Government Stands Firm

But as I predicted, while the spineless UBS bends, the Swiss government stands firm -- even though that official firmness is cloaked in the language of diplomacy for which the Swiss are famous.

Example: This week the Swiss government informally asked the U.S. not to pressure UBS for client data located within the Alpine country. Swiss State Secretary Michael Ambuehl, who met last month with U.S. Treasury officials, told his U.S. counterparts that any request for client data must be decided by the Swiss government, since UBS would breach Swiss bank secrecy law by voluntarily revealing bank account records.

"I reaffirmed the offer by the Swiss government to cooperate constructively with the U.S.,'' Ambuehl said in his Bern office on Aug. 19. "I underlined, however, that we expect them not to take unilateral steps against UBS to obtain information which is located in Switzerland as long as the agreed, bilateral legal cooperation is ongoing.'' This was undoubtedly a reference to the Swiss-U.S. mutual tax treaty and the mutual legal assistance treaty (MLAT) between the two countries.

Not a Crime

"UBS is seeking to address these requests with both Swiss and U.S. government authorities within the legal framework for intergovernmental cooperation and assistance established between Switzerland and the U.S.,'' a UBS spokesman said in Zurich.

According to Swiss law, bank secrecy can only be lifted in connection with a criminal offense, such as tax fraud or money laundering. Tax evasion isn't a crime in Switzerland. Should the finance ministry agree for the account details to be released, account holders would be informed before their details are handed over, giving them the option to go to court to oppose the release, a Swiss official said.

Ambuehl said pressure from the U.S. and the European Union for Switzerland to amend bank secrecy laws hasn't increased and he sees no need to revise them, because they include "strict internal rules and good external cooperation.''

No Abandonment of Bank Privacy

An alarmed Teodoro Cocca, formerly with Zurich University's Swiss Banking Institute said at the time of the UBS revelations: "This is a direct and coordinated attack on the heart of the Swiss financial system. This is a long-term threat that will not go away, and there is not too much Switzerland can do."

It appears that the professor was right about the gravity of the situation, but wrong to think that the Swiss government would supinely abandon the cornerstone of their banking success -- strict bank secrecy.

There is a great deal the Swiss can do to defend their laws – and they are doing it.

* Discover the legal ways to bank and save taxes offshore; I tell you Where To Stash Your Cash: Click Here.

* If you're interested in Switzerland, Click here for Swiss Money Secrets.

Citizen Obama?

Election year 2008 is the 18th U.S. presidential election during my lifetime and the 13th (an unlucky number?) election in which I will have cast my vote, the Lord willing.

Having been a candidate elected to public office, I know from experience that just about now in any election year all sorts of weird stories about candidates crawl out of the woodwork (where their authors live).

A few months back there was a minor outcry claiming that Senator John McCain, the assumed Republican presidential candidate, may not be eligible to serve as president because he was not "a natural born citizen" as required by the U.S. Constitution. He was in fact born in the U.S. Panama Canal Zone in 1936, where his father was stationed in the U.S. Navy. This outcry was more or less silenced when the U.S. Senate passed a bi-partisan resolution endorsing their colleagues' "natural born" status.

Unnatural Candidate?

Now comes one Philip J. Berg, a former member of Pennsylvania's Democratic State Committee and former deputy attorney general of Pennsylvania. A highly disgruntled Hillary Clinton for president backer, Berg filed a lawsuit last week in U.S District Court, asking the court to declare Obama ineligible for the presidency because he is not a natural born American citizen, and he asked the court to prevent him from running for the position. He also asked for a temporary restraining order on Obama's presidential campaign until Obama's eligibility can be verified.

The Berg lawsuit claims that Obama's eligibility is doubtful on several grounds, including allegations by Obama family members that he was born in Kenya, that his parents' status was such that they were unable automatically to grant him U.S. citizenship, the questionable authenticity of his Hawaii birth certificate, and evidence that he was a citizen of Indonesia as a child and retained that foreign citizenship into adulthood without recording an oath of allegiance to the United States, a requirement under such circumstances to retain one's American citizenship.

As the author of The Passport Book (now in its 6th edition) I know something about the legal tangle that can befall an innocent infant born to one or more American parents in foreign lands.

And sometimes the odd circumstances of a foreign birth can call into question the American citizenship of the hapless child. Whether Barack Obama fits into this category I'll let the federal court decide.

Broader Issue

But there is another issue in this story that impacts all Americans who have an official U.S. passport, as about 30% of us do.

In recent times, in various ways, the U.S. government increasingly is using issuance of a passport as a means of coercion. In the United States a citizen can be denied a passport simply for being in debt to the Internal Revenue Service, because of other problems with federal government agencies or because they are behind in excess of $2,500 in back payments for court ordered child support.

Since 1986, the U.S. State Department has been informing the IRS of all persons who renew their U.S. passports using a foreign address. Since passport renewals require an applicant’s Social Security number, this is also used by the IRS to see if applicants have filed income tax returns. An IRS official speaking in Zurich said a special effort was being made by the agency to track all U.S. citizens who renewed U.S. passports while living in Switzerland, for reasons we can surely guess.

The Terrorism Excuse

More recently, employing the excuse of "fighting terrorism" coupled with the infernal cross-checking power of the computer age, U.S. Homeland Security (DHS) bureaucrats have tracked the movements of every U.S. passport that comes or goes by air or sea. Now they have added land border crossings to the list, allowing a travel profile of each and every American.

As my colleague Mark Nestmann has points out: "Instead of known or suspected terrorists, the government is tracking everyone who crosses a U.S. border. And since there are no limits to how the government uses the data collected, the information is almost certain to be used for politically motivated surveillance."

I agree with Mark that the potential for abuse is obvious. "Imagine that such a system existed now, and the DHS were to release data 'in the public interest' that a leading presidential candidate had made previously undisclosed visits to Iran, North Korea, or Cuba. Not to mention the sort of interrogations that would accompany visits to countries with reputations as tax havens, or that otherwise are 'controversial.'"

The Berg lawsuit alleges Obama used his "Indonesian passport" to visit Pakistan when he was 20 years old. Had the current DHS surveillance system been in place then, that act might have come back to haunt Citizen Obama.

Partial Avoidance

Even if this surveillance system is up and running, if you value your travel privacy, you won't always have to use your U.S. passport when you travel internationally. If you're a U.S. citizen, you must use your U.S. passport when you enter or leave the United States, but you're under no such obligation when you enter or leave other countries.

I have no way of knowing the merits of the Berg lawsuit, but the U.S. Supreme Court has repeatedly ruled in favor of an American citizen retaining their citizenship in the absence of a clear intent to end that status. The Court has also supported the right of American citizens to hold dual citizenship. Those rulings would seem to protect Senator Obama's American status, although he might qualify as a "dual national".

Dual Nationality

Dual nationality simply means that a person legally is a citizen of two countries at the same time, qualified as such under each nation’s law. This status may result automatically, as when a child born in a foreign country to a U.S. citizen becomes both a U.S. citizen and a citizen of the country where he or she is born. Or it may result from operation of law, as when a U.S. citizen acquires foreign citizenship by marriage to a spouse from another nation, or a foreign person naturalized as a U.S. citizen retains the citizenship of their country of birth. But the point is that acquiring and using a foreign passport does not endanger U.S. citizenship.

Some countries won’t permit their citizens to hold a passport from another nation. This was the case in the U.S. until 1967, when the U.S. Supreme Court upheld the right of U.S. citizens to hold a second, foreign passport. Before that time, the official rule was that a person acquiring second nationality automatically lost U.S. citizenship.

Since 1967, the government generally presumes a U.S. citizen does not intend to surrender citizenship. Proof of that intention is required before expatriation is officially recognized. The burden of proof is on the government to show intentional abandonment of U.S. citizenship. This presumption is set forth in a U.S. Department of State publication, Advice About Possible Loss of U.S. Citizenship and Dual Nationality, (1990). As a matter of policy, the U.S. Government recognizes dual nationality but does not encourage it because of what it views as problems and conflicts that may result.

Protect Your Privacy

But with Big Brother Homeland Security now mindlessly tracking our every offshore move, I think it wise for Americans to acquire a second passport to guard against the eventual, even inevitable, depredations against our freedom to travel and our freedom of association.

I often hear concerns expressed about currency controls -- but a far greater and very real threat is -- people control.

Now you can begin to see why a second passport may be highly useful. Your qualification for a second nation’s passport, one that comes without restrictive strings attached, can serve as your additional passport to greater freedom. That official document can be your key to a whole new world of free movement, expanded international investment, greater flexibility, and adventure. In addition, it can mean safe passage as compared to delay or even worse.

To learn more about how you can obtain a legal, second passport, click here.

Where In The World is Vanuatu?

Depending on who you believe (and how they define them), there are any number of "tax havens" in the world -- financially attractive jurisdictions that impose low or no taxes and gave the welcome mat out for foreigners willing to invest, bank or do business there.

With all the pressure in recent years, and especially this year, on European tax havens such as Liechtenstein, and major financial centers such as Switzerland, some folks seem to be looking for what might be called "far-out tax havens" as an alternative. Perhaps these adventuresome folks think they can run and hide, but my advice is be very careful where you go.

Which brings me to the fact that in the last few months I've received several inquiries about the viability of the Republic of Vanuatu as a potential place to base your offshore banking, asset protection plans and estate planning.

Way Out There

I can hear you now -- where in the world is Vanuatu? -- assuming it is in this world.

Vanuatu is a tropical archipelago group of 80 islands (about 65 of them inhabited) covering 12,200 sq km (slightly larger than Connecticut) in the South Pacific Ocean, about three-quarters of the way between Hawaii and Australia. The capital city is Port-Vila (on the island of Efate). Some 215,446 people live there, split between English and French speakers, reflecting their colonial heritage when Vanuatu was known as The New Hebrides.

Multiple waves of colonizers migrated to the New Hebrides in the millennia preceding European exploration in the 18th century. This accounts for the complex linguistic diversity found on the archipelago today. The British and French, who settled there in the 19th century, agreed in 1906 to an Anglo-French Condominium, which administered the islands until independence in 1980, when the new Republic of Vanuatu was born.

At its height, about 12,000 expatriates lived in the islands, but after independence land could only be owned by the people of Vanuatu, and the mainly French and British community shrank to less than 3000. Today, the expat population is about 8000 and growing, with heavily taxed Australians and New Zealanders in particular finding the islands lifestyle -- and no taxes -- to their liking. This migration recently has made the news in both countries.

Testing Tax Havens

Whenever we at the Sovereign Society rank offshore havens, we review the laws, political stability, economic climate, available legal entities, the tax situation, financial privacy rules and the overall financial reputation of a jurisdiction. (Our top favorites remain Switzerland, Panama, Liechtenstein, and Hong Kong).

For almost 40 years Vanuatu certainly has been known to some as a tax haven, which explains the high number of accountants, bankers and lawyers clustered in this small island nation. But the archipelago's reputation as an offshore financial center has been highly questionable, to say the least.

In 2000, the Asia-Pacific Group on Money-Laundering charged that Russian mafia syndicates were laundering billions of dollars through offshore banking systems in the Pacific, including Vanuatu. There about 2,000 registered institutions offer a wide range of offshore banking, investment, legal, accounting, and insurance and trust company services. Vanuatu also maintains an international shipping register in New York City.

Banking Boycott

In an unprecedented action in December 1999, a group of leading international bankers, pressured by the U.S., placed a ban on U.S. dollar denominated transactions involving three Pacific island nations - Nauru, Palau and Vanuatu. The bankers accused them of laundering money for the Russian mafia and the South American drug cartels. At the time Vanuatu had 63 licensed offshore banks.

The banking ban was a result of western concerns over a report issued by the OECD's Financial Action Task Force which said that Vanuatu is a "jurisdiction of prime concern" for money laundering based on allegations by the U.S. Government that there was a heavy concentration of financial activity linked to Russian crime syndicates in the South Pacific.

Recent Clean Up

Perhaps eager to distance itself from this past history, the Vanuatu Government now welcomes outside investment to help develop the small country. An obvious attraction to investors is the lack of income tax, capital gains tax and death estate tax, and no exchange controls. In 2002, following increasing international concern over money laundering, Vanuatu increased oversight and reporting requirements for its off-shore sector.

But it was not until 2008 that Vanuatu agreed to release account information to other governments or law enforcement agencies. International pressure, mainly from Australian tax collectors, influenced the Vanuatu government to move to increased transparency. Tax police raids in Australia this year during an investigation for alleged offshore tax evasion have spurred debate on the wisdom of Vanuatu remaining a tax-free haven.

Wait and See

We don't recommended Vanuatu as an appropriate offshore financial haven, because of the history and other reasons stated above, but also because of its less developed offshore professional sector and government's political instability, (another important subject that would require a lengthy discussion).

We wish the Vanuatu islanders well, and we remain open to change our current opinion, but there are too many other well established offshore financial centers to chose from that deserve more serious consideration.

* I can tell you all about those other suitable and useful offshore financial centers in my book, Tax Havens of the World: Where to Stash Your Cash. Click here.

Liechtenstein Bends -- Just a Little

"We will not give up bank secrecy," said Otmar Hasler, the prime minister of the Principality of Liechtenstein in a speech last week, "but we are willing to collaborate with other nations when it comes to the misuse of bank secrecy laws for tax evasion."

Prince Alois, hereditary ruler of Liechtenstein, confirmed on Friday that his tiny Alpine tax haven was seizing the initiative in response to foreign criticism of its financial sector’s strict bank secrecy laws. "The time has come for us to base our system of mutual legal assistance and administrative assistance in tax matters on a new foundation," the Prince said in his traditional national day speech to the nation.

Pressure from the Left

What nudged the historically conservative Liechtenstein into these latest proactive policies was a theft from the LGT Group, a bank owned by the Liechtenstein royal family. A known felon named Heinrich Kieber was paid more than US$7 million by the German secret police for stolen CD disc said to contain confidential lists of the bank's foreign clients. I have previously commented on this gross violation of Liechtenstein's bank secrecy and criminal laws.

At the time the LGT Bank theft became public in February, Prince Alois nailed it when he said: "German authorities paid a criminal to obtain stolen data. We reject this action." More to the point, Alois praised the several laws Liechtenstein has passed since 2000 to enhance transparency and combat money laundering. And he pledged, then and now, that the country won't surrender its policy of strict bank secrecy.

Billion Dollar Question

So for the world beyond the question arises -- do these latest actions by the government of Liechtenstein amount to a surrender or major compromise of what are possibly the strictest bank secrecy laws in the world?

I don’t think so, but before I answer that crucial question in detail, a review of recent history is in order -- especially because under a barrage of attacks from the world's political Left, since 2000 the Principality carefully has revised its laws to become more transparent and cooperative with other nations in cross-border criminal matters.

Liechtenstein was one of the first nations in the world to adopt specific offshore asset protection laws, as far back as the 1926. Its economy is diversified, and it is one of the most heavily industrialized countries in Europe, based on per capita population, but financial services provide some 30% of government revenues, so anything that tarnishes the country’s reputation causes problems.

Tax Blacklist

Blacklisted in 2000 by the left leaning, Paris-based Organization of Economic Cooperation and Development's (OECD) and its Financial Action Tax Force (FATF) as allegedly lax on money laundering, Liechtenstein subsequently toughened its banking laws and made major efforts to clean up any questionable financial practices. Because of these recognized improvements, in 2001 the country was removed from the OECD/FATF money laundering blacklist.

At the time, Liechtenstein adopted tough anti-money laundering laws that cover all crimes; created a Financial Intelligence Unit (FIU) to oversee the financial sector; imposed much stricter "know-your-customer" and suspicious activity reporting requirements; and to some minor degree, eased its historic, very strict financial secrecy now under attack once again.

The reforms also abolished the former right of trustees and lawyers not to disclose the identity of their clients to banks where funds were invested or deposited. Liechtenstein has ratified the European Anti-Laundering Convention and defines laundering as dealing with the proceeds of "any serious crime." It also signed a 2004 mutual legal assistance treaty (MLAT) with the United States.

Proud Tax Haven

Liechtenstein’s longstanding tax haven status was the source of a second major attack by the OECD, which in June 2000 placed the principality on its highly questionable 35-nation "harmful tax practices" blacklist where it still remains. By the unreasonable OECD definition, any nation that imposes no taxes on foreigners doing business there is engaged in "unfair tax competition." The true purpose of this pro-high tax list is as a brush for major G-7 welfare states with which to tar low tax nations that successfully compete with them for tax dollars.

In spite of all this outside pressure, Liechtenstein has refused to surrender its financial privacy laws to appease the OECD demands for tax information exchange or the U.S. demands for unfettered access to financial records. That, and an established history of excellent asset protection and private banking, is one of the major reasons this tiny Alpine redoubt has been one of my top choices for offshore financial activity and estate planning.

Foundations Accused

Liechtenstein was one of the first nations in the world to adopt specific offshore asset protection laws, as far back as the 1926. One of the leading legal entities has been the private family foundation (Stiftung) derive largely from the Swiss Civil Law and freely adapted to the circumstances of Liechtenstein. It has been the foundation that foreign tax collectors have attacked as being used for tax evasion, especially because all parties to the foundation are secret unless revealed by judicial action.

On June 30, 2008 Liechtenstein’s parliament approved amendments to the country’s law on foundations making them more open and imposing certain restrictions intended to curb their use for tax evasion, but not compromising traditional secrecy.

Fleeing Cash?

But cash is a fungible commodity and there are reports that individuals are transferring money from Liechtenstein to Panama, Singapore and other offshore centers with strict privacy laws. One official claimed the switch was prompted by the greater focus on tax evasion after the theft of client list from LGT bank.

The Financial Times reported (Aug. 15): "One beneficiary could be Panama. The Sovereign Society, a U.S. publisher specializing in offshore planning, says the country has 'iron-clad financial privacy laws' and describes it as 'an ideal 21st century offshore haven in a world where few remain'". Singapore and Hong Kong benefitted in 2005 from Europe based cash flows when the EU tax savings took effect, according to the Institute for Fiscal Studies, an independent think-tank.

Bank Secrecy Will Continue

Liechtenstein’s banking and financial secrecy statutes historically have been considered stronger than even those that apply in nearby Switzerland. Tax evasion is not a crime in the country and until now tax information rarely has been shared with foreign governments. Now this may change to a limited degree.

Bank secrecy is an established legal obligation under Liechtenstein law and may be lifted only by order of a local court. At present a court order is required to release or examine an account holder’s bank records.

Foreign governments or creditors seeking bank records face a time consuming and costly process. Liechtenstein is not obliged to honor a foreign court’s information request. Such requests may be approved if it can be shown that the alleged offense involves a clear violation of local Liechtenstein law. The cost and time required for such appeals is a deterrent to foreign based claims and lawsuits in many cases, or they act as strong inducements for settlement of claims.

Prime Minister Hasler recognizes that even the hint of liberal tax information co-operation could unsettle many members of the principality’s large financial services sector which has flourished over the years because of its secrecy laws. The government faces elections in February 2009 and bank secrecy remains a highly sensitive issue. "We are in a pre-election period. So such a proposal is extremely controversial. But I’m convinced it’s essential to implement this strategy for Liechtenstein’s future," said Hasler.

Firm Conclusion

After conferring with trusted investment and legal experts with whom we work in Liechtenstein it is my judgment that a very limited cooperation on tax information with foreign governments in individual cases may now be allowed – but absolutely no fishing expeditions. But don’t expect the fondest dreams of the tax collecting Left to come true – Liechtenstein and its historic bank secrecy will stand firm.

* I am the author of a comprehensive work, The Liechtenstein Report, which explains the many legal advantages of banking and asset protection in Liechtenstein. Click here for more information.

Stupid Politician Tricks

Throughout my long lifetime American politicians on the Left have used class warfare as a tool in their efforts to stir up class envy and gain votes. The formula is always the same -- create a hated straw man, attack it, then promise to right the mythical wrong. The theme is always "rich vs. poor," "corporations vs. the people," "them vs. us," "tax havens mean tax evasion" and so forth, ad nauseam.

No better example of this crass demagoguery can be found than the reaction of some of the Democrat Party's "leaders" to a recent Government Accountability Office study.

According to IRS figures, 72% of all foreign corporations doing business in America and 55% of all U.S. corporations paid no U.S. federal income taxes in at least one year between 1998 and 2005. During that same time period, 57% of foreign corporations and 42% of U.S. corporations paid no federal income taxes for two or more years, the GAO found. That led to an Associated Press story with the startling headline, "Most Companies in U.S. Avoid Federal Income Taxes,'' and to a frenzy of business bashing by leading Democrats.

Eh Gad! What a Scandal!

Eh gad! Corporations paying no taxes! What's this -- another nefarious plot by those greedy capitalists? While average, hard working taxpayers are left to foot the bill? Quick Congress -- do something!

Two of the left wing voices heard baying at the GAO's corporate no-tax moon were -- you guessed it -- U.S. Senators Carl Levin (D-MI) and Bryon Dorgan (D-ND) co-sponsors, along with Senator Barack Obama (D-ILL), of the bill S. 681, the "Stop Tax Haven Abuse Act," that would curtail Americans current freedom to invest and do business in 34 low-tax jurisdictions.

Like Claude Rains' gambling Inspector Renau in Casablanca, Senator Dorgan was shocked! Shocked!

He called the GAO conclusions "a shocking indictment of the current tax system". "It’s shameful that so many corporations make big profits and pay nothing to support our country. The tax system that allows this wholesale tax avoidance is an embarrassment and unfair to hardworking Americans who pay their fair share of taxes. We need to plug these tax loopholes and put these corporations back on the tax rolls," Dorgan said. "It’s time for the big corporations to pay their fair share."

"This report makes clear that too many corporations are using tax trickery to send their profits overseas and avoid paying their fair share in the United States," said Senator Carl Levin, the other half of the left's Punch and Judy Show.

The Wicked Liberal of the West, House Speaker Nancy Pelosi (D-CA), piled on too, arguing that the data revealed a fundamental unfairness in the U.S. system, and called for reform. "When two-thirds of corporations pay no taxes,'' Pelosi intoned, "American workers are forced to pay too much in taxes even as they cope with rising prices and falling wages.''

Sheer Nonsense

Unfortunately, the GAO study did not explain why so many corporations pay no U.S. taxes. The Tax Foundation found that among those companies, 85% of them also made no profits that year, so no taxes were owed. When all major U.S. airlines and General Motors, among many others, are losing billions, no taxes are paid. Duh!

The study focused on an IRS tax database that included millions and millions of companies. The vast majority of firms in the study were tiny "mom and pop" enterprises. Why did the tiny "mom and pop" enterprises pay no taxes? Because they didn't make any money! The study reported that was the reason about 80% of the firms in the sample avoided taxes in a given year.

For big corporations, the study disproves the Democratic attacks. The study found that about 75% of large companies (those with sales above $50 million) paid taxes in 2005, about typical for recent U.S. history. And those that didn't pay taxes in 2005 did so earlier, so almost no large companies went through the sample period without paying taxes.

Another Reason

The United States continues to impose the second highest combined federal-state corporate tax rate among industrialized countries at 39.3%.

The average European nation has tax rates on corporate income 10% points lower than the United States. Those countries also, on average, raise 50% more as a share of gross domestic product in corporate taxes; Ireland, with its 12.5% rate captures 3.4% of GDP, while the U.S., with its 39.3% rate only gets 2.5% of GDP.

For the 17th consecutive year, the average rate of corporate taxes in non-U.S. countries fell while the U.S. high corporate tax rate stayed the same. As a result, the overall U.S. corporate tax rate is now 50% higher than the OECD average.

Is it any wonder that American businesses go offshore where they can save on taxes, and that foreign corporations increasingly are avoiding American investment?

Last Word

Kevin Hasset, director of economic policy studies at the American Enterprise Institute says it all: "In other words, there was virtually no news in the GAO study. But that didn't stop the Democrats... Democratic politicians misused and misrepresented the results of this modest GAO study to bash America's corporations and call for sweeping 'reforms.' If they will do so in response to this minor document, one can only conclude that they will do so on the flimsiest of excuses. Leaders of the Democratic Party are so eager to portray American business as villainous that they will twist and distort facts in order justify even more punitive taxes than we already have."

For an interesting audio commentary on the GAO study by tax expert, Dan Mitchell of the Cato Institute, click here.

* If you would like to know more about business tax savings offshore that could benefit you, I tell all in my comprehensive book (288 pages) , Where to Stash Your Cash: Tax Havens of the World. Click here for more about this book.

A Salutary Offshore Shift

As evidence of the ingrained prejudice government bureaucrats and tax collectors harbor against offshore financial activity of all kinds, I often have quoted as typical, a high U.S. Justice Department official in the Clinton administration whom I heard speak at a Miami anti-money laundering conference.

No doubt seeking to impress his audience, (while blithely jettisoning the constitutional presumption of innocence until guilt is proven), this attorney bragged: "In my office we assume that offshore financial activity is per se evidence of tax evasion or some other crimes and we proceed accordingly."

This anti-offshore attitude is basic to the OECD and FATF phony blacklists that imply that financial privacy and low taxes somehow equate with criminal conduct.

This intentional bias underpins all the other anti-offshore bloviation by socialist welfare states and far left groups, such as the so-called "Tax Justice Network" and Oxfam. Adopting Herr Goebbels’ sage advice, they believe that if they repeat lies often enough people will believe them.

The Big Lie

A measure of their propaganda success can be seen, for example, in news reports that Gibraltar has a new tax policy "designed to meet EU needs," and is trying to shake off its "offshore tag."

Chief Minister of Gibraltar Peter Caruana thinks this appeasement will bring the U.K. overseas territory into line with others in the European Union and better defend it against attacks from the OECD, UN, EU and other global busybodies on the Left. My advice: Think again, Chief Minister.

In a recent article a leading local attorney in the Republic of Cyprus insists that his island should no longer be called an "offshore" tax haven, having revised its tax laws to meet EU demands. And recently a U.S. anti-money laundering official, speaking there, urged the Isle of Man to re-brand itself without using the now apparently dirty word "offshore."

Ray of Hope

But there is a glowing ray of hope piercing this manufactured smokescreen so carefully designed to harm offshore financial centers -- and to obscure the very real progress in self-regulation that tax havens have achieved in recent years.

The Financial Times reports that the International Monetary Fund (IMF) reportedly is now planning to drop the artificial distinction between "onshore" and "offshore" financial centers (OFCs) that has been blurred by globalization. The IMF even went so far as to admit that there is no need to compile a discriminatory list of OFCs.

In a statement the IMF acknowledged that globalization has "increased the range of cross-border transactions and intermediation in many countries, as well as by the active efforts of a number of countries to build or promote offshore business."

The reason this change is important can be found in that IMF "assessments" are based primarily on technical reviews of each centers regulatory regime. If a jurisdiction has met the world standard requirements they should get credit. By comparison with the OECD and other leftists critics, their attacks on offshore centers are based on purely political issues such as low tax policies, sovereignty and alleged crimes.

Applause for Change

Among others, the British Virgin Islands government welcomed the recent IMF decision to halt its discrimination between onshore and offshore financial centers, as did officials in the Cayman Islands. (The well-run Caymans have a lot to brag about. Recent figures from the Cayman Islands Monetary Authority confirm a key milestone by Caymans financial services industry; a record total of more than 10,000 investment funds now are currently registered there).

Under the gun from critics, the truth is that most OFCs long since have cleaned up their acts, adopting regulatory bodies with real oversight powers, requiring "know your customer" and "suspicious activity" reporting rules. The result has been that many offshore centers get far higher marks than the onshore centers when assessed objectively by IMF reviews.

This offshore clean up has been conveniently ignored by prejudiced anti-offshore critics.

They studiously ignore the fact that many offshore centers have carried out significant enhancements to their regulatory frameworks at substantial costs to both the private and public sector.

And of course, the majority of the billions in dirty cash laundered worldwide flows mainly through -- not offshore centers -- but through New York, London and other major financial hubs located in nations where tax-hungry governments hypocritically attack offshore financial centers.

* If you would like to know more about the Cayman Islands and scores of other tax havens that could benefit you, I tell all in my comprehensive book (288 pages) , Where to Stash Your Cash: Tax Havens of the World. Click here for more about this book.

Pain in Panama

A few weeks ago I wrote about the problem the declining U.S. dollar was causing in the Republic of Panama.

I noted that the U.S. dollar has been Panama’s currency since 1904, although locally it is called the "Balboa" as a bow to nationalism. Cash is supplied by the Federal Reserve Bank of New York, which also acts as a clearinghouse for Panama’s global transactions. In part because of the dollar's continuing strength, inflation in Panama during the last two decades has averaged less than 3% annually, an impressive figure in any country.

Shielding from inflation may have been the dollar's virtue in Panama in the past, but no longer. Panama consumer prices are being hit especially hard due to the continuing devaluation of the U.S. dollar and its depreciating purchasing power.

The Economist magazine (July 24) caught up with our story, writing: "With Panama, with its dollarized economy, sophisticated financial sector and years of solid economic growth, is not used to dealing with the macroeconomic instability and inflationary woes typical of other Latin American countries in the past. But inflation in Panama, as in the rest of the region, has picked up sharply since 2007 and is now at a 28-year high—and this is having both social and political repercussions."

According to the Panama Comptrollers office, the price of food has increased 17.2% over last year, and many saw it exceeds 20%. Consumer prices in Panama rose 0.8% in May, while 12-month inflation at the end of the month was 8.8% as consumers paid more for gasoline and food. The Economist forecasts year-end inflation of 9.7% in 2008 and of 7.8% in 2009.

Political Headaches

The Economist reports that "..inflation problem is causing headaches for the governing Partido Revolucionario Democrático (PRD) with elections less than just 10 months away (May 2009).

The government of President Martín Torrijos has suffered one of its sharpest declines in public support since coming to office in September 2004. According to regional polling organization Unimer, support for Mr Torrijos fell to 34% in mid-June, 17% lower than in April and less than half the rating he enjoyed at the mid-point of his term. This is despite his having presided over an unprecedented period of economic growth.

"The Torrijos administration is struggling to formulate effective policies to confront high inflation as well as an increase in incidences of violent crime. The only time the government has seen a more severe fall in popularity was amid a three-month-long strike by unionized workers in mid-2005 that accompanied its initial attempt to push through a reform of the social security and pension system against strong opposition.

"Although in the past Mr Torrijos has used his political acumen and a calculated willingness to compromise on unpopular measures to win support, at this late stage in his term his touch seems less sure and the public less willing to be swayed. Most recently the president also has faced growing criticism for his failure to deliver on a much vaunted comprehensive solution to the capital's ailing public transportation system, the increasing use of subsidies to tackle rising food costs during a pre-election period and plans to restructure the security services."

No Big Change

With all its political problems, the PRD probably will pull out a second consecutive presidential win, mainly because of the inability of a splintered opposition to present a a united front.

That means it's unlikely that there will be any fundamental changes in policies that are generally friendly to the U.S. and to the many American retirees who make their home in Panama.

* Learn all about Panama and its potential for investments and as a retirement home for foreigners. Click here for Panama Money Secrets.

GAO Report Disputes Senate Muckrakers’ Claims

A few days ago I noted in this space that: "Senate Finance Committee, Baucus (D-Mont) and Grassley (R-Iowa) ... are dumping all over the Cayman Islands. They claim any American corporation with a subsidiary company offshore (which is fully legal) should be treated as suspect tax dodgers. The Baucus/Grassley show was based on a report the two senatorial pals ordered the Government Accountability Office to write. The senators asked this congressional watchdog agency to investigate a five-story building (Ugland House) in the Caymans that is listed as the business address for corporate subsidiaries of more than 18,500 U.S. companies. That number has nearly doubled in the past four years."

Interesting Research

Leadng offshore tax expert, Vern Jacobs, CPA did a little research and found that the General Accounting Office report the Senators used to justify their illogical attacks on the Cayman Islands contradicts these "pandering politicos" as Vern aptly calls them. In the July GAO Highlights they state that "... about 5 percent of these (18,857) entities (in the Ugland House) were wholly U.S.-owned and 40 to 50 percent had a U.S. billing address. ... The Cayman Islands’ reputation as a stable, business friendly environment with a sound legal infrastructure also attracts business. This activity is typically legal, such as when pension funds and other U.S. tax-exempt entities invest in Cayman hedge funds to maximize their return."

Witch Hunt/Crusade

Vern Jacobs goes also points out that: "U.S. multi-national corporations are permitted to defer U.S. taxes on profits from foreign business operations (earned by foreign subsidiary corporations) as a way to compensate for the fact that the U.S. is the only major country in the world that imposes tax on it's corporations without regard to where the company in doing business."

* If you would like to know more about the Cayman Islands and scores of other tax havens that could benefit you, I tell all in my comprehensive book (288 pages) , Where to Stash Your Cash: Tax Havens of the World. Click here for more about this book.

Gold & Silver: Must You Tell?

I often get the question from Sovereign Society members and readers as to whether or not there is any U.S. law requiring reporting to the U.S. government the holding of gold, silver or other precious metals in foreign accounts or offshore storage.

The question arises because the law does require a U.S. person to report on the annual income tax IRS Form 1040 if they have any direct or indirect control over any offshore "account". If that account exceeds $10,000 at any time the calendar year, they also must file a foreign bank account disclosure form (FBAR), due no later than June 30th each year.

Vern Jacobs Says

My friend and long time associate, Vern Jacobs CPA, CLU, recently addressed this question in his free online "Jacobs Report" sent in by a U.S. person who asked whether metals held in their name at the Perth Mint in Australia had to be reported to the IRS or U.S. Treasury on the forms mentioned above.

The inquiring person had research the Perth Mint web site and among other statements, found this: "Perth Mint Depository Services (PMDS) operates like a private client bank account or stockbroking account, except with balances of precious metals in troy ounces."

The web site also described Perth Mint Depository Certificates as allowing clients to hold, deposit and withdraw funds in various national currencies, place market orders for precious metals, plus exercise put and call options for gold and silver.

Wise Advice

Vern Jacobs, assessing these facts gave this opinion, with which I concur: ''Perth Mint states that they function like a bank or brokerage account except with balances of precious metals in troy ounces. I mention this because I anticipate questions from readers who will want to use that 'exception' as a justification for not reporting [to the IRS] funds held in bullion form in a segregated account."

"To the extent that the bullion can be converted into other currencies or used to purchase investments it seems to me that the IRS will treat the account as a foreign financial account. To the extent that the bullion is physically being stored in a segregated vault or deposit box and can't be converted into currencies or investments as part of an integrated banking service, then there might be some justification for claiming it is not a financial account...I agree that the IRS is likely to argue that the Perth Mint program is a foreign financial account."

My view is that when in doubt about reporting to the IRS, err on the side of caution and go ahead and report. Better safe than sorry.

Learn More

This November 5-8, I'll be in Cancun, Mexico with the rest of The Sovereign Society "professors" for our third annual Offshore Advantage Academy.

In three days, we'll cover questions about which offshore assets you have to report to the IRS (plus three you can keep a secret), how to save on your tax bills, get "guaranteed" returns with investments most Americans never hear about, buy and sell stronger currencies than the dollar and much more.

A word to the wise: This seminar has sold out for the past two years, so if you're interested please sign up now early while we can still accommodate you. Get all the details here.