Offshore Asset Protection BLOG - Bob Bauman

Cracks in the Tax Haven Crack Down

For those of us active in the offshore world for more than a few years, the current attacks on tax havens, those merciful places that impose no or low taxes, brings to mind one of the late Yogi Berra's more astute observations: "It's like déjà vu all over again."

Long before Obama, Gordon Brown, Sarkosy and Merkle, we've seen 20 years of welfare state politicians and their tax collectors attacking and smearing those jurisdictions that freely choose to attract foreign business and capital by exempting them from taxes.

As an added attraction, these jurisdiction traditionally provide statutory financial privacy and banking secrecy -- much to the fury of the privacy destroying "pro-transparency" crowd.

The anti tax haven mob, including the G-20, the UN, the European Union and the G-7 paid lackeys at the Organization for Economic Co-operation and Development, (OECD), have excreted their phony blacklists vilifying countries that are guilty of nothing more than offering welcome tax competition to the high tax nations.

Convenient Excuses

The excuses for these anti-tax haven attacks have, one by one, been shown as fraudulent.

First, it was the long lost "war on drugs" in which it was claimed that dirty drug money was stashed in tax havens. When that proved false, another big lie claimed terrorist cash was hidden offshore. Now that the world recession has hit and large banks in major nations are in self-induced peril, the latest myth is that tax havens caused this global mess, when in fact all the significant banks at the heart of this crisis are not located in tax havens, but in major high tax nations where they already are the most regulated financial institutions in the world.

The opponents of financial freedom are smart and devious. They always cloak their high handed demands in suggestions for "reform" -- reasonable until the true impact on liberty is exposed. What they really want is to collect ever more taxes.

Latest Campaign

The build up in the current anti-tax haven campaign began in November as the dimensions of the global recession emerged.

In Washington finance ministers from the Group of 20 leading industrial and developing nations concluded that tax secrecy "should be vigorously addressed". In December it was the turn of the developing countries. At a United Nations meeting on development in Doha, tax havens came under fire for allegedly fueling capital flight.

On Feb. 22nd a meeting of eight EU government leaders called for action against tax evasion and tax havens, which they see as synonymous. In March yet another EU meeting will draft anti-tax haven plans to be presented to yet another G-20 meeting scheduled for London on April 2nd. The London meeting is supposed to create a New World Financial Order that will solve all our problems by abolishing financial privacy and bank secrecy world wide.

We wait breathlessly to see if an Alpine UN/EU force will be sent to conquer Swiss bankers or a UN/EU naval fleet will wade ashore from the Panama Canal to attack local offshore providers.

EU Dissension

But all is not well in the quest for EU unity against tax havens.

Austria and Luxembourg say that they will resist attempts to crack down on banking secrecy, despite calls from other EU states for stricter rules to tackle tax evasion. A statement after a meeting (25 Feb.) between Austria's finance minister and Luxembourg's budget minister, said both countries were "ready to take part constructively in a discussion in the EU and the OECD on how to improve international co-operation on cross-border tax evasion, but banking secrecy is not up for negotiation".

Belgium, Austria and Luxembourg have an exemption from EU laws on the sharing of bank information that allows them to pay a withholding tax rather than share details on foreign investors with tax authorities in other EU states. Switzerland, fortunately not an EU member, has a similar agreement.

Meanwhile, the new anti-tax haven President of the United States, claims in the first Obama budget that he will raise a totally fictitious $210 billion by cracking down on offshore tax havens.

Scapegoats

"Politicians like scapegoats. In a crusade, the details get swept away," says Allan Bell, the Isle of Man’s treasury minister. He complains that the nuances of the debate, including offshore-style tax dodging in many large "onshore" countries, are being overlooked.

Minister Bell is quite right. It is the height of hypocrisy on the part of U.S. government to attack tax havens when the leading tax haven in the entire world is the United States.

Foreigners have more than $4 trillion dollars in passive investments in the form of bank accounts or brokerage accounts in the U.S., according to U.S. Treasury figures. And the U.S. imposes no tax on interest or passive capital gains on foreigners. The U.S. government gives these huge tax breaks to foreigners because America’s faltering economy needs their capital.

The long phony war against tax havens continues. Stray tuned.

* While you can, there still are many legal ways to enjoy privacy, bank and save taxes offshore; Bob Bauman tells you Where To Stash Your Cash: Click Here.  And if you're interested in living offshore, The Passport Book is just what you need.

Swiss Government Goes on Offensive

Swiss Finance Minister Hans-Rudolf Merz (below) has launched a special task force in defense of Swiss banking secrecy as a counter to mounting international pressure. Merz will enlist the help of bankers, diplomats, economists and legal experts to help defend against the latest attacks.

Leading opponents of Swiss bank secrecy, including the big spending leaders of major high tax and welfare states, are moving in for what they see as possible final kill of hated Swiss banking secrecy.

Leaders such as the U.K.'s Gordon Brown, France's Nicolas Sarkosy, and Germany's Angela Merkle, see the Swiss as wounded by the continuing UBS tax evasion charges. They hope that Switzerland's controversial handing over of limited confidential client data to the U.S. Justice Dept. tax evasion probe is a possibly fatal weakness.

The Usual Suspects

The European Union again has joined the attack and EU leaders have vowed to launch yet another global crusade against tax havens at the April G-20 summit in London. The anti-tax haven U.S. President, Barack Obama, will be there. 

Merz will travel to London next month to speak to international finance ministers before the G-20 summit begins. Switzerland's requests to attend the April summit have been rejected, an intentional snub.

Banking secrecy has long been a fundamental pillar of the Swiss financial success and has helped its banks to gain control of nearly a third of the world's private banking business estimated at over US$4 trillion.

Swiss Bankers Worried

Swiss private bankers are reportedly worried that the renewed pressure on secrecy could frighten clients off. The Tribune de Geneve newspaper cited unnamed sources that feared nine out of 10 customers would move their money elsewhere if banking secrecy was lifted.

Ivan Pictet, president of the Geneva Financial Center, told Le Temps newspaper that the banking sector's contribution to Swiss GDP would shrink from 12% to 6-7% if that were to happen.

Understandably, clients at UBS have been withdrawing vast amounts of money in the wake of the U.S. tax evasion probe. Net outflows in the UBS's wealth management and private banking businesses totaled more than US$50 billion in the last three months of 2008.

Rank Hypocrisy

The Swiss Bankers Association (SBA) said the political initiative was welcome. But some bankers have shown a strong reluctance to engage in diplomacy with countries that are attacking Switzerland's banking secrecy.

Konrad Hummler, (left) president of the Swiss Private Bankers Association, accused some countries of hypocrisy. In a statement Hummler highlighted the many offshore tax havens under British control and legal entities in the U.S. states such as of Delaware that specialize in setting up what he called "opaque shell companies to help the wealthy avoid tax bills."

The battle for what remains of offshore financial privacy continues, with Switzerland, as usual, in the lead. Perhaps Bern will be forced to ask the Vatican's Swiss Guard to come home for defensive maneuvers.

If forced to bet on it, I’ll lay my money on the continuation of Swiss banking secrecy, whether the rest of the world likes it or not.

** For an understanding of the many advantages offered by Switzerland and its bank secrecy law, you can find it in my book, Swiss Money Secrets.

All The News That Fits, They Print

The New York Times, which fancies itself to be "the nation's newspaper of record," is in deep financial trouble.

In dire need of funds, it has put its New York City headquarters building in midtown Manhattan up for a sale-leaseback transaction that is expected to produce $225 million. The company needs cash to service an impending $400 million debt payment that comes due this spring. It also has mortgaged a major block of its stock to Mexican billionaire, Carlos Slim, in exchange for a cool $250 million loan. With that loan, Slim's stake in the company could grow from 6.9% to 17%.

Deep in Debt

For fiscal-year 2008, The Times announced, on January 28, 2009, a net loss of nearly $58 million and on February 19th,The Times’ board of directors announced it was suspending the quarterly dividend. Thus, this once-mighty company’s stock is now trading at under $4 per share on the N.Y. Stock Exchange.

But even with all its financial troubles you would think The Times could at least spend a little cash on good writers and reporters who have the intellectual capacity to produce accurate headlines and stories.

I refer to the biased, class warfare, headline in today's issue that reads: "Group of Rich Americans Sues UBS to Keep Names Secret in Tax Case."

The accompanying article also refers gratuitously to "wealthy Americans" without explaining by what method the writer, Lynnley Browning, determined how any of these people were either "rich" or "wealthy" -- or what those words mean in this context.

After all, even President Obama arbitrarily defines "rich" as anyone earning $250,000 or more annually, the group whose taxes he intends to raise to finance his socialist programs.

Upset UBS Account Holders

The laws suit that is the subject of the article rightfully accuses UBS and Switzerland’s financial regulator, the Swiss Financial Market Supervisory Authority, (FINMA) of violating Swiss bank secrecy laws and of conducting illegal activities with foreign authorities forbidden by Swiss law.

It stems from UBS’s nervous agreement last week to turn over to the U.S. government the names of about 250 Americans who allegedly used UBS offshore accounts and entities to evade U.S. taxes.

The suit was filed by a Zurich lawyer on behalf of a dozen UBS American clients among the reported 250-300 UBS account holders whose names FINMA also agreed to allow UBS to turn over to the U.S. government in a questionable settlement deal that I explained earlier this week.

Suit Asks Uphold Bank Secrecy

The law suit should be well grounded because Swiss law provides an established judicial procedure when a third party requests information about the holder of a Swiss bank account. Several of the plaintiffs already were using this procedure to appeal the potential release of their names and the Swiss courts have not ruled yet on those appeals.

Under duress from the U.S. Dept. of Justice that amounted to international blackmail, (the DoJ threatened to put UBS out of business in the United States), a nervous Swiss government ignored its own bank secrecy law and gave up the names based on another law that allows FINMA to act when a bank is in jeopardy of a collapse that could impact the bank's standing or that of the Swiss national economy.

If UBS, Switzerland's largest bank, went down, it would take with it much of the Swiss economy -- and probably banks all over Europe, as well. Shaky European Union banks already are estimated to be stuck with over US$23 trillion in so-called "toxic assets."

What's In a Word?

The dictionary defines "rich" as having wealth or great possessions; abundantly supplied with resources, means, or funds and "wealthy" as having great wealth; rich; affluent.

It may be that those financially and politically impoverished souls at The New York Times believe anyone who can afford a Swiss bank account (or a Zurich lawyer) must be rich.

Accuracy and unbiased reporting never has been a strong suit at the traditionally left-wing Times.

   *** Sovereign Society members are provided reliable tax and reporting information concerning offshore investments, banking and foreign residence and citizenship. We can put you in touch with experienced professional in the U.S. and in offshore havens. All you need to do is -- join us.

Your Papers, Please!

A visa is an official permission authorizing a person to enter the foreign country that issues the visa. A visa authorization may be a document, but usually it’s a stamp endorsed inside a person's official passport.

For many countries, the rule is -- no visa, no entry.

Some countries makes it difficult, if not impossible, for foreigners to enter, even for legitimate purposes. That accusation has been raised about the entry policies of the United States government that control who, when, and how foreigners may come to America.

Since the terrorist attacks of September 11, 2001, U.S. entry restrictions have become so severe, many say unreasonable, that hundreds of thousands of foreigners have been excluded or have just given up trying.

This has caused major economic loss, as business people refuse to suffer less than friendly treatment at U.S. airports and reroute their travel to avoid changing planes in American cities.

Thousands of foreign students have stopped applying for admission to American colleges and universities because of the time and red tape required to be admitted to the country, thus losing a chance to train a friendly needed group of future leaders whose knowledge of America will be limited.

Keeping Out the Unwanted?

It's a fact of international political life that citizens of certain countries, the U.S. among them, find travel abroad more difficult. For many reasons, some countries impose strict visa requirements on foreign nationals. It’s their way of keeping out supposed "undesirables."

In the wake of the 9-11 terror attacks, the United States greatly increased visa requirement for visitors from nations previously free to come to America without first obtaining a visa. Other nations have adopted similar post-9-11 visa restrictions where none existed before.

The U.S. already was one of the most restrictive countries in the world when it came to allowing visitors into the country, but the visa waiver program started in 1986 does allow the citizens of 27 selected countries to enter for stays of up to three months without a visa.

Official Red Tape

For American travelers headed overseas, getting a visa, when required, can be the worst part of the trip. It requires contacting a foreign embassy or consulate in the U.S. filling out forms, surrendering your passport for days or a week and paying a high fee, sometimes only with cash or a money order.

For a multi-country trip the time to get all the visas approved can take a month. It was that way decades ago, and even with the rise in global travel and online tools, that primitive system still exists today. When I visited China a few years ago it took me two weeks to get the visa, and I had to pay a visa expediting company to do it for me.

Visas Information Sources

Henley & Partners, a Zurich firm with which the Sovereign Society has worked for several years, specializes in international immigration, residence and citizenship law. On a continuing basis they analyze the visa regulations of almost all countries and territories in the world. They have just published their latest visa index and I think you may find it useful.

KLM Royal Dutch Airlines also has an excellent web site that allows you to cross check your home country with any other country in the world in order to determine if you need a visa for travel there.

The Passport Book

If you are interested in the possibility of dual citizenship, second passports and visa free travel, the 6th edition of The Passport Book which I authored is available.

In it I explain all about visas, plus how changing your country of residence, acquiring dual citizenship and a second passport can open up a world of opportunities. I show you how to obtain dual citizenship based on your ancestors, how to travel with greater safety, possible offshore tax savings and I may help you discover your own offshore paradise.

Click here for more about The Passport Book.

UBS Settlement No U.S. Victory - Swiss Call for Retaliation

A leading Washington tax lawyer supports my conclusion that the UBS-U.S. Department of Justice settlement agreement announced last week was certainly not a victory for U.S. DoJ prosecutors.

In fact, Miller & Chevalier tax partner George Clarke III, says that the decision by the DoJ to file suit against UBS on Thursday in Miami seeking 52,000 more UBS names is proof that the DoJ failed to pierce Swiss bank secrecy laws.

That conclusion by a leading tax expert gives the lie to the leftist media coverage that gleefully trumpeted the deal as the supposed death of Swiss bank secrecy.

Miller & Chevalier of Washington, D.C., is ranked among the top tax law practices in the United States and is one of the nation's oldest law firms, founded in 1929 as the first American federal tax law practice.

Good Outcome for UBS

While the deferred prosecution agreement between UBS and federal prosecutors initially might have looked like a win for the U.S. government, in reality, Clarke said, UBS isn't disclosing nearly as many client names as U.S. officials suggested.

In an interview with The American Lawyer  that is worth reading, Clarke pointed out that "it looks better and better for UBS...it's a very good outcome for UBS. They're now essentially clean."

Swiss Secrecy Law Upheld

Concerning the new DoJ law suit filed last week against UBS, Clarke said the case now comes down to "...Swiss law and the question of whether a U.S. court can compel a third party to essentially violate its own laws, in this case Swiss law, to comply with a U.S. court proceeding."

He noted that there is ample American case law and decisions that hold that a U.S. court has no power to compel foreign persons to violate their own nation's laws.

Swiss Force Levin Cancellation

Meanwhile, at least for the moment, the Swiss government has had enough of the anti-tax haven circus conducted by Senator Carl Levin (left) and his U.S. Senate Permanent Subcommittee on Investigations.

The subcommittee had scheduled yet another anti-tax haven hearing on the UBS matter next Tuesday, Feb 24 and the Swiss government originally intended to send a representative. But the Swiss government said Sunday it will not attend the hearing, an apparent protest against the DoJ lawsuit aimed at forcing UBS to hand over data on 52,000 UBS American customers. Switzerland also declined an invitation to a new March 4th subcommittee hearing, Swiss Finance Ministry spokesman Roland Meier said.

"Switzerland notes that despite the agreement, U.S. authorities have launched a civil lawsuit against UBS," Meier said. "Switzerland regrets that the Department of Justice has threatened UBS with unilateral measures, despite cooperation of UBS and Swiss authorities with the U.S. authorities."

Swiss Threaten Retaliation

Meanwhile, the conservative Swiss People's Party (SVP) called for retaliation against the United States over its treatment of Switzerland and UBS.

The populist SVP, the country's leading party, said gold stored by the Swiss National Bank in the United States should be repatriated and, with more than a touch of irony, SVP said Switzerland should ban the sale of U.S. investment and equities in the country to protect Swiss investors after the failure of U.S. regulators and American banks.

No More Blackmail

The SVP also said Switzerland should also reconsider its policy of representing the United States in countries such as Cuba where the U.S. has no diplomatic presence, and should not take in any detainees from the U.S. prison at Guantanamo Bay in Cuba, which the Swiss government said last month it would consider doing.

The SVP also said it would call for an urgent debate in parliament on ways to protect Swiss banking secrecy from "further foreign blackmail."

This from the leading political party in a nation that holds over US$4 trillion of the world's cash and assets under its management and control.

** For an understanding of the many advantages offered by Switzerland and its bank secrecy law, you can find it in my book, Swiss Money Secrets.

Swiss Banking Secrecy Dead? Think Again!

It's another example of the huge gap between what the leftist news media tells the public and the actual truth. I refer to the news coverage of an agreement between UBS, the battered Swiss banking giant, and U.S. government prosecutors announced on Wednesday.

A subhead in The New York Times screams: "A severe blow to centuries old tradition of secrecy in banking." Not quite, in my opinion.

Swiss Finance Minister Hand-Rudolf Merz played down the dangers to banking secrecy, insisting that under the agreement UBS client details were only handed over to the U.S. because under Swiss law there was sufficient evidence of fraud in each case. "Banking secrecy will stay," he said.

Exaggerated Demise

Honest and intelligent assessment of this UBS-U.S. Department of Justice (DoJ) agreement indicates that Swiss banking secrecy is still live -- much to the chagrin of Switzerland's usual detractors -- U.S. Senator Carl Levin (D-MI) and his ilk, and tax collectors at the IRS, in the EU, France, Germany and at the OECD.

Under the announced agreement UBS, the largest bank in Switzerland, will divulge the names of a limited number of American clients (a reported 250-300 names), whom the IRS alleges used UBS offshore accounts to evade U.S. taxes.

UBS admitted its private banking managers conspired from 2001 to 2006 to defraud the IRS and agreed to pay $780 million to settle a federal investigation into these activities. (For a good news summary of the UBS/Swiss situation, click here).

Swiss Law Prevails

As is usual in offshore financial matters, wild numbers are being thrown around by the IRS to bolster its case. The IRS is alleging (without proof) that UBS helped American clients illegally hide $20 billion, allowing them to evade $300 million a year in unpaid taxes.

Under Swiss law UBS may disclose the identities of only a few hundred customers. A reading of the 43-page UBS-US agreement makes clear that the U.S. government officially admits that the Swiss Bank Secrecy Act of 1934 applies and that it may prevent the release of most of the UBS names. The agreement also allows the Swiss to use their bank secrecy law to defend against further IRS efforts to grab more names.

Fishing Expedition

That further IRS legal effort was fast in coming as the U.S. DoJ, in a massive fishing expedition, again sued UBS Thursday to try to force disclosure of the identities of what it claimed were as many as 52,000 American customers who allegedly hid their UBS accounts from the IRS.

Scaling the heights of class warfare demagoguery, John A. DiCicco, acting assistant attorney general in the DoJ tax division, said in a statement. "At a time when millions of Americans are losing their jobs, their homes and their health care, it is appalling that more than 50,000 of the wealthiest among us have actively sought to evade their civic and legal duty to pay taxes."

Apparently the presumption of innocence guaranteed by U.S. laws no longer applies to Americans with UBS accounts. (And they call it the Justice Department!)

The Usual Suspects

To some, turning over any names at all means the end of the secret Swiss bank account, whose traditions date to the Middle Ages. The gravity and timing of the controversial move has caused intense political and legal debate within Switzerland amid fears it could open the floodgates to similar demands from other countries.

But for the usual anti-privacy, anti-tax haven crowd who habitually bash offshore financial activity as tax evasion, Switzerland always has been a special target. They hate the Swiss Bank Secrecy Law because they believe that the rights of the individual must be subordinated to the government, that all offshore accounts are used for tax evasion.

Tax Fraud Is the Crime

As a matter of historic fact, the Swiss bank secrecy law has never been absolute.

That law distinguishes between tax avoidance, tax evasion and tax fraud. Unlike in the United States, tax evasion is a civil, not a criminal offense under Swiss law, but tax fraud is a crime.

In selected past cases, (which the Swiss don't like to discuss), the Swiss government has waived bank secrecy based on tax fraud. Tax fraud may have occurred when UBS American clients submitted false documents or affidavits relating to their accounts. This strict definition probably explains why so few names are reportedly to be given to U.S. prosecutors.

And there is an established Swiss procedure for the U.S. to obtain tax and other information that has been used many times, but the DoJ opted for hardball threats and lots of publicity.

Bruised Reputation

The public relations problem for the Swiss and their bankers is obvious. Indeed it required both a meeting of the Swiss Cabinet, the nation's governing body, and action by the Swiss Financial Market Supervisory Authority (FINMA) to permit UBS to release the names.

FINMA's official order did not waive Swiss banking secrecy, but instead acted to protect UBS from likely financial collapse. Under Articles 25 and 26 of the Swiss Banking Act, FINMA has wide authority to protect the interests of UBS creditors, investors and clients and to ensure the stability of the Swiss financial system -- and that was the crucial issue here.

Economic Blackmail

Ironically, the global recession and the weakening of the worldwide banking system allowed DoJ prosecutors to engage in a case of blatant blackmail against UBS and the Swiss government.

The Swiss decision to release names was made only after U.S. authorities threatened to withdraw UBS's American banking license.

Had the U.S. done that or had the DoJ indicted UBS, it would have put the bank out of business in America with a loss of thousands of UBS U.S. jobs. It would also have caused a probable collapse of the bank itself, with major Swiss and global economic repercussions. (UBS bad management already has lost over $50 billion in the subprime mortgage crisis).

But even U.S. prosecutors knew the global financial system could hardly weather the destruction of UBS by American prosecutors. (And that would have been ingratitude. As I revealed last year, candidate Obama was very cozy with UBS officials and UBS was one of his biggest donors, giving $505,017 to his 2008 presidential campaign).

The collapse of UBS would have been a nasty replay of the wrongheaded DoJ indictment on 2002 that destroyed Arthur Anderson, one of America's major accounting firms, for its role in the Enron scandal. Although the U.S. Supreme Court later found that DoJ prosecution illegal, it came too late to save the already defunct firm.

Bottom Line

There is no way to sugar coat the UBS mess. We take pride in the fact that the Sovereign Society has warned against UBS accounts for years.

But we believe that Switzerland, 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), has the strength to withstand unreasonable and radical demands to compromise when they are in the right.

Let any American tax evaders be indicted, tried and convicted. But the high handed demands of the IRS and DoJ prosecutors, threatening a major bank, an entire nation and thousands of innocent persons, must be tempered by the rule of law.

*** For an understanding of the many advantages offered by Switzerland and its bank secrecy law, you can find it in my book, Swiss Money Secrets.

Revised Offshore Reporting Requirements

So great is the left wing clamor against the offshore world in general and tax havens in particular, from time to time befuddled people ask us if it really is legal to engage in offshore business and financial accounts.

Yes folks, it is legal for U.S. persons (citizens or permanent residence aliens) to invest, bank, do business, or live offshore in some other country. But in recent years the U.S. government has stepped up its anti-offshore attacks, in a concerted effort to thwart supposed tax evasion.

The reason some people question offshore legality is the continuing IRS marketing campaigns to discourage savvy individuals from taking their wealth offshore. In truth, the IRS would rather your money stay right at home - where anyone from IRS agents to identity thieves can grab your wealth. All the more reason to go offshore, in my opinion.

FBAR Report

But if you do decide to use your constitutionally guaranteed freedom to invest or do business offshore,  U.S. law requires that you annually inform the IRS, by checking a box on IRS Income Tax Form 1040, indicating that you do have an offshore account over which you have direct or indirect control.

Over the years, another required annual offshore financial activity report has been the infamous U.S. Treasury "FBAR" -- Form TD F 90-22.1, entitled Report of Foreign Bank and Financial Accounts. All U.S. persons who have a foreign account (or accounts) with an aggregate value of US$10,000 or more, must file the FBAR by June 30th each year.

New Form, New Definitions

Effective January 1, 2009, the U.S. Treasury mandated "the use of a revised form for the reporting of foreign financial accounts." This new FBAR clarifies those who must file and the required details in the report. The revised FBAR now must be filed by any U.S. person who has a financial interest in, or signature authority, or other authority, over one or more financial accounts in a foreign country, if the aggregate value of the accounts exceeds $10,000 at any time during the calendar year.

The first revised FBAR to be filed will be on or before June 30, 2010, for the current calendar year January 1 through December 31, 2009.

Foreign Citizens Now Included

The definition of "U.S. person" now includes a citizen or resident of the U.S., or any person located in the U.S. and doing business in the U.S.

This definition expands coverage to require foreign citizens who are physically present and doing business in the U.S. to file the FBAR. Previously the definition of "U.S. person" included only citizens and residents of the U.S., domestic partnerships, domestic corporations and domestic estates or trusts.

Trust Reporting

Accounts coontrolled by a trustee of a trust now must be reported not only by a trust beneficiary with a greater than 50% beneficial interest in the trust, but also by any person who "established" the trust and any "trust protector" that is appointed. A "trust protector" is defined as a person responsible for monitoring the activities of the trustee who has the authority to influence trustee decisions or to replace or recommend the replacement of the trustee.

The definition of "financial accounts" is also expanded to include, among others, foreign mutual funds, foreign hedge funds, foreign annuities, debit card accounts and prepaid credit card accounts.

Obey the Law

From our founding over 11 years ago, The Sovereign Society has advocated full compliance with applicable tax and financial reporting laws, however much we may oppose many IRS restrictions as unreasonable. We remind our members and readers that U.S. law requires all U.S. persons to pay income taxes on all worldwide income and that willful noncompliance may result in criminal prosecution.

   *** Sovereign Society members are provided reliable tax and reporting information concerning offshore investments, banking and foreign residence and citizenship. We can put you in touch with experienced professional in the U.S. and in offshore havens. All you need to do is -- join us.

Too Good To Be True

I wasn't exactly surprised when I saw news reports over the weekend concerning the Stanford International Bank located on the West Indies island of Antigua and its owner, Robert Allen Stanford, (left) the chief of the Stanford Financial Group of Houston, Texas.

Over the last few years several Sovereign Society members have asked our advice about the unusually high returns Stanford International Bank "guaranteed" for CDs and deposits.

I did some due diligence and discovered enough disturbing information about both Stanford and his offshore bank that I recommended that our members stay away from the bank.

Let's hope they took my advice.

On Tuesday the U.S. Securities and Exchange Commission accused Stanford of conducting "a massive ongoing fraud" in the sale of about $8 billion of high yielding certificates of deposit held in the firm’s bank in Antigua. Also named in the suit were two other executives and some affiliates of the financial group, all charged with misrepresenting the safety and liquidity of the uninsured CD’s.

Island Banking Turmoil

Fifteen hundred miles to the south, Antiguan Prime Minister Winston Baldwin Spencer (left) addressed the nation on live television Tuesday night, saying the Eastern Caribbean Central Bank is working with the Bank of Antigua "to put together a contingency plan" to deal with the fallout from the U.S. charges.

He urged residents not to panic, but acknowledged that the charges against Mr. Stanford, the largest investor and private employer in the island nation of 80,000 people, could have "profound serious implications for Antigua and Barbuda." The Bank of Antigua may not be much help since it also is a member of Stanford Financial Group.

The CD’s were sold by Stanford International Bank through the firm’s registered broker-dealer and investment adviser in Houston. Both the bank, which claims $8.5 billion in assets and 30,000 clients in 131 countries, and the brokerage unit, which operates about 30 offices in the United States, were named in the SEC. suit. Stanford Financial claims to manage about $50 billion in assets.

Two Island Country

Antigua is an island in the West Indies in the Leeward Islands in the Caribbean region, the main island of the country of Antigua and Barbuda. Independent from the United Kingdom since 1981, concerns over the lack of adequate regulation of the financial services sector prompted the U.S. government to issue a "financial advisory warning" about the islands in 1999 which was lifted in 2001.

My initial judgment about the Standford Bank a few years ago was based on a very simple, yet basic axiom of wealth protection and investment: "If it sounds too good to be true, it probably isn't true."

Indeed, Too Good To Be True

Yes, it's an old saying, but too many people considering offshore banking and investing seem tempted to ignore it -- at their own peril.

Sadly, many investors, wanting to believe promises of unrealistically high returns, surrender their cash to charlatans who don't deliver -- and never intend to. This same pattern occurs repeatedly as Internet "offshore" web sites beckon visitors to send them cash so they can "get rich quick." (The promoters that is, not the depositors). Similar fraudulent sales of second passports are also common.

Long before anyone heard of Bernie Madoff and his $500 billion rip-off, many other Madoff types have been operating, especially in the offshore area. Stricter offshore regulation in recent years has curbed these frauds, but unfortunately they'll continue as long as human nature, greed and gullibility exist.

Follow Basic Good Sense Rules

There are certain fundamental principles that govern offshore financial activities, in addition to life's verities -- honesty, truthfulness and generally moral conduct.

Unfortunately, many people who look offshore do so for very wrong reasons, including misplaced hopes for unreasonable profits. Many usually cautious people seem to suspend their good judgment when it comes to offshore business, banking or investments.

So keep these offshore (and onshore) rules in mind for your future actions:

1) a U.S. person must pay income tax annually on all income earned, without regard to where earned, and regardless of where in the world that U.S. person lives.

2) The law requires reporting to the IRS of offshore financial accounts over which a U.S. person has control; some reports must be more detailed than others.

3) U.S. courts have made clear that taxpayers cannot hide behind offshore trusts, corporations, foundations or other legal entities that are claimed to be recipients of income that actually goes into that U.S. person's pocket.

4) Claims of fabulous returns on investments that sound too good to be true are just that -- untrue, and such claims are a hallmark of financial fraud.

5) Always do a thorough due diligence investigation -- and ask for references.

6) Get good, reliable offshore advice and professional help, before you agree to anything.

   *** Sovereign Society members are provided reliable information about sound offshore investments, banking and foreign residence and citizenship. We can put you in touch with experienced professional in most offshore havens. All you need to do is -- join us.

Why We Must Champion Privacy

If Spring comes early, perhaps one of the coldest English winters on record will abate in time for the April 2d meeting of the G-20. But in a city notorious for fog, if past G-20 meetings are any example, more verbal fog is inevitable.                                                

The G-20, ( a.k.a. the "Group of Twenty Finance Ministers and Central Bank Governors"), is comprised of finance ministers and central bank governors representing 19 of the world's 25 largest national economies, plus the 27 country European Union. Together G-20 economies comprise 90% of global gross national product, 80% of world trade (including EU intra-trade) and two-thirds of the world population.

Shopworn Solutions

G-20 leaders will gather in London on Apr. 2nd with the stated intention of finding solutions to the current banking and financial crisis. "Solutions" to most G-20 politicians means more government control over private financial activity, both domestic and global.

They last met in Washington in November where they made a paper pledge to adopt "steps to shield the global economy from future crisis" -- and we all can guess what kind of power grab that entails.

The G-20 wants to coordinate "reform of global financial rules," among other objectives. European reports are that the G-20 have agreed that countries with bank secrecy and financial privacy laws, some of which might be called tax havens, should be subjected to "collective sanctions" designed to force these financial privacy loving nations into more transparency.

In a coordinated effort, the EU is proposing new rules requiring EU member government to disclose details on accounts held by taxpayers in each nation.

In other words, the attack of the welfare state tax collectors continues -- just as it has for the past two decades and more.

Same Old Song

Have no doubt that what comes out of the G-20 will be right in line with the demands of the Financial Action Task Force on Money Laundering (FATF), an inter-governmental body founded in 1989 by another G group -- the G-7, formed in 1976, with the U.S., Canada, France, Germany, Italy, Japan, and the United Kingdom.

The supposed purpose of the FATF was to develop policies to combat money laundering and terrorist financing. The excuse for FATF, and for all subsequent G-7 and G-20 attacks on financial privacy, has been expedient in the extreme.

At first the laudable goal was to combat drug lords and their dirty cash, then to stop terrorists from financing their schemes -- and now these same anri-privacy measures are said to be essential to solving global banking problems.

Radical Plans

All these stated excuses are really smoke screens for plans by welfare state tax collectors for the complete and utter destruction of financial and personal privacy for all. These tax bureaucrats want complete access to every citizen's financial lives, no matter where you live or where you have assets.

But abolishing bank secrecy is not enough. They also want to abolish lawyer-client privilege, demand mandatory publication of all beneficial ownership of private trusts, private corporations and private foundations, plus the imposition of total tax information exchange among all nations.

The assumption of all these leftist advocates is that personal and financial privacy must now yield to Big Brother government's unlimited right to know all.

American Privacy Dead

For citizens of the United States all this is at best an academic discussion -- under the Draconian terms of the 2001 PATRIOT Act, financial privacy is already dead. The government has the power to obtain financial information in secret about anyone -- and to confiscate your wealth.

Small wonder that many millions of Americans do business offshore, in part to take advantage of the strong privacy laws in places such as Switzerland, Panama, Singapore, Austria and Luxembourg.

Of course the usual cry by those who advocate ever increased government surveillance of not just our finances, but every aspect of our lives, is the old saw: "If you aren't doing anything wrong, what do you have to hide?"

The Real Issue : Liberty

It is absolutely wrong to characterize this debate as "clean money versus dirty cash" or "security versus privacy" or, now the latest, "banking stability versus recession."

Privacy is an inherent human right, and a requirement for maintaining the human condition with dignity and respect. The real choices are personal freedom and liberty versus government control of our lives and our fortunes.

Tyranny, whether it arises under threat of terrorist attack, alleged solutions to banking problems or under any form of unrelenting domestic authoritative scrutiny, is still tyranny.

Liberty requires security without intrusion -- security plus privacy. Widespread surveillance, whether by police or nosey bureaucrats, in whatever form it takes, is the very definition of a police state.

And that's why we should champion privacy, both personal and financial, even when we have nothing to hide.

* While you can, there still are many legal ways to enjoy privacy, bank and save taxes offshore; Bob Bauman tells you Where To Stash Your Cash: Click Here.  And if you're interested in living offshore, The Passport Book is just what you need.

The Criminalization of America

A few years ago, following a two-year study by experts in all segments of the criminal justice process, an American Bar Association task force documented the explosive growth of federal criminal law, including the startling fact that more than 40% of the federal criminal provisions enacted since the Civil War became law in just the past three decades.

Today there are more than 3,000 federal crimes on the books, many of them dealing with reporting requirements and other federal mandates imposed on businesses and individuals.

If two United States senators, Patrick J. Leahy, Democrat of Vermont, the Senate Judiciary Committee chairman, and Charles E. Grassley, Republican of Iowa, a senior member, have their way, there will be one more crime added to those thousands -- this one aimed at legitimate offshore financial activity.

Dual Crime

These Washington worthies want to make it a dual crime "to fail to report or to transfer of funds into or out of the United States with the intent to engage in conduct constituting a violation of income tax laws." (Do they really believe that anyone would report such an action?)

Their proposal will not only allow the government to bring civil forfeiture actions against alleged tax evasion funds sent offshore, it will also allow U.S. prosecutors to enforce forfeiture orders for foreign tax offenses.

Tax Code Morass

The U.S. Internal Revenue Code is a complex morass, hardly comprehensible even to experts, but under its current provisions, tax evasion per se is not now a criminal act.

Felony violations of tax fraud and tax perjury can be a crime, but not paying your taxes, or not paying as much as the IRS claims you should, usually results in an order to pay the taxes, plus penalties and interest. If you fail to pay, your cash and property can be attached by the IRS.

Go to Jail

The proposed legislation, S.386, The Fraud Enforcement and Recovery Act of 2009, has some useful provisions aimed at mortgage, banking and other types of fraud. But in making a money laundering crime out of transporting funds offshore alleged to be for tax evasion purposes, an accused American would be subject to much harsher penalties -- up to a five-year prison sentence, a $250,000 fine, and forfeiture of all property involved in or facilitating each transaction.

Making tax evasion a money laundering crime has been a major goal of the IRS and federal prosecutors for years.

Indeed, money laundering is habitually charged against almost all criminal defendants because its harsh penalties can be used as a chip to obtain a plea bargain. Money laundering laws generally not only carry stiffer penalties as I noted, they are regarded more seriously by courts and make it easier for prosecutors to force defendants to forfeit assets.

Familiar Refrain

A major theme in the continuing anti-offshore smear has been an attempt by tax collectors to equate alleged money laundering with legal tax avoidance. Both the U.S. IRS and the United Kingdom's Customs and Revenue consistently have engaged in this intentional distortion.

Example: In 2006, John Healey, a U.K. Treasury official said: "Tax avoidance and the industry that drives it are increasingly an international phenomenon, and it is vital that we have effective international co-operation to tackle it, as we do for tackling terrorism, organized crime, money laundering and fraud."

Anti-Offshore Prejudice

A U.S. Justice Department witness supporting the bill at a hearing this week had the audacity to claim "the offshore movement of funds for the purpose of evading income taxes can contribute to the development of offshore centers," as though such established places are somehow dependent on tax evasion. Another Justice Dept. official said he and his colleagues assume that any offshore financial activity is probably criminal!

Important Distinction

U.S. courts have repeatedly said that tax avoidance is legal. Tax evasion is not.

The late Justice Felix Frankfurter of the U.S. Supreme Court wrote: "As to the astuteness of taxpayers in ordering their affairs as to minimize taxes, we have said that, 'The very meaning of a line in the law is that you intentionally may go as close to it as you can if you do not pass it.' This is so because nobody owes any public duty to pay more than the law de-mands. Taxes are enforced extractions, not voluntary contributions."

Yet in practice it's not always easy to tell the difference between evasion and avoidance.

The evasion/avoidance line moves with new amendments to tax laws and changes in IRS rules or at the whim of an IRS agent. Yesterday's legal avoidance becomes today's tax evasion, especially in the mind of a zealous federal prosecutor. Even expert tax lawyers cannot always be certain.

What's Ahead

So now can we expect to see criminal indictments for moving funds into an offshore asset protection trust or for purchasing a Swiss life insurance policy or annuity?

The National Association of Criminal Defense Lawyers and the Heritage Foundation, the conservative research organization, criticized the bill as overreaching, and that it is.

All of which underscores the need for you to obtain the very best advice on offshore banking and financial activity -- another excellent reason to join the Sovereign Society.

* Americans are in now caught in a financial twilight zone. For your own sake, we urge you to join the Sovereign Society today and open the door to safe and secure offshore asset protection and investing -- while you still can.