The word "apartheid" means "separateness" in Afrikaans, once the official language of South Africa and the native tongue of many of its minority white citizens. As the world knows, it also describes an official policy of racial segregation formerly practiced in South Africa.
But the meaning of apartheid has broadened over the years and now includes any official government policy or practice of unjustly isolating or segregating groups of people from others.
You may not have experienced it yet, but there are tens of thousands of Americans already suffering under what can best be described as a diabolical "financial apartheid" -- disruptive rules being imposed on Swiss and other offshore banks by the U.S. Internal Revenue Service (IRS) and the U.S. Securities and Exchange Commission (SEC).
These IRS-SEC policies are wrecking havoc among Americans who live or bank offshore. Many justifiably upset Swiss and other offshore banks are closing existing accounts of U.S. persons and refusing new American clients. Unless there is some change, other offshore banks soon may follow suit.
Yankees Go Home
In my opinion, Swiss bankers have concluded they don't need or want Americans any more, with all that costly and legally dangerous U.S. government red tape.
Despite fears, Swiss private banking is in better shape than it looks. Swiss private banks have pulled in a lot of new money over the past two years, despite the recession and controversy over bank secrecy. Most Swiss private banks continued to report inflows even as assets under management lost market value.
Much of the new money coming into Switzerland is from regions such as the Middle East, Russia and Asia, where personal tax rates are low. Obviously foreign clients continue to value Switzerland for its security, political stability and stable currency.
But for Swiss banks the IRS and SEC are making Americans into financial pariahs.
Five Million American Expats
It is difficult to say how many people are affected, but more than 5 million Americans live abroad, including about 30,000 in Switzerland.
The unreasonable U.S. government demands caused UBS and Credit Suisse, Switzerland's two largest banks, months ago to order Americans to move their money into specially created banking units that are SEC registered or located in the U.S. Failing that, the banks closed the accounts. UBS alone has cut loose its 52,000 U.S. clients.
Many smaller private banks, such as the respected Geneva-based Mirabaud & Cie, also are shutting down U.S. accounts.
As part of a U.S. Department of Justice deferred prosecution agreement on charges UBS conspired to defraud the U.S. of taxes, the bank gave limited U.S. client data to the IRS and paid a fine of $780 million. The unappeased U.S. DOJ then sued UBS again, this time demanding 52,000 names of alleged American clients. A hearing on this demand is scheduled in federal court in Miami in a few weeks.
Compounding the nervousness of notoriously conservative Swiss bankers, the IRS is threatening to sue other Swiss banks to obtain their U.S. client records. Apparently the IRS assumes any American with an offshore bank account is a tax evader.
Americans as Typhoid Mary
The IRS also has increased pressure on Americans to disclose offshore accounts, setting a deadline of Sept. 23 for taxpayers to declare all foreign accounts or face possible criminal prosecution that could result in as much as 10 years in prison and $500,000 in penalties.
IRS proposals on new QI rules (see below) will increase the cost of compliance and the risk of violating U.S. laws, says Charles C. Adams, (right) managing partner at the law firm Hogan & Hartson LLP in Geneva.
"American citizens are starting to feel like they’re Typhoid Mary," said Adams who hosted a 2008 fundraiser for Barack Obama. "The Swiss simply don’t want American customers because it requires so much infrastructure and hassle that they don’t make any money."
U.B.S. Loved Obama
As I noted here last year at a U.S. Senate hearing in July, 2008 then Senator Barack Obama complained that "Ordinary Americans pick up the slack for tax cheats who hide assets in offshore tax havens, often with the help of foreign banks like UBS…"
When he made this pious statement now President Obama knew that one of the most prominent UBS executives, Robert Wolf, CEO of UBS Americas, (above with the President at the White House recently) already had collected and bundled more than $370,850 in campaign contributions for Obama’s presidential campaign, making UBS Obama's fifth largest corporate donor.
Judging from what Obama’s government has done to U.S. since taking power, this was yet another very bad investment for the geniuses at UBS.
Qualified Intermediaries or Spies?
The current unprecedented disruption for Americans banking in Switzerland results in part from the little known IRS "qualified intermediary" (QI) program that began in 2001.
In its current form, the QI program allows participating IRS-approved foreign banks to maintain accounts for American clients without having to disclose their names to the IRS. (U.S. persons already are required by law to report all offshore accounts on their annual income tax IRS Form 1040 and on Form TD F 90.22-1 – Report of Foreign Bank and Financial Accounts).
Until now the IRS has required the offshore QI banks to promise to identify U.S. clients, withhold any taxes due on U.S. securities in their accounts, typically a 30% tax, and send the taxes owed to the IRS. More than 7,000 foreign banks participate in the QI program supposedly helping the IRS to keep track of American offshore investors. But now the IRS claims each year it is losing millions of taxes owed under the QI system.
As I explained here, in 2009 the IRS proposed tough new QI rules, to take effect in 2011. Under these much stricter rules foreign banks in the QI program will be forced to investigate, determine and report to the IRS, not only the names and information on individual U.S. offshore account holders, but also on any legal entities (trusts, corporations) Americans control as beneficial owners.
In effect the IRS wants offshore banks to act as financial spies on Americans who bank offshore, just as the PATRIOT Act already requires U.S. domestic banks to spy on their clients and report "suspicious activity" to the U.S. Treasury crimes unit.
SEC Extends U.S. Law Offshore
But there's another cause of this Swiss-American banking mess and it comes from the same U.S. SEC, that wonderful bureaucratic agency that wouldn’t investigate Bernie Madoff even when his fraud was explained to them in detail.
The SEC accused UBS with helping its U.S. clients to evade taxes, but it also charged that the bank’s actions that had occurred within Switzerland amounted to the bank acting as unregistered investment advisers and broker-dealers in violation of the U.S. Investment Advisers Act of 1940 and SEC rules. Using this novel extraterritorial approach, the SEC thus has extended its jurisdiction to include any person anywhere in the world who dares to advise Americans about investing before registering with the SEC.
In settlement, UBS paid $200 million to the U.S. and permanently was barred from acting as investment advisors or broker-dealers for American clients in Switzerland.
Blackmail by Regulation
Up until now offshore banks and investment advisors could avoid SEC registration by having absolutely no contact with and never soliciting potential U.S. clients. Because of this previous SEC interpretation of registration rules, careful offshore banks and financial advisors would not even respond to inquiries from a U.S. postal or email address.
The UBS case seems to mean that Swiss or other offshore banks now must register with the SEC, an onerous and costly process, in order legally to provide advice to American customers with offshore investment or bank accounts.
"My bank doesn't want to do that, so we wouldn't accept an investment account for a U.S. person," said Pierre Mirabaud, chairman of Mirabaud & Cie (left).
For Americans with Swiss accounts, SEC registration by their bank also means they must waive the protection of the 1934 Swiss bank secrecy law that makes it a crime for money managers to disclose the names of clients without their consent.
It appears that international blackmail by U.S. regulation is achieving what the IRS and the OECD has long demanded – an end to Swiss bank secrecy, at least for Americans.
Obama’s Tax Hunger
How can these astonishing developments be allowed to occur in a modern banking and financial world system linked by globalism?
Ravenous for tax dollars to finance President Obama's costly remaking of America, it appears the IRS has orders to adopted as official policy the kind of radicalism expressed by Jack Blum, (left) a paid IRS "consultant on tax evasion," who told The New York Times: "There is no legitimate reason for an American citizen to have an offshore account...When you go offshore, you are doing so to evade rules, regulations, laws or taxes."
Indeed, I personally heard a top U.S. Justice Department official make a similar statement that traditional internal DOJ policy assumes that any American engaged in offshore financial activity is probably doing something illegal.
So much for presumed innocence until proven guilty!
Over the years the IRS repeatedly has tried to scare all Americans with deceptive publicity campaigns that insinuate that banking and investing offshore is somehow un-American and even illegal -- when in fact it is fully legal (a least for now), so long as offshore activities are reported and taxes paid on all worldwide income.
Congress Wakes Up
So drastic have the IRS/SEC extraterritorial measures become that even the U.S. Congress has taken notice.
In bi-partisan opposition two members of the U.S. House, Rep. Carolyn Maloney (left) and Rep. Joe Wilson, (below) wrote a May 27 letter to Treasury Secretary Timothy Geithner pointing out the obvious, that if QI requirements are extended beyond investment accounts to cash or deposit offshore accounts, "taxpaying Americans living abroad will have no place to bank" -- which is exactly what is happening.
"If neither foreign nor American banks will take American customers, how will the millions of citizens living abroad bank." asked Maloney, a New York Democrat, and Wilson, a South Carolina Republican, co-chairmen of the congressional Americans Abroad Caucus? (Email your U.S. senators and congressman and let them know your opinion).
Legal Solution for You
At the Sovereign Society fortunately we saw this coming. Over many months we have responded to scores of complaints from Americans affected by these outrageous Obama policies.
Our executive director and marketing directors, Erika Nolan (left) and Shannon Crouch, meet regularly with Swiss and other offshore bankers. We now have in place agreements with reputable Swiss banks willing to accept new accounts from those who identify themselves as Sovereign Society members.
These arrangements are in full compliance with IRS and SEC rules and with other U.S. laws. It also means that a U.S. client must sign an IRS Form W-9 that allows an offshore bank to report required information to the IRS.
As it has been since our founding 11 years ago, our staff is available to assist in opening a Swiss or other offshore account.
Take advantage of these special Swiss banking arrangements -- sign up here for Sovereign Society membership. Once you are a member, you can contact us for help via email at info@sovereignsociety.com
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