For those who are concerned or fearful
about "going offshore" for asset protection, investments or even for
business, it may be helpful to remember that risk is relative. Jumping
out of a two-story window is certainly high on the risk scale, but if
the building is on fire and you can't get out any other way, the
two-story jump is a lot less risky than staying where you are.
Before discussing some of the ways in
which you can reduce the risk of losing your assets by moving them
offshore, let's look at some of the alternatives and the reasons why an
increasing number of people in the US are moving some of their assets
offshore.
There is a rancorous debate going on
between those who believe there is "no place like home" (the USA) and
those who believe the USA is rapidly becoming a police state in which
our traditional liberties are being circumvented by a host of devious
laws. The USA does continue to offer many economic and personal
benefits not readily available in other countries. We still have the
largest economy in the world with substantial freedom to choose what
kind of work we want to do. There is great freedom of movement within
our borders and we are not burdened by a multiplicity of languages.
While the mass media seems to have an enormous bias toward socialist
policies, it is still possible to write and publish information
critical of the government and its policies. Despite the many
complaints about our medical system, it still offers more choice and
access to care than many other medical care systems in the major
countries of the world.
But there are cancers growing in the
body politic and some fear they are irreversible. One is the so-called
"war on drugs" which led to the creation of a curious felony known as
money laundering. While this law was created on the pretext that it
would hurt the drug dealers, it's become a trap for people who have no
ties to any form of criminal activity. Another casualty of the war on
drugs is the right to be secure in the possession of our property,
which is ostensibly protected by the Fourth Amendment to the
Constitution. With no legal proof, nearly any government agent or
police officer can accuse you of some crime and then proceed to
confiscate any property you have that is remotely connected with the
alleged crime. Abuses of the asset forfeiture laws are becoming
legendary. The recent reform law that was intended to curtail these
abuses is not expected to have much impact. In many federal agencies,
states, counties and cities, revenues from forfeitures are assumed to
be available as a substitute for budgeting the funds to pay for the law
enforcement efforts. Thus, the law enforcement personnel are forced to
create opportunities for forfeitures in order to meet their
budgets.
We have recently passed a unique
milestone according to the Financial Freedom Report. It seems
we now have more people in prison per 1,000 citizens than any other
country in the world . A high percentage of our prison inmates are
there for crimes that do not involve harm to others or any kind of
theft or fraud. They are there because their behavior is not
consistent with politically accepted norms. We have reached a point
where it is virtually impossible for any resident of the USA to be
totally innocent of every kind of crime because there are many
thousands of crimes at every level of government and no one can be sure
they have never violated any of them. For example, did you know it is a
crime to carry any prescription drugs in any container other than the
one provided by the pharmacy?
Those in the USA who are financially
successful are not safe or secure in their possessions for many reasons
-- including a burdensome level of taxation on the well to do. The top
10% of the income earners in the US pay more than 50% of the total
individual income tax. The USA has become a country where those who
work and save are not allowed to keep most of what they have earned.
The mass media and many politicians rail against tax policies that
"favor the rich" -- which really means that the successful members of
society can't keep what they have produced and saved.
Those who are thinking of leaving the
USA for more hospitable countries will want to have some assets
offshore before they are ready to take that step.
Perhaps the best reason to have some
assets offshore is the possibility that the USA will establish currency
controls and will prohibit citizens from taking any assets out of the
country. If that were to happen, few other countries will want you
because they won't want to pay for your care. Affluent refuges are
always more welcome than indigent ones. Even if there never is a
good enough reason to want to leave the USA, there is peace of mind in
knowing that you can if it ever becomes necessary.
And -- there are other benefits in
having some assets offshore.
Access to Foreign Investments:
While there are an abundance of
investment opportunities in the USA, they are not necessarily the best
investments for every investor. There are many investment choices only
available outside the USA. Some of the top mutual fund managers in the
world have formed investment funds outside the USA that are not
available to the US investor. Many of these foreign funds are even
managed by US fund managers.
Financial Investment
Diversification:
For maximum profits there is an adage
that you should "Put all your eggs in one basket, and then watch that
basket closely." This is fine for those who are able to spend all of
their time staying on top of their investments, but it poses great risk
for those who are still working and unable to devote all of their time
to "watching their investment basket."
The alternative is a risk avoidance
method of investing. It's simply an organized system of diversification
to mitigate different kinds of risks. The main kind of investment risk
is the risk of not being able to cash in your investments at full value
at any time. This risk is minimized or avoided by investing in low
yield and liquid forms of savings like money market funds, savings
accounts, short-term certificates of deposit and short-term government
securities. However, those investments are subject to a loss of
purchasing power due to inflation and the income they produce is
heavily taxed. Common stocks, real estate and natural resource
investments tend to provide the best protection against inflation and
they offer some tax deferral, but they are exposed to the risk of a
deflationary economy.
There are in fact many different kinds
of risk besides the most often discussed risk of not being able to get
full value at any time. A diversified investment portfolio would
include investments in different industries, in different countries and
even in different currencies. While you can obtain investments in
different currencies and countries through US sources, having some
investments outside a single political jurisdiction would be another
form of diversification from a different kind of risk.
Global Trade Opportunities:
It's become a cliché' to say
"The world is getting smaller", but cliché's become
cliché's because they are abundantly true. If you want to do
business outside the US, there will be occasions when you need to have
some financial assets outside the US. That may be all the reason you
need to "go offshore".
Safer Banks & Insurance
Companies:
The "free" government "insurance" for
our savings and checking accounts isn't free and isn't insurance. Real
insurance involves a fund of assets that are based on the statistical
likelihood that some event may occur. The premiums paid by all of the
policyholder are based on the averages of the payments to some of the
policyholders. Thus, if one out of 1,000 policyholders is likely to
incur a loss of $100,000, then each of the policyholders would have to
pay $100 to cover their statistical share of that loss. And, insurance
companies don't insure people who are likely to have a claim. That's
why you have to have a physical exam for life or health insurance. You
can't get flood insurance if you insist in living on a flood plane -
unless it's government "insurance".
With government "insurance" there is
no study of the average losses. Instead, when a loss event occurs, it's
paid for from the general funds of government -- which come from tax
revenues. Thus, there is no visible cost to each of those who are
"insured" because it's buried in the total tax bill. Nor is there any
way for the taxpayers to know how much this "insurance" is costing
them. Thus, government "insurance" is never based on any rational
analysis of costs and benefits. A good argument can be made that
government insurance for savings and checking deposits force bankers to
be more aggressive than they would be without the "insurance".
S&Ls and banks compete with each other to offer investors the
highest possible returns on their savings. To the extent that the
depositors are protected by government insurance, the individual banks
and S&Ls are freed form the discipline to be conservative in
investing the money entrusted to them. This encourages more risky kinds
of investing -- such as buying long term bonds with funds that were
derived from short-term deposits. A few years ago, some of the S&L
managers were using their deposits to invest in high risk "junk bonds"
or in speculative derivative and option investments.
Many of the leading international
(non US) banks and insurance companies are far more conservative and
less susceptible to failure than their US counterparts -- because
they don't have the illusion of government backed insurance to protect
their depositors. The US banking system is far more leveraged than many
foreign banking systems because of the federal insurance programs.
While depositors will be protected in the event of a few isolated
failures, there is a much greater risk that the efforts of US banks to
attract deposits with high interest rates based on speculative
investing could cause the entire system to collapse.
It would be prudent for a conservative
investor to have some funds outside the US banking system.
The U.S. Litigation Epidemic
:
One of the major reasons for the
flight of huge amounts of assets outside the US is the run-a-way
litigation and the huge awards that are being granted by US juries and
judges. One publication recently commented that the US has more than
90% of the lawyers in the world and less than 10% of the world
population. We are the only country in the world that permits lawyers
to work on a contingent fee basis and to collect huge fees from
punitive damage awards.
Every law that confers a "right" on
one segment of the population also imposes a duty on everyone else to
subsidize that right. Family medical leave is an excellent example. The
government passes a law requiring employers to grant extended leave for
new mothers and to make their job available to them many months later.
The laws that provide accessibility and accommodations to the disabled
are another example. The cost is paid by businesses that provide
services to the public. The civil rights laws attempt to remedy
discrimination in our country, but the bill is paid by businesses and
employers who are alleged to be in violation of the law. The employer
initially pays for the costs of compliance with all these and other
laws. In addition, whenever an employer is accused of violating any
one of the hundreds (thousands?) of laws, a lawyer is usually close at
hand to sue the employer for damages to the employee.
Anyone who owns real property is
subject to an incomprehensible assortment of laws that protect various
species of animals, birds, and even insects. For a detailed discussion
of the growth of laws in the US, I encourage you to read, The Death
of Common Sense, by Philip K. Howard.
All of these laws give someone the
right to sue you for failing to comply with the laws.
To add insult to injury, the US courts
and juries have become the most generous in the world in awarding
damages to plaintiffs who sue for recovery under these varied laws. The
judges and the juries are sympathetic to the claims of the plaintiff
and look for someone to pay for the damages. Where there are multiple
defendants, the one with the most money usually gets to pay the bill
even if that person or company had very little involvement in causing
the injury. Because of the great risk of large judgments in US courts,
the insurance companies badger their customers to settle to avoid a
trial. This in turn encourages opportunistic lawyers and plaintiffs to
look for some way to sue anyone with insurance. How do they know that
you have insurance? If you have visible assets it's likely that you
have some insurance to protect those assets. However, in some
professions or businesses, the cost of malpractice or product liability
insurance is so prohibitive that the professional or manufacturer must
"go bare" or go out of business.
Growing Loss of Financial
Privacy:
We have become a financially
transparent society. Anyone who is curious about your financial status
can quickly find out what's in your credit records, your real estate
holdings, your business interests and your investments -- often for
less than $100. With the Internet, anyone who wants to invest some time
can get most of this information for a lot less than $100. Government
agencies regularly monitor most of the mobile phone transmissions,
email, wire transfers and other electronic communications looking for
a pattern of messages that might suggest there is some drug or other
criminal activity being discussed. The serious criminals are aware of
this and take steps to protect their communications from prying ears. So
it's often the unsuspecting individual who gets investigated because of
some innocent comments made electronically. The police or DEA come
rushing in and promptly seize everything in sight.
The Magnet of Power:
Who was it who said, "Power corrupts
and absolute power corrupts absolutely?"
The founders of the USA attempted to
create a system of checks and balances so that government would not
become an enemy of the people. But those with political power
frequently don't like the limitations the Constitution imposes on
their powers. Over the last two centuries, they have whittled away at
the restrictions. In 1913, a large group of activist voters convinced
the rest of the voters that we should adopt an income tax system in
order to make those rich capitalists in the Northeast pay their "fair
share" of the taxes. The income tax was sold on the promise that it
would only apply to the very rich and that poor or average income
citizens would never be subject to the income tax. That
amendment to our Constitution was the modern version of "Pandora's Box"
and opened the door to a flagrant disregard of our system of checks and
balances in the Constitution. The income tax system imposes "civil
laws" in blatant defiance of many provisions of the Constitution that
were enacted to protect the public from excessive taxation.
Why does anyone seek to spend hundreds
of thousands or millions of dollars to become an elected Representative
or Senator (or President) when those "jobs" pay a salary that is a
fraction of the cost of getting elected? Oh yes, the supporters of the
candidates pay for the cost of getting elected, right? But why? Don't
they want something? The big contributors expect to get big benefits --
at the expense of someone else. The little contributors and campaign
workers often want someone in power to pursue a single issue like
environmental laws, laws for the disabled, laws that favor the elderly
and other laws that grant benefits to the supporters -- at the expense
of the supporters of the candidates who lost the election.
We have become a cannibalistic society
where we compete in the political arena for the power to impose our
policies on others. Those who mind their own business, work hard
and are thrifty eventually find themselves as the meal ticket for those
who find politics to be more fun and less work. Some of the folks
who have accumulated some assets are beginning to set aside a "stash"
or a nest-egg offshore where it will be safe from the politically
connected parasites in the USA.
For a very detailed discussion of this
process in the form of a novel, I encourage you to read, Atlas
Shrugged by Ayn Rand. While it was written in the fifties, it has
become a prophecy.
Another Reason
To Have Some Cash Offshore
Here's a copy of an email
advertisement I received explaining how this company can locate bank
accounts of debtors in spite of the alleged new banking privacy rules
in Senate Bill S 900. Forget about saving taxes offshore. If you don't
want potential plaintiffs to quickly and easily find out how much
money you have in your bank accounts, then you don't want to have all
your bank accounts in the U.S. where these folks can find them.
"Bank Asset Searches Are Back -- using
new search techniques that are in full compliance with new federal
legislation (Senate S.900) -- Recent federal legislation restricted the
manner in which certain asset searches could be conducted, especially
those relating to "liquid assets", such as bank accounts, investment
accounts, etc. With more than ten years of experience in the asset
search field, our investigators have developed new search techniques
and procedures that are in full compliance with current federal and
state financial privacy laws. We can once again provide our
well-known Enhanced Bank search and Investment Account search using
these new techniques. Our seasoned asset searchers have been
instrumental in identifying more than $2 billion of debtor assets. Our
well-known "no-hit/no charge" Bank Account Locator search has been
instrumental in locating millions (and millions!) of dollars of debtor
assets, and it's still priced at just $125. Our basic asset search
packages, such as our Level 2A (conducted on an individual) and our
Level 2C (conducted on a business entity) are priced at just $325. To
obtain our catalog of asset searches, please contact us at
800/675-6636."
Senate Bill 900 is the Gramm-Leach-Bliley
Act which seeks to facilitate affiliation among banks, securities
firms, and insurance companies. It's a very large bill and it does
include some privacy provisions in the index but I was not able to
locate the actual text of those provisions. The bill has been passed by
the House and Senate and a conference report has been sent to the
President.
