19 SECRETS OF OFFSHORE BANKING OFFSHORE BANK ACCOUNTS: PERSONAL AND CORPORATE

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Having an offshore bank account can be the core of your offshore financial

life. With it, you avail yourself of the many banking, financial,

and investment services that your bank has to offer. Simply having an

account like this can be significant, depending on which bank you are

with, and in which country it is located. And, of course, an offshore

bank account is legal. In Part Four, you will find several good sources

for locating banks anywhere in the world. To determine the financial

standing of any bank, visit www.fitchratings.com.

It is said that history repeats itself. For tens of thousands of people

in the past 50 years alone, establishing an offshore or foreign bank account

has been a way to ease their tax burden and protect assets, if not

actually to survive and escape the clutches of totalitarian governments.

It is a simple means to provide financial security during times

of warfare and economic and political instability. With such an account

in place, you can move funds offshore anytime, in advance of

what might become your sole nest egg and financial life jacket in a

state of uncertainty or even emergency.

Having money invested outside your own country is also a way to

avoid the unforeseen possibility of currency exchange controls, a

means governments use to keep your money from leaving the country.

This is a virtual act of oppression and could become a first in a series

of steps designed to gain more control of citizens, including their

free, physical movement. If your country has imposed currency exchange

controls, you should hope that your money, assets, and income

are already outside your country. This is an important reason to go

offshore before such restrictions are imposed. A government that is intent

on such measures is not likely to make an advance announcement,

so you need to recognize the signs. If travel becomes more restrictive,

new identification methods are imposed, financial reporting requirements

are tightened up, then your liberties are diminishing and exchange

controls may be on the horizon. Once your money is safely

outside the country, you will achieve financial peace of mind. And,

should you wish in the future, you are only one step away from being

able to leave altogether.

There is a tendency to believe that the closer you are to your bank,

the more secure is your money. This is a fallacy. Aspects that make

your money safer are the strength of your bank, the currency held,

and the stability of the jurisdiction in which the bank is located.

The strength of the bank is not how much it has in assets, but how

liquid it is—how much cash is on hand, or cash equivalents that can

be converted into cash quickly to meet demands. If the bank can pay

off its immediate demands, including depositors and debts and still

be in a cash position, then the bank is liquid. Banks in the United

States are notorious for being far from liquid, and this is why many

had to close when there was a run on the banks in the Great Depression.

The banks were not up to the demand when a significant number

of the depositors wanted their money. The banks were not liquid,

and who was the loser?

Not much has changed in the United States since then. And, don’t

count on any government’s “guaranteeing” agency to bail the banks

out. In the early 1980s, we saw the Federal Deposit Insurance Corporation

(FDIC) go under and it didn’t take too many shaky banks to

cause that problem.

On the contrary, many banks in Switzerland, Liechtenstein, and

other bank havens are very liquid, sometimes by hundreds of percent.

Liquidity of 100 percent or better is ideal. And, these are some of the

most stable countries in the world. A government’s policy on the reserves

that a bank is required to maintain, and the country’s own fiscal

practices, including reserves backing their currency, are what help

to make a country economically stable. It is no wonder then that the

Swiss franc has been by far the most stable currency in the world, even

surpassing the Japanese yen, and the former German mark. When

shopping for a bank or a country to bank in, these are important factors

to consider. In the case of Switzerland, its neutrality has contributed

to its political stability.

Many types of accounts are available in a variety of currencies. You

may want to open one account first, then open additional accounts as

needed. The basic account in a foreign country is a current account,

which is a demand account, like a checking account in the United States.

The multicurrency account is a demand account also, likely with checks

written in any of the currencies offered. Then, there is the interestbearing

deposit account, similar to a savings account. A combination of

these two types of account would be a twin account, incorporating features

of both. A fiduciary account is useful if you would like to invest

anonymously, as the bank will keep assets in their name; also in this case,

the bank can establish accounts in foreign countries for investing on

your behalf. By doing this in Switzerland, you would avoid the 35 percent

withholding tax referred to elsewhere. For higher interest rates, you can

purchase Certificates of Deposit (CDs) that can be denominated in many

different currencies, are usually in bearer form, and are easily transferable.

Foreign currency CDs are also available for different lengths of

time up to five years. Usually there is no withholding tax on CDs, and

you can be earning interest payments tax-free. A precious metals account

can be set up to buy gold, silver, platinum, and other precious metals on

your behalf, and the bank will store them for a small fee in their vault, or

you can place them in your safe-deposit box. Larger banks can provide

an investment account to invest in mutual funds or commodities in your

name. Managed accounts are popular with high net worth individuals. The

bank can invest on your behalf, in their name, and will act on your investment

instructions by letter, phone, or fax. The minimum to open this

type of account is $250,000, but in Switzerland, more typically it is

$1,000,000. The bank will hold securities and other valuables in a custodial

account or safekeeping account, which is segregated from the bank’s assets,

and the bank will manage the assets on the customer’s behalf.

The bank will offer many other services as well, such as commercial

loans, real estate loans, consumer credit loans, foreign currency

exchange, letters of credit, money transfers, bank drafts, traveler’s

checks, debit cards, credit cards, safe-deposit boxes, and more.

Then there is the corporate bank account. If you have an offshore

or foreign corporation—in particular, an operating company—you

will likely need a bank account. Basically, the same features regarding

bank accounts apply to corporations with a few variations, and also

with some advantages. The opening of the account will require additional

paperwork, a few more questions, and a corporate resolution or

two. The advantages of a corporate account include that the company

is an independent entity and so are its accounts. As the account is

under the name of the corporation, bank records will reflect this, and

your name will not be readily identifiable by account names. Should

you wish to change signers, you merely advise the bank, provide them

with the usual required documents on the signer(s), and answer the

usual questions, and there should be no problem in making the

switch. The account continues in the same company name. If coordinated

properly, there should be no interruption of banking service.

Many banks are listed in Part Three. Due to the restrictions imposed

on U.S. taxpayers and pressures from the U.S. government,

some foreign banks and financial institutions do not care to do business

with U.S. citizens. This is unfortunate, but there are still many

who are willing to do business.

As for minimum opening deposits, these have gone up considerably

in recent years, and in some of the more attractive banking

havens like Switzerland, they are generally high, as in the neighborhood

of $50,000. There are still some where an initial deposit of

$25,000 will open an account, such as the Union Bank of Switzerland

(UBS), but you should think twice about banking with this bank or

any other bank that maintains an office or branch in your home country.

In the case of UBS, the U.S. government put pressure on them,

and because they had a presence in the United States and were doing

business there, the bank agreed to provide what the government

wanted regarding U.S. depositors with accounts in Switzerland.

That said, the cantonal banks, which are more like community

banks and are chartered in individual cantons in Switzerland, require

much smaller opening deposits; you can probably open an account

with as little as $5,000. Barber Financial Advisors can open a Swiss account

for clients with no minimum initial deposit required if no credit

or debit card is needed. There are banks in other T-7 tax havens where

you can open an account for as little as $1,000, such as in Belize. If

you have trouble finding the right bank for your requirements, visit

www.barberfinancialadvisors.com for more information.

Most banks today are complying with the “know your customer”

practice. Expect to be required to prove your identity with professional

references, a copy of a certified passport and other photo identification,

a copy of a utility bill, and explanation of where the funds

to open the account originated, how you earn your money, and where

future funds will be coming from.

Other than supplying this information, you will need to complete,

sign, and submit the usual banking forms. These will vary by bank,

but may include a signature card, a customer information questionnaire,

verification of account agreement, an agreement regarding the

operation of the account, a fax authorization form, and so forth.

When the bank informs you that your account is open, they will

give you the account number and you can arrange to transfer at least

the minimum opening amount required. This can be in the form of a

bank wire transfer to the new account, or you may send a negotiable

instrument for deposit, such as a check or draft. However, the bank

will put a hold on the funds until they clear or are collected,

whichever the case may be.

As a result of these beefed-up requirements, the time to open the

account may take longer than expected, so work on opening your account

in advance of needing it. Once you are established with the

bank, opening subsequent accounts will be easier and faster. It is

good to establish a personal relationship with a contact at the bank

on whom you can rely for assistance when needed.

There are many ways to communicate with your new bank—by telephone,

mail, fax, or online. If by telephone, you will come up with an

identifying password that only you and the bank will know. This, coupled

with other information about you or the account, will identify who

you are. Then, if you have a personal banker who knows you and your

voice, verbal telephone instructions are possible. Fax instructions are

generally accepted, but you must sign a hold harmless agreement. Some

banks have a clever system providing you with a series of codes in advance.

Each time you send faxed correspondence you change the code.

Remember, there are U.S. reporting requirements of foreign bank

and financial accounts by U.S. taxpayers (see Chapter 25 for a review

of the various requirements).

It is perfectly legal to maintain multiple bank accounts, each with

less than $10,000, and avoid the requirement to file U.S. Treasury

Form 90-20.1, Report of Foreign Bank and Financial Accounts. This is

not considered structuring as defined by the Anti-Money Laundering

Act of 1986, as this reporting requirement came into effect with the

Bank Secrecy Act of 1970, and no provisions with regard to structuring

were incorporated into that act.

Keep in mind that currency exchange rates, which f luctuate daily,

could throw you over the $10,000 reporting threshold if your currency

holdings appreciate. Official exchange rates are required to determine

the value of the currency you have on deposit. You may want to

lower the maximum amount you maintain in the account(s), so you

don’t exceed the $10,000 limit unknowingly.

78 BUILDING A SOLID OFFSHORE FINANCIAL FORTRESS

OFFSHORE CREDIT CARDS AND DEBIT CARDS

Credit cards are available from many banks in the T-7 havens and

other tax havens. Debit cards are also available on existing accounts.

Offshore credit and debit cards can be issued to you personally or to

your offshore corporation. There is an additional level of privacy

with the corporate version, if just the company name is embossed on

the card. But both are plastic, and regardless of the issuing bank or

the bank’s location, if they happen to be Visa, MasterCard, or American

Express, they are American companies. In extraordinary cases,

as described in Part One, they can be subject to access by the Internal

Revenue Service. Also, you may have a difficult time in some circumstances

with a company card due to personal identification

requirements. When that is not required, particularly in the case of

debit cards that typically only require knowing the pin number, the

cards will work fine. These cards make it convenient to access your

offshore accounts for cash and through purchases and are quite useful

for those reasons.

However, use of the cards can be a red flag. The offshore debit

card is attached to an underlying offshore bank account, and if this

account has not been reported, as required, you could end up with a

major problem (see Chapter 25). As previously mentioned, there are

severe civil and criminal penalties in certain circumstances for not reporting

an offshore bank account.

With offshore credit or debit cards, remember, if nothing else,

your privacy is compromised when they are processed by those American

credit card brands.

There are also offshore prepaid Visa “credit cards” that you can

purchase from certain offshore banks for a fee and can use worldwide

just like a debit card at ATM machines or for purchases wherever you

see the Visa symbol. It is not a traveler’s check or an actual credit

card. Your entire financial transactions are available online. The

amount charged is withdrawn from the cash balance up to the card’s

limit. These cards are available for as little as $500, and in $500 increments,

up to $10,000. You have the same asset protection with a card

like this as you would with an offshore bank account from the bank of

that country. By far, this surpasses any prepaid card or bank account

available in the United States for gaining asset protection for your

cash while still having easy access to it.

For further information on offshore credit, debit, or prepaid

cards, visit www.barberfinancialadvisors.com.

TAX-FREE COMPOUNDED INTEREST

The best way to maximize your investment earnings is through compounding

your earnings, tax-free.

This brings to mind my great-grandfather, Herbert Lee (“H.L.”) Barber

of Chicago, an economist and investment writer, among his many

other successful roles in life. H.L. was a great advocate of compound interest,

before and after the passage of the 1913 U.S. income tax. He espoused

his investment and economic philosophies in two of the three

books he wrote. These were Making Money Make Money in 1912, and Investing

for Profit in 1917, both published by Munson Press, Chicago, Illinois.

H.L. liked Benjamin Franklin’s quote, “Money makes money, and

the money that money makes, makes more money.” But it is difficult for

this principle to be terribly effective when you are paying astronomical

taxes. Aside from the transfer of wealth that takes place, as in the case

of inflation, this is also a way to keep the populace from getting ahead.

It has been said that Howard Robard Hughes, the famed billionaire

and aviator, could have put his original inheritance in a savings

bank and made as much or more money than he did through all his

many ventures over the years. In other words, his original inheritance

would have grown into a couple billion dollars, over the course of his

lifetime, just from the interest compounding from about 1924 when

he inherited, to his death in 1976, particularly if it had been compounding

tax-free. According to his accountant, Noah Dietrich, the

value placed on his inheritance at the time of his father’s death was

based on the net worth of his acquired interest in Hughes Tool Company,

which had a market value for estate purposes of $660,000. Of

course, had he chosen this path, humankind would have missed out

on thousands of important advancements that were a direct or indirect

result of his personal interests, efforts, passions, and business

pursuits. And, I daresay, he would have had far less fun!

To name another luminary, Albert Einstein once said, “The greatest

principle in the universe is the power of compound interest.” Need

I say more?

So, what is the point of all this? Well, the concept of compounding interest

is one of the great advantages to going offshore, while it is not the

primary reason most people do so. However, by using some of the financial

vehicles and strategies put forth in this book, you, too, can be building

a fortune offshore, if you truly wish to, even in today’s adverse

economic climate. Compounding, preferably tax-free or at least taxdeferred,

is a fundamental principle often overlooked by many. Debt, and

its cost, also compounds quickly, and it can put you in the poorhouse.

This is why the general public needs to better understand the underlying

principles of their actions and choose the course that will keep them in

the positive column, and not the negative. Bad choices have put not just

the public, but also the government of the United States into serious debt.

Fortunately, you still have a chance to take your money and assets offshore,

even if only some of it, where it will be protected from creditors

and confiscation, and have a chance to build into something worthwhile.

BACK-TO-BACK LOANS

This a good way to bring some of your money home when needed while

maintaining your principal securely in your offshore account. You simply

negotiate with your offshore banker to arrange the loan, which is

fully collateralized by funds on deposit. The interest rate on the loan

will be the “spread,” a rate between the maximum and minimum

going interest rates at the time of borrowing. This is a tax-neutral private

transaction. Back-to-back loans can also be arranged for your offshore

corporation and used for business purposes, or loaned to the

beneficial owners, either directly from the bank where the funds are

held on deposit, or made through a correspondent of the bank, adding

another degree of confidentiality. And, the beauty is you are not going

to pay taxes on the borrowed money. The low cost to get your money

onshore is worth the expense. In fact, the cost could be utilized as a

business expense. This method is perfectly legal, but it is always wise to

use discretion in all offshore financial matters.

PERSONAL ASSET MANAGEMENT

Chapter 22 describes how personal asset management is addressed in

Switzerland. Basically, the same plan can be administered through

other stable tax havens, but, this would require studying the advantages

and disadvantages among the various jurisdictions. You would

then choose a capable bank, keeping in mind the individual merits of

the bank and its experience with international investment management.

Most banks that provide this service require a minimum of

$250,000 to begin. The asset portfolio can be placed in a trust structure

or insurance wrapper like an offshore life insurance policy. You

will still need to satisfy appropriate U.S. reporting requirements.