If you’ve been keeping up with the stories about the Panama Papers in the mainstream media recently, you’d be forgiven for equating the word “offshore” with tax evasion, money laundering, and other criminal behavior. But there’s one small detail the media isn’t disclosing: The vast majority of the individuals whose confidential financial data was stolen weren’t doing anything illegal. According to the International Consortium of Investigative Journalists (ICIJ), which coordinated the review of the documents, more than 320,000 offshore entities appear in the leak.
Despite all the rhetoric out of Washington these days, you can bet we will see tax hikes this year. They might not be overt. Instead, we could see stealth taxes go up first…parking fees, garbage collection, vehicle registrations and the like.
FATCA, officially known as the Foreign Account Tax Compliance Act, is probably the worst law that most Americans don’t know about…especially if you’re a U.S. citizen thinking of investing outside the U.S. It basically requires you to tell the U.S. government a yearly breakdown of all financial accounts you hold outside the country—from bank accounts to companies to rent-producing real estate.
Not that long ago, you could buy a CD in a U.S. bank and get a decent rate of return…4% or 5% annually was typical. Sure, you wouldn’t get rich this way. But it was a safe and affordable way to build a nest egg. Today of course, times are very different. For nearly a decade, the Federal Reserve has kept interest rates at zero. And instead of paying 4% to 5% annually on CDs, now you’re lucky to get 1%.
Contrary to popular belief, you don't have to have bags of cash to open an offshore bank account. Even if you invest a few thousand dollars in a non-U.S. bank, you can still avail of several key benefits of offshore banking. Benefits like...
There are many countries around the world that offer you the right to residence without having to be physically there. The biggest benefit of having residence in another country is the ability to avail of offshore and financial protection strategies that would otherwise be unavailable to you as an America citizen.
One of my favorite scam stories is of the German lady living in Paraguay. Claudia Bettina Muller was arrested last year for printing fake passports in her basement. Police found printing and engraving machines, along with boxes of blank passports and counterfeit government forms. But before I had ever heard of Claudia Bettina Muller or the Paraguayan police caught up with her, I had heard of this scam. I had come across a speaker at an event in Nevada who claimed he could get anyone in the attentive audience a Paraguayan passport in as little as a month. This was possible he maintained, because he had high-level government contacts. The cost was only $45,000. (That's half of what any of the second citizenship programs I work with charge.) Right then, as he spoke, I knew it was a scam.
Why take your assets offshore with an international structure? Simple. It can make your assets virtually invulnerable to civil judgments. It can also protect you from risks such as civil forfeiture, exchange controls, repressive legislation, or political instability. It's more difficult for creditors to collect against international assets. No country automatically enforces U.S. civil judgments. Many countries don't enforce them at all. If you live in the States, a U.S. court can order you to repatriate your international assets. But if you've set up your structure properly, you won't have the power to bring the funds back. And that's a fantastic incentive for a creditor to settle the lawsuit.
In 1986, I walked into the main Credit Suisse branch in Chicago and told the doorman I wanted to open a Swiss bank account. I was led to a private office overlooking the Chicago skyline and was asked for my minimum deposit. Being just 31 at the time, I played it conservative and started with just $2,000 (about $4,300 in today's dollars). I was asked to fill out a one-page form and provide a copy of my driver's license. I gave him a check and away I went. It took all of 20 minutes. In 1986, "offshore" was still exotic. It was something regular people didn't really do. How things have changed in 29 years.