by Dave Robertson, Capital Conservator Group

Imagine the setting: A beautiful tropical island, no clouds in the sky and palm trees gently swaying in the breeze.  Wealthy, well dressed people are sipping an exotic cocktail in the shade, their luxury yachts nestling in the harbor. An expensive car pulls up and a man with a white suit steps out with a large suitcase which he proceeds to take into the bank opposite the sidewalk. The scene cuts to the manager´s office where the well-dressed man clicks open the case to reveal stacks of 100 dollar bills …. A sly smile creeps across the manager´s face …..

A good setting for a 007 movie maybe, as well as being many people´s image for how the offshore banking industry works. However, that particular scenario does not exist – indeed it never has and the fact that it remains a popular idea in Hollywood movies and works of fiction only goes to prove how poor general understanding of the offshore industry actually is.

Offshore banking has a certain stigma attached to it which is usually a result of people referring to it loosely without really understanding what it is. An offshore bank account is simply an account which is located in a different jurisdiction to that in which you are registered as a business or citizen, is completely legal and if you have ever lived abroad the chances are that you have, or have had, one of your own.

Historically there are many reasons, legitimate and not so, for opening an offshore bank account, as they provide a range of financial and legal advantages including:

-Greater privacy for the holder

-Lower tax rates (as they are usually located in so called ´Tax Havens´)

-Protection against financial and political instability as well as threats against your wealth – such as lawsuits

These are legitimate reasons for having an offshore bank account but, sadly, offshore banking has been linked with criminal behavior based on scenarios from movies, government agendas as well as the fact that there are a number of individuals who intentional use offshore banking and try to take advantage of banking secrecy to further an illegal enterprise, launder money or the proceeds of crime as well as intentionally attempting to evade taxes.

Sadly, nowadays it is much more difficult to bank privately offshore in a secure and confidential way. The terrible events of 9/11 led to the enabling of The USA PATRIOT Act, an act that was supposedly designed to allow the US Government to find and trace funds used for financing terrorism, but was a rushed act which destroys privacy and financial freedom for the everyday individual. The global financial crisis has worsened the situation and a global hunt for ‘tax evaders’ has been gathering pace since the seriousness of the global financial crisis emerged – and it has been high on the agenda for the G20 with no less than the U.S. President Barack Obama constantly bringing the issue up in speeches.  Action against notorious ‘tax haven countries’ is being demanded by the economic super-powers, with the OECD (Organization for Economic Co-operation and Development) being the bureaucratic forefront for this global crackdown.

The result of this is that traditional, simple offshore banking simply no longer works. Traditional tax and money havens are giving in to pressure from the OECD (Organization for Economic Cooperation and Development) which represents the richest countries with the highest taxes and are signing Tax Information Exchange Agreements (TIEAs) which cut through banking secrecy – sometimes on a retrospective basis.  The proposed introduction of The Foreign Account Tax Compliance Act (FATCA), which requires foreign banks to report and disclose U.S. interests in foreign financial institutions, in just under a year, will be yet another step towards eliminating financial privacy, despite the opposition of many large foreign banks.

The result of these developments is that banks in traditional offshore havens will not open accounts without in-depth information on the beneficial owner so one is forced to provide officially certified photo IDs and proof of residence information for whoever is the ultimate beneficial owner or beneficiary of the funds.  Whether the account is in the name of a company, trust or foundation, it makes no difference once the ownership of the funds is acknowledged.

The very concept of offshore and ´secrecy´ as it was up until fairly recently, was born with the Swiss Banking Act of 1934 in which secrecy was paramount for the Jews escaping the terrors of the holocaust, offering them financial anonymity – but the recent global crisis is simply another excuse for first world governments to attempt to pierce the very fabric of financial privacy in an attempt to extract all the tax possible. Banking secrecy is now being pierced constantly and the need to think differently is paramount. One only need read the financial news to see how, and how often, this is being done.

Switzerland has been the country most heavily under fire as it is seen as the flagship of offshore banking, and high profile cases involving some of its largest banks have not helped matters. In 2009 UBS admitted to helping wealthy U.S. clients to evade taxes and paid a USD 780 million fine, before agreeing to hand over the financial details of 4,500 of its U.S. customers in a direct violation of Swiss banking law. Last year Credit Suisse was investigated for encouraging U.S. citizens to evade taxes and 4 employees have been subsequently arrested while the case being built continues. The Swiss and the U.S. are currently in tax exchange agreement discussions.

Another country which has become unsafe for banking is Panama, which represents a perfect case study of a changing financial climate and the idea that what is safe today may, by no means, be safe tomorrow. Panama had been seen as off the map and a safe bet while Switzerland crumbled under the constant pressure from the OECD and G20. For this reason the 30^th November 2010 presented unwelcome news as Panama followed the trend of other countries in signing away the very concept of confidentiality.

The signing of a TIEA on the aforementioned date was unwelcome news, although not disastrous as TIEAs are often seen as symbolic and there are very real doubts as to their actual effectiveness. The terms of this particular TIEA gave greater cause for concern, however, as under the terms of the agreement both governments are able to gather financial and tax information which can be back-dated 3 years (as far as Nov 30^th 2007 if requested from the date of signing). Panama, a country which had previously stood-up to outside pressure, had sold out spectacularly.

Many, myself included, have identified the theft of confidential financial information from banks as a real starting point for this pressure being placed of the large financial institutions in traditional tax havens. The issues were really forced onto the front pages by the theft of confidential client data from HSBC in Switzerland by former employee Herve Falciani, with around 24,000 accounts (15,000 of which were active at the time) said to have been affected. Falciani passed this information to the French authorities, who indicated they had no problem using this information. On top of this the German government got involved stating that they would have no problem paying for, and using, stolen bank information, indeed they purchased information stolen from Liechtenstein trust company LGT Treuhand by a former employee.

I am sure I am not alone in feeling uncomfortable with this particular development. While offshore accounts are, undoubtedly, used regularly for criminal purposes, there are many legitimate reasons, confidentiality and locating assets in a politically and economically stable region being two, for placing money in an offshore account. The use of stolen data places everyone in the ´under suspicion´ category – the concept of innocent until proven guilty is well and truly dying. Are we really ready to advocate the concept of paying a criminal for stolen data at a time when there are fully regulated KYC structures in place? The moment you create a market for this type of data is the moment you encourage the theft of such data – a crime the last time I checked …

All of the above shows that simple offshore banking simply isn´t effective anymore, government pressure, TIEAs, disgruntled employees and back-dated agreements all put your financial privacy in jeopardy and leave you exposed, but there are alternatives available which offer levels of protection and can guarantee that your financial privacy remains truly private, the concept of Private Trust Banking.

A traditional trust is an agreement whereby property or assets are managed by one person (The ´Trustee´) on behalf of another (The ´Settlor´). The concept is simplistic but getting a third party involved is the very basis on Private Trust Banking and eliminating the problems and dangers which now exist in the world of simple offshore banking.

The key to asset protection nowadays is diversifying, spreading your assets out in different ways and protecting them intelligently. As an offshore accounts is no longer effective, it is now necessary to include multiple jurisdictions, currencies AND layers of protection between your assets and those searching for them. Private Trust Banking can be compared to ´cloud computing´ which involves spreading information around in a dis-connected way. A simple way to do this is to have a third party financial institution involved, such as Capital Conservator, which can set up an LLC in the name of a trust in a different name. There is already a layer of protection between your assets and the bank. The company is not in your name, but holds the assets. The benefit of this is that if a government leans on the bank to provide information, it can only provide the name of the trust and not the client. There will be delays involved in following up in which time additional layers, in different jurisdictions, can be created, or the assets can simply be moved somewhere else.

The outcome of this is that your assets and personal information can be held in different jurisdictions, protected by different laws, and are disconnected. For a government or tax collection agency it is extremely complicated to get the cooperation of various jurisdictions just to find out if there is anything worth seeing. The more complicated a case is, the less likely it is to be pursued as government agencies are under pressure to maximize their results. The term ´wild goose chase´ is one way to view the task of attempting to pierce a Private Trust Banking structure.

It is worth noting that this is not an open vehicle which can be abused. One of the problems of the offshore industry is that of criminals trying to abuse the privacy offered to clients to develop their illegal enterprises, but any known or decent institution will do background checks and monitor – before making sure that any criminal activity is reported. If you are after legal tax avoidance and asset protection, Private Trust Banking is a way of diversifying and protecting your assets and financial privacy while simple offshore banking crumbles under a relentless onslaught from governmental bureaucrats attempting to tax the life and soul out of everyone they can while covering up their own mistakes and poor regulation which brought on a full scale global economic crisis.

To learn more about how Capital Conservator Group can help you with your private offshore banking needs, contact us using the form below.