Wealth International, Limited (trustprofessionals.com) : Where There’s W.I.L., There’s A Way

July 2008 Selected Offshore News Clips

(Especially noteworthy articles’ dates highlighted in gold.)

July 12, 2008

Investmend advisor Doug Casey's long-standing prediction of a repeat of the Great Depression -- or worse -- looks like it may finally be coming to pass. His current assessment of what is coming and how to protect oneself does not look much different than what he has been saying all along. Certainly some urgency in making a decision about what to do is called for at this point.

FreedomFest headliner Doug Casey told a crowd of investors recently that it is "tough to give advice because we are in the twilight zone." That is quite a statement given that Casey has made (and continues to make) a living giving people investment advice, especially in the junior mining and resource stock arena.

The globetrotting Casey literally wrote the book on crisis investing. In fact, he wrote two books: Crisis Investing, published in 1979, and Crisis Investing For the Rest of the ‘90s, which came out 14 years later. In both books, Casey predicted what he calls The Greater Depression.

Speaking in Scottsdale in March, Casey believes the Greater Depression has begun, with the misallocations of the previous boom being liquidated, the business cycle climaxing and "most people's standard of living declining." Both federal and state governments are bankrupt and many big companies in the United States will be bankrupt, and all of this happening with the stock markets near all-time highs, something that perplexes the world-traveling polo player.

Casey sees things getting much, much worse, especially with the looming prospect of Democrats controlling the presidency, House and Senate. Bigger government is on the way, which is not a good prospect for prosperity. But, humans "tend toward self-destruction," according to Casey. Stupidity is rampant, he says, especially in politics, economics and the English departments at major universities.

The acerbic international investor unflatteringly compares current conditions in the United States to both the last days of the Roman Empire and to chimpanzees. "Like chimpanzees everywhere, if they can't trade for it, they will have their armies take it," Casey said.

Casey sees "eight or nine Black Swans circling," in reference to the rare and cataclysmic financial events that are the focus of 2007 FreedomFest speaker Nassim Nicholas Taleb's financial bestseller The Black Swan.

And while many hope the residential real estate market is bottoming, Casey believes "buy a house today and you are catching a falling safe." He believes the entire real estate market, including commercial will get "real, real ugly" and that owners will abandon properties because they will not be able to pay the taxes and utilities.

So with this widespread outbreak of stupidity, a coming tsunami of bankruptcies public and private, governments that will get bigger and meaner, and a continued meltdown in the stupid majority's favorite investment vehicle -- real estate -- what is the rational person supposed to panic and do?

First of all do not be borrowing money with adjustable rate loans. Casey is in agreement with other financial gurus, James Grant, Bill Bonner and Bill Gross, that interest rates are headed up -- way up.

Casey continues to pound the table for junior exploration stocks. He believes the bull market in the metals and mining stocks is far from over. And that even though the easy money has been made, the market is still just in the "wall of worry" stage, which will be followed by the "mania" stage, when the real money will be made.

In a recent edition of his monthly International Speculator newsletter, Casey pointed out that the drivers of the resource bull market are still in place. The demand from China and India has not gone away. There are still huge supply constraints impeding miners and drillers and government central banks are printing money like crazy -- which is inflation. Thus, in Casey's view, "there is no reason to believe that, with the situation set up as it is, there will not be a Mania stage to this market."

The public (remember, the stupid masses) has not yet embraced the metals boom, but when they do there will be spectacular gains in the junior mining shares. "There are still 50-1 shots ahead of us," Casey guesses.

So, do not be so quick to take the plunge buying bank foreclosure properties and forget traditional stocks and bonds. It is not for the faint of heart, but the road to riches is with junior mining shares.

July 12, 2008

What is next after the U.S. has access to Americans’ Swiss bank account information?

Whatever the results of the showdown between Swiss bank UBS and the U.S. government, regarding the later's request for information on UBS's U.S. clients, the reputation of the value of financial secrecy per se has taken a body blow. The upside, as we see it, is that its reputation has been unjustifiably good until now, so this reflects a healthy adjustment.

The country's wealthiest people have long relied on Swiss banks for privacy -- some to secure their substantial assets, some to conceal them. A big shroud of secrecy, however, may soon be lifted. All American holders of Swiss bank accounts at the banking giant UBS could have their account information turned over to the U.S. government as part of an effort to identify tax evaders.

The Justice Department [has been] granted a wide-reaching subpoena that allows the IRS to seek taxpayer bank data from December 2002 through 2007. The investigation stems from a criminal case involving a former UBS banker who pled guilty last month to conspiracy charges, but the ripple effect will likely extend far beyond his clients. The banker, Bradley Birkenfeld, conjectured that UBS had an estimated $20 billion of undeclared assets that were associated with U.S. taxpayers.

"This could open up a whole can of worms," said former federal prosecutor David Rosenfield. "There is a strong possibility that this is not an isolated case," said Rosenfield, who now practices white collar defense with Herrick Feinstein in New York. "This is far beyond what the U.S. government has done in the past."

Previously, the U.S. has requested access to specific accounts held by specific individuals, but in this instance the government has requested so-called "John Doe" summonses, in order to access the accounts of an unknown number of unknown Americans. Experts say the John Does could run into the tens of thousands of customers. "This is the latest crack in bank secrecy," said a former federal prosecutor and defense attorney Sean O'Shea. "This could involve the evasion of hundreds of millions of dollars."

Since the request was granted, some experts ask whether or not those who have been avoiding paying U.S. taxes on their accounts will turn themselves in. "Will this cause U.S. taxpayers to cut their losses and come in and cooperate and try to cut a deal?" asked Rosenfield. "We might see a flood of people coming in and offering to pay back taxes."

Another expert in money laundering warns that anyone who has avoided paying any taxes using a UBS account should be very worried right now, and that they may face a whole range of penalties above and beyond paying back taxes. "Expect to have your assets frozen or your money seized and a grand jury subpoena," said Robert Targ, a former federal prosecutor who is now a partner at Diaz, Reus & Targ. "The IRS will be looking for unpaid taxes, penalties and interest and you may be exposed to possible criminal prosecution."

UBS has so far said that it is cooperating with U.S. investigators, but only to the extent of Swiss law. "As we have noted, UBS takes this matter very seriously and is working diligently with both Swiss and U.S. government authorities consistent with Swiss law and the legal frameworks for intergovernmental cooperation and assistance," said UBS spokesperson Kris Kagel yesterday.

In the past, the Swiss banks have resisted granting requests for account information if they were solely for the purpose of catching tax evaders. Tax evasion is not a crime in Switzerland. Some experts predict that UBS may attempt to return to court arguing a lack of jurisdiction. "UBS will likely argue that they are only subject to Swiss law," O'Shea predicts. "In that situation, the DOJ will argue that they operate in the United States and are subject to U.S. laws."

Others argue that UBS will likely cooperate with the request in order to continue doing business in the U.S. "It would be a fatal move for the bank to dig its feet in," said Sandy Boucher of Intelysis Corp.

W.I.L., and plenty of other asset protection advisers, have been recommending all along that you avoid doing business with any foreign financial institution with a substantial physical and/or legal presence in your home country. If the wisdom of this advice has not been obvious heretofore, it certainly is now.

We might add that while it might be "fatal" for UBS to "dig its feet in" here, rolling over and delivering the demanded client information will hardly lead to a booming business either.

Boucher said that if the bank itself is found to have violated U.S. law it could have a federal monitor assigned to oversee its future activities in the U.S. "Rather than prosecute," said Boucher, "the bank will likely be given a rigorous series of things to do in order to avoid prosecution." Those requirements could include a thorough audit of past accounts and then a federal monitor assigned to the bank for a period of time to make sure it does not happen again.

As for the Swiss government, Boucher says that the Swiss will have to make a political decision on how to proceed with regard to their bank secrecy laws. The U.S. has a Mutual Legal Assistance Treaty (MLAT) with Switzerland to work on criminal cases but this does not include tax evasion. At the moment, the U.S. is saying that there have been no indications that the Swiss government will attempt to hold up the DoJ request.

"I am not sure if we have had any particular communications with the Swiss, in terms of passing messages from the Department of Justice to them," said State Department spokesmen Tom Casey ... "As far as I know, though, I think there has certainly not been any diplomatic issue associated with this, that has come up."

Experts are wary to predict how the Swiss government will respond, but should they intervene that repercussions could be substantial. "The reputational and financial risk is huge," said Boucher. The Swiss Embassy did not return calls for comment.

This latest method for tracking tax evaders may spread beyond UBS and even beyond Switzerland. Experts point out that is has only become easier for the government to obtain records of foreign account holders. For example, the Cayman Islands have become more cooperative in turning over account information, which used to be very tightly held.

Indeed the IRS Commissioner warned that the long held secrecy of overseas banking is coming to an end. "We will be taking additional steps to ferret out offshore tax avoidance beyond today's announcement involving UBS," warned IRS Commissioner Doug Shulman. "People should take notice that the secrecy surrounding these accounts is rapidly fading."

July 13, 2008

Rising commodity prices, frail banks, inflation and a slowing U.S. economy are all taking a toll on global markets. The point of putting money abroad is not to duck economic risk but to diversify it. There are times when a strong dollar or a comparatively strong U.S. economy leave the dollar investor worse off for having ventured abroad. Other times a weak dollar or lagging U.S. profits send foreign portfolios ahead of U.S. ones. Since mid-2003 stocks in Brazil, China, India, Mexico and Russia have done particularly well. The S&P 500 has returned only 6.6% a year.

Nations from Brazil and Mexico to the Czech Republic and even several countries in Africa are benefiting from economic reforms, rising prices for their natural resources, growing export markets and the rapid rise of consumer markets within their own borders.

In the W.I.L. Finance Digests of the weeks of July 7 and July 14 we will feature several internationally-oriented articles from Forbes.

July 13, 2008

Thomas DiLorenzo's forthcoming book Hamilton's Curse: How Jefferson's Archenemy Betrayed the American Revolution – And What It Means for Americans Today sounds a theme that has much in common with fellow LewRockwell.com columnist Kevin Gutzman's The Politically Incorrect Guide to the Constitution: The Federalists, led by Alexander Hamilton and John Marshall systematically started undermining the U.S. Constitution before the ink was dry. (Gutzman and Thomas E. Woods, Jr.'s Who Killed the Constitution? The Fate of American Liberty from World War I to George W. Bush should be coming out about now.)

Our opinion is that the U.S. Constitution was probably doomed from the getgo as far as effectively restraining the U.S. federal government that was created with the document -- which was really a treaty among the 13 original states. But that Hamilton and Marshall certainly hastened its demise, there can be no doubt.

Upon learning that my new book on Alexander Hamilton (Hamilton's Curse: How Jefferson's Archenemy Betrayed the American Revolution – And What It Means for Americans Today) will be published in October, a law student from New York University emailed to say how excited he was to hear of it. He wrote of how sick and tired he was listening to one of his NYU law professors, Nadine Strossen, constantly invoking Hamilton's judicial philosophy (and that of his political descendants) to promote bigger and bigger government, day in and day out, in class. Being schooled in the classical liberal tradition, this student understood that bigger and bigger government always means less and less individual liberty.

Hamilton was indeed the founding father of constitutional subversion through what we now call "judicial activism." That is why leftist law professors like Strossen lionize him in their classrooms while barely mentioning opposing viewpoints.

Hamilton was the leading advocate of a constitutional convention to "amend" the nation's first constitution, the Articles of Confederation. He lobbied for seven years to have such a convention convened, constantly complaining to George Washington and anyone else who would listen that "we need a government of more energy." Patrick Henry opposed Hamilton by sagely pointing out that the Articles of Confederation had created a government powerful enough to raise and equip an army that defeated the British empire, and that that seemed sufficient to him.

At the convention, which scrapped rather than amended the Articles of Confederation, as had been promised, Hamilton laid out his grand plan: A permanent president who would appoint the governors of each state, and who would, through his state-level puppets, have veto power over all state legislation. A national government with the president given essentially the powers of a king is what he advocated. It was all rejected, of course, when the convention spurned Hamilton's nationalism and adopted a federal system of government instead, with only a few powers delegated to the central government by the sovereign states, mostly for foreign affairs. Hamilton subsequently denounced the new constitution as "a frail and worthless fabric."

He and his political compatriots, such as Senator Rufus King of Massachusetts, and John Marshall of Virginia, then set about to sabotage the new Constitution by "reinterpreting" the document as something very different from what was clearly written in black and white. His purpose, wrote Cornell University historian Clinton Rossiter in his book, Alexander Hamilton and the Constitution, was to build "the foundations of a new empire."

Jefferson and most other founders viewed the Constitution as a set of constraints on the powers of government. Hamilton thought of it in exactly the opposite way -- as a grant of powers rather than as a set of limitations -- a potential rubber stamp on anything and everything the federal government ever wanted to do. He and his fellow nationalists (the Federalists) set about to use the lawyerly manipulation of words to "amend" the Constitution without utilizing the formal amendment process. "Having failed to persuade his colleagues at Philadelphia of the beauties of a truly national plan of government," Rossiter wrote, "and having thereafter recognized the futility of persuading the legislatures of three-fourths of the states to surrender even a jot of their privileges, he set out to remold the Constitution into an instrument of national supremacy."

And how did he "remold" the Constitution? He began by inventing a number of myths (i.e., lies) about the American founding. On June 29, 1787, before the Constitution was even ratified, he said that the sovereign states were merely "artificial beings" that had nothing to do with creating the union -- despite the fact that the Constitution itself (in Article 7) declared that the document would be ratified (if it was to be ratified) by the citizens of at least nine of the thirteen states. He told the New York State Assembly in that same year that the "nation," and not the states, had "full power of sovereignty," clearly contradicting the written Constitution and actual history. This lie would be repeated by nationalist politicians from Clay, Webster and Story, to Lincoln. It is still repeated to this day by various apologists for the American empire.

When President Washington asked Hamilton his opinion on the constitutionality of a national bank, Hamilton responded with a long-winded report that argued that if one reads between the lines of the Constitution, one discovers "implied powers" that are not specifically delegated to the central government by the states. Like the creation of a central bank, for instance. Secretary of State Jefferson was also asked his opinion on the matter, and essentially said that all he saw "between the lines" of the Constitution was blank space.

Hamilton prevailed, setting the template for the eventual destruction of the Constitution. "With the aid of the doctrine of implied powers," Rossiter wrote approvingly, Hamilton "converted the ... powers enumerated in Article I, Section 8 into firm foundations for whatever prodigious feats of legislation any future Congress might contemplate." He established the foundations for unlimited government, in other words.

Hamilton also invented the "doctrine" of "resulting powers." If the united States ever conquered one of their neighboring countries, he wrote, "they would possess sovereign jurisdiction over the conquered territory. This would be rather the result from the whole mass of government ... than a consequence of ... powers specially enumerated." Thus, if government engages in an unconstitutional act, such as an undeclared war of conquest, then according to Hamilton, the fact that the conquest occurred would create a new constitutional right.

It was Hamilton who first advocated the broadest possible interpretation of the General Welfare Clause of the Constitution so that he could make his case for corporate welfare in his 1791 Report on Manufactures. "It is ... of necessity left to the discretion of the National Legislature, to pronounce upon the objects, which concern the general Welfare," he wrote. Naturally, the legislature would be eager to define every piece of special-interest legislation to be serving "the general welfare."

Again celebrating the political trickery of his hero Hamilton, Rossiter wrote that "Thus with a flourish did Hamilton convert the fuzzy words about the 'general Welfare' from a 'sort of caption,' as Madison described them, into a grant of almost unlimited authority" of the federal government.

Hamilton was also likely to be the first to twist the meaning of the Commerce Clause of the Constitution, which gave the central government the ability to regulate interstate commerce, supposedly to promote free trade between the states. Hamilton argued that the Clause was really a license for the government to regulate all commerce, intrastate as well as interstate. For "What regulation of [interstate] commerce does not extend to the internal commerce of every State?" he asked. His political compatriots were all too happy to carry this argument forward in order to give themselves the ability to regulate all commerce in America.

Hamilton also invented the notion of special "war powers" that are not specifically delegated to the federal government by the states. He subsequently argued for a standing army, funding of the army "without limitation," and the nationalization of all industries that supplied goods to the army.

Jefferson opposed Hamilton on this and all of his other constitutional subversions. In his first annual message to Congress as president, he said that it is neither "needful or safe that a standing army should be kept in time of peace." In a September 9, 1792 letter to President Washington, Jefferson wrote that he "utterly ... disapproved of the system of the Secretary of the Treasury [Hamilton] . ... His system [of a national bank, protectionist tariffs, and corporate welfare] flowed from principles averse to liberty, & was calculated to undermine and demolish the republic ..."

Clinton Rossiter's book on Hamilton and the Constitution is a masterwork of scholarship, but when Rossiter editorializes he sounds quite giddy in his celebration of Hamilton's subversion of the Constitution. "Hamilton had no equal among the men who chose to interpret the Constitution as a reservoir of national energy," he wrote. All of the nationalist politicians and jurists of early America, from John Jay to Rufus King to Joseph Story and John Marshall, owed Hamilton a debt of thanks for "having taught his friends how to read the Constitution." Senator Rufus King of Massachusetts was so impressed by Hamilton's conniving slickness, and its potential to cause government to grow vastly larger than what the Constitution called for, that he promised him "assistance to whatever measures and maxims he would pursue."

Justice Joseph Story became "the most Hamiltonian of judges," according to Rossiter, faithfully reproducing the lie that the states were never sovereign. He "construed the powers of Congress liberally," and "even found the Alien and Sedition Acts constitutional in retrospect." (The Sedition Act outlawed criticism of the federal government, a crystal-clear repudiation of the First Amendment). Story's book, Commentaries on the Constitution, published in 1833, was a roadmap for nationalists who wished to further destroy constitutional limitations on government. It could just as well have been entitled "Commentaries on Alexander Hamilton's Commentaries on the Constitution," says Rossiter.

The book was essentially a political training manual for "the legal profession's elite -- or at least among the part of it educated in the North -- during the middle years of the nineteenth century." The Jeffersonian interpretation of the Constitution, based on actual historical reality as opposed to the lies, myths and superstitions of Hamilton, Marshall and Story, was more popular in the South. (Perhaps the best exposition of this tradition is St. George Tucker's A View of the Constitution of the United States.)

The Jeffersonian interpretation of the Constitution was all but wiped out by Lincoln's war, after which Hamiltonian hegemony prevailed for decades. Slowly but surely, virtually all vestiges of Jefferson's strict constructionism were swept away so that by the 1930s the "principles of nationalism and broad construction expounded by Hamilton and his disciples" finally monopolized constitutional law in America, wrote Rossiter. Between 1937 and 1995, not a single federal law was ruled unconstitutional by the U.S. Supreme Court. Hamilton's "rubber stamp" constitution was firmly in place. It is little wonder that a law student like our NYU correspondent, who is familiar with the Jeffersonian and classical liberal traditions, would be disgusted by his pontificating professor's expositions of Hamilton's subversive constitutional trickery.

July 14, 2008

After a largely unexplained absense of six or so months, the e-magazine Escape from America, from EscapeArtist.com has returned. (Their publication Caribbean Property & Lifestyles Magazine, however, never missed a beat.) The July issue contains this article, which covers the basics of how to keep your life private or -- if you want to take the concept further -- how to "disappear."

My name is Frank M. Ahearn and if you read my other articles, you would know that I am in the business of teaching people how to disappear and be more private. I have updated some of the tools to disappearing and living a virtual life.


Start by getting an email address, I always suggests Hushmail or Mail.com. When checking your mail it is wise to do from an internet café away from where you live.

We certainly understand why he likes Hushmail, but are not sure why he recommends Mail.com. We used it way back when, and now it looks like some internet "portal" from the 1990s. For unencrypted email communication we recommend: (1) Fastmail, which has a sophisticated and fast Web interface without the privacy concerns that would come with Google Mail, and (2) Lavabit, which has a simple Web interface but offers a free POP3 and SMTP servers for those who would prefer to use a standard email client. Lavabit also offers spam filtering and strong privacy protection -- see the Privacy section of this page.

Fax Service

I think one of the greatest internet tools are Jfax and Efax fax numbers. You can have a voicemail box or fax number in every state and almost every country. How does it work, simply sign up and get a virtual number anywhere you want. You give the number out as your voicemail or fax: Your family, friends or clients contact you at your new number in Aruba and that transmission is forwarded to your above Hushmail address.

What is great about this service is you can fax from your laptop anywhere in the world.

Virtual Office

If you need a full-blown virtual office, I recommend Onebox.

Cellular Phone Service

Before you buy cell phones for international use understand, an international cell phone is classified as a GSM mobile phone that operates on the GSM 900 and GSM 1800 frequency. An international cell phone with the appropriate sim card will provide coverage in Europe, Asia, Africa and the Pacific Rim including Australia. A world cell phone with the GSM 1900 frequency will expand coverage to include the United States, Canada and a growing part of South America.

To stay out from under the radar I suggest a prepaid cell phone from Telestial. For added security, I suggest using a prepaid international calling card to make calls on your prepaid phone. For [more] added security, I suggest you change your cell number or dump your phone every so often.

I use several cell phones, one for outgoing calls and the other for incoming. I have the incoming cell phone forwarded to another prepaid cell phone.

Mail Drops

To have a physical mailing address I suggest Executive Mail Drop Service as advertised on EscapeArtist.com. They offer other services like virtual phone numbers and faxes; however, I suggest not having all of your services with one company, just in case someone breaches your information.

How to Make Money

One of my clients who expatriated to Madrid, Spain makes great living selling watches on eBay. Never touching the merchandise and having the funds transferred immediately into his Paypal account. My friend in Spain realized he had so much experience selling watches, he wrote an eBook about watches that tripled his income. Look at his site Classic Watch Company.

The internet is like the Wild West all over again, money to be made hand over fist. If you were a waiter, write that eBook How to Make Better Tips, if you were a taxi driver, write the eBook on Taxi Drivers Safety. Plenty of people are making money on eBooks you can as well. When you write that eBook send, it to EscapeArtist.com they are always looking for quality eBooks.

New Identities

If you are not a criminal you do not need a new identity. There are several reasons for not obtaining a new identity beside the legalities. You do not know whose identity you are obtaining -- they could have $50 thousand in IRS judgments against them and the IRS can seize your bank account to satisfy the debt.

The new identity you obtain can have a warrant for an arrest, or a registered sex offender that has to register with the police because of the Megan's law. The idea of going to the cemetery and finding a child who died at an early age and obtain their information -- forget it, you missed the boat on this one -- it will not work.

Taxes & Income

Get a good accountant, audits are not fun. I speak from experience.


The laws are different from country to country, hire a local lawyer, one that was recommended from a good source. One of my clients in Central America paid US$95,000.00 for a condominium. What he did not learn until after the fact was the condominium was actually listed for 95,000.00 in the local currency, which made the property truly valued at US$49,000. Buyers beware.


I tell my clients not to get one [he is evidently talking about second passports]; however, it is a personal choice. First Antilles Offshore offers several services from second passports to Residency Packages. Check their site.

IBC & Bank Accounts

International Business Corporations: Setting up an IBC up is relatively easy, there are so many countries that offer a wide range of services. Take your time, determine the solvency of the bank and country, and understand the fees and structures.

When I opened my first IBC I never asked how long it took funds to clear, it turned out it was 30 days and caused me nothing but problems. Ask some very simple questions, things you would normally overlook. How long for funds to clear, cash and checks. What are the bank fees, some banks charge more then you would expect. How long does it take to wire transfer? The ATM card, what are the fees and the 24-hour spending limit.

Do not forget get a good accountant!

Relocation Companies

Some great companies assist people moving offshore. If you are going to Paris check out Parler Paris, a great site and service. Pick up some eBooks about your destination and visit your location before moving or buying property.

Three Keys to Disappearing:

Misinformation is the art of taking every piece of data existing about you, deviating them and destroying them beyond recognition. Keep in mind that your home phone number lists every call you have ever made over a period of time; your cellular phone as well. Your frequent flyer account with an airline lists every trip you logged. Call up those companies and change your contact information on file.

Disinformation is the art of leaving a bogus trail. If you are looking to disappear, make tons of phone calls to realtors all over the country. Make small purchases on your credit card, perhaps a cheap airline ticket or a bus ticket to Iowa. The key is to have the person shadowing you look in places you are not.

Reformation is the art of getting from where you are to where you want to be and leave no trails.

Good luck on your travels and ventures.

July 16, 2008

Those who recoil against the idea of having to relearn the redrawn post-World War II maps of their childhood, or who buy into Abraham Lincoln's notion of a nation state being a "perpetual union" that should not be rent asunder, will have to take a chill pill. In 1993, the former Czechoslovakia dissolved, as the Czech Republic effected a "velvet divorce" from its theretofore eastern better half, Slovakia -- undoing a sporadically rocky marriage of 70-odd years. Present relations between Czechs and Slovaks are widely characterized as better than they have ever been. No movement to reunite Czechoslovakia has appeared and no political party has reunification as part of its platform. Just think what can happen when people give up the idea of exploiting each other and go their seperate political ways peacefully!

Currently, Forbes, in its 2008 International Investing Guide, tabs the Czech Republic as a place worthy of investors' attention. The earnings multiples are not super-cheap, and the featured stocks are selling near their highs for the most part, but Forbes argues that it is worth paying a quality premium. The article's concluding table, "A Little Opportunity," summarizes the case thusly: "The Czech Republic has the same population as Michigan, but it has a thriving economy, strong currency and investment opportunities via local companies and multinationals operating in the country."

Central Europe has transformed its economies in the two decades since communism's fall. The Czech Republic, the more affluent half of the former Czechoslovakia, is a vivid example. Leveraging a well-educated but relatively low-paid workforce at the crossroads of western and eastern Europe, this country has attracted multinational companies, especially financial services firms such as Diners Club International, Hertz Lease and American Express. It has also developed thriving tourism and seen a strong rise in real estate values.

Result: One of the fastest-growing economies in Europe. Over the past several years the Czech Republic's GDP has grown at a 4%-to-5% annual clip, though it might slow down a bit this year as growth slacks off in Germany. Sweeter yet, for U.S. investors, the koruna has gained more against the U.S. dollar during the past 12 months than has the euro. During this time the Morgan Stanley index for the Czech stock market has had a total return of 8% in local currency but 47% in dollar terms.

The Czech stock market's average price/earnings ratio, 16, is higher than Russia's 12. On the other hand it does not quite have Russia's reputation for robbing and harassing foreigners who send capital into the country. You can get in on Czech growth by owning shares of companies either headquartered there or doing business there from a base outside, as in Germany.

"The Czech Republic is like Spain was ten years ago," says Ralf Oberbannscheidt, who manages the Central Europe & Russia Fund at Deutsche Bank. Three years ago Spanish telecom behemoth Telefónica bought 69% of the incumbent operator, Cesky Telecom, now renamed Telefónica O2 Czech Republic. This subsidiary offers broadband Internet access and mobile services. Oberbannscheidt likes its earnings profile and 10% yield.

Zentiva, with pharmaceutical plants in the Czech Republic, Romania, Slovakia and Turkey, and listings in London and Prague, has built up a large presence in central and eastern Europe by selling branded but off-patent drugs to primary care physicians. Unlike other generics makers it employs a large sales force. In June Zentiva became the object of a bidding war between its two largest shareholders, Sanofi-Aventis and PPF, a private investment group.

Utilities provide a solid investment. CEZ Group, with $9.7 billion in revenues, grew from utilities that were privatized in the early 1990s and later merged; it also acquired power plants and distribution companies in Bulgaria, Romania and Poland to form one of the ten largest energy-generating-and-distributing companies in Europe. Claiming the highest profitability and lowest debt of any utility in Europe, the company continues to grow by joint ventures with other energy-generating companies, such as MOL in Hungary. It has also diversified into telecommunications, mining and construction.

One of the largest Czech banks is Komercni Banka. It has tapped into a population with low household debt and expanding earnings, and it seems to be positioned to withstand the buffeting it has had from the credit crisis. France's Société Générale, which has suffered its own challenges after a trader allegedly orchestrated the largest banking fraud in history, has a 60% stake.

Another company tapping into the thriving consumer market is Central European Media Enterprises (Nasdaq: CETV), domiciled in Bermuda but broadcasting TV shows, commercials and movies to 90 million people in six European countries. In the majority of these countries it commands 25% or more of the prime-time broadcast market share. First-quarter revenue of $223 million was up 51% from 2007. The stock sells for 19 times its Thomson IBES consensus earnings forecast for 2009, but analysts expect 27% long-term annualized earnings growth.

July 16, 2008

An intriguing suggestion has been made to turn a set of Ireland's islands into tax havens, in the sense of offering substantial tax breaks to people who choose to live there. A total of 3,000 people live on the islands now, and population has been declining in recent years.

For centuries, illicit poitin has been the only tax-free commodity on Ireland's islands -- despite the best efforts of the English who first introduced a levy on distilled spirits in 1660 to pay the debts incurred by Cromwell's wars. Now, under proposals put forward by Udaras na Gaeltachta, all the Irish islands could become tax havens -- modeled loosely on the tax-free principality of Andorra.

The regional authority responsible for the economic, social and cultural development of the Gaeltacht has proposed a radical plan to the Commission on Taxation recommending a special taxation incentive scheme for islands.

The islands that could benefit from a change in tax status include Tory and Aranmore islands in County Donegal, Clare Island in County Mayo, the Aran Islands and Inishbofin in County Galway, and the County Cork islands of Cape Clear, Bere Island and Sherkin Island. Making the islands tax-free would promote economic activity on them and attract people to live there. The last three censuses taken in Ireland have each shown a decline in population.

One part of the proposal is a pilot scheme that people living on these islands for at least six months of the year would be able to earn €100,000 a year tax free for 10 years -- even if they earn their money on the mainland. The exemption would apply to both new and existing businesses on the islands.

Udaras has also proposed having a 100% capital allowances/free depreciation write-off for any equipment or buildings provided for use in a business allowable against non-exempt income and a BES-type tax relief to apply to investors who invest capital in any business located on the islands. They also propose a VAT-refund scheme to be implemented for community-based activities that require capital expenditure on buildings and fit out.

Padraig O hAolain, CEO of Udaras na Gaeltachta, said: "While the infrastructure of our offshore islands has been substantially upgraded in recent years -- and substantial State investment is currently being made in this sector -- and while access via air and ferry services has been greatly improved, the overall population of the offshore islands continues to decline.

"As far as our function of enterprise promotion is concerned, the most challenging task for us is to create new employment and income-enhancement opportunities for island residents and especially for young islanders and islanders wishing to return to reside on the islands. We feel this is what holds the key to the future viability of the island communities."

At the moment, only 3,000 people could be described as permanent residents of the islands. The proposal is aimed at all islands, both within and outside the Gaeltacht.

Mr. O hAolain says the proposal has a relatively modest overall potential cost to the exchequer, but is believed could have the effect of giving a huge boost to the future sustainability of island life.

Europe has a number of tax havens, including the small principality of Andorra, which has a population of just 65,000. Companies and individuals pay no taxes in Andorra though there are annual registration fees, rates and property transaction taxes.

July 16, 2008

This news comes by way of a PR announcement from a Cook Islands firm, Southpac Group, which has a vested interest in promoting the enhanced legal structure. The firm's general manager actually helped with the crafting of the legislation, so presumably they know whereof they speak.

The LLC legislation itself is quite interesting. It explicitly incorporates certain asset protection features of U.S. LLCs, particularly those which concern LLC charging orders, which might otherwise grant some wiggle room to would-be claimants. This should in principle provide addition asset protection features to the structure when compared to its U.S. counterparts.

Southpac is pleased to announce that the Cook Islands Parliament has enacted a new, comprehensive limited liability company act. Brian Mason, the General Manager of the Southpac Group of companies, was instrumental in coordinating the drafting of this legislation. Fielding contributions from a number of leading business and asset protection planning attorneys in the United States, the Cook Islands International Limited Liability Company Act (2008) offers unique advantages not found in any other jurisdiction. Combining a Cook Islands trust with a Cook Islands LLC now offers the most comprehensive form of asset protection available.

The Cook Islands International LLC Act specifies that the charging order is the sole and exclusive remedy of a creditor against a member's LLC interest. However, unlike LLC laws in the United States, the Cook Islands law clarifies that the charging order does not constitute a lien on a member's interest, and it does not make the creditor an assignee of a membership interest. A member whose interest is subject to a charging order continues to exercise the rights of a member. These rules apply whether the LLC has one member or several.

Emphasis added on that last sentence. This is a major difference from U.S. state LLCs.

The Cook Islands International LLC Act further limits the effect of a charging order by spelling out that a creditor has no right to participate in or interfere with the management of the LLC. The creditor cannot seize or liquidate LLC assets, restrict the business of the LLC, or force a dissolution of the LLC.

A charging order cannot be obtained to recover punitive damages, treble damages, or any other form of monetary award that is exemplary in nature. Furthermore, foreign judgments concerning the use of a member's interest to satisfy a creditor's claim are not recognized in the Cook Islands. The LLC is not subject to discovery orders or injunctions issued in relation to a member or a membership interest.

The Cook Islands have taken the novel step of allowing members to decide whether to opt out of the asset protection features of the International LLC Act. This may be useful for clients engaged in international business transactions.

The provisions of Cook Islands confidentiality law apply to LLCs established under the new International LLC Act. Members should enjoy complete confidentiality with respect to their ownership of an LLC interest.

While the new LLC Act provides several formidable asset protection barriers, the LLC is not intended to serve as a substitute for what is widely regarded as the most powerful tool for asset protection available today: the Cook Islands asset protection trust. Rather, it is hoped that clients engaged in asset protection planning will utilize a Cook Islands LLC in conjunction with a Cook Islands trust to secure the greatest degree of protection and investment flexibility.

The Cook Islands is the leading jurisdiction for offshore asset protection planning. Southpac helped author the first ever asset protection trust law, the Cook Islands International Trusts Act (1982), which has served as the template for similar legislation in over a dozen other countries and several U.S. states. The Cook Islands trust offers important asset protection benefits such as a shortened statute of limitations on fraudulent transfer claims and a heightened burden of proof that creditors must meet to bring claims against a trust in the Cook Islands.

The remainder of the announcement informs the reader of Southpac's many offerings and virtues. It appears that many asset protection considerations and a good knowledge of U.S. LLC case law has informed the new Cook Islands LLC legislation. Impressive in many ways. It will be seen how effective the measures proove to be in practice against the the voracious appetites of the world's tax and spend behemoths.

July 27, 2008

Want to be far from terrorism threats and have Bill Gates as a neighbor? Then New Zealand may be the place for you.

New Zealand has long had some attraction to English-speaking expats who do not mind being far from the rest of the world. Since 9-11 the interest level has notched up a level or three.

It took Peter C. Cooper one year to fall in love with America. While studying abroad in Kansas City, Kansas in 1969, the then 17-year-old New Zealander witnessed mass protests, talked nonstop politics and was bussed from one school district to another as part of the city's integration of racially divided schools. Now, at 56, Cooper splits his time between California and New Zealand. He became a successful developer by straddling the continents to lure his adopted countrymen to his homeland. His Mountain Landing development, on New Zealand's North Island, targets affluent Americans who want two things: security and a unique environment. The first stage of the development was completed last year, and 8 of the 46 available sites have been sold, mainly to U.S. buyers.

Americans' interest in New Zealand as a place to retire or to buy a second home jumped after the 9-11 attacks. Residency applications doubled from pre-attack levels. New Zealand is a 12-hour flight from the U.S. West Coast, and Cooper could add to his sales pitch a pristine environment: The Lord of the Rings meets The Piano.

Mountain Landing is an enclosed 1,000-acre development with a helipad that can shuttle homeowners in and out of their development at a moment's notice -- to hunker down in the face of a world calamity or be transported for a day of mountain climbing. The sites, between 1 and 12 acres, will go for between $3 million and $5 million. They are in the Bay of Islands, near the northernmost tip of New Zealand -- 1,000 miles from the nearest piece of non-New Zealand land but still convenient for the bright lights of Auckland, New Zealand's biggest city.

While Cooper is a pioneer in developing homes for U.S. buyers, he is not the first American to have invested in New Zealand real estate. Billionaire Julian Robertson, the 76-year-old former hedge fund manager, went there in 1980 to write the great American novel. Since then there has been no novel, but he has built two golf courses, both with cottages that cost up to $10,000 for a three-night stay. He has also set up two wineries. Another hedge fund billionaire, Paul Tudor Jones II, has large properties in New Zealand. Bill Gates has property in Nelson, New Zealand's sunniest region, at the northwestern tip of South Island. More recently Equity International, billionaire Sam Zell's private equity firm that focuses on real estate in emerging markets, invested $75 million in a company that operates housing for seniors in New Zealand.

"Visitors see New Zealand as one of a handful of last spots that are undiscovered. There is a lure," says Gary R. Garrabrant, chief executive of Equity International. There are other attractions. It is an English-speaking, developed country where land is relatively cheap, at an average $27,000 an acre for vacant parcels. (That figure, from Bayleys Real Estate Group in New Zealand, is up 92% over the past decade.) American investors do not feel a currency pinch at the moment because the the U.S. and N.Z. dollars have a fairly stable relationship (1 U.S. dollar equals 1.32 N.Z.).

Restrictions on ownership of property by Americans are light. Cooper says all he needed to make his development accessible to foreigners was to limit the individual properties to 12 acres and keep access to the beachfront public.

Unlike Australia, New Zealand does not levy transfer taxes on residential properties. New Zealand abolished death taxes in 1992. There are also no property taxes, and land sales other than by people in the real estate business are exempt from capital gains taxes.

Although the lower end of the housing market in New Zealand has recently taken a hit, demand for high-end property continues to be strong. Rachel A. Dovey, a real estate agent with Bayleys, says the rich American clients she deals with are looking for gated communities with things like access for helicopters and stables for horses. She expects demand for homes with luxury amenities to continue to be strong despite the worldwide housing crunch. One reason: The country's banks have minimal exposure to the subprime mess and so are in far better shape than their counterparts abroad to continue real estate financing.

International Living, an Irish organization that markets foreign destinations to investors and retirees, is promoting New Zealand as the Hawaii of 40 years ago. It has held two seminars on the country in the last year in Auckland. Both attracted more than 50 people. "We were not expecting that many," says organizer Grant Perry. "People were looking for the safety factor."

New Zealand 101
July 27, 2008

For those seriously considering a move to New Zealand, here are a few starting hints.

"Just as you would not get married after your first date, you should take the time to check out the place and make sure it is really what you want," says Jonathan R. Flaws, a partner at law firm Sanderson Weir in Auckland. Getting a 3-month visitor visa is a snap. You can renew the permit twice within an 18-month period.

New Zealand is small and isolated. Only 4 million people live in the island nation -- 1.4 million in Auckland -- and it is a 3-hour plane ride to the country's closest neighbor, Australia.

A big decision is whether to go for permanent residency. By remaining visitors, Americans escape a lot of red tape, but they are unable to work or take advantage of New Zealand's health care system. If a job is necessary, plenty of Web sites help Americans find out if they qualify for residency. One such site highlights the four ways Americans can pursue permanent residency: as a skilled migrant, family member of a citizen, investor or entrepreneur.

The older you are, the harder it is to become a resident. For example, the maximum age for the investor track, which has three levels, is 54, and one needs to deposit at least $1.9 million in investment funds, which must remain in the country for four years. Another requirement for investors: $750,000 for settlement funds -- for example, to buy a home.

For these reasons it is easier to remain an American and just visit for six months out of the year. This way you avoid the New Zealand income tax, which hits a bracket of 39% on incomes over the equivalent of $45,000.

To warm up, open a bank account and get a New Zealand address. Banks have migrant services branches to assist expats. Having an account guarantees access to funds when you arrive. The postal address can help you speed up getting documents like a purchase agreement.

It also helps to have a representative on the ground ahead of your arrival. New Zealand allows foreigners to appoint an attorney to sign legal documents on their behalf if they do not intend to reside there full-time.

See the New Zealand Immigration Guide. Kim R. Saull, vice chairman of the New Zealand Association for Migration & Investment, which runs the site, says Americans wishing to move to New Zealand have plenty of experts to whom they can pose questions. "The bulk of my U.S. clients make it over here and settle with a minimum of fuss," she says. "It is about as awkward an experience as moving from the West Coast to the East Coast. Often the biggest problems are in your head!"

July 27, 2008

The idea that the older one becomes, the more difficult it is to learn a foreign language is an urban myth. The fault is in learning by translation rather than immersion.

The first issue of the recently revived Escape From America e-zine includes this interesting article on learning a second language. There is no doubt that if one expatriates and wants to even partly fit in to the culture of one's adopted home, learning the native language is not an option. But those of us who have taken grammar school,high school, and/or college language courses and learned verb conjugation rules, etc. ad nauseum without ever having felt like we could carry on more than a rudimentary conversation, might wonder if that is really possible.

Apparently the problem has been the learning system. The trick is to replicate the environment in which one first learned to speak: Immersion in "massive amounts of comprehensible or meaningful input." This will enable you to verbally communicate. It you later want to write, analyze text, or whatever, then you can learn the formal rules of the language.

I primarily write about expatriation issues in Mexico, our adopted home. In fact, my wife and I just finished a "yet-to-be-published" eBook entitled: Sustainable Expatriatism. The research I have done for all my books and articles pertaining to expatriatism have clearly shown me that language is indeed the portal to the culture. This is a fact about which Cultural Analysts harp constantly: If you are going to learn the culture in your expatriation adventure, you have got to learn the language of the host country to which you have expatriated. Otherwise, in my opinion, you never become an expatriate.

Mexico is a case study about this issue. When we moved to Mexico in our middle 40s, we stood out among the expat crowd. We were not old, retired, wheeling about in scooters for people with ambulatory difficulties, or anything else that would indicate we were a part of the Jubilado Crowd. That is what we found in the Highlands of Mexico, like San Miguel de Allende, and on Mexico's Gold Coast. Most Gringo expats were retirees.

Soon after moving here, we began to discover that the vast majority of Gringos in Mexico do not speak Spanish even after living in the country for 10 years or more. Incredibly, there are those who have lived in the country for 30 years or more and still do not know enough Spanish to save their lives -- literally! And, of course, being the terminally curious person that I am, I had to know why.

I received this comment from a reader of one of my articles on this issue. Our exchange went like this:

A Reader's Response:

"It has been documented that the older one gets the more difficult it becomes to learn a foreign language."

My Comments:

Actually, there is no credible evidence to show that the older one becomes, the more difficult it is to learn a foreign language. This belief is almost an urban myth and is not linguistically sound. It is an emotional issue that prevents adults from trying and succeeding to learn Spanish.

"Affective factors such as motivation and self-confidence are very important in language learning. Many older learners fear failure more than their younger counterparts, maybe because they accept the stereotype of the older person as a poor language learner or because of previous unsuccessful attempts to learn a foreign language. When such learners are faced with a stressful, fast-paced learning situation, fear of failure only increases. The older person may also exhibit greater hesitancy in learning. Thus, teachers must be able to reduce anxiety and build self-confidence in the learner." (The Older Language Learner by Mary Schleppegrell)

It is also an ignorance issue in which the adult learner of a new language believes that the older he becomes, the less ability he has to learn a second language. Researchers Krashen, Long, and Scarcella showed that:

"Studies comparing the rate of second language acquisition in children and adults have shown that although children may have an advantage in achieving native-like fluency in the long run, adults actually learn languages more quickly than children in the early stages. (Krashen, Long, and Scarcella, 1979)."

The conclusion this study draws is adults can develop a working ability in the target language much faster than a child can. So just where did this hideous stereotype about adults learning foreign language originate? It came from some very old science.

There used to be a theory on "brain development" from the 1960s that taught that there was a "crucial period" an individual had before the brain lost its "plasticity," making learning a second language too difficult. (Lenneberg, 1967)

It was a belief that if you did not get your second language learning done before puberty, your goose was pretty well cooked. Modern studies have shown though some differences between how a child and an adult learns a second language do exist, the older learner has the distinct advantage. The adult learner of Spanish can learn the language faster because of the following: The biggest obstacle for the adult is the emotional factor. Adults have bought into the myth that they just cannot do it. They are also afraid of making fools of themselves. I have often thought this is the reason children seem to learn Spanish faster than adults do -- they are not afraid of making mistakes and are not embarrassed when they do make mistakes.

Children also seem to learn Spanish faster because of the natural method to which they resort. They approach learning a foreign language in the identical manner they did when they learned their native language. If you have children, you witnessed this event. Was there not a time when you just knew that your "yet-to-speak anything other than goo-goo and ga-ga" child understood far more than he was letting on?

A chief problem is in the phrase, "language learning." What most people do not realize is there is a difference between language acquisition and language learning. Language acquisition, the ability to engage in spoken fluency, involves a different area of the brain than does language learning.

Language learning is what happens when you learn grammar rules, syntax, and constructions. It is what someone does when he wants to learn to become an exegete [expert] of written text. Language acquisition is the development of spoken fluency and is what most of us want to do: Speak the language!

One comes before the other. Acquisition comes before learning. Long before you knew the difference between a verb and a pronoun, you had a high degree of spoken fluency.

Consider the situation with my little friend, Diego. When I met him here in Guanajuato, all he could do was say words. He could not construct a sentence. He was too young. But, he did what we all did when we learned our first language: he listened. This is how language acquisition comes about. We have an intense period of just listening. Then we try words. Soon, we experiment with sentences while continuing to listen to everyone around us until one day we can speak fluently.

Diego, from the time he was born (and maybe even in the womb) until attaining the fresh six years he has now, all he did was hear Spanish. Non-stop bombardment of his native tongue. Never once during his young six years did he know a part of speech. Never did anyone require him to parse a verb, write a sentence, or recite the parts of speech. He still cannot read but is recognizing words. He has developed a HIGH DEGREE of spoken fluency, but cannot read or write a word of Spanish or tell you the parts of speech. This is where we adults screw up. We take the unsound, grammar-first approach and develop an ability to interpret and translate written text. However, we can hardly string two words together when trying to speak. We are taught incorrectly. We are, in traditional classes, taught using the wrong approach.

Just think of having the spoken fluency of a 6-year-old Mexican child! (I would kill for that.) And yet, what do we adults do? We pay for classes that require us to learn translation techniques and wonder why we spent all that money when we cannot speak the language.

Another issue that must be dealt with in the adult learner of a new language is trying to convince him that forking out a small fortune for classes that will teach him something about the language is not the road to take if initially what he wants is to know how to speak and understand spoken Spanish. Even though adults could figure this out, they do not. I would love to meet an adult who took grammar classes and literature courses and who was able to reach the spoken fluency level he had achieved in his native tongue by the time his mother carted him off for his first day of school.

Really, think about this a moment or two. Did you attend a class to achieve the spoken fluency level you had when you started first grade? Did you learn first how to speak your native language before learning about the parts or components of your native tongue? You did not learn how to conjugate a verb or read Chaucer before learning how to speak. So why do we as adults resist the idea based on more than 40 years of research that we can indeed learn a second language and that enrolling in costly courses that teach us bucket loads of stuff about the language is not the way to begin?

"Older learners who have been exposed to a translation system rather than an immersion system are suspicious of an immersion system because it is not widely used. Furthermore, they seek translation that keeps them in the English way of thinking, preventing the second language from developing independently from the first language. Immersion systems have as their goal the elimination of internal translation. Furthermore, immersion systems provide the individual with authentic second language, enabling the person to achieve native-like fluency in the second language." (Harris Winitz, Ph.D., Language Development, Kansas City, Missouri

Regarding the traditional methods for learning a second language, Dr. Winitz goes on to say: "American systems concentrate so heavily on memorizing 'surface' grammatical rules that they provide only a set of limited vocabulary items. One needs perhaps 20,000 words to begin to sound somewhat native-like, but 100,000 words should be the goal of the second-language learner. Additionally, classroom conversational instruction should be avoided because the students mostly hear the speech of fellow students that is incorrect and poorly pronounced. In some conversational classes 95% of the input is from fellow students rather than from the native speaker."

If we want to expatriate to another country where the host country's language is different from our own, then we will have to deal with the language issue. Otherwise, all we will ever be are visitors (Cultural Imperialists?) and not expatriates. The answer to learning a second language is to completely overhaul our philosophy of language learning and turn to the identical method we unconsciously submitted to when learning our first language: Immersion.

We must seek true immersion. Immersion, as it is touted in most advertisements for learning your targeted language in a country in which it is spoken, is to come to a school overseas and sit in a class where the grammar is taught entirely in the language of choice. This is NOT immersion.

True or authentic immersion means to subject yourself to massive amounts of comprehensible or meaningful input. It is to seek a way to become exposed to the language much in the same way you did unconsciously to your first or native language. And, this is most certainly possible. Frankly, I do not believe you have to go to foreign country to do it.

If my reference to Cultural Imperialists seems a little harsh, listen to this, from Wikipedia:

"Cultural imperialism is the practice of promoting, distinguishing, separating, or artificially injecting the culture or language of one nation into another. It is usually the case that the former is a large, economically or militarily powerful nation and the latter is a smaller, less important one. Cultural imperialism can take the form of an active, formal policy or a general attitude. The term is usually used in a pejorative sense, usually in conjunction with a call to reject foreign influence."


A school in Zacatecas, Mexico, uses the Krashen, Long, and Scarcella approach. Its approach utilizes the linguistic science I have alluded to in this article. I would recommend this school above all others since it is sound in its science and teaches language acquisition first and language learning second.

The article author, Doug Bower, has is a freelance writer and book author who has lived in Guanajuato, Mexico, for five years. He apparently has no affiliation with the school in Zacatecas. His website is here.

July 28, 2008

The UBS escapade shows what smart taxpayers have known for a while: The offshore tax-dodging game is not what it used to be.

This piece from Forbes effectively sums up the new world of offshore secrecy, post the the various scandals that have surfaced this year. To us the bottom line is no different than it was when W.I.L. started: (1) Follow your home country's tax and reporting laws. (2) Do not rely on secrecy as part of your asset protection strategy; at best it should be the proverbial frosting on the cake. (3) Do your international offshore business with institutions which have no legal or physical presence in your home country. A Swiss banker is quoted below: "In the history of law, the winning side has generally been the one with the greater clout." When the home country can take a lot of the financial institution's assets hostage, that constitutes "clout."

This year's events should show to even the most dimwitted that the Swiss bank secrecy of legend is now a myth. A word to the wise is sufficient. Hopefully a couple of pages spelling it out to the less-than-wise does the trick as well.

Aged men in speedos and their topless wives are sunbathing at the Utoquai lido on the Lake of Zurich, a timeless ritual of summer in the Swiss financial capital, where $2.3 trillion (assets) UBS makes its home. It is all so soothing: UBS porters usher multimillionaire Brazilian farmers up the private elevator, the corporate head of communications is off on vacation, and an elite cadre of UBS trainees, flown in for a seminar, is getting whisked away from the elegant Hotel Steigenberger Bellerive au Lac for another night of fine dining.

But in America UBS is engaged in a gritty fight. It is trying to avert criminal charges that it helped U.S. clients hide assets and evade taxes, clients like California billionaire Igor M. Olenicoff, who has confessed to hiding $200 million with the help of UBS. One UBS banker has pleaded guilty and is cooperating; his statements suggest widespread wrongdoing at the bank. The bank admits compliance problems but denies any wholesale fraud by the institution.

The contrast is all so surreal -- and marks a fading era of secret offshore accounts in Switzerland and other tax havens. Authorities have been chipping away at offshore locales for years. Now they are making some real headway. While offshore cheating will not disappear, to be sure, and UBS will survive, the new message to taxpayers is that an offshore account "is not impregnable," says Nathan J. Hochman, head of the Department of Justice's Tax Division.

The top federal tax rate is half of what it was 30 years ago. Should ffshore accounts not be on the decline? They probably would be but for the fact that the Internet and the globalization of business make these accounts so much more accessible. "It is not just the highest-net-worth people anymore," Hochman observes, pointing to the recent conviction of the owner of Buddy's Carpet in Cincinnati for a tax evasion scheme that involved insurance and offshore accounts in Nevis, the West Indies and elsewhere.

U.S. enforcers and their counterparts in other developed countries have swapped information and pressured tax-haven jurisdictions and banks to cough up data and adopt strict "know your customer" rules. Some of this has been packaged as a way to fight terrorism or drugs and arms trafficking or corrupt politicians -- not tax evasion. So it is understandable if the average offshore cheat might have ignored the gathering risk.

But information is information. And now that it exists, the tax cops want it. In July the IRS served a John Doe summons on UBS, demanding it turn over the names of the American owners of 19,000 undeclared Swiss accounts with $18 billion in assets. (Taxpayers are supposed to confess to ownership of offshore accounts by checking a box on Schedule B of the 1040.) Given that a Swiss bank is now expected to know its customers, UBS cannot easily insist that it does not know the beneficial owner of, say, a shadowy Panamanian corporation that is the titular owner of an account. Says Jack A. Blum, who has advised Congress and the IRS on money laundering and tax evasion for nearly three decades: "Increasingly, the banks have gotten themselves into the situation where they have the data and they are now being forced to cough that data up."

In February it leaked out that Germany's secret service had paid $6 million to buy a compact disc from a man who had worked for Liechtenstein's LGT Group. On the CD: client files, complete with memos detailing questionable practices. The information he sold outed some 1,400 customers, leading to the fall of Deutsche Post's chief executive and ongoing investigations of hundreds of suspected tax dodgers in France, Italy, Spain, Australia, the U.K. and the U.S.

While the IRS has long had a program (recently beefed up) to pay informants, the Germans' decision to pay for hot documents -- and other countries' willingness to use them -- was a big step for the Europeans, who rarely take as hard a line against evasion. "You are still able to hide your money, but at terrific risk," says Blum. No surprise that attitudes will not change easily. Liechtenstein, which makes its living on bank secrecy, has a warrant out for the informer's arrest. How Switzerland will respond to this new world of summons and squealers is still unclear.

At a Senate subcommittee hearing on tax haven banks in mid-July, the bank was suitably contrite. Mark Branson, the new chief financial officer at UBS's Global Wealth Management, admitted that "misconduct occurred" and announced the firm would be exiting the business of providing Swiss accounts to Americans, meaning they will have to move their money to UBS units registered by the Securities & Exchange Commission in the U.S., Switzerland or Hong Kong -- or to a rival bank. UBS is still negotiating how many names it will turn over.

If the bank spits out more names, it will reduce its risk of a ruinous U.S. criminal prosecution or of being kicked out of an IRS program -- known as the qualified intermediary program [see this posting] -- that is essential to its ability to do business internationally. But if UBS appears too eager to turn over all the names, it could run into resistance from Switzerland's own bank privacy laws, on which the nation's wealth has been built.

How will this play out? Says Peter Honegger, a partner at Swiss law firm Niederer Kraft & Frey: "I would bet on Swiss bank secrecy." If he is right, UBS might be allowed to turn over at most a small subset of the American names -- those considered guilty of tax fraud as the Swiss define it. This is, after all, the country that a quarter-century ago provided refuge to billionaire commodities traders Marc Rich and Pincus Green after they were indicted in the U.S. for tax evasion.

Yet a number of what might be called realists at smaller Swiss private banks are not convinced Swiss pols will stick up for the nation's bank secrecy and traditions this time. The reason: Global banks like UBS and Credit Suisse have substantial assets to protect in other, more powerful legal jurisdictions such as the U.S. In the U.S. UBS has 2 million clients and manages $700 billion in assets. "In the history of law, the winning side has generally been the one with the greater clout," writes Konrad Hummler, a board member of Switzerland's National Bank and a managing partner at Wegelin & Co.

Regardless of what its countrymen decide, UBS, if found at fault, will have to pay dearly to buy its way out of trouble in the U.S. Accounting firm KPMG paid $456 million in fines, penalties and restitution to avoid a criminal indictment for promoting abusive tax shelters. What might it cost the bigger UBS?

UBS's American clients will also have to pony up. UBS argues that under existing regulations, it had no legal obligation to tell the IRS about Swiss accounts owned by Americans so long as they did not hold U.S. securities. But that does not get the owners of those secret accounts off the hook. U.S. citizens with foreign accounts worth more than $10,000 in total must file annual reports even if the accounts hold no U.S. property and even if they earn no taxable income. Luckily for UBS's clients, the government prosecutes fewer than 2,500 tax cheats a year and the IRS has a liberal "voluntary disclosure" policy. A taxpayer probably will not be prosecuted if he fesses up and pays back taxes before the IRS begins an audit or criminal investigation.

Clients of banks other than UBS and LGT should not get too smug. The IRS is looking at eliminating the loopholes UBS used to justify not reporting those 19,000 U.S. accounts.

July 29, 2008

Vern Jacobs thinks the new exit tax and the efforts of the government to crack down on offshore tax evasion will generate a “brain drain” more than a money drain.

Veteran offshore commentator Vernon Jacobs -- editor of the The Jacobs Report newsletter -- logically notes that the tighter the government tries to tighten the offshore vise, the more people will worry about what will happen next. Some will decide they better get some assets offshore while they still can. Others will decide to move overseas, especially the ambitious ones who expect to generate a net worth in excess of the recently passed U.S. expatriation exit tax exemption of $2 million.

COMMENT: It seems like all this discussion about going offshore is futile. The U.S. government is now using strong arm tactics to bully other countries like Switzerland into disclosing all of their U.S. customers and everyone with an offshore account will be audited and put on some kind of government blacklist.

REPLY: For now, the IRS and the Congress is mostly looking for people who have not paid taxes on income that has been diverted into offshore accounts. I see no indication that they are harassing people who are reporting their offshore income and filing the required returns.

But -- the tighter the government tries to tighten the vise, the more people will worry about what will happen next. More people will begin to put some assets into offshore accounts or business entities. People who can afford the fees will do that in a tax compliant way but they will do it gradually and will most often set up an offshore business to justify their international diversification and travel.

People who do not feel they can afford qualified professional help will use the Internet and will invest in IBCs or foreign foundations and will gamble on not being caught in the offshore witch hunt. I doubt that any of those folks have accounts with UBS. And we still do not know how much the Swiss government will cooperate with the IRS John Doe summons.

The government has just passed an expatriation exit tax to stop wealthy people from leaving, but they left a pretty good sized exemption available for anyone with a net worth of less than $2 million. People who are young, optimistic and willing to take some risks will probably see this as a temporary opportunity to move to a more hospitable country. Instead of losing a few people with a very large net worth, we may lose a lot of the people who create jobs and wealth.

Laws almost always have unintended consequences and often have the opposite result from what was ostensibly intended. It seems to me that the new exit tax and the efforts of the government to crack down on offshore tax evasion will generate a "brain drain" more than a money drain. I read that it is happening in England and I suspect we will soon see a lot more people leaving the U.S. in the next few years. The simple way is to just move offshore while keeping U.S. citizenship and taking the time to acquire a second citizenship in another country that uses a territorial system of taxation or that employs a national consumption tax.

Of course, to do that, you either have to have a good retirement income or have a job overseas or you need to own a business that can be operated from anywhere in the world. And, you need to be pretty free of family ties.

Just my two cents.

Response to “Giving Up” Query
July 29, 2008

An international tax lawyer Vern Jacobs has known for many years appended this comment to the above post.

A few additional thoughts on the crackdown on offshore accounts.

Note that this attention to unreported accounts is not unique to the U.S. government. Most of the Western European governments are operating in this mode. Remember, it was the German government that started this round of investigations by bribing a bank official to divulge the names of German nationals who failed to report "offshore" (i.e., non-German) accounts. And most of the other high-tax European nations immediately asked Germany to release a list of their residents who had unreported bank accounts. So anyone thinking they can continue to hide assets by leaving the U.S. had better give serious thought to where they are going and where they need to be able to travel to on short notice.

Also, the UBS developments seem to be affecting IRS policy. We have been told by our local IRS office that they are no longer processing voluntary compliance cases involving unreported foreign accounts (whether or not the accounts are at UBS or LGT). Those cases now need to be cleared through the IRS National Office. I am curious whether other practitioners on your list have received the same message.

Finally, in general I agree about the potential for brain drain. I think it caught the UK government by surprise that the proposed changes to their residence and remittance rules would cause such a large flight of investment professionals. Just as I think it shocked Congress when UBS quickly decided to leave the U.S. personal banking market in the face of threats against banking confidentiality. As you say, governments seem to have little appreciation that talented people and organizations may "vote with their feet" when faced with oppressive regulation.

July 29, 2008

Despite coups, corruption and kidnappings, cell phone maverick Denis O’Brien keeps pouring money into the world’s poorest, most violent countries. His bet: Give phones to the masses and they will fight your enemies for you.

This is an amazing story, even by Forbes standards. Denis O'Brien has prospered taking risks that would daunt almost anyone else. He sets up cell phone networks in the poorest countries in the world, using speed, smarts, an apparent appetite for a good fight, and sheer audacity to end around corrupt governments and other obstacles that come with such territory. And O'Brien does good while doing well. The quality of life of the populations he services are undoubtedly improved -- far more effectively than their governments have done, we might add, and without any public [stolen] money.

Denis O'Brien professes not to understand why wall Streeters think his telecom business is risky. He says this while sitting in an office in Papua New Guinea that is protected by razor wire and a half-dozen guards carrying shotguns and pistols. O'Brien's Jamaica-headquartered company, Digicel Group, began offering cheap cell phone service recently in this Pacific hellhole. The murder rate in PNG is one of the highest in the world, corruption is rife, and the government recently threatened to seize 130 cell towers that O'Brien had erected at a cost of $120 million.

Is there anyplace as inhospitable to capital as PNG? Haiti would qualify. O'Brien has put money in there, too -- several hundred million dollars. Five of his workers in Haiti have been kidnapped so far. In East Timor O'Brien is pursuing a license despite a rebel uprising this year that left the country's president with a bullet in his chest. And then there is Fiji, where he had to abandon cell towers for a time after a coup.

He concedes a bit to the worrywarts by noting that his experience in Fiji was a "nightmare." But he is not about to stop putting capital in dangerous places. "If you just focus on risk, you can't do a thing," he says. A swashbuckling entrepreneur of 50 who swears often in his Irish brogue, O'Brien has built a $2.2 billion personal fortune by dominating the mobile business in a dozen poverty-stricken countries (in all, he is in 27 countries and territories). Combining shrewd political instincts, a relentless drive to cut costs and a little Irish charm, he has put phones into the hands of 7 million people in seven years.

He sums up his strategy thusly: "Get big fast. [Damn] the cost. Be brave. Go over the cliff. [The competition] doesn't have the balls."

O'Brien does not let government obstructionism or corruption deter him. He dots countries with cell towers, sometimes before rulers even grant a license, then slashes the price of mobiles on opening day to get the masses using them fast. It is a bet that poor people who have never had phone service before will not let the politicians take their phones away without a fight. Thus does O'Brien avoid the fate of many Western investors in corrupt, violent countries -- being forced to sell out on the cheap. That is what happened to Royal Dutch Shell's oil well on Russia's Sakhalin Island and to AES's power plants in Kazakhstan

In an April riot in Port-au-Prince, Haiti the mob not only spared Digicel stores from its burning and looting but even gathered in front of a few of them and cheered. Says a jubilant O'Brien, as he reads an email on the news, "They're calling us the Company of the People."

If riots and coups are not risk enough, O'Brien is moving into El Salvador and Honduras to confront a rival with far more resources. Mexican mobile phone titan Carlos Slim Helú, the second-richest man in the world, is already selling in those countries. "I don't think about Slim every day," says O'Brien, who claims he has taken 20% of the market in El Salvador in one year. (Slim, in turn, has bought a cell phone company in Jamaica, setting up a battle on O'Brien's home turf.) O'Brien is also eyeing the U.S., where only 80% of the population has a cell phone. He says he could close the gap fast by selling cheap handsets activated with codes on prepaid phone cards, as he does in poor countries. "They're snobbish," he says of the U.S. operators' disdain for such tactics. ...

Digicel is [O'Brien's] biggest gamble ... Total revenue: $2 billion. The Caribbean operations backing his bonds just announced $505 million in operating profit (earnings before interest, taxes and depreciation), double the year-earlier figure, on $1.6 billion in revenue for the year ended in March. His goal: cell service in 45 countries in two years, generating more than a billion in operating income.

In April O'Brien was in the midst of a 5-day, 4-country visit (via his Gulfstream G550) to keep tabs on his assets. "Why does no one think about reducing costs in this company?" he fumes. In Western Samoa, where Digicel has captured 32% of the population in 18 months, O'Brien lashes out at staff, flown in from various countries, for sins like buying eight vans instead of six (potential savings, $44,000). Next a staffer reports happily that people in the Kingdom of Tonga are apparently buying the rumor, spread by Digicel, that it will launch in October. "Keep spreading it," O'Brien advises. (Digicel began the invasion in May, taking competitors by surprise.)

Then he hears of plans to invite the king of Tonga, not the prime minister, to cut the ribbon at a store. "Weren't they throwing stones at him a while ago?" O'Brien wonders. Indeed, antimonarchist rioters managed to burn down much of the capital. But no time to dwell on the king -- O'Brien has to fly to three more countries today, and his next meeting is in Vanuatu, 3,200 miles away. "Every man for himself," he yells to two dozen young staffers as they rush to vans heading to the airport.

O'Brien inherited business smarts from his father and a rebellious streak from his mother. ... After university in Dublin, and a Boston College M.B.A., O'Brien became a banker, then set out to build a QVC-like channel for all of Europe. When that collapsed he went into hock, started a Dublin radio station, 98FM, and began selling ads furiously. That was the forerunner to Communicorp, today one of the largest radio networks in Europe.

He dipped into the cell phone business in 1995 when he won a license in Ireland to set up a mobile phone network, Esat Telecom. A government investigation into a former communications minister accused of a variety of corrupt dealings is looking into whether O'Brien won the license on a bribe. O'Brien hotly denies he did so and says that at Digicel -- incredibly given the countries it is doing business in -- he has never been asked for a bribe, much less greased any palms.

In any case he loaded Esat up with debt and got 550,000 customers in three years. In January 2001 he sold the company for $2.9 billion to BT Group -- $300 million of it going to him and $250 million to his workers (even the janitors had options). ...

Shortly after unloading Esat, O'Brien spotted a 3-inch-square ad in the Financial Times inviting bids for a mobile license in Jamaica. He likes to say he was drawn to the region because of all the Irish "troublemakers" banished there by the English after a 1649 invasion. But the real pull was that this was a country where only the elite had access to phones. In a place like that, he could get the masses to love him.

He paid $48 million for a license and rolled out a battle plan he would use on other invasions: spend lavishly on the network (1,000 towers in Jamaica), build clean stores with cheery staff (a rarity in many developing countries) and lure customers by offering new services like per-second billing and big discounts from the competition (80% less for phones and 50% less for calls).

O'Brien also drew on his inner P.T. Barnum, throwing cell-tower parties with live reggae music and starting an "American Idol"-type contest called "Digicel Rising Stars," in which the best amateur performers are chosen by national vote (using Digicel phones, of course). Only 10% of Jamaicans used cell phones before Digicel arrived. Now 90% (2.4 million people) do. 3/4 of them are using Digicel phones.

He is expanding across the Caribbean. In Trinidad & Tobago, where the state mobile phone firm was dragging its feet on connecting Digicel calls to its own customers, O'Brien harangued government officials to speed things up, even phoning one Christmas night to complain. After the launch the state firm started dropping Digicel calls anyway, making its new competitor look bad. O'Brien took his case to the people, taking out ads in T&T's papers listing life "Before Digicel" and "After Digicel" and held a press conference. The state firm eventually relented. In its first four months Digicel bagged 600,000 customers and is narrowing the gap now with the state in market share.

In June 2005 O'Brien bought a license in Haiti. The country has no nationwide electric grid to power cell towers, so Digicel had to deliver barrels of diesel to its sites, sometimes by donkey. Customs officials refused to release 75 cell towers from a warehouse for nine months, relenting only a few weeks before launch (and after Haiti Chief Ghada Gebara paid a visit to a hard-to-find government official at his paramour's house). Then a familiar problem: a refusal by the two rival incumbent firms to connect Digicel calls with its customers.

In May 2006 O'Brien launched anyway with a clever come-on: Customers with phones from rivals could trade them in for a free Digicel one. Hundreds of people lined up outside Digicel stores for three weeks in scorching heat. "Let the people know we give a damn about them," O'Brien lectured staffers. Within days he had struck a deal to slap the Digicel logo on water bottles, then had workers hand them out along the lines while dancers gyrated to live music from flatbed trucks.

In one week Digicel had 120,000 customers, and its rivals agreed to interconnect. O'Brien now has 2 million Haitian customers, 64% of the market.

By the end of 2006 private equity firms were circling Digicel. The company had 4 million customers in 22 Caribbean countries and was generating $220 million a year in operating income. O'Brien was sitting on a beach in Barbados looking over two buyout offers for $3.8 billion when it hit him: Why not buy the whole company himself? One month later he sold $1.4 billion in bonds, enough to buy minority investors out of their 22% stake, put a few hundred million into the business and pocket $800 million for himself, free and clear. Total debt: $2.8 billion. O'Brien prefers to think positively of the tight budgets that borrowing demands: "If you have limited resources, you have to be more clever, more skillful, more defiant." Tell him many big telcos have a lighter debt burden and he snaps: "They're doing nothing but sitting on their arses."

O'Brien was soon moving into the Pacific. Digicel staffers flew to Tonga to inspect a state mobile outfit for sale, only to discover crucial documents had been burnt in those antimonarchist riots. (O'Brien bought the firm anyway.) In Fiji Commodore Frank Bainimarama had just seized power and subjected Digicel's chief there to a four-hour interrogation. Would the $20 million Digicel spent there go down the drain? No. A week after the coup O'Brien was sitting on a veranda with the new ruler, sipping tea. "Everyone was saying, ‘Don't go. It's unsafe,’" he says. "But that's exactly the time to go in."

Government officials in Papua New Guinea were not so amenable at first. Soon after Digicel won a license in an auction in 2006, telecom minister Arthur Somare invalidated it on a hazy procedural ground. Lawsuits quickly followed, and O'Brien kept his license. (We should point out here that Somare is a son of the prime minister.) In any case Somare then submitted a bill to parliament to nationalize O'Brien's operations. The fight got so bad that the man who oversaw the original auction, Thomas Abe, received anonymous threats against his family and had to move houses several times.

Digicel had a lot to lose. It had erected dozens of towers and poured concrete for dozens more. O'Brien used this to his advantage. He brought members of parliament into Digicel's main office to show them a wall map of PNG with pushpins representing planned cell sites in villages that never had a landline connection. The plan to nationalize Digicel was defeated.

Somare was not through. A few months later he decreed that Digicel could not beam microwave transmissions from its towers, potentially rendering them useless. O'Brien's response: He launched his service on the sneak, selling phones for a heavily subsidized $6, 1/5 the state monopoly's price. He gave away a chip that allowed state phones to run on Digicel's network. He also gave away $6 prepaid phone cards -- 250,000 of them in only 10 days.

Within five months Digicel had 350,000 customers, 200,000 more than the state firm, and letters began to pour into newspapers ridiculing the state for threatening a rival. "Childish and pathetic," sniped one letter. An editorial called for competition to shake up the water and electricity monopolies, too. O'Brien contacted friends in foreign embassies to lobby the government to not touch the company. "The EU funds PNG. So do Australia and New Zealand. So we used diplomacy," he says. A former PNG army commander was quoted ominously in a magazine saying governments that ignore the people's will are often toppled by coups.

The threat from the state has now largely faded away. Says auction overseer Abe, "Fishermen and farmers are calling me to say, ‘Good for you for standing up to the government.’" Indeed, it is hard to overstate the impact cell phones are having on poor citizens. Fittler Larsen, a impoverished betel nut seller in a PNG squatter settlement of 20,000, is making more money now that he can call wholesalers to check if new shipments have arrived. "I used to spend half a day getting supplies," says the 19-year-old, standing barefoot amid half-naked kids. "Now I can stay here and sell more."

Back in the Caribbean, O'Brien bought a license in Panama and visited Nicaragua twice in quest of one ... O'Brien, never one to suffer doubts, proclaims, "You run like MacArthur from island to island -- and you conquer. This is going to be a very big business."