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

W.I.L. Offshore News Digest :: September 2009, Part 1

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Ultimately, a regime that imprisons its own most creative people will run out of victims and collapse.

A reader’s opinion about Ayn Rand’s Atlas Shrugged is usually heavily colored by his or her attraction to the underlying philosophy. Statists of any stripe will usually hate it on principle because of its systematic and entertaining defense of individualism and free markets. The contemporaneous book review by Whittaker Chambers in National Review is a famous example – a review we find to be hilarious in critical polemics, which are as overwrought as the rhetoric and tone he finds in the novel. Anti-statists will generally forgive any heavy-handedness or stylistic excesses they discern because of their alignment with the essence of the message.

Whatever one’s opinion of Atlas Shrugged as a philosophical tract and/or a novel qua novel, it is standing out more and more as a prescient work of science fiction. Looking around at today’s social and economic debacle, people are exclaiming: “It’s something right out of Atlas Shrugged!” Which is strong evidence of Ms. Rand’s metapoint: Ideas have consequences.

In the newsrooms of New York, in the corridors of Congress, and in the parlors of political parties, prognostication is the always the order of the day. In what direction is the stock market or the public mood swinging? Will controversial legislation become law? Who will get an appointment or nomination? Who will win an election?

Predict correctly only a few months ahead, and you are sharp; a few years ahead, and you are a high-paid sage.

So, what should we think of someone who gets it right on a scale of decades?

It has been a half-century since the publication of Ayn Rand’s monumental Atlas Shrugged. That book has attracted millions of readers with its compelling story and inspiring vision of a free, prosperous, rational future. It has also been lauded as brilliant socio-political prophecy. In fact, it is common for people reading today’s headlines with anger, fear, and frustration to comment, “It’s like something out of Atlas Shrugged.”

Yes, one of Atlas’s achievements was to seemingly foretell the future. But there was nothing mystical about Rand’s prophetic powers. She understood principles.

The Power of Principles

Atlas Shrugged tells a tale of America in decline. It starts with beggars on the streets, closed stores, industrial and consumer products in short supply, and, ominously, competent and intelligent workers hard to find. We see governments intervening to help some favored group or industry, often at the behest of politically connected businessmen bent on extracting unearned wealth from their competitors – a trend that causes further economic hardships. This disintegration accelerates throughout the story until, in the end, we see the collapse of industrialized America.

Ayn Rand did not write Atlas to predict this would happen, but “to keep it from becoming prophetic.” It was the ultimate cautionary tale. The story is believable because she understood that a peaceful, prosperous society is possible only if individuals have the moral right to pursue their own self-interest, dealing with each other by mutual consent, with government restricted to protecting their individual rights. She understood that individuals should live for their own happiness. She understood that we must create the means of our physical survival and spiritual well-being. And she understood that the only proper means to those ends is the use of reason.

Rand also understood that it is not possible for anyone to predict with certainty what the future will hold. There are no gods, dialectics, or forces of historic inevitability governing human society. Because individuals have free will, we are the masters of our fates, for good or ill. Rand further understood that the principles on which individuals act will determine whether they are prosperous or impoverished, happy or miserable. And to the extent that people abandon the principles necessary for survival and flourishing, scenarios like those in Atlas Shrugged will play out in the real world.

Let’s look at a few of those scenarios and the principles behind them.

Shrugging Time

In Atlas, the most productive and competent individuals – the wealth producers, the giants who hold up the world – simply disappear. These are not thieves fleeing justice with ill-gotten gains; they are individuals of the mind who create wealth for themselves and, in the process, prosperity for others. But they refuse to participate any longer in an economy that crushes them with confiscatory taxes and dictatorial regulations. They also abandon a culture that scorns them for their productivity and competence – while simultaneously exploiting them for those same virtues.

The principle is that individuals of self-esteem will not work as slaves; they will not accept unearned guilt for their achievements and virtues; and they will do what they can to avoid their own destruction by quitting or fleeing.

That was fiction; but in the decades since Atlas was published, we have seen millions of productive people “voting with their feet” – moving from one city, state, or country to another, or even simply retiring, simply to avoid exploitation and persecution.

In the 1970s, New York City, Rand’s chosen home, went bankrupt. A principal reason was that high taxes drove many businesses out of the city, into other jurisdictions. In the 1990s, California also tried to bleed businesses with high taxes and heavy-handed regulations. It likewise suffered a recession, giving nearby Nevada and Arizona, with more business-friendly environments, a transfusion of creators and entrepreneurs fleeing that repressive state.

In her 1964 essay “Is Atlas Shrugging?,” Rand explained the principles behind what many were then calling the “brain drain.” This phenomenon saw the best-trained, most competent individuals leaving their countries of origin in Europe – for example, physicians fleeing Britain’s socialized medicine system, which had made them a new order of serfs.

More recently, we have also seen physicians in the United States retiring early. In some cases, this is because government regulations forced them to treat hospital patients who could not pay their bills, leaving them no means to collect for the life-saving services they had rendered. They had worked hard, calling on the best within them to acquire healing skills admired by all; but under the law – and under the moral code of self-sacrifice – others could demand their services for free, and they were expected simply to comply.

Many “shrugged.”

In other cases, physicians shrugged in response to predatory plaintiffs’ lawyers going after them with bogus lawsuits. There has been no surge in deaths in recent decades from physician incompetence. But, because of a liability system that allows the looting of those with “deep pockets,” physicians have faced not only unjust fines but tripling and quadrupling of the rates charged them by the insurance companies to cover such costs. A doctor who has never harmed a patient must pay protection money against the looters loosed upon them by an unjust legal system.

In 1976, Ayn Rand observed that Swedish filmmaker Ingmar Bergman and movie star Bibi Andersson had left their homeland to avoid confiscatory taxes and because of a general resentment against them – not because of their vices, but because of their achievements. Theirs was a culture based on envy.

Fast-forward to 2006, when John Fredriksen, Norway’s wealthiest man, who had made a fortune in shipping and aqua-business, gave up his citizenship because of a law aimed specifically at making him pay more taxes. That country’s prime minister said, “It is exactly people like John Fredriksen that should pay.” And that morally obscene attitude is exactly why Fredriksen – and many less famous – chose to shrug.

As a matter of fact, nations with high taxes, especially in Europe, recently have been complaining of “harmful tax competition” from nations that do not punish their productive citizens as severely, thus becoming havens for those trying to keep their own money. The envy-driven countries, in league with the United Nations, are now pushing for “tax harmonization” and a global tax system to make sure no one can escape. Call this “Atlas chased”!

Communism’s Collapse

Ayn Rand knew that, in the long run, attempts to keep individuals from “shrugging” by preventing them from fleeing repressive governments and envious cultures would not work. This is because the human mind cannot be forced. Ultimately, a regime that imprisons its own most creative people will run out of victims and collapse.

In Atlas Shrugged, we see this happen in a factory run on the communist principle of “from each according to his ability, to each according to his need.” The novel ends with the collapse of the entire American economy, because it has been compelled to follow this predatory morality of self-sacrifice.

So it was no surprise to readers of Atlas that, in the years following its publication, communist regimes tightened their borders with more barbed wire, machine guns, and, most infamously, the Berlin Wall, to prevent its victims from escaping. But what did surprise these readers during the 1960s and 1970s was the widespread fear among Western leaders that their countries would inevitably decline, because they believed that freedom just does not work – that the Soviet Empire was strong and on the move precisely because of its centralized, statist economic policies. Many advocated conciliation and negotiation with the communists, on the belief that the Soviets otherwise would beat the West in weapons production.

Rand, a refugee from the Soviet Union, knew better. She understood that the moral evils of communism and the principles on which that regime’s tyranny was based would necessarily lead to its collapse. She even mused about how many of their missiles, if fired, would actually work, so unreliable was Red technology. And she was right to point out that it was Western assistance that kept such regimes propped up: Germany and other European countries, for example, extended loans to Warsaw Pact countries.

When the collapse came, it was with stunning speed. The Soviet’s eastern European empire fell during the last six months of 1989. A few years later, the Soviet government itself was gone, and the Communist Party was banned in that country.

The post-mortems revealed that the socialist economies had been hollow shells. Just prior to the Soviet collapse, the CIA had estimated that its economy was at least half the size of America’s. In fact, it turned about to be as little as 15% of America’s size. At the end, the shelves of Russian stories were empty, industries were unproductive, bureaucrats were corrupt, and there was little more that the looters could squeeze out of an exhausted people.

It was like something out of Atlas Shrugged!

The Death-Worshippers

One of the most startling and controversial insights in Atlas Shrugged was that those who reject the moral principles of rational self-interest and individual liberty were acting – whether they knew it or not – on a death premise, and that the more consistently they adhered to their course, the more deadly the results.

As Atlas opens, we hear James Taggart, a businessman with a “social conscience,” as well as other characters, justifying statist policies in the name of “society” and “the people,” or to help “the little fellow,” “the poor,” and “those who never had an opportunity.”

This of course mirrored the rhetoric of American liberals in the 1950s and ‘60s. Men like Adlai Stevenson and Hubert Humphrey said they did not want to overthrow the capitalist system. No, they just wanted to do a little bit of wealth-redistribution, a little bit of fine-tuning in the name of “fairness.” After all, rich businessmen have enough money, so they would hardly miss a few extra dollars in taxes.

Such men might be mistaken; but – a death premise?

By the end of Atlas, Rand shows James Taggart breaking down, confronting his own undisguised hatred of the good:
He was suddenly seeing the motive that had directed all the actions of his life. It was not his incommunicable soul or his love for others or his social duty or any of the fraudulent sounds by which he had maintained his self-esteem: It was the lust to destroy whatever was living, for the sake of whatever was not.
Rand was not saying that all who stumble along with a confused mixture of goals – to help the poor through government, while preserving a measure of free enterprise – would end up this way. But she was saying that this is the logical end of any moral philosophy that rejects man’s life as the standard of value and rejects the lives of individuals as moral ends – whether such rejection is in the name of a social or religious good, or any goal higher than and apart from the individual.

The rise of Islamists is a stark and terrible vindication of Ayn Rand’s insights about where the premises of irrationalism and self-sacrifice logically lead. As Osama bin Laden expressed quite bluntly in 1996 concerning his al Qaeda terrorists, “These youth love death as you love life.”

No one can pretend that the maniacal pleasure that Islamists take in killing others – their suicide murders and the sick celebrations that parents hold to mark the suicides of their own murderous children – are simply normal reactions to socio-economic or geopolitical grievances. Rather they worship death, just as Rand understood.

In her lifetime, Rand singled out another ideological movement that seemed to have the same suicidal impulses seen in other anti-individualist ideologies and religions: the environmental movement.

It is one thing to want clean water and air for the sake of one’s own health and well-being, or beautiful forests, rivers, or lakes for one’s relaxation. But Rand observed that those who speak of the earth, and of its non-human life and resources, as having “inherent value,” would be led to devalue human beings and the human mind – the source of all values.

Sure enough, today we see those who put not heaven, the proletariat, or the race above the individual, but Gaia or Mother Nature, instead. The title of a recent bestseller even extols the prospect of The World Without Us. A glowing review in Salon puts it this way:
[Author Alan] Weisman embarks on an audacious intellectual adventure: He tries to imagine what the world would be like if humans suddenly disappeared. “How would the rest of nature respond if it were suddenly relieved of the relentless pressures we heap on it and our fellow organisms? How soon would, or could, the climate return to where it was before we fired up all our engines? How long would it take to recover lost ground and restore Eden to the way it must have gleamed and smelled the day before Adam, or homo habilis, appeared? Could nature ever obliterate all our traces?
The gleefully nihilistic Salon reviewer goes on:
The World Without Us taps into one of our deepest, if only furtively acknowledged, pleasures: imagining destruction. Just as Tom Sawyer sneaked deliciously into his own funeral, we gobble up Weisman’s anecdotes about the decay and dissolution of everything human.
Ayn Rand saw this coming. At the time, everyone said she was cruelly caricaturing environmentalists as “anti-human.” But she was right.

Consider the literal and symbolic end of a world based on just such anti-life principles, a world that she depicted in Atlas as seen from a plane flying over a collapsing country:
New York City . . . rose in the distance before them, it was still extending its lights to the sky, still defying the primordial darkness . . . The plane was above the peaks of the skyscrapers when suddenly . . . as if the ground had parted to engulf it, the city disappeared from the face of the earth. It took them a moment to realize. . . that the lights of New York had gone out.
In the novel, the observers react in horror; but today, more than a few would welcome the spectacle of civilization’s collapse.

The 1965 New York blackout was not caused by faulty philosophy, although many individuals did comment that “it was like something out of Atlas Shrugged.” But it was a shock to the country, a reminder of just how technology sustains our lives, lifting us out of primitiveness and darkness, and of just what the world would be like without such technology.

Sadly, in 2007, we witnessed a symbol of the deepest philosophical darkness – the death premise – as the lights of cities in Australia and other industrialized countries were extinguished. This was not the result of power failures or natural disasters; it was deliberate, a way for governments to urge us all to limit our energy consumption. The message was not simply to save our own money by turning out our lights when we are not using them. The message was that Prometheus should take back his fire from mankind.

This is not the symbol of regretted death but, rather, of the suicide of a civilization.

Changing the Prophecy

While many of the terrible scenarios in Atlas Shrugged have found their way from its pages into those of our newspapers, many did not – perhaps because Atlas helped prevent them from coming true.

Atlas gave rise to the Objectivist movement, and it has informed libertarians and lovers of liberty for many decades, giving them unprecedented arguments by which to fight for freedom and capitalism. Along with the political and economic ideas of free-market thinkers like Mises, Hayek, and Friedman, Rand’s ethical ideas informed the “Reagan Revolution,” and they continue to inform policy-makers and think-tank scholars who pursue the positive vision of a free, prosperous society.

Atlas has given many entrepreneurs a moral understanding of themselves as creators, which has in turn given them pride in their acts of creation. The ethical revolution of rational self-interest will continue to be one of the book’s most important legacies. Our freedoms may still be preserved if its defenders seize and hold the moral high ground that she staked out in her seminal novel. And Atlas continues to inspire new generations of young people, who are importing its principles into their lives and careers.

Atlas Shrugged demonstrates the power of ideas. A study of the book allows us to see the world through the lenses of timeless philosophical principles, principles that enable us to often predict how the lives of individuals, cultures, and countries will progress – or decline. Perhaps by the novel’s centenary, future generations will have employed its insights to make certain that their world will not be a collapsing ruin, but a free, radiantly rational civilization.

Why, it would be like something out of Atlas Shrugged.


Should you do like Dagny Taggart and bail, or like John Galt and bail out?

After the real estate bust dust settles, the preponderance of state and local governments will be effectively bankrupt. Local governments will go begging to the states, and states will have to turn to Uncle Sam.

And, avers Simon Black: “This is when things will become very difficult, and it goes much further than military personnel patrolling the streets. Emergency taxes, wealth confiscation, and capital controls will likely be part of this future as the government ensures that every American is doing his/her patriotic duty to bail out the government.”

Which is what we have been saying forever, modulo the details like tanks patrolling U.S. city streets.

We will be faced with a choice – “bail out or bail?”, as Black phrases it. Continue participating in this corrupt bureaucracy like Atlas Shrugged protaganist Dagny Taggart – until the stuggle is no longer worth it, the analogy implies – or find freedom elsewhere like John Galt?

I am really disturbed by what is happening in Alabama.

You have probably heard – Jefferson County/Birmingham’s board of knucklehead politicians has managed to drive local finances into the ground over the last few years. Faced with unserviceable debt and a string of large losses from complex derivative instruments, the county is effectively bankrupt.

The good news is that the government is being forced to make deep, deep budget cuts, including “essential services.” Personally, I have no problem with this – I have long wondered why nuisances like driver licenses, license plates, and business permits even exist, let alone be considered “essential.”

The disturbing part is that the local government is paring back its police force. By itself, I would welcome this as good news – I have a natural disdain for “law enforcement” and would rather take my chances with criminals than with police.

Furthermore, I have lived in many places where local police forces take a backseat to private security guards who are charged with actually protecting people and property instead of harassing customers.

The thought of simultaneous military HMMW-V patrols in Baghdad and Birmingham is not a vision of America that I care to participate in.

Unfortunately, instead of going the private route, Jefferson County is talking about calling in the National Guard ... and the thought of simultaneous military HMMW-V patrols in Baghdad and Birmingham is not a vision of America that I care to participate in.

It is not isolated to Alabama – this scenario is playing out in city halls and state legislatures across the United States. I believe wholeheartedly that this will be the “next next” shoe to drop (after commercial real estate – more on this later in the week): an implosion of state and local government finances.

During good times, unemployment was low, real estate values were high, and consumer spending was an addiction. Consequently, tax revenues from income, property, and sales were very high. Governments were living high off the hog with the public’s money building bridges to nowhere and expensive office buildings to house their bloated bureaucracies.

Today, tax revenues have dried up but the bloated bureaucracy remains. Suddenly the interest payments on all those school and sewer bonds are unserviceable and the parks department is bitching for new lawn mowers ... “essential services.”

What is happening in Jefferson County is simply a prelude to this requiem. After the commercial real estate dust settles, the preponderance of state and local governments will be in a similar state of fiscal emergency. Local governments will have their hands out to the states, and states will have their hands out to the federal government.

This is when things will become very difficult, and it goes much further than military personnel patrolling the streets.

Emergency taxes, wealth confiscation, and capital controls will likely be part of this future as the government ensures that every American is doing his/her patriotic duty to bail out the government.

Each of us will be faced with a choice – bail out… or bail? Continue participating in this corrupt bureaucracy, or find freedom elsewhere? After all, there’s a lot of wonderful places in the world and now is the time to prepare – do you have a lifeboat strategy yet?

If not, I strongly recommend you take some time to listen to asset protection guru Mark Nestmann. We interviewed him a few weeks ago and his advice is worth its weight in gold. There are steps that you can take now to protect your wealth, protect your family, and protect your freedom – click here to listen to the interview.


“Clews’ Views” is a regular column appearing in the Caribbean Property Magazine e-zine, written by Carter Clews. The column offers his best take on “best buys” throughout Latin America for “middle-income type” people. Clews’s articles we have covered in the Offshore Digest so far this year are:

Clews has not written about Nicaragua heretofore. The country has been promoted by others, so his readers have been wondering what is the deal. The short answer is that beautiful places are available for cheap, and the people in the country are nice. The catch? Daniel Ortega – graciously, and possibly naïvely, offered a second chance by the Nicaraguan electorate – may yet mess things up again. “Ortega seems determined to impose a Chavez-style socialist government, perpetuating himself in power by gutting the country’s cherished term-limit laws.” That’s gratitude for you.

So wait to see how the situation resolves? If Ortega departs without incident prices will probably immediately move higher, possibly much higher. Clews says he plans to buy, and then pray for a favorable outcome.

If they asked me, I could write a book
About the way you walk and whisper and look …

~~ Rogers and Hart

If there is one, single question I get more than any other when folks find out that that I write about Latin American destinations, it is, “What about Nicaragua?”

“You have written about Guatemala, Honduras, El Salvador, Colombia, and even Uruguay,” they say, “but nary a word about Nicaragua. So what is the story?”

Well, the truth is, the story is about as complex as any in Latin America. The prologue is a centuries-old saga of government betrayal. The twists and turns in the complex plot rarely seem to go the way well-wishers would want. And the denouement still remains sadly in doubt.

Still, it is the story of a remarkably resilient people who deserve far better than they have received. A people who have suffered the “slings and arrows of outraged fortune” with an inner peace and outer strength that serves as an enduring example to all who face the oft-unfair vicissitudes of life.

The gentle manner of that good people, the very way they “walk and whisper and look” seems to defy the forces of nature itself. Who could forget the horror inflicted upon them by the earthquake of 1972 that all but leveled Managua, leaving 5,000 dead and tens of thousands homeless? Yet, even with international aid diverted into the bulging pockets of the rapacious Somoza, the victims rose from the ashes to bind their neighbors’ wounds and rebuild upon the rubble.

Such is the courage and compassion of the Nicaraguan people.

Later, blighted by the oppressive policies of a revolutionary government that promised to save, but chose to enslave, the resilient Nicaraguans stunned the world by throwing off the Sandinista yoke and establishing a democracy where none before had prevailed. They did so not with the bullet, but with the ballot, proving anew the inexorable mettle of their unconquerable souls.

Today, the people of Nicaragua, having graciously offered a second chance to an errant son, again suffer under a Sword of Damocles threatening their fledgling democracy. Daniel Ortega has imposed onerous controls most had hoped were consigned to the dustbin of Nicaraguan history.

Just as the impeached Manuel Zelaya attempted unsuccessfully to do in Honduras, Ortega seems determined to impose a Chavez-style socialist government, perpetuating himself in power by gutting the country’s cherished term-limit laws.

So why do I – a destination writer much preferring the dreamlike ethers of the turquoise Caribbean to the nightmare world of hardball politics – bring all of this unpleasantness to your attention? Because, despite it all, I want you to consider Nicaragua. I want you to know what you are buying before you entertain a sale. And I want you to know the truth, the whole truth, and nothing but the truth, so that your eyes are as open as your heart and mind.

You see, I love Nicaragua. I love the land and its people. I love its rolling hills, majestic mountains, quaint towns, and breathtaking beaches. In my own heart, I want it to be all that it could – and should – be. I want it to be a place you feel comfortable – yes, even excited – about one day visiting and even living there, just as I would like to do.

And the fact is: if Daniel Ortega leaves office in 2011, as the Constitution requires, Nicaragua may quickly become the best land buy in all of Central America.

But, before I tout its ample wares, first, I owed it to you to pierce the veil and show you the danger within. I have done so. You can now make a well-informed, dispassionate decision. So, now, let me show you why, despite all of that, Nicaragua may be a place where – “your faith triumphant o’er your fears – you may find the good life at a great price that you, as Clews’ Views readers desire and deserve. To do so, allow me to take you on a minds-eye journey to the little town of Masachapa (population approximately 5,000) located at the halfway point going north to south down Nicaragua’s beautiful Pacific Coast.

My good friend Mike Cobb, the developer of the exquisite Gran Pacifica resort community just 10 miles from Masachapa, had this to say about the enchanting little town. “It is a quaint fishing village with a couple of restaurants that are on stilts over the water (at high tide) that serve the freshest fish, lobster, and shrimp you can get. If you look over the rail, you can even pick your fish.”

In short, in Masachapa, you will eat well and see the world at its pristine best – all at a bargain price. A full meal at any one of Masachapa’s picturesque waterfront restaurants costs well under $10, including the main course, dessert, the beverage of your choice – and the town’s rightly renowned, delectable seafood soup. The service is always friendly and invariably prompt. The atmosphere entirely relaxed.

In fact, the atmosphere throughout Masachapa is entirely relaxed. And that is part of its Caribbean charm. Masachapa, with its rugged shore and placid tidal pools is the kind of place where you can enjoy relaxing at a leisurely pace. I cannot put it any more succinctly than that. If your idea of a good time is curling up with a good book, lounging in the sun, and “telling the whole darn world if you don’t happen to like it, deal me out, thank you kindly, pass me by,” Masachapa may well have been made with you in mind.

On the other hand, if you are into a little more excitement (though still at a decidedly Caribbean pace), you will be happy to know that coterminous with Masachapa – in fact, truth be known, largely indistinguishable from Masachapa – is the bustling, hustling town of Pochomil.

Pochomil’s Centro Turistico houses a staggering 30 businesses, mostly waterfront restaurants and bars, all are featuring a wide variety of fresh seafood and homegrown vegetables. Almost all of the bars and restaurants have palapa (thatched) roofs; all front on the untrammeled, honey-sand beach. The food is inexpensive; the atmosphere is unrivaled for idling away the hours with nothing on your mind but living in the moment.

But, don’t get too settled in. Because, when not dining out or lying about, you will want to take advantage of the world class surfing for which Nicaragua is increasingly famous. Since I am not a surfer myself (not now, not ever), I am simply going to quote directly from the Lonely Planet travel guide to give you some idea of what to expect when “surf’s up”:
“There’s great surfing – a left point break just north of Montelimar [an adjacent town to Masachapa and Pochomil], and a hollow right reef break to the south; Quizala, a beach break, is closer to Masachapa. South to Pochomil there are scores of smallish, predictable peaks that would be perfect to learn on.”
And here, to sum it all up, is a description that even a landlubber cannot help buy love from NicaraguaSurfMaps.com: “Masachapa itself has a great right hander which barrels nicely at times. Works best on low tides on the push and big south swells.”

Well, cowabunga, dude! (Sorry, I just couldn’t help myself.)

Seriously, if you are into surfing, swimming, catching fish, dining on the fish others catch, or simply enjoying a leisurely life under the sun with friendly people around the clock, I urge you to check out Masachapa. The area defines seaside serenity. And it has one other added attraction that could well make it a great investment as well. I alluded to it earlier.

Masachapa is on what is fast becoming known as Nicaragua’s “Pacific Riviera.” This is the coastal stretch from Nicaragua’s northern border with Honduras to its southern border with Costa Rica that is fast becoming a sun-seeking water-lover’s year-round mecca. Already more than 20 exquisite resort developments have been, or are being, built along this golden corridor. And, few doubt that if freedom rings, it could one day be the most luxurious track of beachfront property in all of Central America.

Mike Cobb’s Gran Pacific is among the exquisite developments along Nicaragua’s Pacific Riviera. In fact, many who have taken the north-to-south resort excursion consider it the set piece. I urge you to visit it – not because I have an ownership interest (I do not), but because once you see it, you may choose to. In addition, it will give you a feel for the remarkable beauty of the entire Pacific coast – including Masachapa.

Besides that, Mike Cobb is the kind of honest broker who will candidly answer your every question about Nicaragua and help you decide where and when to settle, if you should so decide.

Gran Pacifica for its part is what I would call a perfectly planned New Urbanism community, with all of the modern amenities, views to die for, the rolling Pacific at the tips of your toes, and home prices so low you may be tempted to buy a baker’s dozen.

Well, maybe not that low, but how about complete home packages starting at just $99,000? How about oceanfront condos for under $135,000? And how about a full 1,700 square foot ocean view home and lot for under $200,000? In the U.S. a similar beach resort home could easily cost you four to five times that – and you still would not have all of the creature comforts.

The first nine holes of Gran Pacifica’s championship golf course are complete and will open December 4, 2009. And the upscale town center will feature everything from brand name stores to boutique shops, from gourmet dining emporia to fast-food bistros.

And here is one other item I do not want you to miss because it is of vital import to the type of middle to upper-middle income readers Clews’ Views is written for: The cost of living at Gran Pacifica – and, in fact, throughout much of Nicaragua, including Msaschapa/Pochomil – is under $1500 a month for a couple. And that includes a maid, golf, dining out – you name it, it’s yours. All for less than monthly rents in the U.S.

So there you have it – if you want it. I have told you the story of Nicaragua, warts, beauty marks, and all. Would I invest? Yes, I would. In fact, I will. And then I will pray that the book on Nicaragua will have a fairy tale ending rightly befitting its enchanting people.


Carter Clews’s report on Nicaragua immediately above is from the perspective of an outsider. He warns that Daniel Ortega may yet try to reintroduce Sandinista-style socialist controls into the country’s economy. ... Not a prospect an expat would look forward to.

Mike Cobb, conversely, has lived in Nicaragua for seven years and might qualify as an insider. His summary of the political situation?: “The politics of the country are meaningless for expats and property rights are secure for legitimate owners who take care in the due diligence process and perhaps purchase a title insurance policy ...”

Take your pick. Mr. Cobb paints an attractive enough picture of the lifestyle he has created for himself and his family.

Well it has been seven years now that our family has lived in Nicaragua. The number seven seems to have a lot of significance in relation to time, seven days in a week, seven years in a cycle, even the seven year itch which, in relationships, can spell doom. Indeed, they say that every cell in your body is new after seven years.

So here we are new bodies and new attitudes about our life here. We have matured into this culture, our kids have grown up here, and we have made friends. Those things that we hoped for in our life in Nicaragua, have basically happened. Perhaps it is because our expectations were realistic or even set on the low side. But nevertheless, we do like it and we plan to stay.

We considered other countries, such as Belize, Panama and Costa Rica, when we first considered our move, but decided on Nicaragua for a variety of reason. Our company, ECI Development has residential resort projects in both Belize and Costa Rica right now, and we are actively scouting for a property in Panama, as well. In fact, my wife and I spent a lot of time in Panama leading up to our move to Nicaragua. The truth is that we like all of these countries, and could easily live in any of them, but we chose Nicaragua because it just fits us better than any of the others.

For anyone considering an expat life in Central America, not considering Nicaragua would be a huge mistake.

Let me hit one nail right on the head. The concerns most often voiced about Nicaragua center around safety and politics. Nicaragua is safe, the 2nd safest country in the hemisphere after Canada according to a study produced by Harvard’s business school affiliate in the region. We do not have body guards or drivers. The politics of the country are meaningless for expats and property rights are secure for legitimate owners who take care in the due diligence process and perhaps purchase a title insurance policy from First American Title. For anyone considering an expat life in Central America, not considering Nicaragua would be a huge mistake.

So how did we get here? Where are we at this point? What are the things we appreciate? What things annoy us? How do we feel about our new home and where do we go from here? It is great to have some time to reflect on this and share an update at this 7-year milestone with family, friends, and folks who are considering a move overseas.

So let’s begin by saying that it has not been all good. No place is perfect and Nicaragua is no exception. Of course the stereotypical Latin American things can get on your nerves like the “mañana” attitude, long lines at the bank, and a general disregard for the importance of time. The law here actually forbids moving cars out of traffic lanes for a fender bender until the police arrive, sometimes backing up traffic for a mile or more. But electronic banking has meant that we seldom if ever walk into a bank anymore. The real trick is to learn to “Hurry while you wait,” as Thomas Edison once said.

Attitude is important. Some of the things that are frustrating can also be quite funny. Like parking attendants, who have never driven a car, trying to park people, who do not listen to them anyway. It can be a fiasco that is pure comedy if you will let yourself laugh. We try, and usually do, but we also know that when we start to get frustrated, it is time to step back and count our blessing.

Overall the good far outweighs the bad and we love living here. In fact, we have had some serious discussions in the past year or two about the possibility of moving back the U.S. and they usually go like this, “If we moved back, where would we put our kids in school? What would that cost? Would they get as good an education? Where would we want to live and what would that cost?” Each time we have searched, we have come back full circle to remaining here.

But it runs deeper than just cost of living, of course. We like the freedoms we have here. Sounds strange, doesn’t it? But the fact is that the U.S. is quickly becoming a nanny state and I for one, do not like it.

For example, my wife makes brownies and cookies to take to the bake sale at the girl’s school. There is no health department regulation prohibiting that. If a teacher hugs my 5 year old, that is OK too. If someone with an entrepreneurial spirit wants to be a barber, they hang a shingle outside their shop and cut hair. No trade association forces them to go to school and get a license. If you do not like the hair cut, don’t go back.

In the Unites States, I tell my daughters to stay off the rocks and do not even think about climbing a tree in public spaces. The fear of lawsuits has every public and private employee declaring even mundane actions off-limits. In Nicaragua we use our common sense. If one of my girls falls out of a tree and breaks an arm, we take her to the doctor and she learns to hold on tighter next time.

Even in my business, where I speak to groups about what we do and how we do it, I am often limited in what I can say due to regulatory issues. Imagine, having to leave the United States to practice my First Amendment right to Free Speech. Sad isn’t it? So for these and many other reasons, we now make our home in Nicaragua and will for the foreseeable future.

Many people look at life overseas in terms of a lower cost of living. This is one huge element in many people’s decision to live overseas. But if one just looks at this side of the coin, it is possible to miss the other side, which, in the end, is the far shinier side. This is the quality of life you can achieve and enjoy south-of-the-border. It is this real blessing that seeps into you slowly, and once it gets hold, will not let you go. But since cost of living tends to be the first thing people examine, it makes sense to start there with some anecdotes and numbers.

While it is possible to live in Nicaragua and many other countries on $600-$800 per month, let me first say that we do not. We spend about half of what we spent in the U.S. for the normal living items such as food, house, utilities, entertainment, schools, and classes for the girls.

For example, hamburger is $1.25 per pound, steaks are $ .50 per pound, chicken is $1.75 per pound, cabbage is $0.50 per head, and tomatoes are $0.40 per pound. These are all prices at the big name grocery store owned by Wal-Mart. If you shop (or let your maid shop) in the local markets, you will pay even less for many items.

Part of a successful transition however, is folding new foods into your diet. Some of the easiest are the fruits and vegetables. Our girls are adjusting well. They love the foods here, especially the mangos. The green mango (before they are ripe) with salt on it is a real hit. There are 20+ varieties of mango, and just like apples, we are getting to know the nuances between them.

Some things do cost more here, like gasoline, electricity, and Tostidos brand chips. These can run double or more from North American prices. The trick is to limit the things that cost more and maximize the things that cost less. Quite honestly, we drive about as often here as we did in the States, but the distances are generally closer and a traffic jam is considered to be three motorcycles at a light. Homes designed with cross ventilation and ceiling fans almost never need A/C, which is the largest electrical usage in most homes. Tostidos at $7.00 a bag? Well, after all, what would a Steelers game be without some fine cold beverages, sandwiches, and a bag of Tostidos? Some things are just sacred – no matter what the cost.

Concentrating on the lower costs of living is one side of the coin, but the more significant side is all about quality of life. In fact, it is paradoxical and hard for most folks to comprehend. How can you have a higher quality of life and a lower cost of living? It just does not make sense. A lower cost of living usually means sacrifice and cutting back. Here, our quality of life is significantly enhanced and the cost of living is lower. Just one example really highlights a HUGE quality of life enhancement.

What is this one thing? A maid ... yes, for less than $150 per month, we have no household chores. Let me repeat: for $6.00 per day, we have no household chores ... ever. Imagine that.

We have a traditional home. I work outside the house and Carol works at home and with the kids as a full time mom. If we lived in the U.S., she would probably be doing most of the laundry, housekeeping, cooking and cleaning. Here she does not have to. She gets to spend an extra hour (30 minutes each way) with them every day because she is free to take and pick up the girls from the school. She creates crafts and games ready for them after school. She is there rested, relaxed, and ready to listen and engage them in conversation. This, alone, is a treasure chest of gifts for the girls.

School is also extremely affordable, less than $5,000 per year for them both. There are some great schools here including an English-language Christian School, a French School, and a Science and Math orientated school. There is also an American School with 1500+ kids, where English is the primary instruction language. The German School was the best choice for our girls because Spanish is the primary instruction language and they have a strong academic curriculum. Learning German is a bonus.

The girls take dance from Nicaragua’s prima ballerina. ... That is 20 hours of semi-private instruction per month for $30.

Activities are also inexpensive. The girls take dance from Nicaragua’s prima ballerina for $30 per month. Usually there are 3-5 girls in the class. That is 20 hours of semi-private instruction per month for $30. Gymnastics is $5.00 per hour, piano $10 per hour, and riding lessons, $50 for four one-hour classes. It is everything we would have back home. It just costs less.

For me the quality of life considerations of a maid and part time gardener ($40 per month) are simply that we have a lot more time together as a family. When I get home from work we sit down to dinner and then decide what we want to do for the evening. We love to play games and read and that is exactly what we do. On the Saturday morning there is no yard to mow so we say, “What do we want to do this weekend?” The bottom line is that household help costing under $200 per month translates into fantastic family time for us.

So what do we do? We spend a lot of weekends at the Gran Pacifica beach where Amanda is learning to surf from our resident surf instructor, Michael Altschul. We started to build the Cobb home there, but while it was under construction last year, a couple decided they liked it and bought it. We have since started a new home, but for now, we rent one of the ocean front condos when we want to spend the night. The 80+ degree Pacific Ocean, air temperatures in the 90s, as well as a constant offshore breeze make Nicaragua’s coast delightful, year-round surf and swimming destination.

Turtles are another big draw here. Every year mother turtles find their way back from across thousands of miles of ocean to a tiny stretch of beach where they were born to come and lay eggs and continue this incredible cycle of life. 45 days after the eggs are laid into the sand; 2-inch long baby turtles dig their way to the surface and begin their mad dash from the dunes to the sea. At midnight, with the full moon as your light source this sight is unbelievably spectacular.

Granada, a 380 year old city on the shores of Lake Nicaragua is only a 45 minute drive from our home. The architecture of the city is Spanish Colonial with large internal courtyards, fountains and gardens adorning the many hotels and restaurants. A lunch behind the thick stone and adobe walls and under the high ceilings, brick and decorative woods creates an atmosphere cool and comforting, even on the hottest of days.

Next to Granada is the nearly mile-high extinct Mombacho Volcano. When guests are in town we often take them to the zip line course about half way up the mountain. The course is 13 cables stretched from tree top to tree top where we strap into harnesses and zoom from platform to platform in the canopy about 75 to 130 feet above the coffee plantation below. It is exhilarating to say the least.

After this, we usually will slip on down to the lake and take a boat ride around some of the 350 small islands that were created when the volcano blew a side out about a million years ago. The quest is always the same, Monkey Island, maybe 50 feet in diameter covered with dense vegetation and trees. It is wise to bring bananas or oranges for the monkeys. But Cheerios work well too. Usually a mama with a baby clinging tightly to her back will come swinging through the branches and hop right onto the boat where you can get up close and personal with these fascinating creatures.

The ride back to the dock takes you through numerous channels and by an old fishing trawler that according to my daughter is really a pirate ship. You will see many homes built on these small islands. Some of them are spectacular getaways for the country’s elite, others are small and simple. Grand old trees create natural colonnades between islands, their branches intertwining high above. The Oro Pendula bird creates nests like that of the Baltimore Oriole, only three feet long with a bottom the size of a basketball. Water lilies and other water plants give a splash of color to the hundreds of shades of green around. A trip through the islands is a great way to spend a Sunday afternoon.

Perhaps our family’s favorite part of the country is Nicaragua’s mountainous highlands. These hold a special appeal to us. Selva Negra, a coffee plantation, eco-resort, self-sustainable farm nestled in the cloud forest at 4500 feet above sea level is a place we visit often. The farm/resort is owned by Eddy and Mausi Kuhl whose granddaughter Rachel, has become my oldest daughter’s best friend. The friendships developed there between the kids and with Rachel’s parents and grandparents is one of the many friendship ties that bind us tightly to this country.

This is also my favorite climate in the whole world. I enjoy the cool nights in the low 70s and days in the mid 80s. Eternal spring ... as some call it. The cloud forest is unique with mists and fogs passing through the forests in the morning and evening, blue skies and puffy white clouds in the day, and clear, black, star filled skies at night. It is home to exotic plants, animals, and troupes of howler monkeys screeching their calls from the canopy top hundreds of feet up. I wear the place like a second skin.

Beyond climate and costs, another important aspect of quality of life is culture and activities. Nicaragua is awash in wonderful festivals, theater, restaurants, and activities for nearly all interests. Just in the past 90 days, we have attended a ballet from Spain and the Hungarian orchestra at the national theater. Over the years we have seen the Bolshoi, the local orchestra, folkloric ballet, and numerous other performances there as well. There are smaller venues where we have enjoyed modern dance, poetry readings, classical guitar, and avante guard performances. Rarely, if ever, is a ticket over $10.

Culinary life here is fantastic as well. My wife’s favorite restaurant is Casa de los Nogueros run by a Cordon Bleu chef who worked for years in many of Europe’s finest establishments. White table cloth and fine chine meals complete with appetizer, dessert, and wine might set you back $35-40 per person. If four-diamond dining is not your thing, we have Japanese and sushi, Italian, Chinese, seafood, steak houses, Middle Eastern, fusion, TGI Fridays, Pizza Hut, McDonalds, BK, Sbarro, and Subway, to mention a few. There are thousands of local joints serving up the Nicaraguan fare of roasted meats, gallo pinto, fried cheese and plantains. The only food we crave and do not have is Thai (yet).

For kids of all ages, the festivals and circuses are frequent and lively. Russians on Ice was fantastic with its skaters, dancing, juggling, clowns and performing magic tricks, but the hit of the night for the girls was the skating bears. One thing Carol and I found odd was the juxtaposition of Russian skaters, wearing red, white and blue American flag outfits, playing American disco music, while we were sitting in a tent in Nicaragua. Globalization is occurring and we cannot escape it.

Globalization really is what offers us the ability to have a new and better life as expats south of the border.

Globalization really is what offers us the ability to have a new and better life as expats south of the border. We like the modern conveniences of North America paired with the cost and quality of life advantages we find here. There are several million folks who, like us, know and live this very lifestyle every day. You can, too.

Our company was created, and is dedicated to serving people who are making a decision to explore a life overseas. For instance, we have created a set of 15 questions that anyone considering property ownership outside North America should ask the developer. We will send them to you so you can be armed with the information you will need to make wise and informed purchasing decisions.

We have also created lifestyle budgets complete menus of breakfasts, lunches, and dinners that North Americans traditionally eat. These show the breakdown of cost of living items including utilities, food, a maid, golf membership, taxes, HOA fees, and other miscellaneous items. A high quality lifestyle, at Gran Pacifica including five to six rounds of golf per week, can be had for as little as $1500 per month, per couple. Of course, if you have more, you will be able to save and build a legacy for your kids and grandkids. Request the lifestyle budget.

ECI is helping folks create a new future with a lower cost of living and a higher quality of life. The Ernst and Young report issued last year states that 60% of U.S. retirees will have to cut back on spending by 24% or more if they do not want to outlive their assets. What is incredibly satisfying is to show someone that they do not have to cut back at all, in fact they can have a richer, fuller life here, south of the border and pay a lot less for it. It is this paradox revealed that brings the greatest joy and satisfaction to everyone involved.

Take a look and see if a life outside North America makes sense for you too. It just might ...

– so be sure to check in and follow my series of articles.


A checklist for comparing and contrasting every potential retirement paradise on your list.

Kathleen Peddicord, editor and founder of Live and Invest Overseas, provides a starting point for your information-gathering process in looking for an overseas retirement destination. Ms. Peddicord is herself admittedly not gung ho about living in “a truly Third World country like Ecuador” at this stage of her life, so her firsthand impressions and opinions will likely synchronize well with those similarly inclined.

Economies collapse and then recover ... values – of real estate, of stocks – fall and then rise again ... financial meltdowns come and go ...

When the living becomes intolerably difficult in one place ... move to another!

I am not being flippant. I am giving you the secret to realizing the retirement of your dreams, current global troubles notwithstanding.

The first move is the hardest, I understand. You need help. And you need options. We are here to deliver both.

Let’s start with this: The situation is far less desperate than you may fear. You do not have to resign yourself to reducing your standard of living during this important phase of your life. You do not have to plan for two or three decades of scraping by and making do.

But you have already figured this out. By signing on as a reader of these daily dispatches, you have opened your mind to the possibilities. You have allowed yourself to begin to think outside the box and beyond your own borders. As you read this, because you are reading this, you are launching a new phase of your life ... maybe the best phase.

For, in places like Leon, Nicaragua ... Montevideo, Uruguay ... and Languedoc, France, the concerns and struggles in the States and elsewhere about the cost of living, the cost of housing, and the cost of health care seem far away. These and the many other beautiful, safe, sometimes sunny, and often super-affordable places I introduce you to in these dispatches offer alternatives, viable, appealing options if you are at or nearing retirement age and trying to figure out how in the world you are going to make it.

Where could your explorations and considerations lead you? This is where things get interesting.

Panama or Uruguay? Argentina or Mexico? Croatia or Malaysia? Nicaragua or Ireland? France or Belize? The sunny coast of Spain ... or maybe the sandy beaches of the Dominican Republic? The good choices are many.

As are the considerations necessary to making your decision. Once your interest has been piqued by colorful descriptions of the shorelines and the mountainscapes ... once your attention has been grabbed by anecdotes about just how sweet the local living can be ... then the real work begins.

To choose the retirement haven that makes most sense for you, you need current and complete details on everything from foreign residency requirements to how to open a local bank account ... from how much to expect to spend on groceries each week to how to get a telephone line installed.

Specifically, here us a checklist for comparing and contrasting every potential retirement paradise on your list:
  1. The cost of living ... including a fully detailed budget of monthly expenses you would incur ...
  2. The cost of real estate (for both sales and rentals) ... and reliable advice on how to navigate the local purchase process ...
  3. The climate ... which can vary greatly from one region of a country to another ...
  4. The standard of in-country medical care and local options for health insurance ...
  5. The infrastructure ... how reliable is the electricity and the Internet ...
  6. Accessibility to your home country ... could you return home quick if you wanted to ...
  7. The language ... would you have to learn a new one ...
  8. Culture, recreation, and entertainment options ... how would you spend your Friday nights ... what would you do on a Sunday afternoon ...
  9. Taxes ... what local ones would you be liable for ...
  10. Special benefits for foreign residents ... are there any ... how would you qualify ...
  11. Options for establishing foreign residency ... what is required to qualify ...
  12. Safety ... perhaps most important if you are a single woman making the move on your own ...
  13. Already-established expatriate communities ... you may see them as a plus or a minus (maybe you want gringo neighbors or you don’t) ... either way, you want to understand the level to which they exist or don’t ...
  14. The Third World Factor ... also known as the Manana Factor ... also known as the Hassle Factor ...
Most of the countries I recommend to you day by day qualify as “developing,” but some are more Third World than others ... what is your tolerance for Third World living ... mine has fallen considerably over time, and I know that now I could not make it in a truly Third World country like Ecuador ...

As I said, this is where the real work begins. Here is the good news. You do not have to do it. We are already carrying it out on your behalf. We are researching and reporting on every one of these important issues for the world’s top retirement havens in each issue of our Overseas Retirement Letter.


New office within IRS Large and Mid-Size Business division will be tasked with monitoring the “global high-wealth industry.”

The IRS is effecting organizational changes and shifting reponsbilities as it prepares to deal with what looks to be a huge and ongoing windfall of information regarding offshore financial account holders. The forthcoming disclosures regarding UBS AG Swiss bank accounts will be handled by the “elite division that usually examines businesses.” The division is experienced in examining cross-border transactions, and “The new group will focus on examinations involving webs of entities and arrangements controlled by the high wealth taxpayer segment,” says an IRS spokesman.

As with any changes involving a large government bureaucracy, the wheels will grind slowly. The House of Representatives has approved the funding of 784 new fulltime IRS workers; the measure is awaiting action in the Senate. The contemplated hirees would include some tasked with investigating U.S. taxpayers with offshore activities and others with auditing smaller international businesses. “None would be fully trained until 2012.”

The U.S. Internal Revenue Service is shifting audits of wealthy Americans suspected of offshore tax evasion to an elite division that usually examines businesses as it prepares to receive data on 4,450 UBS AG Swiss bank accounts.

The tax agency posted internal job listings yesterday seeking auditors to work for a newly created office within its Large and Mid-Size Business division that will be tasked with monitoring what it called the “global high-wealth industry.”

The move centralizes responsibility for auditing wealthy individuals suspected of offshore tax evasion in a unit with the most experience navigating international tax treaties and untangling complex cross-border business structures.

“That’s where the most sophistication is at IRS,” said Michael Murphy, a former deputy IRS commissioner who is now a consultant for the law firm Sutherland Asbill & Brennan LLP in Washington.

Responsibility for auditing wealthy individuals is currently split among IRS divisions devoted to small businesses and self-employed wage earners and investors, which do not have as much experience in cross-border transactions, Murphy said.

The IRS says it anticipates handling up to 10,000 new cases related to UBS, including thousands of people who come forward voluntarily in exchange for reduced penalties before September 23.

52,000 Accounts

UBS agreed August 19 to hand over the account information to settle a U.S. lawsuit seeking the names of Americans suspected of evading taxes through 52,000 Swiss accounts. The bank will give the material to the Swiss government, which will then determine how much will go to the IRS.

The new global high-wealth industry sector will be one of six industry-specific offices within the IRS’s Large and Mid- Size Business division. Other industry sectors focus on financial services; retailers, food, pharmaceuticals and health care; natural resources and construction; communications, technology and media; and heavy manufacturing and transportation.

“The establishment of this group is a step in our ongoing effort to align our resources around our long-term enforcement strategy,” IRS spokesman Frank Keith said. “The new group will focus on examinations involving webs of entities and arrangements controlled by the high wealth taxpayer segment.”

Murphy said the IRS’s business auditing division is better equipped to handle the complexities of offshore bank accounts that often are linked to a labyrinth of dummy corporations, partnerships and other foreign entities designed to hide account holders’ identities from the authorities.

Tax Treaties

The Large and Mid-Size Business division has more experience in dealing with violations of tax treaties, better access to data gained from information-exchange agreements, and an embedded legal organization, Murphy said.

“You are going to marshal your tax resources that are most experienced in dealing with global entities,” Murphy said.

IRS Commissioner Doug Shulman said August 19 that the 4,450 accounts that will be turned over by UBS at one point held $18 billion and included a range of securities, commodities and cash.

It will take up to a year for the Swiss government to decide whether to give the information to the IRS, and UBS clients will be allowed to appeal the determination.

Switzerland said it received a formal request for the accounts from the IRS. The Swiss authorities now have 90 days to decide whether they can pass on details on the first 500 accounts to the U.S., according to a statement on the Federal Tax Administration’s Web site in Zurich. The remaining accounts have to be processed within a year.

Right to Appeal

UBS will inform affected customers they have a right under Swiss law to appeal to the Swiss Federal Administrative Court to keep their accounts secret. The account holders also will be told they are required by U.S. law to notify the Justice Department of any appeal.

It is legal for Americans to have offshore bank accounts, so long as they declare the accounts to the Treasury Department and pay taxes on any earnings.

The IRS, meanwhile, is seeking additional resources from Congress to beef up its enforcement of tax rules governing cross-border financial transactions.

The House last month approved the hiring of 784 new fulltime IRS workers at a cost of $128.1 million. The measure is awaiting action in the Senate.

The expanded workforce would include 109 employees to investigate U.S. taxpayers with offshore activities and 113 to audit smaller international businesses. None would be fully trained until 2012.

Managing Information

Frank Ng, who left the IRS as head of the Large and Mid- Size Business division to join the accounting firm Ernst & Young LLP this month, said shifting responsibility for the UBS cases to his former division signals the IRS is searching for ways to best manage the flow of information from UBS and related cases.

“It is more a way of coordinating the issues and inventory around that segment of taxpayers,” Ng said. “In the end, it’s probably more efficient.”

The case is U.S. v. UBS AG, 09-cv-20423, U.S. District Court, Southern District of Florida (Miami).

Swiss Banking Execs Eye UBS Tax Dispute Fallout

Executives at Swiss banks Julius Baer and Credit Suisse expect to avoid a U.S. tax investigation into their private banking businesses on the same scale as their peer UBS, they told The Financial Times ...

UBS, Switzerland’s No. 1 private bank, earlier this month agreed to reveal the names of thousands of UBS’s rich U.S. clients to Washington to settle a tax-avoidance dispute seen as threatening Swiss banking secrecy.

But the agreement leaves the door open for similar actions against other banks, the newspaper said, adding that criteria for follow-up actions have not been disclosed.

But Boris Collardi, chief executive of Julius Baer, told the newspaper his bank is prepared. “There may be some requests for information (from tax authorities), but I don’t think we face the risk of another John Doe summons,” he told the FT.

Credit Suisse Private Banking head Walter Berchtold said the bank had taken measures and established clear rules for its business. “From that point of view, I’m very comfortable,” he said in an interview with the newspaper.

Switzerland’s private banks manage an estimated $2 trillion of foreign wealth.

We wonder how much of the confidence displayed is because the principals do not have the physical and legal exposure to the U.S., and thus the U.S. lacks the same leverage points, as compared with UBS.


“The consequences of the crisis at UBS have been dramatic.”

Industry insiders are concluding that the major offshore tax evasion scandals emminating from Switzerland and Liechtenstein are putting the final nails in the private – as in “secret” – offshore banking business model. We at W.I.L. have been advising that the general secrecy approach was a dead end from our inception – as there have always been too many weak links in the secrecy chain. But now it is obvious to everyone, even those who heretofore have had a self-interest in selling the strategy.

A U.S. tax probe against Swiss bank UBS has killed traditional offshore banking and wealth managers will have to improve their offers to survive, bankers and industry experts said on Tuesday.

Offshore private banking involves managing the wealth of rich clients from a foreign location.

However, some clients have exploited the system to avoid paying taxes, especially if carried out in traditional banking secrecy strongholds like Switzerland and Liechtenstein.

The situation has been thrust into the limelight since Washington accused UBS of using Swiss bank secrecy laws to help wealthy clients avoid paying taxes and forced it last month to hand over some treasured client data.

UBS’s capitulation to the U.S. tax authorities and a global crackdown on tax evasion are denting the allure for banks to shelter untaxed money, experts say.

“The entire offshore banking model seems to be dead,” said Teodoro Cocca, a professor for Wealth and Asset Management at the Johannes Kepler University in Austria. “Forget bank secrecy and focus on onshore or on tax compliant business,” he told an audience of Swiss private bankers.

Experts say there has been almost no growth in the offshore private banking business in recent years, even though some small players are still attracting tax-sensitive money. The returns offered are just becoming too risky, Cocca said.

Top bankers say private banks in Switzerland, the world’s largest offshore center with an estimated $2 trillion in managed wealth, should learn from UBS’s troubles and compete more with other banks on their home turfs.

“The consequences of the crisis at UBS have been dramatic,” said Pierre de Weck, Head of Private Wealth Management at Deutsche Bank. “I have been for years an advocate that Switzerland should build from a position of strength and attract capital not because of confidentiality,” he said. “Our big offshore center has to learn the onshore skills to survive.”

Diversified Offer

De Weck said private banks based in well-known financial centers such as Switzerland and London, the world’s second largest offshore financial center and a gateway to such banking secrecy hubs as Jersey, Guernsey and the Isle of Man, would continue to offer services to foreign clients.

He said this was especially true for clients based in underdeveloped markets that have yet to build diversified financial services.

“If you are a shipbuilder in Greece, you have your money in Switzerland or London, because Greece has not got the capability (to offer the same breadth of financial services),” de Weck said.

However, private banks will have to be prepared to bear the higher costs of ensuring clients pay their taxes back home.

“Offshore compliant is a business model. Offshore non-compliant is not,” said Sebastian Dovey, Managing Partner at specialized wealth management consultancy Scorpio Partnership. “The onshore model is the model many more players will start to tackle. It looks like it is a better business.”

In a world of increased transparency and with cash-strapped governments seeking more tax money, clients will still be attracted to specialized financial centers, but this should be because of a better offer rather than tax advantages, bankers said.

“The key issue is: What are you wanting from an offshore center?” said Angela Knight, chief executive of the British Bankers Association.

“At the moment, what is not a workable proposition is whether there are tax advantages and confidentiality advantages. These are rushing out of the window right now.”


Taxman trolls MySpace and Facebook for deadbeats.

We would guess everyone reading these pages understands what a threat to one’s privacy the internet is. The network that puts the world at one’s fingertips also puts available information about you at others’ fingertips.

Social networking sites such as MySpace and Facebook offer easy opportunities to share all sorts of information with your “friends” – real and otherwise. Beware that whatever you post can be seen by revenue agents from a multitude of jurisdictions. So far agents are supposedly just reading what is publically available, and not posing as “friends” in order to get access to your private, friends-only, postings. Just wait.

As is often the case the tradeoff is between convenience and privacy. It is nice to be able to keep all your followers apprised of your doings with a quick post, as opposed, e.g., to emailing those who might care after creating such a list from your universe of acquaintances. The cost is that there is little stopping just about anyone from obtaining your personal details. You need to decide if it is all worth it. And keep in mind that once you put the details out there you cannot take them back. Posting on the internet is forever.

Tax deadbeats are finding someone actually reads their MySpace and Facebook postings: the taxman.

State revenue agents have begun nabbing scofflaws by mining information posted on social-networking Web sites, from relocation announcements to professional profiles to financial boasts.

In Minnesota, authorities were able to levy back taxes on the wages of a long-sought tax evader after he announced on MySpace that he would be returning to his home town to work as a real-estate broker and gave his employer’s name. The state collected several thousand dollars, the full amount due.

The IRS might be looking at your Facebook profile.

Meanwhile, agents in Nebraska collected $2,000 from a deejay after he advertised on his MySpace page that he would be working at a big public party.

In California, which has recently been so strapped for revenue it has had to pay some bills with IOUs, agents are also using social Web sites. When one delinquent was identified as a rigger of sails, a curious collection agent searched his name and the term online and found a discussion board used by local riggers. In one thread someone asked where the rigger was because his store had closed, and a reply was posted, “Oh, he moved across the bay.” The agent found the man and collected a four-figure sum.

An Internal Revenue Service spokesman declined to say whether its agents use social-networking sites to pursue delinquent taxes or assist audits.

Searches for tax dodgers typically begin with examinations of bank, employment, tax, and motor-vehicle records.

Searches for tax dodgers typically begin with examinations of bank, employment, tax, and motor-vehicle records. “These new supplements are often far more efficient than the older ones, such as reading the local newspaper or making inquiries at barbershops and church meetings,” said Jim Eads, director of the Federation of Tax Administrators.

When a tax dodger cannot be found agents often turn to Google. Failing that, they check out social sites or chat rooms.

Now, when a tax dodger cannot be found, said Nebraska tax official Steven Schroeder, agents often turn to Google. One agent collected $30,000 of unpaid tax from a resident after a Google search found him listed as a high-ranking local marketing rep for a national firm. If a Google online search is not productive, agents use the social sites or chat rooms in a last-chance hunt for their quarries.

There are limits to what state agents can do on the Web. In Nebraska, agents are only allowed to use information that is publicly available online. So, MySpace ... tends to work best because its users often post more public information than do those of sites like Facebook, Mr. Schroeder said. The default settings for adults on MySpace create a public profile, while the default settings on Facebook create a profile only viewable by an approved list of friends.

“Agents are not allowed to ‘friend’ someone using false information,” Mr. Schroeder said. The same ethics rules hold in California, according to a spokesman for the state’s Franchise Tax Board.

Not all state tax departments are jumping on the trend. Massachusetts, long known for its aggressive tax collections, said it has “no systematic program” for trawling social media at the moment. According to Mr. Eads of the tax administrators’ group, many state tax authorities currently block social sites on workplace computers to prevent employees from spending personal time on them. “They may change their minds,” he said.

“Using social media is something we will explore,” said Jessica Iverson, a spokesman for the Wisconsin Department of Revenue. A spokesman for Oregon’s revenue agency said his state is also “considering it.”

Other states are looking for ways use Internet information to enhance not only collections but also audits and negotiations. A Minnesota tax official said that when firms try to negotiate payments by claiming to be strapped for cash, agents always check their Web sites. At the time one tanning business was crying poverty to the state, agents pointed out that its site boasted of supplying all the tans for participants in a big body-building contest.

“BLOOD OATH” Sealed Stanford Relationship with Bank Regulator, Court Is Told

There is a lot to chew over in this update on the Allen Stanford case. While the “blood oath” between regulator and (accused) malfeasant/regulated is sensational in its details, the basic element of an implicit understanding between regulator and regulated which leaves the allegedly protected public out in the cold is all too common – especially in the financial services industry. The presence of a nominal protector seems to lead to people letting down their guard, making fraud easier to perpetrate than if there was no regulation.

We also take cognizance that Stanford’s representation is in doubt because his lawyers are worried about being paid. Stanford’s and his companies’ assets have been frozen. This is standard operating procedure for U.S. Department of Justice prosecutions, stripping away a defendant’s ability to defend himself or herself.

Finally, while Stanford appears to have definite sociopathic tendencies, and thus trying to figure out some reasoning process he has been engaged in is pointless, the same question comes up as comes up vis a vis his so-called legitimate counterparts in the domestic U.S. financial industry: How much is enough? The bottom line always involves the movement of assets from the pockets of the public to the financial industry moguls. In the Stanford case there is no intermediary like the U.S. Treasury or the Federal Reserve; the result is the same. As with Bernard Madoff, if Stanford had been less ambitious in his depredations he could have escaped detection for far longer – perhaps indefinitely. Similarly, if the U.S. financial industry gangsters had reigned in their greed the golden goose would have survived a lot longer. But those alternative universe scenarios imply rational beings actually thinking.

R. Allen Stanford’s relationship with the chief regulator of his Antigua bank was closer than most. At a meeting in 2003, they became blood brothers, cutting their wrists and mixing their blood in a “brotherhood ceremony” that Mr. Stanford’s chief financial officer said promoted an elaborate scheme to hide a multibillion-dollar fraud from American and other regulators, The New York Times’s Clifford Krauss writes.

The assertion that the two took a “blood oath” was laid out in a plea agreement signed by the officer, James M. Davis ...

After the pact, Leroy King, Antigua’s chief banking supervisor, called Mr. Stanford “Big Brother.” He received Super Bowl tickets, valued at thousands of dollars, for himself and his girlfriend. And he accepted regular bribe payments from a secret Swiss bank account that Mr. Davis said he was told to handle by Mr. Stanford.

The unusual twist to the case, in which Mr. Stanford is accused of operating a multibillion-dollar Ponzi scheme, was disclosed by Mr. Davis as he pleaded guilty ... to fraud and conspiracy in Federal District Court in Houston. Mr. Davis, who oversaw the movement of vast sums of money at Stanford International Bank, also said in a plea agreement that Mr. Stanford ordered him to report false revenue and false investment portfolio balances to banking regulators as far back as 1988, when Mr. Stanford ran an offshore bank on the Caribbean island of Montserrat.

“I did wrong. I’m sorry. I apologize. And I take responsibility for my actions,” Mr. Davis said after the hearing.

Mr. Stanford was also supposed to appear in court ... but he was hospitalized in the morning after his pulse rate soared, his lawyer said.

While he has repeatedly denied accusations that he ran a Ponzi scheme involving certificates of deposit issued by Stanford International Bank, he has also insisted that if anything illegal did happen, it must have been Mr. Davis’s fault.

Mr. Davis, who had been a friend of Mr. Stanford’s since they were roommates at Baylor University in Waco, Texas, started his own church in Mississippi and led prayers before bank business meetings. His lawyer, David Finn, said Mr. Davis was now working on a family farm in Michigan doing manual labor for $10 an hour as an expression of penance. He now faces up to 30 years in prison.

“He had a very heavy heart,” Mr. Finn said. “He was very contrite, and not all of my clients are.”

The plea agreement and a court presentation ... by prosecutors repeated many facts that were outlined in June in an indictment of Mr. Stanford, several Stanford aides and Mr. King. Mr. Stanford and others are accused of defrauding 30,000 investors of $7 billion, filing false reports to regulators and investors, diverting more than $1.6 billion into undisclosed personal loans to Mr. Stanford, and conspiring to obstruct an investigation by the Securities and Exchange Commission.

But the plea agreement offered an assortment of new details, particularly about the relationship between Mr. Stanford and Mr. King, who ran Antigua’s Financial Services Regulatory Commission for much of the last decade. He has been arrested in Antigua and is awaiting extradition to the United States.

Shortly after their 2003 blood-brother ceremony, which also included a second, unnamed Antiguan regulator, Mr. Stanford complained that two Antiguan regulators who worked for Mr. King were “becoming aggressive and suspicious in their examination” of the Stanford bank on the island, the plea agreement said. Both employees “soon thereafter were reassigned or replaced,” Mr. Davis said in the plea agreement.

To show appreciation for Mr. King’s services, Mr. Stanford paid $8,000 for tickets to the 2004 Super Bowl game in Houston so the regulator could take his girlfriend to the event. The next year, in June, Mr. King showed Mr. Stanford a confidential letter he had received from the S.E.C. seeking information about the Stanford bank’s certificates of deposit investment portfolio, stating that the agency had evidence to suggest the bank was engaged in a “possible Ponzi scheme.” Mr. Stanford and an unnamed aide then drafted “a false and misleading response” to the S.E.C., according to the plea agreement.

In September 2006, Mr. King tipped Mr. Stanford off to another letter from the S.E.C. Mr. Stanford, Mr. Davis and others proposed various responses designed to mislead the American regulators, which Mr. King was expected to transmit back to the S.E.C.

Mr. King also helped mislead regulators of the Eastern Caribbean Central Bank when they began raising questions about Mr. Stanford’s bank, the plea agreement said. He faxed a proposed response to the Caribbean regulators to an unnamed lawyer working for Mr. Stanford. In it, Mr. King joked in a handwritten note: “Please do not bill me (laugh), Thanks a million, Lee.” The note was taken as an oblique reference to bribes already paid, according to the agreement.

Mr. King, who holds American and Antiguan passports, is reviewing legal documents and has not yet publicly responded to the charges against him, according to Attorney General Justin Simon of Antigua and Barbuda. In an interview in February, just after Mr. Stanford’s offices in Houston were raided by federal authorities, Mr. King said, “I am absolutely sure that my banking system is clean.”

Mr. Simon told The Times in an interview that he had become aware of the blood-brotherhood ceremony from his own sources. “It is believable,” he said. “As far as how many people are involved, we are still investigating.”

By the middle of 2008, the agreement asserts, Mr. Stanford, Mr. Davis and others were scrambling “desperately” to hide the details of their fraud by inflating the value of their assets on the books with “bogus real estate.” The conspirators “designed a real estate transaction wherein they would falsely inflate and convert an approximate $65 million real estate transaction in Antigua into a purported $3.2 billion dollar asset,” according to the agreement. But by January the S.E.C. was moving in fast, and when Mr. Davis met with Mr. King, “King appeared very stressed” and wondered if they could still hide their secrets. Mr. Davis tried to reassure him.

In an interview in April, Mr. Stanford told The Times that he gave Mr. Davis broad responsibilities to oversee investments. “If bad things were happening, he never brought them to my attention,” Mr. Stanford said. “He did his job and I stayed out of his hair.”

Mr. Finn acknowledged after [the] plea hearing that Mr. Stanford would attempt to discredit his client during a future trial. “The only way he walks is if he can convince a jury that my client is the mastermind,” he said. “Allen Stanford uses people. Did my client allow himself to be used? Absolutely.”

Mr. Finn said it would be strange for his client to have run a fraudulent scheme to pay for Mr. Stanford’s lavish lifestyle when he was getting paid relatively little for his efforts. He said Mr. Davis had earned between $5 million and $6 million after taxes over the last decade, and was now virtually penniless.

Mr. Stanford’s lawyer, Dick DeGuerin, has asked for court permission to quit the case because his client can not assure that he will be paid. Mr. Stanford was supposed to appear in court for a hearing on whether he could retain a new legal team. Mr. Stanford has asked to be represented by two other lawyers, but they also have said they need assurances that they will be paid.

Mr. Stanford’s assets and his companies’ assets have been frozen.


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Britain Takes Control of Turks and Caicos

Britain suspended the constitution of the Turks and Caicos islands ... imposing direct rule for two years, the Foreign Office announced.

The move came after a British court rejected an appeal by former Turks and Caicos Prime Minister Michael “Iron Mike” Misick, who had been trying to block the takeover, the Financial Times reported. Misick resigned in March after the British government announced plans for direct rule.

Turks and Caicos comprise a British dependency 500 miles south of Miami and north of Hispaniola. There are eight major islands and 20 smaller ones, which served as pirate bases in the past, and a population of 30,000.

Gov. Gordon Wetherell, who will be London’s representative in the islands, said he hopes to “make a clean break from the mistakes of the past.”

Galmo Williams, who replaced Misick as prime minister, opposes direct rule.

“Our country is being invaded and re-colonized by the United Kingdom, dismantling a duly elected government and legislature and replacing it with a one-man dictatorship, akin to that of the old Red China, all in the name of good governance,” he said.

A British investigation found longstanding corruption, including large loans to Misick by a Slovak developer.