by Nick Giambruno

13 April 2016

from InternationalMan Website



Nick Giambruno is Doug Casey’s globetrotting companion and is the Senior Editor of Casey Research’s International Man.

He writes about economics, offshore banking, second passports, value investing in crisis markets, geopolitics, and surviving a financial collapse, among other topics.

He is a CFA charterholder.

In short, Nick’s work helps people make the most of their personal freedom and financial opportunity around the world





Financial privacy is dead.

You should assume that, sooner or later, all the details of your financial life will land in a government computer - if they haven't already - and plan accordingly.

A record of pretty much every penny you earn, save and spend is permanently stored somewhere. And the government could retrieve that information if it wanted to.

It's not a comfortable or happy thought. Knowing you're financially naked and exposed to an insolvent government hungry for revenue might make you feel like you just ate rat poison for lunch.

But don't try to illegally hide your income or skirt reporting requirements. It's a fool's errand. The draconian penalties make the cost/benefit analysis easy…don't even think about it.




An Inescapable Global Dragnet

The U.S. can access information about any account virtually anywhere.

The Foreign Account Tax Compliance Act (FATCA) is a wildly unpopular U.S. law that forces every financial institution in the world to report information about its American clients to the U.S. government.


The law imposes huge costs on foreign financial institutions and, in effect, forces every foreign bank to become an unpaid agent of the IRS.

The U.S. can enforce FATCA in foreign countries because it controls the world's reserve currency and has threatened to effectively cut off access to the U.S. financial system for countries that don't comply.

This is why a country like Mexico could never impose its own version of FATCA on the world. Few countries would care about losing access to the peso-based Mexican financial system.

Unfortunately, U.S. success in enforcing FATCA has inspired other bankrupt countries to band together and push for a sort of FATCA on steroids.


This is where the Organization for Economic Co-operation and Development's (OECD's) plans for a "global standard" of automatic information exchange - informally known as GATCA - comes in.

Rather than having each country mimic FATCA and tediously create a web of information-exchange agreements with every other country, the leaders of this supranational institution are pushing to make the exchange of financial information automatic among all countries.

It's safe to assume the OECD will successfully blanket most of the world with its new global standard. In the near future, it's very likely that no citizen from any country will be able to "hide" financial assets anywhere.


Every financial institution in the world will automatically send information on foreign account holders to other governments.

FATCA and GATCA mean there's no escape (for north american citizens...). Unless you plan to bank in Cuba, Iran or North Korea, count on your home government automatically finding out about your foreign accounts.

This doesn't mean an offshore bank account is pointless.

Offshore banks are often much safer and better capitalized than most banks in the U.S. Additionally, your home government still can't seize a foreign bank account at the drop of a hat.

Also, offshore banks usually allow you to diversify out of the U.S. dollar and access markets in countries you otherwise might not be able to.


So, despite the lack of financial privacy, offshore banking still has many important benefits.




When All Else Fails…

Even if you manage to somehow escape the global FATCA/GATCA dragnet, your private financial information is still very vulnerable.

If it comes down to it, governments can and will use alternative means to get the information they want. They might engage in economic espionage, bribe bank employees or pay freelance hackers to steal ostensibly secret financial information.

Take Sina Lapour, for example. Lapour was an assistant to a private banker at Credit Suisse.


In 2007, he stole the private information of about 2,500 clients. Then he sold it to a middleman, who sold it to the German tax authorities, who presumably shared it with other governments.

This was not an isolated incident.


In 2008, a thief stole data from LGT Group in Liechtenstein and sold it to tax authorities in various countries.

Then there's Edward Snowden.


Before he was an NSA contractor, Snowden worked for the CIA. Snowden was posted in Switzerland. He says his job there was to put Swiss bankers in compromising positions so the CIA could collect secret financial information.


Snowden encouraged a Swiss banker to drive drunk, hoping he would be arrested. Then the CIA would offer to help get the banker out of jail and legal trouble… for a price:

divulging secret financial information.

And then there's the hacking and leaks of a number of offshore centers in a sort of WikiLeaks-style operation, which revealed confidential information on over 122,000 trusts, companies and other entities.


The 260 gigabytes of formerly private information was used to publicly identify more than 130,000 people in 170 countries.

Lastly, there's the Panama Papers incident, in which a popular offshore service provider was hacked and confidential information was compromised.




A Bright Spot

When you consider the combined effects of FATCA, GATCA and governments engaging in bribery, blackmail and hacking, it would be foolish to assume your finances were private.

This is why, when I hear people argue about 'which country or which convoluted offshore structure is best for keeping secrets'... from Uncle Sam, it reminds me of two bald men fighting over a comb.

Privacy for financial assets like bank and brokerage accounts is dead. However, nonfinancial assets like foreign real estate are a completely different story.

Owning foreign real estate is one of the very few ways Americans can legally keep some of their wealth abroad while still keeping their privacy.

  • Compared to fiat currencies, foreign real estate is often an excellent long-term store of value.

  • Foreign real estate is a hard asset outside the immediate reach of your home government.

  • Foreign real estate can't be easily confiscated, nationalized, frozen or devalued with a couple of taps on the keyboard.

But foreign real estate also has a rare and notable feature that foreign financial assets - like offshore bank and brokerage accounts - do not have, which is... privacy.


If the foreign real estate is held directly in your name (i.e., not in a trust, LLC, real estate fund, partnership, etc.), you don't have to report it to the IRS.

This means it's possible to use foreign real estate to diversify some of your savings abroad and keep your privacy.

In that sense, foreign real estate has become the new Swiss bank account...