Welcome to Sovereign Confidential Weekly, where I answer your questions about the issues I cover in my monthly reports. This week, I’ve decided to address some common questions about banking offshore. Before I do, two reminders:
- Opening a bank account in a foreign country is not the only, or even most important, part of a personal asset protection strategy. Many people seem to get hung up on this idea — possibly because they have much of their existing wealth in cash and assume that simply moving it offshore is all they need to do. It isn’t.
- The Sovereign Confidential archives — to which you have full access — are full of interesting and relevant strategies for wealth protection and personal sovereignty. Have a good look at them — you may find answers to your questions there as well.
So, on to this week’s questions:
I keep hearing that I should place my money in a foreign bank to protect it, but I question that suggestion since I am obliged to report the funds to the IRS, who could force me to return the money to the U.S. Besides buying foreign real estate, what other options are there?
It is true that for any significant amount — essentially, anything over $10,000 — you are legally obliged to report the existence of all your offshore financial accounts to the IRS. But hiding money is not the point of banking offshore. At one time that was possible, but now that the G-20 has agreed to a global tax-information exchange, those days are over for good. Instead, the point of offshore banking is threefold:
- To put as much legal and jurisdictional distance between your financial assets and potential adversaries as possible. Those adversaries include the IRS. Now, if you have a specific dispute with the IRS, and you’ve exhausted all your avenues of appeal, you will have to comply or face jail, even if your money is offshore. But if the U.S. government attempts a blanket wealth confiscation, my bet is that offshore accounts will be last in line because they will be much harder to attack. That means offshore money is relatively safer.
- Banking offshore gives you access to currencies and investments that are often unavailable through U.S. banks. Hedging against a dollar collapse by holding balances in other currencies is a major advantage of banking abroad.
- There are many countries where the banking system is far better managed and regulated than in the U.S. Many large U.S. banks are leveraged to an absurd degree. That means they don’t have enough liquid assets to cover potential withdrawals, and/or that their own borrowings are excessive. Banking in a country that demands more integrity from its banks may save your money someday.
I feel like I have not been told everything I want to know about banking overseas. I believe the dollar will fail and when that happens, our banking system will fail too. When our banks fail does that mean banks will fail in other countries as well?
That’s a difficult question to answer, since there are so many countries in the world and so many different interconnections between banks. Generally speaking, a major U.S. banking failure will cause very serious issues across the world. But countries that have their own currency as well as strong banking regulations, especially regarding liquid reserves, will survive much better than those that, like U.S. banks, behave like crapshooters in a casino. That’s why it is critical to do background research to assess specific countries and specific banks to identify those that are the soundest, relative to U.S. banks.
I have finally “seen the light” and I’m thinking about moving some money to Switzerland. I’d like to get your opinion as to the safety of money in Swiss banks.
As in my response to the previous question, it depends on the bank. Most Swiss banks are extremely well-run, well-capitalized and quite conservative. Swiss banking laws are strict. Switzerland has had an extremely stable economy and infrastructure for many years and hasn’t been at war with another country since 1505. The Swiss franc is considered one of the world’s premier currencies with virtually zero inflation, and has been historically backed by at least 40% gold reserves. There are few banks anywhere on the planet that are safer than Switzerland’s.
But there are two problems. The first is that Swiss banking is a victim of its own success. Switzerland’s popularity with high net-worth individuals, especially Americans, led to big U.S. government lawsuits and fines some years ago, resulting in account closures for many Americans. That has made Swiss banks very gun-shy of opening an account for an American client, which is typically only done if the amount is substantial and it is to be used for active investments via the bank, from which it can earn fees.
The other problem is that the Swiss have had to relax their own laws regarding seizure of assets to comply with U.S. demands. That means Swiss deposits are easier to attack legally than they used to be. They are still difficult to seize, but they aren’t as safe as those in places like Singapore or the Cayman Islands, where the legal process to enforce a U.S. court judgment is far more onerous.
Editor, Sovereign Confidential