Privacy is about a lot more than what you do on the internet. The threats to your privacy come from many places, not just the National Security Agency or Russian hackers.
The web of reporting regulations that the federal government has foisted on banks and other private businesses is a new form of privacy invasion in America. Any time you deposit or withdraw a lot of cash, or buy or sell many forms of precious metals, Uncle Sam wants to know about it. And he doesn’t wait for you to report it — he makes the banks do it, under threat of massive fines. So naturally, they report.
The recent federal charges against ex-House Speaker Dennis Hastert are a perfect example of this. Hastert stands accused of managing his financial affairs in such a way as to avoid federal-bank reporting rules, in order to prevent exposure of an alleged misdeed in his past.
These accusations raise a question few people are asking: How could Hastert have avoided those charges? After all, it could be you. Thousands of otherwise innocent people are accused of structuring every year.
But what if you just want to protect your financial privacy? What if you wanted to transfer money to someone without leaving a paper trail and without being accused of criminal activity? You have every right to actively protect your financial privacy.
Good news: It can be done … legally.
Your Cash Is a Suspicious Activity
Those pursuing a sovereign life of privacy and independence can learn an important lesson from the case of Dennis Hastert.
I have no opinion about the alleged misconduct Hastert sought to conceal with the payments that landed him in a federal court last week. He hasn’t been charged, let alone convicted, of any crime in that regard, and I don’t make judgments based on media stories.
Hastert, however, has been charged with “structuring” — banking in such a way as to avoid federal “suspicious activity” reporting rules. Some people think the Justice Department is using these charges as a pretext to punish him for the allegations from his past precisely because it can’t win a court case against them.
The same thing could easily happen to you in your pursuit for financial privacy… unless you take my advice.
Hastert withdrew cash from personal accounts in order to compensate someone for a private matter. The deal between Hastert and this person was not illegal. Lawyers arrange such matters for their clients every day, usually coupled with strict confidentiality agreements. No permission from government is needed.
Nevertheless, all U.S. banks and many other institutions (such as casinos) are required to report any deposit or withdrawal of more than $10,000 in cash to the Financial Crimes Enforcement Network (FINCEN). When they do, banks want to know where the money came from or what you are going to use it for, and usually ask for documentary proof. Hastert didn’t want to provide such proof.
That’s why he faces years in prison and millions in fines.
Elementary, My Dear Hastert
Given the fact that as a congressman he helped pass the very law he is accused of breaking, Hastert’s dilemma reflects shocking naiveté on his part. The rest of us might not have thought about the asset protection strategies that would have kept his secret safe, but it should have been clear to Hastert, especially since he was being paid millions as a lobbyist to advise clients on sensitive matters.
There are three different methods Hastert could have used to legally maintained his privacy — methods you can also use to protect your financial privacy:
- For example, he could have opened an offshore bank account and given “Individual A” a credit card to access it. As long as the balance in the foreign account never exceeded $50,000 at any one time, Hastert wouldn’t have to report the account’s existence under the Foreign Account Tax Compliance Act (FATCA). Hastert could have transferred funds offshore from his U.S. accounts without having to explain anything.
- Alternatively, he could have created a limited liability company (LLC) in a state that does not require or report the ownership of the LLC, such as Delaware, Alaska or Wyoming. Hastert could transfer funds to the LLC, and the LLC could then make payments to Individual A.
- To be extra safe, and for little cost, Hastert could have opened his LLC in a secure offshore jurisdiction such as Belize or Nevis, which he funded via his U.S. bank account. The LLC could then pay Individual A directly. As an added security measure, the LLC could open another offshore account to make the payments, or to host a credit card.
Any of these asset protection strategies would have been perfectly legal … and highly private.
Don’t Break the Law … But Don’t Let It Break You
Hastert’s case presents a delicate balancing act that can easily lead to misunderstanding. Along with other commentators, I distinguish between the long-ago crime Hastert allegedly committed — reprehensible if true — and the federal-banking rules that actually landed him in court.
The “crime” of structuring only exists because it helps the Feds in their quest to control behavior they can’t stop any other way. It is used ruthlessly against ordinary people regardless of their innocence or guilt on other matters. It is yet another privacy invasion by the government.
So if you ever need or want to make a legal, private arrangement to avoid this stupid law and protect your financial privacy, do it my way … not Dennis Hastert’s way.
Offshore and Asset Protection Editor