Asset Protection — Not Tax Evasion — and What the HIRE Act Has in Store for “US” (Pun Intended)

Peter Zipper, President of Caye International Bank, spoke last night before a group of individuals wanting to learn more about “offshore banking.” What is offshore banking? Simple: any bank account you hold outside of your taxable residence country is considered “offshore.”

Mr. Zipper explained the differences between countries which have “privacy” laws, vs “secrecy” laws and why this is important to those individuals who wish to protect their assets — not those who are seeking tax evasion — as this he clearly stated is NOT the business they are in.

His bank, Caye International Bank in Belize, is the second larges bank in Belize, a country which has strict banking laws that is a no-tax regime and which offers privacy and confidentiality to its clients.

There are no exchange controls, which means that you can take out or put in money at any time. Your banking information belongs to you. This kind of asset protection means that assets held under certain structures (e.g. International Business Corporations and trusts) are protected from lawsuits, judgments and divorce settlements.

He further explained that liquidity requirements in Belize are 24% compared to the U.S. requirement of 3% to 10% Federal Reserve System, three times the reserve requirements in the United States, and Caye International Bank has liquidity about twice the Belize legal minimum. In addition, the bank enables clients to invest in funds not offered or licensed in the U.S., opening investment opportunities.

At the end of his presentation, Mr. Zipper opened up the subject of the HIRE Act of 2010 governing the Foreign Account Tax Compliance Act (FATCA) that will be enforced as of January, 2014. The Act requires foreign financial institutions, including hedge funds, to report on the holdings of U.S. taxpayers to the IRS or face stiff penalties. This new regulation will greatly affect U.S. citizens with offshore accounts worldwide.

Chapter 4 of the Act requires that any financial institution (U.S. or foreign) remitting any foreign payment to a bank in such a country withhold 30% of the amount of such payment and remit that percentage to the Internal Revenue Service (IRS) as a tax. “A withholdable payment is defined as any payment of interest, dividends, rents, salaries, wages, premiums, annuities, compensation, enumerations, emoluments, and other fixed or determinable annual or periodical gains, profits and income, if such payment is from sources within the United States. The withholdable payment is designed to ensure that ‘pre-tax’ monies are not sent abroad without applicable U.S. federal taxes being paid.”

This means that offshore banks worldwide will be forced to comply with U.S. regulations to report all holdings by American citizens and withhold 30% of the account until tax compliance is proven.

The new regulations are under tremendous controversy, of course. It is an administrative nightmare for foreign banks with U.S. citizen clients: “It will cost billions of dollars in uncompensated costs to US banks and to the U.S. economy to provide very different but nevertheless fully detailed reports on the deposits in U.S. banks of non-resident foreign citizens in the languages of each of 119 foreign countries and with U.S. dollar values converted to those of the currencies of other countries.”

We American citizens are doomed to be the ‘pariahs’ of the banking industry. For example, to wire transfer $100,000 to France to purchase a property, one would have to agree to send $142,000 so that a net $100,000 would reach its destination. Who would be inclined or willing to pay 30% more in a global transaction in order to satisfy these requirements?

This reminds me of how some laws do more to punish 99% while trying to catch a few ‘bad guys.’ This is how I feel going through airport security when asked to remove my shoes, belt and watch, have my body scanned and sometimes searched, while they’re looking for the one in one million who may be on the current list of ‘terrorists.’ The truth is that these compliance costs to worldwide bankers have been estimated by the Swiss Banking Association to total nearly $40 billion dollars annually, while the measure is projected to generate only around $8 billion to the U.S. Treasury in increased taxes.

Much is being written on the subject, and we as U.S. citizens living abroad with foreign bank accounts will be subject to the anxiety this will cause us. Experts predict that “while the intent of the new law is admirable – to force U.S. tax compliance with regard to foreign accounts and transactions between the U.S. and individuals in countries that are considered to be tax havens – the unintended consequences could result in “the flight of capital from the country and long term devaluing of our currency through simple supply-and-demand manipulations.”

Help! For more information on the HIRE Act, read Foreign Account Tax Compliance Act and for more information on Caye International Bank, visit Offshore Banking or Caye International Bank.

A la prochaine…

Adrian Leeds

Editor, Parler Paris & Director of The Adrian Leeds Group, LLC

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