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IRA Gold
Christian Reeves

$7 Million in Gold but no Estate Plan

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If you have ever attended an offshore conference, you have heard the story of two kings from Mr. Joel Nagel: Elvis Presley, whose estate was decimated by lawyers and the IRS, and Sam Walton, who left nothing but an old pickup for the vultures.

Today I will tell you about Walter Samaszko Jr. of Carson City, Nevada. At the age of 69, Mr. Samaszko passed away in late June of this year. He left over $7 million in gold bars and coins, $165,000 in stocks and bonds, and $12,000 in cash hidden throughout his home, but only $200 in a checking account.

Mr. Samaszko lived in the same small home since the 1960s, where he had taken care of his mother until her death in 1992. He had no close relatives, and, apparently, no close friends (it was about 30 days before his body was discovered). He left no will and no trust. Reports indicate that his estate will go to his first cousin, Arlene Magdanz, who lives in San Rafael, California.

The gold coins and bars had been minted as early as the 1840s and were from a number of countries, including Mexico, England, Austria and South Africa. The estimated value of $7 million is based on the gold weigh alone. It is likely that the collectors’ value will be much higher.

Mr. Samaszko was obviously a hardworking and intelligent man to have amassed such wealth. He also took great precautions against government interference and economic collapse. So, why no estate plan? Why work so hard simply to leave a large portion of the money to a government he clearly feared?

If we assume that the total value of Mr. Samaszko’s estate, including the collectors’ value of coins, is $8 million, here is the government’s cut:

1. Mr. Samaszko is “lucky” to have died in 2012, when the Federal estate tax only applies on amounts over $5 million. A quick calculation estimates Federal estate tax due of $1,008,000. Had he passed away in 2009, Federal estate tax would have been over $2 million.

2. Nevada does not have an estate tax and California, where his heir lives, has no inheritance tax. Had Mr. Samaszko lived in Washington State, his State estate tax would have been about $1 million.

3. There are a number of fees associated with probate (a legal process required when one dies without a living trust), which includes appraisal costs, executor’s fees, filing fees for the court, surety bond fees, legal fees and accountancy fees. Nevada has adopted a statutory fee schedule, but a judge may approve any amount he deems to be reasonable. Based on the particulars of this case, including the fact that there appears to be only one heir and no contest to probate, one might guestimate the estate fees at 4% to 10%, or $320,000 to $800,000.

If additional heirs are located, legal fees are likely to skyrocket.

With planning, Mr. Samaszko could have reduced or eliminated the bulk of these costs. The most basic tool would be a U.S. living trust. This would have controlled the distribution of the estate, may have included charitable contributions, and would have eliminated probate fees of $320,000 to $800,000. A do-it-yourself book costs about $30, and a lawyer may charge a few thousand dollars for a custom plan.

In addition, he could have diversified out of the United States and in to physical or certificate gold and stock investments around the world. The use of an offshore trust, Panama foundation, or offshore company would have maximized his protection and access to international markets. While it is advisable to have some assets at home and within reach, safety and prudence dictate an international plan to protect you and your assets.

There are a number of other U.S. estate planning tools available at little or no cost, but may be of great benefit if they are needed.

Many are available for free on the internet. These are:

1. Durable Power of Attorney: Allows you to designate to access and control your financial assets. It can take effect immediately, or it can “spring” into effect if an event you define triggers its operation, such as incapacitation or unavailability.

2. Prenuptial Agreement: This keeps your property separate from your spouses, and is especially important in second marriages where you may want to leave assets to your children.

3. Health Care Proxy: Also called a durable power of attorney for health care, this document identifies the person you’d like to make medical decisions on your behalf if you become unable to make them yourself.

4. Living Will: An advance health care directive, also known as living will, personal directive, advance directive, or advance decision, is a set of written instructions that a person gives that specify what actions should be taken for their health if they are no longer able to make decisions due to illness or incapacity. The most common directive is when a person wishes no extreme measures or life support equipment be used in their care.

5. HIPAA Release: A Health Insurance Portability and Accountability Act, or HIPAA, release allows medical professionals to discuss your medical condition with your personal representative. Without this form, the hospital may not be able to discuss your care with your representative.

6. Life Insurance: Life insurance allows you to take care of those who depend on you. If you do not have financial responsibilities, you do not need life insurance.

7. Business Succession Plan: If you are self-employed or own a business, and you want the business to continue after retirement or death, a succession plan must be in place. If your children will take over operations, a relatively simple agreement can be drafted. If you will sell some or all of the business, or there are multiple partners, a more robust strategy will be required.

There are two certainties in life: death and taxes. A detailed estate plan is the only guaranteed way to minimize death taxes and can include a number of tools that diversify your investments, maximize privacy, and plant your financial flag in a favorable jurisdiction.

An attorney with Premier Offshore Investor will be happy to discuss your options. Contact us for a confidential consultation at (619) 483-1708 or email info@premieroffshore.com with any questions.

Update: December 19, 2012

The gold coins were eventually valued at $7.5M and the entire estate went to a distant relative via judicial decree. For additional information, checkout CBS News.

Christian Reeves

Dominica

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Dominica is another Caribbean island that has been making a name for itself in the offshore world for the last several years. Its passport is not as travel friendly as St. Kitts, but the costs are much lower.

Officially the Commonwealth of Dominica, this island is in the Lesser Antilles region of the Caribbean Sea, south-southeast of Guadeloupe and northwest of Martinique. Its 290 square miles has a population of about 71,000. Dominica has been nicknamed the “Nature Isle of the Caribbean” and is generally considered one of the most eco-friendly and beautiful islands in the regions.

A second passport from Dominica will cost a family of four (applicant, spouse and two children under 18-years-old) of $200,000, plus $25,000 for each additional child under age 25. With filing, registration and professional fees, applicants can anticipate a total cost of $300,000. In other words, a family of four can obtain economic citizenship and second passports from Dominica for less than the cost of a single passport from St. Kitts.

Dominica offers three options to obtain a second passport:

Package A: Single Applicant A non-refundable investment of US$100,000.00
Package B: Family Application One (Applicant and spouse) A non-refundable investment of US$175,000.00
Package C: Family Application Two (Applicant plus spouse and two children below the age of 18) A non-refundable investment of US$200,000.00
Package D: Family Application Three (Applicant plus spouse and more than two children below the age of 18) A non-refundable investment of US$200,000.00 and US$50,000.00 for every additional person below the age of 18

 

Dominica’s application and other fees are also significantly lower than St. Kitts.

  • Application fee – US$1,000 per investor (Non-refundable)
  • Processing Fee – US$200 per applicant (Non-refundable)
  • Naturalization Fee – US$550 per applicant
  • Stamp Fee – US$15 per applicant

Considering legal and other costs, an individual applying for economic citizenship and a second passport from Dominica should expect to part with about $165,000, including the donation of $100,000. This is about half the fee charged by St. Kitts.

The Dominica passport allows visa-free travel to more than 60 countries, including the United Kingdom and CARICOM nations. Click here for list of visa free countries. Dominica imposes no residency requirements to obtain, nor maintain, citizenship and there are no taxes imposed on citizens who do not reside in Dominica; however, those who do reside in Dominica are subject to substantial taxes on worldwide income.

Christian Reeves

St. Kitts and Nevis

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St. Kitts and Nevis are two islands in the Eastern Caribbean that became independent from England in 1983 and have a history of providing privacy, asset protect, and the best second passport available. This country of 51,000 is a member of the United Nations, its primary language is English, and its currency, the Eastern Caribbean Dollar, is pegged to the United States dollar at 2.7 to 1. Click here for additional information on the Eastern Caribbean Community.

Your St. Kitts passport will provide you with visa free travel to over 100 countries, including Canada, Great Britain, Hong Kong, Liechtenstein, Ireland, Sweden, Switzerland and Schengen States of the European Union. For a list of these countries, click here.

Your St. Kitts passport will also provide an easier path to residency in a number of countries, such as Monaco, Switzerland, Andorra, United Kingdom, and Bermuda, Cayman Islands, Bahamas and other Caribbean countries.

Most importantly, there is no residency requirement to obtain a second passport from St. Kitts. You are not required to live in St. Kitts and there is no travel, regular meetings with immigration representatives, or other annoying requirements.

Processing Time: In most cases, you will receive your St. Kitts passport in 2 to 4 months after submitting your application.

There are two programs that will lead to a second passport in St. Kitts:

  1. Citizenship through real estate investment in St. Kitts, and
  2. Citizenship by making a donation to the St. Kitts Sugar Industry Diversification Fund.

St. Kitts Passport by Real Estate Investment

The minimum investment in St. Kitts real estate is $400,000 per applicant. If there are two related applicants, such as a husband and wife, you can invest $800,000 in a single property.

Government fees for the St. Kitts real estate investment program are as follows (updated for 2012):

  1. US$7,500.00 for due diligence background checks and processing fees for the main applicant;
  2. US$4,000.00 for due diligence background checks and processing fees for each dependent of main applicant who is over the age of sixteen years;
  3. On approval in principle of an application through a real estate investment

i.   US$50,000.00 for the main applicant

ii. US$25,000.00 for the spouse of main applicant;

iii. US$25,000.00 for each child of the main applicant under eighteen years of age;

iv. US$50,000.00 for each qualified dependent of the main applicant above the age of eighteen years, other than his or her spouse.

  1. Application processing fee is $250 per applicant

Legal fees are in addition to the costs above and vary significantly by applicant. Typical real estate and related expenses are as follows:

  • Purchase and Sale Agreement – 1% of the Purchase Price
  • Memorandum of Transfer – Approximately 1% of Purchase Price
  • Surveyor’s Fees – Approximately US$327.00 per acre
  • Government Fees – Registration fee of US$2.70
  • Assurance Fund – Purchase price divided by 500
  • Alien Landholding License Application – US$1,500.00 per applicant
  • Stamp Duty (on select properties): 2.5% – 6% of purchase price

In addition to the high transaction costs, there are a number of issues with the St. Kitts passport by investment program. For example, you must purchase a “program approved” property, which means the cost will be higher than for a non-approved comparable property.

Second, if you give up your citizenship and sell the property, it will lose its approved status and your sale price will be lower. In other words, you can’t sell the property to someone seeking economic citizenship, so the number of potential buyers and the sale price will be significantly reduced.

Third, real estate taxes and upkeep on a property you do not occupy may be prohibitive. The Comptroller of Inland Revenue assesses a property tax of 0.2% per year on market value.

Fourth, St. Kitts does not charge a capital gains tax when the property is sold. Instead, they have a 12% transfer tax due on the full sales price. So, even if you are selling the property at a loss, a 12% tax is charged on the transfer.

Fifth, I said that $400,000 is the minimum investment per application. However, this assumes you can find an approved property you wish to purchase in this price range. Many single family homes are significantly more expensive than this minimum investment and large homes can be in the millions on St. Kitts or Nevis.

In my experience, clients who will spend significant time in St. Kitts opt for the investment option and purchase a single family home. Those who will visit the island from time to time opt for the condos provided by Marriott (for additional information, click here) and the rest will prefer to acquire a passport by donation.

St. Kitts Passport by Donation

 

If the preceding page on the St. Kitts passport by investment option left you dazed and confused, as it does many clients, there is an easy solution. You can purchase your St. Kitts passport by making a “donation” to the Sugar Industry Diversification Fund (SIDF).

Under the SIDF Citizenship-by-donation option there are four cost structures based on family size:

  1. $250,000 for a Single applicant,
  2. $300,000 for an applicant with no more than 3 dependents (two children under 18 and a spouse),
  3. $350,000 for an applicant with no more than 5 dependents (four children under 18 and a spouse), or
  4. $450, 000 for an applicant with no more than 6 dependents (five children under 18 and a spouse).

In this program you simply pay the fees, gain economic citizenship and are handed second passport…with no strings attached. This is the recommended program for clients who do not plan to spend significant time in St. Kitts or Nevis.

The costs above do not include legal, due diligence, application, agent, and other professional fees. A single applicant should expect to pay out around $350,000 to complete the process.

Offshore Privacy
Christian Reeves

New Life and New Passport

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Second Passport Programs, Economic Citizenship and Passports by Investment

Let’s face it; American passports are not what they once were. In fact, Americans are giving up their citizenship in record numbers. For example, the U.S. embassy in Switzerland reports that hat it had processed 411 renunciations in the first nine months of 2012. This compares to 180 Americans giving up their passports in 2011.

While the number of Americans that turn in their passports is a small fraction of the estimated 35,000 to 40,000 U.S. citizens living in Switzerland, the rise in such renunciations is causing concern. “At the moment this phenomenon is bigger in Switzerland than anywhere else in the world,” the U.S. ambassador told the Handelszeitung newspaper. “U.S. passports are becoming less attractive due to the implementation of stricter U.S. laws.”

One of the major motivators pushing Expats and others to give up their U.S. passports is the Foreign Account Tax Compliance Act (FATCA) that requires banks worldwide to report the financial assets and transactions of their U.S. clients. The burdens this law places on international banks is enormous and most have decided compliance is impossible. The bottom line is that it’s not financially feasible for an international bank to maintain a team of experts to ensure compliance with this convoluted law…which means those with U.S. passports will be unceremoniously dumped by their banks.

If you are considering taking the drastic step of renouncing your U.S. citizenship, keep in mind that you must first have a second passport in hand. When you give up citizenship in one country, you must already have citizenship in another…otherwise, you will be without a country and without travel documents.

NOTE: Residency is not the same as citizenship. Many clients contact us with the plan of obtaining residency in countries like Belize or Panama, then giving up their citizenship. This will leave you without a passport and may have other draconian consequences.

There are four methods for obtaining a second citizenship and a passport:
1. If you have distant relatives in countries like Ireland, Poland & Italy, you might qualify for citizenship by ancestry.
2. If you marry someone and become a resident of just about any country, even the U.S., you can obtain citizenship after a few years.
3. If you are a long term resident of a country like Belize, Paraguay, or Panama, you can qualify for citizenship. 3 to 10 years.
4. You can purchase economic citizenship and a second passport from St. Kitts, Dominica and Austria.
If you are looking to opt out of the U.S. system any time soon, the only option is to purchase economic citizenship. A second passport by ancestry is open to very few and has become much more difficult in recent years. Citizenship by marriage may upset your current spouse and citizenship by residency will take years to complete. For example, the constitution in Uruguay requires 3 years minimum, and Panama is about 10 years. Even if you qualify for citizenship through residency, a second passport is not guaranteed.

Passports are granted by order of the President and often require a “contribution” to his election fund. I recommend St. Kitts over Austria is because of the high cost of Austria, because Austria imposes a residency requirement and because St. Kitts is just so much more efficient to deal with compared to the bearcats in Austria. An Austrian passport can cost upwards of $1 million plus legal fees, while a St. Kitts passport will cost $250,000 plus legal fees.

Christian Reeves

Offshore Bank Licenses go the way of the Dodo

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Offshore Bank Licenses go the Way of the Dodo

The issuance of offshore banking licenses to anyone willing to put up some cash is a thing of the past. Back in the day, if you wanted to get in to the financial services industry, all you needed to do was find a small Caribbean island somewhere, put $50,000 to $500,000, and open a bank.

Offshore Bank: A bank that can only do business with foreigners. An offshore bank costs much less to open and operate, when compared to a fully licensed bank. These are sometimes referred to as Class B banks.

Fully Licensed Bank: This is a bank with an offshore bank license that can do business with anyone…be they residents or citizens of the country of licensure or foreigners. A country always strives to protect its own, so the barriers to forming a fully licensed bank are traditionally much higher than for an international license. These are usually referred to as Class A banks.

An offshore bank might offer its CDs and investment products over the internet, through brokers in the U.S., and bolster their image by forming non-bank entities in more respected jurisdictions to act as marketing divisions. Even brokerages in the U.S. have created offshore banks and offered high risk / high returns through these entities.

Shockingly, a few of these offshore bank licenses were granted to poorly regulated institutions that became breeding grounds for fraud. One example I am very familiar with is Millennium Bank of St. Vincent. This bank was formed by a Swiss banker and operated under a Swiss Trust Company.

Why a Swiss Trust? When the bank was newly formed, they found it hard to get clients and purchased a 75 year old Swiss Trust Company to bolster their image.
The bank marketed 5 to 20 year CDs at outrageously high interest rates. If you wanted your money back before the maturity date, there were severe penalties. In 2009, Millennium Bank was shut down and charged with operating a $68 million Ponzi scheme.
For more information, see: www.sec.gov/news/press/2009/2009-68.htm

A case that garnered much more attention in the United States was that of R. Allen Stanford. Mr. Stanford formed Stanford Bank in Antigua and began selling investment products in the U.S. around 1992.
It was shown at trial that he repeatedly paid off the Antiguan regulators to hide a $7 billion Ponzi scheme. He was convicted in March of 2012 and sentenced to 110 years in prison.

I would like to note that Stanford also operated a bank in Panama with a full service offshore bank license. In this country, the regulators took their business seriously. When the bank collapsed, everyone with accounts received 100% of their money back. I have U.S. clients today who are still hoping and trying to get some money out of the U.S. brokerage firm and the bank in Antigua.

For more information, see: www.nytimes.com/2012/06/15/business/stanford-sentenced-to-110-years-in-jail-in-fraud-case.html?pagewanted=all

Of course, this is a situation where a few bad apples spoiled things for everyone. Most offshore bank licenses were given to banks offering legitimate and interesting investment products and were quite stable. However, they were bastions of privacy, and the governments of the world took this opportunity to force many of them out of business.

Cases like Stanford and Millennium reflect poorly on a small countries economy and banking sector. When investors perceive risk in a particular country or in the offshore sector in general, they want a higher return on their investment. When traditional banks are forced to increase interest rates paid to clients, their margins decline significantly.

Also, when banks with offshore bank licenses are perceived as higher risk by the major countries, these countries impose more due diligence and limitations on the offshore bank and its correspondent accounts. When the rigors of due diligence increase, the cost of compliance skyrockets and the bank must choose to play along or lose its ability to do business in U.S. dollars, Euros, Pounds, etc.

As a result of the changes to the industry, the only new offshore licenses being issued are to banks with full service charters from a major jurisdiction. For example, if you want an offshore banking license in Panama, you must already have a fully licensed bank in the United States, United Kingdom, etc.

Internet Scams: There are several websites offering to sell offshore bank licenses. Watch out! Most countries require an existing license be “reviewed” when it is transferred. Upon review, corporate capital may be increased, or other barriers may arise, making operation impossible.

So, what is an entrepreneurial international financial services company to do? One can always get a full offshore bank license in an international jurisdiction, such as Panama. If you don’t have the $10m to $20m in corporate capital required, I suggest you consider simpler options for setting up deposit taking entities, offering investment services, providing for Forex trading, etc. Some possibilities are the Swedish Credit Union, a Panama Offshore Financial Company, a Swedish Trust Company, a New Zealand Offshore Financial Company, a master/feeder fund in Cayman or BVI, or a Swiss Trust Company (yes, these are still available, even considering the cautionary tale of Millennium Bank).

The Panama Offshore Financial Company is a relatively new financial entity designed for businesses registered in Panama that wish to offer services such as payment processing, credit card management, the trading of metals, leasing, factoring, etc. These companies can’t take deposits or operate like a bank.

A New Zealand Offshore Financial Company can provide “Bank” type services for individuals and corporations worldwide without limitations on the number of clients, deposit amounts or currency. A NZOFC may engage in the following businesses, but may not use the word “Bank” in its name. It is the entity most similar to an offshore bank license.

-Deposit taking & lending

-Debit and credit services

-Issuing of financial guarantees and instruments

-Cash Management

-Current Accounts

-Term Deposits

-Issuing of CDs

-Wire transfer services

-Fund management

-Marketing of investments

Of course, today’s regulatory environment makes transaction processing, opening and maintaining correspondent (client) accounts, and reporting, a significant challenge. Even with an unregulated entity, such as those described above, owners and operators of companies in the international financial industry must take care and keep up with the many requirements of doing business.

When you combine the changes to the offshore banking industry with the challenges by U.S. and E.U. tax authorities, engaging in any type of international business is certain to become more difficult as time goes on. With legitimate banks forced out of business, privacy and security being lost at every turn, and a mad dash for tax revenues from any and all sources, you take your life in your hands when you operate an international banking or financial services company and, god help you if you stand in the way of the tax man.

In my experience, attacks on international banks and financial service providers are a precursor to assaults on individual liberties. Just take a look at the attack on Switzerland of a few years ago and how that led to persecution of everyday Americans.

We truly live in interesting times. As goes the financial sector goes personal privacy and security. Watch this industry carefully and follow the money!

If you would like additional information on offshore bank licenses and related entities, please contact us at (619) 483-1708 or email info@premieroffshore.com.

Editor’s Note: Please click here to read a more recent and detailed article on Offshore Bank Licenses by Mr. Reeves.

Offshore business tax reporting
Christian Reeves

IRS Snitch Gets Rich

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IRS Snitch Gets Rich – UBS Whistleblower Receives $104 Million.

How much are 40 months of your life, and your dignity, worth? $104 million (or about $4,600 for each hour spent in prison) seems a good answer.

As you may have heard, The Internal Revenue Service awarded tax whistleblower and former UBS banker Bradley Birkenfeld $104 million for turning in his clients and giving insider information on the banks operations. This ultimately allowed the IRS to shatter the veil on Swiss bank secrecy, get paid a bribe or blackmail (how else can you describe paying money to avoid criminal prosecution) of $780 million from UBS, imprison hundreds of Americans, obtain records on 4,000 accounts, and raise $5 billion and counting in taxes and penalties.

Prosecutors have said they would have had no case against UBS without Mr. Birkenfeld, but they still sought one charge of conspiracy and prison time for this Good Samaritan. Mr. Birkenfeld was sentenced to 40 months and will probably do 85% of that sentence in one form or another. After serving 30 months, he was recently transferred to a halfway house in New Hampshire.

Clearly, Mr. Birkenfeld has seen the error of his ways and is on board with the IRS. He recently released the following statement through his attorneys: “The IRS today sent 104 million messages to whistleblowers around the world — that there is now a safe and secure way to report tax fraud and that the IRS is now paying awards,” and “The IRS also sent 104 million messages to banks around the world — stop enabling tax cheats or you will get caught.”

Well, before you decide to turn in your ex-spouse, business partner, or employer, you might like to know that the IRS has a history of screwing the whistleblower and denying claims for compensation.

In 2006, the IRS started a whistle-blower campaign which offers informants rewards of 15% for recoveries of less than $2m and 30% for recoveries in excess of $2m. However, the vast majority of claims submitted to the IRS go unanswered.

Of the cases that the IRS investigates, the usual time to completion is 5 years, you get a percentage of the amount recovered and not the amount assessed, and IRS records indicate they pay out an average of 4% of the money recovered, rather than 15 and 30%.

How can the IRS payout 4% on average when the regulation says 15 to 30%? Easy…they deny the majority of claims even after moneys are recovered. The IRS issues a letter saying they would have collected the money without the tip…that the tax cheat would have been found out through their normal audit procedures, and thus no money is due the whistleblower.

There are no appeals or legal remedies for the whistleblower. He or she is at the mercy of the Service.

While, I’m sure that there will be a flood of new cases coming in to the IRS Informant Program in the coming weeks, I’m just as certain that very few of these snitches will ever see a dollar for their efforts.

For additional information on the IRS program, and to tattletale on your friends and family in pursuit of a pay day, click here for the IRS website.

Attack on the Dollar
Christian Reeves

IRS Going After Cash Transactions

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U.S. Goes After Cash Transactions

The New York Times recently reported that Federal and state authorities are investigating a handful of major American banks for failing to monitor cash transactions in and out of their branches. The government claims that this may have enabled drug dealers and terrorists to launder tainted money, according to officials who spoke on the condition of anonymity.

It is alleged that the primary target of the investigation is the embattled J.P. Morgan Chase. Who, fresh off a scandalous trading loss of $5.8bn, is in no position to stand up to another political firestorm. It is also suggested that the government is looking in to several other big name banks, including Bank of America.

Before I get in to this story, let’s define our terms:

A cash transaction is one where someone withdraws or deposits paper money. This does not include checks or wire transfers. A bank is required to report any cash transaction in excess of $10,000, and any transaction the teller deems to be “suspicious.”

A suspicious transaction is usually a group of transactions that are structured to avoid the reporting requirements. For example, you go in to the bank each day and deposit $9,500, or in to two branches with $6,000 each time. If the teller (or computer) notices, then a Suspicious Transaction Report will be sent to the IRS.

Tellers are also trained to spot signs of generally suspicious behavior. For example, if a customer asks about the reporting requirements or anything related to taxation or the IRS that is suspicious. If the customer seems nervous or otherwise sets of warning bells, a report will be generated.

With that said, let’s get back to the story:

The Comptroller of the Currency, as well as prosecutors from the Justice Department and the Manhattan district attorney’s office are all gearing up to go after these banks in order to protect us from drug dealers and terrorists…YEH! We should all stand up and applaud our government’s diligence!

Well, wait a minute. Who is the actual target here? Is al-Qaeda really transacting giant piles of cash and fooling tellers and computers in to not reporting? Are the internal bank compliance systems, on which these companies have spent millions of dollars, fooled so easily?

As someone who has represented both clients and family members caught up in these currency transaction reports and suspicious transaction reports, I can tell you that banks take them very seriously. I can also tell you that the teller’s credo is report first and ask questions later…CYA all the way.

So, why the sudden focus on cash transactions? In my opinion, it is a new battlefield being tested against average U.S. citizens, with nary a terrorist in sight. Are self-employed persons cashing their checks rather than depositing them to avoid paying taxes? Are they structuring their transactions to avoid a currency report?

With international tax evasion, the IRS has the Foreign Bank Account Form and related penalties. With domestic tax evasion, the government as the Currency Transaction Report to target anyone who lands in their crosshairs. Much like the FBAR, attempting to avoid the filing of a CTR is punishable by up to five years in prison.

As you may recall, it was just six years ago that the Patriot Act came in law under George Bush. The reasoning behind this act, as well as those to follow (HIRE, FATCA, et al.), was to put a stop to terrorist money laundering. Well, the Patriot Act led to the IRS attack on the Swiss bank UBS, $5 billion dollars and counting in new tax and penalty revenues, and the prosecution and imprisonment of hundreds of U.S. citizens…without a terrorist to be found
Now, as the government increases pressure on banks to report anyone transacting in cash, or acting suspiciously, and turns bank tellers in to unpaid IRS Criminal Investigation Agents, a new battle is brewing between the IRS and the average American self-employed person who may be fudging on his or her taxes.

When this is over, two things will come of it: 1) the IRS will persecute a few to collect from many and 2) the number of anonymous cash transactions will be reduced significantly, with business being done by credit card, check or wire, thereby traceable and controllable.

Christian Reeves

Debtors Prisons in the U.S.?

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Debtors’ Prisons are back in the U.S. of A.

As States search for ways to increase revenues, they have been using their weapon of mass destruction – their prison system – to bludgeon those unable to pay fines and tickets in to coughing up some cash. And it’s not limited to government agencies. Owe money on a medical bill, payday loan, or to a collection agency? You may well find yourself in jail.

While it sounds like something out of a Dickens novel that could never happen in the America which Obama claims is a shining beacon to the world, debtors prisons are back in a big way. More than a third of all States now allow borrowers who don’t pay their bills to be jailed, even when debtors’ prisons have been explicitly banned by State constitutions and Federal law. A report by the American Civil Liberties Union found that people were imprisoned even when the cost of doing so exceeded the amount of debt they owed. Stories of surprise arrests for unpaid debt have been reported in Indiana, Missouri, Tennessee and Washington.

Want a few examples? According to NPR, Robin Sanders of Illinois was stopped for having a loud muffler. But, rather than a ticket or warning, she was taken to jail for failure to appear in court. What was the charge? Failure to pay a $730 medical bill.

According to the Wall Street Journal, Sean Matthews, a homeless New Orleans construction worker, was incarcerated for five months for a $498 debt. While it cost the State $3,000 to hold and feed him, the creditor eventually got his money.

Following the lead of civil creditors, cities and towns are getting in on the act. The New York Times reported on the story of Gina Ray, who was jailed three times in Alabama for her inability to pay a $179 speeding ticket. By the time it was all said and done, the town and the collection agency had levied fines totaling $3,170 and she spent 40 days in jail. Adding insult to injury, a fee was charged by the government for each day she was incarcerated.

Then there is the case of the Illinois breast cancer survivor Lisa Lindsay. “She got a $280 medical bill in error and was told she didn’t have to pay it,” The Associated Press reports. “But the bill was turned over to a collection agency, and eventually State troopers showed up at her home and took her to jail in handcuffs.”
OK, hold on, you might say. This sounds ridiculous. If you fail to show up for civil court, the creditor simply gets a default judgment, right? Well, creditors have figured out a loophole that allows them to put you in jail until you pay-up.

Here’s how clever payday lenders work the system in Missouri — where, it should be noted, jailing someone for unpaid debts is illegal under the state constitution.

First, explains St. Louis Post-Dispatch, the creditor gets a judgment in civil court that a debtor hasn’t paid a sum that he owes. Then, the debtor is summoned to court for an “examination,” which is a review of their financial assets.

If the debtor fails to show up for the examination — as often happens in such cases — the creditor can ask for a “body attachment” — essentially, a warrant for the debtor’s arrest. At that point, the police can haul the debtor in and jail them until there’s a court hearing, or until they pay the bond. No coincidence, the bond is usually set at the amount of the original debt.

As the Dispatch notes:

“Debtors are sometimes summoned to court repeatedly, increasing chances that they’ll miss a date and be arrested. Critics note that judges often set the debtor’s release bond at the amount of the debt and turn the bond money over to the creditor — essentially turning publicly financed police and court employees into private debt collectors for predatory lenders.”

So, borrowers aren’t arrested for nonpayment, but rather for failing to respond to court hearings, pay legal fines, or otherwise showing “contempt of court” in connection with a creditor lawsuit…but the result is the same. Borrowers are in prison, sometimes for long periods, because they were unable to pay a debt.

Debtors’ prisons have a long and violent history in America, going back at least to the 1750s, and were abolished by Federal law and most States in 1883. They were the source of Shay’s Rebellion, where debtors’ prisons were emptied and a full scale revolt ensued in Massachusetts from 1786 to 1787. The uprising was eventually crushed after the State raised a private army, with creditors’ rights and debtors’ prisons being restored.

History and the constitution aside, there is big money to be made.For example, the State of Alabama charges a 30 percent collection fee for assisting creditors, while Florida allows private debt collectors to add a 40 percent surcharge on the original debt. “Many states are imposing new and often onerous ‘user fees’ on individuals with criminal convictions,” the authors of the Brennan Center report wrote. “Yet far from being easy money, these fees impose severe — and often hidden — costs on communities, taxpayers, and indigent people convicted of crimes. They create new paths to prison for those unable to pay their debts and make it harder to find employment and housing as well to meet child-support obligations.”

According to the ACLU: “The sad truth is that debtors’ prisons are flourishing today, more than two decades after the Supreme Court prohibited imprisoning those who are too poor to pay their legal debts. In this era of shrinking budgets, state and local governments have turned aggressively to using the threat and reality of imprisonment to squeeze revenue out of the poorest defendants who appear in their courts.”

It is outrageous to think that, in our enlightened society, which is a shining example of freedom and justice to the world, that creditors are manipulating the courts to extract whatever they can from people who can least afford to pay.

It is even more disheartening that courts are enabling and encouraging this practice in an attempt to prop up their fledgling budgets.

Christian Reeves

US Leads the World in Only 3 Categories…

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What Makes America the Greatest Country in the World?

With record numbers of people leaving the United States, I wanted to write an article in defense of my country of birth. I spent hours researching the benefits of retaining my U.S. passport, and tried to come up with examples of where we lead the world in some important economic or beneficial category. Well, I came up with nothing…other than it is time to launch the lifeboat!

Since I spent all this time in hopes of authoring a defense, the least I can do is tell you what I found. Here goes:

The Expatriation Phenomenon

First, we need to define abandoning ship, more formally referred to as expatriation. Some sources refer to an expatriate (in abbreviated form, Expat) as someone, who moves away from his or her home country, either temporarily or permanently, to live and/or work in a foreign nation. This is the more common usage and includes approximately 5.2 million Americans.

The lawyerly definition of Expat is someone who gives up citizenship in their home country, effectively severing all ties with that country. As the United States is the only industrialized country to tax its citizens on income earned while living and working abroad, even when taxed by their countries of residence, it makes sense that the U.S. leads the world in people giving up their citizenship…in fact, legal expatriation is almost unheard of in other nations (Ok, so I found one area where the U.S. leads the world).

According to the WSJ, 1,800 U.S. citizens gave up their passports in 2011, a six fold increase from 2008. While 1,800 is a relatively small number, it is the increase which is eye-catching. When you consider the number of applications in the pipeline, and balance that against the very steep obstacles the U.S. IRS has put in place to prevent flight (such as an enormous exit tax), the growth of expatriation is staggering.

So, why are so many people shredding their U.S. passports? Let’s look at a few factors you and I might use to decide where to live.

Quality of Life

Based on television shows and hype, I would expect the U.S. to lead the world in quality of life, but this is far from true. America is 13th in the quality of life index published by the Economist Intelligence Unit. This survey quantifies healthiness, family life, community life, material wellbeing, political stability and security, climate and geography, job security, political freedom, and gender equality. It is the generally accepted standard for measuring quality of life around the world.

However, as someone who writes and works in the international arena, I do not believe this index is highly correlated to expatriation. I do not believe average citizens are moving from the U.S. to countries with higher quality of life scores for a simple reason: the higher a country ranks in the index, the higher the cost of living.

Countries with higher costs of living and a higher “quality of life” include: Switzerland, Sweden, Italy, Spain, Singapore, etc. But, in my experience, average Americans move to countries with lower costs of living, where their dollar, savings, and retirement, go farther. For example, countries such as Panama, Chile, Costa Rica, Philippines, Thailand, and Nicaragua, are all ranked significantly lower than the United States, but someone bringing dollars in to these economies can create an exceptional life for themselves on a budget.

While the quality of life index might accurately measure the experiences of a large population, it has little to do with an individual’s life choice.

At Least We’re Healthy

We all know that healthcare in the United States leads the world in cost. I won’t even bother to document this fact, as it has been beaten to death in the Obamanation healthcare debates. This must equate to high rankings in areas such as life expectancy and infant mortality…right? Sorry, wrong again. The United States ranks 49th in life expectancy and an outrageous 178th in infant mortality.

The United States currently ranks 49th in the world in overall life expectancy, according to a study published in the academic journal Health Affairs, slipping dramatically during the last decade. This study was published in 2010, and compares to 1999, where the U.S. ranked 24th in the same category.

The report found the prime culprit of the plunge to be America’s deteriorating health care system, marred by ever-rising costs and growing numbers of uninsured and under-insured individuals.

Noting that the United States spends over twice as much per capita on health care than other industrialized nations, the report states: “The observation that Americans are spending relatively more on health care but living relatively shorter, less healthy lives has led some critics to allege that the U.S. health care system is ‘uniquely inefficient.’”

The most shocking statistic I uncovered was the infant mortality rate. How can the U.S. rank 139th in this most basic health statistic? I did not believe my eyes, and thought it was internet junk science, until I saw this fact reported in a number of respected publications.

Infant mortality is extremely high in States such as Mississippi and Alabama, at about 10 deaths per 1,000, and lowest in States like Washington and Massachusetts, at about 5 deaths per 1,000. There is a strong racial component as well, with black woman about 2 ½ times more likely to lose their babies compared to white women.

Preventing infant mortality is not just about prenatal care. There are four key periods in the lives of women and their children, each vital in determining whether an infant lives or dies: before pregnancy, during pregnancy, at birth and during the first year of life…and the United States is very far behind in all of these areas.

Educating Our Kids

For many young Americans, the number one factor in deciding where to put down roots is the quality of education. If you want your child to succeed in life, give them the best start possible, at the best school.

With all the money spent on education, one might expect the U.S. to rank #1 in the world…and you would be severely disappointed. In fact, the United States ranks a dismal 25th in education. Adding insult to injury, we manage to achieve inauspicious ranking while spending more on education than the total GDPs of many countries that outperform us. For example, the 2012 education budget of the State of California is $108 billion dollars, which exceeds the GDPs of 5 of the countries which offer superior quality of education.

Ok, you want to see the countries that outclass us, so here they are. Statistics come from The Program for International Student Assessment, which is released every three years and tests 15-year-old students in reading, math and sciences. Basically, America earned an Average grade, tying the OECD average rating.

Note: The list above was published in the WSJ. It is generally accepted that China “cheated” by testing only a small sample size of its best students, thus it is not included in the rankings above.

If we delve in to the numbers, it just gets more depressing. The United States is 7th in literacy, 27th in math, and 22nd in science. Taking in to account both medical and education factors, The United States is 25th among 43 developed countries for the best place to be a mother, according to Save the Children.

Maybe we should look at the question of where we educate our children more carefully. How about, which country, not community, has the best schools for my child?

The U.S. is the Greatest Country on Earth – NOT (Viva Borat)

In my quest to prove the dominance of my Nation, I looked at many different statistics and rankings. Here are a few of my findings.

According to the Doing Business rankings compiled by The World Bank, America ranks 13th in starting a business. As a small business owner myself, this is shocking. I always believed that economic freedom and capitalism meant that the U.S. led the world in small business. By god, it is the foundation of our economy and we must be the best! I do take some solace in the fact that the U.S. ranks 4th in the ease of doing business. For more information, see: http://www.doingbusiness.org/rankings/

The U.S. ranks 47th in press freedom, according to Reporters without Boarders. So much for freedom of the press. Isn’t this covered in the Constitution or some such thing? Maybe I missed this class in law school.

America is ranked 10th in economic freedom, according to The Heritage Foundation and The Wall Street Journal. Like starting a business, I expected my country to lead the world…or at least make the top 5. To quote Heritage: “The United States’ economic freedom score of 76.3 drops it to 10th place in the 2012 Index. Its score is 1.5 points lower than last year, reflecting deteriorating scores for government spending, freedom from corruption, and investment freedom. The U.S. is ranked 2nd out of three countries in the North America region…” For additional information, see: http://www.heritage.org/index/country/unitedstates

The U.S. is only the 11th happiest country in the world, according to Columbia University’s Earth Institute. I guess this is why Disney, The Happiest Place on Earth, has expanded in to Hong Kong, Paris, Tokyo, and started an international cruise line.

There are 21 countries better than America in freedom from corruption, according to Heritage.org and the U.S. was ranked 24th in perceived honesty, according to Transparency.org.

Viva U.S. healthcare. America is ranked 89th in percentage of children who have been vaccinated according to the World Health Organization.

How well is our economy growing? The U.S. GDP growth rate is ranked 169th out of 216 countries, according to the CIA World Factbook. Our GDP per capita is only 12th in the world, behind Qatar and Liechtenstein.

Our unemployment rate is worse than 102 of the 200 countries listed in the CIA Factbook and we are 142nd out of 150 countries in infrastructure investment.

The U.S. is ranked 192nd, dead last, in the net trade of goods and services, and our budget deficit is ranked 192nd in debt relative to GDP, both of these per the CIA Factbook again.

At lease the U.S. has the money to back up its promises. Well, our reserve of foreign exchange and gold is ranked 19th, right behind Indonesia.

Enough is Enough

Ok, enough bashing of the United States. There must be a few areas where we lead the world. First the good news: We are third in median household income, number four in labor force and number four in exports.

Now for the ridiculous news, the United States leads the world in only three categories.

  1. Number of incarcerated citizens per capita,
  2. Number of adults who believe angels are real, and
  3. Defense spending.

I will leave the angels to the blogosphere, but let’s look at incarceration and defense spending.

According to a study by the King’s College London International Centre for Prison Studies, “The United States has the highest prison population rate in the world, 756 per 100,000 of the national population, followed by Russia (629), Rwanda (604), St Kitts & Nevis (588), Cuba (531), U.S. Virgin Is. (512), British Virgin Is. (488), Palau (478), Belarus (468), Belize (455), Bahamas (422), Georgia (415), American Samoa (410), Grenada (408) and Anguilla (401).”

And some of our States have even higher per capita rates. For example, Texas prisons incarcerated more than 1,000 prisoners per every 100,000 residents. About one out of every 22 adult Texans is in prison, in jail, on probation or on parole compared to one out of 31 nationally.

Considering all of the hype the U.S. puts out on freedom and liberty, it seems inconsistent with the fact that we lead the world in prisons. For me, this demonstrates the great divide between reality (prisons filled to capacity) with hype and marketing (we are the most free and happy country on earth).

Now on to military spending. The global military expenditure states at over $1.7 trillion for 2012, with the U.S. taking up an astounding 2/5ths, or 41% of the world total. America is followed by China at 8.2% of world share, Russia at 4.1%, UK and France both at 3.6%.

Even more amazing: Military spending did not decrease during the recent economic crisis. In fact, it increased. The U.S. led the rise in military spending during the crisis, but was not alone. 65% of the countries for which data is available increased spending. Of the G20 countries, 16 saw an increase in military spending.

 

In light of the many shortcomings of the United States, how can we lead the world in military spending? I believe it brings in to clear focus the priorities of my country. How does a country that trumpets itself as a world leader of freedoms have the world’s largest per capital prison population? How does the wealthiest nation rank first in medical spending but 49th in life expectancy and place a staggering 178th in infant mortality?

In speaking with friends, clients, and at various conferences around the world, I believe that it is these injustices and inequities that are causing so many Americans to jump ship. Many belive there is nothing they can do to fix, or even patch the boat, so it is time to launch the liferaft. Some choose to retire abroad, some elect to live and work abroad, possibly hoping the boat will make shore and be repaired and refitted, and some have given up all hope and have decided to ditch their citizenship all together.

Try as I might, I can not devise a suitable defense of my coutry, and I am left with one simple question: Where is the best place for me to relocate and plant my new flag as a free citizen of the world?