© Copyright 2000 Wealth International, Ltd.
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Why go offshore? We address reasonable grounds for making the move in piecemeal fashion, but they are interrelated – because they have at their roots the actions and machinations of government. Government represents many things to many people, but it is undeniably parasitic in nature: It takes a cut of the output from the productive while adding little in return to the total economic output. This is simply how it works. No “smart” parasite wants to weaken its host to the extent that its own well-being is jeopardized, but the system has its own dynamics that resist intelligent guidance and lack the feedback/response mechanisms that promote a return from the brink when that point is approached. Pressures can build up over time, eventually get out of hand, and the system cracks under the burden.
“And now that the legislators and do-gooders have so futilely inflicted so many systems upon society, may they finally end where they should have begun: May they reject all systems, and try liberty.” – Frederic Bastiat
It is as certain as anything in this world that when faced with a crisis a government will do all it can to ensure and justify its continued existence by passing more laws and imposing more controls, rather than back off on its laws or controls that are causing the problem. Stability can be re-established, temporarily any way, but at some point new rules cause further breakdowns, which lead to new rules, which cause further breakdowns, etc., etc. We believe the current economic situation is in a slow motion version of this later case, with the threat that it could accelerate out of control a very real one. Thus the first risk against which moving a substantial portion of your assets offshore can defend you against:
Economic dislocation – the risk that spares noone. Disorderly economic conditions manifesting, e.g., in a plunging U.S. dollar, rapidly-rising interest rates and inflation, out-of-control government deficits, etc., could easily result in the U.S. imposing currency and capital controls. At this point your options for moving offshore are severely constrained.
Other risks that moving a substantial portion of your assets offshore can defend you against, all of them entirely plausible, include:
A rapacious body politic which begats a rapacious government. In addition to faithfully performing government’s traditional role of stealing from the politically unconnected and giving to the politically connected – after a middleman’s cut – governments are helping themselves to increasingly liberal portions of their subjects’ assets for their own account. Constitutional checks and balances and centuries-old human rights and legal traditions have been butchered on the alter of expediency and greed, leaving the victim class with little recourse against “the looters” – as Ayn Rand, in her prescient (albeit ponderous) Atlas Shrugged, referred to them.
Outside the realm of risk, a strong positive reason for looking offshore in and of itself is the vast world of business and investment opportunities available outside the boundaries of one’s home country. Many are simply not open to, e.g., a U.S. person; thus taking advantage of the opportunities requires – yes – moving offshore. Now for some more details.
We see this as the most imminent risk to the financial well-being of the average reader. To be blunt, the danger of a severe economic contraction which could destroy a large percentage of your wealth is great ... greater than any time since the worldwide depression of the 1930’s. Uncle Sam and his international subsidiaries, notably the International Monetary Fund (IMF), could, yet again, come up with yet another string and baling wire solution that, yet again, temporarily enables the world economy to delay the day of reckoning. But the ability to effect this is severely diminished. Every crisis since the 1960’s has been papered over by increasing the systemic level of debt, public and private. The NASDAQ/dot.com mania of the late 1990’s has given way to the far more dangerous real estate mania. The attendant borrowing and spending binge may finally have saturated the system’s debt-carrying capacity – consumers, firms, and governments are all too loaded down to take on any more ... or so it seems (we have been surprised before). When the music finally stops, the historical lesson is clear. Stocks, bonds, real estate, and most real assets, as well as economic and political liberty, experience significant bear markets.
A deeper examination of current background economic factors could lead a thinking person to conclude that an economic crisis that makes the 1930’s look good by comparison is not out of the question. In short, the U.S. macrofinancial situation looks precarious, to say the least, and any further decline in confidence in the dominant world economy could lead to a collapse in economic activity, the dollar, the stock and bond markets, i.e., wealth. Do not just take our word for it. Check out the opinions evinced at sites such as The Daily Reckoning, especially articles by Dr. Kurt Richebächer and ranter par excellence “The Mogambo Guru” (Richard Daughty), or Prudent Bear to get an alternative perspective to the standard pap. Decide for yourself whether the events that they fear – which admittedly they have been warning about for years to some degree – are at least possible, and therefore worth insuring against. Not by mere happenstance, Wealth International conveniently chronicals this ongoing drama (with definite farcical elements, to be sure) within our W.I.L. Finance Digest pages, which link to articles apropos of this as well as other articles of interest to investors.
This might not even be the most pressing risk to consider, as even a “collapse” unfolds over time. The attacks of September 11, 2001 succeeded in closing the financial markets for a week. Another attack could conceivably close them down for much longer, if knowledgeably and expertly executed. (The reasoning behind accepting that this is a possibility is elaborated on here.) History shows how empires have terrorism and military risks that regular nations do not, and the U.S. is the only candidate for this appellation today. The consequences of a prolonged closure of the U.S. markets is difficult to imagine, but surely they are not ones that anyone would wish to subject themselves unprepared.
A discourse on investment strategy is beyond the scope of this report, but if the risks touched upon above are real then initial appropriate actions are clear. Start with a clear-eyed assessment of your current situation. The perils to your wealth and assets do not just come from the markets as such. Governments consistently use a crisis as a cover to further limit freedoms and appropriate assets. It is entirely plausible that existing laws and plans authorizing government control or appropriation of financial assets would be put to use in such an event. The 1933 U.S. gold confiscation, and the lack of accompanying outcry or resistance, is an precedent within living memory of the use of such laws. (Holders of gold were forced to sell their holdings to the Federal Reserve for $20.67/oz. Gold was then revalued to $35.00/oz.) In advance or the absence of overt appropriation it is reasonable to expect the imposition of capital controls that restrict the exchanging of dollars for other currencies and the moving of assets offshore – as occurred during World War II. Assets that remain onshore, immobilized within the system, would be vulnerable to inflation and future government decrees and actions. The numerous historical examples of this general course of action by governments make the plausibility of this expectation beyond dispute.
The risks discussed above apply to everyone, regardless of economic class, political ideology or affiliation. We believe that they alone constitute a set of compelling reasons to start internationally diversifying your financial assets, including jurisdictionally – i.e., moving some of your money “offshore”. Below, we detail the risks emanating from the leviathan that the U.S. legal/governmental complex has become. They provide a somewhat different motivation and entail additional methodologies to “protect” your assets. While the potential horror stories implied in the detailing may seem abstract and low probability, we submit that their potential is very real and, again, worth insuring against – provided this can be accomplished at a reasonable cost. Going offshore is one element of a sound and cost-effective asset protection strategy.
The word “epidemic” is an overused but accurate cliché for describing the proliferation of lawsuits in the United States. With over 50,000 lawsuits filed each week, the word fits all too well. Not just coincidentally, most of the world’s lawyers live in the U.S. No claimant cannot find an attorney to offer representation – if the target is sufficiently asset rich. Everyone with assets is a potential target – not just those in high-risk professions. And once you are in a litigant’s crosshairs it is easy to locate everything in your name in short order, as is discussed in depth below.
Where there are multiple defendants to a suit, the one with the “deep pockets” usually gets to pay the bill if the others cannot, however little involvement that party had in actually causing the injury.
In some high-risk professions, the cost of malpractice or liability insurance is so high that the party at risk is faced with the choice of “going bare” or shutting down.
The cost of defending oneself in court with professional representation is sufficiently high that the mere threat of litigation is often enough to induce the target to cooperate, i.e., bribe the complainant to go away. This is essentially legally sanctioned extortion.
Courts are now allowing their judgments to be enforced against assets held in the names of spouses and children.
Some courts are letting creditors seize or lien pension or retirement account assets to satisfy claims.
If you are charged with a liability that exceeds your liability insurance coverage limits, or if your liability insurance carrier becomes insolvent, then your personal assets are subject to judgment.
Time and distance do not eliminate malpractice or liability exposure. Lawsuits may be commenced against you for events occurring years in the past.
If the corporation of which you are a director or officer is successfully sued then you too may be sued, held to be one of the liable parties, and have your personal assets attached. Many new and “novel” legal theories have been used to attempt to “pierce the corporate veil”. Meanwhile, new laws are passed making corporation directors and officers responsible – read, liable – for additional unfavorable outcomes to shareholders and “stakeholders”, e.g., earnings came in a penny per share below expectations and therefore caused losses to the holders of overpriced shares.
“The dog with the bone is always in danger.” ~~ Chinese saying
Big government keeps getting bigger, and its beneficiaries are insatiable. This reality drives everything else. Today taxes take roughly 50% of a middle class family’s income. The power of the tax collection machinery is not diminishing, to say the least. The federal budget increases every year, no matter who is in power and what their professed philosophy. In the end this reflects the thinking of the general public, who find no problem with using the middleman government to extort wealth from their fellow citizens. The rugged individualist has given way to the politically organized entitlement seeker. In the words of Oscar Wilde, “If you rob Peter to pay Paul, you can always count on the support of Paul.”
Is there anyone whose heart rate does not increase upon receiving a letter from the IRS? Congressional hearings in 1997-98 depicted an IRS that is, in the words of Newsweek, “ruthless, lawless, and out of control.” A few victims have been driven as far as suicide, after their businesses and lives were ruined by persistent IRS efforts to collect money that was not even owed. The government’s unquenchable thirst for cash guarantees that any “reform” of the IRS (such as those passed after the above hearings) will in the long run collide with the reality that the funds have to come from somewhere, notwithstanding temporary ebbs in the level of IRS enforcement activity that occur from time to time.
The government uses laws and regulations to attack and confiscate from the innocent. 60 Minutes once aired a show concerning property owners who were forced to spend their life savings on litigation with the EPA after their properties had been classified as toxic waste sites, despite their having had nothing to do with the contamination. More generally the laws of this country are so huge in number, and often so vague and contradictory, that it is impossible to live entirely within the written law. Any technical violation of any law could be used against you at any time. As a movie character once said, “Someone has taken justice in this country and hidden it under the law.”
The U.S. federal and lower level governments have evolved into kleptocracies worthy of comparison with various notorious Third World regimes. Your lawfully acquired assets can be summarily seized under a multitude of forfeiture laws on the mere suspicion or claim that the assets may have been involved in a crime. No notice or judicial process is required: Steal first and ask questions later. The process for attempting to recover the property is neither swift nor designed with your success in mind. The government agency involved has access to significant resources to fight your attempts at repossession while they have already taken the assets that you might need to fund a legal counterattack. Gory details are available from the F.E.A.R. (Forfeiture Endangers American Rights) web site.
The U.S. Supreme Court has repeatedly failed to overturn these forfeiture laws when given the opportunity. (In one ruling, a dissenting Justice complained that the majority decision would imply that the government could seize an entire ocean liner if a single passenger unknowingly was allowed to bring one marijuana cigarette on board!) The seizing agency agency usually gets to keep most of the proceeds, creating an obvious corrupting motivation, as well as a powerful lobby against attempts to reform the forfeiture laws. As with those “reforms” concerning the IRS, recent marginal modifications to the laws do not evidence any real turn in the trend of increasing arbitrary government power and decreasing due process.
If you go to your bank and made a $10,000 cash withdrawl, the bank is required to submit a form to the federal government reporting that transaction. If you attempt to avoid cash transaction reporting requirements by making two withdrawls of $5000 each, you risk being changed with the crime of “structuring” your affairs, by breaking one large reportable transaction into several smaller (hypothetically) non-reportable ones, or of “money laundering” for failing to fill out a government form. The economic rewards from these seizures, and the career and political payoffs from such prosecutions, provide the incentives to conduct more of either or both, without regard for the the inherent injustice involved. Even if you successfully defend yourself against a clearly egregious action, the agent will not be penalized.
Your banker, and now your broker and other financial service providers, and soon, your real estate agent, jewelry dealer, and car dealer, have been ordered to spy on you. They are supposed to report any “suspicious” transactions or transfers. Any objection on your part to the privacy invasion will probably be interpreted as “suspicious”. Better keep your thoughts to yourself! Given the penalties imposed for failure to report, you can bet that many otherwise innocuous transactions will be written up and reported ... just in case.
Generally, in adversarial encounters with the government, whether administered by someone with a gun or with a gavel, standard operating procedure treats the Constitution, Bill of Rights, and the written law as, at best, a list of nonbinding suggestions. Obtaining redress for abuses means seeking a remedy within the same system, a system that has been disdainful of holding its members accountable.
True to historical form, the U.S. governent has used the crisis atmosphere emanating from the September 11, 2001 tragedy to accelerate its acquisition of police powers. The federal government has granted itself a blank check to monitor your communications and finances, and even enter your home, without needing to have a warrant. Anyone who is deemed a “threat” to national security can be subjected to this surveillance. Anyone who publicly defends the Constitution or challenges the government party line risks being labeled a threat under this regime. And of course the forfeiture laws have been extended to any funds deemed to have the vaguest taint of terrorism, however indirect. The effectiveness of these new laws at preventing further attacks is open to question, but ordinary citizens can expect to find themselves vicitimized by the new attacks on privacy and due process. The further gutting of the Bill of Rights is being challenged by some, but it is a bit late in the day to be waking up to the erosion of freedoms, and the public seems not to object to the new laws. In the period immediately following the attacks, a congressperson who was arguing that we were giving up our freedoms too quickly and without sufficient thought to the consequences was shouted down by the audience! There have been some second thoughts since, but what if there is another terrorist attack?
In summary, the principles of human rights, due process, justice, fairness, consistency and logic, as people normally understand them, do not guide the agenda and rulings of the U.S. justice system, especially when one of the parties is the government. The guiding principle is force, which they have the overwhelming capacity to administer and are willing to use, often to excess. The judiciary was allegedly designed to be a check against legislative and executive branch power expansion. The reality is that the courts are part of the government and administer government rules. Every government employee has a direct pecuniary interest in maintaining a well-funded and intimidating government. Juries have historically been the last barrier and ultimate check against unrestrained government power. This is simply no longer the case. Judges’ instructions limit jurors’ discretion, and the juries are chosen with an eye to weeding out independent thinkers. And the chances are that half a given jury’s members will be dependent on direct or indirect government subsidies anyway.
The demand for information by government agencies, commercial entities that treat their customers as “assets” to be milked like cows, and, now, identity thieves, shows no sign of moderating. We indeed have become a “database society”. A recent search on the Internet using the search-word “SSN” revealed that often for less than $100 the following information about you is available:
Most of this information is available within hours, if not minutes, and can be obtained using one’s credit card right over the Internet. Note that the common denominators necessary for finding this information are the numbers associated with your name and the property that you own. All of this information is available commercially. One can imagine what the government with its unlimited resources already knows or can find out about you. Recent proposed legislation that would have imposed greater restrictions on the sharing of collected information was substantively gutted by the lobbying of the affected corporations. Federal guidelines require the use of Social Security Numbers on Drivers Licenses going forward. Without some form of privacy protection, your life is transparent to anyone with a few dollars and a computer. Attacking your assets is a simple matter when they can be located so easily due to being held in your name and/or associated with your SSN.
While “1984” may have arrived a little later than the title of the famous novel implied, it is here now. In addition to the information above, considered private by most people, your credit record and a transaction-by-transaction record of your credit or debit card purchases are easily accessed. For frequent card users an intimate X-ray into the card owner’s life is easy to obtain. For instance, anyone thinking of issuing you a credit card or extending a loan can access that database. Of course any government employee will have no problem gaining access. Requiring more effort, but easy enough, is the gathering of transaction histories from checking accounts. Courts have repeatedly ruled that there is no right to privacy that extends to banking records. In effect, the banking system is a government agency and they can use their records as they see fit.
A hard to prove but plausible conspiracy-tinged theory is that the cost of each checking transaction has been subsidized, i.e., one is charged less than the cost of processing the piece of paper, in order to encourage people to put their transaction records where they can be monitored. Now with the infrastructure in place the people are obviously being encouraged to make all transactions via debit or credit card, where they can be tracked in real time. No need to deal with all that inconvenient cash any longer!
Meanwhile, proposals and laws too numerous to detail have followed the 9/11/2001 attacks and taken the onslaught on privacy to a new level of intensity. Any one person could be a terrorist, and any financial transaction could be supporting a terrorist operation, the reasoning goes, and thus every person and transaction should be tracked and analyzed. Welcome to the Surveillance State. The image just above to the right is the old logo for the Defense Advanced Research Projects Agency (“DARPA”), part of the U.S. Department of Defense, “Total Information Awareness” project. The Latin phrase translates to “knowledge is power”. After a public outcry the project name was changed to “Terrorism Information Awareness”, the above logo was toned down, and the project was nominally defunded by Congress – it is now hiddened away in less visible parts of the government budget. Click on the logo to see what they had in mind for all of us (as with the logo, that diagram is also no longer available on the DoD web site).
There is an old saw among traders: “Wall Street is littered with the gravestones of men who were right too soon.” In investing, your theory and your timing have to be correct. But there is no such thing as “too soon” when it comes to insuring yourself against the risks we are discussing – only “too late”. Once you are sued, charged, or otherwise dragged into the judicial system it is too late to protect yourself. Any transfers of assets to entities or locations seemingly better protected from potential judgement can be ordered reversed, on pain of incarceration or further monetary penalty. Transfers of assets in order to escape an exisiting judgement (these days you could probably be charged on the basis that you suspected or should have known that you would soon be subject to a judgement) is called “fraudulent conveyance” and is itself a crime. Too late is exactly that ... too late.
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