Asset Protection - Can You Bank On Your Haven?

There are more offshore banking havens than you can shake a stick at. This is how to how to separate the wheat from the chaff, and make sure the haven you choose is really a safe-house for your money.

There are definite and strong advantages to placing some of your hard-earned money in offshore bank accounts:

First of all you get protection against your government. Nobody knows what governments will do next, anything is possible. But, unlike funds held in your home country, wealth stashed offshore is greatly protected against any negative actions your government might take, or legislation it might introduce, tomorrow.

Secondly, you get protection from predators and parasites. Offshore wealth is shielded from the attentions of asset hunters. Avaricious litigants, thieves, fraudsters, conmen, blackmailers (disgruntled ex-business partners and ex-spouses) who all seek to pinpoint, target and eventually attack individuals with visible wealth. These sharks have weapons at their disposal, and they use them. They routinely run asset searches to identify just who has what worth targeting. But offshore assets are safe. Asset searches won't uncover offshore assets, these remain totally invisible and safe from attack.

Thirdly, with an offshore bank account you are insured against the unknown events tomorrow might hold. You never know when you might be mighty glad of offshore cash reserves. If circumstances at home make it impossible or unwise for you to stay, or impossible to access your domestic funds, your offshore funds provide you with a financial lifeboat.

Finally, you can rest secure in the knowledge that you have a secret nest-egg. You can build and grow a private stash of cash beyond the gaze of anybody in your home country. The first thing you need do, to enjoy the benefits of an offshore bank account, is to select a good offshore banking haven where you can open your accounts. This is easier said than achieved. You aren't short of choice, from the Bahamas to Vanuatu, Cyprus to the British Virgin Islands, Switzerland to the Cayman Islands. Countries the world over are in the market for, and only too happy to accept, as much foreign capital as they can get their hands on.

However, you must bear in mind that not all banking havens are suitable, safe, or secure. Some are excellent. Others are ticking time bombs. If you open an account in the wrong country, it can prove very costly in more ways than one.

What you need to do is to find out how particular banking havens measure up before you lodge any of your cash or assets there. This will require you to perform some research and investigation. This is well worth doing, and thoroughly. Mistakes avoided at this early stage save time, trouble and money further down the road.

I suggest you measure the quality of any haven which interests you by subjecting it to my Ten-Point Suitability Test. Satisfy yourself on all points crucial to your particular requirements.

1. Location, Location, Location?
Where is the haven located? Do you want to visit your cash regularly? If so, is it convenient or practical to have it stashed in a banking haven thousands of miles away from where you live? Can you access your haven by air - directly or indirectly? Is it a problem getting entry to your haven? Will you need to queue for an entry visa every time you want to visit? Also, be aware that making regular, visible (visa records are a paper trail) trips to a known banking haven is like waving a red flag at any government snoop who might be taking an interest in your affairs and movements. Give some consideration to time differences. Can you manage your financial affairs efficiently if it's midnight in your haven during business hours at home? Are you happy to wait up until the early hours to speak to financial managers?

2. Do You Speak The Language?
Effective, smooth-running financial management depends on fluent communication. Do bankers and professionals in your haven speak English or some other language with which you're familiar? You may need to discuss complex financial matters in technical detail. It could cost you dear if things are confused or compromised by language barriers.

3. How Easy Is It To Stay In Touch?
Are there sufficient and reliable telephone and fax lines? Are email facilities available? Is airmail delivered quickly? How efficient is surface mail delivery? If your banking haven is deficient in these areas, it may become difficult to maintain regular and instant contact with your advisors and account managers. Is this acceptable?

4. Is The Tax Situation Right For You?
Ensure your haven provides the exact tax treatment you need. Mistakes can prove expensive. Some havens impose "withholding tax" on foreign- held bank accounts. Are you satisfied that this is fair exchange for the benefits your account will deliver.

5. How About The Legal System?
Are the laws in your prospective haven based on English common law? Is the judiciary of a high standard? Is it independent? Is the Court system effective? Are there rules to resolve conflicts of law? Are the banking regulations stiff? Or is there ample opportunity for a fly-by-night merchant to slip through the nets? Are banking services registered with regulatory organisations that uphold professional standards and procedures? Satisfy yourself that the haven has local laws and legal practices which provide adequate protection of your funds and investor rights.

6. Is Your Haven Financially Stable?
Check your prospective haven's financial stability, by calculating what percentage of its Gross Domestic Product is represented by foreign aid. Foreign aid is as high as 70% of Gross Domestic Product in some havens. The Cook Islands, Nauru and Vanuatu being recent examples of this. A haven's confidence in its liquidity can be judged, at least to some degree, by its willingness to put in place solid depositor protection. Enquire of financial institutions in the haven whether or not depositor protection exists.

7. Is The Haven Free Of Trouble? Will It Stay That Way?
Does the haven have a trouble-free history and a secure culture? A country which has experienced only moderate political, economic and social change, and where political and social violence is uncommon, is a trouble-free country. A stable past is a good predictor of a stable future. On the other hand, countries with a history of civil war, military coups and civil unrest are definitely not right for banking purposes. Cash held in a banana republic is high-risk. Future flash points in volatile regions can render your cash lost or worthless. Look at the human rights record of the haven's government. A government with high regard for its domestic population is likely to regard you equally highly. A government which treats citizens like cattle to be reared, milked and slaughtered is likely to come to view you in the same casual manner. In such a climate private wealth may suddenly become government property.

Check if there's a strong socialist political faction in the haven. Overtly socialist governments can't be trusted to look after your nest-egg. Political upheaval, new ideologies and attendant legislation can change a haven's attractiveness overnight. Ensure there's little likelihood of an ultra left-wing political party sliding into power in the foreseeable future.

Is the haven free from racial tensions and other social problems? These can trigger crisis which may affect deposited funds. What about the prospect of foreign invasions and war? These are slight for an isolated country. But keep an eye on the treatment your haven receives in the international press. Areas and regions seldom become hot spots overnight. Look at recent political developments and events in the haven to establish if there is any potential trouble. Consider local attitudes? Is there wide local support for the financial services and banking industries? Does the local population appreciate that international banking operations are effectively supporting the country's economy? Or does the presence of foreign capital breed resentment? Is there a foreign-bashing agenda? Be sure to keep abreast of events and the socio-political climate in your haven. Subscribe to newsletters covering such developments. Read the local press. The writing is often, literally, on local walls in the form of graffiti, for months before anything actually happens which might affect your bank accounts.

8. Does Your Haven Provide A Back Door For Your Government?
Make sure your banking haven doesn't provide your government with a back door into your accounts. For example, some traditional tax havens are existing or former British colonies, such as Bermuda, Cayman Islands, the Channel Islands, and the UK government is exerting pressure on authorities there to release information relating to UK account holders. British citizens should find out if their prospective banking haven has tax treaties in place with the UK. If so, be aware that the treaty allows for the free sharing of information between the authorities in the two countries.

9. Does It Offer Enough Freedom For Capital?
Are you free to take money in and out of the haven? If there are severe restrictions, the haven is no use to you. Even if there are no exchange controls in operation now, check that the haven doesn't have a history of exchange controls. You don't want your cash trapped in a country which is effectively stemming flight capital. Make sure you have adequate guarantees that you'll be able to do what you need to before opening accounts in the haven. For example, are there restrictions on converting foreign currency into local currency and visa versa? Are reports filed on each occasion? Ask financial institutions in the haven.

10. Does The Haven Offer Sufficient Privacy
Seek out banking havens which recognise and actively promote solid banking privacy. Many havens claim to do so only on an informal basis. Under pressure bank managers and financial advisors may sacrifice you to the sharks. Does your haven, and/or the institutions operating there, have a history of rolling over when exposed to external pressures? Check whether banking privacy is tradition or actual binding legislation. Check whether a professional in a particular haven is breaking the law if he passes data relating to you and your financial affairs to a third party. Be aware that "confidentiality" laws allow local government access to your account details (although they can't pass the data on to a third party). Solid banking privacy legislation is the best protection for your cash. A strong, secure haven will have banking privacy legislation which carries stiff penalties (financial and custodial) for any professional who breaches them and passes data on to third parties.

Beginning Your Research
A very good place on the Internet to begin your investigations of suitable tax havens is www.escapeartist.com/taxhavens/taxhavens.htm. The Offshore Journal is a useful e-publication which frequently reports on relevant events and changes in banking havens around the world. Subscriptions cost £15 per year. Subscribe at www.rpifs.com.

About The Author
Nicholas Pullen is a well known author of PT subjects. His work has appeared in numerous international publications.

Quotes

"A stable past is a good predictor of a stable future."

"Not all banking havens are suitable, safe, or secure."
 

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