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You have a moral right to invest your wealth beyond the reach of any government.  Sadly, that right is in direct conflict with the philosophy of “big government” that your wealth is not yours to keep and to grow, but only temporarily borrowed from the State.  Fortunately, there are still legal ways to keep your offshore assets legally secret from the outstretched hand of Big Brother—and I’ll summarize five of them here. But before I begin, let me make one thing clear: if you have an investment that qualifies as a legally reportable foreign account, you should report it and pay any taxes for which you are legally responsible.  Now is clearly an appropriate time to review this subject, because the deadline for acknowledging any reportable foreign account relationship you had in 2003 to the U.S. Treasury is June 30, 2004. What Big Brother Wants To Know Most major countries, including the United States, require that residents pay tax on their worldwide income. If you are a U.S. citizen or resident, you face an additional obligation—to report the existence of all “foreign bank, securities or ‘other’ financial accounts” if their aggregate value exceeds US$10,000 at any time during the year. If you fail to do so, you face a fine up to US$250,000, imprisonment up to five years, or both. Penalties are doubled if you violate any other U.S. law.  There are actually two separate reporting obligations: 1. You must acknowledge foreign accounts each year on Schedule B of your federal income tax return; and  2. File Form TD F 90-22.1 (the “foreign bank account reporting” or “FBAR” form) with the Treasury’s Financial Crimes Enforcement Network (FinCEN).7 Information demanded on the FBAR includes how many foreign accounts you hold, their maximum value, the name of the financial institution where the accounts are held, the account numbers, etc.  Just what is “reportable?” Instructions for the FBAR make it clear that you must report the following relationships that, in aggregate, exceed the US$10,000 threshold:  • Any financial interest, signature authority or “other” authority over a foreign bank or securities account. This includes any savings, demand, checking, deposit, time deposit or any other account with a foreign financial institution or other entity or person engaged in the business of a financial institution.

The Sovereign Society, headquartered in Waterford, Ireland, was founded in 1998 to provide proven legal strategies for individuals to protect their wealth and privacy, lower their taxes and to help improve their personal freedom and liberty. The Society's highly qualified contacts recommend only carefully chosen banks and investment advisors as well as financial and legal professionals located in select tax and asset haven jurisdictions around the world. The Society provides advice concerning the establishement and operation of offshore bank accounts, asset protection trusts, international business corporations (IBCs), private foundations, second citizenships and foreign residency, as well as practical safeguards for financial, Internet and personal privacy. The Sovereign Society stands alone in fulfilling this singular, international offshore service role for its members. To learn more about our organization and how you too can become a member, please click here.

The Strange Disappearance of 100,000 American Millionaires. Last year, the number of American millionaires fell by 100,000.  Yet 200,000 new millionaires showed up overseas.  Why?  Because hugely profitable investments are being hidden from you by a cartel of lawyers, regulators and Wall Street special interests. Like our recommended investments that gained 787% and 1,894% during the bear market and our other investments up 106%, 131% and 169%. Find out what they don't want you to know..

If you can authorize payments in an account through your signature (or your signature and one or more other persons), you have signature authority over that account. You have “other authority” over it if you can authorize payments by direct communication to the bank or other person with whom the account is maintained (e.g., via telephone, fax or e-mail).

At first glance, these rules might seem impenetrable. And I’m sure it was the IRS’ intention to make it difficult as possible for U.S. persons to legally avoid this reporting obligation. But, buried within the legalese are some opportunities. 

Why Keep Your Foreign Investments Quiet?

But first, you may be thinking, “Why bother? I’m not evading any taxes…and besides, this is my tax return, so the information in it is available only to the IRS. Right?”

Sorry…this is wrong…although it’s a very common misconception; the FBAR is not a tax return. Unlike a tax return, the information a FBAR contains is not subject to the stringent disclosure restrictions that apply to tax returns. Indeed, the information in a FBAR may be shared with any other federal agency in any “criminal, tax or regulatory investigation or proceeding.” It may also be shared with “state, local, and foreign law enforcement and regulatory personnel in the performance of their official duties.” 

In fact, through FinCEN’s “Gateway” initiative, local, state and even foreign law enforcement officials have direct online access to the agency’s “Bank Secrecy Act” database (including the nearly 200,000 FBARs filed each year). 

That means that if Sheriff Bubba thinks you’re driving too nice a car or doesn’t like your taste in clothing, he can log into Gateway and learn if you have an offshore bank account—or if anyone has ever considered your financial affairs to be “suspicious.” There are also numerous examples where information available through Gateway has been disclosed to the press.

In addition, FBAR filings may be disclosed during a lawsuit. This could easily occur in the context of, for example, a divorce. According to attorneys Charles M. Bruce and Lewis J. Saret:

“If the [FBAR] form has been filed, the information, one can anticipate, will be made available pursuant to a court order. If it has not been filed, but should have, the other spouse can be liable for very serious penalties. If the other spouse says that he or she has not filed the form because there are no foreign bank accounts, and the requesting spouse doubts this is true, a court presumably could order the other spouse to request a copy of any and all filings with the IRS Detroit Computing Center.”

Your “Secret” Offshore Portfolio

Have I convinced you that if you legally can do so, you might wish to hold your offshore investments in a non-reportable form? 

Several types of investments appear to be legally excluded from reporting if they are purchased without opening a “bank, securities, or other financial account” or using such an account to maintain custody. They include:

1. Real estate. Direct ownership of real property (including a timeshare arrangement) in a foreign country is not a foreign account. (A foreign real estate investment fund would be reportable.) However, real estate holdings are generally a matter of public record in the jurisdiction in which they are made. And if you rent out foreign real estate, the income is generally subject to U.S. tax, and possibly foreign tax as well (although you can credit the foreign tax you pay against your U.S. tax liability on the same income). 

2. Safety deposit box or private vault. Valuables or documents placed directly into a foreign safety deposit box or private vault do not appear to constitute a foreign account. To avoid having to personally visit the box each time you wish to add or remove valuables, give an attorney or other trusted intermediary a limited Power of Attorney or other legal authority necessary to perform this function. 

Many foreign banks offer safe custody, where the institution maintains custody of cash, securities or precious metals. However, this arrangement usually exists in conjunction with an actual account and the bank may act upon your instructions. This constitutes a reportable account relationship. 

Non-bank safekeeping is available through private vaults. Since private vaults are not financial institutions, they are subject to fewer recordkeeping and disclosure requirements. Some vaults permit anonymous safekeeping arrangements. Most honor Power of Attorney arrangements. Two foreign private vaults I know of are:
1. Das Safe, Vienna, Austria. Tel.: +(43) 1 406-6174. Fax: +(43) 1 408-4976. E-mail: safe@via.at; and 
2. Safes Fidelity SA, Geneva, Switzerland. Tel.: +(41) 22-731-7890.

Materials held in a safety deposit box or private vault are not ordinarily insured against theft or other loss. You can usually purchase supplemental insurance, but must disclose the existence and location of the assets to the insurer. For this reason, you may wish to purchase insurance through the auspices of the private vault itself, not your domestic insurance carrier. 

3. Precious metals certificates. Precious metals purchased in certificate form and stored offshore do not appear to count toward the US$10,000 threshold for reporting foreign accounts to the U.S. government. Probably the best known and least expensive such certificate is the Perth Mint Certificate (PMC). Your metals are stored at the Perth Mint, in Perth, Australia. 

Members of The Sovereign Society’s Council of Experts are two of the approved dealers for Perth Mint Certificates: 

Michael Checkan is president of Asset Strategies International, Inc., in Rockville, Md. Toll-free: (800) 831-0007. Tel.: +1 (301) 881-8600. Fax: +1 (301) 881-1936. E-mail: rcheckan@assetstrategies.com. Link: www.assetstrategies.com. 

Dr. Erich Stoeger is Chairman of EurAxxess, AG, in. Ebmatingen, Switzerland. Toll-free: (866) 945-8799. Tel.: +(41) 1-980-4281. Fax: +(41) 1 980-4255. E-mail: info@euraxxess.com. Link: www.euraxxess.com. 

4. Insurance policies.  Foreign insurance policies appear to be exempted from reporting as “foreign accounts”.  There is no mention of “insurance companies” in Treasury Regulations pertaining to the reporting requirements. Further, an insurance policy is a contract with the insurer taking on specific responsibilities in exchange for a sum of money. This would not appear to constitute an account relationship. 

Would a foreign insurance contract that contains securities, such as an offshore variable annuity, constitute a reportable account?  Professionals disagree on this issue, and there are no regulations issued to provide formal guidance. Where you have no direct or indirect control over the funds in the account, except for giving an investment manager an explanation of your investment goals, it would not seem that such an arrangement would require disclosure. However, where another party is acting as your agent, nominee, or attorney for your instructions, there is a greater likelihood the reporting requirements would be triggered. 

U.S. persons purchasing foreign insurance contracts must make a one-time filing of IRS Form 72013 and pay a 1% excise tax, unless this tax is waived under a tax treaty (as it is with Switzerland).

Income accumulating within a U.S.-tax compliant life insurance contract or variable annuity, including one issued in a foreign country, is tax-deferred. However, there is no tax deferral on foreign single-premium annuity contracts.

Several members of The Sovereign Society’s Council of Experts offer offshore insurance policies:
Colin Bowen, c/o Isle of Man Assurance, Douglas, Isle of Man. Tel.: +(44) 1624 681200. Fax: +(44) 1624 681390. E-mail: colinb.ioma@ioma.co.im. Link: http://www.ioma.co.im.

Marc-André Sola, c/o NMG International Financial Services, Ltd., Zurich, Switzerland. Tel.: +(41) 1 266 21 41. Fax: +(41) 1 266 21 49. E-mail: marcsola@nmg-ifs.com. Link: www.nmg-ifs.com
Dr. Erich Stoeger c/o EurAxxess, AG, Ebmatingen, Switzerland. Toll-free: (866) 945-8799. Tel.: +(41) 1-980-4281. Fax: +(41) 1 980 4255. E-mail: info@euraxxess.com. Link: www.euraxxess.com. 

5. Certain securities. Stocks, bonds or other securities purchased directly from a foreign issuer, or from a bank without opening an account, do not appear to trigger the reporting requirements.  Keep your securities in a safety deposit box, private vault or other secure location. 

A Final Vital Precaution

I’ve reviewed the investments that I believe to be non-reportable with Sovereign Society Tax Advisor Vernon Jacobs (jacobs@offshorepress.com or vernjacobs@yahoo.com; http://www.vernonjacobs.com) and legal counsel Robert Bauman. Both men believe that the information presented is accurate. However, I highly recommend that you obtain an independent assessment of whether a particular offshore investment you make is reportable or not from a qualified U.S. tax advisor.

In the meantime…best wishes building your own private, offshore portfolio! 
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Mark Nestmann is editorial director of the Sovereign Society. He is author of numerous books on privacy, asset protection and taxation.

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