PJ 10
CHAPTER 17
REC #1 HATONN
SAT., DEC. 2, 1989 7:30 A.M. YEAR 3, DAY 108
SAT., DEC. 2, 1989
Hatonn present to resume on the journal. We shall move right to the subject with only one comment on daily notice boards.
Something I desire you consider: What is this mission, through your holidays, of your shuttle craft all about? Consider what you now know of your Star Wars "space" system--that well over 60% of all action and satellite system is for international bankers' use to have the world banking network in place and ready to utilize for a world banking system with YOU IN IT! Well, take note--these "secret" government/military trips are setting the final computer links in place. One reason the new money exchange could not begin on time as planned was that there were bugs in the international "spy on you" system and the final links were not in proper placement. The intent is to have it all working by the time your Christmas shuttle returns to terra-firma.
BANKING COMMUNITY SINKING FAST
At this point I am simply going to have Dharma quote from a publication of Dr. Gary North. If you don't recognize this name, please recall that he was one of the authors of FIGHTING CHANCE, a book most referred to in our journal, SURVIVAL IS ONLY TEN FEET FROM HELL. I believe that he now offers an information newsletter which is called REMNANT REVIEW. I disagree with some of his conclusions and recommendations but for the most part they can be most beneficial and his current analyses of the changing situation of the financial community is quite excellent--you can do some of your own thinking. Ranos, please add the address to the appendix. I will make sure that Dharma has it in hand by the time you are ready for compiling the appendix. Further, while we are in this thought mode I also desire that we place
Dr. King's FUTURE TRENDS on the list of available information for he is one of the only economists that has any idea of what is currently coming down. Most of the rest of the children playing in economics are touting "inflation" instead of "deflation" in the recession/depression and I value his input.
Quote:
"Step right up, folks. The Great American Banking Shakedown is about to begin.
"But don't blink. You may miss it. It'll hit that quick.
"We're now seeing 70 to 80 bank failures a year--more than at the height of the Great Depression. And the rate is accelerating.
"The FDIC listed 642 banks on its Problem List in 1983. By 1986 that number had leaped off the charts to over 2,600--more than 18% of all U.S. banks!
"By June 30, 1989, the number had dropped to 1,271. But according to Warren Heller of Veribanc, this drop was due to the improving condition of agricultural banks; it masked the deteriorating condition of other banks whose holding in depreciating real estate was actually worsening their condition.
"According to the FINDLEY REPORT, a noted authority in the banking field, half of today's banks will be gone by in the next five years. Swallowed up, bought out, knocked down, or buried quietly. Gone.
"And yet, as bad as these numbers are, they contain a tiny glitch. Nowhere in the FDIC Problem List will you find mention of the largest eleven banks in this country--even though nine of them have loaned out 227% of their total combined equity to Third World and Soviet bloc deadbeats!
"In 1984, Comptroller of the Currency, Todd Conover, told the House Banking Committee that these eleven banks are considered 'too big to fail' by the government. This, in spite of the fact that if only half of their foreign loans defaulted, their funerals would begin at dusk.
"Who are these lucky eleven?
* CITIBANK
* BANK OF AMERICA
* CHASE MANHATTAN
* MANUFACTURERS HANOVER TRUST
* MORGAN GUARANTY TRUST
* CHEMICAL BANK
* CONTINENTAL
* BANKERS TRUST
* SECURITY PACIFIC
* FIRST NATIONAL OF CHICAGO
* WELLS FARGO"
(Hatonn: Now surely you remember who controls these particular banks--if not, return to SPIRAL TO ECONOMIC DISASTER to "Grey Men" and start over without passing graduation or collecting $200 at "GO"!)
"So no matter how much water these behemoths take on, no matter how much they list or threaten to capsize, the government will not let them sink. Every other bank in the country will have to swim for it, but not the big guys.
"Did you know that the Federal Reserve Bank was created mainly to prevent the bankruptcy of any major bank"? In turn, the majors own all the shares of the Fed AND they choose the majority of its directors. No matter how big the emergency, the Fed--armed with truckloads of fresh T-bills and funny money--will ride to the rescue of any major bank. (Hatonn: this is, however, one reason short-term T-bills is one of the very best places to have that cash you withdrew from those pathetic banks.)
"And, believe me, the emergencies they'll need rescuing from could be awesome. And devastating to anyone who's unprepared.
1. A Latin debtors' cartel could form tonight and revolt tomorrow. Adios to hundreds of billions of our dollars.
2. The 15 largest U.S. banks have promised (and received fees for) loans totaling almost a trillion bucks, and they don't have that much in total assets!
3. When foreign depositors finally admit the declining dollar is souring their investments, they'll pull the plug on their $150 billion. That will put a nasty little dent in the FDIC's $17 billion reserve fund, won't it? (So much for that one lonely cent covering each dollar of deposits). Especially since the entire fund is in T-bills, which will have to be cashed in to raise the money! (Hatonn: I surely do hope my people are reading this most carefully!)
4. The total U.S. farm debt now exceeds the external debts of Mexico and Brazil combined. Nearly a third of the debt, $73 billion, is owed by the shakiest farmers.
5. Big oil companies borrowed over $150 billion back in 1980-81, when it was over $30 a barrel. Now it's the banks who are over the barrel.
6. The Mortgage Banker's Associations of America have announced that 5.8% of all home loans are more than 30 days overdue, a post-World War II record.
"This conveniently leads to another imposing question: exactly how healthy are our savings and loan institutions? Glad you asked.
"According to Veribanc, the #1 monitoring firm in the nation, 20 of the largest 50 S&Ls are in serious trouble. (Bottom line: your S&L may be in jeopardy.) The best estimates put the bail-out tab for saving all the ailing S&Ls at (GASP) $100 (plus) billion. And that's money the FSLIC simply doesn't have.
"For every dollar deposited and insured, the FSLIC has exactly 7/10ths of the cent put aside. On paper. On bad paper. Most of their reserve fund is nothing more than acquired "junk bonds" from failed businesses! The fund is already dead broke even without making any bail-outs.
"Most important is how all this affects you now. If you are borrowing from a troubled bank or S&L, your loan may get called overnight if the Fed or FDIC puts the screws on your banker to clean up his portfolio.
"Even worse, your deposits can be locked up and withheld from you. When Home State Savings Bank in Cincinnati needed rescuing in 1985, depositors were put on a withdrawal allowance of no more than $750 a month. No matter what sad story they had.
"Life is tough, and then your bank dies. Without warning, the government can:
*Close your bank (Monetary Control Act of 1980)
*Freeze your deposits (Emergency Banking Regulation #1, 1961)
*Keep you out of your safety deposit box. (If you can't get into your bank, you can't reach your box, can you?)
"Oh, you'll get paid eventually, no matter how suddenly or brutally your bank drops dead. The government has "guaranteed" it. As long as there are printing presses and buckets of green ink (or whatever color), you will get paid, all right.
"Of course, don't expect those crisp new bills to be worth too much".
* * *
AND YOU ARE "THERE", BELOVED ONES--YOU ARE "THERE". IT HAS BEEN A MASTERFULLY EXECUTED PLAN BY THE "BIG BOYS" AND IT IS WORKING TO PERFECTION. THE MASSES WILL PLEAD TO HAVE THE GOVERNMENT NOW COME IN AND SOMEHOW SAVE YOU FROM THE DRAGON WITH THE NEW DEBIT SYSTEM AND YOUR MOVEMENT INTO SLAVERY WILL BE COMPLETE. SO BE IT!
FAMOUS LAST WORDS: "THEY WON'T FIND ME"
Another scenario here, complements of THE GARY ALLEN REPORT, which was made possible by the Deficit Reduction Act of 1984 and its attendant linking of computerized government data bases.
"George was attracted to her the moment he saw her while he was driving to work. She was in her mid-thirties, elegantly dressed, with long blonde hair that fluttered in the breeze as she drove her red Porsche convertible in the adjacent lane of a crowded California freeway. Letting her get a little ahead of him, George was able to read her vanity license plate: MINE.
"When he arrived at his office in the local government building that housed the Department of Health and Human Services, where he worked in the social welfare division, George quickly brought up his file of codes on his computer terminal; tracking down that beauty would be a snap, he mused to himself. After all, he had access to numerous government records and private data banks. Checking people out was part of his job to distinguish valid welfare applicants from chiselers and illegal aliens. It was all part of the administration's drive to reduce wastes, fraud and abuse in federal welfare programs.
"At the computer prompt, George entered his authorization code on the keyboard, hit the "execute" button and accessed the Department of Motor Vehicles data base. He typed in the license plate letters "MINE" and ordered a search of the DMV files. After less than a minute's wait, the monitor screen displayed the information he wanted: Licence tag: MINE. Vehicle: 1983 Porsche 944. Owner: Julie Jameson, 1509 Appleton Drive, Laguna Heights, CA Driver's licence: U0834725. Date of Birth: 5/14/52. Sex: Female. Height: 5'6". Weight: 105 lbs. Social security number: 552-58-2436.
"Entering another data bank, George used the SSN as the key data element to search wage records that employers are required to file with state unemployment compensation and tax offices. Julie's record came up with more information: SSN #552-58-2436. JULIE JAMESON. Employer: Toltech Manufacturing, Inc., 921 Wilshire Blvd., Los Angeles, CA. Employed from 1110/77--current. Position: National Director of Sales and Marketing. Gross pay for 1986: $63,124. Earnings for First Quarter, 1987: $16,542.
"'Not bad,' thought George. Next, he typed Julie's address into the computer and told it to search the records of the Laguna Heights deed registration office. Soon the screen filled with new data record: 1509 Appleton Drive. Block 351, Lot 3. Land Assessment: $35,685. Total Assessment: $114,006. Built: 1978. Use: Residential. Deed of trust recorded: October 11, 1978. Loan Instrument: 23997. Amount: $75,000, between Joseph James and Julie Jameson Nelson and First National Savings & Loan. Other personal assets listed as collateral: 25-foot sailboat, assessed at $16,000.
"Julie Jameson had once been Julie Nelson. George decided to check county divorce records to see what was on file. He found the record: Divorce awarded 7/18/85. Julie Jameson Nelson vs. Joseph James Nelson. Married: 6/12/76. Children: Anthony Michael, born 4/3/78; Carolyn Marie, born 12/24/80. Grounds for divorce: Infidelity. Divorce sought by: wife. Race: husband, Caucasian; wife, Caucasian. Number of previous marriages: husband, none: wife, one. Date first marriage was terminated: 9/24/74 in Reno, Nevada.
"Being a curious fellow, George then decided to check local school enrollment records. He found that "Tony" went to Ben Franklin Elementary School. Carolyn Marie was enrolled at Montgomery Special Education Institute, a school for children with learning disabilities.
"Next, George decided to look into IRS files. But, such records are confidential, so George's office computer terminal could not access the IRS data in Washington by an on-line connection. Instead, he put Julie's name and SSN on a request list that was mailed by his welfare office to the IRS the next day. In less than a week, George received a magnetic storage tape from the IRS that contained tax information on Julie Jameson's other sources of income.
"Data from Form 1090 (Unearned Income) revealed that her interest income included $2,100 from a $23,000 Certificate of Deposit from First National Bank, $4,200 from a $48,000 CD at the same bank and another $1,600 from a $28,000 passbook savings account. Dividend income was also listed--including $9,754 from 4,000 shares of Toltech Manufacturing stock. Capital gains income of $5,600 came in from the sale of IBM stock. Even $3,235 winnings from betting on the horses at Los Alamitos Race Track was listed.
"Chuckling to himself, George mentally reviewed what he had learned about his mark. Julie Jameson was recently-divorced after a nine-year marriage; it had been her second marriage and she had ended it with a divorce by charging her husband with adultery--and had apparently wound up with a hefty settlement as well as custody of the kids; she lived in an expensive home in a nice neighborhood (George had driven by to check it out); she worked at a secure high-paying job; she had additional income from interest and dividends: she enjoyed sailing and betting on the ponies; her six-year-old daughter had a learning disability; and she owned a status-symbol car. He decided he had enough information to make a phone call and strike up an acquaintance"!
SO BE IT. FURTHER, HE COULD HAVE FOUND OUT A WHOLE VOLUME OF ADDITIONAL INFORMATION FROM HER MEDICAL RECORDS TO EXACTLY WHAT WAS THE LEARNING DISABILITY OF THE CHILD!!!! WE JUST DON'T HAVE TIME OR SPACE TO GO ON WITH THE STORY.
A FEW PRIVATE INVESTMENT REFUGES
I will only briefly cover these because laws change quickly and negation of a suggestion can come spontaneously. However, even after the enactment of the Bank Secrecy Act and other legislation making financial privacy difficult to achieve there are still a few private refuges.
1.Money-market accounts. These accounts may extend check-writing privileges to depositors yet, unlike banks, the brokerage firms offering them are not required to photocopy both sides of the checks you write. A money-market account manager however, must report interest you earn in such an account to the IRS. Many foreign banks also offer interest-paying money market accounts which are not reported to the IRS. You must of course, report any interest earned on your tax return from such a foreign account, along with the presence of the account itself if it is larger than $10,000.
2. Non-dividend paying stocks. While most stocks pay dividends, not all do. And if you do not earn dividends on a stock, neither you or your broker is required to report the purchase of that stock to the IRS. However, any profits you generate when you sell must be reported by both you and your U.S. broker. Non-dividend-paying stocks are particularly popular outside the U.S. However, the Tax Reform Act of 1986 has imposed complex requirements for translating deferred dividend payments into theoretical capital gains for such investments. Tax must be paid on these paper profits.
3. Stock certificates you hold yourself. Most brokers will maintain your stocks in a "book entry"--computerized--form. For greater privacy, and to guard against the possibility of some future catastrophic computer failure, have your stock certificates sent to you and keep them in a safe place.
4. Bearer stocks. "Bearer" stock certificates are widely available outside the U.S. Such certificates are not registered in any form and provide a completely anonymous form of stock ownership. Stock certificates issued before 1982 in the U.S. may be available in bearer form. (I expect my co-workers to pay attention to this one. Please).
5. Bearer bonds. Like bearer shares, bearer bonds are one of the most private of investments. They are widely used in many foreign countries and in particular, Switzerland and other tax havens. Bonds issued before 1982 in the U.S. may be available in bearer form.
6. Municipal bonds. Municipal bonds are exempt from federal taxation. However, the Tax Reform Act of 1986 requires you to list all municipal bond holdings on your tax return. Bonds issued before 1982 in the U.S. may be available in bearer form.
7. Treasury Securities. Direct obligations of the U.S. Treasury, backed by the "full faith and guarantee of the U.S. government" are among the world's safest investments. And until recent years, they were also relatively private. You would purchase them at a bank and would be mailed the actual bond certificate. When the bill or bond matured you would present it at the bank and instantly obtain your money, with no questions asked. Some Treasury securities were also issued in bearer form without your name appearing anywhere on the certificate.
In order to "safeguard certificates against accidental loss" (and, allegedly, to save money), the U.S. Treasury in 1986 introduced "Treasury Direct", a program converting all government securities to an electronic form. In this new program, you no longer receive a Treasury security, only an acknowledgment that you own it. And when the security matures, your funds are wired to a bank. Both safety--and privacy--are removed, unfortunately.
U.S. savings bonds however are still relatively private. While your name is imprinted on each bond, they are the only type of Treasury security that you can still hold in your personal possession (other than older T-bond and T-note issues). You can purchase savings bonds at any bank.
8. Precious metals. Gold, silver and platinum are still relatively private investments. The purchase of precious metals need not be reported to the IRS. However, under IRS regulations proposed in 1982 (but never finalized), sales of precious metals by an "unincorporated entity" require completion of a government reporting form, (a 1099-B). Some precious metals dealers enforce this provision and others don't--yet! (DO YOU NOTE THIS, YOU ONES WHO DO NOT THINK A CORPORATION IS A USEFUL ITEM)?
A loophole in the proposed regulation permits a reporting exemption if the items are sold for a premium of 15 percent or more above their bullion value.
Many foreign banks offer precious metals accumulation and safekeeping accounts. While you can legally avoid reporting precious metals sales in this manner you are of course, required to declare any profits you make.
9. Collectibles. Art, diamonds, antiques, stamps, rare coins, etc., are among the most private of all investments. No government reporting applies to either purchases or sales of collectibles. While such investments may be relatively difficult to sell and are often subject to high dealer buy/sell spreads, they are usually not purchased purely as an investment.
Among collectibles, rare coins are probably the most liquid and subject to the smallest dealer mark-ups. An excellent guide to the rare coin market is the monthly newsletter Investment Coin Review. (See appendix.)
Another excellent resource is through the services of David Schectman of Investment Rarities Incorporated. (See appendix.)
Dharma, prior to going into the subject of private investing outside of your country (U.S.), let us have a break. We will also need to cover mundane things like, where to put the stuff into a safe place at home. Do not expect perfection, dear ones, there is risk in EVERYTHING. You must be discerning and wise--we can do no more than make the information available to you--it is up to you as to what action if any, you will take. So be it.
HATONN TO STAND-BY. I WILL BE AVAILABLE WHEN YOU ARE READY TO RESUME.
SALU
PJ 10
CHAPTER 18
REC #2 HATONN
SAT., DEC. 2, 1989 11:29 A.M. YEAR 3, DAY 108
SAT., DEC. 2, 1989
Hatonn present to continue. Thank you.
LOOK OUTSIDE
Among the most important reasons to invest outside the U.S. are currency diversification against the declining international value of the dollar and the opportunity to participate in markets not ordinarily accessible to U.S. citizens. These concerns are beyond the immediate intent of this journal. The best reason for consideration of this mode of business is financial privacy.
HAVENS
A handful of nations have policies or explicit legislation embracing banking secrecy for non-resident (but for some very good reasons, not resident) investors.
The oldest of this type of banking secrecy laws goes back to the time of the 1930s. The government of Switzerland became alarmed when agents of the German Gestapo began visiting Swiss banks and asking questions about Jewish depositors. It responded to these visits with a law prohibiting Swiss banks from releasing information on depositors. Many other nations enacted similar legislation after World War II. Today, 20 or 30 "tax havens" exist worldwide that cater to private investors. It gets more and more difficult to sort them out and less and less privacy can be maintained in international situations, such as Marcos, but there are still good ones around if you look.
Some of these havens have less than savory reputations and some are most unstable politically and relatively "new" and unfortunately are targets because of drug trafficking. These would include places like Panama and Vanuatu (the former Dutch New Hebrides).
Switzerland is still unquestionably the largest tax haven in terms of foreign money invested. Other significant havens include Liechtenstein, Austria, Luxembourg, the Cayman Islands, the Channel Islands, Barbados, Bermuda and the Bahamas and lately there are some places emerging in the Orient such as Singapore.
HOW TO CHOOSE
First, be cautious. Few havens have unambiguous secrecy laws! Some countries only have a non-legal "tradition" of secrecy; others have "confidentiality" laws where the local government has access to records but is itself sworn to secrecy--a promise that may or may not be enforced. Some have laws that are not always respected with loopholes abounding. Not a few are tax havens with only "pretense" to secrecy.
You would always need to check into the length of time the tradition of secrecy has been maintained. A country with several centuries experience, like Switzerland, or even several decades, like Luxembourg, won't be in as much of a hurry to change as havens like Vanuatu in the Pacific, which only recently proclaimed itself a tax haven.
Check the haven status for local support. See if the haven's citizens also use the facilities. There is a world of difference in this regard between the Bahamas, where locals seem resentful of the haven provisions, and Austria, where average citizens regularly use the completely anonymous "password account", and thus have a vested interest in its continued existence. (By the way, watch Austria most carefully for when they become a member of the Common Market you have a MAJOR clue to timing of upcoming events).
Always check into the stability of the haven itself. Any financial haven must also be a haven in nonfinancial ways. It must have a high degree of personal freedom. Of course, even free-market havens are not always stable. For example, Margaret Thatcher gave in to Red China's demands on Hong Kong, abandoning it to the 1997 deadline!
Is the haven important to Washington, D.C.? Costa Rica, because it is a "friendly" nation in an unstable region, enjoys the favor of the U.S. government. Haven income is important to it and Washington won't want to lean too hard on it over a "non-strategic" issue. And since the CIA uses Liechtenstein for its financial transactions, the U.S. won't seek to wipe out its haven status. The Cayman Islands on the other hand, have no strategic value to Washington.
Check carefully into whether or not it waves a "red flag". Public dealings with high-profile havens can raise a "red flag" in tax collector's offices around the world. The Caymans, Panama and Liechtenstein are examples. Switzerland is in the second tier, and Austria and Luxembourg are another step below that level. Bermuda is lower still, though it doesn't offer the secrecy the others do.
Does it protect its sovereignty? Has the haven caved in to the demands of the great powers, even in non-financial matters? The Dominican Republic has bank secrecy laws, but when ex-CIA agent Edwin Wilson traveled there incognito in 1983, U.S. agents were waiting for him, ready to hustle him back to the U.S. There were no legal extradition formalities. U.S. agents operated in the Dominican Republic as they would in Kansas City. More recently, with the Marcos, Duvalier and Dennis Leving insider trading cases, Switzerland has shown that it is not quite as safe as it has previously been. This will increase, depend on it.
You will also need to look into the convenience of the services. Are competent staffs available to serve the customer? How well do they speak English? Finally, how convenient is the haven to deal with? It's best to visit one's money periodically, and so much the better if it is in a place that one enjoys visiting.
The first requirement of a haven is that it offer capital preservation. Nonetheless, to include a haven country which scores heavily in capital preservation but which also has high withholding, corporate, estate or other taxes is to ignore an important consideration.
OH YES, YOU CAN FORM OFFSHORE CORPORATIONS AND I SUGGEST YOU LOOK INTO DOING SO. YOU MIGHT EVEN FIND SOME ALREADY IN SERVICE INTO WHICH YOU CAN INVEST.
LET US CONSIDER SWITZERLAND
French philosopher Voltaire in 1794 made the following observation: "If you see a Swiss banker jump out a window, be sure to follow him, for there is money to be made". Further, give appreciation to Voltaire for another most remarkable contribution to you ones. He, through his Countess mistress, translated Newton's PRINCIPEA. Give honor unto the great Newton who--by the way--celebrates his true birthday on December 25th. The only valid thing about your December 25th birthday celebrations.
Back to the Swiss. This mountainous nation in the heart of Europe is synonymous with banking privacy and investment savvy. Switzerland has not only the oldest banking secrecy laws in the world, but a centuries-long tradition of financial privacy. As such, it is well-suited to an introductory discussion of offshore financial havens.
Swiss bank secrecy laws date from 1934 and cover every conceivable person--bank employee or not--who might have access to personal information about a bank customer. Bank employees, auditors, regulators and anyone else with access to bank data are required to maintain silence regarding bank accounts. Not only are such individuals prohibited from disclosing account balances, but they may not even acknowledge that an account exists.
Penalties are strict for those violating bank secrecy laws. Each breach of secrecy is punishable by a fine of SFr 50000 (about $30,000) or six months imprisonment--or both.
Secrecy may be waived only at the client's request, or if the Swiss government has evidence that a crime has been committed. Should the crime have been committed outside of Switzerland, the bank secrecy laws requires that the offense also be considered a criminal offense in Switzerland for banking secrecy to be relinquished.
Tax evasion, for instance, is a civil, not a criminal offence in Switzerland. Nor are violations of other nations' foreign exchange laws, money laundering laws or laws regarding the reporting of certain investments criminal offenses in Switzerland.
If evidence exists that a depositor in a Swiss bank has committed a crime in another country that is a criminal offense under Swiss law, the government can try to get a court order forcing the bank to release information relevant to the crime under investigation.
Unlike an IRS "investigative summons", a Swiss court order requiring breach of bank secrecy is rarely granted. And when it is, it can be appealed; the case of Ferdinand Marcos and his alleged secret Swiss bank accounts is a case in point. After nearly three years and several million dollars in legal expenditures by the Philippine government, that government has yet to receive any information from Swiss banks in relation to accounts allegedly held by Marcos, the former Philippine president.
When a court order is granted, the Swiss government is permitted to examine bank records only in relation to the crime under investigation. "Fishing expeditions" are expressly prohibited.
Swiss banking secrecy has been breached, however, in several investigations in recent years. Most notably in regard to inside trader Dennis Levine. But the average American with a Swiss bank account, even an American who is deliberately evading U.S. taxes, is in no danger of being exposed by Swiss authorities. Even if he is exposed, a bank account in Switzerland is nearly impossible for the IRS or any other governmental agency to impound.
Banking secrecy also enjoys strong local support in Switzerland. A 1984 referendum endorsed the continuation of bank secrecy laws by a 2:1 margin.
Switzerland also maintains a uniquely stable fiscal and military status. The total Swiss national debt today stands at less than SFr 20 billion (U.S. $12 billion), a smaller figure than the outstanding debts of many private companies. In spite of its meager debt, the Swiss government has the largest per-capita gold reserves in the world: 83,275,000 ounces. At the present price of gold, Swiss gold reserves are worth more than $31.6 billion.
As a result, the Swiss franc is one of the world's strongest currencies. Since 1970, the value of SFr vs. the U.S. dollar has increased by nearly a factor of three; from 23.2 cents per franc in 1970 to more than 60 cents per franc today.
Switzerland actively protects its neutrality with its army and local defense forces. In both World Wars I and II, Switzerland demonstrated to Germany and the Soviet Union that it could not be easily conquered. Today, Swiss army strength stands at 625,000. Every soldier is obliged to keep a loaded automatic rifle in his home, ready for instant use if the nation is invaded.
Further, as we pointed out in SURVIVAL IS ONLY TEN FEET FROM HELL, the Swiss are well prepared for any event with massive tunnel shelter systems. Virtually every citizen would be protected in the event of a nuclear war. Most homes have bomb shelters and new homes cannot be constructed without them.
The Swiss government goes to enormous lengths to protect the integrity of its banking system, its currency and its territory. The Swiss have taken privacy (used in its widest sense) to a much higher level than almost any other nation in the world.
It would go beyond the scope of this journal to describe all the types of Swiss bank accounts available, or to recommend specific Swiss banks. There are resources for that information. One such source is the CONFIDENTIAL: REPORT FROM ZURICH newsletter, which covers developments in Swiss banking and other offshore havens (see appendix) and OFFSHORE BANKING NEWS. (See appendix.)
OTHER TAX HAVENS AROUND YOUR WORLD
Austria. A relatively "low-profile" haven located in central Europe, Austria has stricter bank secrecy laws than Switzerland, although they have been in effect only since 1979. The Austrian "numbered account" system provides total anonymity for the depositor, and unlike the numbered accounts from Swiss banks, the average U.S. investor can obtain one relatively easily.
Liechtenstein Principality. This is a tiny central European haven. It offers perhaps the most adaptable company law in the world--along with almost impenetrable bank secrecy. There are several types of Liechtenstein companies; perhaps the most flexible is the anstalt (trust) which one banking authority claims, "can be adapted to be all things to all people". Setting up a Liechtenstein company is not an inexpensive undertaking but the flexibility of Liechtenstein company law along with the privacy of its corporate structures, attracts wealthy investors from all over the world.
Luxembourg. Located at the confluence of France, Belgium and West Germany, Luxembourg is a convenient offshore banking center with most financial transactions by foreigners going untaxed. While bank secrecy laws date only from the early 1980s, Luxembourg has a tradition of banking confidentiality dating back to the years following World War I.
The Channel Islands. Located in the English Channel a few miles off the coast of France, the Channel Islands are one of the fastest-growing havens in the world. The most important of these islands are Jersey and Guernsey (does sound a bit like a dairy cow herd.) The islands are close historically and geographically to Great Britain, but are not subject to high British taxes.
Barbados. A Caribbean haven, Barbados is the easternmost island in the West Indies. The island is notable for the large number of U.S. and multinational corporations that have set up offshore subsidiaries to take advantage of its low tax rates. Company law in the Barbados is adaptable to many enterprises, and most companies owned by non-residents need not pay income tax or capital gains tax.
Bahamas. The closest haven geographically to the U.S., the Bahamas' westernmost islands are located only 50 miles due east of Miami, FL. Strict bank secrecy laws and numbered accounts are available in Bahamian banks, but this haven has developed a relatively high profile in recent years as a result of well-publicized tie-ins with narcotics smuggling.
Bermuda. While having no formal bank secrecy legislation, Bermuda enjoys a tradition of confidentiality in financial affairs, political stability and much lower profile than most Caribbean havens. Taxes on non-residents are low or nonexistent and several Swiss banks have opened branches on the island.
OFFSHORE REPORTABLES AND NON-REPORTABLES
If you take part of your wealth outside the U.S., Uncle Sam wants to know about it. The original version of the Bank Secrecy Act required U.S. citizens holding more than $1,000 in any "financial accounts" outside the U.S. to report them on their federal income tax return. This reporting threshold has now been raised to $10,000. If you think any of these maneuvers seem strange, remember that you have a lot of lawmakers trying to gain privacy also and these are the loopholes you continually seek out.
The IRS does not make it easy to report foreign bank accounts. No questions relating to this subject appear on Form 1040. Instead, these questions appear on Schedule B.
The 1988 instructions for Schedule B state that anyone who at any time during the year had an interest in or signature or other authority over a financial account in a foreign country (such as a bank account, securities account or other financial account) should report same. Exceptions are made if the combined value of the accounts is less than $10,000 or if the accounts were with a U.S. military banking facility operated by a U.S. financial institution.
"If you admit to having an interest in a 'foreign financial account', you must also complete a separate Treasury Form 90-22 listing each foreign account and send the form directly to the Treasury Department in Washington, D.C.--not your regional IRS office." (You can be certain that once it reaches Washington it receives "special attention").
There are several methods you can use to avoid reporting the presence of your offshore account. Since a tax return isn't the same as a "currency transaction report", using these techniques probably don't constitute "money laundering". By now I expect all of you to be reading between, over and under the lines of print.
1. Keep reportable foreign accounts at less than the reportable minimum. The key word here is "reportable"; many types of offshore investments need not be reported. A few examples: insurance policies, safety deposit boxes, real estate holdings that do not generate income, non-dividend-paying stocks, precious metals ownership certificates, etc.
Of course, most U.S. investors investing offshore for the first time will stick with a foreign bank account, the presence of which is reportable if the total of such accounts is $10,000 or more. You are on your own as to the use of multiple bank accounts of under $10,000 each.
2. Minimize your interest income from all sources to avoid filing Schedule B. If your interest income is less than $400/year, you need not complete Schedule B--the form that asks you if you have an offshore account. Nowhere on Form 1040 itself are you asked to make such a disclosure.
In practice, keeping interest income at this level or lower may require considerable effort even for middle-class investors. But if your portfolio consists mainly of assets you purchase for capital gains, such as precious metals, collectibles, real estate, etc., you can keep interest income to a minimum.
MOVING YOUR MONEY
To keep your offshore accounts confidential, you may wish to take action to disguise the funds you transfer to an overseas bank. However, if you do so in a deliberate attempt to avoid currency reporting regulations imposed by the Bank Secrecy Act, your actions could be interpreted as "money laundering", and you could be subject to the heavy fines and even imprisonment as I have already discussed.
This section should show you how preposterous the whole U.S. system of anti-"laundering" really is. Any criminal can use these techniques. It takes little skill to defeat the system. It is obvious that these laws are not aimed at criminals. It is obvious that these laws are aimed at honest citizens who think they deserve some privacy. The following description of techniques for privately taking funds out of the United States, and bringing them back, are taken from the May, 1988 issue of Confidential: Report from Zurich.
Further, this Journal is copyrighted for the sole purpose of being able to prove what was in our original document as released to the public. We refuse to be set-up as a target for them to aim at. I have no wish to have anyone break laws, for Caesar can be most difficult. I merely report that which comes into my attention. None of it has come into Dharma's attention so we maintain quite a bit of security in that manner.
1. Don't use personal checks from a U.S. bank account to send money overseas, since they are photocopied by your bank.
2. Small money orders less than U.S. $1,000 may be used to transfer funds to your offshore account. Pay for the money order in cash. Don't put either your name or the name of the intended recipient on the money order until after you have purchased it. Nor should you make the money order payable to "cash" if you are sending more than $5,000 overseas at one time. Doing so makes it a bearer instrument and subject to U.S. currency reporting requirements.
The best place to purchase a small money order is at a convenience store. You may also purchase money orders, with varying degrees of privacy, at banks, securities firms and post offices.
3. If you do business overseas, consider asking a trusted firm to overbill you for the goods or services they provide. Simply have the company divert the excess funds to your foreign bank.
4. Many individuals use the mail to transfer cash overseas. While relatively reliable, you have no recourse if the money is lost. In addition, if you mail more than $5,000 in cash, you are required to notify U.S. Customs.
5. Rare, or numismatic coins may be used to sidestep filing an international currency exchange transaction form. Rare coins may be declared at their face value to U.S. Customs. For instance, you could buy U.S. Liberty and Saint Gaudens $20 gold pieces, which contain nearly an ounce of gold, and declare their value as $20 at the border. Similarly, you may be able to declare the U.S. 1-ounce gold eagle for $50, since this is its stated legal tender value. (However, you may run into problems since this is a bullion, rather than numismatic coin). Check with your overseas bank to determine what type of rare coins can be most easily sold in that area to assure maximum liquidity when the coins arrive.
6. Bank checks drawn for less than $10,000 are another private method of transferring funds overseas. Have the check signed by the bank manager and made payable to your foreign bank--not cash. Pay for the check in cash. There should be no need to leave your name or provide any identification for this service.
7. You can wire up to $10,000 overseas in complete privacy with a Western Union money wire. Pay for the wire in cash and do not complete the claim form that asks for your name and address. This will insure anonymity, but if the wire is lost, you will not be able to obtain a refund.
Consider in advance the private repatriation of funds you hold in an overseas account. Strict foreign exchange controls, however, could complicate your efforts immensely. Therefore, I do not recommend that you maintain a large portion of your wealth overseas. Laws are very, very quick to change while piggy-backed with other seemingly inoffensive legislation.
8. One of the best ways to repatriate assets overseas in a totally private manner is to use a Visa, MasterCard or American Express card drawn on a foreign bank account. Transactions on the card are cleared in the name of the foreign bank, not your own name. Many foreign banks offer such cards. Obtain the credit card when you set up your overseas bank account. Make sure that the card can be used in an automatic teller machine. If you plan to use the card to purchase goods or services, ask the bank if it can be printed in English so that its origin is not as obvious. British banks are an excellent choice for low-profile foreign credit cards.
9. Consider requesting the bank to send you your proceeds in the form of municipal bonds issued prior to 1982. Since these are bearer bonds, instruct the bank to send them in increments of $5,000 or less. (Hatonn: This could be considered as a deliberate effort to avoid completing a currency transaction form, and therefore might be considered illegal under the U.S. anti-moneylaundering statutes.)
Interest on municipal bonds must be reported on your income tax return, even if it is currently exempt from federal taxes. To legally avoid reporting the interest, you could simply cash them in immediately after receiving them before an interest payment comes due.
10. Many overseas banks have correspondent banks in the U.S. You may be able to request your offshore bank to transfer your funds to a U.S. correspondent bank with the transfer recorded in the bank's name, rather than your own.
The easiest way of all is simply to put cash in a paper bag and go on a Caribbean cruise. When you get off the boat at a tax haven, wear a really ugly tourist-type shirt, a funny hat, and have an old Japanese camera around your neck. Carry the money in the paper bag or inside your camera bag, get a taxi, and go to your bank. No customs inspectors ever greet Caribbean cruise ships--it is sort of a silent "understanding". If you think a Mafia member hasn't figured this out, think again. ANTI-LAUNDERING LAWS ARE AIMED AT YOU. NOT THE MAFIA.
Let me sort of summarize this portion because it can be so useful indeed.
Many countries outside the U.S. better appreciate the basic right of confidentiality. They have a long-standing tradition of bank privacy. Holding cash is not a crime; most stocks and bonds are issued in bearer form in Europe; anonymous safe deposit boxes are available in London. Americans can buy real estate in most of these countries. European-based credit cards are also available.
Foreign insurance products allow you to earn tax-free income in certain circumstances. One of the most interesting products is Unilife's International Whole Life Plan, based in Luxembourg. Unilife is a 20-year old insurance company with over 700,000 clients worldwide. This whole life plan is unique because the cash value is invested in no-load mutual funds and international funds, managed by Charlesworth & Rugg, Inc., a distinguished investment management group led by Donald Rugg. The fund is available in either Swiss francs or U.S. dollars. Minimum investment is $10,000. For a free brochure, Robert Edgar, International Insurance Agent. (See appendix.) I will point out however, that Insurance companies are in severe trouble during these times, as well as banks and S&Ls, so use intelligence.
Before we pass these investment sections, let me give you a bit more. Of course, the best privacy strategy is to have a corporation and allow it to handle all these things. Neither do I recommend most of the investments as will be reported here, but I feel it only fair to give them to you as possibilities for you who can't yet see the handwriting on the wall clearly enough.
Most stocks, bonds and other traditional investments bought through brokerage firms are no longer private, but some investments can still be bought with cash. For example, you can walk into almost any coin dealer and buy a gold coin with cash, no questions asked. You can't do that at Merrill Lynch, for instance.
In addition to coins, there are other investments that can be bought quietly. Real estate can be purchased in a low-profile manner through "land trusts" in most states. Land trusts will keep your name off the county records. You might also consider buying real estate out-of-state or in foreign countries, preferably in areas where you like to travel. It is still better to simply incorporate, buy the real estate and when you choose to sell, sell it in its entirety as a corporation. (Sell the corporation). There are a lot more advantages than I have time to list for you herein.
You can store coins, collectibles and stock certificates in safe deposit boxes in a private manner--but not in your local bank. Guardian Safe Deposit Co.'s Long-Distance Storage Account Program, located in Arlington, Va. offers top-security protection for your valuables away from your banking facility. (See appendix: Guardian Safe Deposit Co.)
LET'S RETURN BRIEFLY TO THE SSN
Another reminder about privacy and guarding your Social Security number and then we will move on to the system itself.
Remember, most computer files are accessed by a number, specifically your Social Security number. One of the keys to maintaining your privacy is to keep your SSN as private as possible. Unfortunately, your SSN is constantly being demanded by businesses and organizations, far beyond the original purpose of the SSN. Prior to 1960, the SSN was used only in dealing with the Social Security Administration. The card itself warned, "Not to be used for identification purposes". But in 1960, the IRS and other government agencies started using it. Then in the '70s, states began using it for driver's licenses, and soon universities, banks, insurance companies and employers demanded it for identification as well. Even utility companies demand it before they will send water or electricity to your home! New Social Security cards no longer carry the warning about unauthorized use.
However, you do not always have to disclose your SSN unless required to do so by law--and make them show you the law. Refuse to give your number to universities, insurance agents, doctors, and others who simply demand it. Most organizations are set up to assign people an independent number if they don't have a SSN, or if they refuse to disclose it. You can put any number in that slot if it is not required by law.
There are many ways in which your SSN can be abused. If a criminal latches onto your SSN, he may gain access to credit files and a list of credit card numbers, which would allow him to buy airline tickets and other products with your money and without signature. Or he may use your SSN to create a new identity. When crimes are committed, your SSN may be incorrectly linked to a criminal record. Recently, THE WALL STREET JOURNAL reported the story of a man whose life has been practically destroyed because a criminal stole his SSN and used it to create a new identity and to commit crimes. The innocent man has been falsely arrested several times and lives in constant fear. The last time he crossed the border into Mexico, he was seized by U.S. police at gunpoint. Beware if your name and SSN appear on the National Crime Information Center computer.
ALSO THE TAX RETURNS
Another thing you should guard against is turning over tax records to financial institutions. More and more banks and credit card companies are demanding tax returns for customers applying for a mortgage, personal loan or credit card. But you should refuse to disclose this information if at all possible. Tax records are a grave distortion of your financial well-being. Moreover, when you turn them over to a bank, you lose control of this vital data. Once you give your tax returns to a bank, the bank owns the information and can disclose it to others. A tax return contains all kinds of personal and financial data, including your assets. If you are sued, a tax return may be extremely helpful in locating hidden assets.
There are many ways to avoid submitting tax records. Often you can verify income by other means--a statement from your accountant, W-2s or 1099s, for example. Or in the case of a mortgage application, you can request a "no disclosure" form. Many banks and mortgage institutions will allow you to get a mortgage without disclosing your tax returns if you are willing to make a down-payment of 25-30% and can demonstrate a good credit history.
LAST GASP!
The Social Security system has been a part of U.S. life for more than 50 years. To be sure, Social Security has been an enormous success for the first two generations of retirees. And the aging architects of the system assure you that "the system is fundamentally sound".
Such statements are wonderful for public consumption. But you should not believe them. Not when bankrolling Social Security into the 21st century will require greater and greater intrusions into your private affairs--not to mention much higher payroll contributions.
To finance the centerpiece of the "Old Age Insurance Plan"--also known as the "Old Age Pension", Congress in 1935 imposed a tax on the wages of employees, to be matched by employers. That tax, just like the income tax of 1913, now seems incredibly low: 1 percent of wages, to be paid on the first $3,000 of income. The maximum annual contribution from an employee was only $30, to be matched by a $30 contribution from his employer. Are any of you falling on the floor yet?
As you all know, Social Security taxes are much higher today. Employees pay 7.65 percent of the first $45,000 in income into the program. Employers make an identical contribution. The maximum annual employee contribution is $3,442.50--115 times higher than the 1935 maximum. Social Security taxes have increased by 11,375 percent since they were first imposed 50 years ago.
Unfortunately, the upward momentum in Social Security taxes is unlikely to let up anytime soon. The population distribution of the U.S. makes it impossible. The number of workers making contributions to the Social Security system is increasing at a much slower rate than the number of beneficiaries.
This is a direct consequence of the "baby boom" of the '50s and '60s and the "baby bust" of the '70s and '80s. By the time "boomers" are set to retire in the early 21st century, the "dependency ratio"--the number of workers available to support one retiree--will have shrunk from 3.2:1 in 1980 to 2:1 in 2020. (SS began with a ratio of 140:1).
To finance benefits to aging boomers, the Social Security Administration's "most pessimistic" (but read this as the most "realistic") assumptions project payroll tax rates of an incredible 37.5 percent by the year 2020.
It doesn't require a great deal of imagination to consider how workers of the 21st century will react to SS tax rates of 37.5 percent. Workers will "opt out" of the system any way they can to avoid being trapped by rising tax rates. Evading SS taxes is tax evasion. But with SS tax rates of 37.5 percent combined with federal taxes of a minimum of 30 percent or probably grossly higher, many workers won't let that stand in their way.
Well, thus the infant numbering system, etc., but the invasion of privacy to come from SS will be far greater than the assignment of a mere number. For instance, to keep tax rates from going higher than even 37.5 percent, you can count on more "means-tests" before you obtain SS benefits. The "means-test" concept is simple: If you aren't poor, you don't get the benefits.
Naturally, the IRS and the SS system will want "proof" that you are "poor enough" to deserve benefits. In the future you can count on intrusive applications, unannounced visits by caseworkers and SS "audits" not dissimilar to the IRS audits of today.
SS will thus evolve from its present status as primarily a pension-welfare system into a pure welfare system. The "wealthy" (read middle class) will pay increasing taxes on SS benefits, while their children struggle with the burdens of higher and higher tax rates.
Another trend will be the elimination of the wage ceiling on which SS tax must be paid. A bill to this effect was narrowly defeated in the 1988 Congress. In 1989 or in some future year, we may not be so lucky.
If you are concerned by these trends, the solution is simple: opt out of the SS system legally. Work toward shifting your income from wages to royalties, interest, dividends, rents, etc. that are at least not currently subject to SS tax.
Dharma, let us take a break at this point. I wish to speak of the Cashless Society next and it will be a bit wordy.
Thank you for your kind attention.
Salu ,
Hatonnn to quit frequency. Good afternoon.
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