By Milton Zall
In today's suit-happy society, almost anyone with substantial assets stands at risk of losing them in litigation. Besides the threat of frivolous or trivial lawsuits, affluent individuals could suffer capital invasion from creditors, greedy relatives, or divorce settlements. The solution for many wealthy individuals is to shield the assets in a legally established offshore trust or bank account. However, for the strategy to work, the foreign accounts must be set up prior to the appearance of financial or legal difficulties.
Technically, "offshore" generally refers to any jurisdiction outside of the United States, but most often it means countries that are debtor- and tax-friendly. For Europeans, the traditional offshore havens are Switzerland, Luxembourg, Malta, Gibraltar, and the Isle of Man. For U.S. individuals, the favorites are in the Caribbean and Central America: Bermuda, the Bahamas, the Cayman Islands, and Panama. New offshore jurisdictions include Belize, the British Virgin Islands, the Cook Islands, St. Kitts and Nevis, and the Turks and Caicos Islands.
The laws in these investment centers make it virtually impossible for assets to be seized if the accounts are properly set up. For example, the Bahamas has asset protection laws that favor U.S. investors. Bahamian law states that once a trust has been in existence for two years, the assets cannot be accessed by any entity other than the trust holder. That provision protects against attempts to seize assets by creditors, litigants, divorce decrees, and even foreign governments. The only way another entity can gain access to a Bahamian trust is by decree from the Supreme Court of the Bahamas, which would usually occur only in the case of money laundering or other criminal activity on Bahamian soil.
To establish an offshore trust, you first need an offshore bank account. The asset security of a bank account isn't as high as a trust, but it's still excellent so long as creditors cannot find the account. And even if they find it, they will face an obstacle in attaching it, since they have to get a foreign court to recognize a U.S. judgment. Except for major criminal convictions – money laundering, securities fraud, or narcotics – most foreign courts will not recognize a U.S. judgment. That means that the creditor must obtain a judgment in the country where the account is held before proceeding against your account.
Also, offshore banks offer a substantial privacy advantage over U.S. banks, which tend to be careless about their customers' privacy. It's a fairly routine procedure for creditors or litigants to obtain information about domestic bank accounts.
Nearly all offshore banks follow the "know your client" principle. In setting up a new account or accepting a large deposit, they will question you about your business activity and source of funds, primarily to deter laundering. Opening a super-secret numbered Swiss account requires even more information. The bank requires an in-person appearance in Switzerland and an initial deposit of at least $100,000, plus about $300 per year to maintain the account. A standard account requires far less money, and several Swiss banks, including Credit Suisse and Union Bank of Switzerland, open accounts via fax or mail. Strict and absolute confidentiality can be expected from these discreet banks. Swiss law makes it a crime for a banker to divulge any information about a customer's account.
Aside from asset protection, a foreign bank account in historically stable Swiss francs or British pounds sterling can serve as a currency hedge against any decline in the dollar. To open a Swiss-style bank account, you don't have to limit yourself to Europe. Tropical banking centers such as the Cayman Islands, the Bahamas, and the British Virgin Islands have laws that decree vows of nondisclosure for bankers.
Contrary to popular thought, there are no legal tax advantages to having an offshore bank account. The money must be reported to the Treasury Department on Form TD F 90-22.1 if the account balance exceeds $10,000. Offshore banks don't file a Form 1099 with the Internal Revenue Service, but a variety of penalties, including prison time, may ensue if the account is not reported.
Foreign Depositories on the Web
The offshore banks listed below have a long track record and substantial assets, and they provide information on the Internet. Many other quality offshore banks conduct business in a variety of money havens. However, if a bank is not listed as a publicly traded company in the London Financial Times, investors should thoroughly investigate it before depositing their money.
Bank of Bermuda www.bankofbermuda.com
Bank of Butterfield www.bankofbutterfield.com
Barclays Bank www.offshore-banking.barclays.com
Credit Suisse www.en.credit-suisse.ch/views/index.html
Lloyds Bank (Isle of Man) www.lloydsbank.co.uk
Prolific Global Asset Mgmt. www.iii.co.uk/gam
Royal Bank of Canada www.royalbank.com
Royal Bank of Scotland www.royalbankscot.co.uk/dbpc
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