That was the headline on the cover of the Wall Street Journal on March 13, 2009. And since that headline, virtually every country has given in to the demands of the Organization for Economic Co-operation and Development (OECD). As cash strapped governments seek ever dwindling tax monies, the once popular “tax haven” nations are facing unprecedented pressure to share tax and economic data. Bank secrecy laws, at least with respect to withholding information from taxing authorities, are falling by the wayside.
The week the above headline appeared, the tiny European nations of Andorra and Liechtenstein pledged to relax their bank secrecy laws. And other tax haven nations such as Switzerland, Antigua and Barbuda have made similar promises. Whether those promises will be kept remains to be seen.
I recently attended a meeting in Miami Beach at which many of the world’s central bankers and finance ministry personnel were present. Listening to the various speakers, including our very own Internal Revenue Service, it became clear that there were indeed very few “tax havens” left in the world. Even if a country has strong bank secrecy laws, however, banking information is often available for a price. One of the best examples occurred in Liechtenstein last year when Heinrich Kieber, a former employee of that country’s largest bank, LGT, purportedly sold client information to prosecutors and tax authorities in a number of countries, including the U.S. Germany alone apparently paid 4.2 million euros for that information.
Another country not in compliance with the OECD (Organization for Economic Co-operation and Development) financial transparency laws is Panama. Unfortunately, it is widely known that cooperation from the Panamanian authorities is easily “bought” with U.S. dollars.
What does all of this mean?
Engaging in asset protection in the hopes of sheltering or hiding income from Uncle Sam is a dangerous game to play. The countries willing to keep your identity secret are now but a handful. And even in those jurisdictions there is a tremendous risk that the I.R.S. can purchase that information for a price.
Asset protection is designed to insulate and keep your hard earned money safe from creditors. But try keeping it from Uncle Sam and the cost may be jail.
Although most offshore jurisdictions now share tax information, many remain wonderful places to create trusts or business entities. Hong Kong, Switzerland, Seychelles and New Zealand, for example, offer very favorable laws for U.S. citizens seeking to protect their money. Keeping some assets offshore makes it difficult for creditors to reach these assets. And geographic diversification better protects you in case the banking system in the United States collapses.
Footnote: As of April 2009, OECD listed the following countries as being inadequate in their sharing of bank information with foreign tax authorities. Note that most of these countries have now pledged to improve compliance or enact new transparency laws. The OECD list includes: Niue, Cook Islands, Panama, Uruguay, Chile, Guatemala, Belize, Turks and Caicos, Anguilla, St. Kitts and Nevis, Montserrat, St. Lucia, St. Vincent, the Grenadines, Gibraltar, Monaco, Andorra, Switzerland, Belgium, Luxembourg, Austria, San Marino, Malta, Cyprus, Liechtenstein, Macau, Malaysia, Singapore, Phillipines, Hong Kong, Nauru and Vanuatu.