Peter Macfarlane & Associates

I’m so often asked by clients “will my new offshore bank be required to report that I have an account with them?”

Here, for the benefit of my blog readers, is my standard answer.

Although there is a lot of variation between countries, the usual answer will be “no.” If you follow the basic advice you’ll find in The Q Wealth Report, in particular taking care to avoid the effects of the US Qualified Intermediary rules and EU Savings Tax Directive, banks will not automatically report anything about your account to anybody.

The more important question is this: will they give up your  information they have if asked about the account? Obviously, if someone just walks in off the street to ask about your account, they’ll be given a cold shoulder. But nobody serious will waste their time doing that. If anyone ever asks your offshore bank about you, the person doing the asking will almost certainly be a representative of the local government in the offshore haven, who has been persuaded to do so by some foreign power.

You can search around to open your account in the jurisdiction with the strictest privacy laws. However, if someone with official authority is on the warpath against a specific name or account number, it really doesn’t make a lot of difference. Any bank, anywhere in the world, will co-operate. Get that: nowhere in the world has privacy laws that will protect you against enquiries from a major western government. But, first, they will need to know that the account exists, under what name, and in which bank. Without that information, investigators can do very little.

Banks might claim that they will respect your confidentiality. They might even hold out for a while. If you have taken the time and trouble to maintain an excellent relationship with your bank, they might tip you off that someone was asking questions… but in the end, they will reveal all. I promise you.

I thought Liechtenstein had some of the strictest privacy laws. In fact it did, and still does. But, if someone breaks those laws, the fact that they are wanted for a criminal offence in Liechtenstein and are now hidden in a German witness protection programme probably won’t be of much comfort to you.  That’s exactly what happened recently when a former bank employee allegedly sold a list of account holders to German and British tax authorities for five million euros just recently.

In another recent UK case, it was shown that it was actually easier for the British police to obtain information on a bank account on the offshore island of Guernsey, than it was from a bank in the mainland UK! Guernsey (after a few scandals) now bends over backwards to appear co-operative. Local courts there will just rubber stamp any application for co-operation they get from places like the UK or the USA without giving them serious attention, because to refuse co-operation in a money laundering investigation would be political suicide. Whereas in the mainland UK, judges still sometimes actually ask some questions and demand to see real evidence of a crime before allowing the police to conduct a fishing expedition into a suspect’s banking records. So much for offshore confidentiality!

For the reasons mentioned above, it is well worth considering keeping your money in a more low-profile country, a place where nobody would think of buying stolen bank records for millions of euros. Remember that everything outside the borders of your own home country is offshore to you.  All banks, especially the offshore variety, offer some degree of privacy. Exactly how much privacy you get these days depends not so much on the law, but on you!

You must verify that there are no routine reporting requirements between the bank where you opened your account and any tax authority that has any possible interest in you. If they do not file any reports, the bank will not be a source of any leaks – until and unless somebody asks them directly about your account. If that happens, you should always assume the worst case scenario – that they will spill the beans immediately.

It is up to you to tell absolutely no one about your offshore account. Jealous ex-spouses and business partners are a major source of information on offshore accounts – and every other kind of damaging information on you. Everything may be fine now, but who knows what will happen to your relationships over the next few years. If you want to keep your account secret, you have to keep your mouth shut. Never leave any records of your secret accounts where others can access them.

We repeat: the only real way to keep a bank account private is to tell absolutely no one about it. Keep any electronic records encrypted.

This is an extract from The Q Practical Offshore Banking Guide 2008 by Peter Macfarlane. It is available free for download in the Members Section of www.QWealthReport.com If you are not already a member, you can sign up online now to benefit from a library of free exclusive reports!

“Money isn’t the most important thing in life, but it’s reasonably close to oxygen on the ‘gotta have it’ scale.”

Zig Ziglar

Australia: Where the Beer Is Great and the Bonds Are Better

By Andrew Gordon

About a year ago, my father invested in a Merrill Lynch bond. I looked it over… noted its high rating… and saw nothing wrong with it.

Not long after that, I was speaking to a vice president of Bank of Nova Scotia. I asked him about the bank’s exposure to the subprime crisis. He said it was negligible. I then asked him about the GMAC loans it had recently bought. He said they were fine… the defaults lower than they had projected. So I added the bank to one of the portfolios I recommend to my subscribers.

The Merrill Lynch bond has since plunged and then rebounded. And the Bank of Nova Scotia’s shares are almost exactly where they were when I made my recommendation. That’s much better than most North American banks have done over the past year.
 
No harm, no foul?

I’d be the stupidest guy on the planet if I thought there were no lessons to be learned just because those investments didn’t turn to mush.

Fact is, my assumptions have changed.

Had I known then what I know now, I would not have touched that Merrill Lynch bond with a 10-foot pole. And I wouldn’t have cared if a high-ranking bank official swore to me they weren’t exposed to the U.S. subprime mortgage market. I wouldn’t have believed him. I definitely would have put off investing.

The housing bust, subprime mess, credit crunch, and resulting financial crisis have done more than just bring the market down. They’ve led to a stunning collapse of confidence that has infected the entire investment world. Banks don’t want to lend to each other… institutional investors no longer know what’s safe… and retail investors don’t believe anything anymore.

How can they? The rating agencies have proved beyond a shadow of a doubt that they do not understand derivatives. Their ratings are worthless.

And the brokers and analysts who follow every twist and turn the market makes? The last year must have made them so dizzy that they can’t see the forest for the trees. They’ve been making one bad call after another.

A few months ago, for example, Buckingham Research estimated that Bear Stearns had $35 billion in liquid assets and borrowing capacity, enough to operate for 20 months. Turns out it had enough for three days. This is one of dozens of examples I could cite.

There’s so much uncertainty in the investment world that we can no longer fall back on our long-held ideas of what makes a safe investment.

Munis? Sorry. Thanks to the shaky status of the monoline insurance companies (which insure munis), they’re no longer the safe investments they used to be.

Money market funds? They’ve been hit too. Some brokerages are covering losses with their own money rather than pass them on to those who invested in these supposedly safe havens. Good move. I don’t blame them.

What’s left? Oh, yes. How could I forget U.S. government bonds? Okay, they’re still safe… but are they really investments? I mean, can anything you get a negative return on be considered an “investment”?

I don’t think so - and that’s exactly what you’re getting with them. A 10-year Treasury note would give you a 4.01 percent yield. Meanwhile, inflation is running at 4 percent, and that excludes food and energy prices. The real rate of inflation would be much higher.

Investing in U.S. bonds is worse than giving the government a free loan. Instead of the government paying you for the loan, you pay the government for the privilege of loaning it your money.

Do you feel honored? Or cheated? Well, I can’t speak for you. But this is the kind of honor that could land me in the poorhouse. I’d say cheated.

So… is there any investment that is truly safe?

There sure is. Australian government bonds have never looked better than they do right now. And this is the perfect time to jump into them…

Not only because Australia has one of the strongest economies in the world. Unemployment is at a 33-year low. And prices of its two big exports - coal and iron ore - are at historical highs. It doesn’t hurt that around 66 percent of Australia’s exports are commodities.

And not only because Australia is effectively shielded from the problems we’re having in the U.S. They trade mostly with fast-growing Asia. In fact, 60 percent of their exports go to Asia.

The biggest reason the timing couldn’t be better is because the Aussie government has been raising its key interest rate to stave off inflation. They’ve raised it all the way to 7.25 percent. They’re at or near the top of their rate-raising cycle.

Other interest rates, including bond rates, feed off this basic government rate. If this rate is more than twice as high as the U.S. benchmark interest rate, then most of the other rates will be too - including Australia’s government bond rates.

Sure enough, the Queensland 10-year government bond pays a nice 6.99 percent interest. That’s not quite twice as high as the equivalent U.S. government bond rate, but it’s close.

What’s more, you can buy these bonds for a discount. And the discount isn’t going to get any better.

Here’s why…

The Australian government paused its key interest rate hikes three months ago. That means, for now, interest rates have peaked in Australia. The only way they would go higher is if the Reserve Bank of Australia resumed rate hikes. That’s possible, but unlikely.

And if you don’t want to tie up your money for 10 years? There’s another group of Australian bonds that could be perfect for you. I’m talking about corporate bonds, including bonds issued by GE - one of the biggest companies in the world.

These GE bonds are triple-A rated - the highest rating bonds can get - which means they come with very little risk. Usually, the lower the risk the lower the yield. But these highly rated bonds offer high yields of 7.97 percent. (Ask your broker for 8.5 percent coupon February 2011 maturity bonds from GE in Australia.)

Or you might prefer Australian bonds from Nestle, the huge Swiss firm. Its bond is double-A rated and offers a yield of 7.0 percent. (Ask your broker for 7.25 percent coupon January 2011 maturity bonds from Nestle in Australia.)

Because these bonds mature in 2011, they would tie up your money for less than three years. To get in before prices go higher (and yields go lower), you should buy Australian bonds NOW.

Buying international bonds is pretty easy… as long as you go to the right place. You can always go to a full-service brokerage specializing in international bonds. But many of the bigger brokerages are able to trade them, too, so call a few and find out.

You could also call up your broker. Ask him to recommend someone who does overseas bonds. Or you could call my colleague Richard Panchookian. (He’s with International Assets Advisory - telephone number: 800-432-0000, ext. 514.) He has several Australian and Queensland bonds to offer.

This article appears courtesy of Early To Rise, the Internet’s most popular health, wealth, and success e-zine. For a complimentary subscription, visit http://www.earlytorise.com.

How many times have I said that when trying to set up a confidential structure, don’t be lazy and go for the next door tax haven? I certainly wrote that, for example, in my comments on the Liechtenstein case targeting Germans. Another example is the Brits who were hiding their money in Jersey, or the Americans in the Caribbean. Now, Australians with secret structures in Vanuatu are being targeted… according to an article on tax-news entitled Vanuatu Must Hand Over Evidence To Australia In Tax Probe.

If you are looking for offshore banking confidentiality, even in this internet age, putting distance between you and your offshore structure is a big help.

For more information please refer to my Q Practical Offshore Banking Guide 2008. 

The summer season is upon us. I’m going to be away on holiday from August 11^th through September 17^th. During that time you won’t be able to contact me. If you are a client, or existing client, who will need something done before mid September, contact me urgently please!

Surprised? Jealous? You may be. But let me explain below in a few words why I’m taking a month-long vacation… and why you should seriously consider doing the same, if you want to become wealthier and more free.

If you’re anything like me, you are addicted to the internet. I get hundreds of emails per day and process most of them myself. The volume increases all the time. This year, I have added RSS feeds from many news sources and blogs that I need to follow for my writing, which has added hundreds if not thousands more headlines to read every day.

Most of us now have mobile devices, that are not just phones but also give us email, news, and so on wherever we happen to be.

But here’s the secret.  Once you realize that you can turn off the noise for a few weeks without the world coming to an end, you will find yourself liberated in a way that few people will ever know.

As a writer and businessman, having some time to get on with new projects undisturbed is of great value. But all of us need free time to contemplate without distractions. To spend time with family. To make plans for the future. To take a step back and see how far we have come, and set goals about where we really want to go. Because if we don’t know where we are going, we are surely not going to get there!

The danger of being in constant communication with the world is that you will fall into that classic trap of being “too busy earning a living to make any real money.”

Many people go on vacation, but don’t turn off the Blackberry. And as tempting as it is to “just check e-mail for one minute,” it really doesn’t work like that, and you know it! Any problem you find in your inbox will linger on your brain for hours or days after you shut down the computer, rendering “free time” useless with preoccupation. It’s the worst of states – you experience neither relaxation nor productivity. Another important lesson I’ve learned is that time without attention is worthless, so you should value attention over time.

Will little problems happen? Yes. But put them in perespective. They can be solved. It’s also a great opportunity for team confidence-building: force your people to solve problems on their own, and you might be pleasantly surprised at how things work out. It will build their confidence and your confidence in them at the same time.

The important “big picture” thing is to move on with your life, know where you are going, and make things happen to achieve your goals. These things will more likely happen while you are sitting on the beach or by the pool relaxing, than they will while you are sitting in an office answering emails about trifling matters. And if you do make the time for the big picture goals but you puncture this time with distractions, you won’t have the attention to make effective use of it.

The challenge is to allow urgent things to “fail” - even for a few days - to get to the next level with your potential life-changing and wealth creating tasks.

That’s the challenge I’ll be taking when I leave for my vacations next week.