Today's comment is by Bob Bauman, JD, Legal Counsel and Senior Writer for The Sovereign Society.

"We will not give up bank secrecy," said Otmar Hasler, Liechtenstein's Prime Minister in a speech last week. "But we are willing to collaborate with other nations when it comes to the misuse of bank secrecy laws for tax evasion."

Prince Alois, hereditary ruler of Liechtenstein, also confirmed on Friday that his tiny Alpine tax haven is taking a proactive stance and responding to the foreign critics who are attacking this small nation's bank secrecy laws.

"The time has come for us to base our system of mutual legal assistance and administrative assistance in tax matters on a new foundation," the Prince said in his traditional national day speech to the nation.

Crimes Behind Closed Doors

What nudged the historically conservative Liechtenstein to respond to these critics? As you may have heard, this small haven faced an unfortunate situation earlier this year.

In short, the German secret police paid a known felon named Heinrich Kieber more than US$7 million to hand over a stolen CD from one of Lichtenstein's most trusted banks. Supposedly, the CD contained confidential lists of the bank's foreign clients. I have previously commented on this gross violation of Liechtenstein's bank secrecy and criminal laws in my blog.

When this bank theft hit the international newspapers in February, Prince Alois responded with: "German authorities paid a criminal to obtain stolen data. We reject this action." I couldn't agree more.

More to the point, Alois praised Liechtenstein for passing several laws since 2000 to combat money laundering. And he pledged, then and now, that the country won't surrender its strict bank secrecy.

The Billion Dollar Question

So now, the billion dollar question is: Do these latest government actions in Liechtenstein mean the country is surrendering possibly the strictest bank secrecy laws in the world?

Frankly, I don't think so at all. Liechtenstein was one of the first nations in the world to adopt specific asset protection laws - dating back to 1926 - and I doubt they would give that secrecy up now.

But I'll get to that in a moment. First, I'd like to give you a quick recap of what's been happening to this proud country this decade.

This Proud Haven Is Now Even More Squeaky Clean

Back in 2000, the ridiculous Paris-based Organization of Economic Cooperation and Development's (OECD) and its Financial Action Tax Force (FATF) blacklisted this country because it was supposedly lax on money laundering
In response to this undeserved attack, the Principality of Liechtenstein carefully revised its laws in 2000 to become more transparent and cooperative with other nations in cross-border criminal matters.

At the time, Liechtenstein also adopted tough anti-money laundering laws that cover all crimes. The country created a Financial Intelligence Unit (FIU) to oversee the financial sector.

Financial professionals imposed much stricter "know-your-customer" and suspicious activity reporting requirements. To some minor degree, the country also eased its historic, very strict financial secrecy now under attack once again.

Liechtenstein made such strides that the country was removed from the OECD/FATF money laundering blacklist just a year later.

Most recently, Liechtenstein's parliament approved amendments to the country's law on foundations on June 30, 2008. Foundations are the country's most popular asset protection tools.

The recent amendment makes these vehicles more open and imposing certain restrictions intended to curb their use for tax evasion, but not compromising traditional secrecy.

In spite of all this outside pressure, Liechtenstein has refused to surrender its financial privacy laws for the past eight years. All the while, Lichtenstein has preserved its long history of excellent asset protection and private banking. That's one of the major reasons why this tiny Alpine redoubt has been one of my top choices for offshore financial activity and estate planning.

Secrecy That's Even Stronger Than Switzerland

Liechtenstein's banking and financial secrecy statutes historically have been considered stronger than even those that apply in nearby Switzerland.

Tax evasion is not a crime in the country and until now tax information rarely has been shared with foreign governments. Now this may change to a limited degree.

Bank secrecy is an established legal obligation under Liechtenstein law. This obligation can only be lifted by a local court order. At present you need a court order to release or examine an account holder's bank records.

Foreign governments or creditors who want your bank records in Liechtenstein face a time-consuming and costly process. By law, Liechtenstein does not have to honor a foreign court's information request. The local courts can approve such requests but only if the foreign court shows the alleged offense involves a clear violation of local Liechtenstein law.

The cost and time required for such appeals tends to deter foreign-based claims and lawsuits in many cases. Just having your money in Liechtenstein can also help you settle much faster because it saves creditors or lawyers time and money.

It's an Election Year: Secrecy Is Here to Stay

Prime Minister Hasler recognizes that even the hint of liberal tax information co-operation could unsettle many members of the principality's large financial services sector. The government faces elections in February 2009 and bank secrecy remains a highly sensitive issue.

"We are in a pre-election period. So such a proposal is extremely controversial. But I'm convinced it's essential to implement this strategy for Liechtenstein's future," said Hasler.

In short, after conferring with trusted investment and legal experts we work with in Liechtenstein, I believe yes, Liechtenstein officials may allow a very limited cooperation on tax information with foreign governments in individual cases.

But they will NOT open the doors to fishing expeditions. Sorry tax collectors. Liechtenstein and its bank secrecy is here to stay.

BOB BAUMAN, Legal Counsel

P.S. I am the author of a comprehensive work, The Liechtenstein Report, which explains the many legal advantages of banking and asset protection in Liechtenstein. Find out how to use this country to your advantage.

• Diversify Outside the U.S. Dollar into special investments from government-guaranteed precious metals programs to foreign CDs and undervalued real estate.
• Safeguard Your Wealth in asset havens from Europe to the Americas to Asia.
• Invest Freely in top global stocks, bonds, funds, currencies, commodities and structured products that have crushed the performance of the broad stock market.
• Enjoy Privacy, Security and Tax Advantages that were previously the reserve of the world's wealthiest families...yet are now available to you.

These are just a sampling of the many financial benefits available offshore.

Yet, there's a huge difference between knowing these opportunities are available... and knowing how to make them actually work for you...

Learn how you can master the ABCs of the offshore world in just four days

No More Passive Investing:
It's Time to Short and Make the Real Profits

When the bulls rule, it's pretty easy to make money in the stock market. That was the case from 2003 until mid-2007. But when the bears come out of hibernation, it's a very different ballgame.

Since stocks peaked last October global markets have plunged more than 20%. Some bourses in the emerging markets are down more than a third. Chinese stocks have crashed 53% from their best levels last fall, Indian shares are down a third and Russian stocks more than 25%.

In short, it's been almost impossible to make money in this market unless you're a skilled short seller or capable of managing a portfolio of long/short equities. In this world, that's a rare breed of money-manager.

Over the next several years, possibly longer, global investors will probably earn a higher rate of return by employing skill-based long/short equity hedge funds compared to index funds or exchange traded funds.

The long/short equity hedge fund is a rare breed. Investors must be careful because the majority of hedge funds coined "long/short" don't even short! It's almost a crime that these hedge funds get away with charging a 20% profit fee for lagging the index.

The fact is most long/short hedge funds don't know how to short altogether and trail the markets' long-term return. It's a great business for the sponsors but horrible for investors. Be highly selective if you're looking at these funds.

Meanwhile, avoid the growing universe of long/short equity funds available to retail investors in the United States. They stink. These products have posted poor results - mostly negative returns - while levying hefty management fees. Again, these guys have no idea how to protect a portfolio of stocks.

The era of passive investing with no market hedges is over. The next several years will be rough for global investors. Learn how to embrace short selling and hedging to protect your portfolio.

ERIC ROSEMAN, Investment Director

P.S. In the United States and offshore several superb long/short managers have successfully traded this market since the onset of sub-prime last August. It takes a highly skilled manager to trade a portfolio of stocks, let alone one with a short bias. These managers typically come from a short selling background and understand how to sell short. I'll be delving more into this area in future issues of our members-only newsletter, The Sovereign Individual. Sign up now and get the next 12 issues, packed with investments (both long and short) to guide you through this bear market.

The U.S. "Passport Card:" Your New National ID

Back in 2005, Congress enacted the "Real ID" Act. They passed this law unanimously, with no discussion, and without even reading the bill. And it imposed national standards to insure state-issued identity documents couldn't be counterfeited or falsified.

Real ID seemed relatively harmless, except for one key component: the creation of inter-connected state databases to include details on nearly 250 million licensed drivers. Any state could interrogate any other state's database. And naturally, the federal government could interrogate any state database.

As such, critics, including myself, accused Congress of imposing a national ID card through the backdoor.

Three years later, the Real ID initiative is waning. Legislators in nearly 30 states have refused to go along with this federal mandate. And while the Department of Homeland Security has issued "extensions" to the May 2008 compliance deadline, most states appear to have no intention of complying.

Perhaps that's the reason that on July 22, 2008, in a joint press release from Departments of State and Homeland Security, the government announced that it's now producing something called the "U.S. passport card."

Tune in tomorrow, and I'll give you all the details on this latest sneaky initiative.

MARK NESTMANN,
Privacy Expert & President of The Nestmann Group
www.nestmann.com

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