By Robert E. Bauman, JD

One of the greatest threats to your wealth may be lurking deep inside your subconscious. It’s called xenophobia. “Xenophobia” describes “a person unduly fearful or contemptuous of that which is foreign, especially of strangers or foreign peoples.”
 
And tragically, this fear stops individuals from seeking the whole world of wealth opportunities available in other nations. These well-intentioned, but not very savvy, folks store every last cent of their wealth in U.S. banks and only invest in the U.S. investments their brokers suggest.

But it’s not too late to purge these xenophobic tendencies and move your assets offshore. Here are just a few of the major opportunities waiting for you.

1. Asset protection. Lawsuits long ago reached epidemic proportions in the U.S. If a creditor gets a judgment against you where you live, you could lose all your assets, your business, home, or bank accounts. In contrast, create a trust or family foundation or invest in a suitable offshore jurisdiction and your finances are essentially judgment-proof.

At the very least, the long distance between a U.S. plaintiff’s lawsuit and your offshore assets is likely to encourage a favorable settlement. And keeping assets offshore avoids the U.S. asset-tracking network, which permits lawyers and their investigators to easily identify and target the assets of a potential defendant. (Revealing your offshore assets may be the best way to discourage a lawsuit. Just tell that greedy lawyer, “try and get ‘em!”)
 
Thus, prudently using offshore havens can protect you from the threat of lawsuits, civil forfeiture, bank account freezes, business failure, divorce, foreign exchange controls, restrictive laws, or political instability.

2. Financial privacy. It’s only natural to want protection from the prying eyes of government bureaucrats, business partners, estranged family members, or identity thieves surfing the Internet. Financial privacy can also be the best protection against frivolous lawsuits that could end with big judgments against you (and no telling what cost). If you don’t appear to have sufficient funds to justify a lawsuit in an attorney’s mind, he’ll probably drop you as a target. Simply put, assets you place “offshore” are off the domestic asset tracking “radar screen.”

The U.S. is one of the few nations lacking a federal law that protects bank or securities accounts from disclosure, except under narrowly defined circumstances. Many disclosures are illegal in other countries, either under international agreements, or under national laws guaranteeing financial secrecy, as in Switzerland. Privacy is especially strong if you place assets in a nation with strong privacy laws.

There is also greater privacy when you use an international business corporation (IBC) or a foreign-based asset protection trust (APT). Offshore financial centers protect the identity of trust and IBC owners. While these legal entities take a bit more time and effort, they can greatly enhance your financial privacy.

3. Investment diversification. Many of the world’s best investments and money managers will not do business with U.S. citizens or residents directly. It’s easier for them to do business with the rest of the world than comply with the complicated and costly U.S. SEC rules.

4. Higher returns. There are opportunities in the traditional financial markets, such as offshore mutual funds and London-traded investment trusts with much higher returns than are generally available in U.S. markets. In spite of a recent downturn, offshore and emerging stock markets have done far better than those in America over many recent years.

5. Currency diversification. You can stabilize your portfolios and protect against the falling U.S. dollar by simply holding or trading other currencies. Example: earning nearly 20% on the declining dollar by trading it for the euro. For decades, the U.S. dollar has been losing value in relation to stronger currencies. In 1970, a U.S. dollar would purchase 4.5 Swiss francs. Since 1971, the franc has appreciated nearly 300% against the U.S. dollar. Now the dollar purchases only 1.2 Swiss francs. While U.S. investors can purchase foreign currencies through a few U.S. banks, offshore banks generally offer higher yields, lower fees, and lower minimums.

6. Safety and security. Twenty years ago, the United States experienced a wave of bank and savings and loans failures at a rate unmatched since the Great Depression. In contrast, offshore banks aren’t exposed to risky investments such as third-world debt and highly leveraged derivative investments. Further, these banks are located in politically neutral countries which do not conduct offensive interventionist foreign policies (and thus are less likely to face a terrorist attack than other nations).

7. “Insurance” against closure of U.S. securities markets. We all learned the need to have part of our assets outside of the U.S. when our markets were shut down for five full trading days following September 11, 2001. But, although U.S. markets were closed, individuals with foreign accounts were able to trade securities on foreign exchanges.

8. Deferred taxes. In spite of the fraudulent offshore hucksters trying to sell offshore tax savings, for Americans, there are not a lot of tax savings to be had by going offshore. American citizens and resident aliens are liable for annual income taxes, no matter where that income is earned or where the person lives.

But it is legal to purchase offshore annuities and life insurance which, if properly created, can defer current U.S. taxes until the time when the annuity or insurance actually is paid out. And these devices may be able to save on estate taxes as well, giving your heirs a bigger share.

Word to the Wise

Relatively few investors are taking advantage of this global diversification. But here’s your chance to take advantage of the impenetrable asset protection available offshore. At the very least, this is your chance to store a portion of your assets offshore just in case.

For the very good reasons listed above, and for self-interest as well, none of us can afford to be xenophobic in the 21st century. There’s a whole wide world out there—offshore—and you only need to recognize that fact and act.

Robert Bauman is Legal Counsel for The Sovereign Society and editor of The Sovereign Society Offshore A-Letter. A former member of the U.S. House of Representatives from Maryland, he is a graduate of the Georgetown University Law Center (1964) and the School of Foreign Service (1959).