Dirty Money Hypocrisy

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

Dear A-Letter Reader,

Located on the northeastern cusp of South America, bordering the Atlantic Ocean, lies the tiny nation of Guyana. This small country has only about 770,000 people, many of them impoverished. Mining and agriculture are their mainstays.

Originally a Dutch colony in the 17th century, in 1815 Guyana became a British possession, achieving independence from the U.K. in 1966. Since then, it has been ruled mostly by socialist-oriented governments. The current president, Bharrat Jagdeo, was elected in 2001 and again in 2006.

According to the BBC, last week, president Jagdeo appealed to Western nations to do more to combat money laundering - and to clean up their own houses. In so doing, he underscored, as we often have, the double standard the U.S. and U.K. practice when it comes to demands for others to combat money laundering.

Jagdeo rightly said the major nations have failed to sufficiently address the problem in their own jurisdictions. And yet, these major nations still press nations in the Caribbean and elsewhere to enact complicated and costly laws and regulations.

He flatly said Guyana won't continue to enact laws that make the financial services sector of the Caribbean unattractive. He told an annual meeting of the Association of Caribbean Indigenous Banks that, of course, Caribbean states should make sure that they don't allow movement of illegal money across their jurisdictions.

Financial Suicide

But he warned against these countries legislating themselves out of competitiveness and out of business. The Guyanese leader also said Caribbean nations should not put the kinds of burdens on their banking systems that other countries don't impose on themselves.

"The instruments we fashion must not create undue burden for different sectors of our economy, just to satisfy some notion of probity that even the countries that recommend the probity don't practice themselves," Jagdeo said.

He accused countries like the United States, the U.K. and Luxembourg of having what he called "tremendous double standards." "We saw it with the OECD harmful taxation issue where jurisdictions like Luxembourg and others in Europe were still practicing imprudent lending, but they were not on the OECD blacklist. But many Caribbean jurisdictions were placed there" he told the Caribbean bankers.

Bharrat Jagdeo also accurately described the U.S. as a major center for money laundering due to the demand for illegal drugs there. And he said a lot of "hot money" was circulating in London from tax evasion originating in Britain.

Reasonable Defiance

Guyana thus joins other nations, including Panama, Monaco, Andorra, and Belize that have refused to go along with hypocritical demands by the United States. This theme of reasonable defiance simply tells the major nations to clean up their own acts and create a "level playing field" where nations big and small are all treated equally.

But don't hold your breath that will happen any time soon.

BOB BAUMAN, Legal Counsel

P.S. Find out more about offshore tax havens, anti-money laundering, real financial privacy in places where you're the foreigner - and you may be able to reap the foreigner's tax benefits. Click here for some ideas on where to look.

Tough Year for Euro-Based Investors

For U.S. dollar-based investors, 2007 has been another great year for global investing.

That's especially the case for foreign markets. Virtually everything has denominated in a foreign currency as the dollar continues to decline.

But that's not true for euro-based investors. Overseas total returns have been mostly devoured by a surging euro vis-à-vis most foreign currencies.

The MSCI World Index, based in euro, has now declined 3.68% in 2007. Over the last 12 months, this widely followed benchmark has lost 3.67%. Meanwhile, the MSCI World Index has gained 6.85% in dollars and 10.01% over the last 12 months.

Unless you're investing in a rising foreign market or basket of stocks, the majority of industrialized bourses have delivered poor returns for euro-based investors this year. The notable exception has been emerging markets. Despite a 10% decline in the dollar's value versus the euro, emerging markets have nevertheless earned a very impressive 24.92% return in euro terms.

A more accurate measure of global stock market performance is measured in local currency terms. When applied to the MSCI World Index, which invests in mature stock markets, the index has gained just 2.06% this year and 4.12% over the last 12 months.

This raw figure tells us what stocks are doing in local currency terms without the boost or handicap of currency effects. Obviously, these returns are uninspiring and depict a challenging environment for unhedged euro investors over the last 12 months.

For euro investors, however, building a "hedged" portfolio is not easy.

A hedged euro portfolio invests in securities that are hedged back into euro. In other words, if I invest in U.S. stocks, I hedge my euro exposure or find a mutual fund that actively strips out the currency risk in U.S. equities and neutralizes my portfolio's currency exposure. Unhedged euro investors in the S&P 500 Index this year have lost 7.4%, but would be up a marginal 2.3% had they hedged their U.S. exposure.

The challenge for euro investors is that most offshore euro-denominated mutual funds do not hedge their non-euro exposure. This explains why many top-performing offshore euro-based global stock funds are struggling in 2007 - though most are ahead of the MSCI World Index in euro terms.

In the United States, only one 5-star mutual fund actually hedges out its foreign currency exposure. The Tweedy, Browne Global Value Fund, a stellar global stock fund since 1993, hedges its non-dollar foreign stock exposure back into dollars.

See you on Monday. Have a good weekend.

ERIC ROSEMAN, Investment Director

Privacy & Rights

Asset Protection: Don't Jump
From the Frying Pan Into the Fire

It's only prudent to move some of your wealth outside your home country.

By doing so, you can reduce the vulnerability of that wealth to lawsuits and other legal threats. You may also obtain greater privacy, access to investment opportunities not available in your own country, along with other benefits.

It's important, though, to choose the right offshore jurisdiction. Some of the jurisdictions I recommend include Austria, Switzerland and Nevis. All these countries have a substantial legal framework for protecting wealth.

More importantly, this legal framework is consistent with the way things actually operate in the country. The laws don't say one thing, while the government actually pursues a very different course.

Unfortunately, the same can't be said for some competing jurisdictions. A case in point is Antigua, a former U.K. colony that's been independent since 1981.

Officially known as Antigua & Barbuda, the nation comprises two separate islands forming one country. Located in the Eastern Caribbean, Antigua has struggled since independence to achieve financial self-sufficiency.

Tourism is by far the largest source of revenue. But like many of its Caribbean neighbors, Antigua has developed itself into an offshore center. Recently, the lower chamber of the Antiguan Parliament enacted enabling or revised legislation for offshore trusts, offshore foundations, and offshore LLCs. The laws are said to create "the world's most secure and confidential environment for international asset protection, wealth preservation and tax minimization."

That may well be the case. But unfortunately, Antigua's reputation as an asset haven doesn't live up to its "black letter law."

The government of Antigua confiscated the Half Moon Bay Resort from its rightful owners, without paying compensation. I also described how in 2001, the government tried to seize US$76 million in assets recovered from the liquidation of Eurofed Bank, Ltd. This was despite the fact that the vast majority of these assets belonged to legitimate depositors.

Enacting stringent asset protection and privacy laws means little if a culture of plunder permeates the jurisdiction where they're passed. Unfortunately, that appears to be the situation in Antigua. Until the government demonstrates that it intends to protect the rights of property owners, how can anyone take Antigua's asset protection laws seriously?

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

THE SOVEREIGN SOCIETY OFFSHORE A-LETTER
Erika Nolan, Executive Director • Mike Burnick, Senior Editor
Kathlyn Von Rohr, Managing Editor • Bob Bauman, Legal Counsel
Eric Roseman, Investment Director • Sean Hyman , Currency Director
Joel Browner, E-Commerce Marketing Director

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