January 31, 2012

Nassau, Bahamas

Wegelin & Co used to be Switzerland’s oldest private bank. Founded in 1741, they managed to survive every threat across three centuries: revolution, financial disaster, and war… from being invaded by Napoleon to the Sonderbundskrieg civil war to Adolf Hitler.

Every threat except for one, that is: the United States Government.

I say that Wegelin “used to be” Switzerland’s oldest private bank because they’re now finished, courtesy of Uncle Sam. They had no office in the United States, no employees in the United States. They were 100% Swiss, and violated no Swiss law whatsoever.

Yet US authorities believed that a handful of Wegelin’s US clients were hiding assets and not paying taxes. The fact that the bank wasn’t subject to US law was irrelevant. The fact that the bank has zero legal responsibility in ensuring their customers filed tax forms was irrelevant.

The government crushed Wegelin regardless.

By threatening them with lawsuits, investigations, IRS penalties, and criminal charges (levied personally against the bank directors), the US government succeeded in its mission. The scare tactics were enough to chase away the bank’s customers, and Wegelin is now selling what little of its business remains.

It’s another despicable example of the US government doing whatever it wants, wherever it wants without any legal basis of any kind. It gets worse.

On top of this, there’s the new FATCA legislation– Foreign Account Tax Compliance Act. The law effectively requires every bank in the world to make a choice:

1) Accept Americans as customers, but agree to share information with the US government;

2) Close the door to all US citizens and residents forever; or

3) Thumb your nose at the law, but risk becoming the next Wegelin & Co.

Needless to say, most banks are opting for #1 in order to avoid unnecessary scrutiny and disclosures.

This is why it’s getting harder and harder for Americans to do business overseas. Many foreign companies now don’t even want US citizens (or residents) as shareholders, officers, or directors. It’s just too much hassle, too much risk.

As FATCA is rolled out, it will be commonplace for foreign banks to give the ole’ heave-ho to their US customers. And as we have discussed so many times before, having a foreign bank account is one of the most important steps in declaring your financial independence. Briefly,

1) a foreign account takes your hard-earned savings out of the direct control and supervision of your home government’s kleptocrats.

2) A foreign account allows much easier diversification outside of your home currency.

3) And perhaps most importantly, a foreign bank is likely to be safer and better capitalized, devoid of the toxic assets that plague US and European banks.

But are there any options left? You bet. As the saying goes, whenever one door closes, another one opens. OK not exactly. But for every few dozen banks that are closing their doors to US customers, one or two are happy to welcome Americans with open arms.

The US market is huge. And a few banks out there are willing to do the extra work and crawl in bed with Uncle Sam in order to get a slice of that pie. Some of them are right here in the Bahamas, or in nearby Turks & Caicos.

While I’m not at liberty to mention any bank names in this public forum (they really freak out about this), suffice it to say that you won’t have too many problems opening an account with the major international banks in either location.

Just make sure you have your passport, driver’s license, utility bill (or other proof of address) and two bank reference letters (or one letter plus a professional reference from a lawyer or accountant).

It’s a short flight that’s well worth the time and effort.

As a reminder, US taxpayers with foreign accounts are required to file form TDF 90-22.1 to the Treasury Department (not the IRS) each year by June 30th, as well as Schedule B (1040) with their usual return by April 15th. Starting this year, some filers may have to submit form 8938 as well… I’ll write more on that soon.