Why Do Investors Go "Offshore



As long as there has been money, people have wondered how to keep it. And the
more money, the more urgent the question.

The concept of offshore banking is as old as commerce. The Island of Delos off the
coast of Greece was one of the places the wealthy of ancient times stored their
treasures. Protected by water, with few natural resources other than a harbor, the
leaders of the island learned that the rich of the mainland would pay handsomely to
know their valuables were safe and protected.

Delos set the pattern for financial havens. For the most part, they are tiny island
nations with limited natural resources located near a major, thriving economic center.
But there is more to it than that today. A tax haven is often within a country -- such
as the state of Nevada within the USA. Paradoxically, countries that are insensitive to
their own citizens' need for protection and tax shelter sometimes become havens for
the over-taxed and under protected of other countries. The United States is a prime
example of this oddity.


A good example of how and why a tax haven nation is developed is the Bahama
Islands. In the early 1960s this string of sandy atolls near Florida still flew the British
Union Jack. Centuries ago, many ships plying her waters sported the Jolly Roger --
the coves and sheltered beaches were a paradise for pirates, who creamed the flow of
wealth from the galleons of the Spanish Main.

For centuries the islands have been a sleepy backwater -- beautiful to be sure, but
primitive and undeveloped. Despite its beauty and comfort, the islands repelled
would-be investors with its high-tax philosophy. The result was a net outflow of
capital from the islands.

Was it the ancients spirit of the bold and daring pirates or was the fledgling country
merely trying to survive? In either event, the leaders realized the Bahamas would
never reach their potential unless they reversed the flow of wealth out of the islands.
They looked at their options and decided that if their own laws drove money from
their country, could they tap into the out-flow of wealth from other, more prosperous

They instituted a two-tier tax system. The leaders decided there would be one set of
laws for the citizens of their country, and another for foreigners. At the same time, the
Bahamas clamped the lid on any information leaking out about the financial dealings of
those with money in the country. They introduced banking privacy laws.

The response was almost immediate. Americans and Canadians seized the
opportunity to shield their assets from prying eyes -- and groping hands. The fact
that the islands are a beautiful vacation getaway made investing there all the more
attractive. Progressive banking laws coupled with a penchant for confidentiality has
earned the Bahamas an excellent reputation as an offshore financial center. Total
Euro-dollars handled by Bahamian banks in 1996 exceeded 250 Billions. The second
largest source of income for this island nation has become bank service fees!


Jealousy is a powerful motivator. Other nations -- more than 50 of them altogether --
saw the prosperity the Bahamas had earned as an offshore banking center and wanted
their share.

Like the ancient island-banking center of Delos, these havens tend to be near large
economies where citizens' rights are on the decrease and government spending is on
the increase. Near the U.S. and Canada, for example, are Antigua, the Bahamas, Belize,
Bermuda, British Virgin Islands, the Cayman Islands, St. Kitts & Nevis, the Turks and
Caicos, and others. All of these so-called "tax havens" are of rather recent date.

Typically, bank accounts are held in the name of a trust or an International Business
Corporation, ("IBC") that has been formed in a tax haven nation. The IBC designation
in a tax haven jurisdiction indicates that the ownership of the corporation is foreign to
that country and generally speaking has been granted government guarantees that it
may operate tax free so long as it's business revenue does not come from within that
country. More about this later. U.S. government estimates indicate the formation of
130,000 new IBC's during 1996 in the Caribbean alone. These numbers continue to

Near Great Britain are the Channel Islands -- Jersey, Guernsey and Sark along with
the Isle of Man. Some of the largest financial institutions in the world are located in
these smallish, out-of-the-way islands.

Within Europe are the long-time havens of Austria, Switzerland, Liechtenstein, and
Luxembourg. And in more recent years Europe has gained Bulgaria, Ireland, and
Hungary as new havens for wealth. In the Mediterranean are Gibraltar, (also part of
Europe), and Malta. Not to be outdone, the Middle East now have a collection of tax
haven jurisdictions of their own.

The island nation of Mauritius in the Indian Ocean, along with the Seychelles, serve as
havens for Africa and the Indian subcontinent.

In the Far East, Hong Kong built itself into a financial center with its liberal corporate
and banking laws. In 1996, over 15,000 new IBC's were formed in Hong Kong alone.
With the change of sovereignty in 1997, the future of this haven is unclear but
business is usual at the time of this writing in late 1998. The Philippines and
Singapore have passed new laws to attract offshore money. These centers serve the
citizens of such countries as Japan and Korea.

Australia and New Zealand citizens use the Cook Islands, Marshall Islands, Vanuatu,
Nauru, Western Samoa, and the Marianas, as their havens.

And, oddly enough, as mentioned above, some of the very countries whose citizens
place their wealth offshore are themselves tax havens for citizens of other countries.
Both England and the United States draw vast sums of money from foreigners. Why is
that? Simply because they offer tax advantages to foreigners that are not available to
their own citizens.


England has become the mother country to a host of tax havens, and for very good
reasons. Remember the Falklands War? Argentina invaded and occupied a barren and
practically worthless string of British islands off its own coast in 1982.

Many other countries might have decided it was not worth fighting over and
negotiated some face-saving way to exit the scene. But not the Brits. They dispatched
an entire fleet -- complete with nuclear weapons -- and were prepared to obliterate
Argentina if need be to defend their sovereignty.

Why is that important? Because it demonstrates that any British possession or
protectorate is going to remain British until hell freezes over. And that determination
breeds a great deal of confidence. That's why many of the countries offering the best
asset protection are former British colonies. These Commonwealth countries have
enough independence to form their own business and tax laws, yet retain an aura of
security through their affiliation with Great Britain.


The offshore business is so lucrative that countries compete with each other for it.
Like any other competition, newcomers must offer advantages the old guard does not.
New IBC, privacy, trust, and banking laws, are being passed in nation states all
around the globe, as jurisdictions line up to serve the citizenry of those disgusted with
the bloat of bureaucracy evidenced particularly in the U.S., Canada, Italy, and other
European countries.

Some twenty years ago there were few offshore financial centers and their use was
surrounded by myths of drug money and other illicit activities. There were few
professionals specialized in offshore practice and these were generally focused on
only one or two jurisdictions. Today the offshore industry has developed into a major
global business, spanning all quarters of the world, involving, in one way or another,
approximately half of the world's financial transactions by value. Yes, that's right,


The International Financial Center, (the new professional name increasingly used to
identify a tax haven), is considered a safe and reasonable way to conduct business.
IFC's frequently operate 24 hours a day, and have become an integral and important
part of the world's financial system.

Although the concepts of private banking go back to the dawn of civilization, the
Swiss are generally accredited with developing the process into an art form. The
strategic location of Switzerland, at the center of Europe, found its citizens in constant
contact with their larger neighbors on all sides. Being pragmatic, the intelligent option
was for them to stay neutral when their neighbors were in conflict.

While most of Europe's borders were constantly changing Switzerland's remained firm.
In Switzerland, government was not allowed to force disclosure of business secrets, or
the existence of trust property, nor could private property be expropriated. Due to
inalienable personal property rights, the rights to privacy, and the encouragement of
free enterprise, the concepts of private banking matured.

Private banking services for the well to do is not new. Most large banks throughout
the world have a system for providing the affluent with special service. However,
private banking means something quite different in the U.S. and Canada than it may in
the Bahamas, Cayman Islands, or Nevis. For starters, American and Canadian banks
operate in an environment where personal privacy is no longer regarded as a "right"
and therefore the very name "private banking" is a misnomer. The U.S. form of
"private" banking is in reality "personal" banking, or traditional commercial banking
with added personal service. There is absolutely NO privacy to private banking in the

The term private banking is on the increase in North America. Most of the larger
financial institutions have someone officially assigned to provide their version of
"private banking." True private banking services rarely provide such things as
checkbooks, ATM access, and drive-through tellers, what most people think of as a
traditional banking service. Instead private bankers control such things as Private
Demand Deposit Accounts, Private Savings or Investment Accounts, and Private
Treasury and Certificate of Deposit accounts for their customers.

A typical private banker, or trust officer, will wire funds upon request, sign contracts,
handle virtually any kind of financial transaction, and generally do whatever their
customer needs done, all without ever revealing the person whom they represent.

Banks and trust companies are licensed by government. In the case of a British
Commonwealth country, it will typically be the Minister of Finance that endorses
approval for a bank formation or trust company appointment. A trust company
charter, like a bank charter, is only granted after careful examination of the principals
and their individual credentials, their business plan, and a review of the capital
resources and other specific financial criterion.

Once appointed, a licensed Trust Company is generally empowered with the rights to
form International Business Companies (IBC's), Limited Liability Companies (LLC's),
International Exempt Trusts, Asset Protection Trusts, (APT's), etc. They are also
empowered to open and operate bank accounts for third parties, act as a registered
agent, trustee, nominee shareholder, or director, and generally provide the various
services of a private banker.

Normally, and unless a trust company has been granted an international bank charter,
a trust company officer is not permitted to hold third-party funds in their own
accounts. On the other hand they may function as the officer of an IBC, for example,
and be the nominee signer on that company's bank account. The power to handle
third-party banking by a trust company is quite similar to the private banking services
provided by the Swiss. In the case of Nevis American Trust Company, for example, it
administers Exchange Bank & Trust Inc., an international private bank. Customer
accounts issued by this institution are extended exclusively to clients of the trust

For those unfamiliar with these kinds of services, the entire concept may seem unsafe.
Nevertheless, according to the latest information on money handling, approximately
one half of all the daily money transactions worldwide are handled through
International Financial Centers. This amounts to about 2 trillion dollars in business
that flows through offshore centers daily! The numbers are huge, and precisely
because they are so incredibly large, no emerging financial jurisdiction can afford to let
a scandal destroy it's reputation and interrupt this growth industry. Once level-headed
legislation has been enacted, trust companies, registered agents, and private bankers,
become the key ingredients to the success of every offshore financial center.

The world of "offshore" is surrounded in its own mystique and language and for
many, this aura can be disconcerting. It is worth remembering that the real differences
between an offshore jurisdiction and an onshore jurisdiction are few. Any person with
a reasonable grasp of their domestic business practices is equipped to begin navigating
the world of international financial centers.

A recent staff report commissioned by the United States Congress sums up the value
in going offshore:

"The offshore financial market has many advantages for rational economic
operations. The reasonable expectation, when one learns that an entity is
engaged offshore, is that it is there for honest economic reasons, buttressed by
whatever advantages privacy holds. The major categories for offshore use are to
profit from higher interest rates when lending, to enjoy lower interest rates when
borrowing, to escape taxation, to enjoy greater business flexibility by avoiding
regulation in an efficient market, to enjoy the protection of confidentiality when
engaged in activities..."

U.S. Congress Staff Report


Keeping financial transactions private in some countries is against the law, in other
countries it is a violation of law to reveal anything about anyone's banking or financial
activities. Of those countries claiming its citizens are free, the largest and most recent
source of personal privacy violation has become the United States. A pertinent
example of their rapidly expanding citizen control laws is that financial institutions
must now automatically report to government on the banking, bartering, and securities
business of its private citizens.

The alarming increase in citizen control laws has been achieved under the cover of
fighting the "war on drugs." The assault on personal rights, including privacy, is
always justified with convincing arguments about the common good and how the state
is "improving" the quality of the protection it provides its citizens. On closer
examination one may observe that the "common good" always coincidentally happens
to benefit the political concepts of the politicians in power and that the individual's
loss of personal power is transferred to the bureaucracy.

In an increasingly hostile environment privacy is essential to risk planning. The
clientele of offshore trust companies typically seek confidentiality in their affairs to
protect assets from disasters, unwarranted third party interference, and to reduce an
ever-growing burden of unnecessary disclosure. It is a trust company's business to
provide legal structures and potentially private banking services to protect client
assets, insure privacy, and reduce risk, taxes, and costs. A policy statement extract
from Nevis American Trust Company Limited pretty much sums up the offshore

We believe firmly in each individual's right to pursue aggressive and unrestrained
enterprise and that it may be best developed through a secure, reliable, confidential,
and tax friendly jurisdiction.


Throughout recorded history people have sought ways to protect what they've worked
hard to create and accumulate. Protection is sometimes required from those that would lull
you into believing that they are in fact your protector, such as the tax collector, the
bureaucracy, and your home legal system. Modern times require a multitude of strategies to
deal with the current complexity of threats.

Many asset protection tools have become common place. The corporation is one of the
most common such strategies. A corporation is in reality a "legal fiction;" an entity
constructed of paper documents, which has most of the rights and powers of a living
person. A corporation can buy and sell, own and control assets of every description, sue or
be sued.

Even if a single individual is the sole owner of his or her own corporation, simply
conducting business through a corporation (or limited liability company) can effect
considerable asset protection. The corporate entity is now so commonplace that most
people have forgotten that corporations were originally formed solely for asset protection
reasons. Where the corporation was formed, what information is in the public record, and
the corporation's legal home jurisdiction, can be extremely important. These simple facts
frequently constitute the basis of a quality asset protection and tax planning strategy.

If you are properly incorporated, it is absolutely imperative that you respect the corporate
entity as if it were a separate individual. One must be careful to follow the formalities of
the law to ensure that the corporate shield will not be pierced. A lawsuit against a
corporation may succeed against corporate assets, but a creditor will not be able to
consume your personal assets and bank accounts - even if you are the sole shareholder of
the corporation, provided corporate formalities have been adequately maintained.

Seeking out a well informed professional advisor is an integral part of developing a
well-designed strategy. He or she will likely review with you some rather "esoteric" legal
structures, in addition to domestic and offshore corporations, that are just as legal and
ethical as those that are more commonly known. You will need to develop new privacy
habits and be cautious with whom you discuss your overall strategy. Many people
mistakenly believe that tax avoidance and asset protection tools that are not well known by
the majority of people are somehow less effective or less legal. This is simply not true.
Why is it we instantly believe it's perfectly legal for the Rockefeller's to use offshore
structures but highly suspect if it's our next door neighbor?

You may be familiar with a number of legal devices but are not familiar with their asset
protection and privacy value. Some structures, such as offshore asset protection trusts,
seem almost mystical and are generally assumed by most to be used only by the ultra
wealthy. The fact that the very rich have been using these structures for centuries attests
that they are superb and effective asset protection tools that preserve wealth. And,
although widely used by the super-rich, these structures are as simple as the corporate
form and can be used by the common citizen.

Legal and financial planners have engaged in asset protection planning for many years.
Lawyers regularly advise their clients to take advantage of limited liability vehicles.
America, more than any other country has developed into an extremely litigious society,
which in turn has given rise to asset protection planning for the general citizenry that was
previously reserved for only the best informed of the world's society.

Setting up an offshore structure can be the most practical and cost effective insurance you
will ever acquire to protect your hard-earned estate. It will definitely provide you enhanced
privacy and access to greater investment returns, and you may be able to enjoy the added
benefit of significant tax deferral or even legal tax avoidance.


Dramatic journalism, radio and television, and a high concentration of government
subsidized citizens who tend to comprise the jury system have given impetus to larger and
larger awards. These awards are often comprised of actual reparations, with huge sums in
punitive damages. Our society has grown to expect large punitive damage awards far
outweighing the actual damage to the plaintiff. Litigation, and government at large, is
spinning out of control.

Plaintiffs and their attorneys target the wealthy, or at least those that have assets to seize,
as well as professionals and business owners, who might not be considered wealthy, but are
simply "better odds" for collection than other defendants. The bureaucracy targets the same
group in an effort to increase revenues.


An experienced asset protection attorney or consultant will have dozens of domestic and
offshore core-strategies that may be used in creating a personalized program to evoke high
quality protection for client's assets and simultaneously achieve specific estate planning
goals. There is no panacea for asset protection and tax deferral structuring. A mechanism
that will give you superior asset protection may not provide privacy or have sufficient tax

There is no one "perfect" structure. An experienced asset protection planner will therefore
recommend a program or strategy that may incorporate several, or even many, different
devices that meet the particular needs, circumstances, and desires of a client.

To be successful, a plan will require that a specialist in this field review carefully all of your
relevant circumstances and fully understand your particular goals. He or she must be
thoroughly informed as to your potential or actual legal exposures at the time the strategies
are to be implemented in order to avoid fraudulent conveyances. You must tell your asset
protection attorney everything pertinent to possible claims outstanding.

The number of structures necessary to accomplish your particular needs varies according to
your particular circumstances. A cookie-cutter approach where one size fits all, is rarely a
legitimate approach.


Your real property and business holdings require special attention in setting up a sound
asset protection strategy. These type of holdings generate liabilities that potentially effect
the company's operation, as well as effecting non business assets. In comparison, assets
such as stocks, bonds, furniture, and artwork, do not generate liability that might allow
judgement-seeking creditors to reach your other assets.

The choice of the entity you use for your business operation may have subtle but profound
effects on you, your assets, and your overall asset protection system. Your asset
protection counselor will be principally concerned with (1) limiting the reach of
business-generated liability, and (2) limiting your non-business creditors from attacking
business assets or personal assets. Your strategic plan must also consider the tax
ramifications of these asset protection choices. Remember that there is no cure-all. This
requires a balancing and weighing of the benefits of any particular device, and its effect on
the overall asset protection structure.


The business form you use is an important aspect of your asset protection strategy. Trusts
comprise another valuable asset protection device. Not only are trusts effective for asset
protection in-and-of-themselves, they usually work well in conjunction with other devices
in comprising the entire strategy.

As an example, you may decide that the most appropriate business form for you is a
corporation. Thus protecting your personal assets from business creditors. However, the
corporation's stock is a valuable asset that a personal creditor could take to satisfy a
judgment. Therefore, the stock of your corporation could be placed within a trust to
protect business's assets from your personal creditors.

There are various types of trusts, such as: revocable trusts, irrevocable trusts, discretionary
trusts, spendthrift trusts, support trusts, charitable remainder trusts, capital gains by-pass
trusts, real estate privacy trusts, living trusts, Rabbi trusts, and an interesting domestic
trust developed by a U.S. attorney friend of mine named Paul Young, which he calls a
"Complex Trust." Various trust types, both domestic and international, may be used as
devices to invoke asset protection, privacy, and tax timing strategies. Offshore Asset
Protection Trusts are as "bullet proof" a device as you will find, but recent legislation has
interfered with their use as an effective tax avoidance mechanism.


There are a considerable number of tax haven and asset protection jurisdictions, and each of
them has their pros and cons. For example, some jurisdictions do not have treaties with the
United States. Others have express laws not recognizing foreign (U.S.) civil judgements.
Some jurisdictions have shorter statutes of limitations than others, less expensive set-up or
maintenance costs, better business infrastructures, etc. Your counselor will evaluate your
personal circumstances in determining which jurisdiction might be the best for you. While
costs may be slightly higher for offshore corporate structures and trusts than their domestic
counterparts, when properly employed and established, they provide, by far, the best asset
protection and tax deferral opportunities available to U.S. citizens.


Offshore banking is often employed for privacy and asset protection reasons and there are
a variety of issues and concerns regarding this course of action, but on the whole offshore
banks are at least as secure as U.S. banks. The United States, in its drive to curb the drug
trade and other criminal activities, has also curbed personal and financial privacy right out
of existence. The way you hold your money, your accounts and your assets, will determine
whether the "Bank Secrecy Act" or the "Money Laundering Control Act" will apply to
your overall strategy.

There are many legal and ethical devices that can and should be used to protect the assets of
those in every income bracket. If you have a home, a bank account, investments, corporate
securities, valuable family heirlooms, or you feel that you just cannot afford to start all over
again, then your assets are at risk in today's litigious and over taxed society and should be

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