June 7, 2010
Panama City, Panama
My weekend in New York City with fellow Atlas 400 members was really spectacular and first class all the way. There were about 50 of us in total, all with varied and interesting backgrounds from all over the world– a renowned heart surgeon, a music business mogul, a couple of best-selling authors, successful entrepreneurs, etc.
I want to tell you a lot more about the event because I think it underscores how important it is to develop diverse personal relationships bound by common philosophical beliefs… but today I want to spend a few moments talking about something else– Panama.
I stupidly booked myself on a rather unfortunate 6am flight from New York to Panama on Sunday morning. I’m not a morning person, so I don’t quite know what I was thinking, but it ended up being rather serendipitous.
Prior to takeoff as I was resting in my seat trying to ward off the prior evening’s wine selection, a man sat down in the seat next to me and immediately began striking up some idle banter… I’m sure you’ve been there– chatted up by an early morning type A personality who apparently receives caffeine intravenously?
In most cases I’d be polite enough to explain that I need to snooze… but for this gentleman, one quick glance out of my half-opened eyes sent the alarm bells blazing… his entire appearance screamed ‘US government agent.’ It might as well have been tattooed on his forehead.
I perked up and look around a bit more, noticing 5 or 6 more of the usual suspects– all of whom were with me in the first class cabin, mind you… that’s US federal tax [debt] dollars at work.
Given my past experiences with these types, I’ve found that a lot of them take pride in what they do, and they want you to know it. For ‘security’ reasons, they can’t tell you exactly what they do, but they’ll dance around the issue until you’re convinced that they’re either Jack Bauer or James Bond, even though it’s not true.
As a rule of thumb, the guy who tells the loudest war stories is the one who was the furthest away from combat. Needless to say, my seatmate regaled me with ‘hypothetical’ stories about drug busts, asset seizures, and money laundering operations, with the standard caveat of “well I can’t give you any specifics, but…”
Here’s the big takeaway that I want you to understand: Panama has a small army of US government representatives crawling around, including military and drug enforcement in particular.
It’s also been reported that the IRS is even setting up an office in Panama, though my sources on the ground here have indicated that this has not happened… at least, not yet.
A few years ago, Germany shocked the world when it announced that one of its intelligence agencies had infiltrated Liechtenstein’s LGT bank by paying a 5 million euro bribe to a bank employee for information on 750 foreign account holders.
It seemed rather strange to me that Germany publicly acknowledged that it had covertly invaded another sovereign nation, and induced a local of that sovereign nation to violate the law.
Most people didn’t seem to take notice of the legality of Germany’s actions… instead, the global community cheered Germany’s efforts to crack down on financial privacy.
Frankly, I wouldn’t be surprised if the US government were engaged in similar activities. I don’t know of too many bank employees in Panama (or Belize, Cayman, etc.) who would turn down a few hundred thousand dollars to provide a list of foreign account holders.
Here’s the bottom line: governments are waging a dirty, no holds barred fight against financial privacy, and the penalties are severe. If you don’t disclose a foreign account as a US taxpayer, the IRS thinks that it’s entitled to 50% of the account value. In Australia it’s even more Draconian.
Consequently, you shouldn’t open a foreign financial account in the hopes of hiding money… that’ll just land you in court next to Wesley Snipes.
You should, however, open a foreign financial account in order to protect your savings from exchange controls, confiscation without due process, frivolous lawsuits, currency depreciation, and more. It is probably the single most important flag you could plant for your money.
Afterwards, don’t make a secret of it. Ensure you follow the proper disclosure protocols for your home country… in the United States, that could mean IRS 1040 schedule B and Treasury form TDF 90-22.1.
Despite the presence of so many government agents, I still think Panama is a reasonable place to bank, especially for smaller account sizes. The institutions are solid and well capitalized, and many of them still work with North American citizens.
Belize is another jurisdiction to consider for smaller account sizes, between $10,000 and $250,000. Beyond that, I would strongly suggest more developed jurisdictions like Switzerland, Hong Kong, and Singapore.
Meanwhile, if you’re really looking to go ‘off the grid’ with your money, your best bet will be nonreportable items like precious metals and real estate… but we’ll save that for another time.
