June 22, 2010
Oxford, England

In our daily conversations, we talk a lot about planting multiple flags– this is the practice of diversifying sovereign risk in order to protect or asses and our assets.

After all, sovereign risk is the greatest risk we face today as investors, entrepreneurs, professionals, and free individuals. Governments have absolute authority to seize, commandeer, or otherwise control any asset of their choosing, including ourselves, and they can back it up at the point of a gun.

If you have all of your eggs in one basket– i.e. you live, work, invest, own property, run a business, bank, etc. in the country of your citizenship, then you’re risking everything. If you want to do something about it, then you only really have two options:

First, you could go dark… and I mean completely black. There is some merit in this approach, but it’s incredibly tricky to pull off in the long-term.  Going off the grid in 2010, at least in a developed country, requires intense discipline and adaptive creativity.

The second option (my favored approach) is to use the system to your advantage. Play governments against each other by diversifying different aspects of your life across different geographies– plant multiple flags.

As an example, this means structuring your business in one country, banking in another, having official residency in another, having citizenship in another, and investing in another. It might sound complicated on paper, but I assure you in practice, once you get the hang of it, it’s quite simple.

When I write this daily letter, I normally stick to the major areas of planting flags– banking, brokerages, citizenship, residency, property, etc., but when you really sit down and think about it, there are literally innumerable ways of diversifying yourself geographically.

Some people may choose certain jurisdictions for shopping, for example (a country with no VAT, or a state with no sales tax). Others may choose certain countries for dental care (due to the value for price), others for hiring outsourced labor (due to high skills and cheap wages), and others for acquiring pharmaceuticals (due to price and legal differences).

The possibilities are nearly endless, and just about every country has something it can offer.  As I find myself in the UK this week, I thought I would raise this point again by taking you through my own analysis of the country:

Would I establish tax residency here? No. I wouldn’t want to get involved in this country’s slippery slope of a tax net.

Would I store gold here? No. Scotland Yard has already established a trend of raiding private vault facilities and confiscating the contents.

Would I establish electronic assets here? No. The UK has little regard for privacy, and this is one of the most critical elements for electronic assets like an email or web server.  Digital property should be located in a country that respects privacy and won’t bow to a foreign court to lift this veil.

Would I intentionally seek medical or dental treatment here? No. Public hospitals in the UK are substandard, and the private facilities are too expensive compared to Asia and Latin America.

Would I invest here? Yes. But with my eyes wide open and protective measures in place. There are significant risks to investing here, including rising taxes and a depreciating pound. Foreign exchange losses can be mitigated with options and forward contracts.

I’ll have a deeper analysis about British investments in a future letter because it’s an important topic.

Would I spend time here? Yes, definitely. To me, the greatest value of the UK is for planting a flag that I seldom talk about– countries that you go to just because you like to have fun there.  After all, what’s the point of life if it’s all about business, investing, asset protection, and sovereign diversification?

I, for one, derive great pleasure in experiencing the finer things in life, particularly in the course of travel… and there are certain places that I simply just like to be.

For all of its faults, southern England is one of these places for me– specifically London and Oxford.  And right now, it’s on sale. Given all the deep retail discounts, and with the Queen’s pound sterling under $1.50, England is cheap for US tourists and “ridiculously cheap” for Canadians and Aussies.

Call this a ‘fun flag’ or a ‘pleasure flag’ or ‘vacation flag’ or whatever floats your boat… but think about these places where you can get away and do nothing but enjoy life for a little bit.

Lastly– would I bank here? No. There are too many quasi-state owned zombie banks in this country. There is, however, an interesting alternative that I’ve investigated a bit in my time here.

The UK’s famed Lloyds Banking Group has a subsidiary in the Channel Islands called Lloyds TSB Offshore, Ltd.  Lloyds wouldn’t be my first choice– there are better banks out there… but if you’re really looking to open a foreign bank account and are constrained by travel limitations, consider Lloyds TSB Offshore.

I say this because you can apply to open an account online and denominate funds in either US dollars, euro, or British pounds. They’ll even send you a Visa debit card that can be used worldwide to access funds… no need to show up in person.

June 18, 2010
Madrid, Spain

Long haul flights from South America generally tend to leave in the evening, usually between 7pm and 1am. The airlines do this so that you arrive first thing in the morning and can catch any connecting flight you may need… which is nice for travelers.

The flight schedule does make things a bit inconvenient prior to departure, though.  Even with a late hotel check-out, you’ll have about 5 hours to kill before heading to the airport.

This happened to me yesterday in Rio, so I took the opportunity to work on my tan a little bit on Ipanema beach. Even though it was just a normal winter weekday afternoon yesterday, you would think they were having a supermodel convention at the beach given the abundance of bronzed beauties.

It’s no wonder why Brazilians are so carefree about life… how can you feel despondent when you’re immersed in warm weather, sunshine, mountains, the ocean, and gorgeous, friendly people?

After the 11-hour Iberia flight (average business class, in my opinion), I now find myself in Madrid, where I’ll spend the day before heading to London to meet up with some friends and Atlas 400 colleagues.

I’ll have more to follow on my plans next week; you may be interested in what I have in store regarding passports later this month. For now, let’s move on to this week’s questions.

Starting off, I got a chuckle from a comment by Garth this week when he said “the rose colored classes are on,” in response to an article about Rio. I thought I should take a moment and explain something about myself.

Here’s my confession: I am an unabashed optimist. I tend to see the good in everything– people, situations, and countries.  Even in the midst of chaos, my natural instinct is to see opportunities. There’s too much negativity in the world, and I’m weary of cynics who dwell on it.

You can always count on me to be candid about my thoughts, but don’t expect me to obsess over the negative aspects about a country. I will acknowledge them, and then move on… if a country’s issues are so serious that I don’t think you should consider planting a flag there, then I won’t even bother writing about it.

I recognize that people potentially base major life decisions on the information provided in this letter; this is a responsibility that I take very seriously, and I have a few simple rules that I follow which guide me as I write.

First, I won’t ever suggest a country that I wouldn’t recommend to my own mother. Second, I only discuss multiple flag tactics (banks, passport programs, corporations, etc.) that I have first-hand experience with and can vouch for.

Third, I won’t negatively bias someone’s opinion about a country simply because I don’t personally like it… I realize that not everyone shares my taste. As such, I tend to focus on the good points. If there’s not enough good points to consider, then it won’t be on my list. Simple.

Moving on, JT writes, “Simon, what are your thoughts on renouncing US citizenship?”

Renunciation is a decision that more and more people are making each year. The movement is still embryonic, but I expect the coming years that there will be great waves of Americans taking this step.

For most people, the chief reasons are generally financial– they no longer feel comfortable making Uncle Sam a 40% partner in everything they do around the world.

One thing’s for sure– no one should make this decision for emotional reasons because they hated Bush or hate Obama. These guys are as ephemeral as last night’s meat loaf. The decision should be made pratically with a well-reasoned financial analysis.

It is absolutely possible to mitigate or defer tax liability by properly planting multiple flags (i.e. business structured in one location, consumers in another, banking in another), but the ultimate tax break will come only when you renounce.

If you take this step, you have to pay a one-time tax to Uncle Sam as if you had liquidated all of your assets and taken the capital gains. Sammy gives you a $600,000 tax-free allowance and taxes you on the rest.  I’ll have more on this in a future letter; it’s definitely a topic worth discussing.

Next, Deiter asks, “If one were to disclose the existence of a foreign bank account, wouldn’t that make it accessible to frivolous lawsuits?”

Great question. One of main benefits of planting multiple flags is diversifying your sovereign risk so that your assets are no longer exposed to government agencies, tax authorities, and the court system.

Just because you disclose your assets, either due to government regulation or in a court-ordered discovery process, doesn’t mean that your assets are exposed. Let’s say you own property, for example, and you lose a court case… the judge decides that your property should be awarded to the Plaintiff.

Well, if that property is located within the court’s jurisdiction, then the judge can simply have the title conveyed to the other party. If the property is located overseas, far away from the court’s jurisdiction, then they have no power or authority to forcibly convey the title.

The same thing goes for bank accounts, gold stored overseas, etc. When you move assets overseas, you are effectively removing those assets from the jurisdictional authority of your home country.  Disclosing those assets as required by law does not eliminate that benefit.

Lastly, Dave asks, “Simon I’m curious. As a PT, what do you do for postal mail?”

Does anyone still use postal mail? My banking/credit card statements are all email, and if I need a parcel sent to me, I usually just give the hotel address where I expect to be staying by the time it arrives.

If you get a lot of postal mail, you could try the Swiss Post Box service. They’ll receive your mail, scan the envelope, then forward/shred/scan the contents upon your instructions.

That’s all for this week, have a great weekend.

April 30, 2010
Las Vegas, NV

It’s chilly in Las Vegas, but I’m having a great time meeting so many subscribers here at the Casey conference; I’m pleased at how many have turned up for the event, and I’m always humbled by the exceptional people we have in our community.

My only regret is that the conference organizers could not allocate more space for Sovereign Man readers, and I will personally ensure this doesn’t happen next time.

As I need to get going shortly to mingle with all the incoming attendees, let’s jump right in to this week’s questions:

First, a question that I have been asked hundreds of times over the last two months– “Simon, several weeks ago you posted two job openings on your website for people who were interested in working with you. What is the status of those positions?”

We recently filled both of the positions. It was one of the more difficult business decisions that I’ve had to make given the quality and number of applications that we received. We may be hiring again soon, and I will post that to the website as well if/when the time comes.

Second, Dana asks, “Dear Simon, if I trade US/Canadian financial markets from my home in Ecuador, would the government of Ecuador expect me to pay taxes on that income?”

No, especially as a non-resident foreigner. It’s the same in several countries, like Panama. This is one of the reasons for taking a multiple flags approach– having citizenship of one country, tax residence in another, and spending time/owning property in another.

Next, Neil writes, “Simon- I’m an investor and US citizen with residency in Uruguay. I want to hold gold coins in Hong Kong or Singapore, but I have a question– will I be able to open a bank account in Asia so that I will be able to wire money to my account in Uruguay once I sell my gold?”

Even as a US citizen, you should not have any problems opening a personal bank account at any number of multinational banks in Asia… try HSBC or Standard Chartered Bank, both of which have US branches and are accustomed to dealing with the Treasury Department’s arcane regulations.

Once you have the account open, you shouldn’t have any problems wiring the proceeds to your Uruguayan account once you sell your gold. Just remember a couple of things-

1) Singapore charges GST (VAT) on gold sales;

2) Don’t forget to fill out TDF 90-22.1, report of foreign financial account, each year after you open the new bank account;

3) You will have to report the proceeds of your gold sales on your tax return if you turn a profit.

Next, Dave asks, “Simon- I am currently living in Treviso, Italy, and I’m considering moving to Switzerland. However, I haven’t seen any posts about living in or considering Switzerland. What’s your take on the country?”

I like Switzerland. For me, it’s as close to a perfect civilization as it gets in this world. The government is [relatively] hands off, the people are [relatively] intelligent and freedom loving, and the country is quite clean and modern.

On the downside, the weather is too cold for my taste, it’s unconscionably expensive, and the people are boring.

Despite what has happened with Switzerland’s banking privacy, I still think the country is worthy of a number of flags, including banking, residency, citizenship, and tax home. I’ll be spending time there this summer and will report more at that time.

Lastly, Ken asks, “Simon, you wrote about Joel Nagel’s upcoming asset protection conference in Belize yesterday. It sounds worthwhile… but aren’t you negative about Belize?”

To be clear, I have no issues with Belize as a banking jurisdiction. True, I personally do not like Belize as a place to spend much time, but I don’t expect everyone to share my tastes.

I know that there are many subscribers who are very interested in Belize, and Joel Nagel’s asset protection conference is probably the perfect opportunity to go check it out.

Why? Because Joel is one of the best international tax attorneys in the business, so you’ll learn everything you need to know about protecting your assets. Plus, you’ll be able to open a Belize bank account through his personal connections, and you’ll have plenty of time to spend exploring the country to see if you like it.

April 8, 2010
Panama City, Panama

Do you remember that really awkward phase we all went through as adolescents?

Growth spurts, voice changes, menstruation, and yes, pimples– in the end, while we all came out of it more mature and grown up, there was a difficult and sometimes painful transition period in which we had to learn how to deal with new realities.

Developing countries go through the same sort of transition, and it can be just as awkward and painful.

Typically, they try to transition from fledgling banana republics with corrupt governments and byzantine regulatory systems to stable democracies with a growing middle class and reformed tax code.

Most countries have a very difficult time with this.

For example, I expect China to undergo significant pain as their economy continues to inflate. One day the Chinese will find that their rising currency and wages are no longer cheap, and they’ll have to seek competitive advantage in something other than manufacturing knick-knacks.

In other words, a country of a billion people cannot go from making socks to being the world’s investment bankers overnight, or without any fuss.

These sorts of transitions are very difficult because they affect the entire social landscape– employees are laid off and have to retrain to new skills, businesses go bust and reinvent themselves, etc.  Of course, politicians always get in the way by passing laws which only prolong the pain.

Overall, the transition cycle is not easy, and few countries pull it off well.  In my assessment, Panama is one of the countries succeeding.

20-years ago, with its puppet dictator, open drug trade, and banana exports, Panama was nothing but a bad punch line.  Over the last decade, though, the country has been able to successfully develop a service-oriented economy with robust tourism, banking, and transportation sectors.

Today, while the country is definitely no Shangri-La, Panama is thriving and on a very clear upward trend.

Remember, this is ultimately the most critical point to consider when planting a flag overseas– is the country or jurisdiction on an upward trend? Will it be a better place 10-years from now?

When you survey the political landscape in developed countries, the headlines generally tend to get worse and worse.  Certainly, not all news is bad, but the subversion of civil liberties, erosion of financial privacy, and rapid growth of big government seem to be at least weekly occurrences.

Meanwhile, in developing Latin economies like Panama, Chile, and Peru, things are consistently improving– they are going through the awkward growth phase as smoothly as possible.

As an example, the Martinelli administration in Panama recently passed comprehensive tax code reform.  While increasing the sales (consumption) tax by 2%, it cuts corporate and some personal tax rates, reduces some property tax rates by half, and completely eliminates over 30 types of tax.

This new, simplified tax code is a major step in the right direction, and it will be excellent for business.

The government here clearly understands that successful businesses hire employees and generate wealth in the economy.  This model has done wonders for Singapore and Hong Kong, and Panama is following suit.

Yes, there are still elements of poverty, corruption, drug trafficking, etc. in Panama.  The trend, however, is undeniably one of consistent improvement and greater economic freedom.  Ultimately, this is exactly what helps countries successfully transition through those difficult growth phases.

As I’ve said before, until these economies become large or popular enough, local capital markets tend to be off-limits for armchair investors.  I don’t see TD Ameritrade offering access to the Peruvian stock market anytime soon.

It is possible, however, for intrepid active investors to open local brokerage accounts and capitalize on the rising tide… though the most passive investment opportunities generally tend to be foreign bank accounts (which provide liquidity and exposure to the currency) or property (which is non-reportable and an excellent inflation hedge).

More on these topics in future letters.

March 26, 2010
Vancouver, BC

I’m headed to Panama shortly where I look forward to meeting up with my friends and colleagues in the Atlas 400 group. We’re going to an exclusive deep-sea fishing resort for a few days, and afterwards I plan on taking up some unfinished business in Panama.

One of the things on my agenda is to revisit the sustainable community concept that I began discussing a few months ago. This is something that I really want to do, for personal reasons… I’ve always wanted a place that doesn’t rely on ‘the system’ for food, water, power, and security.

In my travels around the world, though, I’ve not yet found a community that provides this, at least up to my own standards… it’s possible that one exists, I just haven’t seen it yet.

I have a detailed plan in mind that will start small and allow the community to grow as the market dictates; my biggest challenge is time. At the moment, I have several other business and investment obligations on my plate, and I’m hesitant to commit to another major undertaking.

As I said, though, for personal reasons I would really like to develop this community, and I’ll be making a final decision once I meet with my team of architects and engineers in Panama over the next 2-weeks. Stay tuned.

On to this week’s questions:

First of all, Tom asks– “I’m exploring Hong Kong at the moment and am wondering if there are any subscribers in HK who would be willing to talk with me about the residency process. I’ll be here until April 3, then off to Singapore where I will be conducting similar due diligence.”

If anyone is in the area and willing to meet with Tom, please drop us a line and my assistant will forward your contact information to him.

William asks– “I live in the US and so does my business partner. We have a start up internet business hosted in the Netherlands. We have been trying to find a way to incorporate and get a bank account offshore. I have had many problems while researching this. Any suggestions?”

First of all, it’s a fantastic idea to plant a flag overseas when you incorporate a business, particularly one that’s internet-based. A properly-structured foreign corporation provides a way to legally defer tax payments (similar to an IRA) plus you have substantially reduced liability.

There is no “one size fits all” solution though. The most important thing you can do is talk to a qualified tax attorney in your home country– that means someone who understands international tax law, as well as the benefits of individual offshore tax jurisdictions. (this is a rare species)

It’s absolutely critical that you do this because no one in an offshore jurisdiction really understands the tax and structural implications that affect you.

Get the right advice and it will pay huge dividends in the future. If you need a referral, drop us a line. I have tax attorney contacts in the US and the UK.

Jack asks, “Simon, do you have any suggestions for an American who would like to open a bank account in Thailand?”

Yes. Don’t open a bank account in Thailand. It’s a beautiful country, but not a place with a trustworthy financial system. Thailand is highly corrupt and immature as a banking center… and there are too many solid options in the region– Hong Kong, Singapore, and Labuan are great alternatives.

If you want to have a bank account in denominated in Thai Baht, you can easily do this at a number of other banks in Asia, such as HSBC in Hong Kong.

Finally, Mark asks, “Simon, you said the price of housing in Malaysia is $1400 per square meter– if I did my math right, this works out to $128 per sq ft. This is the low end of new housing in the States. So, from that perspective it doesn’t seem that inexpensive. Your thoughts?”

First of all, just to clear things up, when I said the price of housing in Malaysia is $1400 per square meter, I’m referring to the average cost of high quality, expat-level housing (not raw land) in tier-1 neighborhoods.

With few exceptions, this is lower than comparable costs in the US, Canada, and Europe. To be honest, Detroit is probably one of the cheapest places on earth to buy property right now… probably cheaper than Malaysia. A speculator may be able to make a fortune in Detroit– but with tremendous risk.

“Low prices” don’t always mean “great value.” And despite the low prices, there are a few things that really scare me about US real estate.

First, continued government intervention makes me want to run away like a scalded dog. The government is unable to ‘fix’ anything other than elections, and their continued intervention in the housing and mortgage markets will only lengthen the pain in the sector.

Second, state and local governments are broke, and as a source of revenue, I’m convinced they’ll be looking to increase property taxes. In the hardest hit areas, I expect tax rates to more than triple.

Third, in the medium-term, I also expect prices to keep falling… stagnate at best. If you consider the supply/demand fundamentals, there is still way too much supply on the market, and not enough households or available credit to fill the void. In my assessment, this is not the bottom.

To me, while there are some bubbles forming on the continent, parts of Asia demonstrate significant value as long-term property investments, currency diversification, and residency flags. I don’t see those benefits in the US at the moment, particularly given the risks.

That’s it for this week; have a great weekend and we’ll talk again on Monday.

March 23, 2010
Hong Kong, SAR

The banking system in Hong Kong is one of the most advanced in the world, and if you’re shopping around for a place to plant a banking flag, you should definitely consider it.

As a jurisdiction, Hong Kong was effectively founded and built into a global financial center for the sole purpose of bridging east and west. Today, as Asia has grown into an economic powerhouse, Hong Kong is still the region’s center of banking and commerce– like London in Europe or New York in the Americas.

In particular, though, there are a few things that I think set apart Hong Kong as a banking jurisdiction:

First, the banks in Hong Kong are actually well-capitalized.  Unlike banks in the west which have used fuzzy accounting tricks and nearly interest-free government loans to prop up their balance sheets, Hong Kong’s banks actually have their own substantial cash reserves on the balance sheets.

Furthermore, the banks are reasonably and appropriately regulated without any undue government interference or hypocritical political backlash.

Second, I find banking in Hong Kong to be cheaper and more efficient than many other jurisdictions.  Wires often take place instantaneously, and costs for international transactions are a fraction of the price that I pay in the United States and Europe.

Third, because Hong Kong as a jurisdiction is ultimately backed by its big brother mainland China, bankers in Hong Kong have a certain confidence in being able to deliver more personalized service.

Once your account is approved, you’re in the club… and bankers will go out of their way to service your needs without constantly quoting you the latest OECD requirements.

The tough part about Hong Kong is getting approved, especially for a business account. Most banks will want to see the whites of your eyes before opening an account for you, which is a dreadful inconvenience for most people.

I discussed one ’short-cut’ for doing this a few weeks ago, though if you find yourself traveling to the region, I always recommend that people go visit the bank that they’ll be doing business with so that you can feel more comfortable about the relationship.

Besides, Hong Kong is a fantastic city and worth a visit… though I must admit the air is quite dirty today– I see nothing but haze from my room on the 38th floor of the W Hotel, apparently due to some sandstorms in central China… but I digress–

Another reason for visiting Hong Kong is to buy and store gold, which you can also do at just about any bank in town. My friend Tim, a brilliant financial mind and fellow Atlas-400 member, is also in town, and he was just telling me about some interesting anomalies he noticed in the gold market:

Prices are not uniform. The buy price on a one ounce Canadian Maple Leaf coin (what the bank will pay you) at Hang Seng bank is HK$8,520 (roughly $1,097). At Bank of China, the buy price is 4% higher.

Furthermore, Tim seems to have found an arbitrage opportunity in Chinese panda gold coins, which for some reason sell for a much higher premium to spot price in the United States than they do here in Hong Kong.

Once you’ve acquired gold, storing it in Hong Kong is quite easy at any number of banks; I have worked with NCB Bank, Public Bank (out of Malaysia) and HSBC in the past, and they generally have safety deposit boxes available.

There is also a private storage facility called, appropriately, “The Storage”.  It’s located in a rather peculiar part of town, but the facility is quite secure with 24-hour armed guards and backup redundant systems.

Unfortunately, The Storage does not do anonymous box rentals, which is a fairly recent policy change.

Their box rental charges are about $75 (USD) per year, and you can prepay up to 2-years in advance.  As always, it’s best to call first to find out what documentation requirements are necessary.

March 5, 2010
Kuala Lumpur, Malaysia

Greetings from Malaysia, where I’m spending an extended weekend before heading briefly to Singapore on business.  I’ll tell you more about the country next week… but if you’re interested in Asia, it should definitely be on your radar.

Before turning to this week’s questions, I wanted to give you a quick update on the job posting from a few weeks ago.  Ordinarily, Matt and I would have made a decision by now, but the applications keep rolling in… I lost count after a few hundred.

To expedite our decision, we’re going close the posting at 11:59pm EST, Monday night March 8. No other applicants will be considered after that time.

Please remember, since there have been so many applications, my staff and I will not be able to respond in order to confirm receipt. Rest assured, if you sent us an email, we received it.

On to this week’s questions:

Tom writes, rather emphatically “Simon, I left the US over a year ago. I now need a 2nd passport as I am almost out of pages on my current one. Problem is, I can’t go to the embassy due to some legal problems back home, and I don’t have $50k to spend on a new passport. What can you recommend?”

Tom has an interesting and unfortunately all-too-common case. I don’t know what he’s done or if he’s guilty of any wrongdoing, but a last-minute second passport is no panacea for criminal troubles.

(to be clear, I don’t equate ‘law’ with morality, but this is a different subject altogether)

Why? Because even if you’re completely innocent of some trumped-up charge, any new country that would consider accepting you for citizenship would first do a background check, and if you’re in hot water, they probably won’t take you.

Conversely, if you actually have done something immoral, you should probably just face the music. After all, the cosmic forces of the universe have a way of working these things out.

Regardless, I think this underscores the importance of taking action. If you have the means, going through a second citizenship process NOW, before it becomes a critical need, is a smart thing to do.

I discussed a few cost effective second passport options last week, and I will continue to do so in future letters.

Speaking of second passports, I made a mistake when I mentioned something about Polish citizenship last week– my thanks to “anonymous” for sending along this correction:

“Simon, you said that a Polish citizen could establish permanent residence in another European country like France or Italy and  become eligible for citizenship there after 7-10 years.  The EU rule is that local citizenship can be applied for after 4 yrs residence, though it’s much faster with marriage.”

She is absolutely correct, my apologies for the oversight.

Stephanie in New York writes, “Simon, thanks for the great information on opening a foreign bank account this week. As a US citizen I understand that I need to file a form to the Treasury Department each year– what are the details on that?”

First- standard disclaimer: check with your tax advisor for any updates. But the current rule is that US taxpayers must report foreign bank and financial accounts on form TDF 90-22.1 each year by June 30.

According to the IRS, A “financial account” includes any bank, securities, securities derivatives or other financial instruments accounts, including any savings, demand, checking, deposit, or any other account maintained with a financial institution.

As of now, you do not have to file the form if the aggregate value of all of your foreign accounts was less than $10,000 for an entire calendar year. If the aggregate value of foreign accounts exceeded $10,000 at any time during the year, you are obliged to file the form by the following June 30th.

James asks- “Simon- you’ve been in Thailand for a month but you haven’t said anything about the nightlife or social scene!”

That’s because you can read about Thai nightlife anywhere. I figured you’d be more interested in the hydroponics plantations where I buy organic vegetables than a review of the Go-Go bars…

… but to put it briefly, you can find whatever you want in Thailand. Sex, drugs, and rock n’ roll are as pervasive as Buddhist monks and the works of Shakespeare. If there’s interest, I’ll write a dedicated post about this, just let me know.

Lastly, Pat asks: “OK Simon- I owe $136k on a house that I bought 4 years ago; it’s now “worth” about $70k, tops.  I make plenty of money, but the payment is slowing me down.  Would it be immoral to jump ship and go rent somewhere else?”

Personally, I have an immensely open mind to not judge people for the way that they live. I only broadly repudiate things based on very few moral absolutes– for example, genocide and pedophilia are clearly ‘wrong’ in my book.

Walking away from your mortgage does not make my list.

If you do decide to walk away (and I’m not encouraging you either way), just bear in mind the single universal law of causality… there will be consequences from your actions, and you must be prepared to accept them.

That’s all for this week; enjoy your weekend, and we’ll talk again on Monday.

March 2, 2010
Pattaya, Thailand

Thanks to completely draconian US-led regulation, opening a bank account anywhere is about as fun as a barium enema.  Opening a foreign bank account can be an even greater nightmare.

Most of the time, a foreign bank will want you standing there, in person, to open an account, as well as to provide a seemingly endless array of notarized documents, stamped papers, and letters of reference.

Trust me, it’s not their preference either… in order to keep from being blacklisted by the OECD, though, banks have to resort to this level of bureaucracy.  They’re called “Know Your Customer (KYC)” rules, and the idea is to over-collect personal and financial information in order to determine that a bank customer is not a terrorist.

Anyone with half a brain can see that this is one of the stupidest notions in the world.  It’s like locks on a door– if someone wants to break in, a pithy little lock is not going to stop him.  Similarly, if a “terrorist” (I hate even using that word) wants to open a bank account, an avalanche of paperwork is not going to stop him.

As an example, I would point to accused arms dealer Victor Bout who currently sits in prison right here in Thailand; Bout was placed under US and UN sanctions back in July 2004, and yet he was still able to register numerous Delaware companies with bank accounts.

All the KYC regulations do is make it much more difficult for everyone else.

In our regular conversations, we’ve talked about the importance of having a foreign bank account… it is an essential flag to plant overseas, and you want to really consider low-tax jurisdictions with a strong, stable financial sector that have a history of not plundering the banks.

This includes places like Switzerland, Hong Kong, Singapore, Panama, UAE, Qatar, and a few others.

Many people understand the need to move some money out of their home country but are simply unable to take a far away trip just to open a bank account.  If you’re one of these people, here’s an easy back door. It’s less than ideal, but it works.

The first thing you need to do is pick your banking jurisdiction, i.e. Hong Kong, Singapore, etc. and then find a large multinational bank in that jurisdiction that has a branch near you.

As an example, I will use Hong Kong and HSBC… though there are other jurisdictions and banks that you could use as well (Standard Chartered, etc.)  HSBC is a good example because it has a presence in more than 60 countries, and you’d be hard pressed to find a civilized place that does not have a branch.

Among HSBC’s many branches are offices in Los Angeles, Miami, Vancouver, etc. So first you call HSBC in Hong Kong, explain that you are a foreigner, want to open a bank account, and would like to certify all the paperwork through your local HSBC branch.

The HSBC rep in Hong Kong will fax you all the appropriate paperwork, and when you have completed the documentation requirements, you should get in touch with the nearest HSBC branch in your home country and make sure they have “international banking services” available.

Let’s say you live in Orlando… that means you should head down to Miami, and the Miami branch will validate all the documents on behalf of the Hong Kong office.

Afterwards, the Hong Kong office will receive the documents and finalize the account opening.

This is the fastest and easiest way to open a foreign bank account without actually having to fly to a foreign country and go through the process on the ground.

The obvious disadvantage is that many people do not want to deal with a large, multinational foreign bank like HSBC, Standard Chartered, etc. I agree; it’s better to deal with a solvent local bank that does not have a large international presence.

However, unless/until you are able to get on a plane and fly to Asia, Europe, or the Middle East, this is one of the best and most cost effective interim solutions.

To be clear, even though you are opening it through a local branch in your home country, the bank account will be considered foreign and based in the offshore jurisdiction that you chose. If you are a US citizen, this obliges you to file US Treasury form TDF-90-22.1 by June 30 of each year.

January 29, 2010
Boquete, Panama

It’s a beautiful day in the Panamanian highlands, and I’m taking the opportunity to explore the countryside for undervalued land deals.  The Chiriqui province of Panama, where I am now, is sort of like the Panamanian version of Texas– fiercely independent and proud… locals consider themselves to be citizens of Chiriqui first, and Panamanians second.

As we’ve discussed in previous letters, I have been sincerely exploring the idea of developing a subscribers-only sustainable community, and Chiriqui is on the short list of locations.

On that note, I really want to thank you for providing me with your feedback about the community concept; over 650 people have filled out the survey so far, and I’m convinced that the idea has tremendous merit. More to follow on that in the future– for now, let me get to some subscriber questions:

From Denise Dale: “Simon- I enjoyed your comparison between Panama & Costa Rica, but I felt you missed an important comparison:  the medical aspects of each country.  I, being 73 years young, would appreciate some statement regarding the medical facilities and medical personnel.  I do intend to move to Central America this year and may even renounce my current citizenship.”

Denise- Thanks for reminding us of such an important lesson… regardless of your situation in life– young, old, rich, poor, employed, jobless, etc., you can always expand your opportunities by looking overseas. Many US citizens are finding that the cost of healthcare is absolutely crippling, and you are sharp to consider opportunities south of the border.

In my opinion, *western* medical facilities and staff in Panama are unquestionably of higher quality than in Costa Rica– the hospitals are better equipped, the doctors are often US trained, and the costs are comparable to Costa Rica.

In regards to holistic and eastern medical practice, however, I would say that Costa Rica still edges out Panama, but this is a sector that is gaining quite quickly in Panama and I would estimate that within a few years it will surpass Costa Rica in its quality and breadth of service.

From Louis: “Simon, I noticed that the Swiss have halted their deal with U.S. authorities to turn over Americans with secret UBS bank accounts.  What do you think? Is this just a battle or has the whole war ended?”

Unfortunately, neither. It’s just a speed bump in the worldwide campaign to end financial privacy. I want to be very clear about this– you cannot rely on privacy with any financial institution in any jurisdiction, period… and do not expect that piling a complex array of bearer share companies and trustees will make the situation any better. It won’t.

Governments can obtain access to your bank and brokerage accounts, they will find out who the beneficial owners are, and they will absolutely demand their ’share’ of the income. Rest assured, penalties from noncompliance will be severe.

The reasons for going offshore have nothing to do with hiding money, but rather planting multiple flags– diversifying away from a single jurisdiction. If you are a US citizen with all of your money in the US, you will really wish that you had moved some money to a foreign bank account once they impose capital controls.

If you’re tired of giving your hard-earned money to corrupt bureaucrats, and your goal is to cut down on taxes, there are much, much better ways of doing that without taking the risk of ending up in prison.

Use foreign bank accounts for what they’re best purpose: protecting your capital from regulatory, litigation, and administrative risks. If you want to cut down on your taxes and achieve a lucrative deferral benefit, consider what I have discussed in the past about proper offshore and retirement structuring. I will continue to revisit these topics in the future.

Clayton asks: “Hello Simon, I am a new member. Are there any articles on buying foreclosed property in Panama?”

No, I have not yet specifically addressed foreclosures in Panama.  Like most things in life, to get access to foreclosure deals in Panama you have to know someone, usually a senior bank executive. There are a handful of real estate agents in Panama that tout foreclosed condos, but most of the time the deals have been stepped on and marked up so many times they do not even resemble a bargain.

On that note, one of the troubles about Panama’s real estate market is the lack of integrity and competence among the majority of agents. I’ve been operating down here for about 7 years and have burned through hundreds who have shown me their true colors. That’s why I put together the Panama Black Paper, which provides a short list of agents here that I actually trust.

Next week I plan on organizing a call with one of my trusted Panamanian real estate contacts who will discuss the state of the market, foreclosures, and some of the best deals he is working on.   Initially, I will make the call available exclusively to everyone who purchased a Black Paper, and then to the rest of the community.  Stay tuned for more details about that.

Lastly, Ken asks: “Simon, what are your thoughts on Belize?”

I wouldn’t go there. It’s pretty, but so are hundreds of other locations. Belize lacks the freedom that I’m looking for, and one needn’t look any further than their recent ‘amendment #6′ to the Belize Firearms Act.

This recent change to the law is about as draconian as it gets, threatening imprisonment without bail or trial for three months (and up to 5-years) just for being caught in the vicinity of an unregistered handgun. I won’t set foot in the country as long as this law is on the books.

That’s it for today, and I hope you have a great weekend.

Blair is in her early 40s from Southern California.  She’s intelligent, fairly aggressive, and an experienced financial executive at a mid-sized manufacturing company. In total, she has about $250,000 in savings, some of which she used to buy property in Panama.

She is single with no children and has been traveling to Panama to plant flags since 2006. She plans on (semi) retiring there in another 5-years and has unfortunately learned a lot of hard and costly lessons.

At the height of the global property boom, Blair bought a unit in an ocean-view condominium tower in the San Francisco barrio of Panama City. I like San Francisco– it is well located and presents a nice mix of local Panamanians and foreign expats.

At the time, however, San Francisco was put under a building moratorium because the neighborhood was severely overcapacity with its infrastructure.  Waste treatment facilities were overburdened to the point that raw sewage was washing away construction sites, water utilities couldn’t get pressure to higher floors.

Of course, Blair’s real estate agent didn’t mention any of this to her. He cheered her on to make the purchase, encouraging her wise decision-making and investment acumen at every step along the way.  He looked good, sounded good, and had even lived in Miami for a while… sounds like a trustworthy fellow worth his salt, right?

Wrong. Blair was terribly misinformed. Aside from the sewage and the lack of water pressure, even her beloved ocean view was gone before the building was even complete– another building was erected between her bedroom window and the sea, built by (you guessed it) the exact same developers.

Like many gringos, Blair found her real estate agent on Google and was initially impressed by his English skills and claims of knowing important people in the country. She admits to being taken as a fool and quite literally is paying the price for it.

(It is exactly for this reason that I put together my Panama Black Paper, released in September and December, which names names of people in Panama to do business with, and people to avoid like the plague.)

Because Blair has such a long-term view, though, she has taken everything in stride.  She feels that, by the time she semi-retires in five years, she will be able to recoup what she invested in the condo.  Meanwhile, as Panama City’s infrastructure improves, she has been able to generate positive rental cashflow on the unit.

She has since wised up to the city life, and these days she is actively searching for a new property outside of Panama City where it is cleaner, quieter, but still accessible.

By the time she is ready to move there, she expects several new multinationals to have relocated to the nearby Panama Pacifica commercial park located just outside of the city.  This commercial park, she believes, will present a lot of opportunity to entrepreneurial-minded people who can provide essential business services.

Because she expects to be generating business income in Panama, she plans on registering a Belize company to conduct the business, thus planting her business flag outside her country of (future) residence.

She told me that she already made this mistake once– two years ago she searched for “Panama companies” on the internet and purchased a corporation from one of the service providers who popped up.

As it turns out, a Panamanian corporation was the exact opposite of what she needed, and the Panamanian lawyer she spoke with had no earthly idea what her US tax implications would be as a result.

Blair has since straightened out her tax situation once she finally found a competent US tax attorney who had expert knowledge of international business structures and was willing to help her out without breaking the bank.

Aside from planting a residency and business flag, Blair has moved some money to a European bank; she feels comfortable in Austria because she does not live there or do business there, so the government has little cause to milk her.

Lastly, she is planning on eventually acquiring second citizenship, possibly through a South American program that I will be discussing next month.

Her ideal vision for the future will be living outside of Panama City as a citizen of a South American country, with her business based in Belize, generating revenue in Panama from multinational firms, and banking her capital in Austria.

Because her foreign business will neither be engaged in US trade nor generating US-source income, her company will not be subject to US corporate income tax. Additionally, as an expatriate, she will be able to pay herself a salary of roughly $90,000/year tax free.

I think one of the key lessons here is that planting multiple flags is not always a do-it-yourself process. As Blair’s story demonstrates, there are potential landmines along the way, though expert advice is available to ensure a smooth journey.

Knowing how critical this expert advice is, in the last few months we provided you with key contacts in the Panama Black Paper, and introduced you to a top international tax attorney.  Next month, we will be discussing South American residency and citizenship programs, so stay tuned for that.

January 19, 2010
Mexico City (DF), Mexico

For such a pale skinned gringo, his Spanish was impeccable. We were both sitting in the business class lounge at the airport, and the fluidity with which he was prattling away in Spanish on his mobile phone caught my attention.

Ordinarily, given his very light complexion and European fashion sense, I would have guessed that he was Argentine; his accent, however, was devoid of the traditional telltale Argentine indicators– the “sh” and “zh” sounds, use of the ‘vos’ for the second person, etc.

I was a bit puzzled and had plenty of time to kill thanks to an incomprehensible flight delay, so when he finished his conversation, I asked him (in Spanish) where he was from.

“I’m originally from Britain, ‘mate.” He must have noticed my surprise at hearing the Queen’s English, so he followed that up with “but I’ve been living in Caracas for over 20-years.”

Needless to say, this sparked a lengthy conversation between us about the politics of Hugo, the real situation on the ground in Venezuela, and what he’s doing to protect himself. I’ll call him Baldwin.

First, a bit of background is required– it’s important to know where a person is coming from to get a better understanding of his decisions.

In Baldwin’s case, he is an engineer by training and had originally come to Venezuela in the late 80s to help design and build a new manufacturing facility for a large European company. He spent a few years on the ground, and when an opportunity came up to start his own firm, he jumped all over it.

For the past two decades, Baldwin has built up a Latin America focused construction and design firm that specializes in working with western firms who have unique design challenges– clean manufacturing rooms, hazardous material, etc.

His business, based in Caracas, has been successful. He still lives in the city with his beautiful Venezuelan wife, and they have several children and grandchildren.

The family, he quipped, is his anchor… his reason for staying in Caracas despite Hugo Chavez’s daily plundering.

By Baldwin’s description, Chavez seems bent on turning Venezuela into Cuba– absolutely everything larger than a bicycle and more profitable than a lemonade stand owned or controlled by the government.

Before Chavez, Baldwin described Caracas as near paradise, even despite the occasional political uprising or economic instability.

“In the early 90s,” he said, “the instability was at least predictable… you could plan for it. Today, nobody knows what this guy [Chavez] is going to do next… least of all him. A few years ago I became afraid for my business.”

So what does a successful British-born entrepreneur living in rapidly decline socialist empire do?

The first thing he did the second that Chavez came to power was move his money out of the country… and it was a great move, because a short time later the government imposed severe exchange controls.

Today, Baldwin maintains a small emergency cash hoard of dollars and gold coins, plus enough money in the local banks to pay the bills each month.

Because he is an expatriate Brit and doesn’t need to worry about paying taxes to the Queen, he planted a few banking flags in Switzerland and Chile, and generally denominates his accounts in US dollars.

Yes, he realizes that the dollar has been on a terrible slide, but it’s the hard currency of choice in Venezuela.

In the early 2000s, after the failed CIA-instigated coup against Chavez, Baldwin began aggressively expanding his business and opened a satellite office in Chile. This office serves as his business’s escape hatch, so that if the worst should occur in Caracas, he will seamlessly be able to move to Chile.

Structurally, his business is registered in Venezuela… this is less than ideal for him– he would prefer to have a Panamanian company conducting business in Venezuela, but Chavez makes it very difficult for foreign companies to do business there without a local enterprise.

Personally, he maintains his postal and email addresses in Switzerland. For any physical mail, the company will scan and email, or forward upon request, every item that he receives.

He and his wife also own a personal escape hatch on the Spanish coast where they intend to go, and bring the family, if things become much worse in Caracas.

“What’s your breaking point?” I said, “What would make you hit the eject button?”

Without hesitation he replied, “With a physical invasion of my home by the government, we’d be on the next flight. I know, we should probably leave before that even happens, but like I said, my extended family is my anchor… so I’m putting up with it all for now.”

Baldwin was certainly an interesting person, and I think his example illustrates two important points– timing is critical, as is preparedness.

He moved his money out of the country at the first sign of trouble, and thus he was able to safeguard his wealth. And with escape hatches for both his business and family, he is secure knowing that his life and livelihood are not under the control of a socialist dictator.

If I have been too subtle in the past, let me be absolutely clear this afternoon: the time to do something, the time to take action to safeguard your future and your families livelihood, is NOW.

I’m more impassioned than usual this morning… and with reason.  Reluctantly, I tuned in to Team Obama’s press briefing last night about the ongoing saga of the Nigerian underwear bomber.  Obama’s is clearly trying to cultivate a fear of al-qaeda while simultaneously building blind trust in his government.

After the President’s remarks, his Homeland Security Secretary and Deputy National Security Advisor took the stage to unveil a series of proposals to ‘improve security.’

I’ll spare you the details as you have probably already heard them, but the bottom line is simply more government– a bureaucrat’s ultimate and only solution. This means more TSA, more air marshals, more undercover agents, more gun-toting soldiers, more pat-downs, more scanners, more searches, more scrutiny, more suspicion, etc.

How do you spell police state?

I’m ordinarily laid back about this sort of thing. I can afford to be since I’m a safe distance from all of that stupidity… but in this case I looked down to find that my knuckles were turning white, clenched around my glass of 2005 priorato.

I set my wine down and remarked to my friends who were watching with me, “What is it going to take for people to wake up and get the hell out of town? Do they need legions of storm troopers marching down the street before they realize it’s time to go??”

I was positively exacerbated.  The US is turning into a police state, and I’m not even saying this specifically to Americans living there. Many countries around the world are following close order behind Uncle Sam.

Once again, the time to act is now.  So what should you do?

First, make sure you have access to funds outside of your home country. This is one of the most important flags that you can plant.  You should open a foreign bank account (like I discussed in the Panama Black Paper), and/or consider storing precious metals in a private storage facility overseas.

Later this quarter, I plan on releasing a new Black Paper that contains actionable information to open an account at safe foreign banks that still take US customers.  You haven’t heard of most of them, and would probably never hear about them because it’s actually illegal for foreign bank to advertise in the United States in most cases.

Stay tuned for that.

Second, you should really be thinking hard about foreign property. Why? Because it can be a great investment; it’s an easy, non-reportable way to move money overseas; and it can be your escape hatch when you’re finally ready to hit the eject button.

Remember, I’m not talking about a 50 million euro villa in Monaco; you can pick up cheap land in Latin America for less than $50 per acre, and I’m pretty sure that everyone reading this letter has at least 50 bucks to spare.

Also, as I’ve discussed in the past, you can buy foreign property using your tax-deferred retirement savings, and I plan on revisiting this topic in short order because it is an absolute no-brainer.

Additionally, if there’s interest, I may also explore the idea of building a small, cost-effective, subscribers-only development.  It would likely be on the outskirts of Panama City and include self-sustaining fresh water and agricultural resources.

Third, if you have the means, you should really consider obtaining second (or third, fourth, etc.) citizenship. Second citizenship can be the ultimate emergency exit if things get really bad, and it effectively serves as the most comprehensive insurance policy you could even have.

I have a lot of contacts in this field, and my colleagues and I are currently experimenting with a few options that I plan on bringing to you soon.  I won’t bring you a passport program unless one of us has gone through the process ourselves, so give me some time while we play guinea pig.

Fourth, give serious consideration to your finances; unless you are already independently wealthy or have sustainable income streams, think about what you would do to earn money if you lost your job today.

Think about what skills you have– what problems can you solve that other people are willing to pay you for? What opportunities to you see around you that can be quickly and profitably exploited?

I guarantee you that there is opportunity everywhere around you. For example, a friend of mine is an intelligent, 22-year old girl who lives in Minsk, Belarus– the last bastion of the Iron Curtain.  While Belarus is not the totalitarian state it once was under the Soviet Empire, it’s pretty close.

And yet, despite living under a tyrannical yolk, my friend has become quite a successful entrepreneur, launching a successful brick-and-mortar company and several profitable web sites just within the last few months.

I raise this simply to point out that if an inexperienced but intelligent and energetic young girl can find opportunity in a place like Belarus, then I would wager that there is a plethora of opportunity out there in places like Panama, Abu Dhabi, Chile, China, Angola, Thailand, Bulgaria, and even the US/Europe.

In fact, I know this to be true because I see so much of this opportunity when I travel.

So those are the top four things I would recommend you do in making your own personal preparations. I clearly have a lot of work to do between the real estate, the citizenship programs, and the banking Black Paper… but after seeing the writing on the wall so plainly last night, I will be refocusing my efforts to get these moving quickly for you.

In the meantime, let me know your thoughts– I’m frankly curious to know what you would like to see in a real estate development, and at what, if anything, it would take for you to hit the eject button.

January 7, 2010

Reporting from: Estepona, Spain

I’ve long believed that exchange controls will eventually return to the developed world, specifically in the United States and Western Europe. Struggling to find buyers of their debt, these governments will likely impose strict penalties for net outflows and retail currency transactions.

Unfortunately, most people will be too broke, too stupid, or too distracted to care that their savings are trapped in a rapidly depreciating currency within a federalized, bankrupt financial system. You are clearly not one of these people or we wouldn’t be having this ongoing conversation.

Moving some money out of your home country now makes a lot of sense; if you keep all of your wealth within one country, particularly where you live or your business is based, you are completely exposed to exchange controls, tax confiscation, litigation, extortion, etc.

Opening a foreign bank account is certainly one approach; we have talked about that before and will continue to do so.  But gold presents an interesting alternative because it effectively exists outside of the financial system.

When you hold cash, either in a bank or in token amounts of a few thousand dollars, transactions are reported to the government.  Banks, brokers, real estate agents, car salesmen, etc. are essentially unpaid government agents, forced to report on their customers’ financial activities.

Turning paper currency into gold privatizes wealth; to most governments, gold is just personal property, like stamps, a wardrobe of tailored suits, or action figure collectibles.

Consequently, because most countries do not recognize gold as a monetary instrument (at least based on its market value), gold can be moved freely and privately across most borders.

Once overseas, it makes sense to store gold in a private vault facility that is not part of any financial system, nor required to conduct any reporting.

Best Safety Boxes in Panama is one such facility; there is also Singapore’s Cisco Certis; in Hong Kong, The Storage; and in Vienna, Das Safe. I’m in the process of updating a 2010 version of my “Moving and Storing Gold Overseas” free report to discuss these in more detail.

I will send it this newly updated report to all subscribers of my daily e-letter.

When you’re conducting your due diligence on a private storage facility, you obviously want to be comfortable with the security and reputation of the owners and management. More importantly, however, you should be comfortable with the jurisdiction.

Does the local government have a track record of seizing and confiscating private wealth? Is crime and corruption rampant? Are the police there to serve and protect, or to coerce and fleece? Do I have to pay customs duties when bringing in valuables?

These are important issues to think about, though having already investigated the aforementioned jurisdictions I am comfortable recommending all of them.

Another such issue you may want to consider is estate planning and continuity. Assume, for example, that you have a long-term lease in an overseas private storage facility that contains a considerable amount of physical metal… in the event of your untimely death, what happens to the box?

It’s an important question and varies by jurisdiction. In Panama, when an individual box holder dies, it will take a Panamanian court order to allow access to the beneficiaries or successors.

While corruption in Panama is clearly on the mend, I still wouldn’t want to petition a Panamanian judge for access to millions of dollars of gold locked in a vault. The bureaucracy alone would be mind-numbing.

One easy solution to this problem is to have a corporate account– establishing a Panamanian trust or corporation as the box-holder, the shares of which would automatically be granted to beneficiaries in the event of the principal shareholder’s death.

There are some potential tax reporting requirements if you own a Panamanian Corporation. Next week I plan on bringing in a widely respected tax attorney to give you all the details and discuss better strategies for using overseas corporations to your advantage.

Stay tuned.

January 4, 2010

Reporting from: Malaga, Spain
Welcome back; I hope you had a relaxing holiday.

I spent 10-days with my family combing through the Italian countryside and drinking some unbelievable wine from a local grape called “Primitivo.” It’s a distant cousin of the California Zinfandel, and is only found in this region. A bottle from the best vineyard will set you back about 9 euro.

For New Year’s Eve, I saw a fireworks show that was simultaneously the most disorganized and explosive I have ever witnessed… so literally for me, the new year began with a bang.

I’m optimistic about 2010. I know a lot of people in the financial community who think that ‘this is it,’ that 2010 shall bear the worst economic cataclysm in history, causing widespread doom and agony.

Sure the conditions are ripe for stock/bond market crashes, a currency crisis, and multiple sovereign debt defaults.  But these are a far cry from a gloomy end of human civilization.

It’s not that I have tremendous faith in world ‘leaders’ (as ridiculous a moniker as that is to use); last month’s debacle in Copenhagen only further underscored how perverse and ineffective the existing political process is, and everyone is really starting to see it.

The Social Contract is deteriorating rapidly, and in the end, the one thing that you can count on is that people will ultimately do what they perceive to be in their self-interest.  This is what drives markets and trends.

As the protracted effects of government stupidity become more apparent, one such trend that I see emerging this year is the rise of the sovereign individual– the rebirth of the multiple flags approach.

I’ve talked about this before and I wanted to start off the year with a quick primer since it is a recurring theme of this letter. To be more specific, I absolutely implore you to plant multiple flags as part of your New Year resolutions.

The idea, originally conceived by international finance guru Harry Schultz, suggests diversifying different aspects of your identity across multiple ‘flags,’ or geographic jurisdictions.

As an example, Schultz coined the term ‘three-flags’ in the 1960s, suggesting that an individual should have citizenship in one country, residence in another, and businesses in another.

Later authors expanded on this idea by adding other ‘flags,’ including places to bank, places to ‘play,’ places to house electronic assets, etc.

Many writers today talk about ‘five flags’ or ’six flags,’ but frankly I don’t see a limit on the number of things we can diversify geographically: email, citizenship, residence, banking, brokerages, gold/silver deposits, business registration, e-commerce, customer base, phone/fax, financial instruments, postal mail, etc.

So what’s the point? Why should you do this?

Diversifying geographically increases your freedom, your privacy, your sovereignty, and potentially reduces your tax burden. It protects you against bank failures, market changes, litigation, divorce, overzealous governments, and “NGC’s” (non-government criminals).

Perhaps even more importantly, planting multiple flags expands your existing contact base and opens a lot of doors to new opportunities.

Think of it like a life insurance policy– even if the worst never happens, it gives you great peace of mind and in many cases can rank as a significant asset.

While everyone recognizes these benefits of life insurance, no one actually expects to die anytime soon… so they put shopping for a policy on the back burner, sometimes until it’s too late.

In this case, the time to start diversifying internationally and planting multiple flags is now… before it’s too late– before currency controls are imposed, before tax codes change, before the last remaining foreign banks close their doors to foreigners.

I could cite you examples all day long, but I will list just a few hypothetical cases–

Imagine getting sued, losing the case, and having your financial assets commandeered by the court. Now imagine if your assets were safely offshore in another country.

Imagine being investigated by the government and having your email archives turned over to the authorities. Now imagine if your email server were in another country.

Imagine being robbed (taxed) by the government because your business is structured within its jurisdiction. Now imagine if your business were registered in another country.

Imagine having everything in your home country taken from theft, coercion, and litigation. Now imagine having cash and gold locked away in a secure, private vault overseas.

Imagine the social decay in your city getting so bad that riots and violent crime are a common occurrence. Now imagine having property overseas.

I’m sure you get the idea. Putting your assets, your business, your citizenship, your residency, your family’s livelihood under one flag, one government, is putting all of your eggs in one very frail, weak basket.

Technology makes it incredibly easy to diversify, and I see more and more people waking up to that reality each day. It takes only moments to set up an offshore email account, a few minutes to lease a private vault, and just a couple of hours to set up a company in Singapore.

The possibilities are truly endless, you just need to find the right tools and the right flags that work for you. Yes, even if you are a US citizen who is taxed on worldwide income, there are still several options available to live a multiple flags lifestyle.

I will be discussing the options in future letters, as well as individual case studies.

I receive a lot of subscriber questions, and while I cannot answer them all, I wanted to specifically address three of them that key in on recurring themes in this community– second citizenship, investing, international opportunities, corporate structures, banking, and gold/silver storage.

1) Paul asks– “I was wondering what your 1st choice would be in setting up an online business offshore.  Which country would be best for business structure, hosting, and merchant accounts?”

There are a lot of great reasons to have an online business– portability, scalability, maneuverability. You can go from zero to profit very quickly, and the Internet allows people to live and work anywhere on the globe.

Most importantly, though, online enterprises provide a great opportunity to easily plant multiple flags in a cost efficient way; you can live in one country, have citizenship in another, have your business structured in another, process credit cards in another, and have your servers based in another.

This prevents significant influence from any single government over your business. As to the right jurisdiction? This is a tough call because it really depends on your country of citizenship and your country of residence.

The United States, for example, is one of a handful of countries that tax its residents on their worldwide income. Some people with online businesses think they are smart because they structure their business in some Panamanian IBC and/or process credit card transactions offshore.

Then they don’t report the income and hold everything offshore.

Not only is this a completely bonehead move, it’s largely illegal. The IRS has clear rules for what it calls ‘check the box’ entities, as well as how to determine the source of income.

I’m going to be talking about this much more in the future, but for now, the bottom line is simple: with a well-structured plan, it is possible to set up an online business to maximize your personal tax advantage while minimizing sovereign risk.

There is great danger, however, in establishing an overseas structure without performing substantial research into the tax implications of your home country.

I’m going to help you solve this problem in a few weeks– early next year, I will bring you some really valuable information from some top North American tax advisers who specialize in offshore structures; they’ll teach you what you need to watch out for.

For instance, you may want to consider structuring your business in a country that has a comprehensive tax treaty with your home country. Switzerland is a great example that has treaties with both the US and Canada. Zero-tax jurisdictions like Panama or BVI do not have tax treaties.

More to follow on this in a few weeks, it’s an incredibly important topic that merits more than a short-answer.

2) Peter asks: “What do you think about Israel? In spite of all the political unrest in the news, Israel has a growing GDP and has a decreasing trade deficit.”

This is a great question.  My take on Israel is that it’s a great place for second (fairly valuable) citizenship.  If you’re willing to convert to Judaism and live in Israel for a bit, you can obtain an Israeli passport fairly easily.

Other than that, I’m not keen on investing in the country; it’s too closely tied with the United States, and there is no ‘blood in the streets’ discount that you would expect of a nation perpetually at war.

If you compare Israel to a place like Sri Lanka, there is no contest when it comes to value.

3) Stefan asks: “I have an account at DBS (Singapore) but they do not give any information about bankruptcy protection. Do you know anything about this? Do you prefer other Singapore banks? Any idea for a safe deposit box in Singapore?”

I can’t comment specifically on DBS, but you should always, ALWAYS, feel comfortable with the balance sheet of your financial institution. Banks in the US are backed by the FDIC, and this gives some people confidence in their account value.

I am not one of them. I bank overseas because I trust in the financial solvency of overseas institutions, but it means I have to do my homework.

Even the most cursory analysis can say a lot about a bank– what is their ratio of liquid assets to deposits? Does the loan portfolio consist of ticking time bombs? How well are they provisioned against loss?

This is why I wrote about Islamic banking a few weeks ago; based on requirements of their religious law, Islamic banks tend to have higher capital adequacy ratios, providing a greater cushion against insolvency in the event of a financial cataclysm.

There are several Islamic banking institutions in Singapore, though overall I’m quite confident in the country’s financial infrastructure. I rely on it myself.

As for gold storage in Singapore, look at Cisco-Certis. Their facilities have fantastic security, and the boxes are reasonably priced.

So much for BMW’s run-flat tires. Believe it or not, I’m actually sitting on the side of the A3 motorway in central Germany, about halfway between Frankfurt and Munich, waiting for the tow-truck to arrive. 

Apparently you’re supposed to be able to drive on these tires even when they’re flat… and with such confidence in their country’s manufacturing capabilities, the German rental car company didn’t bother providing me with a spare.  Call me old-fashioned, but I’ll take a spare and a jack over run-flat tires any day.

Given what we put this car through, though, it has performed admirably– about 2,500 miles of hard driving in just 4 days at speeds usually exceeding 200 km/h.  You see a lot of interesting things when you spend that kind of time on the road, and one of my observations leads me to believe that we are in for a major shift world finance.

For starters, customs agents across Western Europe are visibly out in force, patrolling the highways and major travel hubs.  Their mission? Generate revenue, coercively if necessary.

In just a single 12-hour period, we were stopped twice in France by government thugs.  Similar to my treatment that I described last week at Helsinki airport, the encounter felt more like an inquisition– where were we driving from, what were we doing there, what do we do for a living, and most importantly, how much money were we carrying…?

They seemed disappointed and skeptical when we said “uh, about 250 euro…” as if two well-dressed gentlemen in a nice sports car were cosmically obliged to be carrying more than 10,000 euro.

They didn’t take our word for it and continued the snooping and inquisition.  If this had happened only one time, I would have written it off as an anomaly. But multiple times within a short period of time is suggestive of a broader agenda.

My business partner Matt had a similar experience before his flight from Chicago to Frankfurt just last week; as he was strolling down the jet bridge to board the plane from the business class entrance, he ran into a squad of customs agents waiting to randomly inspect passengers.

Once again, their chief concern was monetary instruments– How much cash was he carrying?

Customs officials are like feudal lords; they wield supreme power in their little border fiefdoms and have the authority to confiscate whatever they like, for any reason, and then stick you with the onus of proving your innocence.

This is exactly why the government has its people patrolling the airports and highways… low on ‘hope’ and short on ‘real change’, the government has tasked its border enforcement with grabbing as much cash as possible.  It’s sort of like setting up a speed trap in a small town with no economic prospects.

If customs officials believe the amount of money that you are carrying is for suspicious purposes, they have the authority to relieve you of your cash, Constitution be damned. The same standards apply in Europe. In a very literal sense, this amounts to highway robbery.

The standard generally applied is “presumed guilty until proven innocent,” and I think it’s safe to assume that these types of searches and seizures specific to monetary instruments will increase.  More importantly, though, these measures are likely an overture to the eventual implementation of capital controls.

Governments rely on capital controls to regulate the flow of capital through their borders.  In times of crisis begotten by political stupidity, they have an even greater need to keep money on shore to ensure that you’re paying your fair share of somebody else’s mortgage.

The first step in capital controls is to go after cash; it raises money through confiscation and makes people rely more on the banking system out of fear.  The next step is to re-regulate the banking system to make cash transactions more cumbersome and dealing with foreign financial institutions more controlled.

This is already in the works with the recently passed US House of Representatives bill H.R. 4213.

I discussed this trend towards capital controls three-months ago, but frankly I am surprised at how fast things are moving. The time to plant a financial flag overseas is now, and there are a couple of ways to do that.

First, foreign bank and brokerage accounts are a reasonable solution. I’ve mentioned this numerous times in the past, most recently with a discussion about Islamic Banking. I think that Panama, Singapore, Hong Kong, UAE, Malaysia, and Canada are all reasonable places to bank.  There are many more that I will be discussing in the future.

While there are some annual disclosures to file in some countries (like the US), it is completely legal to have a foreign bank account, and I doubt governments will ever change that… they’ll just make it next to impossible to move money.

That’s why the window of opportunity is now.

Second, buying foreign property makes a lot of sense. At present, there are no reporting requirements for foreign real estate, and as we have discussed in the past, you can even move individual retirement savings into foreign land.

More to follow on all of this. Stay tuned.

I spent a couple of days this week in a fast BMW with Matt, my friend and business partner. We had a meeting in southern Spain yesterday with a key figure in the world of second passports, and we raced at speeds up to 250 km/h so that we could make the meeting and bring you some tremendously valuable information.

It came at a price– six speeding tickets in total, mostly across the south of France and Monte Carlo. What can I say, I have a heavy foot…

The meeting was great, and it gave me quite a bit to digest.  Our host was one of the most knowledgeable people I have ever known regarding second passport opportunities.  Shortly, once I am able to work through some of the information and go through the process myself, I plan on discussing these very interesting solutions with you.

But first, though, I thought I would answer some of your questions from the last few weeks before I enjoy a nice weekend in Frankfurt with a new inductee to the Atlas 400 club.

First off– yesterday I discussed my observations on the ground here in Europe; the European tax situation makes most goods and services extraordinarily overpriced, and these prices are passed on to the consumer. Eventually, the cycle of higher wages and higher prices becomes simply another form of inflation… as higher taxes are coming to the US, similar price inflation will follow.

Based on a tax-free pricing model, however, the euro still appears overvalued against the dollar, and the dollar is undervalued against ’stuff’, that is goods and services that consumers buy. I argued that one way to play this is to short the euro against gold and silver, thus profiting from the euro’s correction as well as a rise in inflation.

How to do it? Well, Denmark-based Saxo Bank, which has no nationality restrictions for new customers, trades spot metal prices against a variety of currencies, including US dollar, euro, Hong Kong dollar, yen, etc. In other words, you can take a long position on gold or silver, and a short position against a major currency.

To take a long gold/short euro trade on Saxo, the ticker is XAUEUR, and XAGEUR for silver. I tend to look further out, though, so I’m planning an investment that is a combination of long-term currency put options combined with gold/silver call options in 2011.  I can discuss this in further detail if you are interested.

* Questions from subscribers *

1) Stan asks “Simon, regarding international brokerages- what would you suggest for European citizens who don’t want to hide their wealth, but move money out of the US and Europe? Are HK or Singapore better?”

In a word, yes. US and European officials are getting increasingly desperate for cash, and they will look in every dark corner they can find for a few pennies.  In a single day on this Europe trip, I was stopped twice in France by customs thugs wondering how much currency I was transporting in the car.

Bottom line, they need money, and they’ll find it. After all, only ‘rich’ people invest in the markets.

Asian jurisdictions are safer for western investors simply because it makes more sense to have your money in a place where you do not live– this is central to the multiple flags approach. Furthermore, while financial privacy has gone away, they are less likely to submit to western governments– especially Hong Kong which is backed by mainland China.

Try Boom Securities, based out of Hong Kong, at home.book.com.hk

2) Andrew asks: “I hear a lot of recommendations for exotic locations, but the majority of very wealthy Americans I know have half a foot in New Zealand. What do you think about New Zealand?”

New Zealand is beautiful, peaceful, slow-paced, reasonably-priced, and devoid of anything particularly interesting. The taxes are cumbersome for residents, but as a location to obtain a second passport for non-residents, New Zealand is spectacular.

3) Chris asks: “What Islamic banks, if any, allow Americans to open bank accounts online?”

Worldwide “Know Your Customer” rules require new branch banking customers to show up at least once, unless an intermediary has a very personal relationship with the banker… either way, the account is not generally opened over the internet.

4) Taylor asks “Simon, regarding foreign bank accounts, can’t US citizens side step institutions who won’t accept US clients by opening a Panamanian corporation?”

Sure, in some instances… many banks won’t work with US citizens directly as a customer, but they will work with a corporation or trust whose beneficiary is a US citizen. There is nothing illegal about this as long as the bank is made aware of the arrangement.

Lastly, as an administrative note, I want to tell you that I am planning on making the site much more interactive in the early part of 2010. I think you’ll really like what we’re doing, so stay tuned.

It’s true what they say about the Autobahn… there really is no speed limit.  I’ve been in the car all day with my close friend and business partner Matt, racing our BMW from Stuttgart to Monaco.  Our goal is to reach Spain by the end of this week where we have some important meetings lined up on your behalf.

If everything goes as planned, I will be able to bring you some incredibly unique opportunities very soon… and you’ll see what I’m talking about in a moment.

To begin with, one of my missions on this trip to Europe is to investigate some new international brokerages; I’ve discussed Denmark-based Saxo Bank in the past, and I have had reasonably good experiences with them. Unlike many other financial institutions in Europe, they still open accounts for US citizens, which is becoming quite unusual.

I’ve looked into two other brokerages so far on this trip… and while I’m confident in their financial stability and execution, they are unfortunately NOT for US citizens. 

The first is Luxembourg-based Internaxx, which is a joint venture between TD and BNP Paribas. Backed by roughly $50 billion in assets, Internaxx trades stocks, futures, and foreign currency from one account with reasonable commissions and instant execution.

The second is Cyprus-based FxPro; it is an online brokerage that, despite the name, trades a wide variety of products.  Its bread-and-butter is currency transactions, for which the brokerage offers leverage up to 1:500.  For example, with a $10,000 account, a customer can trade up to $5,000,000 in currency transactions.

Clearly this would be a tremendously risky move, but exercising a bit of leverage can multiply returns while avoiding significant downside.  I use this technique frequently in my own trades.

FxPro’s currency transactions are also well-priced, with many spreads as tight as 0.5 pips with no commission, putting it among the lowest in the business.

In addition to currency transactions, FxPro also trades major US equity CFDs, or ‘contracts for difference’.  A CFD is a financial contract whereby an investor receives the gains and losses from the value of a security, without actually owning the security.  For example, if the value of CocaCola stock increases by 10%, an investor who has acquired a Coke CFD will also realize a 10% gain.

CFDs are commonplace among foreign brokerages that want to provide customers with the benefit of US stocks but without the unnecessary hassle of the US government or financial compliance.  CFDs are generally offered for the largest blue chip stocks with lots of 100 shares each.

Similar to equity CFDs, FxPro trades futures CFDs for the most popular commodities like crude oil and natural gas.  Personally, I don’t find CFDs very compelling as I would rather buy the underlying security if I decide to make an investment… but for some people, particularly based on tax situation, CFDs can be an excellent investment option.

Most importantly, FxPro trades in the spot market for precious metals; you can buy gold and silver 24-hours a day during the work week, with a maximum leverage of 1:50. Again, this means that you can leverage a $10,000 account to purchasing power of $500,000, borrowing the remainder from the brokerage at ultra-low rates thanks to Comrade Bernanke.

FxPro has offices all over Europe, and the brokerage is regulated by the Cyprus Securities and Exchange Commission under the EU Markets and Financial Instruments Directive.  It is also part of the “Investor Compensation Fund,” which is sort of a European version of the SIPC.

You can fund an account with a wire transfer, credit card, and even Paypal… and opening an account is fairly simple; a short application and scanned copy of picture ID is required. 

Again, though, neither Internaxx nor FxPro accepts US clients anymore… it has really become a black eye to carry around the blue passport.  This is just one of the many, many reasons why you should consider second citizenship.  In a way, it is the ultimate insurance policy, providing you a way to mitigate social, political, and economic risks.

Think about it– a US citizen who wants to move his money out of quasi-government controlled US banks is finding it almost impossible these days to find a foreign bank willing to work with him.  Uncle Sam makes it too much of a hassle for them.

History is full of lessons that demonstrates that government is unequivocally fallible. The recent debt crisis in Dubai underscored this point further, particularly as it relates to finance. Having your entire security, livelihood, and future tied up under a single government is quite literally putting all of your eggs in one very frail basket.

There is nothing illegal about any of this.  It’s completely legal to have foreign accounts (as long as you report them). It’s completely legal to obtain second citizenships. These are intelligent, sophisticated solutions that I would encourage everyone to consider… and it is exactly for this reason that we are heading to Spain at a very high rate of speed.

Stay tuned.

Long ago, physical commodities were used as a mediums of exchange… gold and silver were quite popular because they were scarce, divisible, durable, and hard to replicate.

If you had a few extra ounces laying around and wanted to store it securely, you would seek out the people who dealt with precious metals all the time and had the right equipment and staff to keep it safe.  At the time, those were goldsmiths.

In exchange for keeping your wealth safe, goldsmiths would charge a fee… and for that fee, you could drop by any time and withdraw some of your gold on demand.

In other cases, if you wouldn’t be needing your gold for a while, you could leave it with him for a fixed period, say 1-year. In this case, the goldsmith would pay you interest on the deposit, knowing that he could loan out the gold to someone in need of capital at a higher rate for the same duration.

It was a simple, admirable system. When you wanted your money, it was there; if you didn’t need it, you could earn a return.

Over time, the system changed. Goldsmiths (turned bankers) began issuing paper notes which were redeemable for the gold that was secured in their vaults. The paper notes circulating around town were ‘as good as gold,’ depending on the bank’s reputation.

Occasionally, a greedy banker would circulate too many notes around town– $100,000 worth of gold in the vault, $110,000 worth of notes circulating around town. The banker got rich, and no one really noticed… until $110,000 became $150,000 became $200,000.

Then suddenly, noticing the spike in money supply, the townspeople would lose confidence in the note and descend on the bank to demand their gold. The banks collapsed and depositors took it on the chin.

Naturally, governments eventually became involved.  They standardized a single paper currency for the country and took charge of securing the nation’s gold reserves.  In the United States, perhaps the greatest change took place in 1913.

After intense Congressional deliberation, Woodrow Wilson signed the Federal Reserve Act into law in December of that year. Aside from creating the United States Federal Reserve, the Act created a regulatory structure for a nationwide fractional reserve banking system.  And from that day forward, every bank in the country became effectively insolvent.

Fractional reserve banking is the practice of loaning out more money than is on deposit. Someone deposits $10 in a bank; the banker keeps $1 in the vault and loans out the other $9. That $9 makes its way through the economy and is eventually deposited in the bank. The banker keeps $0.90 and loans out the other $8.10.

This scheme is repeated over and over again until there is $100 floating around the economy based on a single deposit of $10.  An additional $90 was conjured out of thin air by the bank.

Suppose you went to a storage facility and paid them to secure your furniture… if the facility owners went behind your back and loaned out your kitchen table, this would constitute fraud.  Yet in banking, this is standard practice thanks to the Federal Reserve Act.

The Fed governs the ‘reserve ratio,’ which is the amount of deposits that banks actually have to keep on hand. Depending on the type of deposit, it ranges from 0% to 10%.

The system works when everyone has confidence. When they don’t, banks go under– and that is exactly what is happening right now.  Between balance sheet deterioration and loss of depositor confidence, banks are dropping like flies… but hey, don’t worry, the taxpayers have you covered.

Personally, I want to put my money in a place where the bank will actually hang on to it and no one has to rely on a taxpayer bailout.

One solution that you won’t hear too many people talk about is Islamic Banking.  Based on the ‘Shariah’ principles of Islamic law, Islamic banks in theory must hold 100% of their demand deposits in reserve.

In practice, thanks to creative deals and a bit of leniency from Muslim scholars, the reserve ratio is a bit less than 100% for Islamic banks… but as a whole, their reserves and financial strength are extraordinarily higher than western banks that are on the fractional reserve system.

If you are concerned about what another financial meltdown will do to your bank account, consider opening an account at an Islamic bank. Abu Dhabi Islamic Bank in the UAE is one example– they work with US citizens and even have safety deposit boxes for rent.  ADIB has branches across the country, including in Dubai.

Outside of the Gulf region, Singapore and Malaysia are two up-and-coming Islamic Banking centers that have interesting tax advantages. Malaysia is particularly interesting because of its tax-free Labuan region.  I’ll be discussing this in future letters.

As a final note this afternoon– I know Turkey day is tomorrow in the United States even though it will just be Thursday here in Asia, but I will likely refrain from email for the next two days and talk with you again on Monday.

And don’t forget that next Tuesday will be the 2nd release of the Panama Black Paper– only 25 copies will be sold, so if you want a copy, make sure you sign up to be on our pre-notification list. 12/1/2009 update: We received a lot of feedback from subscribers around the world in ‘inconvenient’ time zones that would be unavailable for the pre-notification launch… I understand this more than most people– 12pm on the east coast is the middle of the night in Sydney. Consequently, we are sending out a public notification on December 1st will keep it open for 24-hours.

If he keeps this up, they might start calling it Panama, Inc.

Panamanian President Ricardo Martinelli has been in office less than 6-months, yet to the extent that it is politically possible, he seems bent on running Panama with the same vision as when he ran the chain of supermarkets that made him one of the country’s wealthiest men.

Step 1– eliminate corruption in the government. All side deals and back room handshakes that were entered into under previous administrations are now off the table.  Martinelli has been leading from the front, personally strong-arming several businessmen who had been paying off bureaucrats for years.

His efforts seem to be working. In the past, anyone in the government beyond the level of basic peon used to be Old Faithful when it came time to accept ‘expedite fees.’ Not anymore. People are actually focused on doing their jobs and playing by the rules.

Martinelli is also keen on business and tax reforms.  He proposed a flat tax during the campaign and will likely push for relaxing Panama’s strict labor code to make it easier for entrepreneurs to hire and fire employees.

He is also taking advantage of historically low interest rates to make some much needed investments in the country’s infrastructure; as a business owner, he would do the same thing– capitalize on cheap money to invest in positive NPV projects that will generate a return for shareholders.

As such, the Panamanian government recently issued $1 billion in 10-year notes, yielding 5.224%.  This is about 1.8% higher than the US 10-year yield. The issuance coincided with S&P’s very enthusiastic upgrade of Panama’s credit rating, which is now one level below investment-grade.

$1 billion is a lot of money in Panama, roughly 6% of GDP. It would be like the United States issuing $1 trillion in debt, all at one time… it’s an enormous amount of money, but Panama’s dollarized economy can handle the inflows.

With so many capital-intensive public projects like highway construction, the Canal expansion, airport renovations, etc., the money will likely be spent quickly. But considering the direction that Panama is headed, Martinelli will likely come away looking very smart for making these investments with a cost of capital at only 5.224%.

At the moment, he has popular support as well.  His approval ratings are just about the highest in the western hemisphere at over 90%, compared with Barrack Obama’s 53%, Hugo Chavez at 46%, and Argentina’s Cristina Kirchner at a laughable 20%.

So what does all of this mean for banking and real estate?

Panama still has banking secrecy and will likely be, along with Hong Kong, the last holdouts that will buckle to the OECD’s offshore witch hunt. But that’s not necessarily the reason you want to consider Panama for international banking.

Panama’s banking system is very mature and offers a variety of unique products and services– online wire transfers to anywhere in the world, debit/credit cards, and personal attention from a private banker. Furthermore, it is actually possible to obtain a loan in Panama, which is next to impossible in many other jurisdictions.

Most importantly, though, Panamanian banks are well capitalized; they largely dodged the meltdown that wrecked havoc in North America and Europe, and their balance sheets remain strong.

Regarding real estate, I have been very vocal about my thoughts on Panama’s future; it is not without its problems, but given the maturing economic growth engines and massive infrastructure development that is underway, the country is clearly on an upward trajectory.

Martinelli’s actions are keeping Panama on the right track, and I believe the country will remain a safe long-term bet for investors and residents, as long as you don’t end up with the wrong people.

Like any boomtown, Panama has attracted its share of shady characters. You see the same types of folks in Dubai, New York, and even here in Bangkok.

The problem is that many gringos rely solely on Google for their ‘due diligence’; they do a search for “Panama Property” and the first presentable looking, English speaking bloke who pops up becomes ‘their guy’.

This sort of thing is truly dangerous, yet it happens all the time. I personally have burned through dozens of bankers, lawyers, and real estate agents in Panama who didn’t measure up, either lacking competence, character, or both.

The fact is, some Panamanians have made a science out of taking advantage of gringos coming down to Panama.   These guys look good, sound good, but absolutely cannot be trusted.

Over time, I assembled a list of the most intelligent, honest people that I have worked with in the country, as well as a list of people who should be avoided like the plague. The whole thing was packaged together in what I called the “Panama Black Paper.”

Initially, I released only 25 copies because I did not want to inundate my trusted contacts.  I know that many subscribers were not able to get in on the first release, so after clearing it with many of my contacts, I’ve decided to release another 25 copies of the Panama Black Paper.

I plan on doing this on Tuesday, December 1st at a cost of $297.  I fully expect all 25 to sell very quickly again, so if you’re interested in getting access to my personal Panama rolodex, I suggest you fill out the following Pre-Notification Form.

By signing up for the early notification, I’ll email you a special purchase link at least two hours before The Panama Black Paper officially launches. 12/1/2009 update: We received a lot of feedback from subscribers around the world in ‘inconvenient’ time zones that would be unavailable for the pre-notification launch… I understand this more than most people– 12pm on the east coast is the middle of the night in Sydney. Consequently, we are sending out a public notification on December 1st will keep it open for 24-hours.

Updated 9/23/2009 (thanks JES)

People ask me this question a lot– what’s the best way to diversify US dollar holdings into other currencies?

Well, ‘best’ is certainly relative… I prefer commodities and precious metals as a way to protect my savings, but I can’t exactly pay my American Express bill with the bullion that I have locked away in South America.

Living in the 21st century among our modern conveniences nearly requires that we at least keep part of our wealth within the financial system– this means converting US dollars into another currency, and tucking that currency away at a bank or brokerage that is still plugged in.

So what’s the best way to do it?

Naturally, I think everyone should have at least one foreign bank account, preferably in a strong banking jurisdiction.  This has nothing to do with privacy or secrecy; rather, having a foreign account is an insurance policy against stupidity risk from the stooges who run most governments.

The day they decide to implement exchange controls, take an unsolicited dip in people’s bank accounts, force people to buy their debt, or a variety of other destructive measures, your money will be safely fenced off in foreign lands.  Additionally, in most cases you will be diversified out of the dollar, safeguarding the purchasing power of your savings.

In the past, I’ve discussed opening foreign bank accounts in places like Austria, Panama, and Asia… though I have to admit that I’m a bit of WC Fields when it comes to foreign bank accounts.  For most people, though, a single well-placed foreign account is an excellent hedge, as long as you select a bank, jurisdiction, and currency that you feel comfortable with.

But what if you want the ability to move your savings in and out of different currencies– you think the Australian dollar will do well, and then months later decide that the Swiss Franc’s fundamentals look attractive.  It would certainly be inconvenient and costly to transfer savings among multiple bank accounts.

In this case I would point you towards three specific brokerages that provide an elegant solution to this problem.

Interactive Brokers (US-based), Saxo Bank (European based), and Boom Securities (Hong Kong based) all allow users to log on and change their account’s “base currency” with the click of a button.  US citizens can open accounts at any of these brokerages.

For example, suppose you fund your Interactive Brokers account today with $500,000 US dollars.  Immediately, you decide that you would rather have your money in Swiss francs (CHF)… no problem. Log on to your account administration, select CHF under ‘base currency,’ and at the end of the day, the brokerage will convert your capital into francs at the spot rate.

The next time you log on to your account, the value will be CHF 510,000 (reflecting a spot rate of $1 = CHF 1.02).  Afterwards, regardless of how much the dollar falls against the franc, your account value will always be CHF 510,000.

You can do this as many times as you like, as frequently as you like.

Interactive Brokers denominates accounts in US dollars, euro, British pounds, Canadian dollars, Hong Kong dollars, Indian rupees, Japanese yen, Mexican pesos, Swedish koruna, Swiss francs, and Australian dollars.  IB is US-based, so there is no disclosure paperwork to be filed with Uncle Sam. Update: IB charges a fee ($10) for inactivity, so check with them before you open an account.

Boom Securities denominates accounts in Hong Kong dollars, Singapore dollars, Australian dollars, US dollars, and Japanese yen; furthermore, Boom accounts pay interest on deposits. Update: Boom charges an annual fee of about $25.

Saxo Bank denominates accounts in Hong Kong dollars, British pounds, euro, Swiss Francs, Canadian dollars, Hungarian forint, Czech koruna, Norwegian koruna, New Zealand dollars, Singapore dollars, Turkish lira, Israeli shekels, South African rand, UAE dirhams, and Japanese yen; plus they can take credit card deposits from Visa and Mastercard.

Each of these brokerages is plugged in to the global financial system, so you can move funds to and from your brokerage account as easily as you can with your existing bank account.  Furthermore, even though these brokerages are set up for trading, you can hold your capital in a variety of currencies without ever placing a single trade. Fees may apply.

Today I found out first hand how much Chinese are looking to avoid taxes.

I attended a conference today sponsored by the government of Labuan, Malaysia at the Grand Hyatt here in Shanghai.  Labuan is Asia’s newest financial center, and the government there is heavily courting wealthy Chinese investors and businesses to migrate their capital.

There are a lot of rich Chinese businessmen who are looking for a way to reduce their tax burden, and most don’t have a clue where to begin. This conference was a significant step in educating high net worth individuals, as well as their advisers, on the advantages of proper offshore planning.

Christine Verone, my local contact and old friend here in Shanghai, pulled some strings to score us some tickets. We were nearly the only white people at the conference… but her insider connections have paid off because the contacts I could turn out to be priceless.

Labuan’s key principals gave presentation after presentation, highlighting the benefits and advantages of doing business there. Christine and I were able to meet with many of them in a more intimate setting after the conference to get the real scoop on how things work.

Quick overview: Labuan is a federal territory of Malaysia– essentially an independent state with its own laws but protected by the sovereignty of Malaysia… replete with access to the double taxation agreements (69 of them), common law standards, and easy access to Asia’s key markets.

Naturally, like most other low tax jurisdictions, Labuan levies essentially no tax for most companies with non-Malaysian sourced income… no income tax, no stamp duties, no withholding tax, no dividend tax, no service fees, etc. Even salaries paid to company directors are not taxable in Labuan.

Consequently, the jurisdiction is becoming more popular with Asian businesses. For example, Air Asia, one of Asia’s low cost carriers, bases its operations in Labuan.  According to the company CEO, this decision saves the airline millions of dollars each year and affords it the opportunity to keep fares low and stay competitive.

But this is all standard stuff for low-tax jurisdictions. Labuan excels in other areas, and this is why you should really care:

- ANYONE can open a bank/brokerage account there, and the process is incredibly simple and transparent. In the time it takes you to open an account in Hong Kong, you can probably open 100 accounts in Labuan. Nearly every sophisticated banking institution in the world now has a branch in Labuan, and they have actual professional bankers staffing the branches, unlike Seychelles, Cayman Islands, etc. where you get a bunch of ninnies in monkey suits.

- Labuan is part of Malaysia. Malaysia is a Muslim country in Asia. This puts Labuan effectively under both the Chinese umbrella and the Middle East umbrella, making it extraordinarily easy to raise money and providing geopolitical independence that other low-tax jurisdictions do not have.

- Unlike other ‘name plate’ jurisdictions like BVI where lawyers churn out companies simply to avoid taxes, Labuan incorporation agencies provide a full suite of cost-effective back office services to fully staff operations with qualified employees.

- Brokerages set up through Labuan trust accounts provide access to all of Asia’s financial markets with nearly unbreakable protection against creditors.  Setup costs are roughly 1/3 as much as Hong Kong.

- Like Singapore, raising money for start-ups is much easier in Labuan than other jurisdictions because of the availability of capital. Banks are awash with money, and structuring a tax-advantageous fund is a relatively uncomplex procedure there.

Based on the contacts that we made today, I will be having further discussions with many key principals in Labuan to explore the full range of services that these lawyers, trust companies, and private bankers offer.  In my opinion, for anyone with significant international operations, Labuan is definitely worth looking into.

More to follow.

I’ve explored Singapore in the past, but on this particular trip I really wanted to broaden my understanding of the country’s legal framework and financial infrastructure. With only 72-hours on the ground, I would have to work fast… so the trip was a whirlwind tour of bankers, lawyers, gold dealers, corporate secretaries, and international tax planners.

Here’s the good news: Mission Accomplished. I learned far more than I expected, caught up with old connections, made new ones… and yes, found groups who are happy to work with US citizens.

There is far too much information to jam into a single missive… and much of what I have to say is highly sensitive– most of these people don’t want their names broadcast all over the internet. I may do a Singapore Black Paper if there’s interest, but first let me make a few summary points:

1) Gold and silver are part of the culture here– you can buy a variety of bars and bullion at just about any bank.  At $991/ounce, a 1-ounce bar was selling for $1107.97 at UOB, one of Singapore’s largest banks. This price includes a 7% gross sales tax (which I’m convinced will eventually be levied in the United States as well).

As for storage options, not only did most banks have zero safety deposit boxes available, but they had a waiting list that runs for several years.  For such an entrepreneurial place, private industry has come up with a solution.

Certis Cisco logistics manages a private secure storage facility with three branches in Singapore. I personally inspected the Jalan Afifi location, which is open 16-hours a day, every day. The security is top-notch, and box rentals start at $99/year.  Click here for more information.

2) Singapore has total banking privacy, and in some situations the banks will not even require beneficial owner information for corporate accounts.

Procedures to open a bank account vary greatly from bank to bank. For example, when I told the account manager my situation, Bank of China basically laughed at me. Other banks I met with were much more welcoming.

It is possible for a foreigner with no presence in Singapore to open a bank account, but only at select institutions. The most effective method by far, though, is to apply for residency through either the EntrePass or EmployeePass program; in this case, opening a bank account is quite painless.

3) Singapore is a common law jurisdiction with trusts and private limited companies set up in the style of Hong Kong, which is obviously based on English rule. To structure a company, only one director is required, though s/he must be a Singapore resident.

Setting up a company is very easy– it can be done online and takes as little as 24-hours to complete. In my opinion, there is tremendous benefit to structuring business activities through a Singapore company, but that will have to wait for another day.

4) Last time I checked, 17% corporate tax did not qualify as a tax haven… the tax is low, but not zero. Singapore tax code is, however, quite friendly to entrepreneurs and especially startups. The first $100,000 of profit is tax-free… and for a start-up, this can be tremendously beneficial.

Singapore also does not tax its companies on income earned outside of Singapore, so long as the funds are not repatriated to Singapore. As such, many Singapore companies have subsidiaries or bank accounts in Hong Kong for their overseas income.

I will be discussing Singapore much more in the future but wanted to provide you with this initial overview today; in short, for a globally-minded entrepreneur or professional looking for work, Singapore should be on a short-list as a place to do business.

With tax rates ranging from 5% to 35%, the Philippines can hardly be called a tax haven.

And yet, in a very public “guilty until proven innocent” attack several months ago, the OECD black listed the Philippines along with Uruguay, Malaysia, and Costa Rica.

The OECD is an aged, irrelevant organization comprised of mostly insolvent western nations; the organization has a penchant for bullying smaller countries into changing both their laws and local culture in order to assimilate.

Frankly, these coercive tactics constitute modern day imperialism and demonstrate an overwhelmingly ignorant worldview.

Case in point, the OECD has gotten itself into a twist over the years because Singapore issues a 10,000 Singapore dollar (roughly $7,000 US) note.  The OECD views this as a crystal clear indication of money laundering.

Hardly the case… carrying a lot of cash is merely a cultural tendency in many parts of Asia, so the government makes a super-sized bank note.  Western bureaucrats ignore this simple reality and instead try to beat smaller countries into submission.

The Philippines has recently fallen victim– but so far has only suffered a flesh wound. I spent a large part of my day today talking to bankers here in Manila; the general consensus among them is that  financial transparency has increased in the Philippines… but only slightly.

For example, bankers in the Philippines do not require personal information on beneficial shareholders for corporate accounts.  This is a stark contrast to other popular banking destinations like Panama (which did not make the OECD black list).

Honestly, there are not too many banking jurisdictions that do not require beneficial shareholder information for corporate accounts. Off the top of my head, I can think of the Philippines… and…. oh, right: The United States of America.

Funny how the Philippines ended up on the black list and the US was the one leading the charge.  But I digress.

Customer information at Philippine banks is not shared with tax authorities… or any other authority for that matter.  The one exception is by judicial decree, and only if the customer is undergoing litigation in the Philippines.

To open an individual account, a prospective customer must provide two valid forms of identification, a photograph, and an ‘alien certificate of registration,’ which indicates residency disposition.

For non-resident foreigners, the easiest thing to get around residency requirements is incorporate a business– in this case, the Department of Trade will provide certification.

Assuming all the documentation is in order, it only takes about 10-15 minutes to open an account, and at many branches the ATM card (on the worldwide Maestro network) can be acquired immediately.

Bank accounts can be opened in a variety of currencies, including US dollar, Philippine peso, euro, yen, and Australian dollar. Furthermore, bank accounts in the Philippines are protected by a depository insurance organization similar to the FDIC (except that it’s not insolvent).

The “PDIC” as it is called, insures deposits up to 500,000 Pesos or equivalent (roughly $10,000).

I met with the branch manager at one of the larger banks in the Philippines… they are willing to accept customers of any nationality as long as the basic requirements I described above are met.  I have no personal experience with any of the banks here though, so I cannot vouch for anyone specifically.

LATVIA / SWEDISH BANKS

The link between the fate of Latvia and the stock price of Sweden’s major banks became even more apparent this week.  On Monday, Latvia’s government announced that it had rejected a bailout deal with the IMF, spurring new concerns of devaluation.

In response, investors sold off shares of Sweden’s Swedbank to the tune of a 5% decline.  The market sees these two parties as inextricably linked: as Latvia goes, so goes Swedbank.

We also learned that over 50% of Swedbank’s Latvian mortgages are under water, i.e. the value of the home is worth significantly less than the principal balance that the bank has loaned against it.

When this happened in the United States, default rates skyrocketed. I don’t see how this won’t happen in Latvia, especially given risk (certainty) that the country will devalue its currency.

Let me know if you disagree, I would love to debate the analysis.

LITHUANIA

In a related story that shows interesting promise, the government of neighboring Lithuania announced that its economy contracted by a whopping 24% rate from last year.  Twenty-four. Not a type-o.

This has several implications.

First, Latvia is in much worse shape than Lithuania, and it’s apparent in the streets. If Lithuania has posted a 24% drop in GDP, Latvia’s numbers will be even more crimson. This only bolsters the case for a currency devaluation.

Second, the Lithuanian government response is indicative of mainstream political convention: rather than make the economy more competitive and ease the burden of its businesses and citizens, the government plans on raising taxes even further to support its own largess.

I find this line of thinking to be suicidally incompetent, akin to a starving animal thinking that it can eat its own innards to survive.

The interesting thing about Lithuania, though, is that the country is small enough for protests and grassroots political action to actually make a difference… so I am very interested to see if/how the people respond in Vilnius.

Naturally, my hope is that they will rise up and say “I’M MAD AS HELL, AND I’M NOT GOING TO TAKE IT ANYMORE…”  If this happens, it will set an admonishing anti-government precedent for the rest of region.

This, to me, is the greatest potential benefit of the economic downturn: I am hopeful that societies and main stream media will finally begin to question the legitimacy of government action and realize that all the billions and trillions being spent have either been conjured out of thin air, borrowed from other countries, or stolen from productive citizens/businesses.

Politicians are not spending their own money, and they are not spending “the country’s” money, they are coercively collecting and spending people’s money, despite being the most woefully incompetent financial managers in history.

Small countries like Lithuania and Latvia are the key to starting a movement back to limited government; such a movement is sorely needed right now given the direction that the entire world is headed.

BANKING AND GOLD STORAGE IN AUSTRIA

For the record, NO place on earth is 100% safe and secure from corruption, thievery, confiscation, or the prying eyes of government… unless, of course, you figure out a way to shove your bullion up your fourth point of contact.

Well… I have a bad relationship with my proctologist, which is why I store some gold in Austria (among other places).  Austria is a good compromise, but as some of you have indicated, it is not without risk.

Could armed government thugs go rushing into Das Safe tomorrow under the authority of some obscure anti-terrorism or anti-drug law? Possible… but unlikely.

If this is your chief concern, there are other jurisdictions that may be more favorable, predominantly in Asia. I will be discussing these in future letters.

Remember, though, gold storage should be in a place that you not only regard as safe, but in a country where you frequent and can get to easily.

I find myself in Europe all the time, and as Vienna is so conveniently located, it’s easy for me to pop in, drop off some gold, and pop out.  There are some places in Asia that I frequent as well, and I use storage facilities in those countries.

PHARMA INVESTING

I received a few emails yesterday you couldn’t get yesterday’s interview with Dr. George Huang to work properly; I’ve reposted the interview here, and you can read more about his advisory service here.

I subscribe to his service and find his track record to be stellar, which is why I am sharing it with you.

TRAVEL

I am cutting my Europe adventures short… I was originally intending on staying in Europe until the weather turns cold (September for my blood), but Matt and I have entered into a very exciting new deal for a company in Panama that I hope to be sharing with you very soon.

As such, I am on the way to New York this weekend for a meeting, will visit my family in the US briefly, and then head to Panama to close the deal.  More to follow.

Unfortunately that means I will not be headed to Atlanta next week for the racecar driving school… but I think my aerobatics ride last week certainly makes up for it.

Yesterday I was on a mission in Vienna to buy and store gold; today I was on another mission that is honestly quite sensitive, but I’m going to share it with you anyways.

Banking.

For years, Austria has been one of Europe’s best destinations for ‘private banking’– professional wealth and asset management by conservative, responsible stewards who ensure that return on savings will beat the rate of inflation.

While Switzerland has closed itself off to many North American customers, particularly those who do not bring tens of millions of dollars to the table, several Austrian banks have remained open to working with Americans, in particular those who reside outside of the United States.

Of course, demonstrating that you reside outside of the United States is easy to do if you own property overseas, have a lease, or a residency permit. These are the sorts of things you should be doing anyways if you intend on taking control of your own freedom.

With Austrian banks, minimum deposits are often just a few thousand dollars for some of the larger banks, and $100,000 for the smaller, more personalized banks.

Austria is currently on the OECD’s ‘grey list,’ the list of countries that this completely worthless and irrelevant organization named several months ago for failing to hand over customer financial information to the international community.

In Austria, banking secrecy has been a long-standing tradition and is protected with the same legal status as the country’s constitution. Unfortunately, this has been coming under fire lately.

The OECD’s grey list has absolutely no force or economic effect whatsoever… notwithstanding, a small handful of politicians are terrified of having their country’s name on a list, any list, and amendments to the country’s banking laws have hit the parliament floor for vote.

The most recent legislative proposals from earlier this month did not pass, though I expect the executive branch to continue pushing the issue despite resistance from constituents.

Bear in mind, however, that loosening restrictions will not completely eliminate privacy… and in a world of such draconian government intervention, I still expect Austria to be an adequate banking jurisdiction in the future.

But there’s something else to watch out for in Austria— Some of the country’s larger banks have tremendous exposure to volatile Eastern European economies like Romania, Ukraine and Hungary where default rates are rising.

If Eastern Europe falls off the cliff, it will drag down many of Austria’s banks in the same way that a Latvian default will erode Sweden’s banks.

As such, I would stay away from Erste Bank and Raiffeisen in particular, but there are several smaller banks that are worthwhile and relatively unexposed to Eastern Europe.

I opened an account with a bank after cultivating a very personal relationship for more than a year. I am more than satisfied with the service that I receive, which includes this worldwide Maestro card, multiple currency accounts, online wire transfers, and very personalized service.

The bank knows that I write this letter (among many other things) and begged me to not publish their name. I gave them my word as a condition for opening the account.

I am happy, however, to point you once again in the direction of Mark Nestmann, who lived in Austria for some time and has strong ties there has written a recently updated book about Austrian banks—he names names and provides contact details for many of the personal, smaller banks in Austria.

As much as I love the city, I’m here in Vienna today on a mission– gold storage.  After yesterday’s missive about Panamanian safety deposit boxes, I thought it appropriate to follow-up with a couple of strong solutions for offshore gold storage, and Austria certainly fits the bill.

First of all, if you love mountains, you definitely need to check out Austria. The Austrian Alps command some of the most breathtaking views in the world, and the summertime weather is absolutely spectacular.

English language proficiency is prevalent everywhere in the country; everyone from the gas station attendants to street performers speaks English, which is great because my Deutsche is terrible.

Cost-wise, Austria is reasonable, though certainly not cheap.  Expect a decent meal for two with wine to run about 50 euro ($70) in Vienna, perhaps even a bit more in Salzburg… and a four star hotel to cost 120 euro per night ($170).

But let’s get back to the gold.

Vienna is home to a fantastic facility called Das Safe (www.dassafe.com), located at Auerspergstrasse 1 near the city center.

Das Safe provides anonymous safety deposit boxes starting at 400 euro ($560) per year, and anonymous means anonymous… all you have is the box key and a PIN code to access the secure room.

To be honest, you will feel a little bit like Jason Bourne when you walk into the place; the facility is completely secure and monitored at all times, though video surveillance is not recorded so you need not worry about your privacy.

I have done business with Das Safe in the past and find their level of service and professionalism to be spectacular; if you want to move your bullion offshore and make sure that no one knows about it, Das Safe is for you.

If, on the other hand, you don’t care about anonymity, Austrian banks will be happy to rent you a safety deposit box regardless of your nationality.  They do require a photo ID, but the costs start at 65 euro ($90) per year for a small box.

Just about every bank in Austria also sells gold coins, making it very convenient to buy and store on-site.  I am a big fan of the ‘Philharmonic’ coin, the Austrian version of the Eagle or Maple Leaf, which is paid for in euro. As I mentioned Friday, I am a long-term believer in gold’s value, especially against the euro.

Unlike the banks that I mentioned in Panama yesterday, I do not believe that Austria’s banks would suddenly and unilaterally change their policies about providing safety deposit box services, so establishing service there will probably not pose any problems for the next several years.

Furthermore, Austrian law prohibits banks from inspecting the contents of boxes except in narrowly defined instances when they’re sure that you’re dead, and Austria is one of the only countries in the world with this protection.

Tomorrow I’m going to talk about banking in Austria, and why it may be a good option for you.  In the meantime, I hope you enjoy this video from last Saturday morning in Zagreb.

Something is afoot in Panama that I want to tell you about.

Several banks, including Banvivienda and HSBC, have recently announced that they will discontinue renting safety deposit boxes.  Customers who currently rent boxes will have until the end of the year to vacate their belongings.

Furthermore, some banks that formerly used to work with US customers, including Banco General, Credicorp, and Global Bank, will no longer open accounts for Americans unless they meet a very narrow set of stipulations.

This is certainly the new landscape of Panama’s banking frontier.  So what’s going on?

Several months ago when the G8 heads of state joined in unison to strongly condemn banking and tax havens, the OECD put together a complementary ‘black list’ to mark the most egregious offenders.

The black list amounted to nothing more than fodder for headlines– nothing actually changed, and politicians were able to appear to be taking a tough stand on tax criminals.

Developed countries with strong banking secrecy laws– Hong Kong, Singapore, Switzerland, Austria, etc. did no make the list. Poorer countries (Costa Rica, Uruguay) did.

And Panama? Noticeably and conspicuously absent from the OECD black list.

Perhaps this is because Panama’s top banking officials are already on CIA and DEA payrolls… though in all fairness I believe Panama to be more strategically important because of the Canal, so the OECD left them alone.

Meanwhile, though, Panama’s banks are starting to police themselves and tighten their own regulations… hence the banking changes we are now seeing.  Panama is effectively side-stepping international regulation by making internal policy changes, and the biggest change– fewer options for customers from Estados Gringos.

There are still plenty of banks in the area who are happy to deal with US customers, and I will be scrubbing the list personally when I arrive in-country in a couple of weeks.  The strongest names and contact info will be published in my upcoming black paper.

Furthermore, second citizenship is one of the very clear, obvious solutions to what I call ‘banking discrimination’. It is ironic indeed that Swiss and Panamanian bankers will happily open their books for a hapless felon from Zimbabwe, but a US citizen is kindly shown the door.

If you’re tired of being discriminated against because of the color of your passport, the second citizenship guide is coming.

Furthermore- regarding secure storage… I think that storing bullion offshore is a very smart idea, especially if it’s in a country that you visit from time to time.  You should be storing enough metal to justify the security costs; to me, 1% to 2% is reasonable on an annual basis.

Traditionally, Panama has been a great jurisdiction for bullion storage, though our facility options just narrowed drastically now that many of the banks are closing their doors.

About 18-months ago, I explored the possibility of establishing a private secure storage facility in Panama.  After almost a year of scouting for locations and designing the building, I abandoned the idea because I simply could not find much value in commercial real estate– prices were too high to justify the investment.

Now, given the increasingly limited options available to foreigners, I intend to dust off my plans and buy some space.  Naturally, I am interested in hearing from you to see if a private, offshore secure storage facility located in Panama would fit the market’s needs.

Greetings– lots of questions this week so I’m going to jump right into it:

MARK NESTMANN INTERVIEW

Thanks for the emails and comments from yesterday’s Nestmann interview, I’ll try to do more things like this… and thanks to Matt for doing such a great job on the interview. The most common question was whether there is a great book like Nestmann’s Lifeboat Strategy specifically for Canadians.

We asked Mark, and he said to check out How to Tax a Billionaire by Doug Smith. Mark also works with several prominent Canadian asset protection lawyers, and you can contact him on his website for referrals.

LITHUANIA

Several people asked about citizenship in Lithuania– My understanding, as it has been explained to me by a government minister, is that if you can prove that you have ancestors who were Lithuanian citizens prior to 1940, the government will award you citizenship with little red tape. A trusted contact here gave me the name of a lawyer who can help– Marius Tamosiunas, office number +370 5 249 7100. PLEASE do not flood him with calls unless you meet the above criteria and have the proof in hand.

ARGENTINA

More questions about Cafayate. Let me disclose fully– I have not purchased a lot there. I will likely buy one as an investment, but I still probably won’t be spending much time in Salta because quite honestly it’s just not my thing– too remote. To be even more clear, I receive no compensation of any sort from Doug or Cafayate regardless of what I say about the project. I’m just giving you my straight opinion– for some people it’s probably paradise. For my taste, the town is too small.

HONDURAS

Great comments and questions. There are certainly as many, if not more Zelaya detractors as there are supporters. He is no angel, notwithstanding the coup. His government has been filled with corruption, rising crime rates, and reduced civil liberties. All in all, the country is probably better off without him.

That being said, there are definitely scenarios whereby US troops could be engaged by Venezuelan forces should Chavez decide to invade Honduras. If a Venezuelan solider would happen to so much as break wind in the general direction of a US troop stationed in Honduras, Obama’s policy wonks will bring overwhelming force to bear as an excuse to tease out a larger conflict and neutralize the Chavez threat.

The likelihood of that scenario playing out at this point? very low. Zelaya will probably just end up making a deal with the coup leaders, and someone will walk away with a thick white envelope in his jacket pocket.

SILVER TRADE

We had a lot of really fantastic comments about this. To briefly explain my own strategy, I should first say that while I am certain inflation will be a menacing force in the long run, deflation will likely persist in the short run. As such, I can see quite a few scenarios for a stronger (or at least stable) dollar, at least through the end of the year. Mark Nestmann discussed this in his interview yesterday.

I mentioned in this week’s missive how I don’t buy the 70:1 gold/silver ratio. And while I can’t possibly determine what the price of silver will be tomorrow, I am absolutely certain that the future price in the next several years will be much higher.

I’m specifically looking to sell long-dated PUT options where I can find liquidity– $10 strike price December 2011 for $1.20-$1.50, for example. This means that, as long as silver is trading above $9 over two years from now, I make money. If I am wrong, I will still happily be a buyer at $9 (my effective price) and take delivery.

Simultaneously I’m also buying CALL options, for example the $15 strike price, December 2011, for around $2.00; if silver is trading above $17 by that time, I make money.

Some of this may sound confusing if you’ve never traded options before… let me know and we can have a more in-depth dialogue if need be. There are a lot of options alert services available– and thanks to those of you who provided some recommendations. I’ve decided that I will sign up for many of the services that you recommended, conduct a full audit of the track records, and publish the results for everyone to see.

In the meantime, aside from the silver trade, I’m investing heavily in some of the pharma picks from the Dr. George Huang’s FDA letter that I mentioned a few weeks ago. I’ve already audited his record and it is really impressive– his options strategy has been spot on and generated a lot of short-term gains.

MISCELLANEOUS

I’ll be reporting from Latvia and Poland next week, then heading to Hungary for awhile. Over the next several weeks I will try to make my way to Geneva, Vienna, and Luxembourg to sit down with some bankers on your behalf. If anyone is in the area, feel free to drop me a line.

On that note, actually, the BEST way to reach me (and to get a response) is to leave a comment on the site… I read every comment, and it is a much better way to grab my attention. If we need to have a private conversation, let me know and I’ll try to find you on email. Bear in mind that I simply cannot respond to everyone (especially as this community grows), but I’m doing my best.

Have a great weekend.

A few days ago, in response to questions about how to get started with offshore asset protection, I mentioned Mark Nestmann’s book The Lifeboat Strategy.  Mark is a trained international lawyer and one of the world’s top offshore asset protection experts.  I own his book and think it’s a fantastic resource, especially for those looking for initial answers.

The number of questions I received from readers in response to the book was overwhelming, so as a special service to Notes subscribers, I decided that we should pin Mark down for an interview.

I called my partner Matt, one of the savviest, most intellectually curious global entrepreneurs I know, and asked him to conduct the interview… as you will see, Matt didn’t pull any punches.

Personally I think he caught Mark a little off-guard, so you’ll hear a lot of candor.

Mark and Matt cover a lot of ground in the call, including:

1. Why demand for offshore asset protection is exploding
2. The most important thing you should be doing right now to protect your assets
3. Why politicians just don’t get it, and the future of currency controls
4. Strategies that anyone can use to legally safeguard their assets

Some of my favorite quotes:

“Anyone who wants to make a serious committment to investing outside the dollar needs a foreign bank account…”

“If you do it in the right way, you don’t necessarily have to report any of it…”

“It’s very hard for the Treasury to tell you to repatriate a house…”

“This is something that anyone can do– it’s private, it non-reportable…”

You can listen to the unedited, unscripted call below.  It’s about 35 minutes, and I think Mark’s valuable insight is well worth your time.  He’s not a Chicken-little fear-monger, rather a common sense professional with first-class knowledge.

For more information about Mark, go to http://www.MarkNestmann.com.

Let me know if you like this sort of thing and I can dip into the Rolodex a bit more to interview other experts in privacy, asset protection, investing, and lifestyle design.  Also, if you have any specific questions for me or Mark that weren’t answered in the interview, please leave a comment and I’ll do my best to get an answer.

Today I wanted to get down to the business of answering some of your questions from earlier this week:

First of all, I apologize if I failed to make things clear when I started this letter: I am no longer part of Without Borders; Notes from the Field is not affiliated with Casey Research or Without Borders.  Furthermore, Notes is free and not tied to any other subscription that you might have.

LITHUANIA:

I received one question about the passport program– Lithuania has a very straightforward citizenship program as long as your ancestors were born before 1940. You can also marry a Lithuanian, and citizenship is granted after 3-years. My understanding from speaking to the Minister of Justice is that there is little red tape in the program.

ARGENTINA:

A few days ago you asked about the Cafayate (pronounced Cafa-zha-tay) project in Salta province, Argentina.  Doug Casey is involved in the project and he gave me a personal tour of the site last December… it’s absolutely beautiful, and I can definitely see the appeal for many people.

To be clear, most of Argentina’s problems will be localized in Buenos Aires province. Salta is far away, near the Bolivian border, and has an almost separate and distinct culture than the porteno culture of BA that I decried in my original article. Salta is much safer than the capital and I do not expect it to feel the same level of social chaos.

My honest hope (though it may be a pipe dream) is that, if Buenos Aires burns in an economic meltdown, Salta will break away to an independent republic.

FINLAND:

Have I ever been detained or stopped while traveling w/ gold and silver? Yep. It depends on the country, but in most places this is not illegal. The customs officials searched my bag, looked at the gold, and put it right back. They were much more interested in the enormous stack of foreign currency that I was carrying, including the $10 trillion Zimbabwe note.

I would not prescribe a particular amount of gold and silver to travel with because, as I stated, this is not illegal… it would be like suggesting a particular number of bottles of water or DVD movies to travel with.  For the time being, officials do not regard gold/silver as monetary instruments.

If you have any doubt, you can always declare it on Fincen Form 105

PANAMA:

Panama does not have the equivalent of an FDIC; most of the world does not. Does this mean the banks are unsafe? No. It means that they must practice sound banking because they do not have taxpayer money to bail them out.

OTHER:

The biggest question I get is for specific WHO and HOW to get started offshore; I explained last week that I was working on a way to share my contacts with you… this information will be for limited distribution so as not to overburden my network, but it will hopefully solve the ‘WHO’ problem.

In the meantime, to get started on the ‘HOW’, I wholeheartedly recommend that you read Mark Netsmann’s book The Lifeboat Strategy; Mark is a leading asset protection specialist and a trained lawyer… I know Mark and have read his book– it is definitely worth the price if you are serious about saving your ass and your assets.

Today I confessed my sins to Uncle Sam.

No, I’m not talking about anything sinister. But in a mad dash through a US stopover today, I dropped US Treasury form TDF-90 in the mail:  “Report of Foreign Bank and Financial Accounts.”

It went something like this:

“Forgive me uncle for I have sinned. May last confession was April 15th. Here is all the information on my foreign bank accounts, including those for which I only have signature authority.  I am confessing this intensely private information despite the fact that I have no financial interest whatsoever in said account, and the account holder does not even fall under your jurisdiction. I understand that being party to financial accounts outside of the United States must be inherently evil, and I look forward to giving you more of my money next year.”

This form is required by the US government for all persons that have a financial interest or signature authority in any foreign financial account– banking, brokerage, etc.  In my case, I listed all the relevant information for a Panamanian bank account– I am very confident banking there as my research from this trip indicates strong liquidity levels and tight loan standards devoid of significant exposure to US agency debt. I am required to submit this form by June 30th.

Our Uncle certainly has a way of keeping tabs on us: disclose or go to jail.  It’s an unfortunate no-brainer, and if you have similar accounts you need to do the same… the alternative is simply not worth the risk, though I understand that sometimes they allow conjugal visits at minimum-security federal prison camps.

I’m using particularly strong language today to illustrate a clear point: there are right ways to go offshore and wrong ways… and dodging legal obligations is like playing Russian Roulette. It really hurts one out six times.

Simply put, Uncle Sam wants our money… and I say ‘our’ because, chances are, if you’re reading this missive, you fall in the unfortunate category of people who are actually productive and whose tax dollars pay for everyone else’s stimulus. I’m convinced this tax burden is going to increase, and they are going after every penny to which they feel entitled (in their sole discretion of course).

Offshore structuring makes a lot of sense: there are much safer places for your assets than a dollar-based US bank account where your wealth can be inflated away, frozen, stolen, or sued.  And as I am sitting here in the business lounge at JFK Airport going through subscriber emails as fast as I can, I see many of the same questions.

Many of you are asking for specific contacts for banks, brokerages, lawyers, etc. I am working on the right framework to help you… but I need to be clear about something.

I have spent several years and tens of thousands of dollars traveling around the world and building up contacts. I know who is good because I do/have done business with them, and I know who is bad because I have been swindled by some of them and lost money. My trusted contacts are trusted for a reason, and I would be betraying that trust if I just published their contact information all over the internet.

Bear with me while I work on a few ways to share the right information with some of you.