Q&A: Safety in Mexico and Offshore Banking

February 25, 2011
Tulum, Mexico

I woke up this morning to the sound of waves crashing on the beach in Tulum and the sun slowly rising over the Atlantic. There’s hardly a soul for miles… and the weather is perfect.

Matt, Tim, and I are staying out here for the next several days as a mini-retreat, discussing business and investment strategy, and trying to make sense out of what’s going on in the world.

For research purposes, I also wanted to spend some time living ‘off the grid’ on the beach to see whether desalinized water is an effective solution for personal water consumption, and the home we’ve rented here is a good test of that.

I’ll tell you more next week; moving on to this week’s questions, I’d like to start with reader Jim D who says, “Simon– if you are a US citizen, open foreign accounts, and you file the required tax reports, can’t they still freeze your offshore accounts?”

If you bank in your home country, whatever that country may be, there are legions of bureaucrats who have the authority to freeze your accounts, and even dip into your funds and help themselves to a little taste without your approval.

In the US, this can happen at both the federal and state level through hundreds of different agencies and courts. It’s really spooky when you consider the sheer magnitude of government agents who can exert control over your financial well-being.

It’s true that US taxpayers have to file annual disclosures, informing the government of their foreign accounts. You should absolutely do this; the Obama administration is hiring thousands of new IRS agents to sniff out cheats, and noncompliance isn’t worth the risk.

Frankly it only takes a few minutes to fill out the forms, and the peace of mind is worth it. Why? Because when you place your money in a jurisdiction outside of your home country, suddenly these legions of bureaucrats don’t have control over it anymore.

There is a huge difference between them knowing where the account is and having authority over the account. Just because you file the forms and tell them where your money is doesn’t mean that they can just snap their fingers and freeze that account.

Certainly you can add multiple layers, such as trusts and corporations, for extra protection… but for most people, simply holding a personal offshore account provides more security than 99.99% of the population can claim to have.

Also bear in mind that offshore banks may often be stronger than banks in your home country… financial institutions in places like the US and UK are quasi-government sponsored entities at this point, relying on taxpayers and central bank funny money for their profits.

In stronger jurisdictions such as Singapore (which has never had a bank failure), financial institutions are strong and stable, typically a better choice for deposits.

Next, Gary asks, “Hey Simon, Mexico is one of my favorite places to visit. I’m particularly interested in Todos Santos in Baja and the Tulum area for visiting and RE investment purposes. I’d appreciate any input you have– I’m planning on driving from San Diego to Cabo again this spring. Will I survive?”

Mexico gets a lot of bad press, and that’s one of the reasons I’m here. Clearly there are problems in the country… but the mainstream media have everyone terrified that they can’t cross the border without getting their heads cut off and displayed on YouTube. It’s nonsense.

I’ll tell you a lot more about this next week… but the short version is this: the main challenge in Mexico isn’t drug-related crime, it’s the US government’s influence over the Mexican government’s response to drug-related crime.

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