March 30, 2009
Panama City, Panama
I’ve been flooded with emails over the last few days about new law in the United States that many people believe to be government imposed exchange controls. Here’s the deal, in case you haven’t heard:
On March 18th, President Obama signed into law the innocuous sounding “Hiring Incentives to Restore Employment Act.” Buried in the bill are several provisions that impose new taxes, penalties, and requirements regarding the reporting of foreign bank accounts.
One of the biggest issues is that the bill imposes a 30% withholding tax on most US-source income paid to foreign financial institutions which do not comply with IRS reporting requirements.
Essentially, Tim Geithner expects foreign financial institutions to become unpaid spies of the US government. Account holders of banks who do not wish to comply will have 30% of their funds withheld if those funds are income from US sources.
It is this 30% withholding tax that has set off alarm bells across the blogosphere.
The bill goes on to aggressively expand the definition of a “US beneficiary of a foreign trust,” extend the penalty period for erroneous reporting, and expand the offshore financial account reporting requirements.
I spoke with two asset protection and tax attorneys as well as a handful of CPAs about this bill, and I plan on interviewing a few of them soon to shed some light on the new law… in the meantime, though, here’s what you need to know:
All of these measures are a major step in the wrong direction and indicative of the federal government’s assault on economic freedom. To be clear, though, these measures are NOT capital controls, nor do they make it illegal for US citizens to open a foreign bank account.
Remember, capital controls are laws that prevent the free flow of capital in and out of a particular currency, either through international bank transfers, purchase of gold and hard assets, or conversion into a foreign currency.
For centuries, capital controls have been extremely popular tools of government; in fact, they were used around the world as recently as the 1970s and 1980s. Today, capital controls are still in effect in many countries such as Cuba where locals are forbidden to hold foreign currencies.
Capital controls give the government authoritative, sweeping economic powers, providing for total control over the currency and regulation of inflows and outflows. This benefits corrupt, overspending governments by trapping wealth within a nation’s borders and enslaving capital to further taxation and inflation.
Given the dire financial straits of most governments, I’m convinced that capital controls will once again be imposed in the western world and United States some day soon. But today is not that day.
Clearly, this new law is the strongest evidence of things to come. But the window of opportunity to do something is still open. The 30% withholding tax does not make it illegal to hold funds overseas, but rather it is an administrative penalty to ensure the flow of tax information.
You can be sure that more invasive measures are coming soon… so the time to heed the warning signs is now. Besides, when capital controls finally are passed, it will be in the exact same manner as these measures were passed– quietly. You don’t want to wake up one morning and realize that you’re too late.
The language in the bill is extremely complex… so when I publish my interview with tax attorneys and asset protection experts, we’ll discuss the bill at length, as well as some long-term solutions.
In the meantime, I strongly recommend that you read the following level-headed, plain English interpretation of the bill from Mark Nestmann’s website.
I would also strongly encourage you to check out Mark’s book, The Lifeboat Strategy, which contains some excellent strategies and solutions for dealing with the decline in personal and economic freedom.