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Last week I noted that the G20 nations developed a new strategy in their on-going attack on the few remaining tax havens left in the world. [See www.mahanylaw.com/mahanylaw/?p=94] Specifically, member countries were starting to focus on banking regulations and oversight of foreign hedge funds. That effort is already bearing fruit. The French Banking Federation announced today that French banks will close branches and subsidiaries in countries deemed to be tax havens by the OECD (Organisation for Economic Cooperation and Development). This news comes just days after French bank BNP Paribas said it would pull out of the so called “gray list” countries. BNP Parabas indicated it would be closing branches in Panama. What does this mean for high wealth individuals with foreign accounts? Unless your account is in a gray listed “tax haven” and unless you have failed to properly report the foreign account and any foreign income, the announcement means little. Unfortunately, many people still use offshore accounts primarily as a way to avoid taxes. Worse yet, some people do so in the mistaken belief they will not get caught or based on faulty legal / accounting advice. Foreign banks offer the ability to diversify risk and offer very competitive products. Carefully planned foreign structures can provide excellent asset protection for individuals worried about law suits and creditors. Over the next few months, I expect to see many of the developed countries force their banks and hedge funds to leave jurisdictions without formal tax exchange agreements or with poor records of international cooperation. There will still be banks in tax haven countries eager to open accounts but these banks will likely be less stable and have fewer internal controls to safeguard investors’ funds. Would you trust the National Bank of Vanuatu with your millions? (It may be a fine bank but Vanuatu’s central bank has only been in existence since 1991 and the country has sometimes had as many a 3 prime ministers in just 1 year.) If you have unreported foreign accounts or income, there is still time to take advantage of the Treasury’s amnesty program. And even after that deadline expires, most foreign account holders who come into compliance before receiving an audit notice or summons can probably avoid prosecution. Persons interested in legitimate offshore asset protection strategies should contact competent counsel. There remain many jurisdictions in which it is both safe and legal to shelter one’s assets from third parties. If you try sheltering from the taxing authorities, however, just remember the stakes are getting much higher. The lesson here? Use of foreign accounts and foreign structures can still be an effective, legal and safe practice. Banking in tax haven countries, however, is going to become much more difficult and often less secure. If you have such accounts, talk to a competent accountant or lawyer today. |
