Another Urgent Warning About Bank Privacy

by | Aug 30, 2000 | Archives

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Dear International Friend,

Two readers just wrote to me, one about using an overseas company for privacy, the other about an incredible disaster they had using an overseas company for privacy. I share some of their thoughts below.

Here is what the first reader wrote:

“Dear Gary

I just finished listening to your tapes on opening bank accounts in other countries. I enjoyed your info immensely, and would like to receive further info on this matter. Specifically, under the six points, you recommend setting up a corporation in a foreign country. However, you do not recommend any country or how to pick one.

As I understand it, many countries have tax treaties with the US, and even the proverbial tax havens are cooperating with the US. Therefore, it is useless to pick a country which does not a tax treaty because eventually every country will have a treaty with the US. Am I correct?

I also understand that under treaty laws, if I pay corporate income tax in a foreign country, I receive full credit against US taxes, even though the dollar amounts may be different. In this case, I should incorporate in a country which has a low domestic income tax, such as Ireland. Are there others? If so, do you know the domestic income tax rates? It would be nice to have an analysis done on this matter so that your friends can select the right country for incorporation to save on taxes. Of course, there may be other factors which mitigate against the selection of any one country, especially the quality of the banks there. Any comments to help me out, since I want to set up a foreign corporation very soon. Thanks for your great advice.”

Here is my reply to that reader:

Dear International Friend,

My understanding of tax credits is that you receive one dollar of credit against your U.S. tax for each dollar you pay to another tax jurisdiction. But this is a very complex subject. The reason I avoid recommending any particular center is that this is a highly individual matter depending on the types of business you do, where, your personal, business and tax circumstances and many other factors.

I cannot urge you strongly enough to get an attorney who is experienced in using overseas structures. To prove this point let me pass on an experience that was shared with me, beginning back in 1987.

A friend working successfully (one of their top producers) for a large U.S. financial institution called me and explained that he along with part of the office staff had been terminated for not knowing a customers well enough. A compliance officer in the firm thought the account appeared suspicious and had informed authorities. The customers account was frozen.

Now two years later it appears that a number of people who were involved in this event had their accounts frozen and the case is only now getting ready to go to court.

It turned out that the client who had the account frozen was one of my readers and he had even greater problems. Here is the gist of what that reader wrote to me.


I have for many years been an ardent reader an ardent reader of your advice and hope you can help. In October 1997 I had a totally dormant corporation from Ireland open an account at a major U.S. stockbroker and through them open an account with a large European bank. I used a European agent to open a second account in the name of a European business and I was the principal Director and signer on the account.

In 1997 my account at the US broker was frozen though I had done nothing wrong.

In May of 1998, I received a fax telling me that the European bank had also frozen our account . We proved to them we had done nothing wrong and stated that if they did not release the account immediately, we would sue them in the European courts. As soon as we did this they contacted he local authorities and have since referred any calls or contact to someone there. Please let me make it very clear, we have never violated any laws and there has never been any formal complaint filed regarding the bank account.

It is quite evident that there has been a stonewalling and a passing of the proverbial buck. It seems in this day and age the crooks are the authorities and the status quo and little people as myself are put out. Since I do not have any political contacts, any so called “muscle” to compel these people to do the right thing it has just lingered. We contacted a local counsel but he wishes a large sum, up front and states it would be very simple to get released, we find this ridiculous in light of the fact we have done nothing wrong, have proved this point and that two years and three months have gone by without any incident, filing, complaint, etc. Short of hiring an outrageously expensive counselor I don't know what to do.”

I do not have any way of knowing what the real circumstances in this situation are. I called the U.S. institution, the bank and the government agent in charge of this case. None of them would provide me any information saying the case was under investigation.

Here is all I can conclude. Because a U.S. individual was using overseas structures in a way that seemed suspicious his U.S. broker froze his account and passed on data to authorities and terminated everyone involved in the matter at the office, based totally on suspicion that the client might be doing something wrong. Other individuals involved with this person had their accounts frozen as well, even though they might not be related to the event at all.

The data was then passed from the authorities to the overseas bank which caused a second account to be frozen.

All of this has been based on suspicion . The client and others have very little option but to wait or to expend enormous sums protecting themselves.

If this person had worked with competent counsel to begin, that attorney could (and would probably have been forced to avoid liability) to help protect the structure and accounts.

As it stands many people may have been treated as guilty until proven innocent. Worse it appears that some innocent people may have been seriously mistreated, just because they were doing business with someone using international structures.

I have been warning for nearly a decade that U.S. laws today create a global wave of fear because they do not attack the individual but attack U.S. and overseas institutions that serve US investors. This is so bad that some overseas institutions won't even accept U.S. customers. Account freezing is a result of this problem. When something appears suspicious the institution freezes the account and notifies authorities to make sure they are not blamed for being involved in the activity. I have preached for years that setting up your on structure in this day and age is akin to performing self brain surgery. Don't do it! Get an attorney.

There is nothing wrong with using overseas structures. I highly recommend them if they are set up and operated with the advice of a competent professional who is experienced in this area.

You can contact our eClub advisors and discuss these issues with them in our new forum (details below). Here you can contact attorneys expert in these matters. I will include more detailed information about the new IRS reporting laws imposed on overseas banks tomorrow. Until then, good investing!