Offshore Banking: You Can’t Fool Uncle Sam
In the fast-changing world of offshore banking, adaptation is critical — which is why I’m writing to you about banking in the Central American nation of Belize, rather than the topic I had scheduled for today.
If you have an offshore banking account in that country, pay close attention. Even if you don’t, there’s an important lesson for anyone banking abroad.
Belize is a small English-speaking country on the eastern seaboard of Central America. Settled illegally in the 17th century by piratical British wood merchants, the country has always had an independent streak. Indeed, the country’s banks have long welcomed foreign account-holders.
Unfortunately, a greedy fellow to the north named Uncle Sam seems poised to put an end to much of that.
Offshore Banking 101
Before I discuss events in Belize, here’s what you need to know about offshore banking:
It is legally impossible for a U.S. taxpayer to have a “secret” offshore bank account, unless it stays below $10,000. If the sum of your offshore accounts exceeds $10,000 at any time during the year, you have to report them all to the IRS on a form known as the FBAR. Accounts with a higher total balance must be reported under the Foreign Account Tax Compliance Act (FATCA). This includes accounts for foreign entities such as LLCs or partnerships over which you have substantial ownership and control. Failure to report triggers draconian penalties, including massive fines and imprisonment.
Now, Uncle Sam isn’t content to trust taxpayers. To that end, the IRS demands that all foreign financial institutions report U.S.-owned accounts, under pain of ejection from the global financial system. This irritates the heck out of foreign banks, who therefore generally refuse to open accounts for Americans unless you live or own property and/or a business there, or if you have a substantial amount in an offshore brokerage account — $250,000 or more.
Some foreign banks have tried to play fast and loose with this imperialist system of U.S. financial control by keeping quiet about American accounts. The results are always the same: The IRS finds out about it, and everyone suffers. That’s why I always advise you to comply with U.S. law — the risk isn’t worth it.
Belize Banks Busted
Last week, the U.S. government obtained a court order forcing Bank of America and Citibank to disclose information about all U.S. taxpayers who hold offshore accounts at Belize Bank International Limited (BBIL) or Belize Bank Limited (BBL), for which the two American banks provided correspondent banking services.
The order was obtained by the U.S. Department of Justice’s tax division. This means the investigation is probably aimed at concealed assets and tax-evasion schemes in Belize. In probable anticipation of the order, BoA and Citi earlier this year shut off their correspondent services to BBL and BBIL, who are no longer able to execute international transfers in U.S. dollars. (Belize’s other domestic banks — ScotiaBank Belize and Heritage — are not affected.)
This court action appears to have been caused by voluntary disclosures made to the IRS by U.S. BBL and BBIL customers who admitted their foreign accounts through the IRS’soffshore amnesty programs. After all, if there’s one non-reported account at a bank, there must be more.
Problems with Belizean banks have been brewing for some time. In November 2013, the Caribbean Financial Action Task Force officially named Belize as failing to address “anti-money laundering deficiencies.” Belizean banking authorities seem to have remedied these, since the “gray-listing” was lifted early this summer. Nevertheless, BBL and BBIL are probably being sacrificed as scapegoats to appease the vengeful gods of the IRS.
People often ask me two questions. The first is where they can keep money hidden outside the U.S. I always respond the same way: You can’t. You can keep gold, land and other physical assets in ways that aren’t reportable to the IRS, but not a bank account.
The second question is why I continue to recommend offshore banking if that’s the case. Again, it’s simple: I’m not in the business of advising people how to break the law. I help people take maximum advantage of what’s legal. If you have genuine interests offshore, and/or if you have sufficient funds to make banking/investing abroad worthwhile for yourself and for a foreign bank, then I can show you how to do it in the most effective way possible.
In the past, we have recommended Belize Bank Limited for offshore banking accounts. We have immediately withdrawn that recommendation.
So whether you have a hidden bank account in Belize or anywhere else — or not — my message is the same: Don’t try to fool Uncle Sam. There are safer — and far more advantageous — ways to protect your assets offshore, all perfectly legal.
After all, it’s my business to know how.
Offshore and Asset Protection Editor