Written by David S. Lesperance

Within the last month, I have seen a tremendous upswing in the number of individuals who are retaining me as a response to recent events in the Middle East and North Africa. They range from local nationals to Arab expats to International expats and they each have their own reasoning behind their desire to “have a back-up plan” for their families and their fortunes. In brief here is the reasoning:

1. Local Nationals: This group ranges from wealthy business owners to high income professionals. Even if they support greater democracy in their home country, they are frightened by the unrealistic expectations of the protestors that throwing out the existing regimes will instantly bring financial prosperity and employment. As one new client said, “Any country is just four missed meals away from revolution. My fear is that the protests have left many protesters on the brink of financial disaster. They expect instant prosperity after a regime change and when that does not happen and they get hungry they will start looting my neighborhood. The fact that I was in the square handing out food and water and also protesting for democracy will fall on deaf ears, as they attack my home and my family. Therefore, I am taking the prudent precaution of getting my family the right to live somewhere else and remove more and more of my assets out of my home country.”

2. Arab and Sub-Continent Expats: Groups such as Indians, Pakistanis, Palestinians, Lebanese and Iranians, who have lived in the Gulf States for decades, are worried not only about protesters, but also that some people in their host country may take advantage of the upheavals. In the six nation Gulf Cooperation Council (GCC), these individuals live year to year on annual residence permits. This is despite the fact that they or their children may have been born in the host country or spent the vast majority of their lives living there. Their “home country” is alien to them and it is not possible to have the business opportunity or lifestyle there that they have been enjoying in their host country. Recently, I was retained by one gentleman who did not have his annual residence permit renewed despite having lived in that particular country for over 45 years and having built up a prosperous business that employed several hundred people. He was told that he had one week to leave the country. When I asked him why his residence permit wasn’t renewed, he speculated “The officials would not give me a reason but I strongly suspect that a business person who owed my company a great deal of money used his extensive connections with ‘the powers that be’ to have me ‘go away’. The scoundrel did give himself away by already being at my office when I returned from the immigration office with an offer to buy my company at a deep discount (including a forgiveness of his indebtedness).”

3. International Expats: Wealthy foreigners and highly paid executives were enticed to buy property in many gulf countries with an implied or even explicit promise of automatic permanent residence. When this promise was not fulfilled and the property market turned sour, they quickly discovered that they had few rights relating to the property and that debt default was actually a criminal offence. When this reality is combined with the economic turmoil of current or anticipated protests and disruptions, the decision to leave their new Middle East home has become a surety. However, many are reluctant to return to their high tax home country. As a result, they have retained my firm to help them locate the next oasis which balances lifestyle, business opportunity, security and reasonable taxation.

It goes without saying that these “Golden Geese” are critical to any future economic stability or recovery in the region. The “unexpected outcome” of them securing and possibly executing a “back-up plan” in response to the current pro-democracy movement definitely merits attention.

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Written by David S. Lesperance

A US hedge fund client who had been toying with the idea of setting up a personal and business back-up plan finally hired me this week. What was the “tipping point” for him in moving forward? Specifically he cited the recent subpoena request made on several high profile hedge funds, including Steven Cohen’s SAC Capital [READ MORE HERE] seeking information about their relations with outside researchers regarding pretty routine “channel checking” due diligence procedures [READ MORE HERE]. He noted that in light of the Madoff case, the power to issue subpoenas to even junior SEC officials to go on “fishing expeditions” had been vastly increased. While his fund had not been served in this round of requests, he did indicate that at a previous hedge fund he worked at, he had seen first-hand the enormous costs to answer a general subpoena. Millions were spent on legal fees to review a room full of documents; determine which may be relevant; and then have endless meetings with officials to discuss why certain documents were produced and why others were not. In addition to legal fees, the disruption cost and loss of reputation (Investors thought “Where there is smoke there must be fire!”) was incalculable. At the end of that fishing expedition, no charges were ever made but the damage to the fund had already been done. His conclusion is that, for hedge funds and many other types of businesses, operating in the US was becoming Kafka-like and financially unviable. His solution, just like his computer system, he was going to set up a “back-up plan” for himself, his family and his business.

My discussion with him prompted me to revisited a recent issue of The Economist which had a cover story article [READ MORE HERE] which underscored this reality for my American clients. The article examined why this was happening and concluded that the high US incarceration rates run counter to the claims of being “the land of the free”. Violent criminals aside, there are often cases where prosecutions and punishments are grossly disproportionate to the social ill they are trying to prevent. High net worth US citizens are often the targets of unfair civil lawsuits with the simple intent to push them into an out of court settlement to keep the legal glare away from media and shareholders. I often quote the statistic that over 90% of civil litigation worldwide occurs in the US and it always creates a jaw-drop moment. Now they also have to look at government actions which may have more to do with abuse of power or making a name for an elected official as “law and order” than with any genuine attempt to protect society from wrongdoing. Having the IRS place a neon target on your back is distraction enough. If the SEC or other government agencies can also subpoena at will, the exit gates out of the US may become as busy as the entry gates to the prisons.

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Written by Ian O. Angell

Some 700,000 Greeks who work in jobs deemed hazardous to health are allowed to retire on a full pension at the age of 50 (women) or 55 (men). The 580 categories of job includes radio and TV presenting because of ‘toxic bacteria in microphones’! [LINK] You couldn’t make it up. Ultimately the cost comes out of taxes. Welcome to the world of strong trades unions and weak governments. Welcome to the European Union.

German tax-payers are indignant because they know that some of the debt will fall onto them when the basket-case of the Greek economy goes into meltdown. Although they shouldn’t feel too virtuous. It’s Greece today, but Germany is also over-generous with its union-organized brothers. What happens when all the dominoes fall: Spain, Italy, France, Germany, the UK? Although different, the United States also has problems with its own pension and healthcare obligations, as 78 million baby boomers retire.

All these countries are in denial over their obligations to the elderly – take them into account and the real government debt shows up vastly greater than official figures – many greater than six-fold. With pensioners living longer, and consequential health-care costs set to soar, international creditors are now very wary of government debt. It won’t be long before government credit-ratings take a nose-dive, sending up interest rates, and making the debt problem even more acute.

Apart from devaluing the currency, there’s only one thing governments can do – target the poor benighted taxpayer. The economics of the UK public sector is a case in point. According to the UK Audit Office, in 2008-9 the average British worker paid �516 towards the pensions of retired teachers, civil servants, the health service and the military – a total of nearly �15 billion. That is more than private sector workers pay for their own pensions, always assuming they have one; here is another group that is getting angry.

However, the ordinary worker can’t be bled dry because they make up the bulk of voters. So this only leaves the middle classes and the high net worth individuals. The writing is on the wall. To pay for residential care for the elderly the UK government is proposing an extra 10% death tax on all estates of more than �500,000. This is on top of the inheritance tax levied at 40% on estates worth more than �275,000.

The message is there for all to see. The Golden Geese must fly away, for sooner or later those that remain will find their wings clipped, and they will have become Sitting Ducks.

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Written by David S. Lesperance

In order for human beings to exist, survive and thrive they need to look to others at times for assistance. This requires individuals to join various “Collectives” in order to meet their on-going needs. This is true for even the most hardcore individualist, who at a minimum needed parents (or lab technicians) to put together a sperm and egg. Individuals find themselves assigned membership to certain Collectives at birth (e.g. immediate and extended family, nation of birth, religion of parents). However as they mature and acquire more of the skills of independence they increasingly discover that they have the option to either change Collectives or take personal responsibility for meeting their own needs.

Throughout history various forms of Collectives have been created to meet individual’s needs. They range from local tribes to cities/mega-regions to nation states/empires to global organizations such as religions or on-line social networks. Over time, the form, organization and governance of these Collectives have continually changed. Some gained strength and size (e.g. European Union) while others were assigned to the history books (e.g. Knights Templar). The creation, evolution and destruction of various forms of Collectives has been continuous and has been caused by many factors including military and natural events, emerging technologies, shifting economic power and the internal collapse of a given Collective’s governance.

For the past few centuries, the Collective known as the �Nation State� has been increasingly called upon to meet more and more of the needs of its members. This is especially been the case since the rise of the “Welfare State” in the early part of the last century. For many people today, their default reaction to any of their needs is, “The Government should do something about this?” However, they are becoming increasingly frustrated because the actual ability of their country to serve many of their needs either efficiently or at all is being drawn into question. The common reaction of the members of the Nation State is to vote out or throw out its current political leaders. However, some high tax/ dues paying members are asking the basic question as to whether their current or any country is the best vehicle to meet ALL the demands that its citizens are expecting it to fulfill. Some Nation States have noted the importance of these �Golden Geese� citizens and are actively courting their membership with better “win-win” proposals then are offered by their current countries. Also, technology, and other “flattening effects” are creating, at an unprecedented rate, new viable forms of Collectives to meet many needs currently serviced by Nation States.

Many countries having a heavy reliance on a tiny percentage of its members for funding, job creation and creative capital. Therefore, it is reasonable to assume that that there will be a major restructuring amongst Nation States and other forms of Collectives in the early part of the 21st century as these Golden Geese reconfigure their relationships with these entities. Will Nation States recognize the need for a new deal with their Golden Geese before their departure causes that Nation State to join many other collectives in the dustbin of history?

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