Written by David S. Lesperance

Well it looks like the U.S. President and Congress have decided to extend the Bush tax cuts for two more years for ALL taxpayers. This only happened after the President and Democratic members of Congress finally relented on their previous demand that the “Golden Geese” (i.e. top 1% of taxpayers) not be included in this extension.

So what has been the reaction of the Golden Geese?

So far, the feedback that I have received from my Golden Geese clients is that they feel like they have been granted two more years of runway in order to arrange their orderly legal departure from the U.S. tax net. This feedback is from Golden Geese of all political stripes because they acknowledge certain Facts:

1. The U.S. tax revenue model is very skewed and relies on the 1% Golden Geese for over 40% of the total federal individual tax burden. This is situation is even more skewed at the state level, read this WSJ blog;

2. The fiscal needs of the U.S. government are dramatically increasing simply because an aging population will be placing ever greater demands on Social Security, Medicare, and Federal Government retiree benefits. Banning earmarks, cutting defense spending, and other expense cuts are just rearranging the deck chairs on a ship which is on a collision course with these fiscal icebergs. The reality is that neither party currently has the political will to address the problems that will be caused by these sacred cows; and as a result

3. When the U.S. federal and state governments look for the additional money they will need, they will turn to their best customers…..the Golden Geese. This reality is confirmed by the almost universal agreement by both Republicans and Democrats that this tax cut extension was only temporary in order to avoid the risk of a double-dip recession;

Furthermore, for Golden Geese as for everyone, their perception is their reality. While the above are agreed upon Facts, the following are the perceived realities that my Golden Geese clients see:

1) If a Golden Goose wants to address a societal need or problem, government is not a very efficient means of execution. They feel that every tax dollar saved, is another dollar to put into a strategic philanthropic vehicle (either their own or outside existing ones) which will be a more effective, sustainable and accountable method of addressing the need; and

2) If an individual Golden Goose ever had thoughts of engaging in tax evasion, they know that in a post UBS world this is not a smart thing to do, as can be read on my website. Those who were foolish enough to try this in the past, read this Bloomberg article for some examples, are now paying the price in taxes, interest, penalties. In addition, the threat or realty of incarceration along with the personal humiliation of wearing the scarlet letter of “tax evader” is just too high a price to pay for these types of games.

The bottom line is that until politicians and voters tackle the three Facts outlined above, their will continue to be an acceleration of the phenomena known as “The Flight of the Golden Geese”!

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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 David S. Lesperance

Did you know that of the 25 most expensive disasters throughout history, half of them have occurred since 2001? And most of them have occurred in the United States. In years past, we could count on an extreme natural, manmade or financial catastrophe taking place every 5 or 10 years. Now they are occurring with frightening regularity every year or so.

According to Erwann Michel-Kerjan, there are many factors that make our world today riskier than generations past, and this risk is much more different on many levels. For example, the cost of catastrophes are accelerating. Think of this: Hurricane Hugo cost $1 billion in 1989, and just 16 years later, Hurricane Katrina cost $150 billion! The BP oil disaster? To be determined.

The speed of transportation is faster than ever, and we live in a world with instant communication, but this forces us to make faster and faster decisions. Everything we do is “just-in-time”. But we also have an increasing worldwide dependency that has resulted from globalization. This dependency has led to a “weakest link” situation, in which one problem can bring down the whole system. Local risks are becoming global risks.

What do you think? Are you seeing these risk factors affect your life? It is clear that we live in a time with new and major risk factors, but it is up to you to take control of managing your own risk.

An effective Passport Portfolio will allow you to diversify your residences and citizenships in such a way that you will be able to deal with threats caused by increased taxation, litigation and loss of mobility.

It is a fact that progressive tax systems like those in the U.S. have resulted in a situation where the top 10% of taxpayers contribute well over 90% of the total personal tax revenue. The top 1% alone contribute over 40% (to see more on these facts, see Action America). There is urgent government financial needs caused by these continual and explosively expensive disasters. Imagine paying for these catastrophes along with servicing government debt. Add on the ticking time bomb of fixed entitlement programs meeting an aging population. Governments desperately need money and they will turn to their best customers for that revenue. That means you!

In a country like the U.S., where over 90% of the world’s civil law suits are filled, if you are considered upper middle class, let alone wealthy, you are a target. Also in a modern world where over half of the next generation’s marriages will result in divorce it is essential to implement robust asset protection strategies to avoid a family going from shirtsleeves to shirtsleeves in even two generations. However these strategies are only effective if you also pay attention to which jurisdiction has authority over you and your assets. Even the world’s best drafted pre-nuptial is useless if you have residence connections in the wrong jurisdiction. Just ask Tiger Woods.

Having the ability to live, work or travel anywhere in the world is a benefit that most people do not appreciate. Until it is denied to them. A simple minor criminal traffic offence or being mistakenly included on a “no-fly list” can be life altering if you have not created a proper Passport Portfolio. Imagine your vacationing child being asked for their passport, the evening after your government has just taken a military action which is not popular in that country. You may think these are just remote possibilities but remember you don’t get fire insurance because you think there is a high probability of a fire. You get it because you know that if a fire occurs, the resulting damage is total and devastating.

Investors understand the necessity of protecting wealth by having a diversified investment portfolio. Having a Passport Portfolio allows you to protect your assets and your lifestyle by diversifying your residences, citizenships, and domicile. Just as the decision that your ancestors made to immigrate to your present country had a life-altering effect on your life, the decisions you make in this area will have the same effect on the lives of the generations that follow you.

When people survive a near death experience, they stop and figure out what is important in their lives. After the current financial crisis struck, a similar reevaluation has taken place. As a result, interest in a properly constructed Passport Portfolio has moved from the esoteric to the essential.

Having a Passport Portfolio is like having a parachute in a plane that is flying into an ash cloud. The plane may not end up going down, but it would be foolhardy not to be prepared for that possibility.

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Written by Ian O. Angell

Heinrich Kieber and Hervé Falciani – hardly household names, but after the actions of these two desperados, the world of tax evasion will never be the same again.

Kieber had worked in the IT department of the Liechtenstein Global Trust bank in Vaduz between 2000 and 2002, surreptitiously downloading the financial details of clients onto four DVDs. In 2006 he was paid nearly 5 million Euros by the German tax authorities for a list of German clients of the bank. (I wonder if he paid tax on that sum?) As a bonus he was given a new identity. Kieber was also paid £100,000 by the UK tax authorities for a list of 300 British clients. Kieber also spilled the beans on LGT’s operations on behalf of American clients to the US Senate Permanent Subcommittee on Investigations, where he described in detail the bank’s procedures for obfuscating the provenance of assets.

As for Hervé Falciani, late in 2008 he was arrested for data theft by Geneva police. When he was working as a software engineer at HSBC’s private bank in Switzerland, Falciani illegally downloaded details on 24,000 clients. He skipped the country, and then passed the details on to the French authorities, and consequently they recovered nearly 500 million Euros in unpaid taxes. The French have also forwarded information to their counterparts in the UK and elsewhere.

By no stretch of the imagination could Kieber and Falciani be described as honourable whistleblowers, but were they sordid blackmailers and extortionists? It really depends which side of the line you stand on tax-evasion – Falciani is seen as a hero in France. Despite the data being stolen, the authorities in Germany, England, France, the USA and elsewhere were not above using the details to demand money with menaces from their tax avoiders/evaders caught in the net.

That net dragged UBS into the firing line, and on June 19, 2008, Bradley Birkenfeld, an American employee, pleaded guilty to conspiring with American billionaire Igor Olenicoff to evade $7.2 million in taxes by helping him conceal $200 million of assets in Switzerland and Liechtenstein.

And the moral of this story? Putting your un-taxed money into an offshore account is now like playing Russian Roulette. Are you willing to take the chance that the authorities don’t already know of your subterfuge. Should you volunteer to pay up, do you cross your fingers and hope, or what?

This is a no brainer. There is no such thing as a secure computerized database – eventually they all leak like sieves. Sooner or later somebody will pass on your details – possibly even the bank itself, should they be placed under enough pressure. That’s why people who work in banks are called tellers – eventually they tell the government everything.

There are only two sensible strategies. If you remain a taxpayer (according to THEIR rules) of your high-taxing state then just pay up. For when they find out, and they will, you’ll have to pay anyway; they may also add on a hefty fine, and possibly leave you languishing in jail. Remember the case of Lester Piggott, the British champion jockey, who was sentenced to three years jail over a mere £3.5 million tax fraud. In 1983 he agreed to ’settle’ his tax bill, at which time he stated he had only three bank accounts. He persisted with this story until 1986 when he admitted to having three more large bank accounts. Subsequently he was found to have a further 14 undisclosed accounts. Lester was caught because he settled his tax bill with a cheque drawn on one of the undisclosed accounts!

However, if you want to keep your hard-earned money then you can’t remain a taxpayer. You will have to become a Golden Goose, and legally separate yourself from the state. That means being properly advised on all the rules, to ensure that you don’t accidently stray back into the firing line. Otherwise their tax collectors will take a malicious pleasure in hunting you down.

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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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