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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