| The first thing that came to mind when I read the | | | | What kind of payments are included? Almost anything. |
| hidden provisions starting on page 27 of the new | | | | The act specifically mentions "interest, dividends, rent, |
| H.I.R.E Act - short for "Hiring Incentives to Restore | | | | salaries, wages, premiums, annuities, compensations, |
| Employment" - was the phrase "Get Your Money Out | | | | remunerations... and any gross proceeds from the sale |
| of the Country, Before Your Country Gets Your | | | | or other disposition of any property of a type which |
| Money out of You." | | | | can produce interest or dividends from sources within |
| That expression was coined years back in one of the | | | | the United States... " |
| classic offshore investing books. Today, it appears | | | | This is incredible stuff. The section after the section |
| more vital than ever - not just for our American | | | | about foreign bank accounts goes on to talk about |
| cousins but for anybody with assets held in the global | | | | foreign financial assets, including for example stocks, |
| financial system, which is still dominated by the US | | | | not just offshore bank accounts. Any holdings of |
| dollar. If the HIRE Act is not a wake-up call to those | | | | foreign stocks over $50,000 will have to be reported |
| without a detailed exit strategy in place, then I don't | | | | by US taxpayers. And this provision kicks in earlier - |
| know what is. The US government today is 'defaulting | | | | starting with the next tax year. It's what we expected |
| in silence.' | | | | for the past few years: reporting requirements being |
| The offending legislation in a nutshell? Many transfers | | | | expanded beyond foreign financial accounts. |
| of money from the US to overseas entities are | | | | Economic Isolation of the United States? |
| subject to a new tax equal to 30 percent of the total | | | | This legislation is typical gung-ho 'you're either with us, |
| amount of the payment - unless the payment is sent | | | | or against us' stuff. |
| to a foreign bank that has agreed to report all | | | | Treasury minions seem to think the USA has enough |
| American-owned accounts automatically and | | | | economic power to be able to enforce all this |
| electronically to the US government, and/or unless the | | | | extra-territorial legislation on foreign banks. I honestly |
| beneficiary agrees to disclose voluntarily its ownership | | | | think they believe that. But they may be in for a |
| information to the IRS. | | | | surprise. |
| The HIRE Act sounds harmless enough, right? It | | | | Bankers have tolerated a lot, always trying to hard to |
| sounds like something to do with job creation... yet | | | | comply with the latest mandates. A few years back, |
| another round of incentives. Yet, hidden starting on | | | | everybody was trying hard to produce compliant |
| page 27, is America's widest reaching attack yet on | | | | financial services products for the US market. But |
| offshore banks. | | | | based on my candid discussions with bankers around |
| "It couldn't have happened to a nicer country," writes | | | | the world, I can tell you that rebellion is fomenting on |
| analyst Tyler Durden on "... As it was merely the latest | | | | the Bahnhofstrasse. Even the most conservative |
| in an endless stream of acts destined to expand the | | | | 'straight arrow' bankers are now asking themselves, "Is |
| government payroll to infinity, nobody cared about it, or | | | | compliance with US law really possible?" |
| actually read it. Because if anyone had read it, the act | | | | The answer, in many cases, is no. It is simply not |
| would have been known as the Capital Controls Act." | | | | possible to comply with US law, and run a business |
| I think he's absolutely right that nobody read it. The | | | | complying with local laws and client demand. And with |
| mainstream media didn't pick up on it, any more than | | | | the regulations tightening all the time, I can see many |
| they gave any indication of what Obama's much | | | | people who have tried extremely hard to be |
| hyped healthcare bill actually says. | | | | law-abiding citizens will simply decide that the time has |
| A few days later, however, Mark Nestmann, on his | | | | now arrived to become criminals in the eyes of the US |
| blog, writes that Durden's article is "highly misleading." | | | | government. |
| The HIRE Act, says Nestmann, isn't about capital | | | | A lot of banks will be both unwilling and even unable to |
| controls, at least not directly. It's about enforcement of | | | | comply. They will instead do things their own way and |
| existing IRS rules. | | | | start blatantly to ignore US laws. A few years ago we |
| So, there's some debate about whether this is really | | | | would never have thought of conservative, reputable |
| about currency controls, or just the taxman doing his | | | | and respectable institutions taking this attitude. But now |
| job. I guess it all boils down to your definition of | | | | we are seeing it happening. |
| currency controls. | | | | The price to pay for financial institutions that make that |
| As it happens, in my humble opinion, Dryden and | | | | decision will be total isolation from the US banking |
| Nestmann are both right. The HIRE Act is certainly not | | | | system. They won't be able to handle US investments |
| a typical old-fashioned exchange control mechanism. | | | | or US dollars for any clients - American or foreign. |
| But then, the stealth devaluation of the dollar is no | | | | There is a big wide world out there, and whether or |
| typical devaluation! The US Treasury and Fed officials | | | | not you are bullish on BRICs, you probably agree with |
| who are doing this are much more sophisticated than, | | | | me that the future does not belong to the United |
| say, Hugo Chavez of Venezuela with his currency | | | | States. So I think these banks that choose isolation |
| controls and devaluations. Perhaps a better word is sly. | | | | from the US can still run profitable, stable and |
| It would never suit the US politically or financially to | | | | successful businesses. In fact, freeing themselves from |
| introduce old-fashioned exchange controls, of the type | | | | all this costly compliance could make their bottom lines |
| the UK had up until 1979 and France, Spain and Italy | | | | much better... and reducing their exposure to US dollars |
| had through until the nineties. Of course, the Chinese - | | | | undoubtedly makes good business sense anyway, |
| who basically control the US dollar, as the major | | | | given how the Fed just keeps on printing. |
| holders of its debt - would never allow exchange | | | | The only question is, how many banks will do this? If it's |
| controls. Neither would American conservatives. | | | | just a few, they will be the isolated ones. But if the |
| There is, however, an even darker and deeper reason | | | | rebellion grows, finally it will be the United States of |
| still why the US will not introduce explicit exchange | | | | America that will be isolated from the world financial |
| controls. Recently, Gloom-Boom-Doom guru Marc | | | | system. |
| Faber wrote that printing money represents a silent | | | | Very Un-American? |
| way for governments to default on their debt. When a | | | | There is one simple, albeit radical, step that Americans |
| government openly defaults on its debt, says Faber, | | | | can take to rid themselves once and for all of this |
| the workout process is reasonably equitable. But if a | | | | problem: change their citizenships. The steady flow of |
| government devalues silently by printing, the burden of | | | | Americans doing just that is likely to increase |
| the default isn't shared equally. Those who hold more | | | | phenomenally over the short to medium term. |
| of the currency being devalued, in this case US dollars, | | | | Many US citizens are entitled to new citizenships |
| are disproportionately hit. | | | | already, without even knowing it, due to ancestry. If the |
| Inevitably those hit hardest are not big sophisticated | | | | citizen's parents or grand-parents were born overseas, |
| international banksters, who have hedged their risk | | | | then they can likely apply for a foreign citizenship. |
| through complex financial instruments, but small | | | | Otherwise, they can acquire a second citizenship either |
| investors who have simply never thought of hedging | | | | through naturalization (usually after a few years of |
| against currency risk. This stealth devaluation is nothing | | | | residence) or by economic citizenship - that is the paid |
| more than a way of stealing from average Americans | | | | option. |
| who have savings in their retirement accounts, in order | | | | The paid option is currently only available in two |
| to keep America's creditors pacified and maintain the | | | | countries in the world: The Commonwealth of |
| USA's superpower status. | | | | Dominica, and the Federation of St Kitts and Nevis. I |
| What the HIRE Act represents, in my view, is a slick | | | | have heard on the grapevine, however, that there may |
| form of currency control via the back door. The | | | | be other new players, or perhaps older players coming |
| bottom line is it makes it much harder to move capital | | | | back to the market, in this business quite soon. I can't |
| out of the USA. I would choose to define a currency | | | | say more at the moment, but feel free to contact me |
| control as something that places restrictions on | | | | via the Q Wealth offices for a personal consultation if |
| movement of capital. By that definition, this is clearly a | | | | you are interested in being personally informed of such |
| currency control. If you take a narrower definition, | | | | options as - or even before - they become available. |
| maybe this is an enforcement action not an exchange | | | | Is this unpatriotic? I suppose it is in a way, but |
| control. Semantics, however, don't affect the net | | | | governments try very hard to confuse patriotism and |
| result... which Nestmann certainly agrees is very | | | | nationalism in the collective psyche. In fact, a passport |
| negative. | | | | is just a piece of paper representing your relationship |
| The Immediate Fallout - Account Closures and | | | | with a certain government - or, as some would say, |
| Withholding by Default | | | | your control by a certain government. |
| There are two net effects of this legislation: | | | | What About The Rest of the World? |
| First, it provides a huge disincentive for foreign banks | | | | Citizens of other countries have it relatively easy - |
| to deal with Americans. Foreign banks that still | | | | they can legally escape all this simply by moving to |
| welcomed American account holders are now asking | | | | another country (with a little careful advance planning, |
| Americans to close accounts. | | | | obviously). Foreign banks will not refuse to do business |
| Secondly, it will also have US banks running scared. | | | | with Brits, Canadians or Australians. |
| Sure... there are many kinds of transactions where the | | | | However, the devaluation of fiat currencies is a global |
| tax does not apply. But up until now, it wasn't really the | | | | phenomena. The Bank of England and the European |
| bank's business why you were transferring funds, | | | | Central Bank are very much in cahoots with Federal |
| provided they didn't have any reason to suspect the | | | | Reserve. By devaluing all three currencies at more or |
| funds were of criminal origin. When this legislation | | | | less the same rate, they are further adding to 'stealth |
| comes into force, however, banks in the US will have | | | | devaluation' tactics. If the exchange rates stay broadly |
| conduct an in-depth investigation into the purpose of | | | | similar, the masses won't realise what's going on. |
| the transaction, the beneficiary, and the receiving bank, | | | | Other major currencies, too, maintain pegs to the dollar |
| in order to decide whether or not they are required to | | | | and the euro - so they too will participate. The Swiss |
| withhold tax. If they get it wrong, they will be liable for | | | | Central Bank, for example, has a policy of maintaining |
| the tax they should have deducted... so they will | | | | the Swiss Franc-Euro rate within a certain margin. And |
| naturally err on the side of caution. | | | | numerous Latin American countries try to shadow the |
| As I see it, US banks now have little choice but to | | | | dollar. The solution? Buy gold of course. |
| introduce withholding by default, shifting the burden of | | | | Of perhaps greater concern, however, to citizens of |
| proof to the account holder requesting the transfer, | | | | many countries around the world is the threat of |
| who will have to demonstrate that the transaction is | | | | currency controls. Our feeling is that the Euro zone |
| not subject to withholding tax. | | | | and the UK will follow the American example and try |
| This is very similar, albeit different, to many existing | | | | to stem the tide of capital flowing out at some point |
| exchange control regimes. Think Venezuela, Brazil or | | | | soon. The time to prepare is now. |
| South Africa for example... where in order to transfer | | | | Our advice on how to prepare is not new, but bears |
| funds abroad, people must present a mountain of | | | | repeating: |
| paperwork, permits etc. Holding of foreign bank | | | | - Open foreign bank accounts while you can |
| accounts, under traditional exchange control regimes, is | | | | - Look for non-reportable overseas investments like |
| either frowned upon or prohibited outright with strict | | | | gold bullion or real estate |
| penalties for anyone who is caught. | | | | - Try to develop offshore income streams so you are |
| Oh, and that reminds me, I almost forgot to mention the | | | | less reliant on the economy of any particular country If |
| penalties introduced in the HIRE Act... $50,000 for | | | | you haven't already started on the path to acquiring at |
| non-reporting... 30% automatically for being a so-called | | | | least an offshore residence, and preferably a passport |
| 'recalcitrant account holder' who refuses full disclosure... | | | | too, for you and your family - then get started without |
| etc etc. | | | | delay. |
| Scope of the New Controls | | | | |