Why Set Up an Overseas Bank Account?

I’m frequently asked that question at conferences and by clients.  They've seen the movies with numbered bank accounts in Switzerland, and paper bags or suitcases filled with cash.

Those days existed once upon a time and might still exist in Hollywood, but the reality is anything but that today.  We live in a world of extreme transparency, information sharing and banking disclosures.  One of my banking friends recently told me that the disclosure on international domestic banks is so "real time" now to the point where the Treasury Department has notice of your transfer BEFORE you even have walked out of your bank office.

The Foreign Account Tax Compliance Act (or FATCA) in the US and the Common Reporting Standard (or CRS)  in Europe lead the way in forcing banks all over the world to disclose every bank account's "Ultimate Beneficial Owner" (or UBO),  along with essentially all the account activity. Even in countries that still have bank secrecy (something we will talk about below), the citizens from the US and many European countries are forced to sign "waivers" from bank secrecy as it applies to their home countries' tax authorities.  No signed waiver, means that you can't open a bank account there. Of course "there" pretty much means "everywhere" in today's world, with just a few exceptions.  Uncle Sam will punish you severely for using these non-compliant FATCA jurisdictions by forcing a thirty percent withholding tax on the gross amount of the transfer to any non-compliant bank or jurisdiction.

So, if bank secrecy vis a vis your home government tax authorities is dead, why would you still want to utilize an offshore account for your cash holdings and investments? Actually there are many reasons and I'll do my best to outline the major reasons. But no matter how many I write about, you'll certainly be able to come up with even more reasons based on your own particular circumstances.

The first reason to set up a foreign bank account and hold assets abroad is to access the world's various currency and investment opportunities. Most Americans think they are free to invest whatever they want, wherever they want, but nothing could be farther from the truth.  In reality—and sadly, 70 percent of the world's securities are not open to US investors. This is because the US claims worldwide jurisdiction over any company or investment group soliciting investment funds from a US person. So if a real estate partnership in Malaysia, for example with a hundred investors, allows just one US person to invest in their funds, they are subjecting themselves to US regulators and US legal scrutiny.  For most overseas companies (except maybe the largest companies such as Toyota which are already listed as ETF's on US exchanges), the cost of US Regulatory compliance and oversight is just too expensive. It’s easier and cheaper to just keep Americans “out”.
For those Americans who bank offshore, however, they can use a legal structure such as a trust to make the same investments closed to them in the US.  In these cases the foreign bank itself frequently makes the investment on behalf of its client and in its own name on the clients' behalf.

Opening the world of true global investment can be a financial game changer for a US person at any economic echelon. Research has shown that adding global investment diversification together with currency diversification can increase your portfolio's ROI, while making it less risky and less volatile. 

The second reason clients wish to have a portion of their assets held abroad is "Asset Protection".  Again a trust or other legal structure can add significantly to the asset protection features of money held abroad, but even without a structure, the safety of a bank account in a jurisdiction that does not recognize US judgments is way better than holding your life savings at your local Bank of America or Charles Schwab office.

Asset Protection is not just about making it harder for nasty plaintiff lawyers to come after you.  Asset Protection takes many forms, and maintaining an offshore bank account is central to many of them.  Overseas banks can help you buy, sell and store gold (collectively gold, silver, platinum and palladium) for example.  Some will allow you to leverage your gold to acquire other assets and generate positive cash flow from your precious metals, which goes beyond asset protection.  Currency diversification is also another major aspect of holding assets offshore. By acquiring other currencies, you can hedge the inevitable devaluation of your own currency.  The famous French philosopher Voltaire once said that eventually every paper currency will reach its intrinsic value: zero. It just takes some currencies longer than others.  In the case of the dollar for example, its purchasing power has gone down over 95 percent in the past 100 years.  It used to require $20 to buy an ounce of gold and now it takes $1320 to buy that same ounce.  In the 1920’s the German Reich’s Mark went from 100 for an ounce of gold to 100 trillion for an ounce of gold in just two years. Think the same thing can’t happen today in the era of modern Central Bankers?  Just ask someone from Venezuela who has seen their currency collapse in current times. Folks in Turkey, Zimbabwe, South Africa are all experiencing mass devaluation of their currency. Even Brexit has caused the British Pound to lose one third of its value in the past two years.   Sadly, even the best currencies over longer periods of time lose value, and the Dollar is just one of really all currencies that have lost between 91-99 percent of their value in the last 100 years.

Asset Protection suggests that you hold your assets in a basket of currencies and currency denominations.  I particularly like to help divert client asserts away from their home currency, because tomorrow they can go out and earn more of that currency. But if their home currency weakens against foreign currencies, it will be good to be holding those foreign currencies.   That means Americans should look to place a somewhat larger share of their investable liquid assets in Pounds, Euros, Yen, Francs, Australian, Canadian and New Zealand Dollars and even Renminbi. Folks from Asia and Europe would be smart to hedge their local currency somewhat in dollars.  Once they get a portion of their liquid net worth converted into other denominations, they can then use those currencies to invest in anything they’d feel comfortable owning in their home market. If you like US large cap stocks, for example, then use your Swiss francs to buy Swiss large cap companies that pay their dividends in francs.  If you love commercial real estate in New York, why not consider commercial real estate in Lisbon, Portugal paying rents in Euros.  If you like REITS in San Francisco, well what about REITS in the UK.  The point is, your foreign bank can help you to not only create a global investment portfolio for ROI purposes, but it can help you to financially implement an asset protection plan focused on the preservation and long term growth of your purchasing power, within an investment plan that is comfortable for you.

Next, a foreign bank account can be the actual focal point of establishing overseas residency as well as qualifying for the numerous citizenship by investment programs. Most countries including the US, Portugal, Cyprus, Malta, Greece, Austria, Belgium, Bulgaria the United Kingdom, Belize, Columbia, Panama and Ecuador (as well as many, many other countries) want to see that you have opened up a bank account in their country and transferred the requisite amount of money to qualify for the particular foreign Investment or retirement program.  This amount can range from as little as $5,000 in Panama, or $24,000 in Belize to as much as 2 million Euros in Cyprus and 10 million euros in Austria. In each case, the government wants to see the funds physically transferred into a bank account in that country to proceed with the residency or citizenship program.  So without the bank account, the residency or citizenship program is impossible.

Of course there are routine and even mundane reasons to open a foreign bank account.  In Austria, you can only get a cell phone, for example, if it’s linked to a bank account to facilitate automatic payment.  In the UK, you can’t get a driver’s license without a local bank account. And nobody living anywhere would want to buy their groceries or pay their utility bill without a local bank account. In some cases a bank account in a country like Belize facilitates payments not only for people who live there, but also for people in the region including Mexico, Guatemala and Honduras who don’t want to hold their money (or only very small amounts) in the local currency of the country where they live because they fear currency devaluation.

So, despite the rise of alternate payment solutions such as credit and debit cards, PayPal and even cryptocurrencies, the old fashioned bank account is pretty much here to stay.  The offshore version can give you piece of mind, facilitate diversified currency and global investment and enable residency and citizenship in a foreign country. It’s the centerpiece of anyone looking to make or spend time abroad, whether for retirement, as a plan B, or to plant their five flags. It’s easy to do in virtually any amount whether a few thousand or many millions of dollars, euro, yen, francs or pounds.

Finally, it’s important to note that the time necessary to open a foreign bank account has increased in recent years. The amount of paperwork, disclosures, references and government forms have all increased. Many countries require you to make a trip to visit the bank in person, before you can open a bank account there. This should in no way be a deterrent to opening an account. Give yourself a lot of lead time, however to open a bank account before you need it.  I see it time and time again that somebody sells a business or a house or wants to send money abroad for an investment, or to fund an asset protection trust or simply to begin their retirement abroad but they have no foreign bank account to which they can send their money.   They become extremely upset because this “detail” of not having an account is now having a major impact in blocking their ability to transfer the funds abroad.  Similar to applying for a passport, it’s a lot easier and goes much more smoothly if you apply for a bank account before you actually need it.  Many banks also limit your initial access to your account’s first inbound transfer meaning you can’t wire money in today and send it back out tomorrow in a new account.  Preparing in advance to open a bank account abroad when you don’t need it will make the process move a lot more smoothly and easily.  Delays in the bank doing its own due diligence on you won’t make you upset and you’ll have time to leisurely visit the bank when you are planning a business or leisure trip there anyway.

Establishing a foreign account now is an easy, yet important “first flag” abroad to plant. It’s a lot more than a detail and should be planned for accordingly. A foreign bank account is a versatile tool that actually works as the glue or centerpiece in your investment, asset protection and new life abroad. Without it, not much is really possible, but with a good foreign bank account, everything is possible.
Joel M. Nagel is an international lawyer and entrepreneur focusing his practice in the area of asset protection, cross-border transactions, and global investment. He speaks all over the world on the topics of asset protection, global banking and investment, citizenship and residency and international legal compliance. He has served on several bank boards and has worked with banks around the world catering to Americans for the last thirty years.

Joel has written articles and has been quoted by Forbes, Fortune, Live and Invest Overseas, The Miami Herald, Hemispheres Publishing, Stansberry Research, Oxford Club, Pirate Investor, True Wealth, Islands magazine, Business Times, Physician’s Money Digest, and the Simon Letter. Joel can be reached at Nagellaw@aol.com or +1-412-749-0500.  Follow him on Twitter at @Nagellaw.

Alexander Mils by Alexander Mils is licensed under Unsplash License

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