We totally agree with the following comments from the WSJ.   Offshore banking adds little value to honest American citizens, given the protections, low costs and transparency of the U.S. capital markets.  As the leading wealth advisor to affluent American expats with a goal to stay in full compliance with the IRS and foreign tax authorities, we totally support the U.S. in taking a hard line with the Swiss government on this issue.

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Do you know anyone with a Swiss bank account? I don’t, which is probably no surprise since the whole point is secrecy. But evidently there are plenty of Americans who do-at least 52,000 at UBS alone-whose identities the Internal Revenue Service and the Department of Justice are trying to learn.

In light of this highly publicized investigation into tax evasion, I’ve been wondering just why anyone needs or wants a Swiss bank account. For African dictators, international arms traffickers and terrorists, the answer is pretty obvious. And there are certainly citizens of countries whose own banking systems are so precarious, and the risks of persecution for any number of reasons so great, that a Swiss bank account may provide welcome security.

Ample Confidentiality

But the U.S. is not one of those countries. Despite our recent banking woes, the U.S. has plenty of financial institutions with impeccable balance sheets. It has a legal system second to none that provides ample confidentiality and due-process protections. But it doesn’t offer ironclad secrecy in the face of a legitimate, court-sanctioned subpoena, which means it doesn’t lend itself to tax evasion.

That is evidently why California billionaire Igor Olenicoff parked hundreds of millions of dollars with UBS, and subsequently pleaded guilty to a felony count of filing a false tax return. His former UBS banker, Bradley Birkenfeld, pleaded guilty to conspiracy and testified that UBS bankers prospected for wealthy U.S. clients eager to avoid taxes at art shows, musical performances, yachting regattas, golf and tennis tournaments-anywhere “rich people hang out.” They even served as couriers to avoid money transfers that might be detected by U.S. surveillance, according to Mr. Birkenfeld’s testimony.

All of this was met with depressingly great success: Prosecutors say UBS managed $20 billion for U.S. customers. Earlier this year, UBS agreed to pay a fine of $780 million, admitted that it helped U.S. citizens evade taxes and agreed to cooperate with U.S. investigators. But now it is balking at turning over its clients’ names.

UBS says it would violate Swiss financial privacy laws if it complied. In that case, UBS (and its government) should be faced with a simple choice: continue its policy of strict secrecy, in which case UBS should forfeit the right to do business in the U.S.; or compromise, aligning its banking laws with those in the rest of the civilized world.

Moral High Ground

I have no sympathy for the bank’s plight. Switzerland is a sovereign nation, free to pursue whatever banking laws it deems appropriate. That doesn’t mean the U.S. has to open its borders to the exploitation of its citizens for tax evasion and other nefarious purposes, nor should other countries.

A trade war would be unfortunate, and the Swiss might retaliate by banning U.S. financial institutions there. But the U.S. would have the great advantage of the moral high ground. I think the likely outcome is clear.

Nor do I have any sympathy for those Americans whose identities may be made known, especially those like Mr. Olenicoff, a billionaire who owned a yacht and maintained foreign accounts in multiple so-called tax havens. Those who have accepted an offer of amnesty should count themselves lucky. Paying taxes is an obligation all American citizens share, but somehow tax evasion seems more reprehensible when committed by the rich, who owe their prosperity to this country and could so easily meet their obligations.

With the Madoff scandal still fresh in the public mind, I hope the Justice Department maintains its tough stance. The wealthy need to be reminded that all Americans stand equal before the law.

Source:  WSJ, July 15, 2009, by James B. Stewart

   

In its quarterly “Global Prospects” research publication, the Centre for Economics and Business Research predicts that Europe, the U.S. and Canada will generate less than 50% of global economic output this year. “We had expected this to happen but not quite so soon,” CEO Douglas McWilliams said. “The West will have to start to get to grips with the fact that we are no longer dominant and cannot expect to have things our own way.”

Article:   Bloomberg

   

We thought the following article from the Wall Street Journal had a lot of terrific information for small investors on how they should evaluate their current and prospective financial advisors.  We believe strongly that small investors deserve an advisor who acts as a true fiduciary…keeping the clients’ best interests first.  Due the pervasive “sales culture” of Wall Street, this kind of financial advisor is rather hard to find.

Taking Control

Small investors have been whipsawed by the market turmoil. But there are some simple steps they can take to better protect themselves.

   

The IRS is preparing to subpoena more offshore banks in an attempt to uncover the names of US citizens that are hiding assets in foreign banks.  This comes on the tail of the US government’s ongoing case against UBS, Switzerland’s largest bank, that now admits that it helped American clients conceal assets from the US government.  Read more here:

http://news.yahoo.com/s/nm/20090427/bs_nm/us_tax_usa_irs_1

   

The following is a nice summary of the Failure-to-File and Failure-to-Pay Penalties that the IRS imposes.  Not that for US expats, neither of these penalties apply until after June 15, as long as you attach a statement to your tax return explaining that you were residing abroad on April 15.

IRS Tax Tip 2009-51 (http://www.irs.gov/newsroom/article/0,,id=205326,00.html)

Taxpayers who do not file their return and pay their tax by the due date may have to pay a penalty. Here are seven things you should know about failure-to-file and failure-to-pay penalties.

1. The failure-to-file penalty is generally more than the failure-to-pay penalty. So if you cannot pay all the taxes you owe, you should still file your tax return and explore other payment options in the meantime.
2. The penalty for filing late is usually 5 percent of the unpaid taxes for each month of part of a month that a return is late. This penalty will not exceed 25 percent of the taxpayer’s unpaid taxes.
3. If you file your return more than 60 days after the due date or extended due date, the minimum penalty is the smaller of $135 or 100 percent of the unpaid tax.
4. You will not have to pay a failure-to-file penalty if you can show that you failed to file on time because of reasonable cause and not because of willful neglect.
5. You will have to pay a failure-to-pay penalty of ½ of 1 percent of your unpaid taxes for each month or part of a month after the due date that the taxes are not paid.
6. If you filed an extension and you paid at least 90 percent of your actual tax liability by the due date, you will not be faced with a failure-to-pay penalty.
7. If both the failure-to-file penalty and the failure-to-pay penalty apply in any month, the 5 percent failure-to-file penalty is reduced by the failure-to-pay penalty. However, if you file your return more than 60 days after the due date or extended due date, the minimum penalty is the smaller of $135 or 100% of the unpaid tax.

   

We are happy to see news that the IRS is working to facilitate the movement of assets which were formally hidden offshore back into compliance.  There is no reason for the U.S. Treasury not to work with these families…many of whom have been manipulated themselves by unscrupulous offshore investment salespeople.

IRS extends hand to offshore account owners
Penalties reduced, criminal prosecution unlikely for those who come clean

The IRS on Thursday offered taxpayers with offshore accounts a big carrot to fess up: Sharply reduced penalties, plus a reminder that criminal penalties are highly unlikely for people who come clean to the tax agency within the next six months.

MarketWatch 3-26-2009

   

We have been warning anyone who will listen for years that the business model of offshore private banks, brazenly pedaling secrecy and tax avoidance under a vail of exclusivity and elitism, was coming to an end.  The recent chain of events, which began with the German government’s deal to purchase the client list of LGT in Liechtenstein from a disgruntled former employee, has really been inevitable.  This business model is finished.

Of course we couldn’t be happier with these developments, given that our primary purpose is to advise wealthy international families who’s goal is to managed their investment assets in as efficient a way possible while staying in full communication and compliance with the IRS and international tax authorities.

See the article in Spiegel Online at:  Tax Havens Give In to EU Pressure

   

Please see the link at the bottom of this post for the complete US Senate Report on Offshore Tax Havens dated July 17, 2008.  In it, the U.S. Senate Subcommittee on Investigations delivers an incredible amount of detail into the dark world of offshore banking practices aimed at helping American citizens hide assets offshore, often with a goal of evading taxes or financial judgments resulting from litigation or divorce.

In addition to being an incredibly interesting read, this report combined with the legal action recently taken against UBS by the IRS will in our opinion be the “first shot” of a new war on international money laundering and tax evasion, as many more foreign countries will no doubt join in the battle.  These actions will forever change the allure of offshore banking and will lead to much greater focus on global wealth management for U.S. citizens which seeks to maximize tax efficiency while also remaining in full compliance with all U.S. and international tax authorities.

We at Maxim Global Wealth Advisors promise to maintain abreast of the relevant tax and investment strategies and to communicate our vision of best practices in global wealth management to both our clients directly, and to the greater public via our website.

http://online.wsj.com/public/resources/documents/071708PSIReport.pdf

   

In the latest “shot across the bow” in the unfolding world of American citizens with hidden assets in offshore accounts, the IRS has now demanded that UBS provide the names of some 52,000 American account holders of offshore Swiss investment accounts.

This action will now force a painful showdown for UBS and the Swiss government.  The request represents a fundamental threat to the Swiss banking model, which is primarily predicated on secrecy and tax avoidance. Make no mistake that other major countries are watching these events closely and will be following up with their own requests in short order.

We at Maxim see these events as a huge positive for our business niche, which is to serve as the global specialist for investment and wealth management for American expatriates as well as foreign-nationals and multi-nationals who are U.S. taxpayers.  Our service is built around the notion of constructing investment portfolios that are optimized for internationally-mobile families in full compliance with the IRS and all international tax authorities.

Please see the most recent WSJ article on the UBS / IRS standoff at the below link:

http://online.wsj.com/article/SB123531487617042081.html

   

While international investments have faired poorly over the past year for American investors, investing abroad still makes sense as investors can achieve a higher level of diversification while gaining access to better investment opportunities.  This article does a great job of explaining the factors that make investing globally a necessity for good.

Why Venturing Abroad Still Makes Sense for Fund Investors

Some people have pulled dollars from foreign-stock funds as their performance has tanked. But thinking global is still a smart way to go.

Wall Street Journal, February 2, 2009
By: Eleanor Laise

http://online.wsj.com/article/SB123308918983621063.html?mod=todays_us_the_journal_report