Like never before, financial privacy and safe havens are under attack the world over.
Banks and even entire jurisdictions are feverishly responding to
increased government scrutiny from the world’s monetary power centers in
the name of exposing political corruption, combating terrorism, and
preventing tax evasion.
Full financial transparency is the new
mantra and it’s being invoked in the name of social justice. The
International Consortium of Investigative Journalists recently released “Secrecy for Sale: Inside the Global Offshore Money Maze,” a report that focuses on “exposing hidden dealings of politicians, con men and the mega-rich.”
But
why are private individuals lumped together with politicians who choose
to be public figures representing the interests of their
constituencies? Should private individuals and political figures be
treated in the same manner regarding financial privacy?
Attorney Jenice Malecki of Malecki Law
told me: “No, they should not. When you become a political figure, you
agree to give up some of your privacy rights. You also need to be more
transparent, so people know who you really are, whether they should
believe what you say.”
Politicians who do not voluntarily submit to monitoring of their financial activities will not be trusted.
“Private
individuals should have more privacy, as they have not placed
themselves into the political arena. They have not agreed to give up
their privacy,” adds Malecki. However, she also concedes that when it
comes to offshore numbered accounts, “it does seem that banking secrecy
is eroding. Slowly, but surely, banks are releasing information for
governmental investigations.”
Violations of everything from know-your-customer rules to the Foreign Account Tax Compliance Act
can all be loosely categorized as the politically incorrect crime of
money laundering. But as the investor and author Doug Casey says, “it’s a completely artificial crime. It wasn’t even heard of 20 years ago, because the ‘crime’ didn’t exist.” Moving money around was simply called banking.
Furthermore, Casey says, “The war on drugs may be where ‘money
laundering’ originated as a crime, but today it has a lot more to do
with something infinitely more important to the state: the War on Tax
Evasion.”
Almost simultaneously with the recent jihad against tax dodgers, decentralized cryptocurrencies such as bitcoin
arrived on the scene in early 2009 and now provide an outlet for
personal wealth that is beyond restriction and confiscation. The
exchange rate for government fiat currencies may be volatile now, but as
the market price eventually finds equilibrium and stabilizes, bitcoin
will become an important store of value.
Think of bitcoin as your
own personal financial safe haven or offshore bank. Previously, you had
to board a jet or hire an attorney to set up legal entities and open
bank accounts in private banking jurisdictions like Liechtenstein, Luxembourg, the Cayman Islands or the Cook Islands.
Simply by leveraging the distributed bitcoin block chain,
which records all transactions in the system and prevents
double-spending without identifying the parties by name or location,
individuals can protect their wealth from privacy violations and
indiscriminate confiscation without leaving the keyboard. This
represents a powerful new development that the world has not seen before
and it will have a profound impact on the global asset management
industry specifically.
Today’s best tax havens combine a no-tax
jurisdiction with extreme banking secrecy enshrined in law where bank
employees could face imprisonment for disclosing bank customer details
to third parties or parties outside of the bank. Unsanctioned disclosure
of bank account information in most tax havens is considered a criminal
offense punishable by incarceration and monetary fines.
Sanctioned disclosure usually requires a recognized court order and typically hinges on the distinction between legal tax avoidance
and tax evasion. Offshore jurisdictions have been feeling the pressure
for several years to remove that distinction and open the banking
records regardless.
The global trend persists toward cleaning up the high-risk and uncooperative countries on the intergovernmental Financial Action Task Force’s blacklist. Ultimately, no jurisdiction will be exempt. On the complementary Organisation for Economic Co-operation and Development gray list, the tiny alpine principality of Liechtenstein
has been amending tax laws in a move to anti-secrecy compliance.
Similarly, as the small haven of Cyprus had built up a burgeoning
financial center for the free flow of capital within the eurozone, it
too had to be restrained, even if that meant egregious depositor
“haircuts” of up to 60%.
Future regulatory and confiscatory attacks on safe havens and banking secrecy will become irrelevant, because bitcoin provides for a personal “offshore center” under direct and sole control
of the individual. However, Malecki cautions, “If [the] bitcoin
currency’s respect and security grows, the governments will also find a
way to keep on top of bitcoin monitoring and enforcement.
“I
think that determining ‘legitimacy’ is difficult,” she says, “but as
with political asylum, perhaps the financial world needs some financial
asylum – which has very specific criteria, review and oversight. Without
that, there is bound to be abuse” by governments.
Legitimacy is
a politically charged term. One person’s legitimacy may be another
person’s aggressive and unjustifiable overreach. Also, what a certain
government sees as legitimate may be viewed in other parts of the world
as a violation of fundamental human rights. This is clearest in
authoritarian regimes that impoverish and imprison their political
opponents for so-called crimes against the state.
It all depends
of who is performing the oversight. I am not quite sure how any
political oversight could function effectively while still protecting
the financial privacy rights of individuals. Thankfully, it doesn’t
matter anymore.
