Asset Protection BLOG - Mark Nestmann

Russia, Romania Begin Using Passports as a Weapon

No, these countries haven't developed new passports containing a hidden death ray gun.  But changes in Russia's citizenship laws—and amendments that Romania is now considering—are every bit as potent.  Even gentle Canada is getting in on the act, although in its case, there's no evidence of hostile intent.

Starting in 2000, Russia has granted citizenship to nearly 3 million ethnic Russians living outside its borders, especially in Georgia, Moldova, Estonia and Ukraine.  All of these nations were former satellite states of the Soviet Union.  And the Kremlin's action is a provocative instrument of foreign policy.

For instance, Russia justified its military invasion of Georgia last year by saying it was protecting Russian citizens living abroad.  But this occurred only after the Kremlin handed out hundreds of thousands of passports in the breakaway regions of South Ossetia and Abkhazia.  And with 200,000 Russian citizens now living in Estonia, and another 200,000 or so in the Crimea—the jewel of Ukraine—Russia may have created a justification to intervene in these areas as well.

It's a little like Canada telling U.S. citizens that they're now Canadian, and then justifying an invasion of the United States to protect them.

Oh, wait…Canada has now done this, although (other than in South Park) there are no plans to invade the United States.  Thanks to a new law, Canada has granted citizenship to hundreds of thousands of former citizens and their descendants.  Most of these individuals live in the United States. 

Unlike Russia, Canada's motive appears peaceful.  The amendments to Canada's Citizenship Act restore Canadian nationality to those forced to renounce it when they became citizens of other countries.  It also grants Canadian citizenship to their children.

The same can't be said for political hijinks now playing out in Romania, one of the newest members of the European Union.  Last week, the Romanian government introduced a bill that would grant citizenship to anyone living in Moldova with a Romanian grandparent or great-grandparent.  Previously, only Moldovans with Romanian grandparents could apply.  In addition, Moldovans who qualify under these criteria would no longer need to learn Romanian to obtain a passport. 

Romania took this action after Moldova imposed visa requirements on Romanian passport-holders visiting Moldova.  Should Romania enacts its new citizenship legislation, Moldova may enact its own law banning dual citizenship.  If that happens, more than one million Romanian citizens living in Moldova would have to leave Moldova unless they renounce their Romanian nationality. 

What a mess!  However, these developments create new opportunities for those affected by them to obtain a "better" passport (in terms of travel options available) than they now possess.  For instance, the Canadian passport is one of the world's best travel documents, with visa-free access to more than 150 countries.  The Romanian passport is also an excellent travel document, as it now provides visa-free access to the entire European Union.  (You must, however, first obtain a valid national ID card from Romania).  The downside, of course, is if you live in Moldova and don't want to leave.

And Russia?  Well, Russian passport holders can travel visa-free to only about 80 countries.  But Russia has military and diplomatic clout—something that can't be said for Georgia, Moldova, Estonia and Ukraine. 

One thing is for sure.  Jockeying for military and political advantage through passport diplomacy is bound to continue.  And while the geopolitical impact may be uncertain, the opportunity these developments provide for those newly eligible to receive a passport may be incalculable. 

If you're not eligible for a second passport by way of your ancestry, marriage, or prolonged residence in another country, The Nestmann Group, Ltd. can assist you in obtaining alternative citizenship and tax-advantaged residence. Please contact us for more information at info@nestmann.com.

Copyright © 2009 by Mark Nestmann

Second Thoughts on "Camouflage Passports"

When terrorists began targeting individuals carrying U.S., British, or Israeli passports in the 1970s, entrepreneurs responded by offering international travelers "camouflage passports."  These are passports issued in the name of a non-existent country that look like a real country’s passport.

I've always been a nervous about camouflage passports because of the potential legal implications.  Even if you don't try to cross an international border with your camouflage passport—an act that could land you in prison—what if a customs official finds it during a routine search of your belongings?  Your explanation that you're carrying it "just in case" may or may not be accepted.  In some countries, you may be subject to arrest for the mere possession of a camouflage passport. 

However, despite my misgivings, I never explicitly recommended that travelers not carry a camouflage passport. Until now.  Thinking the matter through a little further, I don't think it's a good idea to use camouflage passports at all.

Here's why:

First, if you find yourself in a terrorist situation and present your passport from non-existent countries such as British Honduras (now Belize) or Burma (now Myanmar) what are you supposed to do with your "real" passport?  If the terrorists find it and conclude you tried to disguise your identity, you may be targeted for reprisals.

Second, even if the terrorists accept your camouflage passport, they may ask you questions about that country.  What's the capital of British Honduras?  Where in Burma did you grow up?  Can you carry on even a simple conversation in Burmese? 

Third, assuming you've never used the camouflage passport to cross an international border, it will bear no passport stamps.  That would be highly suspicious to anyone to whom you present the document.  And while it's sometimes possible to purchase a camouflage passport with real country stamps in it, you're much more likely to be arrested if customs official find it, because it will now appear you've used it fraudulently.

If you want a passport from a neutral country to present in a terrorist situation—or at international borders—you're much better off using a legitimate second passport.  You may qualify for a second passport based on your ancestry, marital status, religion, or a period of prolonged residence in another country.  If you don't qualify on any of these grounds, a handful of countries offer "instant" citizenship in return for an economic contribution. The Commonwealth of Dominica, the Federation of St. Kitts & Nevis, and Austria are the only countries with an official, legally mandated, citizenship-through-investment program.

The least expensive option is to obtain economic citizenship from Dominica. Under this country's program, you may acquire citizenship and passport in return for a cash contribution.  Total costs including all fees for a single applicant come to about US$103,000.  Add US$25,000 if you need a passport for your spouse and up to two children under 18.  Dominican passport holders can travel without a visa, or obtain a visa upon entry, to nearly 90 countries and territories.

In the Federation of St. Kitts & Nevis, there are two ways to obtain economic citizenship.  The most practical strategy is to make a direct contribution.   Total costs including all fees for a single applicant under this option come to about US$220,000, or US$270,000 for an applicant with up to three dependents. St. Kitts & Nevis passport holders will be able to travel without a visa, or obtain a visa upon entry, to nearly 130 countries.

Finally, you may be able to obtain Austrian citizenship and passport after making a substantial investment in that country.  Unlike the programs in Dominica and St. Kitts & Nevis, in Austria, you must make your investment first and then apply for citizenship. You don't get your money back if you're not approved.  Generally, you must invest several million dollars to have a reasonable chance at qualifying, and pay legal fees of US$30,000 or more.  Austrian passport holders can travel to more than 120 countries visa-free and live and work in any of the 27 members of the European Union.

In all three of these economic citizenship programs, applicants must pass a strict vetting process that includes a comprehensive criminal background check.

The Nestmann Group, Ltd. can assist individuals seeking alternative citizenship and tax-advantaged residence. Please contact us for more information at info@nestmann.com.

Copyright © 2009 by Mark Nestmann

Nevis/St. Kitts Passport Holders Now Can Travel Visa-Free to 23 European Countries

In a world where visa restrictions are increasing, not decreasing, I never expected it to happen.  But beginning later this month, citizens of the Federation of St. Kitts & Nevis will no longer need visas to travel to 23 European countries.  With the addition of the Schengen area, St. Kitts & Nevis passport holders will be able to travel without a visa, or obtain a visa upon entry, to nearly 130 countries.

These countries, all members of the "Schengen Area," are Austria, Belgium, Czech Republic, Denmark, Estonia, Finland, France, Germany, Greece, Hungary, Iceland, Italy, Latvia, Lithuania, Luxembourg, Malta, Netherlands, Norway, Poland, Portugal, Slovakia, Slovenia, Spain and Sweden.  All a St. Kitts/Nevis citizen needs to do to enter these countries for up to three months is to hold a valid St. Kitts/Nevis passport.  (It's already possible for a St. Kitts/Nevis passport-holder to visit Ireland, Switzerland, and the United Kingdom visa-free.)

This development greatly increases the value of a St. Kitts/Nevis passport.  And while I'm expecting a significant increase in the price in coming months, you can still purchase "economic citizenship" in St. Kitts/Nevis for a fee beginning at US$200,000, plus a minimum of US$15,000 in legal fees. 

There are two ways to obtain economic citizenship from the Federation of St. Kitts & Nevis. The most practical strategy is to make a direct contribution.   Total costs including all fees for a single applicant under this option come to about US$215,000, or US$265,000 for an applicant with up to three dependents. Alternatively, you can purchase qualifying property worth a minimum of US$350,000. However, fees and taxes under this option are much higher than if you make a direct contribution. 

The Nestmann Group, Ltd. can assist individuals seeking economic citizenship in the Federation of St. Kitts & Nevis.  We also can assist with applications for economic citizenship in the Commonwealth of Dominica, a lower-cost alternative to St. Kitts & Nevis.  Please contact us for more information at info@nestmann.com.

Copyright © 2009 by Mark Nestmann

Get Ready for Exchange Controls! [Part III]

In my last two blog entries, I described what exchange controls are, how they operate, and why they may be coming to your country. 

Unfortunately for the governments that impose them, exchange controls simply don't work.  The longer they're in place, the more ways clever people find to get around them.  To begin with, exchange controls create a huge black market and an accompanying criminal class.  This phenomenon is well known in countries with stiff criminal penalties against mind-altering drugs. 

Exchange controls also inevitably disrupt legitimate businesses.  For instance, Venezuelan exchange controls, re-imposed in 2003, bankrupted thousands of small and middle-sized businesses because they could no longer obtain foreign currency. 

Moreover, while Venezuela's foreign currency reserve position stabilized after it imposed exchange controls, remittances of foreign currency fell dramatically.  This led to a steep decline in the standard of living for most residents.  Many of Venezuela's most successful citizens emigrated to other countries, particularly those lucky enough to qualify for another passport, or wealthy enough to purchase one. 

Despite the many shortcomings of exchange controls, the historical record is clear.  In times of economic crisis, protectionist sentiments grow.  Those advocating protectionist measures label anyone with offshore investments or other financial interests as traitors.  Foreign exchange controls are a way of dealing with these purportedly disloyal citizens.

Human ingenuity being what it is, exchange controls are successfully—and often illegally—bypassed almost as soon as they're imposed.  For instance, in Venezuela, individuals and businesses use the following strategies to deal with them:

• Purchase Venezuelan stocks traded in the United States using bolivars (the national currency) acquired at the official government rate.  The buyer then sells these shares for U.S. dollars at the market exchange rate. 
• Open a brokerage account with a Venezuelan stockbroker and deposit bolivars there.  Purchase dollar-denominated Venezuelan government bonds in local currency.  They buyer then exchanges them for U.S. Treasury bills in New York and deposits the proceeds in a U.S. account. 
• Exchange bolivars for dollars in the foreign exchange black market.  In downtown Caracas, thousands of black market currency traders are available to facilitate such exchanges. 
• Mis-categorize imported goods to qualify for exchange control preferences or exemptions.  Venezuelan exchange controls include a permit system by which the central bank controls who can purchase foreign currency to pay for imports.  The government gives top priority in foreign currency allocation to imports of capital goods, food, and medicine.  Importers may provide false customs declarations listing these items when in fact they are importing other, non-exempt goods.
• Maintain bank or securities accounts outside Venezuela.  These accounts are funded through the proceeds of the stock or bond transactions previously described and are effectively out-of-reach of the Venezuelan authorities.
• Bribe officials at the exchange control board (CADIVI) to approve preferences or exemptions.  Theoretically, an importer should be willing to pay a bribe up to the amount that would be the difference between the official exchange rate and the black market exchange rate. Such corruption has been thoroughly documented by the Venezuelan press. 

In the United States, President Obama hasn't proposed exchange controls, at least not yet.  The dollar continues to appreciate against other currencies, so there's no immediate pressure to do so.  However, Obama has advocated that offshore "tax havens" be shut down.  And as I mentioned in Part I, the Treasury is already studying a dramatic expansion of reporting requirements for international transactions—a necessary prerequisite to exchange controls.  When investors begin fleeing the dollar, and its value collapses, exchange controls may quickly follow.

U.S. residents concerned about the prospect for exchange controls in this country need to prepare for them now.  The most basic strategy is to open a foreign bank account or to store precious metals at an offshore safekeeping facility. 

However, any U.S. exchange controls (in common with those in most other countries) may prohibit U.S. residents from maintaining a foreign account or other foreign investments without a "permit" to do so.  Without a permit, the government may force you to repatriate your foreign account in exchange for dollars at the official exchange rate.  This rate may be much less than the market exchange rate. 

A better strategy may be to create an international structure in which you are not the owner of the underlying investments, but only a beneficiary.  An offshore trust and some types of offshore annuity investments provide this sort of protection.  Historically, payments from overseas life insurance and annuity policies have been exempt from foreign exchange controls—although there's no guarantee they would be in the future.  An additional benefit is that these structures provide significant protection against claims in civil litigation.

Are foreign exchange controls coming to the United States?  I certainly hope not.  But if they do, I hope you've made arrangements to prepare for their arrival.

Copyright © 2009 by Mark Nestmann

Expatriate Now While Asset Values are Depressed

For Americans, "expatriation" means giving up U.S. residence, citizenship and passport.  Why would anyone take such a radical step?

First, expatriation is the only way a U.S. citizen or long-term resident can permanently sever the obligation to pay tax on worldwide income.  That makes investing and doing business offshore far easier than if you remain a U.S. taxpayer. Second, once you've expatriated, you're no longer subject to the dictates of U.S. government should it declare an "economic emergency" to deal with the worst economic crisis in 80 years.  That means you'll avoid possible foreign exchange controls, forced repatriation of offshore assets, etc. 

And, speaking of the global collapse in commodities and stocks, the timing has never been more favorable for any U.S. person considering expatriation.  That's because the 2008 law that imposes an "exit tax" on former U.S. citizens (or long-term U.S. residents) affects only unrealized gains that exceed US$600,000.  And, a lot more prospective expatriates have unrealized gains under that amount than, say, one year ago. 

In addition, the long-term capital gains rate—15%—is the lowest it's been in decades.  Combined with today's depressed asset values, the tax cost of liquidating assets to get below the US$600,000 threshold may never be lower.  That's particularly true if the Obama "bailout" results not only in a recovery in asset values, but also in a tax hike for high-net-worth Americans to pay for the plan. 

Before you expatriate, you also must acquire a passport from another country.  You also need to decide where you want to live outside the United States and make preparations to relocate there.  Finally, you must plan to minimize the tax consequences of expatriation. 

If you're considering expatriation, The Nestmann Group, Ltd. can assist you through every phase of the process—from determining whether you're a candidate for it; to obtaining a second passport; to formally giving up your U.S. passport. 

Is expatriation for you?  I've written a report entitled The Billionaire's Loophole that describes the impact of the 2008 exit tax law on prospective expatriates.  You can read more about it here.

I'll be discussing expatriation—and the preparations for doing it—at The Sovereign Society’s upcoming Total Wealth Symposium in Bermuda.  Mark your calendar for April 26-29, 2009.  For more information on this event, click here. Hope to see you there!

Copyright © 2009 by Mark Nestmann

Ruling by Decree: How Will President Obama Use his Authority to Issue "Executive Orders?"

One of the most important, yet least publicized, powers of the U.S. President is the authority to issue legally binding decrees, without the consent of Congress. 

Using an instrument known as an executive order, the president may, at the stroke of a pen:

• Freeze the U.S. property of any person, entity, or government
• Eliminate the right of habeas corpus and bring accused political criminals before military tribunals for trial
• Imprison or detain individuals or an entire class of people without trial
• Impose national banking "holidays" closing all U.S. banks or restrict and ration currency withdrawals and the cashing of checks or drafts.
• Shut down domestic stock and commodity exchanges
• Investigate, regulate, or prohibit the importing, exporting, or holding of currency, securities, or precious metals
• Impose punitive taxes on inbound or outbound foreign investments
• Impose wage and price controls

In the 230-year history of the United States, presidents have used all of these powers.  In just the last eight years, President George W. Bush has unilaterally frozen the assets of suspected terrorists, dramatically expanded surveillance of domestic communications, and detained hundreds of people without accusing them of any crime.

President-elect Obama campaigned on a platform of "change," but there is little assurance that he will be more judicious in his use of executive orders than George W. Bush.  That's because in a crisis—or a perceived crisis—executive orders are a convenient way to demonstrate to the American people that their president is "doing something" to deal with the problem.

In the Bush administration, of course, the "problem" was the Sept. 11, 2001 attacks on the United States.  President-elect Obama still faces the specter of terrorism, of course, but the unraveling economy presents an even greater challenge.  And, especially if Congress doesn't go along with his domestic policy agenda, Obama may be tempted to draw on precedents set by previous presidents to "go it alone" via executive orders. For instance, in 1933, President Franklin D. Roosevelt issued an executive order that temporarily closed all U.S. banks.  He issued another order that mandated the forced sale of all gold and silver held by U.S. persons. 

The best that we can probably hope for is that Obama will use his executive authority to undo the worst abuses of George W. Bush's penchant to rule by decree.  A few suggestions:

• Set a firm deadline for closing the prison camp for unindicted detainees in Guantánamo Bay, Cuba
• Order the U.S. military and all executive agencies to comply with U.S. treaty obligations, such as the Geneva Conventions and the Convention Against Torture.
• Order U.S. intelligence agencies to comply with domestic laws regulating warrantless wiretapping and monitoring of electronic communications.

Still, while hoping for the best, it's important to be prepared for the worst:

• Set up an offshore account if you haven't done so already.  If you already have one, it wouldn't hurt to add to it if you can afford to so. 
• Keep enough cash on hand to pay for at least a month's necessities if U.S. banks close down.  Store it securely at home or other private location, NOT in a safety deposit box.  Also keep some "junk silver" and small denomination gold coins on hand. (But keep the bulk of your precious metals holdings offshore.)
• Establish reserves of necessities, especially food and water.
• Upgrade the physical security of your home.

It's hard to imagine why anyone would want to be president as the United States heads into what may be the worst economic downturn in its history.  President-elect Obama made that choice, and I wish him the best.  But I'm preparing for the worst, and you should, too.

Copyright © 2008 by Mark Nestmann

Your U.S. Passport: A Terrorist Beacon

There’s no longer any doubt that if you use a U.S. passport to travel internationally, you may well become a terrorist target.

The attacks last week in Mumbai, India’s commercial capital, proved that conclusively.  The gunmen who carried out the attacks took dozens of hostages, and specifically singled out anyone with a U.S. or British passport.  At least two Americans died in the attacks.

At Mumbai’s landmark Taj Hotel, two heavily armed men took 15 people hostage, forcing them to the hotel roof.  A British businessman who escaped said the gunmen “were saying they wanted anyone with British or American passports.” 

The scenario at the nearby Oberoi Hotel was almost identical.  A British citizen dining at a restaurant in the hotel reported that armed men forced dozens of people into a stairwell.  “They were talking about British and Americans specifically,” he recounted.  Other nationalities were left alone.  When the gunmen asked one of the victims “Where are you from,” he replied “Italy.”  According to the eyewitness, the kidnappers said, “fine,” and left him alone.

The fact that your passport may be a terrorist beacon is just one more reason you may wish to consider acquiring a second passport.  Under U.S. law, it’s perfectly legal to do so, and in a terrorist situation, having a second passport may literally save your life. 

There are many other benefits as well.  A second passport can also expand your travel options, give you the right to reside in other countries, and allow you to cross international borders if your primary passport is lost or stolen. For Americans, a second passport has another benefit.  It is an essential prerequisite to expatriation; i.e., giving up U.S. citizenship in order to permanently disconnect from U.S. taxing authority.

If you don’t qualify for a second passport by virtue of your ancestry, religious affiliation, or marital status, a handful of countries offer "instant" citizenship in return for an economic contribution:

• Commonwealth of Dominica.  Under this country's economic citizenship program, you may acquire citizenship and passport in return for a cash contribution of US$75,000. A US$100,000 contribution entitles you, your spouse, and two minor children to citizenship. Legal, due diligence, and processing fees add approximately US$30,000 to the cost. Dominican passport holders can travel without a visa, or obtain a visa upon entry, to nearly 90 countries and territories.
• Federation of St. Kitts & Nevis. You can obtain economic citizenship in this country if you purchase qualifying real estate or make a contribution foundation.  For numerous reasons, the latter option is more practical for most applicants.  The cost for a single applicant under this option is US$200,000, or US$250,000 for an applicant with up to three dependants. Legal, due diligence, and processing fees add a minimum of US$10,000 to the cost. St. Kitts & Nevis passport holders can travel without a visa, or obtain a visa upon entry, to nearly 110 countries.
• Austria. It may be possible to obtain "instant" Austrian citizenship and passport after making a substantial investment in Austria. Only a handful of persons gain citizenship in this manner every year. The Austrian program is fundamentally different from that of Dominica and St. & Nevis, in that you must make your investment first and then apply for citizenship. You don't get your money back if citizenship isn't granted. Generally, you must invest at least US$4 million to have a reasonable chance at qualifying, and pay additional legal fees of US$30,000 or more.

In all three of these economic citizenship programs, applicants must pass a strict vetting process that includes a comprehensive criminal background check.

In recent years, passports from Costa Rica, Nicaragua, the Dominican Republic, Ireland, Lithuania, and other countries have been sold over the Internet. All these offers are either scams or involve illegally purchased or stolen documents. Securing a passport on this basis, through fraudulent misrepresentation, either directly or through an agent, is clearly illegal. Your passport could be revoked at any time and you could be subject to arrest, imprisonment, and deportation.

The Nestmann Group, Ltd. can assist individuals seeking legitimate alternative citizenship and tax-advantaged residence options. Please contact us at info@nestmann.com for more information.

Copyright © 2008 by Mark Nestmann

Austria: Not Just a Financial Haven

Austria is justifiably famous for its banking system—particularly for its bank secrecy law, which has the same legal status as the Austrian Constitution. 

But while Austrians take their financial privacy very seriously, there’s another aspect of Austria that doesn’t get as much attention: residence.

With its world-class opera, museums, and galleries, Austria is truly one of the world’s most civilized countries.  Vienna, its capital, is a cultural treasure.  Indeed, Mercer's, a major human resources consultancy, ranks Vienna as the second most desirable city to live in the world (behind Zurich)—and Vienna is much more affordable.  And within an hour’s drive of Vienna, you can visit three different countries: the Czech Republic, Hungary, and Slovakia.

Austria is also a popular haven for English-speaking expatriates.  While you won’t find the concentrations of U.S. expatriates that you would in places like Costa Rica, Panama, or London, you’ll find a high quality of life and reasonable living costs.  And those costs have come down considerably in the last year, thanks to eroding real estate prices and a weakening euro.

What I appreciated about Austria more than anything else during the two years I lived there is that the cities are built for living.  They're not “urban shells” that fill up during the day, only to empty out at night as workers return to their suburban homes.  And they’re built on a human scale that makes them easy to navigate without a car. 

I left Austria because it was impossible to obtain a residence permit that permitted me to operate a small business without hiring numerous Austrian employees that I didn’t need.  But if you can support yourself without working in Austria, it’s usually possible to obtain a residence permit.  Even without one, you can stay in Austria for 90 days on a U.S. passport without any visa formalities. 

If you’re interested in possibly living in Austria, I highly recommend a visit to the country.  It’s more affordable than it’s been in years.  While you’re there, consider opening an account at an Austrian bank—your dollars will purchase 20% more euros than they would have only a few short months ago. 

If you want to live full-time in Austria, I’ve recently set up an affiliation with a firm that can help you obtain legal residence there.  They can assist with the application forms (in German, naturally), help negotiate the quota system under which most categories of Austrian residence are awarded, and provide introductions to English-speaking real estate agents to find suitable accommodation.  Since they’re affiliated with an international tax consulting company, they can even help file your U.S. tax returns.

For more information on residence in Austria, contact me at info@nestmann.com.  When you’re in Austria, we’ll put you in contact with experts who can assist you in all facets of obtaining Austrian residence.

Copyright © 2008 by Mark Nestmann

A Second Passport: Now, More Than Ever

Having a second passport and dual citizenship has numerous benefits.  It can:

• Expand your travel and investment possibilities. 
• Avoid attention attracting or potentially embarrassing entry stamps on your primary passport.
• Reduce your profile to terrorists.
• Give you the right to reside in other countries.
• Allow you to cross international borders if your primary passport is lost or stolen.
• For Americans, combined with expatriation—giving up your existing U.S. citizenship and passport—a second passport is the only way to permanently and legally eliminate U.S. tax obligations.

(My colleague Robert Bauman has done an excellent job summarizing these advantages.  Click here to read them).

The Offshore Door is Closing, but a Second Passport Can Reopen It

However, there’s one key advantage of second passports you may not know about.  That is, unless you’re an American and have tried to open an offshore bank account recently.  Thanks to increasingly aggressive tactics by the IRS to force offshore banks to enforce U.S. tax laws, offshore banks are increasingly reluctant to deal with U.S. citizens or (especially) U.S. residents.  Case in point: Swiss banking giant UBS announced a few months ago that it would no longer open accounts for U.S. residents. 

If you’re a non-resident U.S. citizen living offshore, it’s somewhat easier to open an offshore account than if you have a U.S. residential address.  In many cases, you can also bypass these restrictions by using an offshore intermediary structure to open and operate an offshore account.  That structure—which may be as simple as an inexpensive offshore limited liability company—then opens an offshore account in its own name.  The offshore bank doesn’t mind if a U.S. citizen is a signatory on the account, as long as legal ownership was through a non-U.S. entity. 

Unfortunately, some offshore banks that previously approved this type of relationship have informed me it is no longer acceptable.  One bank recently informed me that it would no longer open accounts that had any connection with a U.S. citizen, no matter how remote.  It didn’t make any difference if the U.S. citizen lived outside the United States.  Nor did it matter if the U.S. citizen lacked signatory authority over the account.  If there was any possibility that a U.S. citizen could receive any benefit whatsoever from the account, the bank would turn down the business!

Solving the “No Americans Wanted” Dilemma with a Second Passport

There’s a rather obvious way out of this dilemma—a second passport.  Simply open your offshore account using your second passport, and not your U.S. passport.  (You may also need to show that you have a residential address outside the United States, although you don’t necessarily have to live there.)

The most economical way to obtain a second passport is to take advantage of your ancestry, your spouse's ancestry, or your religious affiliation.  If you don't qualify based on these factors, in most countries, you can acquire citizenship following a period of prolonged residence.  In most cases, after continued residence for a period of three to 12 years, you can apply for citizenship and passport.

A handful of countries offer "instant" citizenship in return for an economic contribution.  The Commonwealth of Dominica, the Federation of St. Kitts & Nevis, and Austria are the only countries with official, legally mandated, economic citizenship programs. 

Dominica’s program is the least expensive.  Under this country's program, you may acquire citizenship and passport in return for a cash contribution of US$75,000.  A US$100,000 contribution entitles you, your spouse, and two minor children to citizenship.  Legal, due diligence, and processing fees add approximately US$25,000 to the cost.  Dominican passport holders can travel without a visa, or obtain a visa upon entry, to nearly 90 countries and territories.  Travel to the United States, however, requires a visa.

Until very recently, you had to speak English fluently to obtain a passport from Dominica.  That’s no longer the case, although all documents must still be completed in English.  The applicant can have a translator accompany him or her to the interview.  In one case my company is handling, an elderly woman with very limited English skills is in the process of obtaining a Dominican passport, thanks to this new policy.

Time is of the Essence!

Sadly, it’s becoming more and more difficult to qualify for a second passport.  In my own case, I had hoped to qualify for an Austrian passport after living there for three years from 2003-2005.  However, in 2005, Austria amended its citizenship laws to extend the period of residence necessary to qualify for a passport from six years to 10 years. 

A similar trend is underway in economic citizenship programs.  Fees are rising, and the countries that offer economic citizenship are becoming more and more selective.  Moreover, in response to international pressure (particularly from the United States), several countries have suspended their formerly successful programs. 

If you value your ability to invest offshore, want greater travel privacy, or simply want a second passport “just in case,” the time to act is now.  The opportunity to obtain a second passport may not exist much longer.

Copyright © 2008 by Mark Nestmann

Surprise, Surprise! U.S. Tracks All Border Crossings

One long-term goal of the War on (Some) Terrorists is to create a "lifetime travel history" of all U.S. citizens and visitors to the United States.

A critical component of the lifetime travel history is now in place: the Department of Homeland Security's "Border Crossing Information System" (BCIS).  This database will collect information on all U.S. citizens crossing a U.S. border by land.  It co-exists with existing databases that track U.S. citizens' air travel, and for foreigners entering the United States.  Operating together, these databases create a blueprint for a lifetime travel history for anyone crossing a U.S. border.

Naturally, the DHS may share data in the BCIS with federal, state, local, tribal, or foreign governments.  And, although the BCIS is purportedly an anti-terrorist initiative, the DHS may release data to help enforce any civil or criminal law or regulation.  It can even share data with the news media, "when there exists a legitimate public interest in the disclosure of the information."

And of course, the entire system will be exempt from the Privacy Act.  That law would otherwise give you the right to know which law enforcement or intelligence agencies has reviewed your records, along with the right to correct errors or omissions in the database.

Instead of known or suspected terrorists, the government is tracking everyone who crosses a U.S. border.  And since there are no limits to how the government uses the data collected, the BCIS is almost certain to be used for politically motivated surveillance. 

That's particularly true with the new U.S. passports equipped with RFID chips.  The chips will eventually contain the final component of a lifetime travel history: a record not only of U.S. border crossings, but also of border crossings in other countries.  That feature soon will be added to the RFID chip in U.S. passports, according to standards issued by the International Civil Aviation Organization (ICAO).  The ICAO's technical standards for RFID chips in passports specifically reserve memory space for creating a log of border crossings or other situations in which the chip is queried. 

The potential for abuse is obvious.  Imagine that such a system existed now, and the DHS were to release data "in the public interest" that a leading presidential candidate had made previously undisclosed visits to Iran, North Korea, or Cuba.  Not to mention the sort of interrogations that would accompany visits to countries with reputations as tax havens, or that otherwise are "controversial."

Once this system is up and running, if you value your travel privacy, you won't want to use a U.S. passport when you travel internationally.  If you're a U.S. citizen, you must use your U.S. passport when you enter or leave the United States, but you're under no such obligation when you enter or leave other countries. 

Fortunately, it's still perfectly legal for U.S. citizens (and almost anyone else) to obtain a second passport.  The easiest way to qualify for one is based on your marital status, religion, or ancestry. 

A handful of countries also offer "instant" citizenship and passport in return for an economic contribution.  Dominica, St. Kitts/Nevis, and Austria are the only countries with such programs.  In all three countries, you must pass a strict vetting process that includes a comprehensive criminal background check.

For more information on how to obtain a second passport—and preserve your right to travel privately—see http://nestmann.com/passport.html.

Copyright © 2008 by Mark Nestmann