Is most offshore activity illegal?  Hardly.

According to the World Bank, more than half of the world’s personal wealth – over $50 trillion – is stashed in about 60 or so asset and tax havens worldwide.

More than a third of it is in Switzerland.  The rest is stashed away in Hong Kong, the Cayman Islands, Panama, Bermuda, the Isle of Man and other protected havens.

What do all these rich people know that you don’t?

Plenty. But their secrets are finally revealed in a fascinating new book by Erika Nolen and Shannon Crouch of The Sovereign Society. It’s called “Offshore Investments That Safeguard Your Cash: Learn How Savvy Investors Grow and Protect Their Wealth.”

Reasons for Offshore Investing

What legitimate reasons could you have for going offshore with your investments?  Let me count the ways:

1. Are you worried about potential claims against your assets?
2. Are you having troubles with difficult business associates, angry ex-spouses or greedy children?
3. Does the lack of privacy in your personal financial affairs bother you?
4. Are you interested in gaining access to the tens of thousands of publicly-traded securities that are unavailable in the U.S.?
5. Are you interested in creating an ironclad estate plan for your loved ones?
6. Do you want greater asset protection than an American safety-deposit box offers?
7. Are you worried you may not have enough money for retirement?

If you answered yes to any one of these questions – and especially if you answered yes more than once – you should read this book, if only to understand your options.

Let’s say, for example, that you are a physician, businessman or comfortable retiree (or that you will be one day).  In our litigious society, someone can trip over their own feet on your property and have an ambulance chaser on the line before they even get up off the floor.

Even if the “plaintiff” has no case whatsoever, you can spend tens of thousands of dollars defending yourself and your assets.  Or be forced into a settlement.

But as Nolen and Crouch write, “many U.S. lawyers hesitate or refuse to take cases involving defendants who have their cash and assets secured offshore.  They recognize the difficulties – indeed, the impossibility – of gaining access to those offshore assets.”

Some people, out of a misplaced sense of patriotism, refuse to even consider moving assets offshore.  Yet there is nothing illegal or immoral about moving assets offshore.  And there are many, many benefits.

Offshore bank and brokerage accounts offer you a wider selection of investments (especially in stronger currencies than our perpetually weak dollar).  Estate planning is often smarter and more efficient than what your local lawyer can set up.  Business regulations are less cumbersome.  You may even want to consider the advantages of dual citizenship and a second passport.

Sound too good to be true?  It isn’t.

“There are no -we repeat, no – outright and explicit prohibitions against American, British or Canadian nationals engaging in a slew of offshore financial activity.  It is legal and legitimate to invest offshore,” write Nolan and Crouch.  “This book tells you how to obey U.S. tax law and file all the required reports, but ensure that a substantial portion of your assets and investments are located in the place where the best profits are – offshore.”

In the end, only you know whether offshore investing is right for you.  But you can’t be sure until you have all the facts.

Nolan and Crouch’s new book is a great place to start.

Source: Offshore Investing: Smart Ways to Keep Your Money Safe

That is, they were concerned Washington bureaucrats might restrict the free flow of the dollar and other currencies in and out of the United States.

I raised the issue during my Panama presentation last week because frankly, I’m also concerned about the decidedly anti-free market, anti-offshore statements and actions of both of the Democrat Party presidential candidates.

Failures at Economics 101

That dynamic novice economist and statesman, Sen. Barack Obama (D-Ill), has proposed inane legislation in the U.S. Senate that could disrupt American trade and business. His legislation would blacklist 30 or so foreign jurisdictions (Switzerland and Panama included) for the manufactured sin of imposing little or no taxes.

He would also require Americans to report offshore financial activity of every kind and give the U.S. Treasury unprecedented power to set new rules over such activity.

In 2004, Hillary Clinton, as New York senator, made offshore an issue claiming she wanted to close “loopholes” for “…people who create a mailbox, or a drop, or send one person to sit on the beach in some island paradise and claim that it is their offshore headquarters.” (She announced this while her husband was raking in millions from cozy offshore investments his rich, new cronies handed him.)

Indeed both wannabe presidents, Clinton and Obama have denounced offshore investments and financial activity. They’re trying to imply that the millions of Americans who freely do business offshore are engaged in tax evasion and hiding cash from the IRS.

That is simply untrue.

Thus the serious question: If, God forbid, either wins the White House, can currency controls be next? In fact, under emergency laws still in effect, a president can impose such controls by executive decree.

“Currency Controls” – What Are Those Again?

As you read this, keep in mind that we are not talking peanuts here – nearly US$4 trillion in foreign exchange moves in the global economy every 24 hours.

Free currency convertibility means residents and non-residents of a country are able to exchange domestic currency for foreign currency. That means you can trade the weak dollar for the strong euro, for example. But there are many degrees of convertibility, depending on how governments want to manipulate currency.

In the extreme case government regulations might limit or prevent currency or bank deposits from being moved out of the country. Other restrictions might include banning the use of foreign currency within the country or banning residents from possessing foreign currency, restricting currency exchange to government-approved exchangers, setting official fixed exchange rates, or restricting the amount of currency that may be imported or exported.

How Politicians Make Assets Worth Less

In the past, certain politicians have claimed the need to apply exchange controls to maintain “orderly capital flows” and preventing “runs” on a currency. That happens when businesses and individuals quickly sell the currency in exchange for another currency that is seen as more stable and valuable. Of course, such trades are the essence of the free market economy.

As the late Nobel Prize winner Friedrich von Hayek wrote in his 1944 classic, The Road to Serfdom, “The imposition of exchange controls leads to an instantaneous reduction in the wealth of the country, because all assets are worth less.”

Such controls have been especially appealing to unthinking politicians in countries with large balance of payments (imports vs. exports) problems. The U.S. trade deficit at the moment is US$272 billion so far for 2008 and amounts to many trillions over recent years.

Free market advocates disapprove of exchange controls because they restrict trade and business transactions, especially in a time of beneficial globalism. Free exchange of currencies allows instant capital flows. That expands integration of the international economy through trade, foreign direct investment, migration, and the spread of technology.

This recent world boom has been largely caused by developed economies integrating with less developed economies, using foreign direct investment, the reduction of trade barriers, and the “westernization” of these developing cultures. Free currency exchange is the life blood of this growth.

Controls Destroy Freedom

It is no accident that among the few countries now enforcing currency controls are some of the most tyrannical. These include China, Cuba, Libya, Myanmar (Burma) and Venezuela – and some whose economies would fare far better without controls – The Bahamas, South Africa, Argentina.

In Hugo Chavez’ anti-free market Venezuela, currency controls have produced shortages. They’re now lacking the basic foodstuffs such as milk, eggs and chicken, impeding imports and keeping out needed goods like capital machinery and spare parts out of reach for many businesses, which are now shutting down. In South Africa, a long-time system of dual currency controls has hampered growth and sustained a 25% unemployment rate, scaring away needed foreign capital.

Czar Nicholas II first pioneered limitations on convertibility in modern times. The Czar ordered the State Bank of Russia to introduce a limited form of exchange control in 1905-06. He wanted to discourage speculative purchases of foreign exchange.

Fortunately, the free market trend since the end of World War II has been to end exchange controls. Margaret Thatcher led the way in the 1970s. France abolished controls in 1990, after 44 years. The European Union’s adoption of the euro further did away with controls.

So could the U.S. buck the trend and start imposing these controls? Honestly, it is possible. History does not mean that statist politicians in America, hungry for more taxes to finance their radical spending, would shy away from imposing such controls – just as they repeatedly vow to “tax the rich.” All that it would require is the stroke of the new president’s pen.

What can you do about all this? If you are an American, know your candidates and cast your vote wisely this November. In the meantime, take advantage of your offshore financial freedoms while you still can.

BOB BAUMAN, Legal Counsel

Source: Attack of the Control Freaks!