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
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
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,
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
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
"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.
Thursday, April 11, 2013