How To Deal with Financial Uncertainty in the Present World
Contributed by Cititrust International
29 August, 2011
The premise of the article is to explore the proposition for spreading your business or asset protection between many jurisdictions, meaning that you setup a structure that utilizes a number of jurisdictions. This requires the right capabilities from services and infrastructure located in different jurisdictions so that in the event one area has a problem it doesn't stop everything.
It is clear that there are fundamental changes underway worldwide. Martin Wolf of the FT spoke of a shift from west to east. The implications of the debt of large western countries are in play. Dissatisfaction with austerity is going to have to be dealt with in Spain, Ireland, Belgium, Italy and Ireland. There is likely going to be the usual reaction against immigration mainly due to the lack of resources. Other western countries are tightening their tax laws and regulations in the search for revenue. A number of them are focusing on Switzerland and Swiss banking. Solvency II in Europe will impact insurers and the EU insurance market. FATCA in USA and information exchange in UK and Germany are further examples.
The wealthy investor has to consider that countries like the UK and USA, that are safe havens, are going to go through significant change in the next few years. The changes in policies and laws may well continue to evolve. The question therefore becomes how does one position oneself given the new emerging landscape. It is well documented that Asia though full of opportunity does not yet have that political stability. The UK, Canada and USA are still marketing economic investor migration programs to the wealthy in Asia essentially offering them that stability and peace of mind.
Smaller countries, with smaller populations or certain national features may well be destined for hard times but probably will not be subject to major turmoil. As austerity beckons, populations in some small countries never became dependent or used to the existence of a generous welfare state. The welfare state does not exist in these small countries to the extent it does in the larger countries. Austerity will therefore produce a different result and have a different impact on political stability in these countries. Having the right banking facilities and capabilities in one or two small countries may therefore be a good idea as part of a plan for a business and investment structure that is internationally diversified.
In response to the present and likely coming uncertainty in financial markets a lot of investors are buying gold and oil and real estate. It is said by some that more gold has been bought than is actually in existence. The US dollar is going to fluctuate. So is the euro. Situations may change in different countries at different times. One would not necessarily have flown in to London to do business this week if one had a choice. There seems to be an emerging rationale for being able to do business or operate an international structure from a number of different potentially quiet activity neutral spots. It may well be preferable to hold hard currency in those locations to facilitate the ongoing needs of the investor and his business.
First of all we are looking for politically stable jurisdictions. Common or civil law and recognition of the asset protection and legal features of the structure in that jurisdiction are necessary. The fundamental nature of the vehicle must be valid in that jurisdiction also. Tax neutral is a real requirement. The necessary communications infrastructure and links or proximity to the main markets must be present. It is a bonus if the quality of life in the jurisdiction is ideal.
Assuming all of these requirements are met, the right relationships and service and legal infrastructure need to be put in place. For example your trustees of one trust may be resident in two or three jurisdictions instead of one. With banking relationships in both and with the trust drafted the right way business can be done in more than one jurisdiction.
The jurisdictionally diversified structure needs to be able to be accessed from different jurisdictions while keeping the legal and commercial frame work of the structure valid and in place in the jurisdiction of residence of the investor. At the outset, planning may need to consider the implications of trustees or partners or board members in a mix of tax neutral and non-tax neutral jurisdictions.
- A UK trust with trustees in UK, Barbados and Seychelles. The residence of the trust may remain in the UK but the trust can be operated from Seychelles. The right banking relationships need to be in place in each jurisdiction. This may mean partitioning assets and placing them, especially where it is hard currency in that particular jurisdiction. So while playing a part in an ongoing international structure the office in each jurisdiction must be a standalone access point for a proportion of assets and capital.
- A trustee in Seychelles or Panama may need to operate a merchant account in London remotely or liaise with a reinsurer in Bermuda. That trustee will have access to funds banked in that jurisdiction.
- A Canadian LLP may have a corporate partner in the UK and one in Hong Kong but there may also be one in Panama. The shareholding agreement would give the Panamanian corporate partner access to funds or assets banked in Panama. Maybe certain powers also provide to that corporate partner the ability to buy or sell specific things.
- A small international IT company and its trademarks and IP registered in Barbados. Services provided into Canada and EU and use made of double tax treaty networks. Board meetings held in Barbados and customers billed from there. The holding company is in United States. The principal can operate his business from this jurisdiction.
These operational capabilities need a fair amount of forward thinking. IT capabilities also need to be in place upfront to ensure remote access on demand to as much services and information as possible. Where special financial services such as, reinsurance, merchant account or legal services, notarization, escrow may be needed this has to be factored into the forward planning. If legalization of documents is required that jurisdiction must have the necessary diplomatic relations and embassies and probably be a member of the hague convention. Consideration has to be given to who the service providers are who their custodians are and what access will be had. If hard currency or actual gold metal is to be stored then secure deposit boxes may be needed. Many people are storing gold in Canada. It will not be problematic to keep hard currency in small jurisdictions.
Travel to the jurisdiction may need to be given consideration. Flights in and out of some jurisdictions may be challenging. Tax neutral jurisdictions like Belize and Panama, are land locked with North America. Theoretically one can drive from Canada down to Belize or Panama if necessary.
If time and effort is spent putting the right technical, legal and service infrastructure and relationships in place, robust international diversification can be achieved and made to be available if and when needed. This capability is readily available and should be explored. Financial institutions in Panama, Belize and Barbados for instance include major Canadian banks. These institutions have access to international markets and can provide a sophisticated array of services to their clients in these small quiet jurisdictions. Maximum use through forward planning should be taken of these banking and service centers that are going to be relatively off the beaten track while the coming uncertainty works itself out.
Permanent residence in these jurisdictions is going to become increasingly valuable and sought after. Belize has a qualified retirement persons program. Permanent residence is available once conditions are met. Panama will grant permanent residence to a small investor investing between US$160-300K and employing five persons. Barbados will grant permanent residence to financial independent investors employing a number of people. Establishing a portion of operations and infrastructure in these jurisdictions can therefore provide an option for basing money as well as the person and family and somewhere to keep business going temporarily but for longer than a tourist visa or work permit may allow.
The time of jurisdictional diversification is at hand for the small investor.
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