November 1, 1999- What the IRS doesn't want you to know.

Dear Subscriber,

What the IRS doesn't want you to know

"Give me control over a nation's currency and I care not who makes its laws." - Baron M.A. Rothschild (1744 -1812) Banking Keeping your money elsewhere, and saving ... Privacy & Offshore Banking

The following article is one of the most informative we have seen on the subject, particularly when one looks at the enormous amount of misinformation that has been published by mainstream media recently. David Johnson is an American aiming this piece at US taxpayers. This certainly does not detract from the value of the article for other nationals. The majority of points discussed apply equally to most countries and you can be sure that the few that don't will in the near future. Big Brother has the nasty habit of spreading bad news as rapidly as possible...

What the IRS and other tax authorities don't want you to know... The Truth!

By David Johnson

When you have something to hide, the simple rule of thumb is-do it offshore. After all, if you are reading this your goal is to keep your financial business to yourself. The purpose of this article is to give an introductory inside look at banking and investing overseas, using fiscal tax shelters (havens) to reduce or eliminate taxes, and foremost, to provide confidentiality in personal and business matters, period.

For various reasons, offshore banking has been tagged as "unsafe", "risky", "illegal" or "for the wealthy", let's separate the facts from the bull! First off, one must understand that it is normal for those that know little or nothing about something (besides what they hear from other even less knowledgeable people) to be afraid and suspicious about it. Misinformed financial planners, attorneys and accountants may know economics and the law in the United States or their country of residence, but few know about handling business outside their domicile.

Let's tackle these misconceptions one at a time.


There isn't and will never be a law restricting the sending of funds outside the USA. How do I know? Simple. As a country dependent on International trade (billions of dollars a year and counting) the American economy would be destroyed.

How? Since all US global trade is transacted in US dollars, there would be no exports or imports, due to the fact that the United States would not be able to buy and sell goods. Make sense? If you wanted to, you could move or transfer some or all of your money out of your bank or credit union to anywhere in the world, legally. The IRS and US banks disseminate negative propaganda dealing with offshore banking, making it seem unsafe or some type of criminal act.

Why? Banks just want to keep your money in their institutions to use for their own profitable purposes. Did you know that most US banks themselves accept deposits from people overseas and often invest in foreign stocks and hold accounts with foreign banks?

It's true! As far as the IRS is concerned, they obviously want your money in US banks where they can tax every dollar you earn in interest, and keep track of how many liquid assets you have and where they are. The confusion with tax legalities is sometimes due to lack of knowledge. In the US tax evasion is a crime, tax avoidance is not.

As you know, there are zillions of laws on the books in every country. Without a doubt what is legal in one place may be against the law elsewhere. For example tax evasion is not a crime in jurisdictions where there is no income tax. Thus, in most cases (except those with significant political and/or business weight) countries that are not allies usually don't assist other nations in enforcing laws that are not laws in their countries.

Further, a country has no legal right to conduct an investigation in a foreign country without consent of the respective government. In reality, a country has every right to deny any other nation permission to make examinations in their territory.

Therefore, it is difficult if not impossible for authorities in the US or elsewhere to obtain financial transaction records of tax evaders in many foreign-based institutions (outside of those located in areas that have some type of co-operation treaties). Strict banking secrecy laws also contribute to this difficulty. Most tax havens impose lengthy prison terms and/or hefty fines for violation s of a client's secrecy.

INTER-FIPOL (The International Fiscal Police) is the tax crime equivalent of INTERPOL (The International police Organisation), which is a network of law enforcement authorities in numerous countries which exchange information on criminals. Many evaders are opening accounts in fictitious names and using mail forwarding and pick up drops for privacy. Practicality Movie-makers and recent international scandals, such as BCCI and Iran-Contra, have contributed to negative views about offshore banking.

Contrary to popular belief, rich criminals and corrupt government officials make up a small segment of the total number of customers at any given offshore institution. Now more than ever the average American blue collar worker and businessman is using offshore banking as a way to reduce taxes (through legal avoidance). Many accounts may be opened for the same amount required in the US (about $100) or less. In some cases, there is no minimum opening deposit at all.

Further, the interest rates are usually substantially higher than in the US (since federal law sets limits on the amount of interest a bank can pay you). But by far, the reason most people turn to offshore banks is their confidentiality.

One might ask, "if these banks are so good, why don't they advertise in the US?" The answer is simple...they are prohibited! Federal law restricts offshore banks from advertising their services in US magazines and newspapers, unless they agree to the same restrictions that govern F.D.I.C. institutions. (such as interest limitation).

Why? That's simple keep the competition down. Opening an account with these banks is as simple as writing a formal letter to the institution and requesting information about their various services and the appropriate application forms, and returning them to the bank. It really is that easy! Most banks never really have to see you in person.


All offshore banks are regulated in one form or another, like their US counterparts, but minus the limiting federal laws. Less restrictive regulations abroad allow foreign banks more freedom in locating the best investments world-wide. Allowing them to pass on and share their profits with their customers.

As for insurance, forget the F.D.I.C. or other private insurance companies! They usually only allow a liquidity factor (insurance) of about 10% of public deposits. Many offshore banks are self-insured, meaning they have at least one dollar in cash to cover every dollar on deposit, that translates to 100% plus insurance. Also, the majority of the worlds largest and strongest banks (as far as assets go) are overseas, not in the United States.

Call your local library's business and finance or commercial department and ask the librarian to look up these details. Internal Revenue Service (IRS) Treasury form 90. 22-1 (report of Foreign bank and financial accounts must by law, be completed and returned to the IRS by June 30th. each year if you possess a foreign account. Everybody surely files! For a copy of the form, call the IRS at (800) 829-1040, or check your phone directory for the number of your nearest forms distribution centre. U.S. Customs The US Department of Treasury's Currency and Foreign Transactions reporting Act details which monetary instruments (cheques, money orders etc.) must, by law be reported to the federal government. A copy of an illustrated circular, which explains the act in full, is available for the cost of $5 from Worldwide Consultants, 242 West Pratt Blvd., Suite 971, Chicago, IL 60645 U.S.A.

What you don't have to Report

Here are two categories of instruments that you are not required to report. If you make out a personal cheque or money order to an offshore bank, you don't have to report it. And if you have a cheque or money order payable to you, you may restrictively endorse it (i.e.. pay to the order of ABC bank), and you do not have to report it either.

Tax Evasion:

If you deposit your pay cheque in a US bank, chances are you've already paid income taxes on it (unless it is a personal cheque). So you have no further obligations, since taxes were deducted before the cheque even hit your hand. With a savings or brokerage account, at the end of the year when you get your annual statement, you simply add the total amount of interest or profit earned on your income, and pay taxes on the grand total. The same is only true offshore ,if the country the bank is located in imposes a withholding tax. Since I'm on the subject of taxes, did you know that the United States and the Philippines are the only two nations in the world that tax income earned outside of their countries? Anyway ... back to tax evasion. Below are a few examples of ways some individuals have cheated the taxman.
  1. A lawyer received payment by personal cheque from a client and deposited it in his offshore account. Since the deposit didn't appear on his business records, the chances are it would never be found out (even if he was audited).
  2. One couple sold a valuable antique and had the buyer send the payment directly to their offshore bank account. Later the couple used the money to tour Europe and the Caribbean.
  3. Another example is the Savings and Loan bank customer who enticed his "unscrupulous" banker to electronically transfer a large sum of cash offshore without reporting the transaction to the IRS. The customer then borrowed the money back from the offshore bank. Since loan proceeds are not taxable, no taxes were paid.
These types of schemes are no longer used by the rich with extra money to hide, but by average Americans who don't like to pay taxes on every cent they earn.

How hidden assets are found

Having conducted investigations in the US and abroad, I am familiar with the various techniques which may be used to locate leads to funds being kept offshore. Here are a few:
  • Checking passports (and travel agents) for evidence of visits to "high profile" destinations such as: Switzerland, Cayman Islands, The Bahamas, Isle of Man, Netherlands Antilles, and other known banking and tax havens. Travel to these types of areas will surely throw up a red flag, giving investigators a place to start looking for your assets.
  • Examining telephone (home, business and hotel), fax and mobile (cellular) phone records to identify undisclosed business connections and contacts.
  • Reviewing credit card statements to determine who you do business with, where you travel (domestic & foreign), and what products and services you use. These records leave a paper trail a mile long.
  • Garbage is often sifted through for information such as statements, invoices, correspondence, and other relevant material useful in tracking your affairs. Use a high quality paper shredder, discard your garbage at another location, or burn and crush it. It sounds drastic, but what you throw away says a lot about you, and many leads can be found there
  • Compiling a list of parties that you have a relationship with (business or otherwise) by recording the return addresses on your incoming mail. This technique can disclose friends, associates and partners. If you must receive important mail at your residence or business address, be sure to ask your correspondents to stop using a return address.
  • Looking into banking transactions. All withdrawals of $3000 or more must be reported by your bank to the federal government, whether made by cash, cheque or electronic transfer. Keep your transactions under $3000.
  • Checking private courier's logs (UPS, DHL, Federal Express, Airborne Express etc.) for delivery of special or important letters and packages. Examining telex records of your company or business to locate areas of foreign activity.

About the Author:

David Johnson is a consultant specialising in privacy, security and investigative matters. If you'd free details on obtaining a Western European Union Bank account and Visa credit card just click: mailto: and place "EU Visa" in the subject heading. Copyright - Privacy World 1999


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