CHAPTER 10
BANKING AND INVESTMENT

This chapter deals with financial matters which, depending upon your income level, net worth, and personal philosophies, could be appropriate now or at a later date. In getting established in your new home, you will need to establish a banking connection with a local bank. Your local banker will know people who provide many services that you will need. An easy way to establish this banking relationship from the US is to get a letter of introduction from your bank in the US to its foreign correspondent bank overseas. In addition, your employer will have a payroll account at a local foreign bank who will know your company and feel comfortable in

Which bank do you choose?

opening your personal account. Some individuals like the personal services of a private bank as opposed to a commercial bank. You will be able to obtain much data and information regarding the large commercial banks at home and abroad. Experienced expats in the area can help you find an appropriate private bank if that is your preference. To help you determine the right bank, this chapter will review some of the benefits of private banking services provided to clients with international needs.

PRIVATE BANKING

Client services is one of the more traditional banking activities
offered by private banks. These services usually involve financial
planning and management for individuals and families and, when
appropriate, the structuring of assets through the use of offshore
trusts and holding companies. Keep in mind that some of these planning
techniques don't work as well for US citizens as they do for residents
of other jurisdictions because of US tax laws. In many cases, the
planning and management mechanisms are aimed at legitimately minimizing
taxation, but more broadly, they address the long-term need to achieve
security, diversify assets, and transfer wealth to subsequent
generations. Beyond establishing a planning and management structure,
the offshore banker provides a complete range of private banking
services which include custody, investment management, and banking
facilities. Safety, security, and confidentiality are their benchmarks.
The level of sophistication of offshore banking is growing to the point
that it sometimes can be even better than onshore.

In reviewing the history of the private banking industry, there is a
clear indication that the industry itself is not a phenomenon of the
twentieth century. Even in the 1600s, banks were privately owned and
provided confidential financial services to their clients. However, over
the course of the twentieth century, the "snowball effect" of bank
mergers has paved the way for the money center banks that now dominate
the market. Because the banking industry continues to streamline its
operations, it was inevitable that some "traditional" forms of customer
service would be eliminated.

Unfortunately, because of this market expansion, the personal
relationship bankers had with their clients has become largely
disregarded by a sizable percentage of banks. In spite of this, the
public's appetite for receiving personalized attention from the banking
profession has remained undiminished. As a result, many smaller banks
that were not subject to a merger, continue to provide the personalized
service their customers want. This consistent level of service was
noticed not only by the bank's customers, but by larger financial
institutions as well. Recently, the banking profession has begun to see
personalized customer service as an opportunity to develop a new market
built on a proven "commodity," and a new offspring of banks built on the
concept of providing exceptional customer service is emerging.

Professionals who have been involved in banking for quite some time
realize that there is more to private banking than just expanding
existing services. The foundation of the profession rests largely on
the bank's ability to achieve long-term relationships with its
customers. Contrary to what others may think, it is not only its
investment strategy that determines a bank's success, but also the level
and quality of service provided to the customer. Most surveys by trust
companies worldwide indicate that personal service is generally as
important as investment performance.

For many years, individuals with personal wealth have looked to the
offshore banking industry to provide guidance in maintaining their
financial assets. In many cases, private clients have been advised to
utilize offshore trust accounts as well as holding companies. Although
many clients have chosen this strategy to minimize their tax burdens,
offshore markets also serve as a stable environment to maintain various
personal securities. In these instances, offshore bankers not only
provide financial consultation, but also offer clients the benefits of
investment management, safe custody, and comprehensive banking
facilities. Advice with regard to offshore insurance, foreign exchange
management, and interest rate risk are just a sampling of the unique
services that the offshore banker can provide to the private client.
Although the private banking industry continues to be regarded as the
pillar of the offshore market, the past dominance of Swiss banks in the
market is starting to change. Commercial banks from other parts of the
globe have already made a dent in the market. While the new competition
approaches the market from a different perspective than the traditional
banking institutions, these institutions nonetheless offer the investor
expertise with regard to investment banking, information technology
systems, and asset management.

The prominent offshore banks have been regarded as solid, secure, and
worthy financial institutions. As the market continues to evolve, the
prominence of offshore financial centers continues to be recognized.
The changes in the offshore industry can be attributed to fewer
restrictions and expanded opportunities. As a result, not only is the
market more competitive, but there is a greater variation in the
financial services that are offered. Not surprisingly, a substantial
percentage of expatriates have chosen to have their investment
strategies implemented by offshore banks.

While the financial assets of these individual clients are not
comparable to corporate clients, they are nonetheless an important
component of the offshore market. Recognizing this, major banks have
targeted consumers by offering extensive services with regard to
investment funds in major offshore financial centers around the world.
Consequently, it is easy to get information through your host bank
regarding its offshore services. Some expats want to transact their
financial affairs out of their country of employment for reasons of
security and confidentiality, concerns which they didn't have back home.

USING YOUR CREDIT CARD

Despite what the advertisements suggest, the credit cards that you're
carrying now may or may not be accepted in international locations.
Your credit cards may have been issued through a US financial
institution that may or may not be accepted or known to the overseas
vendor. And that in itself can become a sticking point. Consider the
following scenario: After treating his European counterparts to dinner
in an expensive French restaurant, an American executive found himself
in a very embarrassing situation when the restaurant refused to accept
his credit card as payment for the dinner bill. When the gentleman
asked for an explanation, the restaurant informed him that they only
accepted credit cards issued through banks in the host country. Since
his credit card was issued through a small US bank, the gentleman was
forced to borrow money from his dinner guests to pay the dinner check.
(What a way to influence potential clients!)

Even if the US credit cards that you're carrying now are accepted
abroad, common sense and caution need to be used. First, find out in
advance if the establishment accepts your US credit card. For those
that do, keep in mind that any purchases you make will be calculated
with respect to the foreign exchange rate. If the US dollar happens to
be weak against that particular currency, then you would be better off
paying the bill with the country's own currency. If on the other hand,
the US dollar is strong, then it is to your advantage to put the
purchase on the credit card. However, be sure to keep an eye on your
designated credit limit. There have been cases where Americans were
actually incarcerated abroad because they inadvertently attempted to use
US credit cards that had exceeded the credit limit. In the long run,
the expat who plans to use credit cards on a regular basis would be wise
to also possess a card that is issued from a financial institution in
the respective country.

MONEY LAUNDERING

A private banker is under pressure to adhere to the banking codes of his
jurisdiction. These codes have been put in place to prevent
international money laundering. A banker must know his customers and
the sources of their funds. As a result of these codes, you are likely
to be required to furnish an extensive amount of confidential
information about yourself and your finances. To help you understand
this necessity a little better, a brief discussion of money laundering
may be helpful.

Although useful in many ways, one needs to choose an offshore bank
carefully and work with them cautiously. Offshore banking and financial
services can be the target of money laundering schemes. Money
laundering continues to be an issue of concern to the financial service
industry and it is important to recognize the factors that perpetuate
its existence. It has been estimated that each year between $100-$300
billion in dirty money infiltrates the world economy. Ironically, money
laundering is the third largest business in the world, right behind
foreign exchange and the petroleum industry. Because of this, all
expatriates and their advisors should have a clear understanding of
what's involved. You can reduce the risk of becoming inadvertently
involved in a laundering transaction if you understand how it works.

In analytical terms, money laundering is divided into three phases.
Obviously, the identity of a proprietor of illegally gotten or held
money needs to be hidden in such a manner that no recognizable trail
exists. Because there is often a large volume of actual currency, one
of the primary objectives is to "downsize" the physical bulk of it. It
is impractical for a narcotics dealer to "wash" 5 million dollars in ten
or twenty dollar bills. Thus, in the first stage, the cash is often
exchanged for traveler's checks, international money orders, or other
negotiable forms. In the second phase, often referred to as "heavy
soaping" or "layering," the funds are separated from their illegal
sources. This is usually achieved by transferring the money to and from
fictitious businesses which may only exist on paper but have been
designed to eliminate any possibility of an audit. The third phase,
sometimes referred to as the "repatriation and integration phase,"
involves returning the laundered funds to general circulation.
Ironically, by the time the third stage has been realized, it is not
unusual for the funds to qualify as taxable income.

There are many tax havens that are scrutinized for money laundering.
However, most of these jurisdictions are becoming more selective in
accepting funds. For example, some people think that Switzerland is a
"haven" for quiet money, but even the Swiss have enacted more severe
legislation. Although Switzerland has long held a reputation for
stability and secrecy in banking, it has nonetheless pursued a proactive
role in the war against money laundering. Despite the fact that
Switzerland continues to promote cutting-edge financial services,
tolerance of money laundering is not part of its agenda. In order to
reinforce this security philosophy, Swiss-based financial institutions,
accountants, lawyers, fiduciaries, and other applicable providers are
requesting detailed comprehensive information about assets from both
current and prospective clients. Clients are asked to provide
information on the origin of all applicable assets, the disclosure of
all beneficiaries of the assets, and statements about what the assets
are to be used for. In many cases, an individual's employment history
is also fair game for scrutiny.

ASSET PROTECTION PLANNING

A part of the evolution of estate planning is the asset protection
trust. An expat may not be exposed to such planning techniques in the
States, but it is widely used abroad. Asset protection is a planning
process in which assets in one jurisdiction are transferred to another
jurisdiction in a way that protects them from the claims of creditors
and other claimants.

Because of the continuing demand for proper disclosure in the field of
asset protection, the banker will want to determine whether anyone
wishing asset protection will be an acceptable client. To protect the
bank's reputation and security, the banker will utilize a comprehensive
screening process for every prospective client. Failure to do so places
the banker at risk of becoming involved with unscrupulous clients, which
can ultimately subject the banker to both civil and criminal penalties.
During the initial meeting, you will also have questions, and thus a
mutual screening process will occur.

During the course of the initial meeting, the banker should discuss all
applicable details of the designated retainer agreement with you. If
you wish to proceed, the banker should require your signature on the
agreement that states that the relationship will be terminated if you
fail to pass the screening test. The agreement may also include a
provision that you will compensate the banker for services rendered,
regardless of whether you pass the screening process. In addition, you
will undoubtedly be required to provide at least some of the following:
· Your name, name of spouse and dependents, dates and location of birth,
residential and business addresses

· Proof that you are a US citizen or current immigration status

· Social Security number(s) for you and dependents

· Federal and state income tax returns filed during the last five years

· Information regarding marriages and financial obligations regarding
alimony and/or child support, if any

· Wishes for restrictions of rights to be applied to the spouse or
dependents and reasons why

If you are establishing an offshore trust or offshore company, you may
be asked to provide additional information, including:
· All applicable financial statements

· All applicable tax records for the past five years of any corporate
ventures in which you are an officer or a major stockholder, as well as
names of other major shareholders, and if applicable, any contracts that
exist between you and the corporation

· Affidavits that you are not in any financial difficulty and not aware
of any circumstances that will make you liable for any future claims
resulting from past actions

· A statement of your intentions to avoid financial responsibility to
any individual (1) to whom you have a financial responsibility; (2) whom
you plan to divorce; (3) from whom you are attempting to avoid possible
action as a result of environmental damage

· A statement declaring whether or not there are legal proceedings that
are directed at you. If there are proceedings and the maximum amount of
the claim is realized, then you will designate sufficient reserves
outside of the proposed asset protection plan to cover this liability

· Confirmation that all liabilities or contingent liabilities have been
disclosed on the financial statements provided to the planner

· Any currently existing facts of which you are aware that might render
you subject to legal proceedings and result in claims against your
assets

· Names of at least three references

· Name of banker and bank account numbers

· Names of your legal counsel and your accountant

· Copy of your and spouse's medical history

· Statements declaring whether you have ever: (1) filed bankruptcy; (2)
been convicted of a crime, indicted, or been the subject of criminal
investigation; (3) been the subject of an audit by the IRS; (4) been
denied entry to a foreign country; (5) used alias names; (6) have had
problems related to alcohol or drug abuse

· Your US passport number and a listing of each country visited within
the past three years

· A statement regarding whether you have any financial interest or
signatory power over any bank or other financial account outside the US

· A complete listing of present insurance policies

· Information regarding your interests in pension and profit sharing
plans

· Information regarding your debts, contingent liabilities, and
potential inheritances

The bank may also check with various credit bureaus and Dunn and
Bradstreet.

INVESTMENT

As an expat, the only thing that separates your offshore investment
needs from those back home is availability of tracking and advice. Some
overseas locations have expertise and the ability to follow your
investments which others do not. If you have US investments, make sure
your advising firm has someone who understands US markets. With the
Internet, you may be able to do much of this work yourself.

The probability is high that you will have more disposable income than
your counterparts back home, and it is important that these excess funds
be well managed. Assessing market conditions and your propensity to
accept risk go a long way in choosing the best means to do this. It is
not my purpose to provide extensive investment advice; there are volumes
of reading material available from many sources, as well as advice from
local experts and your banker. It's useful to be aware that whatever
your approach to investing, there's no perfect strategy, so don't be
overly concerned with finding the "perfect" one. Whatever you do, the
earlier you start the better.

The following cart can also be usefull in determining how much you can afford to withdraw from your investments / savings yearly. Assume you have $100,000 and want to withdraw all the interest earned plus take a portion of the principal.  Let's assume that you rate of return is 6% and you withdraw 8%.  Following the chart, your "nest egg" will last 24 years.

How Long the "Nest Egg" Will Last (Years) 

Annual Withdrawal AverageRate of Return on Investment
	3%	4%	5%	6%	7%	8%	9%	10%	11%	12%	13%	14%
25%	5	5	5	5	5	5	5	5	6	6	6	6
24%	5	5	5	5	5	5	5	5	6	6	6	7
23%	5	5	5	5	5	5	5	5	6	7	7	7
22%	5	5	5	5	6	6	6	6	7	7	7	8
21%	6	6	6	6	6	6	6	7	7	7	8	8
20%	6	6	6	6	6	7	7	7	8	8	8	8
19%	6	7	7	7	7	7	7	8	8	9	9	10
18%	7	7	7	7	7	8	8	9	9	10	10	11
17%	7	7	7	7	8	8	9	9	10	11	12	13
16%	8	8	8	8	9	9	10	10	11	12	14	16
15%	8	8	8	9	9	10	11	12	13	14	16	21
14%	9	9	9	10	10	11	12	13	15	17	22
13%	9	10	10	11	11	12	14	15	18	23
12%	10	11	11	12	13	14	16	19	24
11%	11	12	12	14	15	17	20	25
10%	13	14	14	16	18	21	27
9%	14	15	17	19	22	29
8%	16	18	20	24	31
7%	19	22	26	33
6%	24	29	37
5%	31	42
4%	47
3%

Table of Contents

Chapter 9

Chapter 11