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 . The Weekly Update news bulletin offer news and commentary regarding a number of issue which are of interest or concern to clients. Such topics may include offshore company formation, trusts, banking, investing, real estate, expatriate matters, residency & second passport matters, and other topics concerning the Dominican Republic & Panama. |
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In a not so surprising recent tactic by US Internal Revenue Service, the IRS petitioned a federal judge in Miami to order the release of across the board customer information from MasterCard & American Express. This move is aimed at trying to find out the account information with regards to Americans that may have an offshore bank account and a related offshore charge card (referenced by the fact they have a credit or debit card issued by a non US bank). Many clients have contacted us recently about this, so I want to explain what exactly is going on and perhaps offer some comments, or at least some things to be aware of. The news story concerning this was released over the wire and a number of articles recently appeared in USA TODAY, The New York Times, and a few other well know publications. Each reporter has changed the article somewhat, but the on-line version can be found at the following link: . http://wire.ap.org/Apnews/main.html?PACKAGEID=taxes . The problem that any tax authority has is, once funds leave the system of the home country, tracking and of course seizure becomes difficult if not impossible. The IRS has estimated that up to US $ 70 Billion dollars of personal tax revenue is lost due to such offshore accounts or investments. The reality is, they do not even really know how much money Americans may have offshore or where it is. The first places to start looking of course are the English speaking common law jurisdictions where many Americans and Canadians may have gone. When the famous (or infamous) bank robber William Sutton was asked why he robbed banks, the reply was “Because that’s where the money is”. So, using this logic, the IRS has decided to target jurisdictions (Bahamas, Cayman Islands, etc.) where it thinks the largest concentration of accounts owned by US citizens can be found. Generally speaking then, setting up an offshore structure or conducting your banking in one of these English speaking tax haven jurisdictions certainly entails a risk in my opinion. The risk of course is not that such places are unsafe or have unsound banking practices, but rather the concept of keeping funds in an “obvious” location (English speaking tax haven). The fact that such jurisdictions are being pressured is not the issue. The real problem is that many of these jurisdictions are capitulating, which is something we had been wary of for some time (after reading the political barometer) and why we have stopped doing business in such countries awhile ago. . The other question many people have is, “Why MasterCard & American Express?” The answer is quite simple. The largest programs of secured offshore credit cards involve MasterCard from the Bahamas & Antigua (Antigua was specifically named in the IRS petition, along with the Bahamas & the Cayman Islands). With regards to American Express, one must realize that American Express cards outside of the US are issued by banks and not directly through the American Express company (which is the case inside the US). As a result, the IRS feels it can gain some information about offshore bank accounts by going after American Express as well. It is interesting to note that Visa was also mentioned, but not in the same direct context as the other two cards. So, it may not be safe to say getting a Visa Card is the solution to this problem. . There are a number of issues raised with all of this. Some issues of course concern the direct invasion of privacy. Sharon Gamsin, a spokesperson for MasterCard, has said her company will deliberate on the privacy aspects and legal right of the government to collect a broad database of client information before formulating a reply or challenging the request in court (should MasterCard decide to do so). Apart from this, the other important issue concerns the individual jurisdictions involved as well. Certainly the US and other tax authorities have become more brazen in directly saying they are pursuing tax issues (whereas in the past the US Government claimed to be fighting the war on drugs & money laundering). To be sure, many jurisdictions have asked the question: Is every citizen in the US involved with drugs or money laundering? Any rational person would obviously see through this, thus forcing the IRS and other tax authorities to come clean on the true hidden agenda (taxes). We will discuss this somewhat further in our next “weekly update“ banking article, which is by the way embroiling governments of small countries that very much resent being asked to act as an agency of another foreign government with regards to tax matters that do not concern them. . So, now that we know what’s going on and what specific jurisdictions are being attacked, the next question is, “What do we do about it? Here then are my pearls of wisdom on the subject. . The IRS foolish holds the assumption that all individual bank account information is referenced or somehow attached to the card file information with the card companies such as MasterCard & Visa, etc. They are not totally wrong about this if we are discussing debit cards and those cards carrying the Visa or MasterCard logo, whereby funds are coming out of the client’s saving account directly (bank debit cards with such a logo). An example of how this works can be found with Visa or MasterCard logo cards (and checks) issued from a US brokerage asset management account, such as the Fidelity USA account or Merrill Lynch CMA account. The way we can explain this is that the account number printed on the card or checks may contain part or all of the underlying account number to be debited, but it is not required that this be the case operationally or mechanically. What may in fact happen is that the account number printed on the card is completely different that the client’s underlying account number with the bank, and only the bank has the cross reference records with regards to which card belongs to which account. This means such referenced information is still out of reach. Of course this leads us to two points. The fact that you have a bank Visa or MasterCard logo debit card automatically provides proof that you have an underlying bank savings account attached to it. Remember we are discussing bank debit cards with such a logo, and not regular or secured cards – in addition, plain vanilla bank ATM cards are another story also. So, if the tax authorities obtain a list of bank account debit cards from offshore banking institutions, the inference is they now know you have an offshore account you may have not reported. In addition, a list of US citizens carrying such offshore bank debit cards gives a nice list of candidates for the IRS to audit and harass. So, check with your bank and ask them how they do the card processing (if the bank account number information is passed along to MasterCard as part of the debit card account data). Better still, do not obtain a Visa or MasterCard debit card from an offshore bank. Instead ask for a completely separate secured card or a plain vanilla ATM machine debit card. In the case of an ATM card that does not contain the Visa or MasterCard logo, obviously Visa or MasterCard has nothing to do with it. In the case of a stand-alone secured or unsecured credit card, there is no formal attachment to an underlying bank account. You can of course arrange with the bank privately to pay off the account from your savings, which is a private matter not disclosed to Visa or MasterCard at all (and has nothing to do with the card account). To understand this idea a bit better, just think about the fact you can obtain a regular credit card from a bank without having a savings or other kind of account with that particular bank. . The next best idea is to not have such a card in your name at all. Instead carry a card in the name of a company or other entity. In such a case, MasterCard or Visa would have a company name as the file reference and nothing more. Is such a company connected to a US citizen? Who knows? Quite a bit of digging would have to take place, assuming it could even be ascertained from what jurisdiction the company was incorporated in (and using nominees in the public record helps with privacy matters also). Chances are, only the bank issuing such a card would know who the authorized signer is anyway. In reality, MasterCard and Visa could care less about the details, as it is the issuing bank that is on the hook directly for any payments and card issues. In other words, the bank issuing the card is directly responsible to MasterCard or Visa, but it is the issuing bank’s problem if the client does not pay off the card, etc. Stated another way, the bank is a client of MasterCard or Visa and you are the underlying client of the bank. While not directly related to such a conversation, this leads us to another point. . How many employees of companies in general have expense accounts and charge cards issued to them with the company name on top and their name underneath? Of course many offshore banks will issue cards in the company name only, which partly eliminates the concern about having your personal name on the card. However, assuming you have a company charge card or company expense account, does this mean you are a tax evader? Does it mean that you own the company or are a director? Absolutely not, and if they start going in that direction I feel sorry for any American working for a large foreign company (that happens to have a company card & expense account). |
