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WHERE CAN YOU AFFORD TO RETIRE TAX FREE?           WHY ARE SO MANY OF THE MIDDLE CLASS LEAVING THE US & EUROPE?

Our June 2003 Newsletter:
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Dominican Republic Banking and Interest Rates.  In the News:  US faces cronic deficits, effects of inflation and recession on US salaries.
John Schroder - Author of The Ascot Advisory News Letter Bulletin and Numerous Expatriate  Articles
DOMINICAN REPUBLIC BANKING AND INVESTMENTS:
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On the topic of US Dollars and the Dominican Peso, many clients have also been concerned as well.  The real answer is that both individuals and private businesses have been hoarding US Dollars as one might imagine they would.  For this reason, there is a shortage of US Dollars in the Dominican Republic, which in and of itself has added to the devaluation.  So, we can say that the devaluation is really in part speculation, and in part due to the fact that US Dollars are in short supply.  In this regard, some comments have been passed on news bulletin boards whereby it was stated that people cannot buy US Dollars at some currency exchange houses or that a restriction has been placed on the withdrawal of US Dollars at some banking institutions.  Again, it should be noted that you are certainly able to buy US Dollars with Pesos or convert Pesos into Dollars, as this is not the case everywhere (as described by a participant in some of the message boards).  Also, you CAN withdraw your US Dollar funds without restriction as some of our clients have chosen to do.  In fact, some of our clients have asked for wire transfers for US$100,000 or whatever amounts they have had on deposit with the bank they use, and have gotten their funds wired as requested.  So, again the experiences of a someone who was told otherwise by THEIR bank should note that this might be the policy of THEIR bank and THEIR bank alone, as this is not the case with all the local banks, nor is it official policy of the government either (restricting movement of US Dollars out of the country, even though they would prefer not to see it happen of course).  In terms of private money exchange firms, they are not required by law to sell dollars back if they do not want to, so it is also the case of a private firm telling a customer they are not willing to convert pesos back to dollars as THEIR own policy (as right or wrong as you may think that to be) rather than this being some sort of official government policy. 
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While not a positive news story for the country, it is also true that the other banks in the country are not affected by the Ban-Inter situation as the issues appears to internalized at Ban-Inter rather than another kind of overall economic problem in the country (the charges against the former bank president have no relation to the overall economy, although there are some that see this as more of a political issue as well).  In addition, while the devaluation of the Peso is not a good thing for Dominicans, it also means that real estate has become less expensive for foreigners as has labor costs as well (converting dollars into pesos at the higher exchange rates).
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IN THE NEWS:
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WHERE DID MY RAISE GO?  By Daniel Kadlec - TIME Magazine -May 18,2003
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Shrinking paychecks are the new reality for many Americans. How global markets and a weak economy are affecting how we work-and how much we make.  Everyone knows about unemployment. But millions of working Americans are now facing a less familiar and perhaps more troubling problem: shrinking wages. It's a phenomenon that takes many forms.
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http://www.time.com/time/magazine/article/0,9171,
1101030526-452769,00.html
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And today's cost-of-living adjustments don't reflect looming shocks, like the $78 billion cumulative deficit that state governments will soon be making up with hikes in taxes and fees. For many workers, those added expenses will swamp their usual 1% to 2% raises-if they get any raises at all.
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http://www.time.com/time/covers/1101030526/bdeflation.html
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US FACES FUTURE OF CHRONIC DEFICITS - By Peronet Despeignes in Washington, May 28 2003
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The Bush administration has shelved a report commissioned by the Treasury that shows the US currently faces a future of chronic federal budget deficits totaling at least $44,200bn in current US dollars.  The study, the most comprehensive assessment of how the US government is at risk of being overwhelmed by the "baby boom" generation's future healthcare and retirement costs, was commissioned by then-Treasury secretary Paul O'Neill.  But the Bush administration chose to keep the findings out of the annual budget report for fiscal year 2004, published in February, as the White House campaigned for a tax-cut package that critics claim will expand future deficits.
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http://news.ft.com/servlet/ContentServer?pagename=FT.com/
StoryFT/FullStory&c=StoryFT&cid=1051390392975&p=1012571727088
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FROM THE US GOVERNMENT BUREAU OF LABOR AND STATISTICS - MAY, 2003
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The unemployment rate rose to 6.0 percent in April, and non-farm payroll employment edged down by 48,000, the Bureau of Labor Statistics of the U.S. Department of Labor reported today.  In April, job losses continued in manufacturing, some travel-related industries, and department stores.
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http://www.bls.gov/news.release/empsit.nr0.htm
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Projections for the American workforce covering 2000 to 2010 were issued today by the Bureau of Labor Statistics, U.S. Department of Labor, providing information on where future job growth is expected by industry and occupation and the likely composition of the work force pursuing those jobs.  As employment in the service-producing sector increases by 19 percent, manufacturing employment is expected to increase by only 3 percent over the 2000-2010 period.  Manufacturing will return to its 1990 employment level of 19.1 million, but its share of total jobs is expected to decline from 13 percent in 2000 to 11 percent in 2010.
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http://www.bls.gov/news.release/ecopro.nr0.htm
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EDITORS NOTE: Well, it is now officially in black and white.  The US no longer manufactures anything and therefore no longer sells anything to other countries.  The economy then is based upon nothing more than services.  What is wrong with that?  Well, if you read the above Time Magazine news article and look at the statistics, you can get a better understanding of the overall picture and why this is a long-term trend.  In addition, this is not about America bashing.  It is however a commentary about the reality of things as they exist and where things are headed.  It is also a poignant point as to why so many middle class Americans are expatriating and why many high tax governments are concerned.
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How did this come about?  What happened to the so-called American dream?  If you listen to the politicians, all is well, but the reality is that some basic fundamentals exist to indicate otherwise.  The short answer is that the American dream went south and east, to countries that have the basic formula and recipe in place that the US used to have long ago.  Countries that continue to manufacture something, export it, and hopefully export more than what they import.  In other words, basic economics: if you have more money coming in than you spend, you grow wealth or accumulate wealth.  This is true for individual household budgets as it equally applies to governments.
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Looking at this issue of a service economy, the US Bureau of Labor and Statistics indicates that job growth will come from the service sector, and specifically so-called white-collar professionals.  That is fine, but it means that in order to earn a decent middle class income, you MUST obtain a University Masters Degree in order to do so.  This means you must be first able to afford a university education in the first place, and for many, this is something that has become unaffordable (it is interesting to note that while the CPI or inflation grew at 1.5% this past year, education costs have gone up another 8%).  In addition, if everyone has a Masters Degree, what is it really worth?  Meaning if you live in a town with 50,000 people and 2 dentists, the two dentists could hopefully make a living.  However, if you have 75 dentists, now you have fewer patients to go around for each one.  So, the only option is for each one to lower their fees to compete on price (they cannot lower their costs for things like office expenses and dental supplies as these costs are fixed or in the least out of their control).  The result, which might be good for consumers, is that a professional salary might end up being US$25,000 per year, where as it was perhaps US$80,000 before.  Now apply this logic to accountants, economists, lawyers, and all the other professions out there.  Companies will choose either not to hire more white collar workers, keeping the unemployment figures high, or they will offer lower and lower salaries going forward (see the very interesting government statistics which indicate a tremendous drop in income for a number of professions recently).  And of course lower salaries mean lower income tax revenues for the government, which is only one reason many high tax governments with expensive social programs are scared to death (and have increased efforts to chase both companies and individuals that are leaving for greener, lower tax, pastures).
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A service economy as well is somewhat limited.  After you all, you cannot export most services with a few exceptions.  Meaning, an accountant living in Chicago cannot telecommute his services to a company in Spain.  There are language barriers and many other barriers, such as becoming a tax or accounting expert in another country, etc. So, he has to accept a lower salary in Chicago (if he can find a job), go on welfare, or physically move himself and his family to Spain (if for example that is where a job is).   In other words, with very limited exceptions, you cannot export services or sell it abroad.  However, those services that can be contracted abroad or moved abroad are in fact going.  As an example, in the US banking and securities brokerage industry especially, the vast majority of the computer programming projects are being contracted out to firms in India.   Why? Because India now has a deep pool of talented and well educated IT professionals that will work for 20% of what an American doing the same job would earn.  In addition, telephone call or customer service centers are being moved as well.  What is the difference if you call a toll free number to check on your hotel or airline reservation and the person on the other end (that speaks English) is located in Ireland or in a Free Zone from the Dominican Republic?  None really, or you do not know the difference, but the company does.  They can find a good bilingual customer service person for US$ 600 per month in the Dominican Republic to do the same job that might cost US$2,500 in the US, in terms of employee salary.  Also, by having the service company domiciled inside a free zone, there might be zero income tax on company profits.  Along these lines, small service oriented businesses, such as travel agents, can move their entire operation offshore as well.  Their income might be the same, but their labor costs for employees will be lower and they get to income 100% tax-free company income as well.
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Apart from the above, we now have the issue of a weak dollar, which we are told will make US exports cheaper abroad and more competitive.  What exports are they talking about?  Is it the exports that make up only a small percentage in a predominately service economy?   Who will be hurt are the service economy workers remaining inside the US as their cost of living goes up.  After all, a weak US Dollar means that foreign goods brought into the US will become more expensive, and considering that about 90% of everything in US Department Stores is made in some other country (take a walk around JC Penney and check where all the products are made), by default consumer costs go up.  The only benefit American consumers have is that most of these imported products are made in countries that have a currency that is weaker than the the US Dollars, so a weak dollar will not completely have a negative impact, but that could change (especially if those countries with the weaker currency decide to use the Euro, a much stonger currency than the US Dollar, or peg their currency to the Euro).
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The bottom line to all of this is that the numbers, statistics and the overall trends do not lie.  Politicians lie, but then again, that is their job so they can get re-elected.
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TAX CORNER:  Some very interesting news articles and opinions.
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From the website operated by AMERICANS FOR TAX REFORM: some insight into why US Corporations logically want to move offshore.
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http://www.atr.org/opeds/051503oped.html
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FORBES MAGAZINE puts forward its Tax Misery Index.  According to Forbes, the French have it the worst:
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http://www.forbes.com/home_asia/global/2003/0526/030.html
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Can a US Citizen or US Company legally transfer patents and similar intangibles to an Offshore Company, this eliminating tax on royalty and other related kinds of payments?  Read the following:
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http://www.ecommercetax.com/doc/052100.htm
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READERS WRITE IN:
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Dear Mr. Schroeder - After a couple of visits to the Dominican Republic which most certainly lived up to my expectations, I've been trying to gather further information about the country, especially the necessary facts that one would find useful in the case of a possible immigration in the future.  One very important aspect would of course be the possibilities of financial investments and the range thereof - the second question that comes to mind is the security of the region, both economically and politically.  I would enormously grateful to have some information about this. 
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EDITORS REPLY:  Well, first and foremost, I am glad to hear you found the Dominican Republic to be an attractive place for you to consider relocating to.  In regards, to political and economic security or stability, I can only say that all in all, it remains to be a worthwhile destination to consider, I think.  Also, the country certainly does not have some of the problems found elsewhere in the world.  For example, you do not see children bringing guns to school, shooting their teachers and their fellow students.  Real estate for sure remains to be very attractive in comparison to most other destinations in the Caribbean.  While the economy has slowed down, it still is posting positive GDP growth.  In terms of bank account interest, it certainly is possible for many people to consider retiring in the country, with the idea of living off their bank account interest - 100% locally tax-free.  So, in perspective, it continues to be less well known than some other destinations, yet it also has some very attractive attributes.
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Another Reader Writes:
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Hi John - Thanks for all the info packed newsletters.  I have about ten years left to retire and I am very interested in building my nest-of-eggs as quickly as possible in the Dominican Republic, I have an account in local currency (DOP) but the exchange rate is killing me. Is there any relieve in sight?
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EDITORS REPLY:  I wish I could tell you that I have a magic crystal ball, but the truth is that I do not.  I can suggest, as I always have, that clients consider keeping the majority of their funds in US Dollar based investments due to the currency exchange issues that quite honestly you could face anywhere, and anytime you invest in another currency.  It is true that the Dominican Peso has historically devalued at a rate of about 5 percent per annum versus the US Dollar.  Based upon this, and based upon the fact that time deposits in Pesos were (and still are) paying up to perhaps 25% interest, that investments into Pesos looked more attractive.  To illustrate this, many clients have argued that they might be getting about 9 percent for 90-day US Dollar bank certificates of deposit, but with Pesos somewhere in the 20 percent range.   The argument then being that even after you deducted the 5 percent currency devaluation factor, you were still earning more compared to US Dollars.  However, this was based on the assumption that the rate of devaluation would remain constant at about 5 percent.  Lately that has not been the case, and has been the result of a number of factors, speculation being just one notable factor, and what some might say are foolish economic policy of the current government (higher taxes, more government spending on so-called welfare programs) being just another. 
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In your case, I would say that you should keep your existing funds in Pesos and try to earn the best rate of return as possible.  Any future deposits, I would keep in US Dollars.   If it is your intent to retire in ten years and perhaps buy a home, then use the existing funds in Pesos to do that.  For sure, real estate prices are not going up at a rate of 25% per annum and in fact the annual inflation rate is about 5.5 percent.  So, it stands to reason that your Peso deposits will grow much faster over time than real estate prices and you can use your cash (in pesos) later on to buy a hard asset (a home or real estate).  Again, any funds you wish to deposit and save in the future, you might wish to keep in US Dollars and not convert it.  Also, it is quite possible that you might have enough funds saved in Pesos (during the ten year time horizon) to both buy a home and live off the interest generated from the remaining balance.  In the future when you are living here, you will need Pesos anyway as the supermarkets, the gas station, the telephone company, the electric company, etc., etc. all will bill you in Pesos (which much be paid in Pesos).
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Another Reader Writes:
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Just looking for your thoughts and comments on the recent goings on at Ban-inter and the (alleged) embezzlement.  I have also seen reports that police forces have moved into media outlets (Listen Dario, radio and TV stations) that are part of Figueroa's holdings.  The official line is that they are to be liquidated to cover the losses at Ban-inter, but government seizure of media is worry-some as it seems to lead to nationalization of things.  Wondering if you can provide firsthand color on the situation.  I would suspect lineups outside the Ban-inter branches as people attempt to withdraw their funds - if the Bank is even open.  Don't know if it is necessary, but it is what seems to happen.
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EDITORS REPLY:  We have gotten a large number of telephone calls about this, and I agree that some detailed explanation is in order.  With that said, let me say that one needs to know ALL the characters and circumstances involved in what appears to be prime fodder for a good novel or made for television Sunday night movie.  In addition, it is also important to realize that a problem with one bank is not in and of itself indicative of what is going on in the entire banking industry.  For example, if Citibank was taken over by FDIC or Deutsche Bank in Germany by the local banking authorities in Germany, it is not a positive thing to happen and it certainly puts a bad spin on things in regards to what is reported in the press, BUT it does not mean that all the other local banks are in trouble or even have the same kinds of problems.  In addition, on a somewhat unrelated note, it is very true and unusual that the Central Bank of the Dominican Republic has publicly guaranteed all accounts at Ban-Inter.  This is an unprecedented move, but an understandable thing to do for the sake of public confidence, and I personally applaud it.  In addition, the authorities have attempted to keep banking operations at existing Ban-Inter branches as normal as possible, given the circumstances.  So, banking customers have of course been able to withdraw funds and continue using their credit cards.  However, like any situation of this kind, it is also true that a run on the bank serves no positive purpose and the authorities have attempted to persuade customers to renew time deposits (bank CD's).  Why?   Because any bank anywhere in the world does not have ALL of its assets or deposits sitting around in cash.  Some people might tend to think that when they open a savings account with a particular bank, that the banks puts the money in a box with the customers name on it.  It does not work that way.  In order for the bank to pay you, the customer - a rate of return and earn money at the same time, the funds must be invested somewhere.  Invested where?  Car loans, home mortgages, personal loans, business loans and perhaps other kinds of interest bearing activities.  So, as a result, there is no bank in the world that could easily come up with cash for every single depositor within 24 hours.  Even if they could or would start calling in loans, imagine the economic havoc that would cause as well.  The end result then is to try and arrange an organized liquidation done over a period of time so additional negative economic consequences are avoided.   In this way, everyone gets their funds, but in a scheduled fashion over time (thus the reason that customers are being asked to renew their certificates of deposit with the Central Bank rather than taking it all out from Ban-Inter at the same time).  With that said, let us now discuss some background, opinions, politics, recent news and some other key points.
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First and foremost, it should be noted that we are approaching the next Presidential election in the Dominican Republic, which will take place in May of 2004.  Just as in the US, the campaign has begun.  Also, just as anywhere else, barbs are traded back and forth and blame placed on the other party for any negatives, be they economic or otherwise.  In this regard, many would suggest that the current party in power, PRD, is in deep trouble in terms of public opinion.  For sure, they can be compared to the Democratic Party in the US or the Social Democrats in Europe (or Labor Party in the UK), in terms of agendas, thinking and so on.  So, it has been the existing party in power, PRD, that has increased sales taxes, various registration taxes, highway tolls and so on.  In addition, under their watch, the Peso has devalued greatly (in fact more so than any of the three previous presidential administrations - before the Ban-Inter incident even came about), making cost of living higher in regards to any imported goods as a result.  They have also promised, as part of their previous campaign agenda, to offer a whole slew of new government social programs, including a more comprehensive Social Security system.  However, many of these things have not come to pass exactly as described (even though the various tax increases where meant to support these things) and in fact the actual implementation of this new so-called Social Security has been postponed - once again - until September 2003 (yet the government continues to deduct 10% of employee salaries to pay for it, which the general population is not exactly happy about either). 
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With that, we now have the Conservative Party, PLD, once again campaigning, after leaving office and the country in what many would say was pretty good shape economically, and otherwise during the last administration (the previous party in power was the PLD and the previous President was Dr. Leonel Fernandez of the PLD party).  To be sure, things sound a bit negative in terms of the economy at the moment, but the truth is that the economy is still posting positive economic growth, although the numbers are not anywhere near the 8 and 9 percent figures when the PLD was in power.  Of course many people are disgruntled with the higher taxes that now exist as well.  So, in summary, we now have elections coming up again, and an incumbent party that some would say has an uphill battle.  The conservatives of course have said and are saying: Hey - when we were in charge, things were good and nothing more need be said because proof is in the economy and quality of life.  You decide if you were better off then or now, and if all the campaign promises (made by the PRD or Democratic-Liberal Party) have come true?  It would seem at least many people are in agreement that they were better off under the administration of Dr. Fernandez (PLD party or Conservative Party) as current polls place him at receiving 50% of the votes if the elections were held today (elections are still about one year away).
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Moving along, it was or is the opinion of some that Mr. Ramon Baez Figueroa, President of Ban-Inter, is a staunch supporter of the local Conservative or PLD party, as is most of local business community.  In fact, just as in the US and Europe, business usually does lean towards the conservative political parties as they are usually more pro-business.   However, like any smart businessman, he has played both sides of the fence in order to get along, offering credit cards and other amenities to government officials in power from both parties.  Although, many might say while his head told him to do certain things to get along with the current party in power, his heart is with the PLD.  An important comment to consider, when one takes into account he owns or has a controlling interest in a large number of media related businesses in the country.  A short list would include, three local newspapers, including LISTIN DIARIO, the oldest and largest daily newspaper in the country (equivalent to the New York Times in terms of size and prestige), plus a number of local radio and television stations, including the fairly new and successful RNN, a CNN styled news channel offering 24 hour news.  In this context, we can say Mr. Figueroa is a combination David Rockerfellar and Rupert Murdoch, controlling both one of the largest banking institutions in the country and a very large number of local news or media outlets as well.
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Aside from this, it is also important to note local law as it pertains to the banking - monetary system AND the fairly new anti-money laundering legislation as well.  Meaning, in terms of monetary or banking regulations in cases whereby a local banking institution has problems, it is the responsibility of the Superintendent of Banking to intervene and essentially take control of the banking institution.  In terms of the Central Bank, the Central Bank administers the banking insurance deposit reserve fund, but it is not the responsibility of the Central Bank to directly intervene, which is why it is very unprecedented in the recent chain of events for the Central Bank as a operational government financial institution to guarantee ALL deposits held by a private institution (which has been taken into custody by the Superintendent of Banking).   
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However, in the above example, the officers of the bank would not have been incarcerated and their personal assets are not embargoed.  They would be prohibited from leaving the country while an investigation is on going by the Superintendent of Banking, but they or their assets are not confiscated.  In order to put someone in jail without bail and in order to immediately confiscate personal assets, under the new anti-money laundering legislation, such a person MUST be charged with money laundering.  This gets a bit complicated in that Ban-Inter was part of a larger corporate conglomerate, which would assume that Ban-Inter was a wholly owned subsidiary of that conglomerate instead of the other way around.  Meaning, it has not exactly been made clear in the press whether or not ALL the television stations and newspapers were personal holdings of Mr. Ramon Baez Figueroa or were holdings of Grupo Intercontinental, the parent company of Ban-Inter.  Either way, they would appear not to be direct holdings or direct assets of Ban-Inter.  Once again, under normal circumstances of charges that a financial institution has a liquidity problem, it would not be the case that government authorities would seize control of non-bank assets.  In order to do so legally, the persons involved would have to be charged personally with money laundering and a connection made between those individuals and whatever company entities might be involved (newspaper, television stations, and so on).  Of course, to date, the actual proof or evidence of money laundering has not been made quite so clear, but then again, it certainly is not uncommon for a prosecutor to hold back evidence until the court hearing (and not leak it to the general public through the press).
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However, there are many that do feel all of these charges are in fact a sham (money laundering), and that the seizure of the news and media businesses was politically motivated.  Of course, there is still much information not made public, so it is difficult at this point to say who is correct and who is not.   Perhaps a fairly speedy resolution and complete public disclosure of the proof of such charges, long before the next political elections would assuage the critics.  Then again, to hold off until after the next election would add fuel to the argument that such actions were meant to silence a media group that possibly had favorable leanings toward the opposition party (which in this case happens to be the conservatives or PLD).
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On the topic of the charges, again of money laundering against Mr. Figueroa, it has been argued that Ban-Inter operated with a clandestine set of books.  The exact details have not come to light, just the allegations, but it is certainly true that Ban-Inter has a wholly owned banking subsidiary in the Cayman Islands called Ban-Inter Trust, which everyone was very well aware of, including the banking authorities, and which was certainly disclosed and is permissible by law. 
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However, the real problem seems to be that Ban-Inter entered into an agreement with one of the largest Savings and Loans in the country, which in structure is argued to be a clandestine purchase (as deemed so by the banking authorities), although it was stated as being an option to buy rather than a sale.  Either way, this was never passed through or approved by the Superintendent of Banking.  In the transaction, Ban-Inter is alleged to have made an agreement with Associacion De Ahorros Popular (arguably the largest S & L) for US$90 Million Dollars.  Of this amount, US$55 Million was reportedly paid and then passed back through to Ban-Inter Trust in the Cayman Islands (seemingly held in escrow), but again the exact details of who was credited with this amount or why was not made clear.  However, it would make sense that funds paid might be held in escrow until such time that the actual transaction was consummated.
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Again, many details to sort out, but it does seem odd that a bank that is supposedly broke, has the capacity to pay US$55 Million in cash for another financial institution.  Either way, the Superintendent of Banking is certainly perturbed that this transaction was not passed through his office for review and approval, so read into that what you may.  In addition, considering the current devaluation of the Peso, which has been exaggerated or made worse by the hoarding of US Dollars, the idea of any bank moving the vast majority of its US Dollar assets (or those of its customers) outside of the country would seem to have the banking authorities perturbed as well (although to do so is not illegal and the owning of a banking subsidiary in another country not illegal either).
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The very recent merger announcement between Banco Del Progresso and Ban-Inter of course is another matter, with Banco Del Progesso backing out at the last minute.  This was done AFTER both parties did sign a contractual merger agreement, leading many to question what other factors might have entered into the scenario.  After all, one would assume that both parties would certainly review all financial and other matters before coming to a written agreement.  In any event, it leads to questions about why the bank was up for sale in the first place.  Was Figueroa trying to get out of the banking business so he could focus on his newspaper, radio and television interests?  Was the bank truly in trouble?  Was it sale or merger of Ban-Inter politically motivated?  Regardless, the backing out of the deal by Banco Del Progesso was what started the public thinking there was some sort of problem, and thus the run on the bank prior to intervention by the authorities.  However, at that point, the Superintendent of Banking and the Central Bank did step in, continuing to allow customers access to their funds, although in a more limited capacity.        
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So, apart from everything you might have heard, perhaps the above information adds even more to it, including more questions as well. As one local reporter has stated, there is never true or false, there is only a kaleidoscope that throws off a different color all depending upon who is holding it and at what angle they are looking.  Is Mr. Figueroa guilty of money laundering, or are there some other political agendas at work?  Was the bank truly in dire straights or was it not?  If the senior management of the bank did do something unorthodox with bookkeeping practices, again - was the purpose to defraud depositors or was it actually something to the contrary?  Needless to say, it seems we will have to wait and see.  However, it certainly is true that for the time being, the former President of Ban-Inter is incarcerated without the possibility of bail (under the new anti-money laundering legislation) and the media businesses under the control of the government.  Again, how quickly evidence is presented by the government for their case and when, might be an indicator of the true nature of things.
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However, to add another final point to this detailed saga, the government authorities have reported that the Ban-Inter issue involves RD$55 Billion Pesos, or roughly a sum that equals two thirds of the country's GNP.  Interestingly enough, sources in the banking community tell me that these figures are a bit construed as the government is calculating or including about RD$35 Billion in paid up capital or deposits that have not gone anywhere.  Meaning, while a possible problem, the financial sum is really closer to RD$20 Billion, not 55 according to some who seem to have a good insight.  Either way not good, but 20 is a lower number than 55.  Of course there is always some political benefit to blow things out of proportion for the public (and this story was picked up with fervor by the foreign press, especially being reported heavily in the Spanish speaking areas of the US dominated by Dominicans).  In addition, would it not be very convenient to place the blame of the devaluation of the Peso on Ban-Inter, and the supposed transfer of US Dollars out of the country (thus creating a shortage of US Dollars in the banking system) rather than the other possible reasons which touch upon political policy in terms of taxes, government spending, increased debt and so on?  Again, a difficult case and a difficult situation with many more questions than answers at the moment.
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Another Reader Writes:
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John, I saw where one of your readers told others to get off their hands and save the US.  It is much too late. The US has been under Military Law for many, many years, we do not have a constitution - we have no rights from the moment our birth is registered. We are SLAVES. We contract with the government, which is a bankrupt corporation (a fiction) by the use of Birth Certificates, Social Security, Driving Licenses, Gun Registration, etc, and in so doing give all our rights away. Ever wondered why income tax is said to be voluntary?  It is until you contract with them.
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EDITORS REPLY:  Well, there is quite a bit of technical and legal arguments to support your claim and your comments, and I have read a large number of them (and see the merit in the arguments).  Apart from that, we do get a large number of people (clients and otherwise) that generally feel there is quite a bit wrong with the current state of affairs, and also feel that the majority do not see any motivation to ask questions or change it - so, you are not alone in that general regard.  Your comments are of a technical nature in exactly how politicians have gotten around the constitution, and as I said, I do understand and see value in the arguments.  Regardless, the fact remains that the majority seems to think everything is fine and that in and of itself leads to the fact that things will not change.  Therefore, since for the time being, getting on a plane and traveling elsewhere is still legal, I would say that is the one thing for certain that you can do.  Although, there are some people that would like to make Expatriation illegal as well.  They used to say: America - Love it or leave it.  I think you can still love the values it used to stand for, while saving your own backside (and that of your children) in the time being.  I am reminded of all the Irish immigrants that left Ireland and immigrated to the US at the turn of the century during the great potato famine.  They still loved Ireland, but they would prefer not to starve to death - patriotism is wonderful, but you can't eat it and you can't pay your bills with it.
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Another Reader Writes:
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Hello John:  I hope this email finds you well.  I read with great interest your answer to a reader's question regarding investing offshore using a second citizenship and potential reporting to the US IRS.  You stated, with regard to using a banking passport - Would they normally issue any reporting to a foreign government concerning accounts owned by their own citizens?  I think not, and this is one of the reasons that the US has been very concerned about (and angry about) economic or instant citizenship programs (which allow Americans in this case, the ability to quickly obtain a second citizenship for banking and investment purposes).  It certainly is much easier for the US tax authorities to go into a foreign country and ask for all accounts owned by US citizens, or to have account records possibly sorted by citizenship is that in fact is the case".  My question is about the implications of the Qualified Intermediary (QI) regime and the Patriot Act.  I believe that under the QI regime, which takes effect this year, non-US financial institutions (that want to maintain access to US securities markets for their clients - which will include any worthwhile brokerage or bank) must implement client review mechanisms that determine if new or existing clients are subject to US tax, which will include a review to uncover clients who hold foreign passports indicating a US birthplace. If any client proves to be a US taxpayer, the financial institution then submits a report on the client's brokerage or bank account to the IRS and withholds and pays the tax to the US government.  Then, under the Patriot Act, all foreign financial institutions that require a US correspondent banking relationship (and what legitimate bank doesn't) must disclose, I believe upon request, the name, and personal and business background of the ultimate individual beneficiary of all accounts held in the foreign institution.
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Don't all legitimate foreign passports indicate the birthplace of the person?  Won't this make it dangerous and a liability to maintain a personal bank account under a second citizenship if you were born in the US and are still a US citizen?  And is there any advantage to holding the account in the name of a corporation?  Under the requirements of the Patriot Act, won't the bank or brokerage firm have to know the ultimate beneficiary of the corporation, meaning that the foreign citizenship combined with the US birthplace of the beneficiary is subject to being revealed to the IRS if they request such information?  Doesn't this completely neuter any country's privacy laws?  Thanks, I look forward to your answer.
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EDITORS REPLY:  A very good question, but part of the answer is with you have already stated.  Meaning, if a Polish Citizen that perhaps used to be a US citizen, establishes a bank account in Peru (for example) - Does this mean the account owner is Polish or American for taxation purposes?  If someone is truly interested in obtaining a print out of all accounts owned by US citizens, will the former US now Polish citizen's account come up?  You yourself said, I think not and I would agree. On the issue of correct and legal naturalizations, yes it is usually the case that the persons place of birth is listed, but so what?  What if my parents were missionaries from Chile living in Arkansas?  If I were born in Arkansas, does that in and of it-self mean I must have US citizenship?  Maybe, and then again, maybe not - depending upon what was declared as my citizenship later on at age of majority.  If I am entitled to dual citizenship, but only accept one, does this mean I am liable for taxes for all eternity to the other (that I did not take)?  What about the children of US military personal born in foreign countries (while parents were serving on foreign bases)?  Are they all foreign citizens or are liable for taxes in those countries where they might have been born?
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In regards to disclosure issues; this is still difficult to enforce from the US in regards to what foreign institutions or foreign countries do.  In fact, despite what the new regulations say or do not say, most non US financial institutions (be they banks or brokerage firms) engage in what is known as a non disclosed omnibus or correspondent account relationship with the US institution.  Stated more plainly, the foreign bank (non US bank) has one account with a US correspondent bank in the name of the foreign bank - period.  The foreign bank's customers are not disclosed and really why should they be?  I mean, let us say the US Treasury Department says, we think you have US customers you are not telling us about.  The foreign bank says, No we do not, and if you think we do, prove it.  In addition, if the foreign bank does have US citizens, then what right does a foreign government have (the US in this case) to impose reporting or tax collection initiatives when such circumstances might not even exist for the local government where the foreign bank is located (perhaps we can use the example of a country whereby bank account interested is tax-free and therefore there is no reporting anyway).  So, it all sounds well and good, but the reality is that US authority ends at the Florida Keys.  Everything else is based upon cooperation, if and only if, the foreign government sees it as being reasonable and worth their while.  Consider if you will, the on-going flack about Europeans that have US brokerage accounts and related reporting (and tax with-holding issues).  Why should the US become a tax collection agent for France or Belgium or Toga-Toga?  Why should France or Belgium or Toga-Toga become a tax reporting and collection agent for the US?  In other words, where's the beef?  Who has the benefit and who does not?
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Another Reader Writes:
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Do Panamanian Citizens still hold dual citizenship (after they become US Citizens)?  What are the implications of renouncing their citizenship in writing?  Is it legal for a US employer to strongly suggest that in addition to already being a US Citizen, you renounce your Panamanian dual citizenship in writing??
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EDITORS REPLY:  First and foremost, both Panama and the US recognize dual citizenship, so it is not true that you would automatically loose the one by gaining the other.  Secondly, unless it is a case of employment involving national security, there is no reason for anyone or any organization to ask you to renounce your other citizenship.  In fact, I would say you have a very good case to file against your existing employer if in fact you are in any way being intimidated to relinquish your Panamanian Citizenship.  I realize many people in the US these days have lost their minds, and that paranoia has taken hold of a great many as well, but I honestly do not see why anyone should be perturbed with a Panamanian.  If you were a Saudi national or someone from another Islamic country, I could possibly understand at least the paranoia given current events, although it would still be illegal to ask a Saudi national to relinquish Saudi Citizenship just because they were working in the private sector.  But a Panamanian, I do not see the threat or connection.

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This information has been compiled and presented by John Schroder of Ascot Advisory Services, for the benefit of clients and readers. Ascot Advisory Services provides assistance with such matters as offshore company formation, Panama Foundations, offshore banking, and special services in the Dominican Republic regarding residency, free zone applications, etc. For more information:  
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