The Appleton Group has advised us that they have been deluged with requests regarding the new Appleton Guaranteed Principal Fund we spoke of earlier (this is basically a fund involved with Forex trading, and the fund expects an average annual return of 8%, with the client's initial principal guaranteed).  As such, they decided to extend the offering period until January 1, to allow everyone to participate.  Since the fund can be denominated in either US Dollar or Euros, it makes for and interesting investment option for those clients looking for an investment denominated in either currency.  Please keep in mind that this investment is not available to US citizens, but entities such as Panama Foundations can open an account (as can non US citizens).  For more information, please contact Mr. Jeremy O'Friel in Dublin directly:

The Guardian Investment Group expects the yield on the US Dollar Cash Reserves Series to be 10% effective Dec. 1, as interest rate pressures in the Dominican Republic are pushing rates up, not down - so stay tuned.  Also, a project is under way to offer on-line account information access as well.  However clients should note that the wire transfer instructions to remit investment funds will be changing on or about November 24, so investors with the old instructions should contact the fund directly for new information (the fund is using another bank that promises faster turn around time on wire transfer reporting, which is needed considering the volume of new clients).  Otherwise, clients sending funds prior to Nov. 24 can still use the previous instructions.

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The leader of the London-based Iraqi National Congress, Ahmed Chalabi, has met executives of three US oil multinationals to negotiate the carve-up of Iraq's massive oil reserves post-Saddam.   Disclosure of the meetings in October in Washington - confirmed by an INC spokesman - comes as Lord Browne, the head of BP, has warned that British oil companies have been squeezed out of post-war Iraq even before the first shot has been fired in any US-led land invasion.   Disclosure of talks between the oil executives and the INC - which enjoys the support of Bush administration officials - is bound to exacerbate friction on the UN Security Council between permanent members and veto-holders Russia, France and China, who fear they will be squeezed out of a post-Saddam oil industry in Iraq.

Although Russia, France and China have existing deals with Iraq, Chalabi has made clear that he would reward the US for removing Saddam with lucrative oil contracts, telling the Washington Post recently: 'American companies will have a big shot at Iraqi oil.  Indeed, the issue of who gets their hands on the world's second largest oil reserves has been a major factor driving splits in the Security Council over a new resolution on Iraq.  If true, it is hardly surprising, given the size of the potential deals. As of last month, Iraq had reportedly signed several multi-billion-dollar deals with foreign oil companies, mainly from China, France and Russia.

Also, a quote from a news article on the same subject regarding Offshore Accounts:  He said the IRS had also identified 82,100 taxpayers who used offshore accounts to evade taxes, but could pursue only 17,000 of them. He estimated the annual tax loss at $447 million, or less than $7,000 for each taxpayer, a modest figure when compared with his previous estimates of multibillion-dollar losses. Jack Blum, an IRS consultant, has estimated that offshore evasion alone costs the government $70 billion annually.

EDITORS REPLY:  I do not like the term tax cheats, because it is not entirely accurate.  Which is to say, it blurs the line between tax avoidance and tax evasion.  Some might suggest the term Peaceful (non violent) and Creative Civil Disobedience (or something to that effect), if that is in fact is what some people are doing.  However, in all honesty, tax avoidance and tax evasion are two different things.  Setting up your business and personal affairs to the advantage of whatever tax benefits may exist is not illegal, (nor unethical or immoral in my opinion either, it is just smart personal finance).  So, setting up your banking affairs or investments to gain maximum tax benefits is not CHEATING.  It is perfectly legal, and it should be pointed out that the US also plays this same game, in terms of allowing capital gains in US security brokerage accounts to be tax-free also for foreigners.  Does the US report these transactions to the foreign governments of the non-US account holders?

You really don't think the IRS reads your newsletter?  Isn't writing something like this on the net practically as good as telling them? With the way things are going, isn't it just a matter of time before these programs get slammed too?  Surely my despair isn't anomalous.  Hence, I am sure that however you answer this, your answer will benefit many other readers who are grappling with their own despair and growing cynicism - not about you or the DR but about the direction that the US continues to move in.

My mailing list is so large, to say it is well into the thousands is an understatement, and the truth is I do not always know who is on my list.  Possibly IRS agents, possibly other people in the offshore industry - posing as interested clients.  I do some things and have some strategies to purge the list from time to time (which I will not disclose regarding how or what I do), but all in all you have a valid point.  It is a toss up.  Some people have criticized me in the past for not being specific enough, while others tell me I say too much.  However, I have to admit that I find the idea of the IRS or anyone in the same league wanting to read my newsletters somewhat humorous.  I have told people in the US government (State Department employees and the like) to put me out of business.  How?  By simply balancing the Federal Budget, cut the bloated spending, put their fiscal house in order, and give taxpayers a sane and manageable flat tax.   This is similar to Coca-Cola giving Pepsi the secret formula.  But, I get the feeling they are not interested, so what can you do?

EDITORS REPLY:  Well, in plain English, here is how it works: The Federal Reserve in the US artificially manipulates the cost of money, which is the rate of interest.  This does not occur in some other countries by the way, whereby interest rates are determined by the free market system and not by anyone else intervening (such as the government or a quasi-government agency).  Interest rates, for example, in the Dominican Republic and Panama are much closer to what the real rates should be, or are (both for borrowing and interest earned on bank accounts).

Some people might say that is fine (that the Central Bank of a country, such as the US Federal Reserve does this).  However, there is a price to always pay, which is not so apparent at first and not always so immediate.  In other words, anytime you try to intervene in the free market system, one way or another, you will get burned.   Nothing is for free, or without some kind of cost.  In the case of loaning money at rates below the actual true market rate, you are in reality going to either inflate the money supply, which in turn deflates its value or have some other negative effect (deflation).  If you want to know what the true market rate should be in the US, you can get some hint by finding out what the inflation rate is, as the rate of interest should be at least that number, if not higher.  Of course, as we mentioned before, this is often hard to figure out because the US Federal Government does things to inflate the money supply (borrowing as a book-keeping entry from the Federal Reserve, without actually printing more physical paper money), which does not show up in the hard figures and in turn hides or skews what the actual rate of inflation is in the US. 

Most Americans cannot put their finger on it directly, but they do know that a middles class lifestyle is more expensive and harder to maintain than 40 years ago.   One example of this today is the need for two incomes to maintain the same lifestyle one income could provide when they were growing up.  Why is that?  Why do Americans feel like they work more and have less?  The answer is in the hidden inflation that has made the so-called American standard of living that much harder to afford and maintain.

In any event, the argument is, that the danger for a deflation environment (as it exists in Japan) is very real in the US today.  In fact, a very recent report by the OECD, (the nice people chasing down and criticizing all those naughty tax havens), now says that the US Dollar is 40% over-valued and ripe for a fall.   Which means the purchasing power and value of the US currency is way out of line with reality, and will drop vs. other currencies in the world markets.  In the least, you want to earn as high of an interest rate as you can with your money to keep up, and or also consider keeping some funds in Euros, a much stronger currency, in my opinion.  Keeping money inside the US at 2% annual interest is a death knell, especially after you consider the taxes your pay on your interest and factor in the inflation rate.  You as a consumer are losing purchasing power and you do not even realize it, because it is a slow gradual process.  However, there are some very practical ways to play the game and win, as discussed in part with the reader that asks about interest rates in the Dominican Republic below.  In other words, you have no control over what others do (especially the Government and the US Federal Reserve), but you can learn how to not be one of the economic victims (as indicated in the next article below).

John - I have, for the first time, a little better understanding of how money manipulation by the Feds destroys everything real about how and why our founders created this wonderful enterprise called the UNITED STATES OF AMERICA. You have some expertise in money management...how about taking a newly printed 100-Dollar FED RESERVE NOTE and walking it through the cause and effects this guy is describing. Ill bet with a few graphics (my forte) some layman language and logic and facts you could create a real winner case for investment with and in the D.R. experiment versus the sham of "free enterprise" the FED way here in the US.  Just another challenge for all of us too.

The spenders give little thought to matters of revenue. After all, there is the other financial arm of the U.S. Government, the Federal Reserve System, which can provide any amount at any time.  It is the deus ex machina - which can create one million dollars as easily as one million dollars. Unfortunately, most members of Congress are unaware that every act of money creation bears a lengthy chain of consequences working their way throughout the economy. 

A million-dollar purchase of U.S. Treasury obligations by the Fed with newly printed money or merely new credits on its books obviously enriches the Fed at the expense of all present holders of money.  It does not create a single economic resource but merely gives rise to new purchasing power claims against all given resources.  As more people bid for economic goods their prices tend to rise, which favors some people and harms others.  Prices rise unevenly beginning with the Fed purchase and gradually spreading throughout the economy.   Fed money creation also falsifies interest rates, which gives rise to the boom and bust cycle.  Unhampered market rates indicate the demand and supply of capital, reflecting the value judgments of all participants.  The rates are relatively high in poor countries where capital is very scarce, and lower in countries with a more plentiful supply.  The Federal Reserve generally ignores the market rate and keeps its discount rate, which it charges Member Banks, far below market rates and thereby falsifies all rates.   It signals a larger supply of liquid capital than actually exists and thus misleads and entices many businessmen to embark upon uneconomic expansion projects. 

Just as consumers may first rejoice about government edicts lowering some goods' prices but later deplore the inevitable shortages, so do many businessmen exuberantly welcome low interest rates and the business boom they engender but later lament the inevitable recession which forces them to correct their mistakes.  The falsification of interest rates is an unending cause of economic irritation and maladjustment, which inflicts immeasurable harm on a market economy.  As the U.S. dollar serves as the world money standard, the Fed policy subjects the whole world to recurring maladjustments and painful readjustments.  Most members of Congress may disagree on questions of taxation but usually cooperate amicably in the allocation of public funds. They work together because they are guided by the same ideology of the cares and functions of government.  They are kindred souls although they may belong to different parties and come from different parts of the country.  Their votes reveal their devoted attachment to one or more of the party factions, such as the "social-need faction," "parochial-imperative faction," "anti-cyclical full-employment faction," and "affordability faction."  A few lonely voices may plead for individual freedom, but they hardly qualify to be called a party faction.

EDITORS REPLY: The answer is yes, but not for savings accounts.  Local bank savings in the Dominican Republic pay rates of about 4.5% to 5% for US Dollar Savings Accounts, and anywhere from 7% to 10% (depending upon the bank) for Peso Savings Accounts (both locally tax-free).  The higher rates are available with local bank certificates of deposit, and yes - the rates are what you indicated.  However, just keep in mind that the rates are tiered, so do not expect the higher rates with a small deposit (small meaning US$10,000 alone or RD$ 100,000 Pesos).

The next question is US Dollars or Dominican Pesos?  My standard advice to ALL clients is to always consider the currency exchange risk when keeping deposits is something other than your home currency, or something other than a major world currency (US Dollars, Euros, etc.).  The Peso has historically devalued at a rate of about 5% per year vs. the US Dollar on average over the last 10 years.  Using this information, some clients have said - John, if I am getting 24% in pesos and back out the 5% devaluation, I am actually getting about 19% in US Dollar equivalent terms.  My answer to that is, you are correct.  HOWEVER, none of us knows what the currency exchange rate will be going forward.  As we have seen with the Bhat currency from Thailand and the Peso from the Philippines, currency exchange rates can go haywire, often without notice.  So, always keep this in mind.  In other words, invest with your head and not with your emotions (greed).  With that said, I do think it a good idea to keep some of your money in Pesos (to take advantage of the higher rates) if you are living in the DR, or someone visiting quite often.  By the way, this is in part why so many Americans are moving or retiring here. 

Let me illustrate some ideas using an average middle class American couple that has say US$250,000 in assets.  In other words, if you liquidated your 401K, your other investments, and maybe even sold your house, many people have this amount in assets (or often enough more).  Let us also say, that with this amount, it is quite literally impossible to retire with this amount in the United States today (especially considering they recently lowered the Federal Reserve rate again, to it lowest level in 60 years or more).  So, what should you do?  Well, considering you can convert US$100,000 Dollars to about RD$2 Million Pesos, it is very possible for you to live off your interest (quite well, I might add) and leave the rest in US Dollars untouched.  So, based on US$100,000 only converted to Pesos and invested at say 24% interest, you will earn RD$ 40,000 Pesos per MONTH in tax-free interest (equivalent to about US$2,000 per month on that same US$100,000 investment).  Considering you can rent a nice apartment in an upscale area for about RD$10,000 Pesos per month, about another RD$3,500 per month for utilities (cable with 12 or so channels in English, your electricity, your telephone) and let us say RD$5,000 Pesos per month for food shopping (worst case, if you tend to buy the higher priced imported items, like Aunt Jemima pancake syrup and so on) - you can see that having RD$40,000 per month in income gives you a sufficient income for a comfortable lifestyle.  The rest of your money (US$150,000 using our example), you should invest in US Dollar denominated investments and leave it alone.  Why?  For starters you have an extra US$15,000 per year coming in to use for vacation or whatever other expenses.  Or have it reinvested so your principal can grow.  Also, it gives you a currency hedge so not all of your money is locked up in Pesos.  I will offer a shameless plug for the Guardian US Dollar Cash Reserves (money market) as one option or idea, especially if you want to have a way to spread your investment funds among more than one bank or investment and still benefit from the higher rates (the staff at Guardian can help with Bank Peso investments also):

In addition, the number one problem retirees often have is that they tend to forget about inflation and rising prices over time.  Prices do tend to go up (not down), so it is important to have a way to grow your monthly income to at least keep up with inflation.  Having that extra US$15,000 per year (from our example) helps you do that, as you can grow your investment principal in Pesos and increase your monthly Peso income accordingly.  To illustrate this, assuming exchange rates constant at 20 Pesos to the US Dollar, that US$15,000 from your US Dollar investments allows you to grow your Peso principal RD$300,000 per year, and increase your monthly income by RD$6,000 Pesos per month without ever touching your US Dollar principal.  So, year one you have RD$40,000 Pesos per month in income, year two you have RD$46,000 Pesos per month in income, etc.  Assuming your rent remains stable (which it can if you insist on a two or three year lease), and assuming rent is your single largest monthly expense, you have a way to life well from your savings (and increase your income accordingly).  By the way, this is just one example of ways in which we help our clients (by offering these kinds of strategies and advice).

EDITORS REPLY:  First and foremost, I have stated that the Dominican Republic is a wonderful place to invest money, but not a place you want to borrow money (car loans are now up to 40% interest, in pesos).  I honestly do not know how the Dominican people do it, but some how they do.  Considering there are no usury laws here, and banks can charge whatever the free market rate is.  The central bank here does not artificially monkey with or manipulate interest rates, as does the US Federal Reserve, which is another discussion for another day.  In other words, to say that the Dominican people are lazy is a very shortsighted comment.  You can't be lazy and pay off a monthly home mortgage at 30% interest, a car loan at 40% interest, and so on (especially when the banks often insist on your brother's house or the assets of another co-singer as collateral, your backside is truly on the line).

In any event, getting to your question at hand, it is perfectly legal for you to take a loan in the US and use the money for whatever you want.  Considering interest rates are at an all time low in the US, some clients have taken a second mortgage or home equity loan (30 years at 5.75% of whatever it is now).  Also, many people have life insurance, 401K plans or annuity policies that allow them to borrow at 1%, 2% or some ridiculous low rate such as that.  Either way, if the loan is secured, no one asks what you want the money for (usually) and it is really none of his or her business anyway.  If the loan is secured, by real estate, securities or a fully funded insurance policy, you can do whatever you want with the money.  You often see money lenders in the US touting all the things you might think about doing with the loan money, which sounds comical at times (pay off your credit cards, buy a second home, take a dream vacation, etc., etc.).

In fact, we have also developed some programs to allow clients to set up an offshore life insurance or annuity policy (through an A rated insurance company, often enough a US Insurance Company with an offshore division), invest the money at say 7%, then borrow it back at 2% to be invested as the client wishes elsewhere.  What do you gain by doing that?  An offshore (tax-free and unreported) policy that provides a death benefit for your spouse or family (estate tax-free), possibly a net gain of 5% on your money (7% annual tax-free interest earned on your deposit with the insurance company, minus the 2% annual loan interest rate) and perhaps 10% with a local bank CD in the DR, or even 24% if in Pesos as described above.  Sounds complicated, but at the end of the day, your principal is secured (with the paid in amount from the life insurance or annuity) and you have a way to really put your money to work in a very smart way.

EDITORS REPLY:  Thank you for your letter and your comments.  It is not such much that I stay away from such topics, in that I suppose when I go into such areas, many chastise me for it.  And to be honest, no one wants to hear the same old drum beaten constantly, especially when I am the guy beating the drum.  However, generally speaking, many things have changed during 200 plus years of US history - and not all for the good or better.  I often wonder what the original framers of the US constitution would say if they were alive today?

The Bank of Ireland has passed the details of up to 9,000 investors with offshore trusts to the Inland Revenue (the tax collection agency in the UK), sparking one of the biggest-ever tax-evasion investigations. The source of the money will also be investigated to see if tax should have been paid on the funds held by the Bank. The Bank has written to those investors whose details have been released, and several investors are now considering taking legal action against the bank. A case perhaps of shutting the door after the horse has bolted.  For some time now, I have been emphasizing in this column the risks now associated with tax evasion. I have long suspected that a major bank would be the initial victim of a tax investigation, but clearly the victims are those whose financial affairs are now going to come under the microscope due to the Bank's report.  The investigation will be undertaken by the Revenue's special compliance unit and could take many years to complete. Those who are found not to have declared income earned from their investments face huge backdated bills and fines.

I am concerned that other banks may soon be in the firing line too. It is thought to be the first time that a bank has handed over a complete list of its offshore customers, and there are concerns that it may set a precedent.  The Jersey Evening Post recently reported that the Bank of Ireland's head of corporate communications in Dublin, David Holden, explained that the investigation was sparked by a reporting "anomaly" uncovered during routine checks:

Matters of compliance are complex, especially for large banks like our-selves operating in a number of jurisdictions. No longer can we say at any one time that we are completely compliant in every respect in every jurisdiction", he told the local newspaper, adding that: "We have a large number of people whose sole job it is to police these matters internally, as a matter of routine. From time to time they discover an anomaly. In this case, there was a reporting requirement. This particular piece of legislation to do with offshore trusts is complex and we have complied with the law, in close co-operation with the authorities in Jersey and the UK.  Bank of Ireland claims that it has been forced to act following a "recent review", which indicated that it had failed to comply with inheritance tax rules.  A former Inland Revenue compliance officer, who did not wish to be named, said: "This is a major coup for the Revenue. We tried for years to get these lists and suddenly the gate seems to have been opened."  As if this wasn't bad enough, last week saw a bold announcement from the UK revenue authority.  "UK Revenue set up special unit to catch tax evaders A special Inland Revenue taskforce is being set up to investigate in detail the tax affairs of wealthy taxpayers from early next year."  Several thousand UK tax payers will have their tax affairs dealt with by individual "case workers" based in special "complex personal return" units.  They will target taxpayers with high incomes, particularly from property, land, trusts or foreign sources, and those who have made big capital gains or losses from investments.  People (British Citizens) who live abroad for part of the year, and taxpayers with so-called non-domiciled status will also be under scrutiny. Those who have lived abroad for many years can legitimately avoid UK inheritance tax by claiming that they are "domiciled" abroad, as long as they can prove "substantial" ties to a foreign country. The Inland Revenue is conducting a review of non-domicile status, which is expected to be published in November.  The Revenue will be writing to all the taxpayers that will be dealt with by the new units.

Many professional advisers are concerned at this development. From my personal point of view, anyone who is to be dealt with by this new unit is at a considerable risk of a full-blooded tax investigation, which will be both time-consuming and costly, especially if any tax evasion is detected.  It is important if a taxpayer requires any advice in connection with any enquiry under these new arrangements that they seek independent tax advice at an early stage, as I do not believe that Revenue appointed caseworkers are the best option if advice and support is needed!  The statement from the Revenue added; "The role of the Revenue has never been to help reduce your tax bill."  The Revenue said: "We have identified taxpayers with complex tax affairs who need specialized support and attention." My, they do have a way with words!  Units will be based in areas identified as having a high number of wealthy taxpayers, or people with complex affairs. The issue of increasing personal tax investigations is not isolated to the UK and its offshore Islands.  Recently, Portugal announced that it is to investigate an additional 100,000 taxpayers, including foreign residents living there. The government announced that it has declared war on tax evasion. Spain too has ideas for increasing its powers of investigation and new measures are expected to come into force early next year.  As the man who reviewed the UK offshore islands on behalf of the UK government, Andrew Edwards, said to me just three years ago "tax evasion is no longer virtually risk free". Indeed it is now a high-risk strategy. Be warned! Ignore these changes at your peril.

EDITORS REPLY: This all ties in with the news article we highlighted in our last issue regarding the UK Channel Islands (Guernsey, Jersey) turning over information about US citizens to the IRS.  Although I will say that in the case of the UK, there seems to be very mixed messages, considered they recently encouraged commonwealth member tax-havens to purse legal challenges to the OECD.  In any event, someone has to pay for this upcoming war with Iraq, and considering it looks like it could be the US and Britain going it alone, its time to start turning over rocks (as raising taxes in either country, especially to pay for this war, will be political suicide for the politicians).  All I can say about this is, now more than ever, a second citizenship from a small obscure country sounds like the only option.  If they are going to start turning over information about US or UK citizens to those respective tax authorities, maybe it is best to open an account as a citizen from Ecuador, the Dominican Republic or someplace else (so your name is not included on the list).

I Am Your Worst Nightmare. I am a BAD American.  I am George Carlin.   I believe the money I make belongs to me and my family, not some mid level governmental functionary be it Democratic or Republican!   I'm in touch with my feelings and I like it that way, damn it!  I think owning a gun doesn't make you a killer, it makes you a smart American.   I think being a minority does not make you noble or victimized, and does not entitle you to anything.   I believe that if you are selling me a Big Mac, try to do it in English.  I think fireworks should be legal on the 4th of July.   I think that being a student doesn't give you any more enlightenment than working at Blockbuster.   In fact, if your parents are footing the bill to put your rear end through 4 years plus, of college, you haven't begun to be enlightened.  I believe everyone has a right to pray to his or her G*d when and where they want to.  My heroes are John Wayne, Babe Ruth, Roy Rogers, and whoever canceled Jerry Springer.  I don't hate the rich. I don't pity the poor.  I know wrestling is fake, and I don't waste my time arguing about it.  I think global warming is a big lie. Where are all those experts now, when I'm freezing my ass off during these long winters and paying, paying, paying? I've never owned a slave, or was a slave, I didn't wander forty years In the desert after getting chased out of Egypt. I haven't burned any witches or been persecuted by the Turks and neither have you! So, shut-the-Hell-up already.  I want to know which church is it exactly where the Reverend Jesse Jackson practices, where he gets his money, and why he is always part of the problem and not the solution. Can I get an AMEN on that one? I think the cops have every right to shoot your sorry ass if you're running from them.  I also think they have the right to pull your ass over if you're breaking the law, regardless of what color you are.  I think if you are too stupid to know how a ballot works, I don't want you deciding who should be running the most powerful nation in the world for the next four years. I dislike those people standing in the intersections trying to sell me crap or trying to guilt me into making "donations" to their cause. These people should be targets.  I believe that it doesn't take a village to raise a child - it takes two parents.   And what the hell is going on with gas prices - again?  If this makes me a BAD American, then yes, I'm a BAD American.   If you are a BAD American too, please forward this to everyone you know.

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:   . . Telephone 809-334-5387 or 809-756-1917  Email: info@ascotadvisory.com