Ostentatious behavior can make one an excellent target for eager tax authorities, divorcing spouses and hungry fellow citizens who are desperately looking for the few remaining deep pockets LINK. 

Already the Inland Revenue in the UK has formed a special unit to target “fat cats and celebs” LINK. 

Prudent UHNWIs are increasingly taking steps to protect their remaining wealth. Home security systems may work fine for keeping out home invaders LINK but they will not stop tax authorities or divorce petitions, no matter how unjustified their claims may seem. The smart ones are busy putting into place possible future exit strategies of foreign citizenships and residence to protect them should the “legal” muggers start to get too close. Given the speed and enthusiasm of legislators for increasing tax rates and for divorce lawyers to draft divorce petitions, time is of the essence to start to put together these plans. Even with all due speed and diligence they require months to properly construct.

As one recent client from California said to me, “My financial house is not on fire yet, but I can smell smoke coming down the canyon. I am not waiting to hear sirens before I get fire insurance and make sure my suitcase is in the car and gas is in the tank.”

David S. Lesperance, Barrister and Solicitor

Given its familiarity, the wealthy often first look to Miami as a destination . In fact there has been a well documented transfer of wealth and people from Venezuela to South Florida since Hugo Chavez took power LINK. While most immigrants will be able to comfortably reestablish themselves in Southern Florida, this strategy is not the wisest move for the wealthiest members of Venezuelan society. High US income, capital gain and estate taxes, liberal (by Venezuelan standards) divorce settlements and no financial privacy (which can expose family members remaining in Venezuela to kidnapping) makes a move to Miami like a jump out of the pot and into the fire. Strategic planning rather than reactive panic is essential.

Recently I was part of a team of lawyers who advised a wealthy family on how to establish themselves outside of Venezuela (including an estate in Florida) is such a way as to reproduce their prior standard of living while preserving their assets that they can pass on to their children and grandchildren. We also ensured their continuing ability to travel even if Chavez decided to cancel their Venezuelan passports in an effort to exert pressure on them. Finally we devised a legal practical strategy to get their assets out of Venezuela and protect their remaining investments in that country. As with an well thought out and executed strategy the key is to start as early as possible to avoid the mad rush out the door. 

David S. Lesperance, Barrister and Solicitor

 

 The most public example of this phenomena of noose tightening on non-compliant offshore accounts is UBS. Yesterday, UBS announced a long awaited agreement with the U.S. Justice Department where they agreed to pay an extraordinary $780 Million and turn over the names of holders of undeclared accounts.  However UBS is just the crest of a tsunami of disclosure as every financial institution in the world is feeling the pressure LINK. Former gaps in the Qualified Intermediary Regime are also rapidly being closed and investigative powers are being beefed LINK  LINK up by Carl Levin and his colleagues in the U.S. Congress.

Carl Levin

Non-American account holders should also be nervous, as they may be the “dolphins in the tuna nets” whose accounts are first discovered by the U.S., Germany or the U.K. who then turn the information over to the relevant home jurisdiction. This international sharing of information is exactly what happened in the LGT case, where Germany was the first recipient of the stolen information.

As the authorities close in, wise account holders are taking advantage of the fact that their portfolios are currently depressed to engage in voluntary disclosures with tax authorities LINK. In many cases, given that only the last 5 or 6 years of income and capital gain need be brought up to date, the tax bill (with interest) is relatively palatable. Certainly more palatable then having the window of voluntary disclosure closed when the authorities get their names and will take nothing less than full tax, interest and civil and criminal penalties. In addition, once the account holder “comes clean”  they can then plan to properly and legally reduce or eliminate their future tax liability through expatriation or relocation.

However for those holders of non-compliant accounts who continue to hope that their accounts will somehow avoid pending discovery because of the traditional helpfulness of their personal account managers, I wish to point out the fact that Mr. Kieber was not an account manager. Rather he was someone in the IT department who had access to computer files. In today’s modern financial institution, one’s “secret account information” is available to a large number of employees. As Mr. Kieber discovered, stealing information and selling it to tax authorities is highly profitable (in the millions) for disgruntled former bank employees. Given layoffs in that industry, one doesn’t have to be a conspiracy theorist to believe that at least one or two of those boxes leaving in the arms of discharged employees contains more than family photos.   

David S. Lesperance, Barrister and Solicitor 

UHNW Ethnic Chinese in Indonesia are deciding that it is the better part of prudence that they spend a small portion of their wealth diversifying their Passport Portfolios™. Recognizing that they are vulnerable if their only passport is an Indonesian one that can be cancelled at any time, they are looking to immediately secure another citizenship and passport that will give them the ability to leave Indonesia or continue travelling while they are abroad. In addition, they are discovering that this additional passport allows them better visa-free travel then their existing Indonesian passport. Along with a second citizenship, they are also securing homes, offices, and residence permits that will allow them to immediate reproduce their Indonesian lifestyles at safe locations abroad. During a recent business trip to Singapore, various private client advisors I met with confirmed the increasing interest in this area. As with the logic behind buying fire insurance, it is prudent to plan for what may be a remote possibility, but one that if it occurs is devastating.

David S. Lesperance, Barrister and Solicitor

The current edition of the Economist, details the decisive impact of residency and citizenship on divorce and custody LINK. As the article outlined, the venue chosen to petition a divorce will have a dramatic effect on the final financial and custody arrangements. Furthermore, different venues will treat pre-nuptial agreements and asset protection trusts (including custody arrangements) quite differently.

With divorce being better than 65% in marriages of the UHNW and an almost certainty when one looks at multiple generations, pre-marital planning for custody, asset division and alimony arrangements is as essential as planning for the other certainty….death. As one of my happily married clients pointed out to me, my principal worry is not my husband and I getting divorced, it is just that we have no control over who our cute 14 year old daughter will eventually marry. We just don’t want the family’s wealth, privacy and happiness compromised in case there is a future “son-in law shot” . In other words, like in golf, when your children marry, it is sometimes not what you were hoping for.

David S. Lesperance, Barrister and Solicitor

Two weeks ago, I had an opportunity to share a drink in London with well-know international lawyer Robert Amsterdam LINK. During our conversation, we discussed one of Robert’s best know clients Mikhail Khodorkovsky. Mr. Khodorkovsky, was the founder of Russia’s largest oil company, Yukos Oil and was arrested and later imprisoned after Russian leader Vladimir Putin seized his company and charged him with tax fraud in 2003 LINK. Robert and I discussed how differently things would have been if Mr. Khodorkovsky had more than just a Russian passport in his Passport Portfolio, when his arguments with Mr. Putin began. With additional citizenships and residences in place, he may have avoided arrest entirely or been freed by diplomatic pressure brought by the foreign countries where he also had citizenship or residence. Being located outside of Russia and having an unrestricted ability to travel globally and operate in countries where international law prevails, Mr. Khodorkovsky would have been able to put forward a proper and successful defense to the fraud charges. He probably would have been able to successfully stop the ultimate seizure and sale of Yukos Oil and avoided eight years of imprisonment.

While Russia is one country where the wealthy are coming increasing to the “attention of the Authorities,” it is by no means the only place. Other countries which do not have a history of “the Rule of Law” are also sweeping their wealthy off the streets, denying them legal counsel and seizing their assets. In November, Billionaire Chinese businessman Huang Guangyu was snatched by authorities who not only didn’t formally arrest him, they even refused to confirm that he was in custody . This was not the first time that China had done this  and with the deepening of the financial downturn, it isn’t difficult to speculate that it won’t be the last. In this poor global economy, an increasing number of countries (especially those dependent on now- depressed oil and commodity prices like Iran, the Gulf States, South Africa, Nigeria and Venezuela) will become tempted to look at “seizing” or “nationalizing” private assets for their own benefit.

While some would argue that Mr. Khodorkovsky and Mr. Guangyu must have been criminals and therefore deserved to be arrested and convicted, lawyers like Robert and I would remind them of that fine human rights tradition regarding the “presumption of innocence” LINK. As in many things in life, those who rely on others (including the state) to guarantee those rights may be gravely disappointed. The survivors will be those who took the personal responsibility to protect themselves, their family and their wealth.

David S. Lesperance, Barrister and Solicitor 

As you may have read and learned in other areas on this site, for years I have been helping clients acclimate to changes in their world using Passport Portfolio™ Diversification. This blog, will be dedicated to examining the most significant events and identify the emerging trends which could impact my clients and their advisors. Along with contributions from myself and other members of my firm, I have also invited Guest Bloggers from the legal, financial, academic, business, media and consulting worlds to provide their unique insights and perspective. Finally, I also look forward to comment and discussion from the readers, in the hope that a particular blog post will spark a conversation that we all find useful. Enjoy.

David S. Lesperance, Barrister and Solicitor