During recent trips to London and New York City, I noticed that usually crowded high-end restaurants are now half-empty LINK.  It is not only the absence of vanquished “Masters of the Universe” that is causing this phenomena. The remaining wealthy who used to want to be out at the trendiest hotspots to “see and be seen” are now much more shy about displaying their wealth. And for good reason.

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

 As world and local economic conditions worsen, the ethnic Chinese community in Indonesia are again getting nervous. Although they are leaders in the business community and control large parts of the Indonesian economy, the challenging global economic crisis is causing political leaders to again attack them rather than accept blame for some of the economic woes. As with the Jewish Diaspora in Europe during the 1920s and 1930s and the Indonesian Ethnic Chinese during the previous Asian economic crisis of 1998 LINK, politicians are able to convince the masses that their problems are caused by the visibly wealthy amongst them. The result can be not only harassment, but nationalization of property and businesses, and even threats to physical safety.

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

One can hardly turn on the news or look at the magazine stands without hearing about another high profile nasty divorce. Sometimes it’s between the rich and famous and sometimes just the rich. However, for those going through the ordeal, there is no doubt that the process takes a tremendous toll on each parties mental health, not to mention the wealthier partner’s bottom line. Obviously, planning for separation when getting married allows for a smooth predictable transition from marriage to single for both adults and a much great easier time for the children.

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

The next more severe curse after “May you live in Interesting Times” is “May you come to the attention of the Authorities.”  Unfortunately for wealthy business people in Russia, this curse has become an increasingly real possibility  This trend certainly looks to become a route as Vladimir Putin is coming under intense pressure from the masses to ease the pending pain of the world fiscal crisis  .

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 

This is the first of a series of ancient Chinese Curses LINK, and few people on earth would challenge that these are VERY interesting times. In order to survive and even thrive during interesting times, people must throw away old assumptions, shake off their inertia, and seek knowledge and solutions that may have seemed arcane or farfetched in the past.

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