Disadvantages of being American in business and investing

As thousands of Americans renounce their US citizenship for tax and privacy reasons, many more struggle with business challenges unique to the United States.

Record number of Americans are renouncing their citizenship; even famous singers and businessmen are doing it.

However, for the millions of US persons living and doing business around the world, there is a unique disadvantage: a US passport. Beyond just the government and media propaganda that serves as a scare tactic against moving money outside the country, there are a growing number of rules that put Americans at a disadvantage to their foreign counterparts.

Here are just a few…

1. Restrictions on offshore investment

Let’s face it: the US stock market has become one giant casino. Gone are the days of your grandparents when “buy and hold” was a reasonable way to invest, and physical shares of railroad company stock sat in a fire safe in your grandfather’s study.

Today, high frequency trading means the average investor doesn’t stand a chance. By one measure, the everyday investor lost an average of 2% per year between 2000-2010, with the latest technologies from companies like Goldman Sachs only making this worse.

You may think you can avoid this challenge by investing in mutual funds. You would quite possibly be wrong. Studies of the mutual fund industry suggest that not only do Americans pay fees that are way too high, but that many top-shelf mutual funds have substantially underperformed the market.

In fact, funds marketed by big names from Shark Tank’s Kevin O’Leary to best-selling authors to TV pitchmen are generally a bust. So are “international funds” from guys like Jim Oberweiss, a perennial losing political candidate in Illinois with whom I lost a bunch of money investing with as a young and less-informed China-focused investor.

With all of the this bad news, you may come to the conclusion that foreign equities and mutual funds are your best bet. But participating in these funds is tricky thanks to a web of complex SEC rules. It’s like FATCA for the stock market.

One way to invest in the thousands of funds not available on US soil is to open an offshore bank account and invest from there. You can do this with as little as $500, making investing overseas almost as easy as pumping $100 a month into an index fund in the US.

2. American imperialism impacts business deals overseas

As a US person or US company, you are forbidden from engaging in any corruption with overseas officials whatsoever. The Justice Department has made a big business out of prosecuting even the largest of companies for trying to gain an “unfair advantage” by bribing officials in other countries.

“But wait a minute, Andrew. What is good about corruption?”

While corruption may not be a good thing, US policy is short-sighted in that it fails to acknowledge the realities of the world. In much of the world, corruption is simply how business is done.

In Asia, for example, bottles of Johnnie Walker Blue have become almost synonymous with government graft. I’ve met with business owners in China, the Philippines, and Thailand who grease the palms of diplomats and bureaucrats with lobster dinners, fancy fragrances, and weekends in Paris.

Personally, it sickens me that a government official with no other skills than being on the take can drive around in a Mercedes and flaunt his ill-gotten wealth. But just what business is it of the United States?

As an American, you are at a disadvantage in that you don’t even have the choice as to whether follow local customs. This puts American business at a disadvantage in cultures where taking the local officials out for dinner or handing the cops a pack of smokes and a bottle of Jameson once a month is the norm.

Once again, American imperialism believes it should dictate how other nations conduct their business. This doesn’t matter in benign instances, but it does matter when it effects your ability to do business.

3. American business partners are becoming toxic

I have personally consulted with several non-Americans who have taken on US business partners, only to realize that doing so turned their companies into personas non grata in much of the rest of the world.

While an Australian or South African or Serbian can easily available him- or herself of banking in Switzerland or any number of other countries, Americans are all but off limits.

That includes companies that include one US citizen or green card holder, even if they own a minority share. Additionally, Americans must report their interest in any foreign corporation, which creates more paperwork for businesses that moved offshore to achieve privacy.

As a result, there is a sort of “IRS discount” for Americans. I’ve personally seen companies taking on capital that refused to partner up with US persons out of fear of not being able to operate their business. Going forward, I believe more and more partnerships will exclude Americans for this reason.

That means the best business opportunities – the ones that don’t REALLY need capital – will close their doors to Americans the same ways banks have.

Additionally, the US government’s unique method of citizenship based taxation puts American employees at a disadvantage because foreign employers don’t want to have to deal with a labyrinth of tax treaties and reporting requirements to make sure their well-paid staff is compliant at home. It’s a lot easier to hire a European employee who has no liability for tax back home.

4. Growing capital controls

Online banking in other countries is quite impressive if you’re only used to dealing with US banks. In one click, I can transfer money between twelve different currencies, send wire transfers around the world at lightning speed, pay bills, and more.

That kind of versatility isn’t common in the United States, where banks typically only offer US dollar accounts and most banks severely limit transfers to other countries. Even Canada.

I have friends who have had their accounts shut down, or at least suspended, for sending relatively small sums to places like Hong Kong or Singapore from their US accounts. In all fairness, you can typically avoid that if you talk to your bank beforehand, because sending money overseas is allowed and is legal.

But banks are making it harder to do so. And that’s their right. But in effect, banks are imposing a non-government form of capital controls by making it harder and harder to move your money to another jurisdiction each year. The trend is definitely negative, which is why the time to move your money – be it for asset protection or simply to buy gold in Singapore – is now.

In addition, the US government is whetting its appetite at the sight of all of the private pension money it has yet to confiscate. Politicians like Barack Obama have seen Poland, Ireland, Hungary, and Cyprus get away with outright theft of private money and would love to do that themselves.

If you’ve ever watched a spy movie, you know that the first step to robbing or assaulting someone is to lock down the building they are in. Wall off the exists. Divert traffic through the one place you’ll be waiting for them.

The US government is following that same plan by limiting how Americans can do everything from move money around bank accounts to buy Bitcoin. They are imposing a series of de facto capital controls that give them plausible deniability but accomplish their end goal: make capital flight impossible, so that private wealth is well within their clutches.

Even the war on cash is a growing capital control, although this extends to much of the EU as well.

5. Limited knowledge of foreign opportunities

Go to London and you’ll see an entire industry of people promoting offshore, even if it is only in the Isle of Man and the Channel Islands. For decades, Brits have seen the wealthy and now even the upper middle class move their money to tax havens. Even the once-liberal Beatles moved part of their business to the Channel Islands years ago.

For as fascist as the UK is becoming, they still have a rather global view when it comes to places to invest and park their money. Not so in the United States. Turn on any TV show and you’ll hear “offshore account” used alongside “shady drug warlord”. Survey any suburban neighborhood and I’ll bet most would tell you going offshore denotes a lack of patriotism.

Even Mitt Romney was barraged with questions about why he would dare invest in projects overseas rather than pour his entire nine-figure fortune into US investments. Americans talk about diversification and spreading money across asset classes, but any suggestion of diversifying across jurisdictions is tantamount to treason.

 

Andrew Henderson

Andrew Henderson

Andrew has been internationalizing since 2008, and has learned what works and what doesn't work when it comes to reducing taxes, increasing personal freedom, and creating wealth. Click here to work with him personally.
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