The real lesson behind the USA’s offshore tax crackdown

I’ve recently been talking with some of the top experts on FATCA, the USA’s far-reaching new law that effectively makes every foreign financial institution an unpaid tax collector for the American government.  In fact, I’ll be interviewing one on my radio show early next year.

You’ve no doubt heard stories of banks around the world slamming the door in the face of US citizens looking to open accounts with them, or closing accounts of current account holders, ahead of a deadline that will subject them to unheard-of penalties for failure to not report even so much as one US citizen’s financial data.

Of course, to the masses of Americans who rarely leave home let alone travel outside the country, the plan sounds completely reasonable.  Why should rich fat cats be able to stash their dough out of the reach of their home country’s tax authorities?  Who needs a bank account in Singapore or Switzerland or Panama after all?

Of course, it rarely occurs to those without international credentials that you just might need one of those accounts if you live in Singapore or Switzerland or Panama.  Or built or inherited a business there.  Or had family there.

That you might not be a furtive robber baron carrying bulletproof suitcases (I really need to get myself one of those) with millions inside completely escapes them.

That brings me to the real lesson to be learned from FATCA: culture is everything.  In the minds of those who take aim at our Nomad Capitalist mentality of going where our capital and talents are treated best, it must be all about the money.

After all, why start a business in Singapore when you owe your appreciation, and your money, to the United States or France or the United Kingdom for the privilege of being born there?

We know that greed isn’t really the main reason at play here, because if it was, we’d all move to Russia and avail ourselves of a low 13% flat tax rate.  Other than the fact that I’ve always wanted to live in a country that called itself a “Federation”, I know almost no international entrepreneur has designs on moving there.

Nevertheless, projecting an archetype of greed onto those who want to expatriate sounds good, and because humans are emotional creatures, most don’t give it a second thought.  Score one for the politicians.

The problem with FATCA isn’t just that the US wants to snoop on your every dollar.  It’s not even that they’ll likely use that snooping to enforce new and more rigorous capital controls to force you and your money to stay put.

The problem is that the US, cheer on by a large swath of its citizenry, figure they can do whatever they want to you and to any other sovereign nation as if the world is their sandbox.  To them, there is one group of countries that makes the decisions and the rest that live with them.

They don’t think they have to be competitive, and when people start to gripe, they’ll just tighten the noose.

And the US has a habit of exporting more than just Hollywood movies and fashion styles; other countries who don’t want to be competitive now have proof of concept to develop their own draconian schemes.  The UK, for instance, is working to implement its own version of FATCA.

Try going to a US embassy overseas and getting in.  I showed up for an appointment at the Embassy in Dublin several years ago only to be shouted at and demeaned by the bureaucrat behind the glass; when I flashed a passport, I begrudgingly was let it.

Ever bought a train ticket in China?

Arrogant government workers will shoo you away, and, if their computers freeze while you’re next after an hour on line, tough luck.  But go to a post office in Hong Kong or the immigration office in Dublin and you’ll be greeted with a smile and efficient service.

In Macau, a postal worker offered to walk me to my next destination as he was leaving on a lunch break.  Ireland, my favorite (and perhaps the most beautiful) European country with great quality of life, has steadfastly stood by its low 12.5% tax rate, refusing to cave into the avarice of fellow EU states who wanted it scrapped as part of a bailout.

How dare Ireland make its own laws and try to attract foreign talent?

There are plenty of countries, mostly smaller or recently-developed and, out of necessity, more nimble, operations that know and respect the people who keep their ship afloat. They know where their bread is buttered and know how they go there.  They know they shouldn’t take you for granted.

If you’re upset about the United States’ latest arrogant attempt to make every other country on earth their bitch, consider why they feel they can do that to sovereign nations and what it means for you.

The US, for example, took it upon themselves to lead the charge in the late 1990s and early 2000s to bring a forcible end to almost every citizenship by investment program, usually run by impoverished Caribbean nations who needed the cash to, among other things, feed their people; in an effort to prevent free human and capital movement.

The writing has been on the wall.

Nomad Capitalists never put their full trust in any government because they know how government inherently works.  Study your options thoroughly; you know going global means more than just the lowest tax rate.  It’s about culture, quality of life, and respect.  Find a place to knows it has to work to earn your money.