There are compelling investment, market, geopolitical and cultural themes driving the growing demand by individuals, families and their advisors for tax-compliant international banking, risk management, asset protection and diversification strategies. At the same time, developing and executing a comprehensive international strategy can often be challenging and unfamiliar for most.
First and foremost with respect to international banking, compliance is paramount for U.S. persons. When establishing an international bank account it is necessary to provide a tax identification number to the bank and report all taxable events with respect to the account. It also necessary to report the existence of the bank account to the U.S. Treasury Department. There is no room for error when it comes to compliance.
You might agree that the optimal way to manage risk is through diversification. Compliant international banking provides for the ability to diversify and manage risk on several fronts.
1. Geographic Diversification – Owning a portfolio of real estate with all the properties on the same street in the same town is perhaps less than prudent. The same can be said for your banking relationships all being based in one country.
2. Jurisdictional Diversification – The extraordinary explosion in civil litigation is creating growing unmanageable domestic risks to families and individuals. While some risks are obvious, others you may have never contemplated.
3. Asset Class Diversification – A strategy that aims to balance risk and reward by apportioning your assets according to your unique goals, risk tolerance and time horizon. Meeting your goals may not be entirely possible with all your assets held in the U.S. or one country.
4. Currency Diversification – Using more than one currency as a risk management tool. Exposure to more than one currency can entail less exchange rate risk than if all your assets were held in a in a single currency (e.g. U.S. Dollar). Currency diversification can preserve your long term purchasing power as the global economy continues to grow and change.
5. Institutional Diversification – Holding all of your assets in one financial institution lends itself to greater risk. Some of the largest financial institutions in the world have gone bankrupt in recent years (e.g. Bank of New England, Washington Mutual, IndyMac, Lehman Brothers and Bear Stearns). While others were forced to receive or required billions of dollars in government or tax payer money (e.g. J.P. Morgan Chase, Bank of America, Goldman Sachs, Morgan Stanley and AIG). Remember AIG was AAA rated the day before it was insolvent. At the end of the day you too may conclude that, “The Emperor Has No Clothes.”