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by the Investors Offshore Editorial Team, September 2011
23 September, 2011
Privacy And Security For Expats
If you are an expat living in any of the world's favourite destinations such as Malta, Cyprus, the Bahamas or Mauritius and you should ever — heaven forbid! — enter a bar, you'll quickly hear scuttlebut about people returning home to, as it may be, Canada, the UK or Moscow, dissatisfied with the exchange rate, the lack of rainfall or the medical facilities. Well, don't believe everything you hear: although the debt crisis in 2009 did have some impact and may have hurt some people who had overstretched themselves financially, survey after survey continues to show that most expats are happy where they are, and that more and more people are planning to make the move abroad. The most recent such survey, in August 2011, showed that up to 90% of expats are planning to stay just where they are — abroad!
But in a world in which privacy and security, whether personal or financial, are under ever greater threat, expatriates and globetrotters face major challenges in the 21st century. Although international mobility brings unique opportunities, it can also sometimes bring unique problems, and in this month's special feature we will be looking at services which can help you to protect your privacy both online and off, and measures that you can take to protect yourself against the multiplicity of threats to your security.
No more than fifteen years ago, it was still possible to have a numbered bank account, a clam-tight offshore trust, and multiple passports, making yourself and your financial dealings effectively invisible to tax authorities, creditors and vengeful ex-spouses. Although many people used such techniques to maintain their privacy in all innocence, it has to be admitted that many others were attempting - often successfully - to escape legitimate claims on their wealth.
How times have changed! First of all, in the early years of the century, in response to what they saw as a mountain of tax evasion, the world's larger high-tax countries, grouped together in the OECD and its counterpart the Financial Action Task Force (FATF), attacked the free-wheeling world of offshore for its lack of transparency and low tax rates. In parallel, the emergent threats of drug-dealing and terrorism were met with a battery of regulatory controls directed against 'money-laundering' and 'terrorist financing', both from individual countries (eg the Patriot Act in the USA) and from the multilaterals: the UN, the IMF, the EU, the OECD and the FATF among others. International associations of countries such as the Egmont Group have sprung up to police the cleaned-up world that is resulting.
At the end of 2008, in response to growing pressures on the tax-take during the current economic downturn, the OECD started another campaign against 'offshore', and in April, 2009, following a G20 London Summit which made stamping out unco-operative 'tax havens' a high priority, the OECD issued a further set of lists (white, grey and black) of offshore jurisdictions based on their open-ness to exchange of information, with the threat of international sanctions hanging in the air. Since then most of the remaining 'secrecy' destinations have rushed to enter Tax Information Exchange Agreements (TIEAs) with OECD countries, or to include equivalent wording in their tax treaties.
In January, 2010, the OECD held a triumphant media briefing to celebrate the fact that it had obtained 100% commitment from 'tax havens' and other types of jurisdiction to its standards on tax transparency and effective exchange of information. Since the April 2009 G20 London Summit, almost 300 tax agreements had been signed to meet OECD standards; all OECD and G20 countries were already committed to these standards. Of the more than 40 offshore financial centres identified as 'tax havens' in 2000 all but six now had one or more agreements which met the standards, and even those six were making progress towards the OECD's desired outcome. The OECD listed 63 jurisdictions that had 'substantially implemented the internationally agreed tax standard'. 23 jurisdictions had committed to the internationally agreed tax standard, but had not yet substantially implemented it, as follows: Andorra, Anguilla, Bahamas, Belize, Cook Islands, Dominica, Grenada, Liberia, Marshall Islands, Montserrat, Nauru, Niue, Panama, St Kitts and Nevis, St Lucia, St Vincent and the Grenadines, Vanuatu (all labeled 'tax havens'), Brunei, Costa Rica, Guatemala, Malaysia, Philippines and Uruguay (not so labeled).
By August 10, 2011, only Montserrat, Nauru and Niue, Guatemala and Uruguay remained on the OECD 'grey list' of jurisdictions which had committed to the internationally agreed tax standard, but had not yet substantially implemented it.
The internationally agreed tax standard, which was developed by the OECD in co-operation with non-OECD countries and which was endorsed by G20 Finance Ministers at their Berlin Meeting in 2004 and by the UN Committee of Experts on International Cooperation in Tax Matters at its October 2008 Meeting, requires exchange of information on request in all tax matters for the administration and enforcement of domestic tax law without regard to a domestic tax interest requirement or bank secrecy for tax purposes. It also provides for extensive safeguards to protect the confidentiality of the information exchanged.
In the US, with a Democratic president and a Democrat-dominated Congress, there has been a raft of offshore- and expat-unfriendly legislation. Foreign bank account reporting for US citizens was substantially expanded under proposals issued in October 2009 which became law as part of the HIRE Act in March, 2010.
The Foreign Account Tax Compliance Act, introduced into both chambers of Congress on October 27, blended proposals included in President Obama’s 2010 budget as well as Senator Carl Levin's 'Stop Tax Haven Abuse Act' and draft legislation published by Senate Finance Committee Max Baucus earlier in the year.
Under the new bill, foreign financial institutions, foreign trusts, and foreign corporations are forced into providing information about their US account holders, grantors, and owners.
The Foreign Account Tax Compliance rules:
The bill was introduced in the Senate by Baucus and Sen. John Kerry, and in the House of Representatives by Reps. Charles Rangel and Richard Neal. Rangel predicted that the bill would make banking secrecy "a thing of the past".
Although the privacy of individuals was not the overt target of all this activity, the reality is, at least at a financial level, that privacy has gone and will never come back, unless you are an out-and-out criminal prepared to conduct your whole existence outside the law. Numbered bank accounts have gone; banks everywhere now work under very strict rules requiring them to 'know their customers' and to monitor movement of any significant amount of money; similar rules apply to other types of business which handle cash such as estate agents and jewellers; TIEAs which allow for swapping of previously secret financial information in a wide range of circumstances are becoming the norm between countries (especially between high-tax and low-tax countries); courts in the USA and the UK have forced the banks and credit card companies to divulge the names of their offshore customers; and the EU's Savings Tax Directive has introduced a continent-wide system of income reporting.
Proposals from the EU to tighten up and extend the Savings Tax Directive were published in October, 2008, and there will no doubt eventually be a tighter regime for banking and savings instruments in Europe, 'tighter' meaning more transparent and less easily escaped. A meeting of the EU's Ecofin Council (the bloc's decision body for financial regulation) in January, 2010, failed to make any progress on revisions to the Savings Tax Directive, but bundled them up with two other initiatives, an anti-fraud agreement with Liechtenstein, and an extension of automatic exchange of information in cases of alleged tax fraud. The Commission's key proposals include a change in the definition of a Paying Agent to include foreign branches of banks who have headquarters within jurisdictions covered by the Directive, eg the Singapore branch of a UK bank, a change in the definition of beneficial owner to catch private companies if their ultimate owners are individuals resident in the EU, and the settlors of many types of discretionary trust if they are EU-resident, the inclusion of individuals who receive income through partnerships, and a broadening of the definition of interest (returns on savings) to include non-UCITS funds, unregulated funds, derivatives comprising or based on interest e.g. structured products, baskets, certificates and interest swaps. For its part, the European Parliament has piled Pelion on Ossa by significantly toughening up the Commission's already near-impossible demands, and most contentiously of all by including a 2014 termination date for those countries which still apply a withholding tax. In July 2011, the European Commission asked the Council for authorization to begin negotiating changes to savings tax agreements signed in 2004 by Switzerland, Liechtenstein, Monaco, Andorra and San Marino, but it is a certainty that countries such as Switzerland and Liechtenstein will resist many of these proposals to the death, and it will be many a long year before any change takes place to the Directive, except of course that the rate of withholding tax rose to a swingeing 35% in July 2011 under the existing rules for those few countries that still apply it.
It used to be that people could carry large amounts of cash when travelling, but that loophole is rapidly being plugged as well. A new European Union law obliging travellers to declare cash came into force in 2007. It was introduced to help combat money laundering, says the UK's HMRC. Since 15 June 2007, people who are either entering the EU from a non-EU country, or are travelling from an EU to a non-EU country and are carrying 10,000 Euros or more (or the equivalent in other currencies) are required to declare the cash at the place of their departure from, or arrival in, the EU. In the case of the UK, the rules are enforced by HMRC.
Forms on which to make the declaration are available at ports or airports and are downloadable from the HMRC internet site. Travellers face a penalty of up to GBP5,000 if they fail to comply with the obligation to declare, or provide incorrect or incomplete information. Dave Humphries, Head of Criminal and Enforcement Policy (HMRC) said: "The declaration system is one means of providing information to assist HMRC in targeting movements of criminal cash more effectively."
The EU cash declaration scheme derives from European Parliament and Council Regulation No. 1889/2005 and came into effect in all EU Member States on 15 June 2007. "Cash" not only means currency notes and coins but also bankers' drafts and cheques of any kind (including travellers' cheques).
The declaration form is produced with a carbon backed top copy so as to allow travellers to have a duplicate, which officers of HMRC may ask them to produce as evidence of having made a declaration. HMRC officers do not detain properly declared cash if they have no reason to doubt its legitimacy. However, cash may be seized under the Proceeds of Crime Act 2002 if an officer has reasonable grounds to suspect that it is either the proceeds of, or is intended for use in, unlawful conduct.
So what is left for an honest traveller who just doesn't like being snooped on and doesn't trust the police, the customs officials or the bank manager not to give or sell their personal details to a criminal? It doesn't even require evil intent on the part of a bent official or a jealous mistress: the newspapers are full of stories of bank computer records being found in dustbins or on the backseats of taxis or nuclear button codes left on restaurant tables. How can you protect yourself? After a disaffected member of staff stole customer records from a prominent Liechtenstein bank, the tax authorities in Germany, France, the UK and the USA have had a field day chasing down their errant citizens with illicit accounts in Liechtenstein. 'Receiving stolen goods', you will say, and indeed it was - but you can't put a country in prison! In August, 2010, Germany was ruminating on a new law making it legal for its government or those of its provinces to buy and make use of the steady trickle of CDs emanating from 'low-tax' destinations.
Although it is getting more and more difficult, in this feature we will look at some options that are still on the table for someone who still wants to preserve their privacy.
Banking Secrecy And Asset Protection
Although, as we have seen above, banking privacy has been severely dented, and the situation is getting worse all the time, there are still jurisdictions which are holding out against the massed tax inspectors of the Western World. Banking secrecy and asset protection remain worthwhile both to domestic and internationally mobile citizens for a number of reasons, which could include:
For those expatriates merely looking to protect their assets and preserve their financial privacy as far as is legally possible, the new kyc and reporting regimes are an annoyance, and can be seen as an infringement of privacy, but in actual fact, are not as much of an obstacle as has been previously suggested. It is important here to draw a distinction between 'tax evasion' and 'tax avoidance' in order to explain this. For the vast majority of the world's population, the action of moving assets offshore, or of setting up an offshore bank account, is not illegal. It becomes illegal, however, when assets which clearly belong to, or originate from, a resident in a high tax country are not declared for taxation purposes in their country of residence. Any assets over which you have control, whether domestically, or in an offshore jurisdiction, are usually liable for taxation.
However, utilising the different structures available in various offshore jurisdictions, it is often possible to establish a structure whereby at least a portion of your international assets and earnings are not taxable at the same punitive rate. However, proceed with caution…There are a great many structures on offer, both in high tax countries and offshore which have proven ineffective in sheltering income and assets against tax and other threats. It is therefore essential that before you establish any kind of offshore banking or asset protection arrangement, you take advice from a qualified and independent financial advisor with experience in international financial affairs.
Although as previously stated, some offshore jurisdictions have been obliged to amend their banking secrecy legislation in order to avoid recriminations from international agencies (mainly composed of Western industrialised high tax nations, unsurprisingly enough), changes (such as the widespread introduction of 'Know Your Customer' rules) have principally been made in the area of information exchange in the case of clearly proven money laundering or tax evasion activities, while the basic tenet of privacy and protection for legitimate clients has been maintained in the vast majority of cases.
Banking secrecy in Switzerland, still far and away the leading jurisdiction for wealth management, seemed seriously under threat in 2009 as a result of the UBS affair, but by now can be seen to have survived, bloodied but unbowed. In August, 2010, the IRS said that it may drop a lawsuit against UBS after the Swiss government announced on August 26 that it had concluded its examination of approximately 4,450 UBS clients accused of evading US taxes. The IRS announced in a statement that based on information received from the Swiss federal government, it anticipates being able to "withdraw the John Doe summons this fall." The US authorities had originally sought the names and details of 52,000 clients of the bank.
In a move to quash longstanding tax disputes between the German government and Swiss financial institutions, the governments of Germany and Switzerland on August 10, 2011, concluded negotiations on tax issues and initialled a framework for the future taxation of funds deposited in Switzerland by German residents.
Under the terms of the agreement, persons resident in Germany can retrospectively tax their existing banking relationships in Switzerland either by making a one-off tax payment or by disclosing their accounts. Future investment income and capital gains of German bank clients in Switzerland will be subject to a final withholding tax, and the proceeds of this will be transferred to the German authorities by Switzerland.
The text of the agreement the Swiss government said, “not only respects the protection of bank clients' privacy, but also ensures the implementation of legitimate tax claims. Both sides acknowledge that the agreed system will have a long-term impact that is equivalent to the automatic exchange of information in the area of capital income.” Future investment income and capital gains should be directly covered by a final withholding tax. The single tax rate has been set at 26.375%. This is in line with the current flat-rate withholding tax in Germany. The final withholding tax is a tax at source. After it has been paid, the tax obligation towards the country of domicile will generally have been fulfilled.
Hot on the heels of the deal between the German and Swiss authorities, the Swiss have initialed a landmark deal with the UK, which will permit the taxation of funds held by UK residents in Swiss bank accounts. It is expected that the agreement will enter into force from the beginning of 2013.
Like the German deal, once implemented, the agreement will permit UK residents to retrospectively pay tax on existing bank relationships in Switzerland, either by making a one-off tax payment or by making a full disclosure of their banking affairs to UK authorities. The anonymous lump sum payment will apply providing that the account in question was open on December 31, 2010 and remains open on May 31, 2013. Tax will be charged at a rate between 19% and 34%, dependent on the assets in question and determined by both the duration of the client-bank relationship and the initial and final amount of capital held in the account. According to the UK Treasury, this will settle all income tax, capital gains tax, inheritance tax and VAT liabilities related to the funds in question.
In addition, the agreement provides for a final withholding tax to be levied on any future investment income and capital gains of UK bank clients in Switzerland. A 48% tax will be charged on investment income, with 27% levied on capital gains. Once again, this payment will satisfy all UK liabilities on income and capital gains, and will not apply if the taxpayer offers HMRC a full disclosure. Crucially, the deal also permits the UK to submit information requests to Swiss authorities, with the aim of preventing the future deposit of undeclared funds. Any such requests must be made in the context of a safety mechanism, which will state the name of the client, but not necessarily that of the bank. A limited number of requests will be allowed each year (up to 500), and the Treasury says this agreement goes further than the information exchange provisions of the existing double tax treaty.
The Swiss themselves remain strongly attached to banking secrecy. In March, 2010, the Swiss Bankers Association published a survey that shows resounding opposition to Switzerland’s move towards increased transparency and information exchange with regard to bank account deposits. Survey respondents were strongly in favour of maintaining the protection of their privacy in financial matters (89%) and retaining bank-client confidentiality (73%). Moreover, a good 70% object to the automatic exchange of information with foreign tax authorities.
Respect for financial privacy among the Swiss population remains very strong, despite or perhaps because of the ongoing debate about bank-client confidentiality. 89% believe that bank clients' financial details must be protected from third parties. Bank-client confidentiality also continues to receive strong support: 73% (2009: 78%) think that bank-client confidentiality should be maintained. 70% believe that Switzerland should not give in any further to European pressure on bank-client confidentiality and oppose an automatic exchange of information with foreign tax authorities. It should be noted that the government's efforts to defend bank-client confidentiality were rated significantly lower than the previous year (40% believe that the government does not make enough effort, while 11% think that the government makes too much effort). As a result, there are serious doubts about whether bank-client confidentiality will still take the same form in five years' time.
Second Passports - Why You Need One…
There are a multitude of reasons why obtaining a second passport may be the best move that you ever make. When talking about passports, what you are essentially discussing is citizenship and this is something which should ideally be discussed with internationally qualified consultants, such as Henley & Partners for example. Many people live quite happily their whole lives as citizens of the country in which they were born. Others build up 'passport portfolios' which allow them to travel, invest, and minimise taxes to their best advantage. Which lifestyle you choose is up to you. However, if any or all (you poor thing!) of the following apply, you might want to consider obtaining a second citizenship as a very real possibility:
As you can see from the above list, not only could a second passport prove useful in terms of making your life easier and protecting your assets, but if you come from a high-risk country, it could even save your life. But how do you go about getting one?
There are several legitimate ways of obtaining a second passport (and some not quite so legitimate, about which more later). Front door programmes, sometimes also known as 'white glove' programmes, offer immigration and second citizenship through recognised and established channels and legislation which can be checked and verified. The advantages of obtaining a passport in this way are that you can be sure you will receive the genuine article (and with it all the benefits of citizenship in the country). However, the process can be long-winded, bureaucratic and expensive, and some of the 'white glove' countries may not permit you to retain dual citizenship.
The second possibility for those interested in a slightly more flexible way of obtaining a second passport is the discretionary route. Several countries have recognised and established programmes whereby those who invest a set amount in the local economy become eligible for economic citizenship, other factors notwithstanding. However, this is an area in which you must proceed with extreme caution, as although some of the programmes to be found on the internet and via other mediums are 100% genuine, the legitimacy of others is not assured.
If you are caught travelling, trying to open a bank account, or something similarly naughty, with a fake, stolen, or 'under the table' passport, you are likely to find yourself in a great deal of trouble, whether you were aware of the fact or not.
As previously stated there are a great many fraudulent 'instant citizenship' schemes available, which are neither legal, nor official, and are worth less than the paper that they are printed on.
Surprisingly few countries (the Commonwealth of Dominica and St Kitts and Nevis, Belize until 2003, and Ireland until 1996) actually have a clearly defined statutory economic citizenship programme currently in operation that issues second passports to qualifying investors. Austria also issues passports in return for substantial investment, but this is not a statutory programme as such. This is not to say that it is not possible to obtain a second passport in countries other than those mentioned, but except in exceptional circumstances, you will be forced to go down the longer-winded, front door route.
So before you part with any money, or become otherwise involved in a second passport scheme, you need to make sure that the government of the country to which you are applying to become a citizen knows and approves of it, and is prepared to offer all the benefits of citizenship to participants in the scheme. Otherwise, it may just end up as a costly and possibly legally damaging waste of time.
There are two problems about having money: you have to keep it somewhere, and you have to move it in order to spend or invest it. Once upon a time, you could keep it securely and privately in a bank; and you could move it by putting it in a suitcase and getting on a plane. As we have seen, the physical transport of cash is rapidly becoming a no-go area, in addition to the security risk; and the banks can no longer be trusted to keep your affairs private. In addition, banks are extremely bad and horrendously slow and expensive at making international money transfers. Why this should be in an electronic age is one of nature's mysteries (surely it can't be that the lovely, cuddly banks are just trying to hang onto your money for as long as possible?)
At least in theory, and at least for a while (until 'they' catch up with technology), electronic movement of money can bypass the current regulatory apparatus, and if combined with storage of cash in fungible form (dollar bills, bearer shares, bonds or certificates, precious metals, diamonds etc) can maintain your privacy. Of course, you have to trust the organization that is holding your assets, not only to remain solvent and not to steal your money, but to avoid being swept up by the authorities into the surveillance net. The problem is that any organization big enough to be publicly trustworthy is big enough to be noticed, or even bought by a bigger organization which is already in the network. This is what happened to PayPal, previously under the radar, when it was bought by E-Bay. An additional problem is that your incoming money probably comes from a known-about source (unless you are a drug dealer, and this article is not for you) so that there is little point in taking elaborate precautions to veil your future use of money that is already somehow 'in the system'.
Sadly, therefore, the best advice by now is to give in, pay your taxes and resign yourself to being known about. Still, for those who get some grim satisfaction out of hoodwinking the authorities (strictly legally, and just for fun, of course), electronic money transfer holds out some remaining hope of being able to make transactions that are not within the network operated by banks and other financial organizations that are subject to the existing regulatory and reporting network. The unofficial 'hawala' international money transferring network fell within this definition for a time, but has now been 'noticed' and hawala operators are rapidly being caught up in the regulatory embrace.
E-money comes in two flavours, identified e-money and anonymous e-money. Identified e-money carries information about its source, while anonymous e-money is just that. Whether identified or not, e-money is known either as 'on-line' or 'off-line'. Online e-money involves using a bank or other intermediary in order to conduct a transaction with a third party. Offline e-money can be used without an intermediary, eg through the use of a card with an embedded chip (although someone has to put the money in the chip in the first place).
The Holy Grail of e-money would be a secure system in which financial transactions took place between parties who were known to each other, with no chance of deception or of interception by an outside party. (See below for a discussion of secure identity on the Internet.) Thus, I would take money electronically from my store of it, wherever that was, and forward it to you. Despite the seeming simplicity of such a system, the security difficulties (and no doubt the vested interests of the banks) have prevented it from happening so far. While we wait for a secure solution, electronic gold offers an interesting alternative.
Electronic gold is essentially an electronic currency backed by gold bullion, and because payments are backed by a physical commodity, the degree of financial risk involved in holding it is greatly decreased. The payment system allows account holders to send specified weights of gold to other account holders, although in actual fact only the ownership changes - the gold in the treasury vault stays put. (As a matter of interest, there are other metals issued electronically; silver, platinum, and palladium. However, according to brokers, the original product, gold, remains by far and away the most popular choice).
In order to acquire e-gold with which to open your account, you will need to engage the services of a 'cambio' or exchange, such as Gold Now. These provide the service of exchanging national currencies for electronic gold, silver or platinum. The range of national currencies accepted by the exchange varies according to its location, so it is worth shopping around if your requirements extend beyond the normally accepted hard currencies. Each cambio sets its own fee structure, so research also needs to be done here.
Although the online gold market is small at the moment, the increase of globalisation has led to the need for an effectively borderless currency, and the number of expatriates and international businesses using the electronic currency is steadily increasing, with a growing number of businesses accepting it as a valid payment form. Here are just some of the reasons why:
As you can see, then, all of these factors combined make e-gold an attractive proposition for expats. However, a factor which is often overlooked in the discussion of the risk free nature of e-gold is that although it is always backed by a physical commodity, and is therefore free from the financial risk factors inherent in national currencies since the abandonment of the 'gold standard', it is not free from exchange rate risk. As with any currency, electronic or otherwise, the value of e-gold relative to other currencies can (and does) rise and fall. The overwhelming majority of websites dealing with the issue of e-gold (for example service providers, exchanges, brokers, and directories) provide up to date exchange rate information so that you can monitor this.
One of the major pluses with online gold is that payment is secure and private. Electronic gold account providers, brokers and exchanges have mostly chosen to locate themselves in offshore jurisdictions in order to afford their customers greater financial privacy. This factor, combined with the newness of the technology, has led to concerns that e-gold could be used for purposes such as money laundering and tax evasion. However, at both ends of the process, e-gold brokers and the custodians of the bullion have tried to ensure that this is not possible. Gold money is simply a payment system for bullion already within the system, which comes from banks and bullion houses already regulated in terms of 'Know Your Customer' and anti-money laundering requirements, which ensures that any gold which comes into the system is by definition 'clean'.
At the other end of the process, the vast majority of e-gold brokers will require basic information such as name, address, telephone number, e-mail address, etc. Given the inherent nature of the internet, strong security and privacy, and sometimes 'pseudonymity' are possible, but total anonymity is not, as transactions will almost always be recorded, keeping an audit trail which could be retrieved if evidence of criminal activity was presented.
Considered simply as a store of value, and a means of making payments, an e-gold provider is not different from a bank. The difference however stems from the fact that this is a relatively new, and so far fairly small financial sector, so that it has not attracted the regulators' attention in the way that mainstream financial institutions have.
The relative smallness of the e-gold sector also means that any given counter-party is not likely to be on the e-gold network. The industry therefore has a critical mass problem, and has not so far been able to solve it. If you want to have transactions with a limited number of counter-parties, and you can persuade them to open e-gold accounts, then it could be a worthwhile solution for you.
Online Security - Sensible Measures…
The whole subject of safe electronic communication is one of course of particular interest and importance for expats and other frequent international travellers, who are by definition separated from their families, colleagues and friends for long periods at a time.
As virus attacks and the resultant panic when computer users realised that personal documents were being attached to infected e-mails demonstrated, security and privacy are issues of growing concern in the 21st century, with a particular focus on online security. Many people assume that their online activities and personal information will be safe while they are surfing the web or sending e-mail. However, sadly, this is not the case.
Sending e-mails, for example, is a hotbed of risks and unwanted intrusions for the privacy minded surfer. All electronic messages are sent through a system of routers and servers, are logged at various points along this path, and may even be stored on back-up systems. It is these storage points that are the weak links in the chain, as it is here that personal messages, business transactions, and credit card details can potentially be retrieved by someone other than the intended recipient.
One possible way around this is encryption, using a service such as Hushmail, which is a method of scrambling an e-mail message so that it is incomprehensible to anyone without the key to unlock the code. It uses mathematical formulae and the computing power available on your computer desktop to scramble or code information. At present, the state of the art is 128-bit encryption, which has been judged by experts as likely to remain unbreakable for the foreseeable future.
Having said that, however, 64 bit encryption, which was used until just a few years ago for important international transactions is now judged as vulnerable to the focussed efforts of organised crime and unscrupulous hackers. So these things move on. (As does the US government, which has recently moved on to even higher levels of encryption for high security traffic). However, for individuals — assuming here that you are not a secret agent — various encryption programmes which are strong by today's standards are available on the internet, and there are several designated providers of encrypted e-mail services.
However, because encryption services prevent unauthorised access to e-mail correspondence law enforcement agencies, particularly in the United States have expressed concerns about their use, and have asked that legislation be enacted to force programmers to create a 'back door', whereby encrypted e-mail can be deciphered. The legal status of this technology is still unsettled.
Other online concerns include the widespread use of 'cookies' which are deposited by many websites on your hard drive, and store information about your visit so that when you return to the site, the cookie data will reveal that you've been there before. These can also collect records of your browsing patterns, indicating your interests, which may create the potential for junk e-mail, or other unwanted marketing intrusions. Alarmingly, some web browsers are also programmed to transmit the user's e-mail address to each site visited. So what can you do to protect your privacy online?
Although there are obviously no guarantees, it may well be worth investigating in encryption software such as Pretty Good Privacy (PGP, now part of Symantec), or encrypted e-mail services if you are concerned about the security of your e-mail communications. There is also software available for download or purchase on the internet that can reduce your vulnerability to prying eyes. However, here are a few tips that could help you protect your privacy online in the interim:
Longer term, the solution to maintaining privacy on the Internet and the integrity of your identity is, perversely, to be more open, but only to a selected group of your friends, family or colleagues. The early signs of this trend can be seen in 'white lists' and 'private' social networking sites on which the technology used in virtual internet communities is applied to only a small, protected group of like-minded individuals. Communication therefore becomes deeper and safer at the same time.
Online Security - Just Plain Loopy…
There are a number of sensible precautionary measures, such as those mentioned in the last section, which are justified and justifiable in the name of protecting your personal and financial privacy online.
However, a level of paranoia unseen outside of the secret services sometimes pervades online security websites, and there are a number of tools on offer which are just plain scary. These include software programmes which encrypt your history files, and browser 'washers', which delete history files, cookies, and cached temporary internet files, and overwrite deleted files until they are unrecoverable, as well as a multitude of other unsavoury tools. Probably best left alone unless you are a) conducting industrial or international espionage, b) terminally paranoid!
Offshore Credit Cards
Offshore credit cards can be obtained either as an additional service when you open an offshore bank account, as part of an offshore incorporation package, or as a standalone service, depending on your needs and circumstances. There are traditionally three different types of offshore card:
Offshore credit and debit cards can offer added financial privacy and security for an expat or international traveller, and can be obtained from numerous organisations, such as The Sovereign Group. In some cases the identification requirements to open an account are less stringent (although this varies between providers, and even between products, so shop around). It is sometimes possible to obtain a numbered card (which will leave your financial actions less open to prying eyes), or to open an account via an offshore company, or even as part of the offshore incorporation procedure.
Offshore credit cards, in common with their onshore counterparts, offer convenience of use, as they are widely accepted, and you can often access any funds kept offshore via an international network of ATM machines. Although you will rarely (if ever) obtain vastly inflated returns on money held in an offshore credit card account, you can sometimes find providers who offer interest rates slightly above the onshore level.
However, obtaining an offshore bank account and/or credit card does not mean that you can get away with evading taxes, as a number of US citizens found to their cost in 2002 when the IRS obtained permission to request American Express and MasterCard to hand over transaction details from the offshore bank accounts of US citizens whom they suspected of practising tax evasion. Funds held or controlled by a resident in a high tax country will usually be liable for taxation there.
Are There Any Disadvantages?
Not disadvantages, more factors to bear in mind if you decide that an offshore credit card is for you. Offshore credit cards, like so many offshore services, can be slightly more expensive to obtain and use than their onshore equivalents, due to the more labour intensive (on the part of the issuing institution) and protective nature of the service. Therefore, if you are in one location for any length of time, for example for work purposes, it may be worthwhile opening a domestic bank account or obtaining an onshore credit card for day to day expenses and remittances.
Another important point to remember is that although in the interests of financial privacy it is desirable to give as few personal details as possible, this lays you open to the danger that if lost, someone else could use your card. This is especially the case with numbered offshore credit cards, so if you decide that this is the way to go, keep a tight hold on your wallet if you don't want someone else to go on a spending spree at your expense!
Virtual Offices And Mail-drops
If you are self-employed, travel a lot for work purposes, and/or are concerned about your personal and financial privacy, then a virtual office or maildrop service, such as those listed athttp://www.buildfreedom.com/portal/category.php/34 may prove very useful to you. Some clients prefer to deal with an organisation or company with a professional presence, and although virtual offices and maildrop services do not often provide you with a physical presence, they can sometimes act as reassurance.
There are many service providers in this area, and they usually offer one or a combination of the services detailed below:
Prices for these services vary according to the provider and location of the mail-drop service, so as with the majority of privacy protection services mentioned in this article, it is best to shop around. Although details of the basic service are usually available on the website of the provider, the majority of companies pride themselves on being very client-orientated, so if you have any special circumstances or needs, it is always worth asking if these can be taken into account.
Disadvantages and Inappropriate Uses For Mail-drops
Maildrop and virtual offices services are an invaluable tool for protecting your financial and personal privacy, presenting a professional and efficient face to clients, and ensuring that your mail and messages are passed on to you regularly, no matter where you happen to be in the world. .
However, due to the nature of the services offered, there are those who have tried to use maildrops for inappropriate purposes such as tax evasion, fraudulent business schemes, and defrauding legitimate creditors. Reputable providers never allow the service to be abused in this way, and although it is possible to use a name other than your own for the maildrop, they will obviously need a contact address or telephone number in order to pass on your messages, which could constitute a paper trail in the event of proven criminal activity or wrong-doing.
As you can see by now, there are a wide variety of privacy protection services available for expatriates, globe trotters, international professionals and privacy minded domestic citizens, and the rise of the internet has greatly facilitated the provision of these kinds of services.
However, in the area of online and financial security, as with everything else, there are plenty of scams and disreputable schemes lying in wait to trap the unwary privacy seeking expat. Although it is desirable and necessary to protect yourself and your financial transactions from unwanted intrusions, don't allow this desire to cloud your judgement, leading you into doing business with unsatisfactory or fraudulent enterprises, or establishing offshore vehicles without first checking their legal status in your country of residence. You should always perform due diligence on any organisation which will be handling your affairs, or to which you intend to hand over money, and if at all possible, obtain professional advice before making a decision.
Other Interesting Privacy Related Links:
www.sovereignsociety.com - Extensive and useful privacy related links section
www.ptclub.com - Links of interest to expats and PTs, and some non-privacy related but still interesting ideas.
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