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International
Privacy and Security
for Global Citizens
by Caroline Maxwell, May 2006
IMPORTANT
WARNING: The contents of this article have been compiled
in good faith by Investorsoffshore.com to provide assistance
to investors, but do not constitute investment advice
or recommendations. Investors should not rely upon the
information given in order to choose types or routes
of investment but should make their own independent
enquiries before making choices. Investorsoffshore.com
has taken reasonable care in researching and presenting
the information herein but makes no representations
as to its accuracy and accepts no liability for actions
taken or not taken as a result.
Privacy And Security For Expats
Privacy,
both financial and personal, is an issue of growing
concern for expatriates and globetrotters. Although
international mobility brings unique opportunities,
it can also sometimes bring unique problems, and in
this 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.
Second
Passports- Why You May Need One…
There are
a multitude of reasons why obtaining a second passport
may be a smart move. 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:
- Political
instability in your country makes obtaining visas
for travel difficult or impossible;
- Your
assets are at risk of litigation;
- The
tax burden in your 'home' country is unnecessarily
high;
- Your
present passport may put you at risk from hijackers
and terrorists while travelling;
- You
are subjected to punitive currency controls;
- Your
freedom to work, invest, and purchase property where
you choose is restricted by your current citizenship.
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.
Fake
Passports - Why You Don't Need One…
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 ( at the time of writing- Grenada, Dominica,
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. This is not
to say that it is not possible to obtain a second passport
from 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.
Electronic Gold
Gold as
a currency has been out of circulation for a while,
but it's back in the form of electronic gold, and its
supporters say that it is fast becoming the currency
of the internet. But why? What's wrong with using dollars,
euros, or any other hard currency to pay for your goods
and services online?
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). E-gold
is the longest established provider of electronic gold
accounts, and remains one of the largest at this time.
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, or Ice
Gold. 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. Here are just some of the reasons
why:
- Electronic
gold is one of the only truly international currencies.
As previously mentioned, the need for a borderless
currency has become more pressing with the rise of
globalisation, a more mobile world population, and
the advent and rapid development of e-commerce. Electronic
gold is accounted by the weight of the gold as opposed
to by any international currency unit, and weight
has an internationally recognised definition. However,
spends can usually be expressed in up to eight major
currencies, so you know how much you are paying. Another
advantage is that online gold as payment can be transferred
to any other account anywhere in the world.
- Payments
are instantaneous. Although the internet has the communications
capability to allow for real time settlements online,
this is rarely, if ever, the case. In short, this
is because liabilities fund bank assets, and the movement
of currency from one bank to another creates an imbalance
which needs to be funded. For example; if your bank
pays funds on your behalf to another bank, this outflow
leaves it without the liabilities needed to fund its
assets. It must borrow the currency it needs so that
its assets and liabilities are in balance once again.
For practical reasons, however good the telecommunications
links and electronic systems in place, banks cannot
realistically 'settle up' with each other more than
once a day.
- There
is no limitation (upper or lower) on the size of the
payments that can be made, although the charge per
spend does usually vary according to size.
As you
can see, then, all of these factors combined can 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.
Electronic
Gold - Offshore and Onshore
One of
the major pluses with online gold is that payment is
secure and private. Although there are several domestically
located electronic gold account providers, many of the
newer providers, brokers, and exchanges are choosing
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.
Electronic
Gold - Are There Any Disadvantages?
As previously
stated, the electronic gold economy is still in its
infancy, and as a result, the true extent of the advantages
and disadvantages in actual practice are not yet known.
However, due to the newness of the technology, it may
not be as easy as paying online with a credit card.
However,
this looks set to change over the next few years, so
in the meantime, you need to decide whether the added
flexibility and security offered by electronic gold
compensates for the head scratching you may encounter
in the early years.
Online Security- Sensible Measures…
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 the time of writing,
the state of the art was 128-bit encryption; 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 expressed concerns about their
use, and asked that legislation be enacted to force
programmers to create a 'back door', whereby encrypted
e-mail can be deciphered. These concerns have increased
in the wake of the September 11 terrorist attacks, and
the subsequent unsettled global political climate. The
legal status of this technology is therefore still unsettled.
Other potential
online worries 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), 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:
- Sounds
obvious, but never keep your password (whether for
your online bank account or your e-mail account) near
your computer or stored on your hard drive. And don't
make it easy to guess…
- Before
using any online service, check its privacy policy.
In response to pressure from consumers and government
agencies, the vast majority of commercial websites
now post their information collecting policies on
site.
- Assume
that your communications are not private unless you
are using powerful encryption software.
- Install
an anti-spyware program on your computer, and perform
regular checks.
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!
Banking
Secrecy And Asset Protection
From online
privacy to financial privacy, another topic that has
been at the forefront of many people's minds. As we
have discussed in previous special reports, banking
secrecy and asset protection is important both to domestic
and internationally mobile citizens for a number of
reasons, which could include:
- Protection
of your assets against frivolous litigation, particularly
if you work in a high-risk occupation such as consultancy,
the legal or medical profession, or if you are a landlord
or company director.
- Protection
of assets against punitive taxation levels in your
country of residence or domicile.
- Estate
tax planning purposes. Banks and professional international
organisations such as Sentinel
Bank And Trust can help you tailor an asset protection
plan to your personal needs.
The strongest
banking secrecy and financial privacy laws have traditionally
been found in offshore financial centres. However, initiatives
by the Organisation for Economic Co-operation and Development
(OECD), Financial Action Task Force (FATF), and European
Union (EU), under the auspices that offshore bank accounts
and vehicles have sometimes been used for the purposes
of tax evasion, money laundering, and the defrauding
of legitimate creditors, have meant that some offshore
jurisdictions have been obliged to make changes.
However,
for those expatriates merely looking to protect their
assets and preserve their financial privacy as far as
is legally possible, this may be an annoyance, and could
be seen (rightly) as an infringement of privacy, but
in actual fact, is 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.
The introduction,
in July 2005, of the European Savings Tax Directive
has also had implications for banking secrecy, although
many of the affected offshore jurisdictions have chosen
- at least initially - to put in place a withholding
tax rather than information exchange regime, which allows
for a little more financial privacy for EU residents.
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
Debit Card. With an offshore debit card, as with its
onshore equivalent, you may spend only the money which
is in your account.
- Secured
Offshore Credit Card. With a secured card, there are
actually two separate accounts established- one which
holds the security deposit which guarantees the card,
and the actual credit card account. The amount of
the required security deposit will vary from institution
to institution, and will also of course, depend on
your required credit line. This is by far and away
the most common type of offshore credit card.
- Unsecured
Offshore Credit Card. This type of card (in theory
at least) works in a similar way to its onshore counterpart.
You spend the money on credit, the credit card company
trusts you to pay it back. There are countless websites
and unscrupulous providers on the internet, purporting
to offshore unsecured offshore credit cards for a
relatively small amount. However, in reality, you
are unlikely to be offered an unsecured card by a
legitimate offshore institution unless you are an
old, valued, and wealthy customer. Although there
may be some legitimate opportunities for expats
to obtain unsecured cards legitimately and cheaply,
it is certainly true that the majority of such offers
are scams, designed to part you from between $150-$500
for a card which never arrives.
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).
Offshore
credit cards, in common with their onshore counterparts,
offer convenience of use.
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 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.
Increased
scrutiny of offshore credit card use by high tax country
residents (such as US taxpayers, as mentioned above)
should also be borne in mind as a factor- although holding
such a card is not illegal, nor is it run-of-the-mill,
and as such, may attract the attention of the tax authorities.
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.
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 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:
- Mail
reception. If you are unsure of your movements
at a given time, or would rather that your correspondence
address was in a prestige location, many companies
will either receive mail on your behalf and forward
it on to you, or will hold it in safekeeping until
you collect it personally.
- Remailing.
Useful if, for whatever reason, you would rather that
your actual location not be revealed. You address
and send your correspondence in a large envelope to
the operator of your mail-drop, who then stamps it
locally and mails it on individually to the intended
recipients.
- Telephone
and fax answering services.
There are plenty of mail-drop providers who offer
a telephone answering service and fax number as part
of their packages, and there are also services known
as 'unified messaging services' whereby incoming telephone
messages are forwarded to you via e-mail. Whether
you choose the high tech or low tech route, the advantages
remain the same- a reassuringly professional image
presented to clients and colleagues, privacy protection,
and a reliable way to receive your messages, wherever
you happen to be.
- E-mail
services. Many maildrop providers will also provide
you with an e-mail address in order to receive secure
electronic correspondence.
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.
Protecting Yourself
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. (Those with delusions
of grandeur should follow the 'Nobility Titles' link,
and check out the Rolls Royce Package- for the man (or
woman!) who has everything!)
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