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Offshore Accounts Have Plenty of Legal Uses

By Paul Hechinger April 14, 2014

The popular perception that foreign bank accounts are synonymous with tax evasion got reinforced recently, when Credit Suisse said it would set aside roughly $500 million in case it had to settle Department of Justice charges that it helped U.S. clients conceal assets. But there’s nothing illegal about keeping money abroad, as long as it’s properly reported. There are many reasons clients at all wealth levels might want foreign accounts, and financial advisors can help them in a variety of ways.

Ultra-high-net-worth clients are most likely to be interested in investing via foreign agents. The main reason, says Jochen Vogler, director of Zurich-based and SEC-registered wealth-management firm Bellecapital International, is that they can get more diversification from local advisors with “boots on the ground” in other countries. Even though advisors all over the world look at the same information, Vogler says, “most U.S. advisors, banks and asset managers have an overwhelming focus on dollar-based assets. If they invest outside the U.S., most often it’s in some form of a financial product rather than direct equities or bonds.”

Bellecapital, which manages assets totaling $3.1 billion, handles some $509 million from U.S. clients. They generally have investable assets of $8 million to $10 million, and they look for a foreign-based advisor who can offer them diversification in geography, currency and investment style, Vogler says.

He adds that if investors think they can escape taxes by putting money in Swiss banks, they should forget it. Over the past decade, and especially since 2008, when U.S. authorities investigated UBS for allegedly aiding tax evasion, Swiss and other European banks have become increasingly selective about the U.S. clients they’ll serve. When an individual investor tells Vogler he wants to open a Swiss account to avoid taxes, he is firm: “With that beginning question, he’s already disqualified himself as a client.”

Clients need not be super-rich to seek foreign bank accounts. Doctors and other professionals might want to put assets outside the U.S. to protect them in the event of a malpractice suit, for example. And it’s harder for potential creditors to seize assets held in a foreign trust. But “potential” is key here, says New York-based trust-and-estate attorney Gideon Rothschild. Clients can’t set up an offshore account once creditors or plaintiffs are already after them. “That’s too late,” says Rothschild. “This all has to be done in advance, so it’s not a fraudulent transfer.”

Private-placement life insurance — a type of variable universal policy — is another instrument high-net-worth clients sometimes prefer to buy abroad. Foreign insurance companies tend to offer a wider array of investment options than domestic carriers, says Rothschild. Some experts say offshore policies also carry lower fees and commissions because providers spend less on marketing than their U.S. counterparts.

Clients who have property, businesses or relatives in other countries may also need foreign accounts, as may those who intend to move abroad themselves. For example, advisor Raoul Rodriguez-Walters of Rodriguez and Shah in Portland, Ore., serves mostly Americans living or preparing to retire in Mexico. He helps them open a Mexican bank account, making sure they understand the relevant IRS reporting requirements. He also assists expatriates starting a business in Mexico — usually a sole proprietorship like a restaurant or bed-and-breakfast.

Anthony Ogorek

But he counsels advisors whose clients keep assets in more than one country to seek help from cross-border specialists. He says American discount brokers won’t open accounts for his clients because the funds they sell aren’t registered in Mexico. “The U.S. institutions don’t want these customers because they’ve moved abroad and they have a foreign address,” says Rodriguez-Walters, who manages $17 million in assets. “So it’s become a challenge.”

Still, some clients just seem to get a kick out of putting money offshore. “They’ll put $10,000 in an account, and it gives them some vicarious thrill that I don’t understand but they seem to be entertained by,” says Anthony Ogorek of Ogorek Wealth Management in Williamsville, N.Y. His firm, which has about $300 million in AUM, is just 20 minutes away from the Canadian border. Occasionally clients will open a bank account in Canada — not a lot of trouble, according to Ogorek — and think of it as a currency play. In terms of their overall financial plan, though, the offshore assets don’t play much of a role. “It’s sort of like Lotto money,” Ogorek says.