Tag Archive: geographic diversification

Emergency Tactics and Geographic Diversification

Sometimes I’m asked about geographic diversification (specifically with gold) and how useful it really will be in an emergency where you live. This kind of topic is really hard to speculate on for a number of reasons. For instance:

1) What is the emergency going to be?
2) How will the emergency play out?
3) What kinds of legislation will be passed and laws enforced to deal with the emergency?
4) Does it only affect you specifically, or is it a blanket emergency that effects everyone?

We don’t know what we don’t know. So the defeatist will say something like: “You won’t be able to sneak your gold out of the country.” Next, will come the old stand-by: “Well they’ll just force you to bring your assets back.”

To the first I say if you already have an account overseas the money will be out of the country so no need for any sneaking. This is why you should setup geographic diversification now and not delay. To the second point I say they may force me to bring assets back, but at least I’ll be in control of that decision and not the politicians scrambling for other people’s hard-earned money.

Our book covers the idea of geographic diversification extensively and conservatively. I’ll go so far as to say it’s the best contemporary and up to date coverage on the topic you’re likely to find. And I say this because it contains information on obtaining geographic diversification easily, cheaply, and in a way that doesn’t rely on shady attorneys operating out of places you can’t find on a map.

Every investor should keep some assets outside of the country where they live. It’s not about tax-dodging, which will get your goose cooked eventually. It’s about having options to drag your feet during an emergency. By emergency, I mean something extraordinary happening where you live. It could a massive bank failure (Iceland 2008 or Cyprus 2013), it could be a currency problem (Argentina 2001 and today), or it could be a serious political emergency where a country is staring down a civil war (Ukraine 2014). There are a multitude of examples in human history where not having all your assets where you live was a really good idea. If you can drag your feet, even if the government knows about your overseas account, you have a serious tactical advantage. That advantage is your assets are not under immediate and total control by people who don’t have your best interests at heart.

Let’s just look at one example of what I mean by this: What to do in an emergency if a government is ordering repatriation of citizen’s assets to bail out banks or a currency problem? My advice: Stall. Yep, it’s that simple. Delay as long as possible. This is because currency and banking emergencies normally happen so fast that each day you delay means you avoid the falling axes. In more extreme situations that are a threat to your (or your family’s) safety, having assets overseas means if you need to leave you aren’t penniless.

And what, say the doubters, if the government is tossing people in prison when they don’t comply immediately with repatriating assets?

Well I’d say any country where that is happening is one you need to leave immediately. I don’t know of any country where that has happened outside of tyrannical dictatorships bent on genocide. Why would you want to bring your assets back to help fund their mission against you and your neighbors? We all know how that movie ends.

Our book explains:

Any government that is keeping its citizens from moving money out of the country (or requesting that it all be brought back) is sending a signal that prudent investors should not take lightly. Don’t be naïve about these requests and fall for patriotic calls to do your duty and lose everything over events you weren’t responsible for causing. History shows that decisions to control capital are frequently done to protect entrenched special interests and political leaders and not ordinary citizens.

Having money overseas means that the foreign jurisdictions can be used to tie up requests to repatriate assets in a mountain of legal and political red tape. This is good for citizens and bad for people looking to loot others’ wealth.

Any kind of delay in bringing money back into your home country will work to your advantage in a political or economic emergency. This is because such crises have a way of happening suddenly. Being able to delay repatriation of assets will often allow you to miss the worst of a domestic political or economic emergency.

If you are faced with an emergency situation involving your assets, hire an attorney where you reside and in the country where your assets are stored. Use them to assist with either preventing the repatriation of your assets or at least delaying the repatriation for as long as possible. The longer you can delay bringing back assets, the better your chances you have of not losing everything. Part of having assets outside the country is to give you options to deal with these kinds of emergencies that people keeping all their assets inside the borders won’t have. Take advantage of your options if they become necessary. Always remember that the time to make emergency plans is before the emergency arrives.

Now of course the above is the extreme side of things. Most of the time an emergency in a country will not involve Gulags. For instance in Iceland in 2008 they had a serious banking system crash, but nobody was shipped off to labor camps. All you needed to do as an Icelandic citizen was have some money outside your country that you could stall on bringing back while the markets figured things out. And who was hurt by doing this? The banks? Why is that a concern to an Iceland resident that some bankers and their political cronies weren’t able to plunder their savings? And the same can be said for residents of Argentina, Cyprus, etc. It’s not the responsibility of savers to bail out the irresponsible spenders and criminals. Don’t get guilted into believing it is.

So what geographic diversification gives you are time and options. You will have time to decide what is best for you and you will have options that you wouldn’t have if all your assets were located only where you live. I know some people don’t like to think about these things (I don’t), but geographic diversification costs so little for this peace of mind that I recommend all investors consider doing it with at least some of their assets.

When you think about geographic diversification, don’t think about every possible emergency that could happen. There is no way we could know those things. Instead, consider that geographic diversification gives you options to stall and make up your mind on your schedule, what to do. By removing the ability of politicians to decide what you do with 100% of your assets, you retain more control over your destiny and can protect your family and loved ones against whatever the future decides to throw at you.

Storing Gold in Canada and Overseas Gold Storage Realities

From time to time I get asked questions about storing gold in Canada for geographic diversification for persons living in the U.S. Sadly, this is not optimal. Optimally, I’d like to have assets for geographic diversification separated by a large body of water, like an ocean, from whatever country I happen to reside in. 

Now the above isn’t because I’m looking to make life more difficult. It’s just that it is almost as much hassle setting up an account in a neighboring country as it is in one that is thousands of miles away. So if you’re going to go through the hassle anyway, spend a little more time and do it right.

The main reason we don’t talk about Canada much for U.S. persons in the Permanent Portfolio Book is because Canada is too close to the U.S. As a result, they are heavily influenced by laws and demands of the U.S. The further away you have your assets, the less likely that jurisdiction is to jump up and salute unreasonable requests from the U.S. government.

Avoid Third-World Toilets

With the above said, I see a ton of bad advice on geographic diversification and asset storage (especially for gold). I would rather see someone put their assets in Canada than in a corrupt third-world toilet as commonly advocated by some off-shore “gurus” that inhabit the Internet.

My basic rule is this: Don’t put money in places where you can’t drink the water.

I also think that Transparency International’s Corruption Index provides a handy guide on where not to put your money. Basically, the more corrupt a country, the less you should put there in terms of investment capital:

Corruptions Perception Index

You should ignore any gold guru telling you to put assets in places like Panama, Caribbean, etc. as being totally clueless about the realities of investment risk. They also are likely getting a kickback from the people they are recommending. Run away from these advisors and anything they tell you to do.

Hold Overseas Assets Only in First-World Countries

Apart from putting the assets across an ocean from where you live, my advice also is to stick to first-world countries only. First-world countries are first-world countries because they respect private property rights. Third-world toilets largely don’t respect private property and decide to steal it (especially from foreigners) at random times. I don’t care how someone is selling the idea of using a third-world country for your assets, it’s bad advice and much riskier than what the investor is led to believe.

For a first-world country to go in and outright plunder assets is relatively rare if they still have a functioning and relatively corruption-free legal system and government. For example, in places like Australia we are talking about the Perth Mint in terms of overseas storage in the book. For the Australian government to order Perth Mint to turn over/sell foreign assets would violate core principles of Australian law and culture. Australians, despite the history of how they settled the place, are not thieves. It is very unlikely the Australian government would do such a thing. I didn’t say impossible, I said unlikely. And it is an order of magnitude less likely Australia would steal your assets over most countries in Latin America. 

The same I suspect is for countries like New Zealand, Switzerland, Singapore, etc. They aren’t going to go quietly into the night in terms of blanket repatriation orders from a foreign government. More important than even that small risk, they aren’t likely to steal from you randomly either by government decree.

Forced Repatriation Realities

I hear arguments from some scare-mongering investment advisors about how government X would happily repatriate assets if asked by the United States. Therefore, you should protect yourself with their wiz-bang extremely complicated, extremely expensive, and extremely risky third-world off-shore trust scheme. And they often try to sell the idea that dropping your money in a place like Panama is less risky than Zürich!

Now think about this for a moment. If you were operating one of these overseas banks/storage facilities in a place like Switzerland or Australia, would you allow a foreign government to come in and demand you turn over customer assets in a blanket order? Would you allow this if you also knew it would essentially put the entire business in jeopardy by destroying your reputation?

Further, if the foreign government were acting in a nasty way as you could see on the news (say something really tyrannical or outright civil war), would you bend over backwards to assist them? Would you screw your entire client base, risk non-affected clients pulling their funds out of fear, and  expose you to a pile of expensive lawsuits to help out a foreign government behaving badly? I don’t feel that generous myself. I’d probably tell them to go pound sand, and that’s what these businesses and governments are likely to do.

I think it’s important to remember that on the other side of companies and banks are people that can see what is going on in the news just as much as you can. If they see something very strange going on in the United States (or elsewhere) why would they want to cooperate?

Even Canada recently has dragged their feet by drafting legislation to undermine new U.S. requested FATCA reporting requirements on American citizens banking there:

Canada intended departure from FATCA

According to Roy Berg, Director, U.S. Tax Law at Calgary’s Moodys Gartner Tax Law, the Guidance Notes reveal that Finance and CRA “intended to drastically depart” from key definitions found in the IGA and FATCA, and that CRA’s interpretation of the draft legislation is “significantly different” from OECD guidance on the same subject.

“CRA appears to be playing cute with the IGA and FATCA,” Berg says.

Of course Canada, or any foreign jurisdiction, will be “playing cute” with a foreign country trying to tell them how to run their business. What do you think U.S. banks would be doing if China was dictating reporting requirements to them? And if Canada is pushing back just with this, imagine what other foreign countries will do if the U.S. government demanded that they send back funds from all U.S. persons that are their customers! Again, it ain’t gonna happen without a huge drawn out fight.

Dragging Your Feet

Lastly in terms of hyperinflation strategy, if there is a currency emergency realize that things move very quickly. It won’t be a gradual affair if hyperinflation were to happen. The markets react to currency problems immediately and severely.

For geographic diversification it may simply be enough to give you a 30 day reprieve as the currency or other financial emergency plays out. After that point a lot of damage could be avoided if you are eventually forced to repatriate assets. Or maybe you would have worked out another plan of action before then to protect yourself and your family.

The main thing is you don’t want to wake up some Monday morning and find that an executive order signed in the wee hours of the night has locked you (and all your friends and neighbors) out of your entire asset base (see Argentina’s corralito). By having some assets overseas you can have options to respond during this kind of emergency that other people around you will not. And often just having options available puts you well ahead in making it through a crisis.

Final Word on Canada for Geographic Diversification

Canada could be a fine option for some people in some situations. Those outside the U.S. I think should strongly consider Canada for overseas gold storage. It’s a stable country with strong private property protection, isn’t corrupt, and has no significant history of plundering assets. Even for U.S. persons it could be used if it’s all you can pull off given your situation. Just realize that something really bad happening in the U.S. is likely to spill over to Canada. It’s not that I think the Canadians are going to buckle, it’s just that we should be realistic about their situation and past actions in terms of complying with U.S. influence and demands.

Given the choice then for a U.S. based investor, put the money somewhere further away if you can. Oh, and make sure it’s not somewhere where razor ribbon fences around your house is chic.

Geographic Diversification and Reporting Overseas Gold

As part of the Permanent Portfolio, it’s recommended you store some assets outside the country where you live (preferably gold for a variety of reasons). This is primarily for protection against manmade or natural disasters that affect where you live or even political risk like war and civil unrest that could happen.

We cover this topic extensively in our book and give some really simple ways to put some gold overseas even if you can only afford a single gold coin at first.

A topic came up recently about the need to report these accounts and there is a ton of bad information on the Internet about it. Indeed, this may be more of it. But basically the reporting requirements for overseas assets for U.S. persons is very strict and the penalties for not doing it are severe.

In my non-CPA and non-Tax Attorney opinion I like to play it very safe. If the financial institution is accepting money and buying/selling gold for you and storing it directly then they qualify for reporting. That’s my opinion after researching this topic and talking to knowledgeable experts about it. So, report it. Tax courts are notorious for guilty until proven innocent. Do you want the hassle? I recommend you just file the required Treasury FBAR and IRS Form 8938 and not worry about it. Life is too short to have the IRS on your back.

You should talk to a CPA and/or lawyer if you have any questions unique to your personal situation. When dealing with the IRS it’s best to be conservative and not make yourself a test case. Being a test case is expensive and stressful.

Finally, we need to consider the reasons for the geographic diversification in the Permanent Portfolio. It’s for serious emergencies, not hiding assets. If you aren’t engaged in criminal activity like money laundering, terrorism funding, tax evasion, etc. the IRS is not going to care about your reported gold. If they are looking to blanket seize assets from everyone, you still have protection because they won’t be able to just go into all these accounts and ask for the money. There will be huge problems with foreign jurisdictions, seizure laws, etc. Plus, you can get your own attorney to gum up the works in any kind of unlawful action like that.

Now if they are just coming after you personally for whatever reason, that’s another problem entirely and in that case you’re still better of reporting the asset than not. Courts can hold you in contempt for not repatriating assets and put you in prison until you comply. If you didn’t report the assets, and they find them (and they will when they go through your records and see you wired money out of the country to Acme Bullion Vault, Inc.), then you have another problem.

Don’t outsmart yourself!