Foreign banks, brokers, and trust companies are falling head over heels in their rush to get rid of as many U.S. clients as possible.
It's no surprise why, either. Federal laws like the Foreign Account Tax Compliance Act (FATCA) have literally made Americans financial outcasts worldwide. It's far easier for foreign firms to fire their U.S. clients than to try to comply with ever-increasing demands from the IRS and other three-letter agencies.
If you've ever wondered why laws like FATCA exist, the answer is more elusive than you might think. Contrary to what Obama and his friends at the IRS are telling you, it has nothing to do with collecting taxes. In fact, official government estimates for FATCA say it will bring in less than $800 million annually in new revenues. That's about two tenths of 1% of the $3.9 trillion budget for 2013.
The real answer is a case of "follow the money."
Wall Street and big U.S. banks don’t want overseas competition. This gives them a huge incentive to promote laws that restrict the investment choices available to Americans to "U.S. only."
In the case of FATCA, this just might backfire on the banks.
But there are numerous lesser-known examples that have been highly successful at eliminating foreign competition to the Wall Street, Big Bank financial elite.
A case in point is the Dodd-Frank Act. Wall Street was officially horrified by this law, which officially sought to end some of the practices that led to the financial collapse and big bailouts of leading U.S. investment firms in 2008-2009. But buried in the bowels of this 2,319-page law was a provision targeted squarely at "foreign investment managers."
Simply put, the new rule forced every foreign bank, brokerage, or financial advisor with 15 more U.S. clients to register with the Securities & Exchange Commission. This is an expensive and time-consuming exercise that involves oodles of red tape. One Swiss-based investment manager who went through the process told me he spent more than $100,000 in legal fees to do it – not to mention the hundreds of hours he and his staff spent filling out forms and talking to lawyers and SEC bureaucrats.
As we're now finding out, many foreign firms won’t bother, and as a result, our ability to use safer, more stable and potentially more lucrative options offshore is reduced.
In a sense, it's just another example of the government telling you what you can and cannot do. In this case, though, instead of directly coming out and saying it (which would make them look bad), they're making it nearly impossible to use the services of the people who would protect you from our inherently predatory system.
Now, granted, I can't prove that Wall Street teamed up with Congress to slip this new rule into the Dodd-Frank Act. But what I can say is that we're getting the raw end of the stick.
Americans have stuffed trillions of dollars into U.S. brokerage accounts. Most of them offer only U.S. securities. The only non-U.S. securities offered to their clients are those traded on U.S. exchanges: the generally less liquid (and thus less desirable) "American Depository Receipts," or even worse, so-called "Pink Sheet" listings. As a result, we're missing out on the best growth the world has to offer.
What's worse is that many of these firms have language in their customer agreements allowing them to use your money to help back their own high-risk investments. How’s that for a fair shake?
And we all know how well that can turn out: M.F. Global was the perfect textbook example.
This is the reason why it's so important to get some cash outside the U.S. financial system. With Wall Street – and specifically the Big Banks – in bed with Washington, I'll bet you a Benjamin that they aren't going out of their way to protect your interests.
They'll protect theirs. You should do the same.
Mark Nestmann
Nestmann.com
