In Part I and Part II of this post, I described some of the powers the U.S. President has if he declares an “economic emergency.” I also described one scenario that could lead to foreign exchange controls or even outright confiscation of wealth: a death spiral in the value of the U.S. dollar.
If you have property that you believe may be at risk for some future expansion of emergency or wartime controls, you still may legally take action to protect it. Here are some ideas:
- Transfer funds outside the United States and outside the U.S. dollar. It is still possible to legally transfer funds from the United States, but it may not be if the U.S. imposes foreign exchange controls. This could occur in the event of another terrorist attack on the United States, or if the U.S. dollar falls sharply due to a terrorist incident or financial panic. That possibility may seem remote at the moment, because the U.S. dollar has appreciated sharply in the last few weeks in response to the global economic crisis. But this gives U.S. investors a rare opportunity to invest offshore and convert their dollars to foreign currencies, or to gold, at the most attractive exchange rates in more than a year.
- Use offshore structures to hold non-U.S. investments. This strategy may not only provide protection against domestic judgments, but may also provide a legal means to avoid future foreign exchange controls.
- Hold investments that are not subject to U.S. jurisdiction. The most vulnerable investments are those located within the United States. But as this report documents, foreign investments may also be vulnerable, particularly those denominated in U.S. dollars. The least vulnerable foreign investments are foreign real estate and gold, silver or collectibles held outside the United States. Certain contractual relationships, such as insurance contracts and trusts, may also be configured to avoid U.S. jurisdiction.
- Avoid electronic transactions in U.S. dollars through U.S. clearing networks. Most electronic transfers of U.S. dollars clear through a U.S. clearing bank and ultimately the Federal Reserve. U.S. courts have ruled that funds involved in such transactions are subject to U.S. jurisdiction and thus to possible confiscation. A growing number of countries have set up dollar clearing facilities to clear their own domestic U.S. dollar electronic transactions. Such foreign clearing networks are at far less risk from the U.S. legal system than U.S. clearing networks.
- If you’re a foreign investor with U.S. interests, assess your risk to U.S. emergency or war controls. Investors from any country accused of "sympathizing with" or "harboring" terrorists are at particular risk. So are investors in countries or financial institutions through which terrorists have been accused of operating bank and trust accounts.
- Consider taking up residence in a lower profile jurisdictions. Many countries welcome affluent retirees or other financially self-sufficient persons.
The prospect of emergency financial controls may appear to be remote. But they’ve been imposed many times in U.S. history. And, as this financial crisis, they may be imposed once again.
Copyright © 2008 by Mark Nestmann
(An earlier version of this post was published by The Sovereign Society.)
