Second Passports

Lies, Damned Lies, and Statistics… at FreedomFest

Every year, I spend four days in the Nevada desert at the annual FreedomFest event. In case you've never been, it's a celebration of "great books, great ideas, and great thinkers," and an opportunity to meet new friends of like mind.

FreedomFest offers literally something for everyone (with as many as seven presentations occurring all at the same time). So, to get the best value, you need to pick the ones that will best fit what you're looking for. For me, of course, that's offshore planning. And what I discovered could really be best summed up as, to borrow a quote attributed to Victorian-era British Prime Minister Benjamin Disraeli, as: "lies, damned lies, and statistics."

Let's Start with the "Lies"

Or, perhaps to be somewhat fair to the speaker, a 90% lie with a grain of truth. After spending several minutes of his presentation criticizing Switzerland, he attacked Swiss bankers, saying they were lining up to turn in their clients to the IRS in exchange for big commissions.

Now, there's an element of truth in that statement. In 2012, former UBS employee and convicted felon Bradley Birkenfeld did receive a whopping $104 million informant commission from the U.S. Treasury by showing the IRS how the Swiss banking giant helped thousands of wealthy U.S. depositors to evade U.S. tax.

But that doesn't mean that Swiss bankers are trying to turn in their U.S. clients for tax evasion. The fact is, most Swiss banks don't even accept U.S. depositors. And those that do require Americans to give them permission to turn over account records to the IRS.

Even more important, there will be no way going forward for foreign bank employees to give anything to the U.S. Treasury in exchange for a commission. Starting in 2014, U.S. law will require foreign banks to routinely disclose account information on U.S. depositors to the IRS. Banks that don't will simply be shut out of the global financial system. Non-compliance simply isn't an option.

Now for the "Damned Lies"

At another presentation, the speaker boasted that his company could help clients get citizenship and a passport from Paraguay in as little as one month. "Hundreds" of clients, he said, had already done so. This was supposedly possible through high-level contacts in the government.

This speaker went on to claim that he and his company work to comply with local laws in all cases. That's an admirable idea but in this case is totally and completely false. There is simply no legal way to get a Paraguayan passport in 30 days.

Article 148 of Paraguay's constitution expressly states a foreigner needs to be a resident for a minimum of three years before claiming citizenship. The only exception is in Article 151, which gives the government the right to give "honorary" Paraguayan citizenship to foreigners that have "rendered outstanding services to the nation."

While I can't verify for sure, I doubt paying a foreigner a bunch of money to fast-track the process counts as "outstanding services."

And It Gets Even Worse

Once you acquire Paraguay citizenship, you're supposed to live there permanently. Indeed, Article 150 of the constitution says that an "unjustified absence" from Paraguay by naturalized citizens provides grounds for the government to revoke their citizenship.

You have to be gone for at least three years to become liable for revocation.

You also can't get another citizenship and passport, "just in case." That's also grounds for revocation.

You could spend all this money and end up having the government take your citizenship away, possibly making you stateless.

Finally, Article 153 says that Paraguay recognizes dual citizenship only for native-born citizens. You're supposed to give up your existing nationality once you acquire Paraguay citizenship. Exceptions do exist, but that's the general rule.

The reality is, clients who use this speaker to acquire Paraguayan citizenship may find themselves "damned," for any of these reasons.

And let's not forget…

It should be clear by now that this citizenship, while possibly "official," is not done according to the law of the land. And, generally speaking, any citizenship issued illegally can be cancelled without appeal.

This isn't just a theoretical risk. In 2012, Canada revoked the citizenship of more than 3,000 naturalized citizens after a fraud investigation. Paraguay's Supreme Court must approve all citizenship applications. Similarly, it has the legal authority to revoke citizenship, and has done so before.

Oh, and one more thing…

U.S. clients who acquire citizenship through unofficial "shortcuts" may find themselves "damned" for another reason: potential criminal violations of a law called the Foreign Corrupt Practices Act (FCPA).

U.S. citizens and permanent residents—or their agents (e.g., a 2nd passport service company)—break this law if they give, or even offer, "anything of value" to a foreign government official in exchange for "influence to assist in obtaining or retaining business or securing an improper advantage." Certainly, bribing South American officials in exchange for a passport would seem to be "securing an improper advantage."

And while I can't confirm that this speaker's company bribes officials to help U.S. citizens acquire Paraguayan citizenship, it does raise an interesting question: If it doesn't, why would government officials act contrary to their country's constitution to help applicants receive citizenship in only a month, rather than after the required three years of continuous residence?

If it smells like a dog and barks like a dog, then, my friend, it's a dog.

Now for the Statistics

Here they are:

  • There are only two officially recognized legal economic citizenship programs out there that are reasonably affordable: the Caribbean Islands of Dominica and St. Kitts and Nevis (with Antigua gearing up to do their own program).
  • Depending on family situation (and who you want to join you), these programs range in price from under US$150,000 to well over $250,000.
  • Both of these programs require approximately six months to obtain citizenship and passport, not 30 days.

Don't believe everything you're told by promoters about second citizenship and passports. They may be entertaining and persuasive, but they can get you into some serious trouble.

Same goes with anyone who promises that you can somehow hide your offshore holdings from the IRS. You're asking for a world of trouble (not to mention setting yourself up to be blackmailed).

Look, I've been in asset and privacy protection business for more than a quarter century. I've seen these things come and go. And, from experience with thousands of clients, I can tell you that the only proper way to do this is the legal way.

There's no such thing as a free lunch. Anyone who says anything to the contrary is either a fool or just trying to take your money.

And that's a statistic you can take to the bank!

Mark Nestmann

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