Years ago in a previous life, I was working in an internet security company.  Being naïve and young I asked our chief programmer to help a key client build a system that was completely impossible to hack and break into.  He just laughed “nothing is un-hackable.  Nothing”.  If a person can legitimately log in, then that can somehow use a similar way for ill-gotten gain.  The same applies to promises of “complete confidentiality” that are bandied about in an industry in the banking and investment industry.  Three different but related trends are at work to turn what used to be roughly true, into something of a lie.

Millions to clean your Whistle

The first is whistleblower awards with America’s IRS leading the way.  Exhibit A is Bradley Birkenfeld.  Haven’t heard of him?  You should.  He is the Amereican fellow who tipped off the IRS on his employer, UBS, and collected $104 million.  Yup, MILLION.  The IRS is using Brad as a poster boy to convince more tipsters of hot money.  Our tip – dozens of potential Brads have already formed an orderly queue at the IRS offices.  There will be more to come.

European Governments Stealing Buying Data

The second is the European predilection for buying client data from former employees of Swiss banks.  To name just one recent example Julius Baer’s client list was bought by the German Government for 2.5 million Euros.  Not a bad price at all.  Now sure, it is illegal for Swiss bankers to steal and sell data under their long renowned banking privacy laws.

The Leaky Swiss Vault

But there are three holes in protection.  Firstly the purchase price like that is a pretty big incentive to help set up a family, even if you have to go to jail for 5 years.  Secondly as long as you don’t go back to Switzerland then there is a good chance you’ll be off free as a bird.  And lastly, sometimes it is hard to figure out who was the one responsible for stealing and selling the data.

Other locations are no less leaky

A lot of uninformed punditry has speculated about millions being moved to Hong Kong or Singapore.  No doubt it will move, but it will be no more safe than Switzerland because people are involved.  Former Singapore or Hong Kong bank employees will be lining up outside the IRS or the German tax office to collect their winnings soon enough.

The Computers are watching

It’s common knowledge that movements above $10,000 are tracked by the authorities of most developed countries.  But don’t expect that limit to protect you in the future.  We have friends who used to work at the Australian Tax Office who tell us about the development of data mining software.  Data mining has progressed apace recently to the point that it can now tell you when your own kids are pregnant before they tell you themselves, as Target recently did.

All transactions great and small

Data mining is being uses in this case to sift through ALL movements of money, regardless of size, into and out of Australia including ATM withdrawals and look for suspicious transactions from tax havens (say Guernsey) or look for suspicious patterns (say $1,000 per week from Hong Kong from a certain account in a given area).  The days of hiding in the snowdrift of data are soon coming to an end also.

The lesson

If your investment strategy relies on “confidentiality” to avoid tax, then you have the wrong strategy.  It’s going to stop working pretty soon and the penalties are pretty nasty and getting worse in most places.  For most people in developed countries expatriate life can be a pretty low tax investment environment (except Americans) without fancy strategies.  But when it is time to go home and report, you should.  With mounting debts and offshore tax free accounts a politically easy target it is simply a matter of time before the tax hounds sniff out all the fox-holes, regardless of the vaults and banking secrecy laws that stand in their way.  As my former programmer colleague once said, “if humans are involved, there is always a way in”.

About Caterer Goodman Partners

Caterer Goodman Partners is a Shanghai based wealth management firm established with a clear vision to provide a new level of personalized financial planning services for expatriates in Asia. Our financial advisors provide guidance for our clients in all areas of investment, specialising in managed accounts, money-market funds, retirement planning and alternative investments. At Caterer Goodman Partners, we offer our advice and experience to provide low cost, tax-effective and simple solutions to match our clients’ interests.

About Owen Caterer

Since graduation Mr Owen Caterer has worked with the Queensland Premier's Department in Trade Facilitation and then as a financial adviser in Shanghai from 2005 until 2010.  He then rose to Senior Adviser, then Business Development manager and then to Chief Investment Officer responsible for portfolios to a value of US$280 million across Asia. Following that Mr Caterer left to found his own firm with a partner in the financial advisory and wealth management area.   This focused on developing China and Asia's first fee-based financial advisory (rather than commission-based). This has grown to now have 8 staff and and managing almost US$35 million for clients throughout Asia. This business success was recognized as a finalist in the 2013 ACBA in the Start Up Enterprises category and are one of a small number of foreign managed firms to have a full asset management license in China.  Owen has also been active in the community volunteering for the Australian Chamber of Commerce in Shanghai and acting as the Vice-Chair of the Small Business Working Group (2012-2014) and as the Co-Deputy Chair of the Financial Services since 2013 until the present. They have continued to grow their business and have now been selected as a small group of companies who are platinum members of the Australian chamber of commerce. The achievement they are most proud of is their efforts to reform the financial planning industry in China and push it away from a hard-sales commission driven model to a more ethical management fee and long term customer service model.   Owen has a Graduate Diploma of Applied Finance from the Securities Institute of Australia of which he was a member as a Fellow of Finance for many years and also has an undergraduate degree from Griffith University in International Business.  Owen's interests are tennis, running and his wife and two children.  He speaks fluent Chinese, first arriving in China in 1997.