U.S. BROKER, BELIZE BANK OFFER ‘ELECTRONIC SWISS BANK ACCOUNT’: FOR OFFSHORE INVESTORS WHO WANT TO KEEP THEIR IDENTITIES SECRET

U.S. advisers vying for a piece of the $2.5 trillion held by offshore investors have been competing for clients with boulders on their backs.

The impediment — disclosure — may seem like business as usual for U.S. citizens, but it frightens offshore clients, says William Wallace, director of offshore services for White Asset Management, a division of San Francisco-based brokerage Thomas F. White & Co. Inc.

“For every (offshore) client they have, they lose 10 because of disclosure issues,” Mr. Wallace says of U.S. advisers.

Offshore investors who want to participate in the U.S. securities markets, but don’t want to reveal who they are, can find privacy on the Internet through White’s Offshore Internet Trading. (InvestmentNews, Mar. 16)

The program, which had about 50 accounts as of last week, is offered through a holding company of the Belize Bank Ltd.

Many foreign investors don’t want their names or country of origin disclosed to U.S. interests because they don’t want to become targets of U.S. lawsuits. Some 94% of the planet’s lawsuits are “Made in the USA,” Mr. Wallace says. Foreign investors also don’t want to risk showing up on the radar screen of the Internal Revenue Service.

opportunity for advisers

Still, many offshore investors prefer having their U.S. investments managed by advisers close to the source, Mr. Wallace says. Advisers could use Internet trading as a way to increase their — and his — market share.

Roger Groh of San Francisco-based Groh Asset Management says the Internet program is “completely unique” and opens up greater opportunity for U.S. advisers to manage money for offshore clients.

A participant in Internet trading could be, for instance, a Swedish engineer working in Vietnam. Sweden wouldn’t tax income the engineer earned in Vietnam, so he probably wouldn’t want to complicate matters by claiming income earned on Swedish investments. Investing in U.S. securities via the Internet allows the investor privacy and no taxes.

Ano
ther group of potential investors would be citizens who live under repressive political regimes. The residents of such countries could stay in their homelands, but keep their investments secret from the regime.

Here’s how it works: A Belize international business corporation is formed on behalf of clients by Belize Corporate Services Ltd., a company affiliated with the bank in that Central American nation. A professional director, who operates under the secrecy requirements of both the bank and the country of Belize, acts for the corporation to open a bank account and a U.S. trading account. The client, using a secret password, can trade the corporate securities account via the Internet as soon as the account is funded.

No Americans need apply

The cost of incorporation and maintenance is $1,500 the first year and $500 each year thereafter. Trading costs for clients brought by advisers come to $41.50, plus 2 cents a share. Mr. Wallace compared those expenses to the 6% commission charges typical of offshore funds.

But not everyone is eligible to participate. “We don’t take criminals and we don’t take Americans,” Mr. Wallace says.

He says U.S. citizens or resident aliens are not allowed to trade because White Asset Management doesn’t want to risk having U.S. taxpayers not reporting the income they made on their accounts. Such investments could be taxed at an 84% rate, he says.

“We don’t want the IRS saying that those guys in San Francisco are just a front for Americans to avoid taxes,” Mr. Wallace says.

The Belize Bank screens applicants to guard against money laundering, he adds.