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How the Patriot Act Weakened Offshore Banking and What This Means For Your Future Investments

How the Patriot act destroyed offshore banking

Shantanu Bhar

You probably knew the Patriot Act threatens the privacy of presumed terrorists.  But did you know it can do the very same for you as an innocent citizen?  Or that it, and other measures like it, are slowly eliminating the options you, as an American, have for protecting your hard-earned assets.

How is that possible?  The same stringent reporting criteria required of U.S. financial institutions (all in the name of preventing terrorism) is being enforced on their foreign counterparts, and the accompanying risks and hassles are becoming entirely too cumbersome for them to bear.

In fact, over the course of a dozen years since the Act first passed, it has been systematically used to destroy people’s ability to move money offshore as the government reaches for new ways to keep capital from fleeing its borders. As a result, there has never been a more urgent need for Americans to mobilize and diversify their investments while they still can.

Many overseas options, like land and investment properties, or opening a new bank account offer asset protection potential in addition to investment returns. Allowing investment or funds to grow outside the country gives you more tax options and best of all tremendous protection from political and litigious liability.  But the window of opportunity for taking advantage of these and other options is closing fast.

Most Americans Have No Idea What the Patriot Act Does

The sad part is that so few Americans realize that, or understand the extent to which, laws like the Patriot Act even affect them.  Most people’s awareness of its scope is limited to rumors of roving wiretaps and the based-on-a-true-story movie “Rendition” (2007) where an innocent man (playing opposite Reese Witherspoon) was detained, interrogated, and tortured for his suspected involvement in a terrorist bombing.

These events, while shocking, have been brushed aside by most U.S. citizens who think (or at least hope) that “that’ll never happen to me.”  Alas, there’s so much more to the law and how it affects private individuals on a day-to-day basis.  And the trends of decreasing privacy and increasing bureaucracy show no signs of stopping.

How the Patriot act destroyed offshore banking.

kevin H.

You Mean the Patriot Act Isn’t Just Used to Prevent Terrorism?

Introduced on October 23, 2001, following the tragic events of September 11th of the same year, the bill was approved by a whopping majority of both the House and Congress over the course of the next two days.

And, while it may have been well-intentioned and warranted to some extent, the Act’s ambiguity has allowed it to be misused and abused in case after case. Individuals have had their accounts frozen.  Banks have been shut down.  All based on mere suspicion or failure to comply with the new stringent regulations, not because of any actual illegal or unpatriotic activity.

Much debate has been raised over the constitutionality of the USA Patriot Act and its provisions for rendering even the most private information of its citizens into fair game for the FBI, IRS, and other governmental entities.

While a few of these arguments have been heard, and some provisions of the law even repealed, the Patriot Act has also opened the doors wide for a number of similar laws that continue to infringe on the privacy of everyday citizens and limit their ability to do business both at home and abroad.  One of the biggest impacts is the way the bill affects everyday U.S. citizens who are attempting to conduct perfectly legal business transactions overseas.

How the Patriot act destroyed offshore banking

Otto Nassar

So, What Exactly Does the Act Do?

The USA Patriot Act, whose full title is the Uniting and Strengthening America by Providing Appropriate Tools Required to Intercept and Obstruct Terrorism Act, implemented major changes to a few key U.S. laws, namely the Foreign Intelligence Surveillance Act of 1978 (FISA), the Electronic Communications Privacy Act of 1986 (ECPA), the Money Laundering Control Act of 1986 and Bank Secrecy Act (BSA), as well as the Immigration and Nationality Act.

Here are some of the most important changes:

Searches and Surveillance

Title II of the Act governs the monitoring of suspected terrorists’ communications. This is the section that allows for things like email and phone surveillance and makes getting these techniques authorized much simpler, as they eliminate the need for a warrant.  With relative ease, the government can seize electronic communications, voicemail messages, and other information and share the same with a network of law enforcement agencies.

Section 215

Of utmost concern to most citizens is Section 215 of Title II.  This section broadens the scope of the situations under which the government can obtain your records. Basically, as long as they claim to be doing so in order to protect against terrorism (Note: they need not even suspect that YOU are a terrorist), they can get their hands on information from your financial institution, church/mosque/synagogue, medical providers, library, phone company, travel agent, and video store.  True story.

It’s hard to say when or how often this being done (or whether or not it’s already been done to you), as law enforcement officials are not required to release any details of searches or surveillance that are performed.

Foreign Intelligence Investigations

This section deals specifically with investigations into other countries and their citizens.  As a result, it’s received far less attention since it doesn’t explicitly impact the rights of U.S. citizens.

What it does do, though, is give an incredible amount of unchecked freedom to governmental agencies, as these investigations aren’t even limited to criminal activity or suspected terrorism.  

The law also provides immunity from any civil liability to those who assist the authorities with a Foreign Intelligence Investigation.

Money Laundering

This is the section that has the most direct impact on U.S. citizens.  For starters, it requires brokers, commodity dealers, advisors, and financial institutions to file Suspicious Activity Reports (SARs) regarding any questionable financial activities.  It also prevents them from tipping off these clients when the report is filed.

Section 312

Under Section 312, all U.S. financial institutions are required to implement policies and procedures for identifying foreign accounts that could potentially be used for money laundering. This results in escalated due diligence to identify the ownership of foreign financial institutions, monitor account activities, and hold these foreign banks to the same standards of U.S. financial institutions.

Sections 311 and 313

In the event of a money laundering concern, these sections enforce even more stringent requirements on U.S. financial institutions.  They can require beneficial ownership information, enforce stricter “know your client” requirements, and take additional measures when some part of the transaction seems questionable.

Under Section 313, they can even refuse a relationship with a foreign shell bank (one with no physical place of business) that isn’t subject to the appropriate regulatory supervisions.

Section 328

Under this section, U.S. regulatory authorities have the ability to require foreign banks to determine the identification of the originator of any foreign wire transfers into the U.S.

How the Patriot act destroyed offshore banking.

Trader Group

I’m Not a Terrorist, Tax Evader, or Money Launderer.  Why Should This Matter to Me?

It’s easy to read about changes that affect the extent to which the government can access your private information and monitor your financial activities and think “What does this have to do with me?  I have nothing to hide.”

Well, let me break it down for you.  As a U.S. citizen, in order to invest, conduct business, live, work, or obtain residency in a foreign country, you’ll need a bank account in that country.  In order to fund that account or take distributions from it, you’ll need to be able to send and receive wire transfers to/from a U.S. financial institution.

Under the revised laws, U.S. financial institutions are required to enforce on foreign banks the same standards imposed under the Patriot Act.  If the foreign banks don’t comply, the U.S. bank can refuse any transactions.  

And since the law’s guidance on what information it’s necessary to ascertain is so vague, most U.S. banks are erring on the side of caution.  Compliance departments continue to add additional asinine requirements.  Application forms are getting longer and longer. All due to an increasing fear of failing to meet a threshold of due diligence that hasn’t even been clearly defined.

How the Patriot act destroyed offshore banking.


The U.S. Has Made Doing Business With Its Citizens Unattractive to Foreign Banks

These procedures create quite a hassle for even domestic dealings, but imagine the ramifications for foreign banks.  Think of the added cost associated with unnecessary internal policies, increased staff training, more stringent client screening processes, and additional oversight measures at every level.  

Not only must they jump through a series of hoops and hurdles in order to open an account for and accept funds from U.S. citizens, they also run the risk of being denied consideration by their U.S. institution.

And Let’s Not Forget FATCA

Another doozie enacted by the U.S. government was the 2010 Hiring Incentives to Restore Employment (HIRE) Act, just one of the dozens like it for which the Patriot Act paved the way.  A portion of this bill, the Foreign Account Tax Compliance Act (a.k.a. FATCA…a.k.a. “the worst law that most Americans have never even heard of“), requires foreign financial institutions to report to the IRS about their U.S. clients or else face a 30% withholding tax.

What have foreign banks been doing to combat these issues?  Exactly what you or I would do if faced with that choice.  They’ve started unloading their U.S. clients like a sinking ship tosses excess cargo.  Many foreign businesses have also followed suit, eliminating U.S. citizens as directors, partners, and shareholders.

Instead of listing with the NYSE, foreign companies are turning to the stock exchanges of more welcoming Hong Kong or Singapore.  The U.S. is becoming increasingly less competitive in the global market, and the economic power is shifting to our overseas opponents.  

Matt Smeltzer

Matt Smeltzer

What Recourse Do I Have?

So, what about the privacy of U.S. citizens?  What about the Fourth Amendment?  Is the U.S. Constitution still even worth the paper it’s written on?

The answer to those questions is that Americans have sadly little defense against the infringements described above.  Even the Fourth Amendment only prohibits specifically “unreasonable” search and seizure.  

I already mentioned the fact that the government need only cite a motive of preventing terrorism to justify their actions under the Patriot Act.  If they can then prove that those specific investigations were effective at uncovering any amount of illegal activities (even other peoples’), then I’d say you’d have a pretty weak argument against their reasonableness.

Not to mention, since government agencies, law enforcement, and even foreign entities have zero obligation to notify you of any private information that’s being shared, you’ll likely never even be aware your privacy has been violated.

Opposition to these and other laws, as there are plenty more I didn’t specifically mention here, has been met with little success.  And grassroots efforts have proved futile.  The U.S. is headed down the same road as countries like Italy which has now placed restrictions on cash transactions over a certain amount.

Countries from Argentina to Ireland have already nationalized private retirement accounts and pensions.  Think that won’t happen in the U.S.?  Just Google “myIRA,” Obama’s new scheme to fund the deficit…er, I mean…help people save for retirement, which will likely work its way towards becoming mandatory.

How the Patriot act destroyed offshore banking.

Viva Tropical

Get Out While You Still Can

My advice?  Stop trying to fight city hall and focus your time and energy on watching out for yourself and your own interests, whatever that looks like for you.  Whether it’s making Folgers or Maxwell House your account holder of choice or taking your family (and your money) and getting the hell out of Dodge while you still can.

There are a number of foreign banks, not to mention an overwhelming number of foreign borders, that still welcome U.S. citizens.  And many of the investment options available overseas offer the potential for incredible returns that would be unheard of in North America.

Take raw land investments, for example.  From my years of experience in the Central American market, I’ve learned that one of the best ways to profit on real estate is by buying virgin property (think wild jungles, deserted islands, and untouched coastlines) that’s primed for growth due to proposed developments or coming infrastructure projects.

In fact, my business partner and I have written an informative ebook about our experiences where we outline our proven model for successfully investing in Central American real estate.  You can download our free how-to guide and start learning more about your options.

The good news here is that there are still opportunities for protecting your assets, your privacy, and your freedom.  But there are clear and obvious trends that cannot be ignored.  You can’t afford to leave your head in the sand for too long.

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3 thoughts on “How the Patriot Act Weakened Offshore Banking and What This Means For Your Future Investments

  1. Charles Burrell

    What countries are still that have foreign banks that welcome American investors/expats and keep the US Gov out of their private business?

  2. Diaya clary

    I’ve been researching the live and learn programs in Costa Rica for my 16 yr old and myself can you give me any suggestions or reviews on these. I thought this would be a great way to get a feel of the area your thoughts?

  3. 3

    Re: The U.S. is becoming increasingly less competitive in the global market, and the economic power is shifting to our overseas opponents.

    Typical American thinking. “Opponents.” Not possible partners, not cooperative ventures. Opponents. Everything is a “threat”. American travelers’ first question: “Is it safe?” Typical American question about going abroad: What are the “opportunities” (i.e. How can I act with typical greed and get my share before others come in and I have to move on to another “unspoiled” place.
    The world is awfully tired of America and Americans. What a blight!

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