Tag Archive | "extraterritorial jurisdiction"

Technology and Dickens

Like something out of a Dickens novel, technology brings the best of times and the worst of times.   For example, America has been the breeding ground, growth place and exporter of some really great innovations such as the internet.   Ironically this really valuable export is threatened by America’s worst export… “extra territorial jurisdiction over financial affairs”.

Those who learn how to spot and embrace change have the best change of gain with extra profit.


The Internet, a great American export threatened by the worst export in the world.

Extraterritorial jurisdiction (ETJ) is defined at Wikipedia (1) as “the legal ability of a government to exercise authority beyond its normal boundaries”.

The definition also says: “for the claim to be effective in the external territory (except by the exercise of force), it must be agreed either with the legal authority in the external territory, or with a legal authority which covers both territories”.

This is a complicated issue because concepts of jurisdiction have not kept pace with technology.  Political borders are often very ancient. Take France as an example. Much of the territory that encompasses today’s France was known to the Romans as Gaul.  Barbarian raids by the Germanic Franks led to Frankish kingdoms for hundreds of years till Charlemagne.  Medieval kingdoms of France emerged after Charlemagne and remained for many centuries until the French Revolution. Then there were republics, empires, the Vichey rule and finally France (the 5th republic) as we know it today.   Wave after wave of technology from Roman roads to German tanks and airplanes challenged France’s jurisdiction.

This is true everywhere and increasing amounts of new technology have increased this type of jurisdictional challenge.  Governments everywhere try to keep pace.  Canada, for example, exercises extra territorial jurisdiction on the International Space Station or when crimes involve nuclear material.  Many governments claim extra territorial jurisdiction relating to terrorism financing.

Some extra territorial jurisdiction can threaten the entire world. 

In France, the Code pénal asserts general jurisdiction over crimes by, or against, the country’s citizens, no matter where they may have occurred.  This is good in many ways. Murder a Frenchman in Australia and the French can charge you.  Australia would probably cooperate because murder is a crime in Australia as well as France.

The potential for complication is shown in a Wall Street Journal article “Internet Censorship à la Mode” (2) that tells how France is trying to block Web searches on computers around the world.

The article says: France’s privacy regulator, known as CNIL, last week fined Google €100,000 ($112,000) for not applying Europe’s “right to be forgotten” across the search engine’s global network of sites.

A European ruling allows people to force search engines and social media sites to remove links to sites that “appear to be inadequate, irrelevant or no longer relevant or excessive”.  Based on this regulation, Google delisted over half a million links from the European versions of its search platform and filters location search results so searches in Europe can’t find delisted links at the American google.com, etc.

However the link would be accessible to someone in the U.S. and France wants a world-wide delisting. The French are trying to compel Google to remove links globally.

The article points out some flaws in this application of the law.  “Not only does this erode freedom of speech in principle, it limits the ability of non-Europeans to vet French prospective business associates or German job applicants.  It also sets a precedent for other regimes to attempt the same censorship.  China could block search results relating to the Tiananmen Square massacre globally.”

This is how a good, old, concept-protection against murder-threatens another good, old, concept- freedom of speech-when applied to new technology.

Regretfully the United States applies extraterritorial jurisdiction to U.S. personal tax laws and this may be America’s worst export.

The beginning of America’s application of  control over financial information is hard to determine.  Perhaps Al Capone’s conviction for tax fraud turned American law enforcement onto following the money.  Another important evolution was one I have been able to follow for over 40 years.  In the 1970s The American Institute for Economic Research (AIER) and American Institute Counselors voluntarily consented to an injunction that stopped them from offering an inflation fighting  program that had been created to take advantage of US tax law.  There was no admission of wrong doing.  AIER and AIC were (and still are) Massachusetts based, non-profit corporations. The consent was made to avoid the tremendous cost of extended litigation.

The injunction stopped an investment program that consisted of charitable donations to AIER and the sale of contracts recommended for purchase by AIC.  This was a complicated investment.  Contracts for gold  related  assets held at Swiss Credit Bank in Zurich were sold by a Liechtenstein corporation and a Swiss corporation that were both wholly owned by a Swiss  charitable  foundation.

The injunction required an audit of financial statements for AIC and AIER and the various European corporations, foundations and trusts.  This is where a problem began as the SEC tried to follow the money.  Swiss law then made it illegal for the bank to release the client information.  The SEC used force rather than agreement to apply extra territorial jurisdiction.  The SEC threatened to confiscate the assets of the Swiss bank in New York if the requested information was not surrendered.

I was around to see this loss of Swiss protection and have watched a continual erosion of privacy since.

Technology continually changes how we work, bank and invest.

New technology, as well as the use of extra territorial jurisdiction, has eroded privacy.  In the 2000s both the largest and second largest Liechtenstein banks had employees who took client data electronically and sold it.  The buyers included foreign tax authorities.  Employees of Swiss banks did likewise copying thousands of files of wealthy clients.  Some simply gave the data away.  Others sold the information.  The end result was private information being in the hands of many tax authorities including German, French, British and the US.

More recently a leak of over 11 million documents at the Panama law firm of Mossack Fonseca exposed hidden financial dealings of hundreds of politicians, public officials, fraudsters, drug traffickers as well as billionaires, celebrities and sports stars around the world.

Since I began traveling, investing, working and living globally in 1968, technology has continually improved productivity, increased freedom and made life easier in many ways.  Today it is easier to invest, do business and live anywhere you choose.   A great deal of this ease is due to US exports of technology.  Microsoft, Apple, Google, Amazon.com all grew from the USA.  The downside is that these valuable resources also reduce our privacy dramatically.

Look for and think about ways new technology can change the world.  Embracing and investing in such change is a great path to profit.


(1) https://en.wikipedia.org/wiki/Extraterritorial_jurisdiction

(2)  wsj.com Internet censorship a la mode

Look at economic news to spot change.  Look to financial news to invest.

Growing Loss of Freedom

Here are three ways to overcome an insidious trick and growing loss of freedom.

The trick is called extraterritorial jurisdiction.

This approach law enforcement first came into my awareness in the 1970s.  They started using  extraterritorial jurisdiction to turn global financial institutions into unwilling government agents.  The initial case I observed was an attack on a Swiss Franc based mutual fund run by a conservative businessman (I recall his name was Harwood).   Harwood had created a Swiss mutual fund denominated in Swiss francs.  The fund was a good idea.  The only problem was that the SEC objected to Americans investing in the fund.  They told Harwood to cease and desist and turn over the funds to them.  He declined so the SEC told the Swiss Bank to turn over the funds in the fund.  The Swiss explained they had no legal authority to do so.

The SEC’s response was to get a US court order and seize funds held by the Swiss Bank in America.  They used the US legal system to exert control in other territory outside the US.  The idea has expanded since and to such a degree that now most banks outside the USA won’t accept (or even retain)  US customers.

The fact that overseas banks are shedding US customers caused a friend to send this note after reading the message Bad Banking News.

Hi Gary, after reading about bad banks and how good Jyske Bank is, it ironic that I have been told that Jyske bank does not want my business any longer because of I presume FATCA regulations.

Here is my reply and a list of ways to grapple with the problems created by extraterritorial jurisdiction.

I wrote:  It is shameful that we, the public, have let our leaders do this to us.  I have had two 25 year + banking relationships Jyske and my London stock broker both closed my account in the last year.

The problem is worse.  My children who were born in England, live in England (one is in Africa) have had many of their accounts closed… just because they inherited a US citizenship from me.  My youngest daughter never lived, never schooled and has never worked in the US… yet she has to pay US tax.   Many English banks will not allow her to have an account, even though she is also English.

This is because the US says that if an overseas bank accepts a client who is a US person, the bank must comply with various US laws, FACTA being one of them. 

There are even more problems that this law enforcement tactic creates. 

Many banks and brokers now restrict US non residents (such as Americans living in Ecuador) from having accounts or from buying certain types of securities such as mutual funds in the US.  For example Wall Street Journal reported that “Fidelity Investments and other asset managers are telling U.S. clients who live outside the country that they can no longer buy or trade mutual funds in their brokerage accounts”.  (1)

The big firms find the compliance too expensive and the number of overseas US clients too small. For example Fidelity’s change will affect about 50,000 accounts, or less than 0.3% of Fidelity’s 20 million accounts.

Americans abroad are being informed by many U.S. banks and brokerage firms that their accounts have been restricted or even closed simply because they live outside the U.S.  Banks and brokers include Morgan Stanley, Fidelity, Merrill Lynch and Wells Fargo.

This can put Americans abroad between a rock and a hard spot.   US banks won’t open accounts for them but neither will banks in the country where they live.

To make matters even worse, many US banks even restrict US customers with many types of transactions due to excessive federal regulations.  This fear extends even to escrow agents who process real estate sales.  The federal government has made so many financial transactions felonies that everyone is afraid to act except exactly by the book even if an action makes sense and the regulations do not.

This slow loss of our financial freedom has been taking place at least since the 1970s and is not likely to end soon due to the Pareto Principle, or 20/80 rule.  20% of the population have 80% of the money.  These restrictions do not apply to the bulk of voters so no one in Congress will pay attention to a resolution, leaving Americans who live abroad having taxation without representation.

Here are a few steps you can take.

#1: Keep a US address and a US phone.  Even though you may be resident elsewhere a US address and utility bill will help you open or keep numerous accounts.  Have your mail forwarded.

#2: Use an overseas bank and broker who are willing to deal with all the compliance difficulties.  ENR Asset Management in Canada  who helps resident and non Americans bank in the US, Switzerland and Austria as well as buy and sell securities through these banks and brokers.

See details about ENR Asset Management here

or contact Thomas Fischer at  Thomas@enrasset.com

#3: If you have substantial assets (well into seven figures), many overseas banks and brokers that will not accept non resident Americans will open accounts for overseas companies and trusts owned by Americans.  The reason for the substantial assets is that the cost of setting up and maintaining such structures is prohibitive for smaller amounts.

The use of extraterritorial jurisdiction is restricting the freedom of all Americans who live and/or bank and invest aboard.  The trend is not likely to change soon so become aware of your options if you plan to fall into this category.


(1) www.wsj.com Fidelity bans overseas US investors