Investments: Evasion of the Privacy Snatchers

I got a strange phone call recently. "Hello, my name is Jim Thompson," the caller said. "I'm calling from a phone booth in Los Angeles, and Jim Thompson isn't my real name."

I gulped and wondered what I would hear next.

"Is our line bugged?" he asked.

"I don't think so," I responded.

"Well, look," he continued, "I need some help. I want to send a hundred grand to Switzerland as soon as possible, and I've been told you are the world's expert on financial privacy."

I admitted that I had written the book The Complete Guide to Financial Privacy (Simon & Schuster) and that I had learned a lot about the privacy-invaders from my stint with the Central Intelligence Agency in the early 1970s. Still, I said, I was a little reluctant to take on consultations like these.

"My situation is desperate," he pleaded. "I need to hide my money because…"

I cut him off. "Please, the less I know about your case the better. I'm not an attorney." I'd learned a long time ago that it's better not to know why someone wants to invest secretly. More important, I've learned never to give investment advice that is illegal or would encourage illegal activity.

Ten years' experience in this business has taught me the critical lesson that there is almost always a legal solution to a person's financial problems. Desperate citizens who turn to illegal means invariably regret their decisions, especially after discovering that they could have achieved nearly the same results legally.

There are, I've discovered, a number of legitimate reasons for investing privately. You don't have to be a drug smuggler, organized-crime figure, or tax evader to have something to hide!

Recently I was on a radio talk show, and a caller challenged me on this issue.

"I have nothing to hide," he said proudly.

"If that's the case," I responded, "you won't mind my asking you a few personal questions, would you?" He agreed.

"Do you have any valuables in your home?"

"Yes."

"Could you tell the listening audience what they are, and the precise location where you have them in your home?"

"That's none of your business!" he exclaimed.

"Then could you tell us if you are divorced?"

"I'd rather not say."

"Have you ever been audited?"

"No," he said, "but an IRS agent can look at my records at any time—I've done nothing illegal."

My point is this. Most people say they have nothing to hide—until their house has been broken in to or they have been hit with a hefty lawsuit or have gone through the agony and expense of an IRS audit! More and more people are learning the hard way that they must fight to keep their hard-earned money from being robbed, sued, or taxed to death.

Fortunately, there are legal ways to create a "private investment portfolio" so that you can insulate your wealth from the privacy-invaders. Here are several alternatives:

Gold and silver coins: You can purchase gold coins (Krugerrands, Maple Leafs, British Sovereigns, US double eagles, etc.) or silver coins (pre-1965 US dimes, quarters, halves, and dollars) without any public or government records. Since we are in the beginning of another inflationary boom, now is a good time to begin accumulating precious metals. For maximum privacy, make your purchase in person, with cash. Coin shows, held frequently in major cities, are an excellent place to transact business confidentially—and you usually avoid sales tax, to boot.

Where to store coins safely and privately? I recommend diversification—some at home, some at a bank safe-deposit box, and some across state or country borders. You might also consider putting some coins in a private security vault, a popular alternative to banks. (A list of over 100 vaults in the United States can be obtained from the National Association of Private Security Vaults, P.O. Box 238, West Lebanon, NH 03784.)

Non-dividend-paying stocks: You can buy stocks, preferably through a discount broker, and preserve some privacy. The key is to buy stocks that don't pay dividends (most over-the-counter stocks and penny-mining shares fit into this category). Always take possession of the stock certificates for maximum privacy and security. Some brokers will even allow you to take delivery of your stocks in "street name," thus giving you added privacy. As long as no dividends are declared and you don't sell the stock, you can legally avoid any government reporting requirements. Be sure to select stocks that have a good long-term outlook so that you can hold them indefinitely.

Tax-free money market fund: Here is a way to have an interest-bearing checking account and to transact private business by mail, without any reporting requirements. Dividends from the short-term municipal bonds are exempt from federal taxation, so a check withdrawal is not reported. Some funds offer double-tax-free funds, free from federal income taxes and from your state's income taxes as well. For example, Capital Preservation Fund has a double-tax-free money fund for Californians.

$5,000 foreign-bank account: Under the small-account exemption, you can now have up to $5,000 in a foreign bank account without reporting it to the government. The IRS instructions state that you can actually check the box, No, you don't have a foreign bank account, when in fact you do—as long as it doesn't exceed $5,000 in value. The exemption applies to each individual, so if you have five members in your family, you could put up to $25,000 abroad without having to report it to the government. Many Canadian and European banks will open accounts for less than $5,000. Choose between savings accounts (in foreign currencies or US dollars), certificates of deposit, precious metals, stocks, and bonds.

Using such means as these, you shouldn't have to resort to clandestine phone calls when you're desperate for secrecy. You can over time build up an investment portfolio that will legally protect you from privacy-invaders on the prowl.

Mark Skousen is an editor, author, and speaker on financial matters and a private investor in his spare time. He and his family are currently living in the Bahamas.