Commodity Futures Trading Commission New Regulations Reporting Overseas Transactions
Since the start of the credit crunch in mid-2007 we have seen a steady move forward by government to place greater control over the financial aspects of people’s lives. One of the biggest milestones from an investor’s point of view has been the establishment of the Foreign Account Tax Compliance Act (FATCA). This is consistent with the intentions expressed by President Obama that U.S. Citizen’s financial successes at home and abroad should be subject to U.S Taxation so that the U.S., as a nation, can benefit. The Patriot Act was the first to employ this approach but now we are moving several steps forward from these measures.
Right now one of these steps has come from the Commodity Futures Trading Commission, which has written and must approve some very contentious provisions. One of these has been an agency proposal, which is intended to go into full effect as early as mid-July, requiring overseas offices of American-based banks, foreign institutions and hedge funds to turn over information on foreign trades if they involve United States customers, or are guaranteed by a financial institution with American ties, requirements that the industry calls redundant and excessive.
Some of the strongest objections have come from foreign regulators, including officials from Britain, Russia, Japan and Germany, who complained about the plan last month in a letter to Treasury Secretary Jacob J. Lew. Global markets, they said, “will not be able to function under such burdensome regulatory conditions,” advocating instead that the United States agree to respect rules each nation adopts, assuming they are reasonably compatible.
Whichever way the discussion goes, one thing is for sure: U.S. Taxpayers overseas financial activities will have to be reported in the future. This is why Swiss banks and vaults are rejecting U.S. Taxpayers as clients. Those foreign institutions cannot be controlled within the U.S., but what can make them obey is the threat to any U.S.-based assets Swiss banks or Vaults have there. To protect their U.S.-based income, the best way to achieve this is to ensure they don’t venture into the danger zone of U.S. Jurisdiction on such matters.
Ostensibly, the reason for wanting to receive reports about U.S. financial activities is to ensure taxes are paid by U.S. citizens, whether at home or abroad. As intelligent readers, we suggest you think about other ways that the government can use such reports.
One of the uses is that they are in a position to formulate effective controls over U.S.-owned assets and to counter any activities that could result in taxes being avoided or assets kept out of reach of the U.S. government. This will allow government to adjust any existing regulations to fill any loopholes or to encompass any assets held not presently reported. In short, it will give the U.S. government access to those assets.
For example, right now, gold is not reportable to the U.S. Authorities and even FATCA does not require such reporting. But with the information now having to be reported, it is a small step to adjust the regulations to require it to be done. It can be done overnight. Indeed, it would be naïve of us to think that the current omission of gold from financial reporting would continue if the U.S. government decided it was time to report that too. And if the need be, such a requirement would be imposed.
You may be thinking that, “Oh, well that’s not too bad if that’s all they want.”
If you feel that, we suggest you think about the direction being taken by the government on this. Government is clear on what they want to achieve. They want a flexibility to change rules in the light of the information they get from U.S. and U.S.-related institutions and individuals. So this is a path they are on and not a destination they have reached, yet. And just in case you think it is limited to just taxes, you can be sure that it covers foreign-held assets and access to them as well.
Once you are aware of the path they are on, then take it forward to where it’s going, and take steps to protect your wealth from the government.
Gold investors may currently feel comfortable with holding their gold overseas in their name, thinking that they are out of reach of government. If this is the case, they have neither followed the path government is on, or are emotional, ‘hoping’ that they’re safe. People in that category usually become the victims of such unstoppable government progression and are badly damaged, financially. But you can think it all through and take action to stay off government’s path.
A second step forward concerning gold investors has been taken in the U.S. very recently, in Connecticut.
Connecticut General Assembly Requires Gold Reporting
From the Connecticut General Assembly website:
AN ACT CONCERNING PRECIOUS METALS OR STONES DEALERS.
To require precious metals or stones dealers to provide a periodic statement of transactions in an electronic format to the local licensing authority and retain any goods purchased for at least ten days, and to make the requirements applicable to precious metals or stones dealers similar to those applicable to secondhand dealers.
Introduced by: Public Safety and Security Committee
For bullion and coin sales, in addition to the requirements under current law, the bill requires dealers to keep the record in English, be consecutively numbered, and include the seller’s general description.
While Connecticut is a tiny State, it is the 4th most densely populated state. Most of the state is in the New York Metropolitan area, and has a great deal of gold there in its people’s and institution’s hands. What is most important is that this state government could be the first of many to impose this law. Should the subject be this important, it requires very little stretch of the imagination to see it applied to all U.S. citizens including those with their gold outside of the U.S.
Such information seeking always has a motive behind it. Initially it places the government in a position to impose on, clampdown or take possession of such reported gold holdings. It gives turnovers of gold by such dealers, details of gold owners and quantities held by them. It’s logical to consider such moves as a prelude to further actions. That’s a conclusion you can’t escape. It is easy to see what actions could follow. Are you taking precautions that are effective in allowing you to be free of culpability and still own your gold in the safest parts of the world? You should be!
Put yourself in government shoes. You want to control the gold trade and know where gold is being held. Your first targets would be those with the largest holdings and most easily taken.
Locally-owned and held gold is the most easily taken into reserves. The banks that are dependent on government for their existence would fall over themselves to hand gold in their Custodianship to the government (or lose their license). It doesn’t matter who they are or how large they are. Even an ETF like the SPDR gold ETF would simply be informed by HSBC (Custodian of their gold) that they have already passed it across to the Fed. The Fund would simply be informed of their action and have to accept it. It is logical that payment would be made in U.S. long-term government bonds. The second largest holder of physical gold in the U.S. would be COMEX, who again would have to comply with government requirements, without complaint, to keep the rest of their other metal businesses intact.
The third largest source of gold would be gold dealers. With the latest law in Connecticut, we see how government would manage the taking of their gold and that of their clients. This would take the most effort and yield the smallest take of gold, one would think, but many gold buyers have been buying since 1980 and before, so the yield might still be considerable.
What about gold owned by U.S. citizens outside the U.S. Surely these are out of reach of the authorities? That’s where the reporting requirements now being instituted by the CFTC come into the picture. We are certain that they will require all overseas financial transactions by U.S. Taxpayers to be reported, in time to include gold.
You might say that doesn’t include gold dealers in foreign Jurisdictions does it? Please read the first paragraph of this article again. It may be that the gold dealers say they won’t be affected by such U.S. legislation. That’s where we should examine which countries would readily cooperate with the U.S. on this. The top of that list is Canada, a nation fused at the hip to the U.S. and with a record of cooperating with the U.S. authorities on such matters. Of course leading Canadian banks are chartered and also reliant on government for their existence. Their cooperation with U.S. government’s acquisition of citizen’s gold could well mean that Canada imposes the same order to acquire its citizen’s gold. After all, the Canadian central bank has around 2% of its reserves in gold only. If the U.S. follows that road we expect Canada will too.
And there are Canadian gold funds and depositories that hold significant volumes of gold that would be Canada’s first port of call under such orders. Even where gold is held, allocated and segregated for the fund, their shareholders don’t own gold, they are only shareholders in the fund. They would not be able to mount a defense against government actions against their gold.
With all of this in mind, would you want to wait and see if your government could reach your gold, or are you taking additional steps to protect it? The Connecticut Act targets U.S. citizens who own gold. The CFTC regulations will be able to highlight which U.S. citizens own gold overseas, if one small clause is added to it. That makes you the owners of gold vulnerable at home to financial penalties or worse.
If government does follow the road to acquiring citizen’s gold, then it would be consistent to ban gold dealing inside their jurisdiction. We quote a recent article from the gold world on this,
“There will come a time when you will simply not be able to get precious metals because of a lack of supply (and no one will sell at any dollar price) … or because purchase and ownership of the metals will be flat out illegal. This isn’t hyperbole. This is a prediction based on history and current trends.”
Go back to 1933 and history confirms it’s happened before and with the dark financial clouds we see, it can happen again, in more nations than one.
Our conclusion is that the U.S. government is taking steps, heading toward a clear destination. Are you going to ignore this or are you going to get out of their way?
Hold your gold in such a way that governments and banks can’t seize it!
Enquire @ admin[at]StockbridgeMgMt[dot]com
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