#364 – FATCA, Banking Challenges, and Expat Life in Latin America

Automatically transcribed from the original recording; names and wording may contain errors.

[00:00] South of the border, down Mexico way That's where I fell in love when the stars above came out to play And now that I wonder Hello there all you expat wannabes I'm Johnny Mueller and you're listening to the Expat Files, living in Latin America The show that tells you just what it's like to live, work, play and or retire down here in Latin America It's a mix of the good, the bad, the ugly and the great And it's all right here so let's get started Well I have a little laryngitis today which is always a good start So just bear with me a bit Now if you remember last week I was talking about a guy who tried to bring his gold through Mexico And got way more than he bargained for Well once again I've got some very late breaking news on Mexico

[00:48] And it's not good In fact for some people it's disastrous And I wanna thank John Gold for sending me this article So then who is John Galt? Well that's the $64,000 question And by the way when Ayn Rand wrote that novel back in 1957 and asked that question Who was John Galt? Back then there actually was a TV show called the $64,000 question That's where the saying comes from though of course now it's a cliche However $64,000 today would have equaled somewhere around $24,000 in 1957 dollars And we can all thank those thieving politicians and the Federal Reserve for that Anyway if you're an expat or a gonna be or a wanna be you just have to hear this article

[01:34] So here it is Breaking news US expats in Mexico left stranded in latest FATCA escalation And this comes from the Dollar Vigilante website And if this doesn't scare ya a little thing like Godzilla never will Again I'll paraphrase and edit this a little bit because some parts are not of interest to us Anyway it starts out As the FATCA, Foreign Account Tax Compliance Act starts reeling its ugly head Part of which is set to come into effect on July 1st 2012 Again that's the FATCA law you've probably heard something about But haven't paid too much attention to because you'd think it doesn't affect you Anyway let me read on Just remember that on July 1st part of that act goes into effect

[02:22] So let's continue with this Suddenly we have seen a flurry of banks around the world advising US citizens They will be immediately closing their accounts And none of these knee-jerk reactions has been so far reaching As this notice sent to US citizens who have accounts at Banamex USA in Mexico And these notices were sent out this week Now this is me again Note that Banamex USA doesn't mean it's a USA bank It's just called Banamex USA You see them all over the place in Mexico So don't confuse that with a bank chain up in the states Although I do believe they have a branch or two in LA And why wouldn't they? It makes sense since California is saturated with Mexican immigrants

[03:11] Legal and otherwise So Banamex is a touch of home Anyway, Banamex USA's parent bank, Banamex, is the second largest bank in Mexico And note that there are over 1 million US citizens living in Mexico right now By far the largest amount of US expats in any country And so this news will be felt over a very widespread area So specifically, notices have been sent by Banamex USA A bank with branches all over Mexico and used by tens of thousands of American expats A letter went out to all US citizen account holders Notifying them that their accounts will be closed in 30 days

[03:59] Now I'm going to add something here The thing is, most expats that I talk to don't even seem to know about this FATCA thing A lot of them have just come down to Latin America as expats In an effort to cut themselves off as much as possible that is From the US and all that chaos, the nanny state, the surveillance state, etc etc But you knew that already Whereas 5, 10 and 15 years ago people left the states for Latin America Simply because it was cheap and beautiful and they could lower their stress levels I mean who would have thought back then, I didn't That people would move down here to get out from under the thumb of their own oppressive government Anyway, if you've been listening to this show a while, you knew that already But back to this article

[04:44] It goes on to say, this action by Banamex USA is, of course, because of FATCA Which has forced 77,000 banks in 70 different countries To surrender all information on American customers to the IRS Or be fined and sanctioned, along with their American account holders So now Banamex USA, a subsidiary of Citibank with its headquarters in Los Angeles Has sent letters to US customers informing them that their accounts will be closed June 30th And here's what that means for expat, retired and disabled folks No more social security check or disability direct deposits No more linking of accounts to Banamex Mexico

[05:30] No more credit or debit cards and no more ATMs for free No more nada Customers are being told that it's a bank decision and don't give any other reason why It's because of the FATCA law, of course, but they're not disposed to telling you that And naturally this move is forcing soon-to-be former account holders scrambling Meaning tens of thousands of US account holders scrambling to find a bank Another Mexican bank, that is, to do business with Though, in the light of FATCA, that seems to be impossible now Now, get this Oddly enough, it does not appear that all Banamex accounts will be closed on July 1st And no one really knows Banamex USA's strategy here Even banking insiders in the US who we have contacted are confused about what's going on

[06:21] That said, here's the question you have to ask yourself Are you an American expat living abroad or an American currently thinking of becoming an expat? Whether it's now or later, the same thing will surely happen to you So then, what are the options for the tens of thousands of US expats in Mexico with bank accounts? Well, there are many ways to protect yourself and to sidestep many of the issues that FATCA will cause for US citizens abroad Now, in the case of Mexico Americans who live and or spend a large amount of time each year in Mexico One solution is to obtain Mexican citizenship By doing this, you can still have bank accounts in Mexico if you so choose As you can open that account with your Mexican passport

[07:09] Not as a US citizen Now, this is me again Note, that's a very long and drawn out process unless you have parents of Mexican ancestry In other words, tons of wasted time Probably weeks spent standing in line and a lot of grease in the skids with bribes And I can tell you this Unless you're willing to shovel out tons of cash up front Get ready for a truckload of aggravation If you don't have Megabucks And you're pure lily white Caucasian from up in the States Unless you're married to a Mexican I don't know of any gringo in that situation who's received his passport in less than 10 years Gringo, welcome to Mexico Anyway, the article goes on to say Other options available to US citizens are to reorganize your affairs internationally using things like offshore truss

[07:58] Which are specifically set up in a way that FATCA regulations do not apply It's me speaking again Well, that's a case too for high rollers and people with a lot of assets And you might ask how many gringos does Johnny know that have foreign truss like that? Well, I think between all the dozens, maybe even hundreds of gringos I've had financial discussions with down here Only a tiny handful, maybe two or three Have so much wealth or capital that they actually needed a foreign truss And you know, for 98% of us it's just not necessary But I'll get into that in a second Anyway, the article goes on to say Understand that more countries in the West will begin to enact FATCA like controls As the economy in the West continues to fall

[08:44] And governments begin to enact more egregious worldwide taxation laws In the case of Canadians, for example, many Canadian snowbirds That is, those that are retired and usually spend six months or more per year in the US Are beginning to be deemed US residents for tax purposes Often without their knowledge That is, until they get that damning letter from the IRS Bottom line, the FATCA laws are very real And Americans abroad will be forced to adapt rather quickly Many might simply end up without a bank account at all Unable to open an account abroad when they get to their country of choice Or if they have a foreign bank account already And they get that 30 day notice letter Then what? Panic?

[09:31] This is me again saying You better have plan B and probably plan C too Then this article closes by saying We hate to constantly be the bearer of bad news But those who have been following us know that we've been warning of these events for a number of years And we expect things to go nowhere but downhill from here As governments in the West implement nefarious capital controls such as FATCA So do pass along this particular news to US citizens who are Mexican expats To inform them if they don't know the bad news already Okay, it's me again I doubt very much that they're publicizing that in the Mexican press Besides that, most Americans down there admit they don't speak Spanish very well at all And not enough to read the local Spanish language papers anyway

[10:17] So what do they read? Why, I imagine some of them get on the internet and read the Cleveland plane dealer every day Okay, so that's breaking news, the article just came out It really should scare you And as you know, I have never recommended becoming an expat in Mexico For a thousand reasons, and that's just reason 1001 Not to live, work, play or retire anywhere near that place And unfortunately, the million or so Americans that are there already Well now, besides all else that's breaking news in Mexico They've got yet another layer of crap to swim through So as far as Mexico goes I can't offer any good permanent solutions to you guys and gals who are stuck there And the solutions that were offered in that article Will never work out in the short term

[11:02] Trusts and reticency and citizenships just can't be done in 30 days But I don't have to tell you that But the good news is that south of Mexico There are still quite a few Latin American countries that will open a bank account for an American Provided the cosigner is your trusted lawyer Which is why I always recommend one of the first things you do When you get to your Latin city or country of choice To hook up with a trusted lawyer And how do you do that? Find a trusted lawyer who will stand by you Won't charge you gringo prices Speaks decent English And won't somehow view you as a money faucet to be occasionally tapped Which is an experience that so many In fact, probably the majority of expats have had In places like Panama and Costa Rica

[11:48] And of course, Mexico Well, over the past couple of years and many of my past shows I've mentioned how to go about doing this But it will involve a few trips down Some interviews and some due diligence And if your Spanish sucks, it will be all the more difficult But of course, it can be done I did it And like I said, I'm kind of a numbskull when it comes to learning languages It took me five years to figure out what my cleaning lady was talking about And still, you might end up like I did when I was down in Costa Rica I ended up having a crook for a lawyer And an honest nice guy for a lawyer Turns out, in Costa Rica anyway To split the legal load up, I had to have two lawyers One of each In fact, my above board lawyer actually recommended a crooked lawyer to me For certain things that necessarily needed to happen

[12:36] That he wouldn't dirty his hands with Because he was a straight shooter and a university professor And a published poet with a great reputation In other words, for Costa Rica, a rarity Because you know, you just don't go looking through the yellow pages under crooked lawyers Though they really should have a designation there The listing would be definitely pages longer than the honest lawyer listing So in effect, I was lucky that I found the above board lawyer first And not the crook, right? Anyway, you don't want that to happen to you And of course, the easiest and simplest way to go about finding a great lawyer That meets all of those qualifications and more Is to sign up for my Expat Wisdom seminar And I'll introduce you to some of these people face to face Honest professionals with great track records

[13:23] People I trust and have known for years Now, I know this must sound like a shameless seminar plug But you see, I get tons of emails from Expats and Expat wannabes Asking me to recommend a lawyer Not to mention, they want to know about physicians and dentists and accountants Schools and teachers, you name it And you know what? I'm not a lawyer referral service But if you come to my Expat Wisdom seminar, that's a different thing And I want you to know this I don't get a dime out of it or a commission It's just part of what I provide when you come down to my seminar And I'm talking about the folks, the professionals that actually give part of the presentation Legal and otherwise, of course The fact is I just hate to see anyone who listens to this program

[14:10] Hook up with your average lawyer in Latin America, your average shyster And unfortunately, when you're on the gringo tourist trail especially It's very difficult to know the difference until you're deep into the stew And the pot's already boiling, if you know what I mean In fact, it happens so often that nearly every Expat has some kind of lawyer ripoff Or lawyer gouging story to tell Wait a minute, come to think of it, a lot of my old friends up in Chicago Say just about the same thing The difference being, down here, a scumbag lawyer might take you for a grand Or five or ten grand While, up in the States, it's more like six figures And all I'm saying is if you come down to my seminar It's worth more than the cost of the seminar itself just to hook up with the right people And that's not me talking, I'm not blowing my own horn

[14:56] Those are words out of the mouths of dozens of my past attendees So anyway, I still have spots open for my July 2012 seminar Which will be in Guatemala and parts nearby Just go to expatwisdom.com Click on the seminar link at the top of the page for full details Alright, alright, enough of the pseudo quasi neo shameless plugs I promise So anyway, let's talk about this looming bank account closure problem In Mexico and part South Well, you already heard what's happening in Mexico But South of Mexico? Well the fact is, you can't just come down here and open a bank account Like you could some years ago all by yourself Now, you need a cosigner Usually a legal cosigner, which is why you have to hook up with a lawyer

[15:43] And that's why I can say with some confidence that wasn't a shameless plug Because you're gonna need a lawyer And you can either do that by hook and crook all by yourself or not Now, some expats are wondering What if all those banks South of Mexico who serve US citizens Decide to close that little loophole too You know, liquidate accounts that are owned by US citizens And what if they decide not to let US citizens open a bank account Even with a legal mouthpiece as a cosigner, like they do now So what if you have a personal bank account right now in a foreign bank And suddenly you get that letter saying your account will be closed in a month Well, you know, the simple way around all that FATCA crap And how to make sure that no bank in Latin America is gonna close your account

[16:31] Because they don't want US citizens Is simply to have an SA corporation and have that company or entity open your bank account Then, in actuality, it's not a US citizen bank account at all But property of the legal corporation that was legally created according to the laws in that country But you know, the downside to that is It'll cost a thousand to two thousand dollars depending what Latin country you're in To have a lawyer create one of those SA corporations And then you'll have to pay a yearly maintenance fee Anywhere from five to fifteen hundred dollars a year To keep the company active and registered And what is that maintenance money used for? Those maintenance payments go to an accountant or your lawyer

[17:18] Who turns in monthly or quarterly tax returns whether there's activity or not And yes, they are required by the government Even if your company was inactive for an entire year and not a cent flowed through it And those tax returns are in Spanish And don't think, just because you do your own taxes at home That you're a chip off the old H&R block That you'll be able to do them yourself Even if by weird chance your Spanish is very good Because you see, even though Latin tax forms are infinitely less complicated than US forms And a Latino fourth grader could easily fill it out correctly Anyway, Latin governments in their own corrupt ways Won't let you file corporate taxes unless It's prepared by a registered contador in the country

[18:06] Contador, of course, meaning accountant And yes, it must be stamped with the guy's official seal Now, don't go confusing that word contador or accountant With any first world person that you know is a real accountant These guys down here are nothing more than bookkeepers that took a six month course But again, down here in Latin America it's all about the title and the show and the diploma So, get used to it So, the question has come up What if you get your social security or disability checks Direct deposited to your foreign bank account in Latin America? Well, so far I found this out The social security administration in the States Will only direct deposit in a foreign bank account that's in your name In other words, you cannot get it direct deposited

[18:52] To another account you might own, like a business account Or an account in the name of one of those essay corporations It has to be in your name Which means, like I said before, all those tens of thousands of social security checks Direct deposited to banks in Mexico will soon have no place to go Now, one way to get around that is to have your social security checks Direct deposited to a bank account that you have up in the States And then, for one thing, you could take the credit or debit card That you might have from that bank up in the first world And use it to live down in your country of choice in Latin America That is, use it at ATM machines, etc Pulling out some cash every once in a while Including purchases at stores and restaurants and hotels and Walmarts, etc

[19:42] And by the way, even if you hate Walmart and all those box stores I guarantee, when you come down here to Latin America You'll find it very hard to boycott those places They're just loaded with stuff from the first world that you can't get in a lot of other places Or rather, they're loaded with stuff from the first world that's actually made in China That you can't get at other places So, if you go by the theory that if you don't shop there, it'll go away Like, for example, in the case of Walmart or Costco or Sam's Club Well, let me tell you, down here in Latin America Since everyone's a gringo wannabe And one of the biggest class-conscious goals in an average Latin American's life Is to get a Costco Club card Which is really steep for the average Latin, about 20 bucks a year Well, as they say, if you're the lone gringo with a conscience

[20:30] And you boycott those box stores in your neighborhood Thinking you're sending some kind of message and they'll eventually go away Well, the rest of the millions and millions of unwashed masses in Latin America Are just dying for a membership card to step foot in there one day Talk about pissing in the wind So, anyway, like I said before, cash is king This is a cash-based society But, even though there's a big lag time in so many things Nearly everyone takes Visa, MasterCard, or American Express as well So, what about getting cash out of your bank account then? For example, most ATM machines in foreign countries Will let you take out the equivalent of about $200 a day And nearly all ATMs in business districts and near airports and tourist areas

[21:17] Have both the local funny money and US funny money that you can withdraw And don't forget, when you're in countries like Panama or El Salvador They use US funny money there too, that's their currency So, in those countries, that's the only thing you get when you go to the ATM machine Now, do note, if you go to the bank and try to take a cash withdrawal on your credit card In a bank, in a Latin American country, you can do it But it's not that easy Now, I'm talking about using a credit card or debit card issued from a US bank But remember, if you try that, you better have your passport and some backup ID But generally, it's a big hassle and could take hours So, if you're going to the bank to do that, bring a good book or load up your iPod

[22:02] Speaking of iPods, here's an oddball example of the gringo advantage Recently, in Colombia, I was standing in line in a bank, waiting for the teller And I had my iPod going in my earbuds and all that And so did two or three other Latins who were standing in line Waiting their turn like me Then, suddenly, one of those Ranticop bank guards walked up to those guys And told them to switch off their iPods and pull out those earbuds Turns out both cell phone use and iPod use, go figure, are prohibited in a bank And then, when the Ranticop bank guard walked up to me Asking me politely to turn my iPod off and remove the earbuds I said in Spanish, of course, you know, I'm not listening to music

[22:48] I'm listening to an audiobook in English That's all right, isn't it? And you know, by the look at his face, I knew he didn't know what I was talking about I'm sure he'd never heard of an audiobook He just cracked a smile and said, a maricano, huh? Okay, no problem, go ahead And once again, that gringo advantage prevailed And I was the only guy in the bank who was able to bend, even break, the no electronic devices rule So anyway, to get around that direct deposit problem we were talking about For your social security or disability check or whatever You could just use your US-based visa or MasterCard debit or credit Or just do online transfers from your US bank down to a bank account here That's in a corporate name, meaning an SA corporation

[23:36] And since the SA corporation is yours, you'll be a signatory on it Not to mention, with a corporate bank account You'll get a debit or a credit card in the corporate name that you can use, too Now, just remember that throughout most of Latin America, in fact, through all of Latin America It's still a cash society And also, like I said, although most established outfits take Visa, MasterCard, American Express Very few places take checks So the question often comes up, do you need a checking account then? And I would say no, unless you have a corporate checking account and are doing business down here Then you'll have payroll and rent and supplies, so you'll have to pay that by check Just to keep your records straight for accounting purposes, you know? However, just remember, I've been down here over 20 years and I've never had a checking account

[24:26] And I can name off about 10 or 15 other long-term expats who've never had one either And you might wonder, has that curtailed my lifestyle down here in any way? Not one iota But the thing is, when you open a bank account, whether it's in your name or with an SA corporation All banks will require you to get a checking account in order to get that credit or debit card Which doesn't make much sense, but that's just the way things are down here Doesn't cost you anything extra Yet another way to chop away at the rainforest, huh? Now remember, Latin America is still a society of triplicate and quadruplicate paper forms It's that lag time thing again, and they just don't get it And I know this might sound harsh, but you know what? Latins never did give a damn about their environment or their rainforest or the water or their lakes, etc

[25:15] The fact is, it took gringos and first world people and a bit of tourism To explain to these brain-dead Latins, including so-called educated ones That they were producing filth and contamination and living in it You know what? 98% of Latins still don't give a damn Luckily, Latin America is massive in size and there are still hundreds of thousands of kilometers of pristine land left Just take a half an hour drive outside of any polluted Latin city, and they all are And you'll see beautiful pristine mountains and plateaus, rainforests, lakes and rivers Wait a minute, I take that back about the lakes and rivers They're all contaminated, but you knew that already, right? Though, luckily, thanks to the lag time effect, like in the first world slowly but surely, Latin folks are actually catching on

[26:06] Like we did up in the States, starting some 30 years ago, right? Anyway, a small contingent of Latins are catching on Even if it's for the wrong reasons, like for example, being eco-friendly You'll find most Latins that are into the eco-friendly thing are doing it not because it's the right thing to do, but because it's fashionable Or, for example, it brings in gringo tourists like in Costa Rica, and thus, scads of gringo dough Either way, whether it's for the gringo tourist dough, or because it's fashionable At some point in the future, if enough Latins quit pissing in the gutter and get their thumbs out of their buttholes Real progress will be made, but unfortunately, that's a long way off

[26:51] But I digress, boy did I digress So anyway, in the countries south of Mexico, if you're getting your Social Security check, for example, direct deposited into your bank in Salvador Chances are, that bank is not going to cut you off Based on what a few bankers down here have told me, here's why It just so happens there are so few gringos that hold bank accounts That even those idiotic, cumbersome fat co-regulations won't cause much of a paperwork headache Not when less than a fraction of a percent of a bank's account holders are gringos Like one banker told me, banks can live with that Oops, out of time, more on that next week See you next time, nos vemos