I’m afraid I have to disappoint you, dear reader. The title is a lie. Unfortunately, this is not the next step, but the present, which we are all experiencing together, whether we are businessmen or private individuals. The power the banks have over us is unbelievable, to the point of being unreasonable. It is impossible to take a step without them, they “hold all the aces”, and the chances of an individual or a small or medium-sized business getting their own way are negligible. Add to this the fact that on the international level the banks resemble a pyramid structure, then our chances are even worse. Today the major banks dictate the terms in the financial world, irrespective of nations and nationalities, and they are capable of holding countries and entire industries to ransom.
The most recent sad example shows that depositors can lose all their money in the blink of an eye if a bank goes bankrupt. The ”bankrupting” of the Latvian ABLV Bank bears a number of similarities to the case of the failure of the FBME in Cyprus in 2014. The USA suspects them of money laundering and the financing of terrorism, the central bank restricts their banking activities and orders an investigation, which leads to panic among investors who rush to remove their funds, leaving the bank on the brink of bankruptcy. Is it still possible to save a bank when it is so close to bankruptcy? Now that is a very big question. Or rather, the question is whether or not they want to save the bank, or whether making it go bankrupt was the whole idea.
There were antecedents to the Latvian case, with both the Americans and the large German banks within the EU warning them a number of times not to transfer Russian offshore monies so actively, or face the possibility of restrictions on their correspondent bank accounts. However, the bankers passed this message to the Russian and Ukrainian businessmen in vain, as unfortunately they paid little attention to the warning. We could say that they were asking for trouble, and that once again serious amounts of Russian and Ukrainian money ”got stuck” in a place with a high concentration of Russian and Ukrainian customers. Just think back to the failure of the Cypriot LAIKI Bank in 2013, or the bankrupting of the FBME mentioned earlier. The common denominator in the cases is the Russian connection.
I don’t want to start creating conspiracy theories, as that would be pointless. But for me there was a very interesting moment in the 2013 cases. When the financial failure happened on March 16th 2013 in Cyprus, we travelled to Malta to see if we could open bank accounts there for our clients who had suffered in Cyprus. However, our trip proved unsuccessful. The point of view of the Maltese banks was unambiguous: they didn’t want the Russian offshore money from Cyprus. By doing this they were defending the whole country, as they knew that the entire financial system would be infected like an epidemic. This would have a disastrous effect on the not inconsiderable offshore amounts hidden there, even though only a small proportion of it is of Russian origin.The Maltese successfully defended themselves, and there are no large and loud financial scandals clouding the island’s financial system. The name of this small country rarely crops up in connection with financial intrigues. The Russians on the other hand didn’t learn from the Cypriot lessons of 2013 and 2014. They continued with their aggressive offshore “tax planning” strategies, and to this day still believe that they can carry on like this indefinitely. I can state without fear of contradiction that they are making a huge mistake! Today it is no longer possible to use an offshore company as if it was an extension of the individual’s own pocket, where money can be paid in and withdrawn without record keeping, administration, accountancy or controls.
From 2019, as a result of pressure from the OECD, the banks will only be able to maintain bank accounts for companies with tax numbers from the country where they are registered. The traditional offshore companies (BVI, Belize, Seychelles etc.) do not have tax numbers, and there is very little chance of the system changing drastically within the next year. At the same time, the automatic exchange of information begins this year. We have written extensively about the pitfalls of this system in earlier Newsletter articles. This will only make the banks’ position even stronger. They will introduce tighter restrictions, and request even more details from us the customers. One thing, however, will not change – our vulnerability.
And now let’s return to the ABLV failure. Those who have lost money, and all of us who could lose a significant part of our assets if a bank went bankrupt, have the right to ask what should be done to make sure this doesn’t happen. The answer is at the same time simple and complicated: we have to put in place a well-planned strategy to defend against banking failures.First of all, we have to decide what the biggest danger is today. In my opinion it is the 100 000 EUR threshold which just about every bank and country in the EU want to use as a rule of thumb, in the case of a banking bankruptcy. And they can do it.It was kept quite quiet at the time, but after the 2013 Cypriot banking crisis and failure of the LAIKI Bank, the EU passed a directive for the financial sector according to which, if a bank within the EU finds itself in a ”difficult financial position” , then it can appropriate amounts over 100 000 EUR in the name of ”bank recovery” (if you feel like swearing at this point, please feel free to do so. In situations like this it is not swearing which is immoral, but the passing of such directives). I was amazed last year when even the Bank of China asked its Hungarian customers to sign a declaration accepting that their deposits are only guaranteed by the bank up to 100 000 EUR.
But that’s just the way it is. The banks hold the power again and there’s nothing we can do. On the other hand, without banks we are stuck. We have to protect our assets, or at least those assets over 100 000 EUR which are held in cash. The most simple solution is to place the money in different banks in different countries.
In the current climate, however, with the banks not particularly willing to cooperate with foreign companies, this is easier said than done. The solution is to be found in the services offered by alternative financial institutions and brokerage companies. It is worth using these to expand your current financial structure. I would like to outline a strategy which, by no means covering every possible situation, provides an efficient solution for many businesses by combining a number of elements.
1. Don’t close any existing bank accounts! In fact, hang on to it at all costs, even if the maintenance and transaction charges increase. This can be felt all over the world, but the initial costs of setting up a new bank account are significantly higher. For example, there is a bank in Hong Kong which is currently charging customers 30 000 Hong Kong dollars (approximately 3900 USD) just to open accounts
2. If you have a large amount of savings, place it in a bank account in a country with a stable political and financial system, but which also remains neutral in the daily political skirmishing. Although Switzerland and Liechtenstein, with their prestigious banking cultures, have signed up to the automatic exchange of information, their stability means that they can still be considered as safe havens for legally earned and taxed savings. Naturally even in these countries it is necessary to pay attention to the 100 000 EUR rule, and to immediately invest any additional money in something else, such as gold or government bonds. These private banks are specialists in buying and selling very quickly and efficiently on a daily basis. The only problem with them is the relatively high transaction charges.
3. The high transaction charges can be minimalised by opening a securities account with one of the reliable service providers or brokerage companies. Whatever you do, you should not just choose a no-name broker from the internet – the results of that are not difficult to predict! The rules on the guaranteeing of deposits also apply to reputable brokerage companies, licenced to operate by the authorities in the country where they are registered, so the 100 000 EUR rule applies here too.In your securities account any amounts exceeding the 100 000 EUR threshold should be managed in such a way that the non-invested amount always remains below 100 000 EUR. Compared with normal banks, brokerage firms are able to execute securities related transactions a lot faster, so today it is possible to buy bonds, or treasury bonds even just for 1 to 2 days, if you have the available funds. Furthermore, the transaction costs of a well-operated brokerage firm are significantly lower than those of the private banks.
4. But we can only receive monies to the brokerage account from our “own” account, and can only transfer back amounts to that account. The brokerage account cannot be operated like a normal bank account, as it is not possible to make transfers to various bank accounts. Today more and more are refusing to open bank accounts for foreign companies, therefore, an alternative solution for managing daily payment transactions is to take advantage of the account opening possibilities offered by various fintech companies. This is a good solution for making transfers, although it is an expensive solution. However, it is only worth making savings through a reliable bank or brokerage account.
5. It is worth combining the above! One account is never enough! Even if it involves additional costs, the only safe way of managing funds is by sharing the risks between countries and service providers. At the same time this combined solution gives you the financial freedom to always use the most effective element of the system when managing the financial transactions.
The experiences of the bankruptcies of several banks in recent years clearly show that it was primarily account holders who kept their funds in current accounts or deposit accounts who lost their money. The majority of investments were returned to the owner after the sale of the securities, even if the owner had to wait several days. The situation of those unlucky enough to have had deposits in LAIKI Bank is still hopeless today. Despite the promises made by the government, they haven’t been refunded a single cent of their lost deposits. Well, this is where we are now. This is what the current financial dictatorship looks like!
I recently had a 2 days of meetings in Sweden. At the end of one of the meetings, my partner, who runs a car garage said the following: sometimes 10 to 15 cars get held up in the yard of the workshop, and cannot leave as we are unable to debit the payments from the customers’ bank cards due to problems with the bank’s server. In Sweden, however, making payments in cash is dangerous, and if you try make a cash payment for a larger amount, the police might even be called. As a result, the client has to wait for the bank’s server to come back to life….
Basically, we could die of hunger for all these banks care. Is this really how this system works? I would rather not comment on this here. I would just like to share a short story with you. In the summer of 1996 I spent one day in Venice with my wife. It was very embarrassing, but I was unable to pay for our lunch with my bank card, as the bank’s brand new credit card was unable to process the transaction. I walked down to the first ATM, but I couldn’t withdraw any cash either. I came home, and I returned my credit card to Citibank for good, because I was convinced that if a credit card with a balance of several thousand dollars is unable to service my needs, then I don’t need it! The bank assistant was unable to comprehend why I was so furious and outraged.
After the onset of the 2008 financial crisis the English farmers were not willing to accept credit card payments for their products at the primary producers’ market. They were selling potatoes, cabbages and tomatoes for cash only, saying that their money was not safe in the banks. In the spring of 2013, during the financial crisis in Cyprus, my friend, who owns a restaurant in Ayia Napa, could only buy Coca-Cola for cash, as the supplier clearly indicated the following with respect to the method of payment: “I prefer cash.” You know, I grew up in a village, under relatively modest circumstances. But we were never afraid of tomorrow. We always knew that on the ground surrounding our house enough food was being produced to support ourselves. Nowadays, when I leave my house I have at least 5 bank cards with me, all topped up with money yet I still feel unsecure. Am I being paranoid, or do others also feel the same way?