Jurisdiction - So You Think Your Gold is Safe Outside The Country?

By: Julian D. W. Phillips | Thu, Jul 17, 2014
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Without looking at the facts and issues involved one would think that the U.S. can reach into any land outside its borders [except Russia] and impose its tax will and political will on others. The cases against the Swiss banks, UBS, Credit Suisse and other banks together with the fine on BNP Parisbas and the banning of its use of the dollar for a year with potentially other foreign banks facing the same punishment, gives rise to this viewpoint.

But this is not the real case at all. Jurisdiction still dominates internationally. But as we have seen in each of these cases, U.S. Jurisdiction applies to U.S. citizens anywhere, U.S. corporations [even overseas branches of these it seems], subsidiaries of foreign companies based in the U.S. and assets of U.S. citizens held overseas. Let's look at these instances more closely:


Microsoft

Microsoft is challenging the authority of federal prosecutors to force the giant technology company to hand over a customer's email stored in a data center in Ireland. The objection is believed to be the first time a corporation has challenged a domestic search warrant seeking digital information overseas. The case has attracted the concern of privacy groups and major United States technology companies, which are already under pressure from foreign governments worried that the personal data of their citizens is not adequately protected in the data centers of American companies. Verizon filed a brief on recently, echoing Microsoft's objections, and more corporations are expected to join. The Electronic Frontier Foundation is working on a brief supporting Microsoft. European officials have expressed alarm. Jurisdictional confrontations are on the rise.

In a court filing made public, Microsoft said that if the judicial order to surrender the email stored abroad is upheld, it "would violate international law and treaties, and reduce the privacy protection of everyone on the planet." The search warrant was granted by a federal magistrate judge in New York last December, as part of a criminal inquiry. Neither the identity nor the nationality of the customer has been revealed. The company objected, saying that because the customer's emails were stored in Dublin, they were beyond the reach of a domestic search warrant. But Microsoft lost that round two months ago, and this week is beginning its push for a reversal in Federal District Court in New York.

While a U.S. court is making the rulings on these we are witnessing a facet of U.S. foreign policy. It is therefore surprising that a judge should be ruling on this and not the government. In a criminal proceeding, the debate plays out in public court filings from the outset. Judge Francis, in his order, wrote that the Electronic Communications Privacy Act, passed in 1986, created an in-between category intended at the time to protect people from indiscriminate data gathering that subpoenas might allow of online communications. The result, he wrote, is "a hybrid: part search warrant and part subpoena," and applied to information held in Microsoft's data center overseas. Privacy experts are concerned that the judge's order, if it stands, will open the gate to unchecked investigations in the digital world, of anyone, anywhere. United States search warrants do not have extraterritorial reach, you would think, but may well have.


Jurisdiction over U.S. citizen's assets overseas

At the moment this may seem like a local U.S. matter and that the U.S. should have the right to go into any country to impose U.S. laws on U.S. citizens, and even subsidiaries of foreign companies resident in the U.S. More importantly the U.S. government certainly does have the Jurisdiction over its own citizen's assets held overseas. I can hear you saying, "No they can't, particularly if there is no current requirement to report them". Unfortunately, such regulations can and do, change in a heartbeat, if government feels that it is in its interests to do so. We are in no doubt that should the U.S. government deem it in the national interests to do so, they will require the reporting of all U.S. citizens' assets held overseas.


Foreign Banks with U.S. subsidiaries

Recently, we have seen U.S. interests overflow into other Jurisdictions, such as the tapping of Angela Merkel's phone. We have seen the French Bank BNP Parisbas have to pay nearly $9 billion for contravening U.S. foreign policy on South Sudan and Iran. The subsidiary of the French bank in the U.S. has to pay the bill, not the head office in France. But more importantly, the U.S. punishment has crossed international Jurisdictions through banning the French bank from dealing in the dollar for a year, from 2015. This affects all branches of the BNP Paribas. And therein lays the rub.


Controlling who uses the U.S. dollar

The U.S. is setting a precedent of controlling the use of its national currency across the world. The U.S. Dollar has reigned as the only reserve currency for decades and is the international payment currency because of its liquidity and its acceptance by nations the world over. This was because it was treated as a non-national currency in this regard. The moment politics enters the picture and affects its use, it disqualifies itself as such a currency and spurs its users to take action to use other means of payment as well as to object loudly. The fear is that once the precedent has been set it is extended wherever that the U.S. feels it should. We have no doubt that this will affect payments of U.S. dollars for all aspects of international trade including oil payments.

As a matter of prudent reaction nations have to either remove this power or reduce it and quickly, because it may well interfere in all aspects of international trade. It is only natural that foreign governments, institutions and individuals take action to stop such policies. While all U.S. dollar payments have to go through New York at present, there is no way of avoiding the use of such power except by using another currency to effect payments.


Alternative Currencies

At this point we now see the European reaction to this overreach of interests, with a U.S. intelligence officer being expelled from Germany and the French going to Brussels to the E.U. headquarters to talk of way to find alternative currencies to do business in instead of the U.S. dollar.

We are certain the China has foreseen this happening and is why it has planned over many years to ensure that the Yuan becomes a global reserve currency available for all aspects of Chinese trade, both imports and exports. The matter is now urgent. The setting up an alternative to the I.M.F., based in Shanghai, this week [with $100 billion] is another step in that direction.

We expect that they have also planned to demand Yuan payments for Chinese goods from U.S. companies eventually, should it be in Chinese interests to do so. This will expose the weaknesses inherent in structuring U.S. international business solely in the U.S. dollar. Unless the U.S. believes that nothing foreigners can do to avoid the dollar, their current course of action is setting the foundation for a breakdown of the current global monetary system.

If a departure from the dollar is possible, then such a potential threat to the U.S. would be rather like cracking a crystal vase. No matter how much glue is used to put it back together again, will restore its value. The dollar needs its global hegemony for it to retain the power it has at present. Any break in this hegemony will hurt the dollar very badly and force a multi currency monetary system on the world. The damage to the credibility and value of the dollar internationally will be extensive.


How this affects Gold and U.S. citizens holding it overseas

So how does this affect gold, you are asking?

When the U.S. decides it is in the national interests to harness gold to enable it to face the day when the dollar is not the sole global reserve currency, it will exercise the same overreach on U.S. citizen's gold held outside the U.S. as we are seeing now.

Firstly the reporting requirements under FATCA will be extended to include gold. Probably simultaneously, it will instruct all Custodians of gold it can reach, to retain the gold in their charge and cease dealing in it. Likely clients/shareholders will be given the option of receiving cash at the going market rate on a particular day.

Custodians they can reach will include, banks, vaults, gold dealers, anybody holding or dealing in gold for their citizens.

Thereafter to discourage gold dealing in that jurisdiction we would expect gold dealing to be halted. This would account for approximately 90% of the gold inside the jurisdiction. The gold owned by U.S. citizens held offshore may well be substantial. All that is needed for the government to acquire that is for them to be instructed to repatriate it. In nearly all cases, foreign Custodians of U.S. owned gold do not have effective protections for their clients to prevent this gold from being repatriated in a manner that would not harm the gold's owners. As far as we can gather none of these foreign gold Custodians [storage systems] even pretend to guard against confiscation.

We expect that subsequent to the actions against storage systems/custodians, a "Confiscation Order" will be issued inside the U.S. on gold [it could later be extended to silver?]. This will apply to all U.S. citizens owning gold, wherever it is held. Please note that the order will be against all U.S. citizens owning gold. They will therefore have to repatriate the gold - the government will not chase it!

This day will come, not because of internal financial matters [such as increasing the money supply] but to allow it to exercise a dominant role in international finance, when the dollar's role is waning and being challenged. We agree with those that gold will not be appropriated by the U.S. government for the same reasons it was in 1933 [money supply and the protection of the banking system], but we believe it will be appropriated by the government for external reasons. The prime reason will be to ensure it holds sufficient gold to face the storms that will inevitably come when the dollar loses its role as the sole global reserve currency. Without it the dollar could crumble quickly. That day now seems to be closing in on us fast. Because we are seeing the beginnings of this now, you have to act soon, or suffer the consequences.

The confiscating authority [for instance, the U.S.] won't have to tackle Swiss, German or French governments at all. The principles established in punishing U.S. subsidiaries of foreign banks or U.S. corporations with overseas activities will be brought to bear on their citizens, at home. They did this in 1933 when they confiscated gold then. They simply threatened their citizens at home with fines or imprisonment. This acts as a wonderful discoverer of U.S. owned gold and will ensure repatriation of such gold, unless the owner has taken certain steps to protect himself, not just his gold! [Please contact us for information on the only way that is effective]


What of other currencies and their citizen's gold?

What has not been factored in, when considering this subject, is the extent to which other developed world currencies are reliant on the U.S. dollar to continue to keep its role as the sole global reserve currency. The dollar is the trunk of most global currencies which are the branches. Few of them can stand alone or apart from the dollar. We have seen the damage to their global competitiveness when they do.

From this we gather that if the U.S. deems it necessary to confiscate its citizen's gold, the bulk of them will. The first to do so will be those that run Current Account Deficit. Then, their need for gold to reinforce the international credibility of their currencies will source whatever gold they can. This brings the confiscation of gold onto the horizon in many countries. As we look forward we see the scene of the world changing fast on many fronts, particularly on the monetary scene. The coming realities are disturbing.

Let's face it in 2014 the U.S. foreign political and financial policies are becoming much more aggressive and dominating, particularly where its citizens and foreign corporations with U.S. branches are concerned. And this will only get worse. The reactions in finding alternative currencies will resurrect gold's role in the international monetary system as well as bring the prospect of gold's confiscation much closer.

We are on the brink of the Yuan becoming a global reserve currency, a fact we can see clearly now in the near future. From 2015 onwards the turmoil in the global economy, the monetary system and the change in the balance of world power will be on us. Waiting until it is here without careful planning now is simply asking for trouble.

 


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Julian  D. W. Phillips

Author: Julian D. W. Phillips

Julian D. W. Phillips
Gold Forecaster

Julian D. W. Phillips

"Global Watch: The Gold Forecaster" covers the global gold market. It specializes in Central Bank Sales and details, the Indian Bullion market [supported by a leading Indian Bullion professional], the South African markets [+ Gold shares shares] plus the currencies of gold producers [ Euro, U.S. $, Yen, C$, A$, and the South African Rand]. Its aim is to synthesise all the influential gold price factors across the globe, so as to truly understand the global reasons behind the gold price.
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