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Way Off Shore Banking in Montana
by George Everett

King Taufa'ahau Tupou IV, the king of Tonga isn't laughing anymore. Tonga, it appeared, was ready to put up the $2 million needed to open what would have been Montana's first off-shore banking depository.

The king's financial advisor J.D. Bogdonoff, who also happens to be the king's court jester, was in Montana recently investigating the state's off-shore banking opportunities until he himself became the subject of an investigation into the disappearance of more than $20 million dollars since it was invested in this country in 1999. Most likely that Tongan wealth evaporated in the devaluation of Internet stocks over the last year.

The Tongan king's jester was the first serious candidate to invest in a Montana mechanism to attract foreign capital to Montana's economy.

In 1997, the Montana state legislature passed an idea into law that created foreign capital depositories--similar to banks but legally prohibited from being designated as banks. Given the political, economic and other risks that exist in the world, the idea behind the legislation is that there's a market for a safe, stable repository for cash. The Montana-chartered institutions can be set up by U.S. or foreign corporations or citizens, but depositors can't be U.S. citizens. The institutions are aimed at depositors who want to place assets of $200,000 or more in a safe place outside of their own countries.

The privacy of depositors will be well-guarded, although managers of the depositories will still have to comply with U.S. laws to prevent the laundering of drug money, terrorist bankrolls, and the concealment of the proceeds from white collar crimes.

Despite these restrictions, then Governor Marc Racicot urged passage of the law, estimating that these foreign capital depositories would attract $12 million dollars in the first full year of operation. This mechanism to attract foreign capital to the state looked attractive because Montana doesn't have a sales tax and the goal was to generate revenue for the state's general fund from fees related to the depositories.

These fees seemed designed to discourage all but the most serious investors, too. To operate a depository in Montana, a corporation or individual must pay a $25,000 (non-refundable) application fee and a $25,000 initial charter fee. Then there's the 1.5 percent annual fee based on the size of assets held and a $10,000 charter renewal fee due annually each following year.

Despite the projections of millions in fees that would result from dabbling in the off-shore banking business for foreign capital, the state of Montana has yet to realize a penny in new revenues, despite responding to hundreds of inquiries from around the world.

The King of Tonga is not the only one not laughing anymore. Not long ago, Tonga's government apologized to its citizens for Bogdonoff's bad investments. The court jester's real joke though is on the citizens of Montana who have yet to realize any benefit from the 1997 law. The fees collected from foreign capital depositories are required by the law to be applied to reduce individual income taxes in the state, so there is plenty of reasons to wish the state success in the future.

After a century of having a reputation as a good place for desperadoes, refugees and just plain dissatisfied folk to hide from the bad choices of their previous lives, the state is now banking that it will also be known worldwide as a good safe place for people to hide their money.
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