- Way Off Shore
Banking in Montana
- by George
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
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
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.