BACKUP PLAN – protection against your own government

Drawing Inspiration from Wisdom: The Philosophical Foundation of the Backup Plan

You might be familiar with the statement by Nelson Mandela that “The true character of a society is revealed in how it treats its children.”

You might also be familiar with the quote attributed to Mark Twain that “History doesn’t repeat itself, but it often rhymes.” In other words, when looking to apply lessons from the past to events of the day, don’t look for exactly the same details…look for similarities.

So, what do these quotes by Nelson Mandela and Mark Twain have to do with our firm’s work? Our mission is to help our clients organize their lives…and those of their children and grandchildren…so that they have the protection of “fire Insurance” in the form of second residences and citizenships as part of their “fire escape plan” to protect their family’s wealth…and well-being. 

Venezuelan Family’s Backup Plan Journey: Escaping the Grip of Authoritarian Regimes

In this 4th instalment of our series about notable Backup Plans that aren’t solely focused on taxation, we will first look at a real-life situation faced by a client family from 20 or so years ago in a South American country…that today is rhyming half-way around the world in Asia.

Venezuela is home to both the largest oil reserves in the world and successive anti-democratic authoritarian populist dictators. About twenty years ago, a Venezuelan client’s family had their Venezuelan passports stolen in Paris while on vacation. When they went to the Venezuelan Embassy to get replacement passports, they were told that their children would only be given a travel document that allowed them to travel directly back to Venezuela.

The parents vividly remembered a recent television diatribe by then President Hugo Chavez about how children were the property of the state and should be taken from the homes of their capitalist parents and educated in socialist state schools. These were chilling words…and understandably the parents did not want to find out whether this would happen to their children. Instead, they hired our firm to design and build a Backup Plan for the entire family that included second passports and residence status and the establishment of foreign bank accounts. They then resolved to never take their children back to Venezuela until a legitimately democratic government was in office. Twenty plus years later, they have still not returned. However, as a result of their Backup Plan they have built a life for the whole family in North America and Europe.

Navigating Sovereign Risk: The Vital Role of Backup Plans in Today’s World

Today the threat of this form of “sovereign risk” continues to exist in several countries…most notably China. I’ve previously written several blogs describing the reasons why Chinese families are leaving both China and Hong Kong where I have concluded that the key to a successful departure and relocation is a Backup Plan that has been properly “stress tested“.

One important element of a successful Backup Plan for Chinese nationals is that it is often critical for the whole family to leave….and not return. This is because the Chinese government can and does impose “exit bans” on innocent family members including children. These exit bans can and have been used as leverage over those who have previously left China….and it doesn’t matter what other citizenships those family members possess. In fact, the Chinese government also uses exit bans in negotiations with those foreign countries to resolve unrelated disputes.

Along with exit bans, it has been reported that the Chinese government has also refused to issue passports or legalize identification documents needed to obtain foreign residence and citizenship status. There are also reports that Chinese nationals returning to or departing from China have had their luggage searched and any discovered foreign residence or citizenship documentation seized and destroyed. Moreover, there have been numerous reports of the Chinese government operating “police stations” in Western countries, whose mandate is to monitor Chinese nationals living in those countries. Their actions have included attempting to coerce those nationals to return to China.

Do you hear the rhyming yet?

Securing Your Family’s Future: The Real-World Significance of Backup Plans

A recent engagement underscored the importance of stress-testing a Backup Plan. In this case, the client and their family had already secured residence status in and moved to a Western country. However, when they did so they had not appreciated the importance of also obtaining a second citizenship and passport for all family members. They had failed to realise that if the Chinese government unilaterally cancelled their Chinese passports, they would not only lack  the necessary documentation to eventually become naturalised in their new country….but they would also be unable to renew their residence permits.

A major potential stumbling block for this family in obtaining a second passport, was that the parents were high profile businesspeople.  As a result, the family did not want to approach the Chinese government to legalise any of their documentation (such as birth and marriage certificates). Fortunately we were able to personally negotiate with officials of a country offering citizenship-by-investment to accept their existing but out-of-date legalised documentation in order to secure their new citizenships and passports. This step turned out to be quite prescient as, just half a year later, they were informed that the Chinese government had declined to renew one of the family member’s expired passports unless he returned to China.

Lessons from the Past: How Backup Plans Shield Families Against Government Actions

These stories bring to mind, a profound discussion I had with one of my first Chinese clients from the early 1990s. His family was from Shanghai, the long-time home of international commerce in China. I will always remember what he told me:

My ancestors lived through various Emperors, the Taiping, the Boxers, Chiang Kai-shek, the Japanese, Mao Zedong, and now the pro-business policies of Deng Xiaoping. The family motto is ‘No matter how good things are….always keep a fast junk in the harbour, with some gold bars, a second set of papers and permission to put into a friendly port’

In modern terms this translates to leaving before trouble arrives with a second passport, international bank accounts and the right to live in a country that will protect your family from the danger your country of birth may someday pose to your family.

In closing, if you are concerned about:

  • Protecting your assets over multiple generations,
  • Providing education and career opportunities for children or grandchildren,
  • Ensuring security for yourself and your family…to protect against economic, political, social and climate uncertainties,
  • Reconnecting with your family lineage,
  • Enhancing your lifestyle,
  • ….and yes, possibly looking at your current tax structures,

then please contact us directly or have one of your trusted advisors do so to discuss how a Backup Plan might work for you.

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