OK, So (Maybe) They're Not Chumps...

There has been something that's been bugging me about this whole diamond smuggling case. The Spiller family has gone through a lot of trouble to establish complicated networks and offshore legal structures that are supposed to keep their investors from having to pay taxes on their income. They have double and triple firewalls, they're using hushmail and other means of ensuring the privacy of their "clients." And for awhile I was thinking that maybe they have "broken the code" and found a way to take money from investors and build an offshore network of investment schemes that fulfil the primary goal - to avoid paying taxes. Right now I still have a few primary questions; like, is this type of setup legal? Why are they afraid to talk to me if it is? And, most of all, why would they go to so much trouble and then risk it all on one shipment of diamonds? Why not just pay the taxes and receive their package. According to the management the entire point is not to rip off their clients but rather to simply avoid paying taxes (legally.) My ignorance is really showing on this one, and I'm still learning... (more)

Somebody Finally Answered the Phone: I finally got someone to answer the phone at the number listed on the D-Carat.com website. I spoke to a "voice on the phone" at 202-536-3115. The person who I was talking to was a man who knew all about this series of articles, but he would not tell me his name or his connection to the Spiller family. I asked him why not, and he said that he did not want to see his name in print on Panama Guide. I told him that I would not use if he asked for confidentiality and he still refused. So, I'm left with the warm and fuzzy feeling that there is someone there to answer the phone. At least I finally got in touch with them after three days of trying. So from this point on I'm going to call the guy who answered the phone "Mr. Mysterious" because I have to call him something, and using "that guy who answered the phone at D-Carat.com but refused to give me his name..." takes too long to type.

Knock It Off Or We'll Sue You: For what? I asked Mr. Mysterious exactly what the problem was with anything that I've written so far. I explained that I've spent all day learning about how you can have less than 50 investors in a private group and not be required to file with the SEC. That's why they take these funds "private" when they have about 45+ customers. I learned that it's perfectly legal to open a Swedish "Bank" (which is actually a kind of Credit Union) and as long as you have less than 1,000 members you can operate "as" a bank, meaning that you can provide all of the banking-like services but not actually "be" a bank. Again, as long as you stay below the limit of members, then what you're doing is perfectly legal. This is apparently the setup behind the Swedish Merchant Savings S&L website. So I ask again, sue me for what, explaining what you're doing?

"For Starters, Rod Spiller is Forty Years Old": Is misreporting some one's age a crime? If that's the case then all of the 29 year-old women I know have a real problem on their hands. La Prensa carried an article which said that "a 24 year-old man from the United States claimed responsibility for the package." And you're right, Mr. Mysterious, I thought the 24 year old was Rod Spiller, but apparently that was incorrect. Allow me to state for the record that Mr. Rodney Spiller is (something like) 40 years old, according to Mr. Mysterious. And while I'm thrilled that we have that point cleared up, it's probably the most mundane detail imaginable.

The Diamonds Were Not Worth $1 Million Dollars: I didn't think so, either. According to the receipt that was in the package they were worth exactly $76,901. I explained that I did the math and that as far as I could tell the Panamanian Customs officials had it all wrong when they said that an "expert" placed the value at "about $1 million." So, we're together on that one. The diamonds are worth $76,901. I got it.

We Paid the Import Taxes: What? You did? When? That's when Mr. Mysterious got slippery again. He said something like "we've written the check" and then he said "we've authorized payment" for the taxes. In other words, they have indicated that they are perfectly willing to pay whatever import taxes are required for $76,901 worth in diamonds from South Africa, along with any penalties for not making the declaration.

"We Expected To Get A Bill:" Mr. Mysterious told me that they "expected" that the package would be opened at customs, that they would see the invoice for $76,901, and that they would receive a bill for the appropriate taxes. That's when I told him the story about my power drill. You know, when something shows up in Panama you get a phone call and they ask you "what's in the package." If you tell them "it's only documents" and there's "no commercial value" then that's an attempt to defraud the government of Panama. You can argue all day long about whether or not the import tariffs on diamonds and other precious gems should be lowered or not. But the fact remains that the Panamanian government is simply enforcing existing law in this case. Those were not "documents" with "no commercial value" in the package. There was $76,901 worth of diamonds in the package that are destined to be used as collateral for D-Carat.com. That's commercial value. Am I wrong? Since D-Carat.com is paying the import tax I guess not. They are trying to comply, but after they've been caught. What were the exact details of how the whole thing went down? I don't know, but I expect to find out soon enough.

Paying As Little As Is Legally Required: Most people want to get right up to the edge of being legal without going over the line into the illegal territory. I've asked several people to look into this, and Tom Rowley, an accountant and expert on tax issues for expatriates living overseas reminded me that "Al Capone went to jail for tax fraud, not murder." I am all in favor of finding and exploiting every tax break and loophole that's available in the tax laws as long as what you are doing is legal. But in the end if you're breaking the law then you're breaking the law and that's that. And who decides these issues? Certainly not me. There's a whole lot of "grey area" here to swim around in. Some areas of US tax law for those living overseas are crystal clear, and other areas are less so. It all comes down to doing your paperwork the right way.

Too Close for Comfort? Maybe. Somewhere along the continuum that starts with perfectly legal on the left and definitely illegal on the right there's a line where you cross over from "questionable" to "no doubt illegal." That's when you fall off the edge and slide right into a huge steaming pile of stuff. And the original Ponzi scheme was built around buying postal coupons in Spain and cashing them in the United States making $6 for every $1 invested.

"Ponzi - Like" Tactics What the hell does that mean? Since I started looking into these guys I've talked to lots of people who are very good at explaining the grey areas. There are things you can do to avoid taxes, and tactics and individual can take to limit their own tax burden. But there are also warning signs that make people nervous and raise suspicions. There have been so many Ponzi schemes over the years that there are "warning signs" that should tip people off. So the question remains - is this whole setup illegal, or are these simply investors using the Internet and international jurisdictional boundaries to avoid paying income taxes on their earnings. Or is it even more simple, like people just wanting to move their assets out of the United States for personal or privacy reasons. I still don't know. The only ones who know for sure are those holding the books, and they are probably not going to show them to me (and even if they did, I would not know what the hell I was looking at, anyway.)

An Email from Andrew Spiller: I finally got an email from Mr. Andrew Spiller and I just replied to him. He basically said the same thing about the import taxes on the diamonds, that it was just a paperwork screw-up and that there was never any intent on their part to avoid paying import taxes. As far as the rest of the issues are concerned he promised to call me so we can talk about it. I'm waiting.

Screwing It Up For The Rest Of Us: There are a lot of guys who specialize in giving very good investment advice to expatriates in Panama. They are really all playing the same game and are supposed to follow the same rules. It's a competitive business in which trust and confidence are the primary ingredients. When I started phoning around and asking questions several people expressed a "hope" that these guys turn out to be legitimate because in the long run one shady player makes all of them look bad. From a strategic point of view those with the most experience understand that several of the "rules" (laws) could be changed to make Panama an even more attractive destination for international investment. For example, what sense does it make to have a 15% (or whatever it is) import tax on diamonds. What are they protecting, the Panamanian diamond mine? It's a "stupid" tax, but it's currently in effect so right now it's the law. Also, there are opportunities for making Panama a haven for gold which actually makes sense because Panama is a producer. But the laws are backwards (or so I'm told.)

"You Never Want To Make Good Money Bad" That was another gem of wisdom that I heard today. There are people all over the world who are trying to launder the profits gained through illegal activities. What makes no sense whatsoever is "reverse money laundering" or taking monies that were legally earned and accounted for and trying to hide them somewhere. If you play your cards right you end up paying little or no taxes anyway, and once you've pulled enough to live on you just pump the rest right back into your investments. If you're living overseas then you can write off the first $80,000 (or whatever it is now) and get by quite nicely.

The E-Gold ATM Card: And that's where it gets sticky. Supposedly you can "deposit" money in your account, we will invest it for you and have some kind of real asset to "back" your account, which could be gold, diamonds, or some other hard asset. Then they take your money and invest it for you and the income earned from those investments are actually owned by a foreign company or corporation so you don't have to pay taxes on them, right? Welcome to the grey area. There are issues of "am I spending principal or income" when you make that cash pull from your ATM card. If you're spending principal then it's not taxed. But if you're spending money you've earned from those investments, then you're supposed to pay income tax on it. And, if your argument is that it's not really your money and that it's actually owned by a foreign corporation, then why did that foreign corporation just buy you a new BMW? You can understand why the IRS could get confused.

What Keeps a Ponzi Floating: A Ponzi scheme usually offers abnormally high short-term returns in order to entice new investors. The high returns that a Ponzi scheme advertises (and pays) require an ever-increasing flow of money from investors in order to keep the scheme going. The system is doomed to collapse because there are little or no underlying earnings from the money received by the promoter. However the scheme is often interrupted by legal authorities before it collapses, because a Ponzi scheme is suspected and/or because the promoter is selling unregistered securities. As more and more investors become involved, the likelihood of the scheme coming to the attention of authorities will continue to increase. As long as new money keeps coming in and no one starts an audit then everything is fine. I received an email from someone who claimed to have lost $600,000 from one of these schemes.

Is This A Ponzi Scheme? I have no idea. I am not accusing them of being a ponzi scheme. The problem with identifying and uncovering a ponzi scheme is that by the time government investigators have woken up to the potential for fraud the people who are running things have taken the money and fled. To this point I have heard some positive feedback from independent sources who tell me that this organization has traders working who are actually making investments and earning an income for their clients. And so far I have not heard about or been contacted by a "victim" who has been unable to recover their investment. And, it's only a problem when you can't pay everyone off. The details on the diamonds remain to be seen, but there's a good chance that the offshore tax avoidance stuff is perfectly legal. Only time will tell.

Copyright 2006, Panama-Guide.com by Don Winner. As usual feel free to use anything you want as long as you link back to the original source. Thanks.