Montana is positioning itself to be a tax haven.
By month's end the Montana Banking Board will consider a South Pacific island nation's application to open a depository in Helena for foreigners who wish to hide their assets from tax collectors, creditors, even angry spouses. It is the first application for a depository to reach the board since the state's 1997 passage of a law permitting these institutions, and its approval would create the first such institution in the country.
"We wanted to be the only state to offer these things, which would bring Montana into the spotlight in certain financial circles," said Chris Olson, the state's deputy banking commissioner.
Meanwhile, a foreign depository chartered by the Blackfeet Tribal Business Council is set to open Feb. 1 on the tribe's reservation in Browning. Glacier International Depository Ltd., which is principally owned by tribal member Robert Doore and a member of a North Dakota tribe, will start doing business Feb. 1 with an initial capitalization of $10 million. Since its new 8,500-square-foot building is on tribal land, Glacier International will not be subject to state regulations.
Neither the island nation's institution nor Glacier is to make loans. The state hopes to garner its share of the roughly $27 trillion of foreign deposits - currently stashed in places like the Cayman Islands and Switzerland - by collecting a tax on the institutions' deposits.
In Glacier's case, Montana would get 0.75% on all deposits in state-chartered offices and the tribe would collect up to 1.5% from deposits held on tribal land.
Montana could use the money - it ranks 46th in the nation in annual personal income per capita, at $22,314. The U.S. average is $28,518, according to the Department of Commerce.
The banking board had an initial hearing on the Kingdom of Tonga's application in December but delayed the approval decision because neither the island nation's representative nor its partner in Montana, Darryl Willis, gave a satisfactory capitalization plan. The Kingdom of Tonga covers 289 square miles of volcanic and coral islands near Fiji and has a population of about 102,000.
Jim Drummond, chairman of the banking board, said Mr. Willis told the board that he was investing roughly $300,000 in return for a share of profits and that Tonga would invest a "larger sum" for a portion of proceeds earned on deposits it would solicit from investors in other countries. But the applicants have yet to identify the source of the balance of the $2 million needed to open the depository.
Mr. Drummond said he would be wary even if all the investors' identities were known - in the Tonga case or others.
"A foreign bank can be a customer of the depository, and while we may have familiarity with that bank, we may not be able to determine who their depositors are," he said. For all his board knows, he said, the deposits could come from rogue countries such as Iran.
"The legislature did not address this issue" in passing the 1997 law, Mr. Drummond added. "At this point, I don't know if they are even aware of it."
But Mike Sprague, the Republican senator who authored the bill, said that if depositors are being referred by reputable sources, regulators have to trust that the deposits are legitimate.
"For example, if the Bank of England refers a customer to the depository, we would assume that they have done their due diligence on their depositors," Sen. Sprague said. "On the other hand, if two guys in the backwoods of someplace like Guatemala said they created a bank, then we may not accept their deposits."
Sen. Sprague added that the state regulations written after the law was passed are patterned after guidelines from the Financial Stability Forum, a group of about 40 foreign ministers and central bank governors that rates offshore financial centers' trustworthiness.
As for Glacier International, it says it will follow recommended federal policies to ensure its depositors are on the up-and-up, Mr. Doore said.
"We'll go through the same verification process that any bank in America would go through," using a "know-your-customer policy," he said. "We'll also use the U.S. Treasury and other agencies for verification. If the money is questionable, then we won't touch it."
While Mr. Drummond may be leery about granting a state charter for any depository, his board's vice chairman, Ted Goodwin, says he is confident that many charter applicants this year will be able to demonstrate that their deposits have legitimate sources. But the board is in no rush, he said.
"It is my desire that the first charter approved by the state be lily-white," Mr. Goodwin said. "So it's going to take some time" to make sure the deposits are clean.
Sen. Sprague said that he would expect nothing less. "Something that's never been done in North America before should take this long," he said. "But it's worth it, because it could be a good opportunity for the state."
Colorado hopes to be the next state to charter a foreign-capital depository. In 1999 it passed legislation similar to the bill Montana enacted.
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