Big Sky Country Beckons Foreign Investors Montana Hopes To Lure Wealthy Depositors With New Financial Institutions

Forget the financial lure of the Swiss Alps and the palm trees of the Bahamas. Think, instead, of the Rockies and the ponderosa pine of Montana.

State officials hope to make Montana a new destination for the money of wealthy foreigners by chartering financial institutions called foreign capital depositories.

Not banks in the conventional sense because they don’t make loans or service checking accounts, the depositories would cater to people looking for a safe place to put their money. Depositors can direct how it should be invested or can merely have their money warehoused.

Fans of the idea believe Montana’s strong constitutional right to privacy and strict banking secrecy laws make the state an ideal place for overseas money belonging to people who like their finances to be kept confidential.

But doubters question whether Montana will ever be perceived as competition for the world’s established financial centers such as Switzerland, New York and Tokyo.

“Montana is going toe-to-toe with major players around the world,” said David Halvorson, deputy general counsel for the Institute of International Bankers in Washington, D.C. “Money isn’t going to flock there.”

State Sen. Mike Sprague, who sponsored the law authorizing state licensing of depositories in the 1997 Legislature, is as pragmatic as he is optimistic about his brainchild.

“It may not work,” the Billings Republican said. “But what’s wrong with a little optimism? All we can do is put it out there and see if there’s a market.”

Don Hutchinson, state banking commissioner, said his office has had some nibbles of interest from about 70 people wanting to know more about the process of applying for a charter. Since the law took effect only in October and the administrative regulations were not finished until Dec. 16, he doesn’t expect any applications until at least March.

Hutchinson won’t identify anyone asking about getting a license, but said those he has heard from are usually consultants or attorneys fronting for one or more parties.

“It’s interesting to see how closely held information is on this,” he said. “No one will talk about who their clients are.”

The state would benefit from depositories by collecting an annual tax equal to 1.5 percent of the deposits in the institutions. A charter carries a $50,000 price tag and a $10,000 yearly renewal fee.

The governor’s office estimated eight months ago that the idea will be popular enough to generate $12 million in taxes for the state between now and mid-1999. Legislators rejected the prediction.

The notion of Montana competing in the international banking field has faced skepticism, despite a two-year legislative study that concluded the idea could work.

During the 1997 Legislature, the state budget director and Commerce Department director persuaded a pair of community theater actors to masquerade as rich Arabs and roam the Capitol halls professing an interest in becoming depositors.

An article in the Nov. 3 edition of Forbes magazine ridiculed the idea as a “Rocky Mountain high” that won’t work.

Sprague isn’t bothered by such criticism. “We’re not a bunch of wackos. We’ve done our homework,” he said.

Even Halvorson acknowledged mixed reaction to creating a state-chartered financial institution aimed solely at foreign depositors.

“It’s not a far-fetched idea; it’s a complicated idea,” he said. “It’s bound to raise a lot of inquiries. Only time will tell if they will develop into anything.”

Hutchinson said a depository in Montana would be especially attractive to foreigners looking for a secure place to put their money where they don’t have to worry about the political and economic upheaval that can beset other nations.

“Wealthy foreigners want some of their investments in a place where the government is not going to change tomorrow, where there’s not going to be a civil war,” he said.

Questions about whether a depository guarded by strong guarantees of secrecy would attract crooks wanting to hide money from illegal enterprises have persisted since Sprague first talked about his proposal nearly three years ago.

Existing state and federal banking laws already do a job of discouraging such money-laundering activities, he said. A requirement in the Foreign Capital Depository Act that any withdrawal of $10,000 or more be reported to the state attorney general and banking commissioner will help keep criminals away, Sprague believes.

But he’s not positive.

“Money launderers like to move money around, and the law minimizes that,” Sprague said. “You can do a lot to discourage moneylaundering. But I’m not absolutely 100 percent convinced that someone can’t sneak one by on us.”