Offshore Banking

Offshore banking or Offshore banks refers to the many banking and investment institutions available in countries and jurisdictions other than the depositor´s home country. While technically any bank can be considered an Offshore bank when it meets the above criteria, the term is generally reserved for the banking institutions located in what are consider low-regulation, low-taxation "heaven" jurisdictions.

Since their origin, Offshore banks tended to be unfairly portrayed by both media and the home jurisdictions alike--the accusations have ranged from tax evasion to money laundering, but careful examination of the true purpose of the Offshore banking accounts, and an unbiased examination of where illicit funds are truly held or "laundered" sheds light on the situation. Other false accusations have centered around criticism of unsafe environments, poor regulation, etc. Again, these could not be further from the truth. Most Offshore bank account jurisdictions of any repute have very sophisticated, stable banking regulations, and because it is in their best interest to attract and keep depositors, these regulations are geared towards meeting the needs of the depositor. Many of these jurisdictions rely on foreign capital held in their banks as their primary economic factor, and as their only source of foreign investment.

What is Offshore Banking?

The broad definition of an Offshore bank is that of a bank that is located in a jurisdiction or country that is different from the jurisdiction or country that the depositor or investor resides in. One of the many benefits of holding an Offshore banking account is that they are usually located in tax havens that provide substantial asset protection and confidentiality benefits to the bank account holder. These jurisdictions also often allow for a relaxation of restrictions with respect to the types of offshore banking accounts available to depositors or investors, and how then can be manipulated. This amounts to decreased regulation. The more popular offshore jurisdictions often provide a substantial decrease in tax liability. While technically any bank outside of a depositor´s home country can be called an "offshore bank", for our purposes here we will focus only on those proven to provide quantifiable benefits as outlined above. These Offshore banks can be located in actual island-states such as the Caymans or Channel Islands, or in landlocked countries such as Switzerland--being surrounded by water is no longer a determining factor.

As mentioned in our opening paragraph, there are a number of misconceptions and myths associated with offshore bank accounts in these offshore financial centers... Are Offshore Banks the Haven of Money Launderers and Criminals? We have additional information on Offshore Bank Account Myths that should be taken into consideration.

Where Should an Offshore Bank Account be Established?

It is important that the proper jurisdiction be selected when deciding which jurisdiction to use as an offshore banking jurisdiction. The majority of the offshore jurisdictions have prudent, sound regulations in place geared towards safeguarding the deposits and maintaining their confidentiality. However, some weigh their benefits in taxation, while others in confidentiality, and so forth. Though they all offer a comparatively confidential and secure environment, it bears consideration to outline what the banking goals are and then choose the jurisdiction accordingly. A small minority of the offshore jurisdictions does a poor job of managing and regulating their banking institutions, but the informed investor or advisor will deem these as unsuitable for themselves or their clients. Further, these poorly organized and run jurisdictions are often manipulated by illicit depositors and hence prove easy targets of the FATF (Financial Action Task Force) looking for money laundering or other criminal activity.