Offshore banking and offshore banks are often misunderstood and intentionally maligned by governments of high taxing jurisdictions. It is important to note that just like an offshore company, an offshore bank is merely a bank domiciled in a country other than that of the person's country of residence, domicile or citizenship.  Hollywood has also done a good job of associating offshore banking with cigarette boats, private jets and criminals of all kinds.  In reality, these offshore jurisdictions and offshore banks are very different than what typically conjures in the mind.  Let us look at some myths and facts about offshore banking with an unbiased and historical perspective. 

Myth #1

Offshore banks are only used to evade taxes.

Fact: Popular offshore banking jurisdictions often provide a number of benefits over onshore banks including lower administration costs, higher interest rates, the ability to deposit and transact in multiple currencies, increased privacy, access to otherwise unavailable international investments, sophisticated private banking, the ability to facilitate international business transactions, etc.  Additionally, offshore banking provides increased asset protection from potential extraneous lawsuits, unstable governments, unstable economic conditions, unlawful seizure, etc.

Myth #2

Offshore banking is only conducted by money launderers, drug dealers, weapons smugglers and terrorists.

Fact: There is no question that offshore banks have been abused in the past by some of these unwanted elements.  The days of showing up to the bank with a bag full of cash are long over however.  Offshore banks have strict account opening procedures and follow internationally accepted best practices for screening new applicants as well as ongoing due diligence to monitor account activity.

Let us also maintain a proper perspective on this.  These same unwanted elements have been "offshore" banking in the US and UK for many years due to the lax restrictions on foreign deposits, particularly through securities firms, in these two countries.     

Myth #3

Offshore banks are less secure than onshore banks.

Fact: Depositors need to consider all factors when choosing a banking jurisdiction. Many of these offshore banks and banking jurisdictions have histories far superior to that of banks in their own country. Many have lending practices (reserve requirements, risk tolerance, etc.) that are much stricter than that of the banking institutions in their the big "onshore" countries. Many offshore banks make the bulk money off of traditional commercial banking rather than investment banking and lending as well.  The latest wave of bank failures around the world were mostly contained in the major "onshore" banking centers due to loose reserve requirements and investment banking practices.  The offshore banks in traditional offshore banking jurisdictions fared much better on the whole.