Offshore Banking Facts
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 are abused by some of these unwanted elements. Let us maintain a proper perspective on this however. These same elements have been “offshore” banking in the US and UK for many years due to the lax restrictions on foreign deposits in these two countries. Conservative estimates put the total amount of money held in US banks from proceeds of money laundering at $300 billion. In fact, many offshore banking jurisdictions have better laws and regulations than either of these two countries. All jurisdictions offered by Sterling Offshore have implemented the 40 recommendations of the OECD (Organization for Economic Co-operation and Development) FATF (Financial Action Task Force). In 2006 the FATF commenced a review of all of the major financial jurisdictions and found only the USA to be non-compliant due to, amongst other things, insufficient information exchange concerning US depositors.
Myth #3
Offshore banks are less secure than onshore banks.
Fact: Many of these banking jurisdictions offer banking histories and current conditions far superior to their international counterparts. Switzerland is estimated to hold over 35% of the world’s banking deposits and our premier banking partner there has been in business for over 300 years. Cayman Islands is the 5th largest banking jurisdiction in the world. Panama has over 130 major banks including many of the largest international banks in the world.
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 that are much stricter than that of the banking institutions in their own countries. How safe are deposits for US depositors who have money held at any of the US banks that have been lending money at alarming rates with alarmingly low reserve requirements with the recent subprime debacle? Can anyone figure our the trillions and trillions of dollars in derivatives (supposedly backed by something) that have been spun out of these institutions? How safe is the US dollar which is no longer backed by anything of substance and only a guarantee by a government that cannot balance a budget? How about depositors in the UK with the debacle of Northern Rock and subsequent nationalization by the government?