Offshore Banking Information

reasons to expatriateOver the past 16 years we have of course been helping our clients with a number of different things, including bank account assistance.  And as one might expect, there are a group of questions that are most often asked of us by clients that are considering an offshore bank account.  Below is a list of such questions and are reply accordingly.

Is My Money Safe In An Offshore Bank ?

This is probably the number one question that we hear, and quite frankly an understandable one.  For US citizens especially, this concept of FDIC insurance is one that makes them fearful of banking in another country or jurisdiction.  In reality, most modern banking jurisdictions have very strict and stringent regulations in place to ensure liquidity, and the safety of depositors.  These regulations or systems may be different than what exists where you are doing your banking now, but that does not mean that the protection is less.  As a case in point with both the Dominican Republic and Panama, two banking markets we know the best, a central banking system exists to regulate local banking and to ensure stringent accounting practices.  In both cases, a banking license is not so easy to obtain.  Banks must prove certain reserve or capital requirements before they can even open their doors to the public.  In addition, special reserve deposits are maintained with the central bank at all times.  However, this is often in contrast to some other jurisdictions, where so-called Brass Plate banks may be permitted.  The meaning of a Brass Plate bank is, a bank that perhaps is legitimate, but is operating from an obscure location with just a few employees and a bare minimum of operating capital.  In some cases, these can be what are classified as CLASS B banks in terms of the banking license they have in the jurisdiction where registered.  However, while Class B banks are not supposed to solicit accounts or deposits from the general public, many do regardless.  And this is the type of bank most people are fearful of, and is also the type of bank that has caused problems for investors in the past.  It is ironic, but the majority of problems of this kind have all seemed to have surfaced in English speaking - Common Law jurisdictions.  Jurisdictions which sell banking licenses for a less than the cost of a bay front condo in Miami.  While it would appear that scandals and problems with such banks in the past have forced some of the English speaking Caribbean islands to clean up their act, a new group of rogue banking jurisdictions have sprung up.  Some in particular that are noteworthy (to be very cautious of) include many of the former communist nations in Eastern Europe, such as Macedonia (previously part of Yugoslavia, now a separate and independent nation).  Others include small and obscure places like Vanuatu.

IS The offshore Bank Class A or Class B ?

For starters, we suggest you look for a local bank that is operating as a regular full service bank, which is usually going to be what is referred to as a bank with a Class A banking license from the jurisdiction it is operating in.  This kind of banking license will usually require a much large initial operating capital required (often US$10 Million at least) and principals of the bank vetted and investigated by the local government authority before such a license is granted.  Class A banks usually can offer credit cards, multiple currency accounts, and other banking services that you are accustomed to using in your home country.  Class B banking licenses are another matter, and are considered limited banking licenses.  In the past some jurisdictions were offering Class B licenses for US$50,000 and not much else.  And there were actually some promoters selling these kinds of licenses to individual investors who did not know better and were told they were buying their own bank (or what they thought was a Class A bank).  Class B banks are not permitted to solicit funds, accounts or deposits from general public.  Instead, they are meant to operate and offer limited services to a small group that are the initial founders and or members of the bank.  

However, in terms of banking options for yourself, you should be looking for a Class A bank that has local depositors (not just foreign clients).  Since in some jurisdictions, bankers actually go to jail if they mismanage customer or the bank's funds, you can be well assured that a bank which is serving the locals is one that will be well scrutinized.  This is especially true if local businessmen, and government officials, have their money on deposit.  Local depositors and businessmen are no less concerned about the safety of their money than you are.  So, just because the front door to a bank located offshore does not say FDIC on the window, it does not mean it is unsound or unregulated.  Often enough, it is more secure if it is located in a country that takes regulatory responsibilities seriously.

About Offshore Banks And Offshore Bank Accounts

As we already have stated, many people are under the impression that banking offshore is somehow dangerous, or perhaps illegal.  Nothing could be farther from the truth, although to be fair, there have been some problems with some select financial institutions in the past.  However, all things considered, investors often do find a world of new services and opportunities banking outside of their home country, including privacy and tax benefits.  To explain this a bit further, it is important to note that ALL countries are really in competition with each other for investment capital.  As a result, many nations have local laws or regulations in place that allow bank account interest to be locally tax-free for foreigners.  In some cases, local bank account interest might be tax free for both local citizens and foreigners alike.  In any event, it is important to note that banking offshore could simply mean banking outside of your home country, and not necessarily in what could be called a tax haven jurisdiction.  So, banking in Austria, Hong Kong, Chile, Costa Rica, the Dominican Republic and a number of other places, not normally thought of as being tax havens, could also be included in our definition of offshore banking.  Considering that banking offshore could mean banking in another country other than your own, this could also mean that investors have the opportunity to bank in other currencies, taking advantage of higher interest rates or currency exchange rates as well.  In addition, since LOCAL interest rates may be different than what they are in your home country, this could also mean that even interest rates for your home country currency (perhaps the US Dollar or Euro, as an example) could be higher (and tax free) as well.  Stated another way, interest rates investors earn are in part a function of supply and demand, just like anything else.  So, while you own country might be experiencing and economic recession at the moment, and interest rates low as a result, this does not mean that the entire world is experiencing the same thing.  To illustrate this, countries such as the United States might be in a recession, while other nations, such as Australia, Chile, the Dominican Republic, and so on might not - or in the least might still be experiencing positive economic growth.

However, we live in a different world today, or so we are told.  The result of this has been increased scrutiny by banks and bankers across the board, especially for foreigners, when it comes to establishing a new bank account.  Americans especially should also be aware of the pressures placed on non US banks and investment companies, in terms of accepting or not accepting new accounts from Americans.  Stated another way, the IRS and US Government in general has placed so much pressure on foreign financial institutions, that many will not accept accounts from US citizens as policy, even though there is legally no problem in them accepting accounts from Americans, and even though of course Americans are certainly legally permitted to own and operate non US accounts (under US law) as well.  So, and for this reason, many Americans have of course obtained dual citizenship and another passport (from another country) simply for the purposes of banking or investing.  Even though in the past someone could form a corporation or trust and use that to own the bank or investment account, IF the signatory on the account was a US Citizen, regardless of who owned or how the account was titled, some banks have denied the account.