Lets start by taking a look at the required features of an Offshore Banking Account:
- It should be completely tax-free
- It should have online account access
- It should come with an offshore debit or prepaid card
These are the most basic things that you need in an offshore account, but the number of offshore banks or agents that do not offer this is shocking. Without a card to withdraw funds or up-to-date online account access for your offshore banking you are stuck in the dark ages. If you actually want to use the offshore account, look for these fundamental features.
There are also optional features to enhance your privacy and profit
- The offshore bank account should be in the name of a tax free offshore company. This is not a foolproof measure by any means but its more private than directly opening the account in your name
- The bank should offer interest bearing accounts BUT be wary of high interest offshore checking accounts. If it looks too good to be true it probably is, which brings us to the next topic..
It’s always good to research your bank thoroughly. Since the financial crisis it has become of paramount importance to choose a bank that has liquidity. If its reserve ratio (percentage of depositors‘ bank balances it has on hand) is as low as most US and EU banks think carefully. The bank should not be lending out 100 times the money it actually has, much less if it’s a shell bank in an offshore jurisdiction with little regulation.
Opening an account in an offshore tax haven can provide greater privacy, if the bank is not owned by an institution in a high-tax country. But at the end of the day you are putting yourself at risk. The US Patriot Act has stopped these institutions from operating effectively and they find it difficult to offer quality debit card or trading features because they are licensed by countries on financial blacklists. You will find it hard to make transactions with third parties and the offshore account may even end up being frozen because the bank is assumed to be a front for criminal activities.
Furthermore, the EU Savings Tax Directive requires that any bank in the EU or its dependencies must report customer income on their savings accounts to their home country or pay a withholding tax. This directive includes a host of offshore jurisdictions like the Channel Islands, Isle of Man and the Cayman Islands among others. Other European countries that are not full members of the EU like Andorra and even Switzerland are also bound by this directive. If you are an EU citizen it’s suicidal to open an offshore account in one of these countries.
What about the big international banks, are they safe and trustworthy? Although they are safer than shell banks, there’s two pressing reasons not to go through a big international bank like HSBC or Barclays.
1. Even if your actual bank account is in an offshore haven, it will be a subsidiary of the main bank who will be forced to give up your confidential information on request from the high-tax government in your home country. Here’s a case in point that happened in the Turks and Caicos Islands some years ago. A very large and well-known international bank, with many „offshore“ branches had information in its Turks and Caicos Islands bank that was sought by the United States government. They were unable to get a subpoena in the courts of the Turks and Caicos Islands because of their bank secrecy laws. So instead, the US Federal Court in New York imposed a fine on their New York bank of $100,000 per day until the information was surrendered–the bank rolled over in about three days.
2. Liquidity. Although officially highly regulated many big onshore banks are lending much more than they actually own, or speculating with your money. If they get it wrong you may not be able to access your account for a period because they don’t have the funds, or at worst you lose a percentage or the entirety of your deposit. Small professionally run banks do not generally experience these difficulties.
Right so let’s run through the Offshore Bank checklist:
1. Small – definitely not a multinational
2. No correspondent account in USD
3. High reserve requirement
4. Outside of the EU if you are an EU citizen
5. Reputable, i.e. not in any traditional offshore jurisdiction
Banks which pass this checklist and the Offshore Bank Account Checklist above tend to be located within Europe, but not affected by the EU Savings Tax Directive. However, the world economic and political climate is liable to change, and as it changes the safe options to keep your money tax-free will change accordingly.