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Offshore
banking refers to banks that operate outside the resident country of
the bank's customer. Typically, these banks represent an advantage to
the customer over domestic banks. Lower
taxes,
more privacy, and better security are examples of such advantages.
Interest rates and service fees may be structured very differently to
fit the specific needs of the customer.
Offshore
banks are regulated by local and international agencies
much like local
banks. A common misperception of offshore banks is that they are used
to launder money, disguise the account holder from authorities, and to
channel money without being traced. But this is generally no truer of
offshore banks than of domestic banks. Compliance to law is what keeps
all banks in operation and good standing, essential to their main goal:
making money. Security and reporting practices are often more
conservative in offshore banks, but are subject to international search
warrants that cite probable cause. Numbered accounts are always
traceable back to their original individuals and institutions.
Reporting account activity to tax agencies is often limited or
non-existent, but does not excuse the customer from their own reporting
responsibilities. Similarly, creditors generally do not have access to
offshore banking information.
International
law has yet to force offshore banks and individual account holders to
report client offshore investment profits to resident countries. A
corporation can be established in the country of the offshore bank, its
capital gains profits exempt from tax reporting. Nearly all the major
corporations in the world use offshore banking to some extent. In
recent years, competition
in offshore banking has created opportunities
for individuals and corporations of lesser means to be able to use this
same tax shelter. Internet access, debit cards, and credit card
processing increase accessibility.
Offshore banks in more
politically and economically stable countries offer additional security
for account holders. Tie-ins with limited national currencies is often
minimized, resulting in less volatile fluctuation in account cash
value. Many offshore banks invest in global financial instruments with
the specific design to capitalize in any economic climate. That is,
while one country's currency value decreases, another may increase by
similar proportions. Having investments in both helps negate the
fluctuation that more nationalized investments experience.
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