Banks, loans, deposits

The term "offshore banks" refers to a wide range of investment and banking institutions located outside the jurisdiction of the depositor's country. Any bank that meets this criterion can theoretically be considered offshore. However, in practice, banks that are located in countries with liberal laws and low taxes in the field of banking regulation are considered offshore - in countries referred to as “tax havens”.

– one of the most important components of the financial international system. Tax experts believe that about half of all global capital passes through offshore centers.

• Institutions with a limited license - receive a license similar to the corresponding document of banks with a full license. They have the right to work only with those foreign corporations or persons specified in the license.
• Fully Licensed Institutions – Receive a license from the host state that allows them to engage in trust or banking activities outside the host state. Such banks can work with clients outside the country where they are located.
• Managed banks - operate on the basis of a banking institution with a general license, in accordance with an agreement between the owner of the offshore bank and the bank with a general license. The base bank carries out administrative functions of managing and ensuring the stable operation of the patronized organization.
• Banking-type credit organizations that have the right to carry out certain banking functions;
• Representative banks are banks that are formed and licensed in one state and simultaneously receive a license from a second state to create a representative office. Such banks cannot conduct their business in a second country, but have the right to do business with any other country.

They have a number of advantages. As a rule, they operate in jurisdictions that are economically and politically stable. Therefore, the risk of freezing, seizure or theft of the investor’s assets is minimized. Economically developed countries with a clearly regulated banking system sometimes even surpass offshore zones in terms of stability, but they do not have the other (listed below) advantages of offshore banks.

Non-interference by the state in the activities of offshore banks leads to a reduction in overhead costs, so such organizations can offer clients higher interest rates on deposits.

Along with tourism, the activities of offshore organizations are one of the few sectors of the economy in which remote island states are able to successfully compete with developed countries. Exactly offshore banks act as the main source of investment funds in their jurisdictions, facilitating the redistribution of funds from developed countries to developing countries.

Interest paid by offshore banks is not subject to taxation. This is an undoubted advantage for clients who do not want to disclose their income to the tax authorities in their home country. In addition, most offshore banking institutions offer services that are not available in domestic banks (or are not included in the list of banking products) - increased interest on deposits, low interest rates on loans, anonymous bank accounts, etc.

Often offshore banks are associated with other structures that operate in the jurisdiction - offshore companies, funds or trusts. The presence of offshore institutions creates competition in banking and taxation, giving citizens the right to independently choose the balance of taxes and services.

The official authorities of offshore zones actively defend the interests of banks located in the jurisdiction, because they are one of the main sources of income in the country. Accordingly, the level of protection for depositors increases.

You can open an account in an offshore bank using postal, telephone, or the Internet.

They have the following general disadvantages. Offshore bank accounts are financially less secure when compared with deposits in continental banks. This may cause problems with the return of invested capital during periods of worsening financial crises.

Offshore banks provide their clients with a guarantee of return of deposits up to 50 thousand US dollars (most often), warning depositors in advance about the potential danger for more substantial deposits. In addition, compared to traditional banks, clients have difficulties with physical access of depositors to offshore banks.

As a rule, offshore banking services are more accessible to clients with high incomes, because... requires serious financial expenses to create and maintain an offshore account. However, simple savings accounts are available to all categories of clients, and their maintenance fees are no higher than those of continental banks.

Finally, it should be noted that in the minds of many people, it is firmly ingrained that offshore banks are often associated with organized crime, the shadow economy, money laundering, assistance to terrorist groups and criminal gangs. However, all financial activities of offshore institutions are carried out in strict accordance with international legal and financial acts.

The concept of “offshore bank” unites offshore banking enterprises that are different from an organizational point of view. What they have in common is that they are created and operate on the basis of the offshore regime. An offshore bank has the right to serve only foreign clients. Its operations should generally not involve offshore jurisdictions. The owners (shareholders) of offshore banks are always citizens and legal entities foreign to the given jurisdiction. In some jurisdictions, an offshore bank may be a resident bank that carries out offshore operations. Such a bank has a functioning office and staff. There are the following categories of offshore banks.

Fully licensed offshore banks ("Unrestricted" Class B Banks) are licensed by the host country allowing them to engage in banking and/or trust transactions outside the host country. They are authorized to serve clients outside the country in which they are located.

Offshore banks with a restricted license ("Restricted" Class B Banks) receive a license that is similar to the license of an "Unrestricted" Class B Bank except that they can only deal with those foreign persons or corporations named on their license. Typically, these types of jars are the easiest to create.

Offshore managed (administered) banks ("without staff" banks). They operate on the basis of a bank with a general license on the basis of a special agreement between it and the owner of the offshore bank. To create a bank without personnel, an appropriate license is required. The base bank carries out administrative functions to manage and ensure the operation of the patronized bank. An offshore bank is provided with a separate connection, registered office. In addition to these administrative functions, the contract may provide for the management of banking activities itself: bank communications are used, multicurrency payment documents, certificates of deposit and bank references are issued, documentation and execution of foreign exchange transactions.

Representative banks are banks that are organized and licensed in one country and are also licensed by a second country to establish a representative office. They cannot do business in the second country, but can do business with any other country. As an example, assume that a Class B bank is organized in Montserrat and obtains a representative license in the Turks and Caicos Islands. The Bank can then do business with any island having a business and with individuals in any country in the world except Montserrat and the Turks and Caicos Islands. Even if one traces the origins of a bank from the Turks and Caicos Islands, one may never be able to determine that the bank is, in fact, licensed and organized in Montserrat.

A banking-type credit institution that is authorized to perform certain banking functions. Offshore banks also differ in the required amount of paid-up share capital and the annual fee that is paid to the host country. For example, Cayman Island Class B "Unrestricted" banks are required to pay a portion of the share capital of at least USD $200,000. A "Limited" Class B bank license requires less than USD$20,000 paid-up share capital. The annual fee for a Class A license is USD$20,000, while a Class B "Unlimited" bank license requires only USD$5,500. For obvious reasons, Class B Restricted Banks are primarily used by tax evaders. Such banks spend a minimum amount of costs and labor to open. They usually exist in the form of a brass sign outside the lawyer's office and a small folder in his file cabinet. For these reasons, such banks have been called "brass sign", "desk drawer", "passive" and "paper" institutions. In 1979, there were 300 registered banks in the Bahamas. Of this number, 270 were banks “with a brass sign” and had no physical presence. The country's central bank exercises control over the banking system. However, the extent and nature of such control and the conditions for issuing licenses vary from jurisdiction to jurisdiction. There are about a dozen large offshore banking centers in the world. Among them are Cyprus, the Cayman Islands, the Isle of Man, the Bahamas, and Panama. These jurisdictions have a strict banking control regime close to international standards. This is explained by the authorities' concern for the reputation of banking centers. Some jurisdictions issue various limited licenses, the requirements for which are lower than for conventional banks. There are also a number of relatively young banking jurisdictions where the conditions for control over the activities of offshore banks are minimal. Such jurisdictions include Vanuatu, Nauru, Western Samoa, Cook Islands and some others. When establishing a bank in these jurisdictions, there are practically no capital requirements or an effective supervisory authority. For this type of banking policy in the United States, the expression “banking prostitution” was used. It is in these countries that the most intensive use of offshore banks for criminal purposes is observed. Due to numerous cases of financial fraud, many of the banks were officially dissolved by Caribbean authorities in the early nineties. For example, on March 7, 1991, Montserrat's financial secretary announced the revocation of more than 300 licenses. However, these official measures did not prevent offshore ghost banks from distributing unsecured financial instruments such as drafts, certificates of deposit, and letters of guarantee. For example, in 1993, international criminals attempted to defraud individual banks in Europe with unsecured drafts from North Ameri-can International Bank Ltd. They attempted to obtain loans amounting to approximately USD$250,000-US$400,000. For 10 years, these financial scammers were closely associated with offshore jurisdictions such as Nauru, Vanuatu, Western Samoa and Tonga (Pacific island states).

Legal purposes of creating offshore banks. Offshore banks are created to achieve the following goals:

• 1. Gaining access to the international network of correspondent accounts. This allows you to: join the system of informal connections of the banking community, establish partnerships with large banks and thus gain access to their financial infrastructure.
• 2. Ensuring acceptable conditions for registration of a foreign commercial bank. Most countries place high demands on the reputation and capital of banks, and there are protectionist barriers. Under these conditions, registering an offshore bank is often the only opportunity to establish an enterprise of this type abroad.
• 3. Effective capital management and servicing a limited number of clients. Typically these are subsidiaries of the parent company, as well as certain groups of enterprises that have joined the financial pool and foreign branches of the company (including other offshore companies).

Criminal purposes of creating offshore banks. Among the criminal purposes of using offshore banks are the following:

• 1. Committing and concealing tax crimes. According to the US FBI, the Cayman Islands banking system exists solely for the purpose of tax evasion. The investigation began to look into this offshore zone in 1996. As a result of the investigation, it was possible to return over USD $500,000,000 in unpaid taxes and fines to the American treasury. According to lawyers, this amount could soon increase to USD $300,000,000. The US Internal Revenue Service currently has approximately 1,500 cases against individuals who evaded taxes with the help of schemers from the Cayman Islands.
• 2. Masking criminal enterprises under the guise of respectable banks in countries with effective banking controls. Foreign offshore banks usually have flashy names like Gulf International Bank Ltd., Republic International Bank Ltd., or Gibraltar Overseas Bank Ltd. These banks deliberately use names that are confusing. For example, the banker Rothschild was forced for this reason to make a public statement on December 12, 1993 in the Neue Zurcher Zeitung in which he dissociated himself from the following banks: a) Rothschild Bank Ltd., Anguilla (Caribbean); b) Rothschild Fund, British Virgin Islands (Caribbean); c) Rothschild Inc., Delaware (USA).

In order to mislead counterparties, criminals establish offshore corporations that use words like “bank”, “banque”, “banco”, “banka”, “bancorp.”, “bancor”, etc. in their name. These words often appear in fictitious names such as "Unibanque", "Unibank", etc. Registering a company with such misleading names is not only found in exotic countries. In Europe, there have also been cases of negligence in registering companies in the commercial register. The Ministry of Finance of the Caribbean State of Grenada issued a warning statement on September 5, 1991 identifying 52 companies registered with the name "bank" but without any type of banking license. Since 1995, pseudo banks that were formed in a non-existent country (a reef somewhere in the Pacific Ocean) have appeared in Europe.

• 3. Concealment of the actual organizers and perpetrators of financial crimes. This is possible through the creation of offshore banks with a representative office. An offshore bank, as a rule, does not have an operating office in the country of registration. Any mail that arrives is then forwarded, as instructed, by the local agency to the country where the true owner is located: Canada, Germany, USA, etc. When questioned by authorities, office directors claim that they are merely advisers and that they do not engage in banking operations.
• 4. Carrying out financial fraud under the guise of banking activities. Criminal offshore banks often offer various banking services, such as unsecured or fictitious certificates of deposit with unusually high interest rates. These banks also offer passbooks with interest rates much higher than the market rate. In advertising brochures of foreign offshore banks, the high percentage is explained by low administrative costs and the absence of taxes and duties.
• 5. Offer of letters of credit and guarantee of all types.
• 6. Use of financial instruments (for example, spending) of fictitious banks such as "Fidelity International Bank" or "International Lloyds Bank" (with the logo of the genuine Lloyds Bank in London). They are used, for example, by Nigerian scammers. These bank drafts are usually used in connection with orders for goods from Nigeria. Some time ago, counterfeit debt securities of Indonesian and Haitian banks were in circulation. These banks refused to collect them. A similar scandal took place in Prague in 1993. The amount of expenses charged to the bank far exceeded the bank's assets. This was the very first scandal in the history of Prague banks. A significant group of individuals known for their involvement in fraudulent transactions from the United States, Switzerland, and Germany placed these instruments on the financial market. They were offered, for example, in Bangkok with a 10% discount. There is a known case where an American investor lost millions of dollars.
• 7. Using fictitious checks to purchase property. At the same time, they demand payment in cash of the difference between the purchase price and the amount on the check.
• 8. Use of counterfeit checks from well-known international banks. Offering loans on unusually favorable terms using debt securities as collateral for a loan. These tools are then immediately sold at a discount. Promised loans are subsequently never provided. Use for the purpose of laundering criminally obtained proceeds at the stages of stratification and integration.

We will try to give a brief overview of what it is offshore bank, how to register it, and in which jurisdictions it is possible. Offshore bank is a financial institution that serves only non-residents (individuals and legal entities) and carries out banking operations outside the country of registration. Typical jurisdictions where it is possible to register an offshore bank are the Comoros, Seychelles, Bahamas, Commonwealth of Dominica, Saint Vincent and the Grenadines, the Republic of Panama, and other classic offshore jurisdictions. In some of the countries mentioned, we can take on legal support for the process of opening an offshore bank.

As a rule, offshore banks are either completely exempt from income tax, or this income is taxed at a purely symbolic tax rate. Naturally, this benefits both offshore bank depositors, who can receive increased interest, and bank owners, who receive tax-free profits and turn them into dividends. Unlike offshore companies for international business (IBC), during the registration of which the share capital can be declared, but is almost never physically contributed, when registering an offshore bank, as a rule, the authorized capital of 1,000,000 USD and above is contributed. In addition, when creating an offshore bank, you need to pay a registration fee and the cost of a license. Next, you need to pay an annual, usually fixed, fee, submit annual reports, undergo an audit, and so on.

Obtaining a banking license offshore is a complex process. If the client and future bank manager does not have significant experience in the banking and/or financial sector, then obtaining a license is impossible. The client must be prepared to pay for legal services to support the bank registration process, the cost of which varies depending on the complexity of the order from 120,000 to 200,000 USD.

Offshore Banks, like offshore companies, are based on a tax-free and confidential regime. Their difference from regular banks is that an offshore bank serves only non-residents of the country in which they are registered. Since in offshore zones there are actually no taxes and foreign exchange controls from the state, conducting banking activities for an offshore bank is much easier than for a bank in your own country.

This is a new way to emphasize your credibility in the banking services market. Is this true? Now let's essentially understand what the benefits of such activities are.

Offshore banks are often established by existing banks for the following purposes:

Have access to the international credit market;

Have access to international correspondent accounts;

Provide clients with tax-efficient loans;

Ensure client confidentiality.

But the purpose of creating an offshore bank can also be to meet the needs of one specific person. Usually these are very wealthy people.

It is well known that due to the absence of taxation, an offshore bank has the opportunity to generate a large part of its profit and thereby ensure the stability of its activities. Offshore banks do not pay tax on the source of income, which is also very important. The only costs for this bank are administration and the annual offshore fee. In the absence of foreign exchange controls, an offshore bank is allowed to use its assets with greater freedom, for example, making payments immediately.

According to the majority of opinions of well-known bankers, conducting banking activities in an offshore jurisdiction is profitable, even for the simple reasons that there is no taxation. There are also other advantages of this type of business.

Offshore banks can be established by banks and financial institutions, and even collective groups that trade internationally, for external loans. For example, if a group of your enterprises needs banking services, then it would be more effective to open your own bank in an offshore jurisdiction, and through it conduct banking business, such as settlements with clients, execution of loan agreements, and more.

The entire process of founding an offshore bank, like any other offshore organization, depends on the state. But, as a rule, it goes through the usual system:

An application for bank registration is submitted;

Along with it, an application for banking licensing is submitted.

The application for a license must be accompanied by information in accordance with the rules for offshore banks. If the application meets all the rules, the license is issued immediately. By the way, this license application is confidential.

Typically, opening an offshore bank may require a recommendation from another bank, lawyer or auditor;

A document confirming the solvency of the registering person;

In some cases, a business plan for the offshore bank being opened may be required.

In addition, an offshore bank is required to have a registered office and a minimum number of directors established by law.

This article has a list of the best offshore banks. We have highlighted what we consider to be the best offshore banks that you may want to consider if you need to open an offshore bank account.

Offshore bank accounts are bank accounts that are, unsurprisingly, located in foreign territories. The purpose of offshore bank accounts is to provide the public with the opportunity to receive money in multiple currencies outside of their country of residence.

Traditionally seen as part of tax avoidance schemes, this view is outdated, and offshore bank accounts are suitable for people who work abroad or have foreign investments. Tax may still be due on the income, but it is important to understand the rules regarding taxes in your country of residence. For example, for people living in the UK, the tax will be claimed worldwide, regardless of whether the bank account is offshore or not.