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An offshore bank is a
bank A bank is a financial institution that accepts deposits from the public and creates a demand deposit while simultaneously making loans. Lending activities can be directly performed by the bank or indirectly through capital markets. Because ...
regulated under international banking license (often called offshore license), which usually prohibits the bank from establishing any business activities in the jurisdiction of establishment. Due to less regulation and transparency, accounts with offshore banks were often used to hide undeclared income. Since the 1980s, jurisdictions that provide financial services to nonresidents on a big scale can be referred to as
offshore financial centre An offshore financial centre (OFC) is defined as a "country or jurisdiction that provides financial services to nonresidents on a scale that is incommensurate with the size and the financing of its domestic economy." "Offshore" does not refer ...
s. OFCs often also levy little or no corporation tax and/or personal income and high direct taxes such as duty, making the cost of living high. With worldwide increasing measures on CTF ( combatting the financing of terrorism) and AML (
anti-money laundering Money laundering is the process of concealing the origin of money, obtained from illicit activities such as drug trafficking, corruption, embezzlement or gambling, by converting it into a legitimate source. It is a crime in many jurisdicti ...
) compliance, the offshore banking sector in most jurisdictions was subject to changing regulations. Since 2002 the
Financial Action Task Force The Financial Action Task Force (on Money Laundering) (FATF), also known by its French name, ''Groupe d'action financière'' (GAFI), is an intergovernmental organisation founded in 1989 on the initiative of the G7 to develop policies to combat m ...
issues the so-called FATF blacklist of "Non-Cooperative Countries or Territories" (NCCTs), which it perceived to be non-cooperative in the global fight against
money laundering Money laundering is the process of concealing the origin of money, obtained from illicit activities such as drug trafficking, corruption, embezzlement or gambling, by converting it into a legitimate source. It is a crime in many jurisdictions ...
and
terrorist financing Terrorism financing is the provision of funds or providing financial support to individual terrorists or non-state actors. Most countries have implemented measures to counter terrorism financing (CTF) often as part of their money laundering l ...
. An account held in a foreign offshore bank is often described as an offshore account. Typically, an individual or company will maintain an offshore account for the
financial Finance is the study and discipline of money, currency and capital assets. It is related to, but not synonymous with economics, the study of production, distribution, and consumption of money, assets, goods and services (the discipline of fina ...
and legal advantages it provides, including but not limited to: * Strong
privacy Privacy (, ) is the ability of an individual or group to seclude themselves or information about themselves, and thereby express themselves selectively. The domain of privacy partially overlaps with security, which can include the concepts of a ...
, including
bank secrecy Banking secrecy, alternately known as financial privacy, banking discretion, or bank safety,Guex (2000), p. 240 is a conditional agreement between a bank and its clients that all foregoing activities remain secure, confidential, and private. Mo ...
. * Little or no corporate
tax A tax is a compulsory financial charge or some other type of levy imposed on a taxpayer (an individual or legal entity) by a governmental organization in order to fund government spending and various public expenditures (regional, local, or n ...
ation via
tax havens A tax is a compulsory financial charge or some other type of levy imposed on a taxpayer (an individual or legal entity) by a governmental organization in order to fund government spending and various public expenditures (regional, local, or ...
. * Protection against local, political, or financial instability. While the term originates from the
Channel Islands The Channel Islands ( nrf, Îles d'la Manche; french: îles Anglo-Normandes or ''îles de la Manche'') are an archipelago in the English Channel, off the French coast of Normandy. They include two Crown Dependencies: the Bailiwick of Jersey, ...
being "offshore" from the
United Kingdom The United Kingdom of Great Britain and Northern Ireland, commonly known as the United Kingdom (UK) or Britain, is a country in Europe, off the north-western coast of the continental mainland. It comprises England, Scotland, Wales and North ...
, and while most offshore banks are located in island nations to this day, the term is used figuratively to refer to any bank used for these advantages, regardless of location. Thus, some banks in landlocked
Andorra , image_flag = Flag of Andorra.svg , image_coat = Coat of arms of Andorra.svg , symbol_type = Coat of arms , national_motto = la, Virtus Unita Fortior, label=none (Latin)"United virtue is stro ...
,
Luxembourg Luxembourg ( ; lb, Lëtzebuerg ; french: link=no, Luxembourg; german: link=no, Luxemburg), officially the Grand Duchy of Luxembourg, ; french: link=no, Grand-Duché de Luxembourg ; german: link=no, Großherzogtum Luxemburg is a small lan ...
, and
Switzerland ). Swiss law does not designate a ''capital'' as such, but the federal parliament and government are installed in Bern, while other federal institutions, such as the federal courts, are in other cities (Bellinzona, Lausanne, Luzern, Neuchâtel ...
may be described as "offshore banks". Offshore banking has previously been associated with the
underground economy A black market, underground economy, or shadow economy is a clandestine market or series of transactions that has some aspect of illegality or is characterized by noncompliance with an institutional set of rules. If the rule defines the se ...
and
organized crime Organized crime (or organised crime) is a category of transnational, national, or local groupings of highly centralized enterprises run by criminals to engage in illegal activity, most commonly for profit. While organized crime is generally th ...
,
tax evasion Tax evasion is an illegal attempt to defeat the imposition of taxes by individuals, corporations, trusts, and others. Tax evasion often entails the deliberate misrepresentation of the taxpayer's affairs to the tax authorities to reduce the taxp ...
and
money laundering Money laundering is the process of concealing the origin of money, obtained from illicit activities such as drug trafficking, corruption, embezzlement or gambling, by converting it into a legitimate source. It is a crime in many jurisdictions ...
; however, legally, offshore banking does not prevent assets from being subject to personal
income tax An income tax is a tax imposed on individuals or entities (taxpayers) in respect of the income or profits earned by them (commonly called taxable income). Income tax generally is computed as the product of a tax rate times the taxable income. Tax ...
on
interest In finance and economics, interest is payment from a borrower or deposit-taking financial institution to a lender or depositor of an amount above repayment of the principal sum (that is, the amount borrowed), at a particular rate. It is distinct ...
. Except for certain people who meet fairly complex requirements (such as
perpetual traveler A perpetual traveler (also PT, permanent tourist or prior taxpayer) is a person who bases different aspects of their life in different countries, without spending too long in any one place, under the belief that they can reduce taxes, avoid civic ...
s), the personal income tax laws of many countries (e.g., France, and the United States) make no distinction between interest earned in local banks and that earned abroad. Persons subject to
US income tax Income taxes in the United States are imposed by the federal government, and most states. The income taxes are determined by applying a tax rate, which may increase as income increases, to taxable income, which is the total income less allow ...
, for example, are required to declare, on penalty of
perjury Perjury (also known as foreswearing) is the intentional act of swearing a false oath or falsifying an affirmation to tell the truth, whether spoken or in writing, concerning matters material to an official proceeding."Perjury The act or an inst ...
, any foreign bank accounts—which may or may not be numbered bank accounts—they may have. Offshore banks are now required to report income to many other tax authorities, although Switzerland and certain other jurisdictions retain bank secrecy regimes that can be more difficult to deal with. This does not make the non-declaration of the income by the taxpayer or the evasion of the tax on that income legal and many OFCs have recently been important colleagues to onshore tax authorities and law enforcement against wrongdoers. Following the
9/11 attacks The September 11 attacks, commonly known as 9/11, were four coordinated suicide terrorist attacks carried out by al-Qaeda against the United States on Tuesday, September 11, 2001. That morning, nineteen terrorists hijacked four commerci ...
, there have been many calls to increase regulation on international finance, in particular concerning offshore banks, OFCs, crypto currency and clearing houses such as
Clearstream Clearstream is a financial services company that specializes in the settlement of securities transactions and is owned by Deutsche Börse AG. It provides settlement and custody as well as other related services for securities across all asse ...
, based in Luxembourg, which are possible crossroads for major illegal money flows. Most criminality involving the banking system has happened because of the regulations and controls being circumvented.


Offshore banking comparison by jurisdictions

The most popular offshore financial centres are in jurisdictions with a history of political and economic stability. In terms of offshore banking centres and in terms of total deposits, the global market is dominated by the USA,
Switzerland ). Swiss law does not designate a ''capital'' as such, but the federal parliament and government are installed in Bern, while other federal institutions, such as the federal courts, are in other cities (Bellinzona, Lausanne, Luzern, Neuchâtel ...
and the
Cayman Islands The Cayman Islands () is a self-governing British Overseas Territory—the largest by population in the western Caribbean Sea. The territory comprises the three islands of Grand Cayman, Cayman Brac and Little Cayman, which are located to the ...
. A letter by the District Attorney of New York, Robert M. Morgenthau, published by ''
The New York Times ''The New York Times'' (''the Times'', ''NYT'', or the Gray Lady) is a daily newspaper based in New York City with a worldwide readership reported in 2020 to comprise a declining 840,000 paid print subscribers, and a growing 6 million paid ...
'', states that the Cayman Islands has US$1.9 trillion on deposit in 281 banks, including 40 of the world's top 50 banks, although official statistics published by the Cayman Islands Monetary Authority suggest the amounts held on deposit are actually around US$1.5 trillion. Numerous other offshore jurisdictions also provide offshore banking to a greater or lesser degree. In particular,
Jersey Jersey ( , ; nrf, Jèrri, label=Jèrriais ), officially the Bailiwick of Jersey (french: Bailliage de Jersey, links=no; Jèrriais: ), is an island country and self-governing Crown Dependencies, Crown Dependency near the coast of north-west F ...
,
Guernsey Guernsey (; Guernésiais: ''Guernési''; french: Guernesey) is an island in the English Channel off the coast of Normandy that is part of the Bailiwick of Guernsey, a British Crown Dependency. It is the second largest of the Channel Islands ...
, and the
Isle of Man ) , anthem = "O Land of Our Birth" , image = Isle of Man by Sentinel-2.jpg , image_map = Europe-Isle_of_Man.svg , mapsize = , map_alt = Location of the Isle of Man in Europe , map_caption = Location of the Isle of Man (green) in Europe ...
are also known for their well regulated banking infrastructure. Some offshore jurisdictions have steered their financial sectors away from offshore banking, thinking it was difficult to properly regulate and liable to give rise to financial scandal.


Weakened bank secrecy

Since starting to survey offshore jurisdictions on April 2, 2009, the
Organisation for Economic Co-operation and Development The Organisation for Economic Co-operation and Development (OECD; french: Organisation de coopération et de développement économiques, ''OCDE'') is an intergovernmental organization, intergovernmental organisation with 38 member countries ...
(OECD) at the forefront of a crackdown on tax evasion, will not object to governments using stolen bank data to track down tax evasion using offshore centers, such as in the
2008 Liechtenstein tax affair The 2008 Liechtenstein tax affair is a series of tax investigations in numerous countries whose governments suspect that some of their citizens may have evaded tax obligations by using banks and trusts in Liechtenstein; the affair broke open with ...
. The recent sharing of confidential UBS bank details about 285 clients suspected of willful tax evasion by the
United States Internal Revenue Service The Internal Revenue Service (IRS) is the revenue service for the United States federal government, which is responsible for collecting U.S. federal taxes and administering the Internal Revenue Code, the main body of the federal statutory ta ...
was ruled a violation of both Swiss law and the country's constitution by a Swiss federal administrative court. Nevertheless, OECD has removed 18 countries, including Switzerland, Liechtenstein and Luxembourg, from a so-called "grey list" of countries that did not offer sufficient tax transparency, and has re-categorized them as "white list" countries. Countries that do not comply may face sanctions. A notable exception is
Panama Panama ( , ; es, link=no, Panamá ), officially the Republic of Panama ( es, República de Panamá), is a transcontinental country spanning the southern part of North America and the northern part of South America. It is bordered by Cos ...
, whose canal provides it with a unique type of immunity to international pressure. Given the enlargement of the canal to accommodate larger shipping, it is unlikely that Panama would succumb in the foreseeable future to international pressure toward transparency.


List of offshore financial centres


Scope of offshore banking

Offshore banking constitutes a sizable portion of the international financial system. Some experts believe that as much as half the world's capital flows through offshore centers. OFCs are said to have 1.2% of the world's population and hold 26% of the world's wealth, including 31% of the net profits of
United States The United States of America (U.S.A. or USA), commonly known as the United States (U.S. or US) or America, is a country primarily located in North America. It consists of 50 states, a federal district, five major unincorporated territorie ...
multinationals. A group of activists state that £13-20 trillion is held in offshore accounts yet the real figure could be much higher when taking into account Chinese, Russian and US deployment of capital internationally .The Guardian (UK), 21 July 2012, "£13tn: Hoard Hidden from Taxman by Global Elite," http://www.guardian.co.uk/business/2012/jul/21/global-elite-tax-offshore-economy These often regurgitated figures have not stood up to scrutiny however, and nor has the black hole theory that capital is hoarded away from the financial and tax systems in OFCs. Much like a criminal using a wallet identified and seized as proceeds of crime, it would be counterintuitive for anyone to hold assets unused. Moreover, much of the capital flowing through vehicles in the OFCs is aggregated investment capital from pension funds, institutional and private investors which has to be deployed in industry around the World. Trillions in deposits and securities are held in offshore banks, mostly by international business companies (IBCs) and
trusts A trust is a legal relationship in which the holder of a right gives it to another person or entity who must keep and use it solely for another's benefit. In the Anglo-American common law, the party who entrusts the right is known as the "settl ...
. Among offshore banks,
Swiss bank Banking in Switzerland dates to the early eighteenth century through Switzerland's merchant trade and has, over the centuries, grown into a complex, regulated, and international industry. Banking is seen as emblematic of Switzerland, along with ...
s hold an estimated 35% of the world's private and institutional funds (or 3 trillion
Swiss franc The Swiss franc is the currency and legal tender of Switzerland and Liechtenstein. It is also legal tender in the Italian exclave of Campione d'Italia which is surrounded by Swiss territory. The Swiss National Bank (SNB) issues banknotes and the f ...
s), and the
Cayman Islands The Cayman Islands () is a self-governing British Overseas Territory—the largest by population in the western Caribbean Sea. The territory comprises the three islands of Grand Cayman, Cayman Brac and Little Cayman, which are located to the ...
(over 2 trillion US dollars in deposits) are the fifth largest banking centre globally in terms of deposits. However, data by the
Swiss National Bank The Swiss National Bank (SNB; german: Schweizerische Nationalbank; french: Banque nationale suisse; it, Banca nazionale svizzera; rm, Banca naziunala svizra) is the central bank of Switzerland, responsible for the nation's monetary policy an ...
show that the assets held by foreign persons in Swiss bank accounts declined by 28.1% between January 2008 and November 2009.


Banking advantages

*Offshore banks provide access to politically and economically stable jurisdictions. This will be an advantage for residents of areas where there is a risk of political turmoil, who fear their assets may be frozen, seized or disappear (see the ''
corralito Corralito () was the informal name for the economic measures taken in Argentina at the end of 2001 by Minister of Economy Domingo Cavallo in order to stop a bank run which implicated a limit of cash withdrawals of 250 ARS per week (at that t ...
'' for example, during the 2001
Argentine economic crisis Argentines (mistakenly translated Argentineans in the past; in Spanish (masculine) or (feminine)) are people identified with the country of Argentina. This connection may be residential, legal, historical or cultural. For most Argentines, s ...
). However, it is also the case that onshore banks offer the same advantages in terms of stability. *Some offshore banks may operate with a lower cost base and can provide higher
interest rate An interest rate is the amount of interest due per period, as a proportion of the amount lent, deposited, or borrowed (called the principal sum). The total interest on an amount lent or borrowed depends on the principal sum, the interest rate, th ...
s than the legal rate in the home country due to the narrow range of services provided and technological advancements along similar lines to challenger banks such as Revolut and Starling. Advocates of offshore banking often characterize government regulation as a form of tax on domestic banks, reducing interest rates on deposits. However, this is scarcely true now; most offshore countries offer very similar interest rates to those that are offered onshore and the offshore banks now have considerable compliance requirements making certain categories of customers (those from the USA or from higher risk profile countries) unattractive for different reasons. *Offshore finance is one of the few industries, along with
tourism Tourism is travel for pleasure or business; also the theory and practice of touring (disambiguation), touring, the business of attracting, accommodating, and entertaining tourists, and the business of operating tour (disambiguation), tours. Th ...
, in which geographically remote island countries can competitively engage. It can help developing countries source investment and create growth in their economies, and can help redistribute world finance to and from the developed and developing worlds. Equally, well-resourced and developed OFC countries such as New Zealand and Singapore offer a safe and reasonably-well administered background for these similar financial services. *Interest is generally paid by offshore banks without tax being deducted. This is an advantage to individuals who do not pay tax on worldwide income, or who do not pay tax until the tax return is agreed, or who feel that they can illegally evade tax by hiding the interest incomes. FATCA and CRS and other reporting mechanisms make the latter more difficult other than for the most blatant criminals. *Some offshore banks offer banking
services Service may refer to: Activities * Administrative service, a required part of the workload of university faculty * Civil service, the body of employees of a government * Community service, volunteer service for the benefit of a community or a p ...
that may not be available from domestic banks such as anonymous bank accounts, higher or lower rate loans based on risk and investment opportunities not available elsewhere. The number of jurisdictions offering anonymous accounts (or bearer shares) has fallen considerably in the last 20 years. *Offshore banking is often linked to other corporate structures, such as
offshore companies The term "offshore company" or “offshore corporation” is used in at least two distinct and different ways. An offshore company may be a reference to: * a company, group or sometimes a division thereof, which engages in offshoring business pr ...
,
trusts A trust is a legal relationship in which the holder of a right gives it to another person or entity who must keep and use it solely for another's benefit. In the Anglo-American common law, the party who entrusts the right is known as the "settl ...
or
foundations Foundation may refer to: * Foundation (nonprofit), a type of charitable organization ** Foundation (United States law), a type of charitable organization in the U.S. ** Private foundation, a charitable organization that, while serving a good cause ...
, which may have specific uses and may still have tax advantages and bank security solutions incorporated in particular jurisdictions.


Banking disadvantages

*Offshore bank accounts are sometimes less financially secure than domestic ones in recent times. For example, in the banking crisis which swept the world in 2008, some savers lost funds that were not insured by the country in which they were deposited. Those who had deposited with the same banks onshore received all of their money back. In 2009, The Isle of Man authorities were keen to point out that 90% of the claimants were paid, although this only referred to the number of people who had received money from their depositor compensation scheme and not the amount of money refunded. In reality, only 40% of depositor funds had been repaid: 24.8% in September 2009 and 15.2% in December 2009. In reality. Switzerland, Luxembourg and other offshore jurisdictions now often have some form of compensation scheme. Both offshore and onshore banking centres often have depositor compensation schemes. For example: The Isle of Man compensation scheme guarantees £50,000 of net deposits per individual depositor, or £20,000 for most other categories of depositor. Potential depositors should be aware that any deposits over the guaranteed amount are at risk. However, only offshore centres such as the Isle of Man have refused to compensate depositors 100% of their funds following bank collapses. Onshore depositors have been refunded in full, regardless of what the compensation limit of that country has stated. Thus, banking offshore is historically riskier than banking onshore. *Offshore banking has been associated in the past with the
underground economy A black market, underground economy, or shadow economy is a clandestine market or series of transactions that has some aspect of illegality or is characterized by noncompliance with an institutional set of rules. If the rule defines the se ...
and
organized crime Organized crime (or organised crime) is a category of transnational, national, or local groupings of highly centralized enterprises run by criminals to engage in illegal activity, most commonly for profit. While organized crime is generally th ...
, thanks to movies such as the Firm through
money laundering Money laundering is the process of concealing the origin of money, obtained from illicit activities such as drug trafficking, corruption, embezzlement or gambling, by converting it into a legitimate source. It is a crime in many jurisdictions ...
. Following
September 11, 2001 The September 11 attacks, commonly known as 9/11, were four coordinated suicide terrorist attacks carried out by al-Qaeda against the United States on Tuesday, September 11, 2001. That morning, nineteen terrorists hijacked four commerc ...
, offshore banks, onshore banks along with clearing houses, have been accused of helping various organized crime gangs,
terrorist Terrorism, in its broadest sense, is the use of criminal violence to provoke a state of terror or fear, mostly with the intention to achieve political or religious aims. The term is used in this regard primarily to refer to intentional violen ...
groups, and other state or non-state actors. However, offshore banking is a legitimate financial service used by many expatriate and international workers. *Offshore jurisdictions can be remote, and therefore costly to visit, so physical access can be difficult. This problem has been alleviated to a considerable extent with the advent and realization of
online banking Online banking, also known as internet banking, web banking or home banking, is an electronic payment system that enables customers of a bank or other financial institution to conduct a range of financial transactions through the financial inst ...
as a practical system. *Offshore private banking is usually more accessible to those with higher incomes, because of the costs of establishing and maintaining offshore accounts. However, simple savings accounts can be opened by anyone and maintained with scale fees equivalent to their onshore counterparts. The tax burden in developed countries thus falls disproportionately on middle-income groups. Historically, tax cuts have tended to result in a higher proportion of the tax take being paid by high-income groups in doubles from time to time, as previously sheltered income is brought back into the mainstream economy. The Laffer curve demonstrates this tendency. *The US
Bank Secrecy Act The Bank Secrecy Act of 1970 (BSA), also known as the Currency and Foreign Transactions Reporting Act, is a U.S. law requiring financial institutions in the United States to assist U.S. government agencies in detecting and preventing money laun ...
requires U.S. Taxpayers to file a Department of the Treasury Form 90–22.1 Report of Foreign Bank and Financial Accounts (: Each person or entity (including a bank) subject to the jurisdiction of the United States having an interest in, signature, or other authority over one or more bank, securities, or other financial accounts in a foreign country must file an FBAR if the aggregate value of such accounts at any point in a calendar year exceeds $10,000. (31 CFR 103.24). A recent District Court case in the 10th Circuit may have significantly expanded the definition of "interest in" and "other Authority". *Offshore bank accounts are sometimes touted as the solution to every legal, financial, and asset protection strategy, but the benefits are often exaggerated as in the more prominent jurisdictions, the level of Know Your Customer evidence required underplayed.


European crackdown

In their efforts to stamp down on cross border interest payments EU governments agreed to the introduction of the Savings Tax Directive in the form of the
European Union withholding tax The European Union withholding tax is the common name for a withholding tax which is deducted from interest earned by European Union residents on their investments made in another member state, by the state in which the investment is held. The Eu ...
in July 2005. A complex measure, it forced EU resident savers depositing money in any country other than the one they are resident in to choose between forfeiting tax at the point of payment, or allowing notification by the offshore banks to tax authorities in their country of residence. This tax affects any cross border interest payment to an individual resident in the EU. Furthermore, the rate of tax deducted at source has risen, making disclosure increasingly attractive. Savers' choice of action is complex; tax authorities are not prevented from enquiring into accounts previously held by savers which were not then disclosed. In 2013, the European Union's Economic and Financial Affairs Council passed new European Union (EU) directives that bankers in EU member states will share their clients' identities and transaction records automatically. This action was also encouraged by other important countries such as Australia and the US. This has been reported by most offshore service providers offering services outside of the European Union. On 27 May 2015, Switzerland signed an agreement with the EU that will align Swiss bank practices with those of EU countries, and in effect will end the special secrecy that EU-resident clients of Swiss banks had enjoyed in the past. Under the agreement, both Switzerland and EU countries will automatically exchange information on the financial accounts of each other's residents from 2018.


Banking services

It is possible to obtain the full spectrum of
financial services Financial services are the Service (economics), economic services provided by the finance industry, which encompasses a broad range of businesses that manage money, including credit unions, banks, credit-card companies, insurance companies, acco ...
from offshore banks, including: *
Savings accounts A savings account is a bank account at a retail bank. Common features include a limited number of withdrawals, a lack of cheque and linked debit card facilities, limited transfer options and the inability to be overdrawn. Traditionally, trans ...
* Corporate administration *
Credit Credit (from Latin verb ''credit'', meaning "one believes") is the trust which allows one party to provide money or resources to another party wherein the second party does not reimburse the first party immediately (thereby generating a debt) ...
* Deposit taking *
Foreign exchange The foreign exchange market (Forex, FX, or currency market) is a global decentralized or over-the-counter (OTC) market for the trading of currencies. This market determines foreign exchange rates for every currency. It includes all as ...
*
Fund management Asset management is a systematic approach to the governance and realization of value from the things that a group or entity is responsible for, over their whole life cycles. It may apply both to tangible assets (physical objects such as buildings ...
* Investment management and investment custody * Debit and Credit Cards * Letters of credit and trade finance * Trustee services * Wire- and electronic funds transfers Not every bank provides each service. Banks tend to polarise between retail services and
private banking Private banking is banking, investment and other financial services provided by banks and financial institutions primarily serving high-net-worth individuals (HNWIs)—defined as those with very high levels of income or sizable assets. A bank that ...
services. Retail services tend to be low-cost and undifferentiated, whereas private banking services tend to bring a personalised suite of services to the client.


Scale of potential tax revenue

Activists has stated that even just the lower estimate of £13 trillion on deposit in offshore accounts, if these assets earned an average 3% a year in income for their owners taxable at 30%, then the offshore funds would generate £121 billion in tax revenues, on the unrealistic assumption that no tax is paid (i.e. no one pays any tax on offshore holdings), and the equally curious narrative that 100% of those deposits would otherwise have been liable to tax. Projections are often predicated upon levying tax on the capital sums held in offshore accounts, whereas most national systems of taxation tax income and/or capital gains rather than accrued wealth. Much of the capital held in offshore banks is taxed already at source and where the capital represents profits, is reportable by the beneficial owner and will be taxed according to that owner’s tax residence. Capital is always deployed in investments which also then generates further tax revenue on those activities that have been invested in onshore.


Ownership

According to
Merrill Lynch Merrill (officially Merrill Lynch, Pierce, Fenner & Smith Incorporated), previously branded Merrill Lynch, is an American investment management and wealth management division of Bank of America. Along with BofA Securities, the investment bank ...
and
Capgemini Capgemini SE is a multinational information technology (IT) services and consulting company, headquartered in Paris, France. History Capgemini was founded by Serge Kampf in 1967 as an enterprise management and data processing company. The comp ...
's “World Wealth Report” for 2000, one third of the wealth of the world's “high-net-worth individuals” — nearly $6 trillion out of $17.5 trillion — may now be held offshore. A large portion, £6.3tn, of offshore assets, is owned by only a tiny sliver, 0.001% (around 92,000 super wealthy individuals) of the world's population. In simple terms, this reflects the inconvenience associated with establishing these accounts, not that these accounts are only for the wealthy. Most all individuals can take advantage of these accounts.


Money laundering

The IMF has said that between $600 billion and $1.5 trillion of illicit money is laundered annually, equal to 2% to 5% of global economic output. Today, most of the world's
drug money The illegal drug trade or drug trafficking is a global black market dedicated to the cultivation, manufacture, distribution and sale of prohibited drugs. Most jurisdictions prohibit trade, except under license, of many types of drugs throug ...
is allegedly laundered through offshore and lesser regulated jurisdictions such as Paraguay and the UAE and even the USA, estimated at up to $500 billion a year, more than the total income of the world's poorest 20%. Add the proceeds of tax evasion and the figure increases significantly. Another few hundred billion may come from fraud and corruption. "These offshore centers awash in money are the hub of a colossal, underground network of crime, fraud, and corruption" commented
Lucy Komisar Lucy Komisar is a New York City-based investigative journalist and drama critic. Komisar was editor of the ''Mississippi Free Press'' in Jackson, Mississippi from 1962 to 1963. The weekly covered the civil rights movement and related political and ...
quoting these statistics. In cases such as the 1MDB scandal the HSBC scandal and a host of Ponzi schemes including Bernard L Madoff Investment Securities, it has been demonstrated that a mixture of onshore and offshore individuals conspiring together to either turn a blind eye or actively collaborate in order for large scale fraud and money laundering to succeed. Some have been jailed and fined, some banks have closed yet other key actors remain relatively unscathed. Large fraud cases invariably involved the major global retail banks and real estate in the major onshore or mid shore financial centres in order for the criminals to launder the proceeds of crime into safer jurisdictions and the global financial system as a whole. ''
The New York Times ''The New York Times'' (''the Times'', ''NYT'', or the Gray Lady) is a daily newspaper based in New York City with a worldwide readership reported in 2020 to comprise a declining 840,000 paid print subscribers, and a growing 6 million paid ...
'', ''
The Wall Street Journal ''The Wall Street Journal'' is an American business-focused, international daily newspaper based in New York City, with international editions also available in Chinese and Japanese. The ''Journal'', along with its Asian editions, is published ...
'', and ''
The Los Angeles Times ''The'' () is a grammatical article in English, denoting persons or things already mentioned, under discussion, implied or otherwise presumed familiar to listeners, readers, or speakers. It is the definite article in English. ''The'' is the m ...
'' revealed that the
United States government The federal government of the United States (U.S. federal government or U.S. government) is the national government of the United States, a federal republic located primarily in North America, composed of 50 states, a city within a fede ...
, specifically the
US Treasury Department The Department of the Treasury (USDT) is the national treasury and finance department of the federal government of the United States, where it serves as an executive department. The department oversees the Bureau of Engraving and Printing and ...
and the
CIA The Central Intelligence Agency (CIA ), known informally as the Agency and historically as the Company, is a civilian intelligence agency, foreign intelligence service of the federal government of the United States, officially tasked with gat ...
, had a program to access the
SWIFT Swift or SWIFT most commonly refers to: * SWIFT, an international organization facilitating transactions between banks ** SWIFT code * Swift (programming language) * Swift (bird), a family of birds It may also refer to: Organizations * SWIFT, ...
transaction database after the
September 11 attacks The September 11 attacks, commonly known as 9/11, were four coordinated suicide terrorist attacks carried out by al-Qaeda against the United States on Tuesday, September 11, 2001. That morning, nineteen terrorists hijacked four commercia ...
(see the
Terrorist Finance Tracking Program The Terrorist Finance Tracking Program (TFTP) is a United States government program to access financial transactions on the international SWIFT network that was revealed by ''The New York Times'', ''The Wall Street Journal'' and ''The Los Angeles T ...
) further diminishing the value of offshore banking for keeping Illicit activity secret.


Regulation of international banks

In the 21st century, regulation of offshore banking has increased exponentially but not evenly, although critics usually focus on the wrong areas. The quality of the regulation is monitored by supra-national bodies such as the
International Monetary Fund The International Monetary Fund (IMF) is a major financial agency of the United Nations, and an international financial institution, headquartered in Washington, D.C., consisting of 190 countries. Its stated mission is "working to foster globa ...
(IMF). Banks are generally required to maintain capital adequacy in accordance with international standards. They must report at least quarterly to the regulator on the current state of the business. Since the late 1990s, especially following September 11, 2001, there have been a number of initiatives to increase the transparency of offshore banking, although critics such as the Association for the Taxation of Financial Transactions for the Aid of Citizens (ATTAC)
non-governmental organization A non-governmental organization (NGO) or non-governmental organisation (see spelling differences) is an organization that generally is formed independent from government. They are typically nonprofit entities, and many of them are active in h ...
(NGO) maintain that they have been insufficient. A few examples of these are: *The tightening of
anti-money laundering Money laundering is the process of concealing the origin of money, obtained from illicit activities such as drug trafficking, corruption, embezzlement or gambling, by converting it into a legitimate source. It is a crime in many jurisdicti ...
regulations in many countries including most popular offshore banking locations means that bankers and other service providers are required by law to report suspicion of money laundering to the local
police The police are a constituted body of persons empowered by a state, with the aim to enforce the law, to ensure the safety, health and possessions of citizens, and to prevent crime and civil disorder. Their lawful powers include arrest and t ...
authority, regardless of
banking secrecy Banking secrecy, alternately known as financial privacy, banking discretion, or bank safety,Guex (2000), p. 240 is a conditional agreement between a bank and its clients that all foregoing activities remain secure, confidential, and private. Mos ...
rules. There is more international co-operation between police authorities. *In the US the
Internal Revenue Service The Internal Revenue Service (IRS) is the revenue service for the United States federal government, which is responsible for collecting U.S. federal taxes and administering the Internal Revenue Code, the main body of the federal statutory ta ...
(IRS) introduced Qualifying Intermediary requirements, which mean that the names of the recipients of US-source investment income are passed to the IRS. *Following 9/11 the US introduced the
USA PATRIOT Act The USA PATRIOT Act (commonly known as the Patriot Act) was a landmark Act of the United States Congress, signed into law by President George W. Bush. The formal name of the statute is the Uniting and Strengthening America by Providing Appro ...
, which authorizes the US authorities to seize the assets of a bank, where it is believed that the bank holds assets for a suspected criminal. Similar measures have been introduced in some other countries. *The
European Union The European Union (EU) is a supranational political and economic union of member states that are located primarily in Europe. The union has a total area of and an estimated total population of about 447million. The EU has often been des ...
has introduced sharing of information between certain jurisdictions, and enforced this in respect of certain controlled centers, such as the UK Offshore Islands, so that tax information is able to be shared in respect of interest. *The
Bank Secrecy Act The Bank Secrecy Act of 1970 (BSA), also known as the Currency and Foreign Transactions Reporting Act, is a U.S. law requiring financial institutions in the United States to assist U.S. government agencies in detecting and preventing money laun ...
requires that Taxpayers file an FBAR for accounts outside of the United States that have balances in excess of $10,000 *
FATCA The Foreign Account Tax Compliance Act (FATCA) is a 2010 United States federal law requiring all non-U.S. foreign financial institutions (FFIs) to search their records for customers with indicia of a connection to the U.S., including indication ...
(the Foreign Account Tax Compliance Act) became law in 2010 and "targets tax non-compliance by US taxpayers with foreign accounts ndfocuses on reporting by US taxpayers about certain foreign financial accounts and offshore assets ndforeign financial institutions about financial accounts held by U.S. taxpayers or foreign entities in which U.S. taxpayers hold a substantial ownership interest."
Joseph Stiglitz Joseph Eugene Stiglitz (; born February 9, 1943) is an American New Keynesian economist, a public policy analyst, and a full professor at Columbia University. He is a recipient of the Nobel Memorial Prize in Economic Sciences (2001) and the Joh ...
, 2001 Nobel laureate for economics and former
World Bank Chief Economist The Chief Economist of the World Bank (full title: Senior Vice President for Development Economics and Chief Economist of the World Bank Group) is the senior economist at the World Bank Group, tasked with providing intellectual leadership and direct ...
, told to reporter Lucy Komisar, investigating on the
Clearstream Clearstream is a financial services company that specializes in the settlement of securities transactions and is owned by Deutsche Börse AG. It provides settlement and custody as well as other related services for securities across all asse ...
scandal:
"You ask why, if there's an important role for a regulated banking system, do you allow a non-regulated banking system to continue? It's in the interest of some of the moneyed interests to allow this to occur. It's not an accident; it could have been shut down at any time. If you said the US, the UK, the major G7 banks will not deal with offshore bank centers that don't comply with G7 banks regulations, these banks could not exist. They only exist because they engage in transactions with standard banks."
This viewpoint did not age well in the wake of scandals at Goldman Sachs, Wells Fargo, Barclays, HSBC, and others. It is possible to own your own personal offshore bank which are in a different regulatory class to those that may offer services to the public, so they are really only used by medium to large multinational corporations or large family offices.


See also

*
Bank secrecy Banking secrecy, alternately known as financial privacy, banking discretion, or bank safety,Guex (2000), p. 240 is a conditional agreement between a bank and its clients that all foregoing activities remain secure, confidential, and private. Mo ...
*
Banking in Singapore The economy of Singapore is a highly developed free-market economy with dirigiste characteristics. Singapore's economy has been previously ranked as the most open in the world, the joint 4th-least corrupt, and the most pro-business. Singap ...
*
Banking in Switzerland Banking in Switzerland dates to the early eighteenth century through Switzerland's merchant trade and has, over the centuries, grown into a complex, regulated, and international industry. Banking is seen as emblematic of Switzerland, along with ...
*
Corporate haven Corporate haven, corporate tax haven, or multinational tax haven is used to describe a jurisdiction that multinational corporations find attractive for establishing subsidiaries or incorporation of regional or main company headquarters, mostly du ...
*
International Banking Facility An International Banking Facility (IBF) is a separate account established by a U.S. bank, or a US branch/subsidiary of a foreign bank, or an Edge Act Corporation in the United States to offer services to only non-US residents and institutions. The s ...
*
List of finance topics The following outline is provided as an overview of and topical guide to finance: Finance – addresses the ways in which individuals and organizations raise and allocate monetary resources over time, taking into account the risks entailed in ...
*
Private bank Private banks are banks owned by either the individual or a general Partner (business rank), partner(s) with limited partner(s). Private banks are not incorporation (business), incorporated. In any such case, creditors can look to both the "enti ...
*
Tax haven A tax is a compulsory financial charge or some other type of levy imposed on a taxpayer (an individual or legal entity) by a governmental organization in order to fund government spending and various public expenditures (regional, local, or n ...
*
Dominica Dominica ( or ; Kalinago: ; french: Dominique; Dominican Creole French: ), officially the Commonwealth of Dominica, is an island country in the Caribbean. The capital, Roseau, is located on the western side of the island. It is geographically ...
* Citibank IPB Singapore *
Panama Papers The Panama Papers ( es, Papeles de Panamá) are 11.5 million leaked documents (or 2.6 terabytes of data) that were published beginning on April 3, 2016. The papers detail financial and attorney–client information for more than 214,488 ...


References


External links


Economist Interview about Offshore Banking



Global Forum on Transparency and Exchange of Information for Tax Purposes, OECD

Offshore Bank Licenses and Their Differences in Major Jurisdictions - IFLS Corporate Services Ltd
{{DEFAULTSORT:Offshore Bank International taxation Banks Organized crime terminology Offshore finance Tax avoidance Banking crimes