One of the main tasks that wealthy individuals and companies face is finding efficient mechanisms of protecting their capitals. Economic crises, problems in the home country’s banking sphere, home currency depreciation, the risks of losing assets in case of legal prosecution or criminal attacks – all these factors make affluent people open accounts somewhere where their money is going to be safe, namely, in offshore banks.

Let us consider the specifics of setting up an offshore bank account, list the main reasons why you may want to open such a bank account, and discuss the legality of this procedure.

What is an ‘offshore bank account’ and who needs it

The terms ‘offshore banks’ and ‘offshore bank accounts’ can be used in two senses that are a bit different. In the narrow sense, the terms refer to the financial institutions that are located in jurisdictions that offer special incentives to foreign nationals opening accounts with them. These jurisdictions can be independent states, overseas territories of Great Britain, the Netherlands, France or some other colonial power, or they can be small specially designated areas of a large state. As you probably have heard, a large number of countries located in different parts of the world have Free Trade Zones or Free Economic Zones. Besides, some states of the USA can also be referred to as ‘offshore zones’ because they offer some unique opportunities to foreign investors. In an attempt to allure foreign capital, some jurisdictions offer low or zero tax rates, minimize control on the part of auditing agencies, let foreign investors do little paperwork, etc. One feature that offshore jurisdictions are famous for is the high level of confidentiality that they offer.

Some researchers claim that the first offshore zones were located around the city of Athens in ancient times. Traders passing through Athens had to pay a fee (some sort of a customs duty) but if they took a detour around the city, they were legally allowed not to pay the fee. It is true that the roundabout way was longer but the important factor is that the traders used a legal way of saving money.

In the wide sense, the phrase ‘offshore bank account’ refers to a bank account in any foreign country or in a country that is not the country of your residence. Below we are going to use the phrase mostly in its wide sense, as a synonym to ‘foreign bank account’.

People use offshore bank accounts for wealth management, capital accumulation, and any banking operations that they have to perform in a foreign country. Because the bank is located in a foreign state, it is not so easily accessible for the fiscal authorities of the bank account holder’s home country. This is one of the reasons why rich people and corporations open offshore bank accounts: they want their financial information to be more private.

The most popular jurisdictions where the rich open bank accounts include the British Virgin Islands, the Caymans, Cyprus, Panama, Liechtenstein, and others. Depending on the offshore bank that you choose, very many things can be quite dissimilar: the timeframes of account opening, the cost of banking services, the list of the required documents, the possible uses of the account, the minimum initial deposit amount, the security deposit amount, and so on.

Similarly to taking a detour around Athens in Ancient Greece, opening an offshore bank account or registering an offshore company is absolutely legal. Needless to say, it is legal only if you are not going to use your offshore bank account or company for such illegal activities as drug trafficking or laundering criminal money. In any case, however, we highly recommend that you acquaint yourself with the legal norms that regulate banking services for foreigners in the country where you would like to set up a bank account. In addition, explore your home country’s legislation related to offshore banking. You certainly realize that your dear tax inspector is not going to be pleased to find out that you are trying to evade taxes with the help of an offshore bank account.  

Reasons for opening an offshore bank account

A personal or a corporate account with an offshore bank is an instrument of protecting your financial assets first and foremost. You can protect them from economic instability in your home country, from a possible collapse of the bank where you keep your money (you remember about eggs and baskets, don’t you?), from seizures and raids, etc. In addition, your competitors and greedy relatives will have less information about the amount of your wealth. People open offshore bank accounts for the following main reasons: 

  • They can keep their money in a reliable and secure bank.
  • They can keep their capital in various currencies thus protecting themselves from currency fluctuations.
  • They can access their money from wherever they are at the moment.
  • They can make investments in foreign countries with ease.
  • Offshore banks keep their clients’ information highly confidential.

What is the main requirement that you have to meet to be able to obtain services from an offshore bank? How can you get onboard? The most important thing that you have to do is bring some conclusive evidence that the money that you are going to put in the bank comes from legal sources. You have to realize that banks are monitored very closely by the regulating authorities. If one of the bank’s clients is found to evade taxes, launder money, or (God forbid) finance terrorists, the bank administrators will be in big trouble indeed. Huge fines will follow and the Head of the Compliance Department may even face a prison sentence! Understandably, the bank officers do not want to pay millions in fines nor go to jail and for this reason, they are going to be highly inquisitive about the sources of your income.

We do not mean to scare you away: if you are a law-abiding person and you have earned you money in legal ways, opening an offshore bank account is not going to be overly difficult. In any case, however, it would be wise of you to seek some professional advice if you are planning to set up a bank account in a foreign country.