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An offshore bank is a
bank A bank is a financial institution that accepts Deposit account, 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 m ...
that is operated and 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 centres. 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) 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 (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 money laundering and to ma ...
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 illegally concealing the origin of money obtained from illicit activities (often known as dirty money) such as drug trafficking, sex work, terrorism, corruption, and embezzlement, and converting the funds i ...
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 law ...
. 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 refers to monetary resources and to the study and Academic discipline, discipline of money, currency, assets and Liability (financial accounting), liabilities. As a subject of study, is a field of Business administration, Business Admin ...
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, alternatively known as financial privacy, banking discretion, or bank safety,Guex (2000), p. 240 is a Non-disclosure agreement, conditional agreement between a bank and its clients that all foregoing activities remain secure, Con ...
. * Little or no corporate
tax A tax is a mandatory financial charge or levy imposed on an individual or legal entity by a governmental organization to support government spending and public expenditures collectively or to regulate and reduce negative externalities. Tax co ...
ation via
tax havens A tax haven is a term, often used pejoratively, to describe a place with very low tax rates for non-domiciled investors, even if the official rates may be higher. In some older definitions, a tax haven also offers financial secrecy. However, ...
. * Protection against local, political, or financial instability. While the term originates from the
Channel Islands The Channel Islands are an archipelago in the English Channel, off the French coast of Normandy. They are divided into two Crown Dependencies: the Jersey, Bailiwick of Jersey, which is the largest of the islands; and the Bailiwick of Guernsey, ...
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 Northwestern Europe, off the coast of European mainland, the continental mainland. It comprises England, Scotlan ...
, and while most offshore banks are located in
island nation An island country, island state, or island nation is a country whose primary territory consists of one or more islands or parts of islands. Approximately 25% of all independent countries are island countries. Island countries are historically ...
s 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 Andorra, officially the Principality of Andorra, is a Sovereignty, sovereign landlocked country on the Iberian Peninsula, in the eastern Pyrenees in Southwestern Europe, Andorra–France border, bordered by France to the north and Spain to A ...
,
Luxembourg Luxembourg, officially the Grand Duchy of Luxembourg, is a landlocked country in Western Europe. It is bordered by Belgium to the west and north, Germany to the east, and France on the south. Its capital and most populous city, Luxembour ...
, and
Switzerland Switzerland, officially the Swiss Confederation, is a landlocked country located in west-central Europe. It is bordered by Italy to the south, France to the west, Germany to the north, and Austria and Liechtenstein to the east. Switzerland ...
may be described as "offshore banks". Offshore banking has previously been associated with the
underground economy A black market is a clandestine market or series of transactions that has some aspect of illegality, or is not compliant with an institutional set of rules. If the rule defines the set of goods and services whose production and distribut ...
and
organized crime Organized crime is a category of transnational organized crime, transnational, national, or local group of centralized enterprises run to engage in illegal activity, most commonly for profit. While organized crime is generally thought of as a f ...
,
tax evasion Tax evasion or tax fraud 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 red ...
and
money laundering Money laundering is the process of illegally concealing the origin of money obtained from illicit activities (often known as dirty money) such as drug trafficking, sex work, terrorism, corruption, and embezzlement, and converting the funds i ...
; 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 debtor 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 f ...
. 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 The United States federal government and most state governments impose an income tax. They are determined by applying a tax rate, which may increase as income increases, to taxable income, which is the total income less allowable deductions. ...
, for example, are required to declare, on penalty of
perjury Perjury (also known as forswearing) 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 insta ...
, any foreign bank accounts—which may or may not be
numbered bank account Numbered bank accounts are bank accounts wherein the identity of the holder is replaced with a multi-digit number known only to the client and selected private bankers. Although these accounts do add another layer of banking secrecy, they are not c ...
s—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, also known as 9/11, were four coordinated Islamist terrorist suicide attacks by al-Qaeda against the United States in 2001. Nineteen terrorists hijacked four commercial airliners, crashing the first two into ...
, there have been many calls to increase regulation on international finance, in particular concerning offshore banks, OFCs, crypto currency and
clearing houses Clearing or The Clearing may refer to: Arts and media * ''Clearing'' (Fred Frith album), 2001 * Clearing (Hyd album), 2022 * ''The Clearing'' (film), a 2004 drama film * The Clearing (EP), a 2006 EP by Weatherbox * ''The Clearing'' (Sleep for S ...
such as
Clearstream Clearstream or the Clearstream Group is the central securities depository arm of the Deutsche Börse Group. It provides settlement and custody as well as other related services for securities across all asset classes. Its subsidiary in Luxembour ...
, 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 US,
Switzerland Switzerland, officially the Swiss Confederation, is a landlocked country located in west-central Europe. It is bordered by Italy to the south, France to the west, Germany to the north, and Austria and Liechtenstein to the east. Switzerland ...
and the
Cayman Islands The Cayman Islands () is a self-governing British Overseas Territories, British Overseas Territory, and the largest by population. The territory comprises the three islands of Grand Cayman, Cayman Brac and Little Cayman, which are located so ...
. A letter by the District Attorney of New York, Robert M. Morgenthau, published by ''
The New York Times ''The New York Times'' (''NYT'') is an American daily newspaper based in New York City. ''The New York Times'' covers domestic, national, and international news, and publishes opinion pieces, investigative reports, and reviews. As one of ...
'', 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 ( ; ), officially the Bailiwick of Jersey, is an autonomous and self-governing island territory of the British Islands. Although as a British Crown Dependency it is not a sovereign state, it has its own distinguishing civil and gov ...
,
Guernsey Guernsey ( ; Guernésiais: ''Guernési''; ) is the second-largest island in the Channel Islands, located west of the Cotentin Peninsula, Normandy. It is the largest island in the Bailiwick of Guernsey, which includes five other inhabited isl ...
, and the
Isle of Man The Isle of Man ( , also ), or Mann ( ), is a self-governing British Crown Dependency in the Irish Sea, between Great Britain and Ireland. As head of state, Charles III holds the title Lord of Mann and is represented by a Lieutenant Govern ...
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; , OCDE) is an international organization, intergovernmental organization with 38 member countries, founded in 1961 to stimulate economic progress and international trade, wor ...
(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 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 Federal government of the United States, United States federal government, which is responsible for collecting Taxation in the United States, U.S. federal taxes and administerin ...
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, officially the Republic of Panama, is a country in Latin America at the southern end of Central America, bordering South America. It is bordered by Costa Rica to the west, Colombia to the southeast, the Caribbean Sea to the north, and ...
, 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 (USA), also known as the United States (U.S.) or America, is a country primarily located in North America. It is a federal republic of 50 U.S. state, states and a federal capital district, Washington, D.C. The 48 ...
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. 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 owner of property, or any transferable right, gives it to another to manage and use solely for the benefit of a designated person. In the English common law, the party who entrusts the property is k ...
. Among offshore banks,
Swiss bank Banking in Switzerland dates to the early 18th century through Switzerland's merchant trade and over the centuries has grown into a complex and regulated international industry. Banking is seen as very emblematic of Switzerland and the countr ...
s hold an estimated 35% of the world's private and institutional funds (or 3 trillion
Swiss franc The Swiss franc, or simply the 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) iss ...
s), and the
Cayman Islands The Cayman Islands () is a self-governing British Overseas Territories, British Overseas Territory, and the largest by population. The territory comprises the three islands of Grand Cayman, Cayman Brac and Little Cayman, which are located so ...
(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; ; ; ; ) is the central bank of Switzerland, responsible for the nation's monetary policy and the sole issuer of Swiss franc banknotes. The primary goal of its mandate is to ensure price stability, while taking econ ...
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 () is 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 ti ...
'' for example, during the 2001
1998–2002 Argentine great depression The 1998–2002 Argentine great depression was an economic depression in Argentina, which began in the third quarter of 1998 and lasted until the second quarter of 2002. It followed fifteen years of Economic history of Argentina#Stagnation (197 ...
). 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, ...
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 US 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, and the Commerce, commercial activity of providing and supporting such travel. World Tourism Organization, UN Tourism defines tourism more generally, in terms which go "beyond the common perception of tourism as ...
, 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 ...
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, Corporate group, group or sometimes a division thereof, which engages in offshorin ...
,
trusts A trust is a legal relationship in which the owner of property, or any transferable right, gives it to another to manage and use solely for the benefit of a designated person. In the English common law, the party who entrusts the property is k ...
or
foundations Foundation(s) or The Foundation(s) may refer to: Common uses * Foundation (cosmetics), a skin-coloured makeup cream applied to the face * Foundation (engineering), the element of a structure which connects it to the ground, and transfers loads f ...
, 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. 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 is a clandestine market or series of transactions that has some aspect of illegality, or is not compliant with an institutional set of rules. If the rule defines the set of goods and services whose production and distribut ...
and
organized crime Organized crime is a category of transnational organized crime, transnational, national, or local group of centralized enterprises run to engage in illegal activity, most commonly for profit. While organized crime is generally thought of as a f ...
, thanks to movies such as the Firm through
money laundering Money laundering is the process of illegally concealing the origin of money obtained from illicit activities (often known as dirty money) such as drug trafficking, sex work, terrorism, corruption, and embezzlement, and converting the funds i ...
. Following
September 11, 2001 The September 11 attacks, also known as 9/11, were four coordinated Islamist terrorist suicide attacks by al-Qaeda against the United States in 2001. Nineteen terrorists hijacked four commercial airliners, crashing the first two into ...
, 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 violence against non-combatants to achieve political or ideological aims. The term is used in this regard primarily to refer to intentional violence during peacetime or in the context of war aga ...
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, virtual banking, web banking or home banking, is a system that enables customers of a bank or other financial institution to conduct a range of financial transactions through the financial institut ...
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 In economics, the Laffer curve illustrates a theoretical relationship between tax rate, rates of taxation and the resulting levels of the government's tax revenue. The Laffer curve assumes that no tax revenue is raised at the extreme tax rates ...
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.


Banking services

It is possible to obtain the full spectrum of
financial services Financial services are service (economics), economic services tied to finance provided by financial institutions. Financial services encompass a broad range of tertiary sector of the economy, service sector activities, especially as concerns finan ...
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, transact ...
* 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. By trading volume, it i ...
*
Fund management Asset management is a systematic approach to the governance and realization of all value for which a group or entity is responsible. It may apply both to tangible assets (physical objects such as complex process or manufacturing plants, infrastru ...
* 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 a general description for banking, investment and other financial services provided by banks and financial institutions primarily serving high-net-worth individuals (HNWIs) – those with very high income or substantial asset ...
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 Lynch, Pierce, Fenner & Smith Incorporated, doing business as Merrill, and previously branded Merrill Lynch, is an American investment management and wealth management division of Bank of America. Along with BofA Securities, the investm ...
and
Capgemini Capgemini SE is a French Multinational corporation, 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 d ...
'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 is allegedly laundered through offshore and lesser regulated jurisdictions such as Paraguay and the UAE and even the US, 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 (born 1942) 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 relat ...
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'' (''NYT'') is an American daily newspaper based in New York City. ''The New York Times'' covers domestic, national, and international news, and publishes opinion pieces, investigative reports, and reviews. As one of ...
'', ''
The Wall Street Journal ''The Wall Street Journal'' (''WSJ''), also referred to simply as the ''Journal,'' is an American newspaper based in New York City. The newspaper provides extensive coverage of news, especially business and finance. It operates on a subscriptio ...
'', and ''
The Los Angeles Times The ''Los Angeles Times'' is an American daily newspaper that began publishing in Los Angeles, California, in 1881. Based in the Greater Los Angeles city of El Segundo since 2018, it is the sixth-largest newspaper in the U.S. and the larges ...
'' revealed that the
United States government The Federal Government of the United States of America (U.S. federal government or U.S. government) is the Federation#Federal governments, national government of the United States. The U.S. federal government is composed of three distinct ...
, 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. It is one of 15 current U.S. government departments. The department oversees the Bureau of Engraving and ...
and the
CIA The Central Intelligence Agency (CIA; ) is a civilian foreign intelligence service of the federal government of the United States tasked with advancing national security through collecting and analyzing intelligence from around the world and ...
, 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 * SWIF ...
transaction database after the
September 11 attacks The September 11 attacks, also known as 9/11, were four coordinated Islamist terrorist suicide attacks by al-Qaeda against the United States in 2001. Nineteen terrorists hijacked four commercial airliners, crashing the first two into ...
(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 funded by 191 member countries, with headquarters in Washington, D.C. It is regarded as the global lender of las ...
(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) is an independent, typically nonprofit organization that operates outside government control, though it may get a significant percentage of its funding from government or corporate sources. NGOs often focus ...
(NGO) maintain that they have been insufficient. A few examples of these are: *The tightening of anti-money laundering 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 Law enforcement organization, a constituted body of Law enforcement officer, people empowered by a State (polity), state with the aim of Law enforcement, enforcing the law and protecting the Public order policing, public order ...
authority, regardless of banking secrecy 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 Federal government of the United States, United States federal government, which is responsible for collecting Taxation in the United States, U.S. federal taxes and administerin ...
(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 September 11 attacks, also known as 9/11, were four coordinated Islamist terrorist suicide attacks by al-Qaeda against the United States in 2001. Nineteen terrorists hijacked four commercial airliners, crashing the first two into ...
the US introduced the USA PATRIOT Act, 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 union, supranational political union, political and economic union of Member state of the European Union, member states that are Geography of the European Union, located primarily in Europe. The u ...
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 U.S. 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 indications in r ...
(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, political activist, and a professor at Columbia University. He is a recipient of the Nobel Memorial Prize in Economic Sciences (2 ...
, 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 direc ...
, told to reporter Lucy Komisar, investigating on the
Clearstream Clearstream or the Clearstream Group is the central securities depository arm of the Deutsche Börse Group. It provides settlement and custody as well as other related services for securities across all asset classes. Its subsidiary in Luxembour ...
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."


See also

*
Bank secrecy Banking secrecy, alternatively known as financial privacy, banking discretion, or bank safety,Guex (2000), p. 240 is a Non-disclosure agreement, conditional agreement between a bank and its clients that all foregoing activities remain secure, Con ...
*
Banking in Singapore The economy of Singapore is a highly developed mixed market economy with dirigiste characteristics. Singapore's economy has been consistently ranked as the most open in the world, the joint 4th-least corrupt, and the most pro-business. Singa ...
*
Banking in Switzerland Banking in Switzerland dates to the early 18th century through Switzerland's merchant trade and over the centuries has grown into a complex and regulated international industry. Banking is seen as very Culture of Switzerland, emblematic of Swit ...
*
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 (business), incorporation of regional or main company ...
* International Banking Facility *
List of finance topics A list is a set of discrete items of information collected and set forth in some format for utility, entertainment, or other purposes. A list may be memorialized in any number of ways, including existing only in the mind of the list-maker, but ...
*
Private bank Private banks are banks owned by either the individual or a general partner(s) with limited partner(s). Private banks are not incorporated. In any such case, creditors can look to both the "entirety of the bank's assets" as well as the entire ...
*
Tax haven A tax haven is a term, often used pejoratively, to describe a place with very low tax rates for Domicile (law), non-domiciled investors, even if the official rates may be higher. In some older definitions, a tax haven also offers Bank secrecy, ...
*
Dominica Dominica, officially the Commonwealth of Dominica, is an island country in the Caribbean. It is part of the Windward Islands chain in the Lesser Antilles archipelago in the Caribbean Sea. The capital, Roseau, is located on the western side of t ...
* Citibank IPB Singapore *
Panama Papers The Panama Papers () are 11.5 million leaked documents (or 2.6 terabytes of data) published beginning April 3, 2016. The papers detail financial and attorney–client information for more than 214,488 offshore entities. These document ...


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