Offshore Banking

Who said that business and pleasure can’t mix? The islands of the Caribbean, known first and foremost as tourist destinations of sun, sea and sand, are nevertheless fast developing (or have developed) as international financial service centres of good repute. Nigel Bennett answers some of the basic questions about offshore banking, a fast-growing banking service in the Caribbean

Illustration by Christopher Cozier

What is offshore banking?

Offshore banking is the provision of banking services in a territory other than that in which the individual resides.

What factors should one consider when choosing an offshore banking territory?

1. Reputation.

This is the single most important factor for the potential investor. No effort should be spared to ensure that there exists in the proposed territory an offshore banking environment that is not only well regulated but effectively supervised. While all of the territories will contend that they are “reputable”, evidence has shown that some territories are more “accommodating” than others, resulting in a higher prevalence of laundered funds and other white-collar criminal activity. It is to be noted by way of caution that neither the volume of business generated by a territory nor the vast number of banks incorporated indicate that the territory is reputable. In fact, the contrary may be true. The level of scrutiny exercised by the Central Bank or other regulatory agency as well as the extent of due diligence exercised by the offshore banker would be a more appropriate yardstick.

2. Individual needs.

Gone are the days when investors came to an offshore territory simply to avoid taxes. Offshore territories are increasingly being viewed as centres for legitimate international business activity. There are myriad benefits available today from which the client can choose. The question to be asked is: what do you want? Different territories offer different benefits. Do you want low taxes, no taxes, tax-free holidays? Is confidentiality your main concern? Or is it the proximity? All these benefits need to be weighted against your individual needs.

What benefits can one derive from using an offshore bank?

1. Facilities.

By using a private banking facility, you can set up a savings account or fixed deposit in your choice of hard currency or multiple currencies, gain higher rates of interest and lower rates of tax. Offshore banks also provide money market operations, trade financing, fund management, loans and advances. In addition, offshore banking clients gain access to specialised professional staff who can structure tailor-made financial packages to conform to their clients’ individual demands.

2. Fiscal benefits.

All offshore banking jurisdictions offer fiscal incentives of one form or another. Typically, these include tax concessions on profits, capital gains, estate and succession duties as well as Government guarantees to safeguard against future changes in government policies. Tax benefits are as wide and far-reaching as the number of territories that offer them. Potential clients therefore need to consult with an independent tax planner in order to determine the territory and structure which is most appropriate for them.

3. Asset Protection.

Because of the highly litigious nature of the North American market, successful businessmen and professionals who are subject to unlimited liability for negligence, and other high net worth individuals, may wish to consider using an offshore trust or other structure as a means of safeguarding their assets against adverse litigation. This can all be achieved through offshore banks. Care must be taken to ensure that the structure is put in place ahead of time in order that it is not subject to undue scrutiny by onshore tax authorities. It must be seen as a shield protecting one’s assets as opposed to a sword serving to frustrate a successful litigant.

4. Estate Planning.

There are many South American territories where provisions relating to forced heirship exist. Consequently, the testator is unable to dispose of his estate as he wishes. In order to circumvent these rules, one may wish to consider some estate planning options. These facilities can be put in place with the assistance of a private banker.

5. Security and Confidentiality.

This forms the cornerstone upon which banking services and, in particular, private banking services are based. All offshore banking territories guarantee some measure of confidentiality not typically available onshore. In Barbados and Antigua, for example, there is specific legislation prohibiting employees of banks and regulatory agencies and other closely connected persons from disclosing information in a manner incompatible with their official duties. Some territories offer nominee shareholders, officers and directors which effectively results in complete anonymity.

However, the desire for complete confidentiality must be delicately balanced against the need to discourage money-laundering activity. It is against this background that many Caribbean territories are moving towards exchange of information legislation or are signatories to international agreements which necessitate disclosure of information in relation to suspected illegal transactions. In essence, if your transaction is legitimate, you have nothing to fear.

How does it work?

As with any other financial transaction, the investor would need to retain the services of a number of professional advisors. Presumably, the first order of business would be your onshore accountant/tax planner. He or she would analyse your financial position onshore, identify your primary tax requirements and then set about locating a suitable offshore territory.

Alternatively, the investor could approach an offshore bank or offshore professional advisor directly and instruct as to his current tax position onshore in order that an investment structure can be identified which is compatible with the client’s needs. Once the transaction is put in place, there may be need for on-going legal, accounting or corporate secretarial support. These services can be provided from the offshore base by suitably qualified and experienced personnel.

The increased globalisation of economies, rapid technological developments and increasing challenges faced by high net worth individuals to wealth accumulation all suggest that the future of the offshore banking industry is secure. And when the business of the day is over, there is still the sun, sea and sand.

Now who said that business and pleasure can’t mix?

Nigel A. Bennett is an Attorney-at-Law at Croton Court Chambers, Barbados