Tag Archive for: international bank license

Setting Up an International Bank in the Bahamas

Setting Up an International Bank in the Bahamas

In this post, I’ll look at the requirements to set up an international bank in the Bahamas. This jurisdiction is looking to make a comeback after the FTX mess and needs one or two big time successes as soon as possible in the international banking industry. 

When I talk about an international banking license, or an offshore banking license, I mean a stand-alone bank that offers services to persons and companies outside of the Bahamas. Of course, there are many big banks with licenses in the Bahamas, but these are typically booking centers for tax efficiency and not fully operational banks.

In the following on setting up an international bank in the Bahamas, I’ll first pontificate on the industry in general and then some history of the island. I will end with my thoughts about setting up a bank in the Bahamas, including capital and other considerations. 

Banking Industry in Bahamas

The offshore or international banking industry in The Bahamas is an important part of the country’s financial sector. Here’s an overview of the industry. There are links to the Central Bank’s website below if you would like to do your own research..

The Bahamas has a long history of being a prominent offshore banking hub. Its popularity is partly due to its political stability, strategic location, and favorable regulatory environment. The country has also made efforts to comply with international standards on transparency and information exchange.

The banking sector in The Bahamas is regulated by the Central Bank of The Bahamas. The regulations are designed to conform with international best practices while also encouraging growth in the sector. The Bahamas has worked to align its regulatory practices with international standards, including the requirements set out by the Basel Committee on Banking Supervision and the Financial Action Task Force (FATF).

Banks in The Bahamas can be categorized into two main types:

  • Domestic Banks: These provide banking services to residents and are involved in the domestic economy.
  • International Banks: These mainly serve non-residents and are often referred to as offshore banks. They can be further subdivided into Restricted and Unrestricted Licensees. Restricted banks typically serve a small client base, while unrestricted banks offer full banking services to international clients.

There are dozens of international banks licensed in The Bahamas. It is still relatively small compared to Puerto Rico with 60 international banks operating on the island. The Central Bank of The Bahamas regularly publishes a list of licensed financial institutions on its website, and this would be the best source for the most current information.

The offshore banking industry in The Bahamas has faced challenges in recent years due to increased international scrutiny, demands for transparency, and pressure to comply with international tax and anti-money laundering regulations. However, the country’s commitment to maintaining a reputable and compliant jurisdiction has led to opportunities to attract legitimate business.

The Bahamas remains a significant player in the international banking industry, with a favorable regulatory environment and a strategic location. The industry’s success depends on its ability to balance growth with compliance with international standards and regulations. For the most accurate and up-to-date information, it would be advisable to consult the Central Bank of The Bahamas or other authoritative sources.

History of the Bahamas

The history of The Bahamas is rich and complex, shaped by its indigenous cultures, colonization, slavery, and its development as a modern nation. Here’s an overview of the major periods in Bahamian history:

Pre-Columbian Period

The Bahamas was originally inhabited by the Lucayan, a branch of the Taino people who migrated north from Hispaniola. The Lucayan civilization was present in The Bahamas for centuries before the arrival of Europeans, living primarily through fishing, farming, and trading.

European Discovery and Colonization

Christopher Columbus made his first landfall in the New World on an island in The Bahamas, which he named San Salvador, in 1492. Following his arrival, the Spanish began enslaving the Lucayan people, and within 25 years, the indigenous population had been effectively wiped out.

In 1648, English Puritans known as the Eleutheran Adventurers established the first European settlement in The Bahamas. The islands became a haven for pirates in the late 17th and early 18th centuries, with the infamous pirate Blackbeard once calling Nassau home.

British Rule

The Bahamas became a British Crown colony in 1718, which led to the suppression of piracy. The islands became part of the British Empire’s slave trade, with plantations developing around the cultivation of cotton and other crops. After the American Revolution, many British Loyalists moved to The Bahamas, bringing enslaved Africans with them.

Slavery was abolished throughout the British Empire in 1834, leading to a transition in the Bahamian economy. The Bahamas continued as a British colony, with the economy shifting towards sponging, fishing, and later tourism.

Path to Independence

The movement towards self-government began to gain momentum in the mid-20th century. In 1964, The Bahamas achieved internal self-governance, with Britain retaining control over foreign affairs and defense.

The Progressive Liberal Party (PLP), led by Sir Lynden Pindling, played a significant role in leading the country towards full independence. On July 10, 1973, The Bahamas became an independent nation within the Commonwealth, with Pindling serving as the first Prime Minister.

Modern Era

Since independence, The Bahamas has developed into a prosperous country, largely thanks to its tourism industry, which is one of the main pillars of the economy. The country’s strategic location and favorable tax laws have also made it a significant financial hub.

Challenges in the modern era include managing economic dependencies, environmental sustainability, and addressing issues related to inequality and social development.

Setting Up an International Bank in the Bahamas

Building a new international bank in the Bahamas would be an amazing opportunity. It would require negotiating with the government and regulators on banking, restoring Bahama’s reputation, and building a bank that is “too big to fail.” The montra from regulators at the new players such as BVI and Bermuda is, don’t fail like Bahamas did with FTX. 

Here are my thoughts on banking jurisdictions today: Banking Jurisdictions 

One note on banking licenses: When I refer to an international bank license, I mean a bank that is doing business with persons and companies outside of its licensing jurisdiction. Also, I do not include international licenses that are owned by large banks which operate them as booking centers. Finally, I do not include restricted licenses, otherwise referred to as Class B international or Captive Bank licenses.

  • You can see the list of banks here. The vast majority are not international banks operating from the Bahamas. 

With all of that said, Bahamas needs a new international license to launch that will be a success. They need one that has excellent management, a big time core system, respected compliance programs, and one which is very well capitalized. Short term success from a jurisdictional perspective would then be defined as securing a quality correspondent banking relationship and operating within the Basal III requirements for 2 years. This would go a long way in repairing prior reputational damage.

  – Here is my post on banking core systems: Core Systems 2023

When I say, “too big to fail,” I mean that the Bahama’s need a new bank that will be successful as defined above. If the next new bank fails, the jurisdiction’s reputational damage will be significant. Even though I hype Bermuda, this is the concern on that island… the fact that Jewel Bank has not yet launched and competitors like FV in Puerto Rico and XAPO in Gibraltar are doing very well.  

This also means that, while we’re building the bank, we would need to do CPR in the press for the financial industry in the Bahamas. We need as many articles talking about the launch of the new bank and how Bahamas is making a compliance and regulatory comeback as possible. The purpose for us would be to help our future correspondent bank requests and preemptively answer questions that regulators and bankers will have. 

I note that Bahamas is operating under Basel III and is as close to a European banking standard as you will find in the Caribbean. You can see their operating capital requirements here (primarily Tier 2 capital data). 

The Basel III standards, which were phased in through 2021, include a minimum total capital ratio of 8.0% of risk-weighted assets, a tier 1 capital ratio of 6.0%, and a common equity tier 1 ratio of 4.5%, but this can vary by the type of license. Most of these regulations were updated in 2022.

I expect that Initial paid-in capital will be $10m, even though the applicable law, issued in 2005 and revised in 2013, says $5m. Then I expect the startup budget to be at least $1m. Therefore, your startup capital will be at least $11m to apply for a new international banking license in the Bahamas. 

In general, the requirements to apply for an international banking license in The Bahamas are as follows:

  1. Minimum capital: The minimum capital requirement for an international bank is USD 10 million.
  2. Fit and proper: The Central Bank of The Bahamas will assess the fitness and propriety of the applicant’s directors, senior management, and shareholders.
  3. Business plan: The applicant must submit a business plan that outlines the bank’s proposed business activities, risk management framework, and compliance procedures.
  4. Governance: The applicant must establish a sound corporate governance structure that includes a board of directors, a risk management committee, and an audit committee.
  5. Compliance: The applicant must comply with all applicable laws and regulations, including the Anti-Money Laundering and Counter-Terrorism Financing Act.
  6. The Central Bank of The Bahamas may also require the applicant to meet other requirements, such as having a physical presence in The Bahamas and having a certain number of employees.

For more information on the requirements to apply for an international banking license in The Bahamas, please refer to the following documents on the Central Bank’s website:

  • The Banks and Trust Companies Regulation Act, 2000
  • The Central Bank of The Bahamas Act, 2000
  • General Information and Guidelines for Licence Applications for Banks and/or Trust Companies

Note that you would be applying for a Stand Alone Public License to operate as a Bank under the Bahama’s parlance. 

If the above is of interest, you can contact me at info@premieroffshore.com for more information and a quote to set up a new international bank in the Bahamas. 

International Bank License Industry Guide 2023

International Bank License Industry Guide 2023

In this 26 page post, I’ll review each of the top international bank license jurisdictions in 2023. There have been many changes to the industry since I last wrote on this topic in 2020. Here’s everything you need to know about the international bank license industry in 2023.

Note that this is an article about international bank licensing and building an offshore bank. That is different from a review of the offshore banking industry, which would be a summary of where you might open an offshore account.

For example, most would argue that Hong Kong and Switzerland are the top offshore banking jurisdictions… the best place for an individual to open an account with a big bank. I’d disagree, but that’s an article for another day.  

However, it would be nearly impossible for someone to set up a new bank in Hong Kong or Switzerland. In this post, I consider those jurisdictions where you can apply for a new international banking license or purchase an existing offshore bank license without a massive amount of red tape and hundreds of millions in capital. 

NOTE: I do write about Switzerland below, but that is for what is called a mini bank license and not a full banking charter. It’s more like a money transmitter license with a few extra service capabilities. 

Table of Contents

  • History of the International Banking Industry
  • International Bank License Defined 
  • Types of Offshore or International Bank Licenses
  • Benefits of Forming an International or Offshore Bank
  • Factors to Consider in Choosing an International Bank License Jurisdiction
  • International Bank License Jurisdictions in 2023
    • Puerto Rico
    • Bermuda
    • British Virgin Islands
    • Gibraltar
    • St. Lucia
    • Dominica
    • Cayman Islands
    • Belize
    • Panama
    • St. Kitts & Nevis
    • Dominican Republic
    • Switzerland
    • Luxembourg
    • Seychelles
    • Vanuatu, Comoros, and Gambia
  • The Future of International Banking
  • Conclusion

While you can scroll down to a particular jurisdiction of interest, I think you’ll benefit by having a read through the first few sections. The international bank license industry is very different from the domestic banking industry. Even the most seasoned banking professional coming from a big bank background will benefit from a review of the small international bank license world. 

History of the International Banking Industry

The offshore banking industry refers to a sector within the global financial services industry that focuses on providing financial services, primarily banking, in jurisdictions outside of where clients are primarily domiciled or conduct their business. This industry is often associated with jurisdictions known as tax havens, which offer favorable tax and secrecy benefits to foreign individuals and businesses.

Key characteristics of the offshore banking industry include:

  • Location: Offshore banks are located outside of the depositor’s home country. Common locations include the Cayman Islands, Switzerland, Luxembourg, and various small island nations in the Caribbean and the Pacific.
  • Privacy: Many offshore banking jurisdictions have laws in place that ensure the confidentiality of the identities of the account holders and the transactions made.
  • Tax Benefits: Offshore banking centers are often characterized by low or zero tax on deposits and income earned. This makes them attractive to individuals and corporations looking to reduce their overall tax liability.
  • Ease of Access to Funds: Offshore banks usually provide easy access to deposits, not only in the whole world but also in multiple currencies.
  • Asset Protection: Offshore banks are often used for asset protection, separating assets from the local economic and political situation.
  • Investment Opportunities: Offshore banks often offer access to politically and economically stable jurisdictions. This can be an advantage for those who reside in areas where there is a risk of political turmoil who might be at risk of having their assets seized or frozen.

However, the offshore banking industry has faced increasing scrutiny and regulation from international bodies over the last few decades, due to its association with tax evasion, money laundering, and illicit activities. Initiatives like the Foreign Account Tax Compliance Act (FATCA) in the US, and the Automatic Exchange of Information (AEOI) at the international level, have aimed to increase transparency and cooperation between jurisdictions to combat these issues. 

And it’s FATCA and AEOI that have driven so many to set up banks in the US territory of Puerto Rico. Because the island of Puerto Rico is a US territory, FATCA does not apply. Because the United States has not signed on to the AEOI, and rather relies on its existing network of treaties, many international persons hold their money in international banks licensed in Puerto Rico. 

International Bank License Defined 

An international bank license is a legal permit granted by a regulatory authority or central bank of a jurisdiction, allowing a banking institution to engage in banking activities with non-residents and carry out business in foreign currencies. International bank licenses are typically granted to banks that operate in offshore banking centers, and these banks are sometimes referred to as offshore banks, although this term can have a broader meaning.

The main difference between an international bank license and a domestic/general banking license lies in the type of clientele they serve and the currencies they handle. Domestic banks primarily serve residents of their jurisdiction and deal mostly in the local currency. They can offer a broad range of services, such as taking deposits, offering loans, and other forms of credit.

In contrast, banks with an international license often operate in a different jurisdiction from their clients, deal with multiple currencies, and offer specialized services tailored towards an international clientele. These services can include cross border payments, wires, remittances, foreign payroll, credit and debit cards, wealth management, specialized corporate services, tax planning, and other forms of financial and investment advice. They typically do not conduct business with residents of the country where they are licensed, or they are limited in how they can do so.

Many countries issue international bank licenses. Some popular jurisdictions known for issuing such licenses include (this is just a summary, the detailed list is below):

  • Cayman Islands: Known as one of the world’s leading offshore financial centers, the Cayman Islands offers two types of offshore banking licenses: Category A and Category B, which have different permissions and restrictions.
  • Switzerland: Historically famous for its private banking services, Switzerland provides licenses for banks that wish to offer services to international clients.
  • Luxembourg: This European country is a hub for private banking, asset management, and investment fund activities.
  • Belize: Belize is known for its relatively easy and cost-effective process of obtaining an international banking license.
  • Isle of Man: This self-governing British Crown dependency offers offshore banking services to international clients.
  • Panama: Panama has a long history of providing offshore banking services, and it issues a General License allowing the bank to conduct both local and international business.
  • Vanuatu: This Pacific island nation offers offshore banking licenses with a quick and cheap setup process… and you get what you pay for.

Each of these jurisdictions has its own specific requirements for obtaining an international bank license, and the benefits vary. These can include low or zero taxation, legal advantages, confidentiality, and access to a stable political and economic environment. However, due to increased international efforts to combat money laundering and tax evasion, the regulations governing offshore banking are changing and becoming more stringent.

Types of Offshore or International Bank Licenses

The term “offshore bank” broadly refers to any bank located outside the country of residence of the depositor. These banks can be categorized based on the services they provide, their clientele, and the legal and regulatory frameworks they operate under. Here are some of the main types of offshore banks:

  • Private Banks: These cater to high net worth individuals, offering personalized financial and banking services. This can include wealth management, tax planning, and estate planning. Private banks are often associated with banking secrecy and privacy, although recent regulatory changes have increased transparency.
  • Retail Banks: These offer similar services to domestic retail banks, such as savings and current accounts, credit cards, and personal loans, but they operate in an offshore jurisdiction.
  • Commercial Banks: Commercial offshore banks provide services to businesses, such as business loans, commercial mortgages, and other credit products. They also offer other services like treasury management, trade finance, and foreign exchange transactions.
  • Investment Banks: Offshore investment banks help businesses and high net worth individuals to raise capital through securities offerings. They also provide advisory services for mergers and acquisitions and facilitate securities trading and asset management.
  • Captive Banks: These are wholly owned by a single corporation or entity and are set up to provide financial services to the parent company and its affiliates. These banks may open accounts and transact only with those listed in their license. They are not permitted to open accounts for the general public.
  • International Business Corporations (IBCs): These are private corporations that offer banking services. They are often used by individuals and businesses for financial planning and investment purposes. They typically apply for a money transmitter license, an EMI permit, or some other non-bank license. 
  • Shell Banks: These are banks without a physical presence in any country. They are often associated with money laundering and other illicit activities, and many jurisdictions have restrictions or prohibitions on dealing with shell banks.

Different jurisdictions have different licensing and regulatory requirements for these types of banks, and they offer different levels of protection, tax efficiency, and confidentiality. Also, the services an international bank can provide are typically limited by the regulatory authority, So, you must be approved for each and every service you wish to offer… and prove you have the appropriate compliance systems to provide that service in a compliant manner. 

Benefits of Forming an International or Offshore Bank

Forming and operating an international or offshore bank can provide several benefits to the operator, including:

  1. Tax Efficiency: Offshore jurisdictions often offer lower tax rates, which can reduce the overall tax burden on profits and capital gains. This is especially true for non-US investors, bank owners, and customers. This is because the US taxes its citizens on their worldwide income where most countries do not tax foreign source profits or gains. 
  2. Diversification: Offshore banking allows institutions to diversify their holdings geographically and by currency. This can provide a hedge against local economic downturns, currency depreciation, and political instability.
  3. Confidentiality: Many offshore jurisdictions offer privacy protections, which can help protect sensitive financial information. However, it’s important to note that these protections have been reduced in recent years due to international efforts to combat tax evasion and money laundering. Puerto Rico does offer privacy because the US has not signed on to most automatic exchange of information agreements. 
  4. Access to International Markets: International banks can provide access to emerging markets and other investment opportunities not available domestically.
  5. Asset Protection: Offshore banking can offer a degree of protection against potential threats such as lawsuits, economic crises, or political instability in the home country.
  6. Regulatory Flexibility: Some offshore jurisdictions may offer more relaxed regulations in certain areas compared to onshore banking centers. For example, a bank in Puerto Rico is not subject to FDIC oversight and thus has more regulatory flexibility than a traditional US bank.

The typical revenue sources for an international or offshore bank can include:

  1. Interest Income: This is the interest earned on loans made to clients and is typically the primary revenue source for any bank.
  2. Fees and Commissions: These can come from a wide variety of services, such as fund management, wealth management, transaction fees, and account maintenance fees.
  3. Foreign Exchange Transactions: Banks can earn revenue from foreign exchange transactions, both from trading currencies on their own account and from facilitating transactions for clients.
  4. Investment Income: This can include revenue from investments in securities, derivatives, and other financial instruments.
  5. Advisory Services: Many international banks offer financial and investment advisory services to their clients, which can provide a significant source of revenue.

It’s important to note that while offshore banking can provide benefits, it also comes with risks, including regulatory, reputational, and operational risks. Furthermore, international efforts to combat tax evasion and money laundering have increased transparency requirements and scrutiny of offshore financial centers, which can impact their attractiveness and operations.

Factors to Consider in Choosing an International Bank License Jurisdiction

Choosing the right jurisdiction for an offshore or international bank involves several important considerations. Here are some of the main factors:

  1. Regulatory Environment: Different jurisdictions have different banking regulations, and it’s important to find one that aligns with your needs and provides a secure, stable environment. This includes considerations of how well regulated the banking sector is, the efficiency of the regulatory bodies, and the jurisdiction’s cooperation with international financial authorities.
  2. US Compliance: If you set up a bank in the US territory of Puerto Rico, or you utilize a correspondent bank in the United States, you must follow all US regulations. Do you want to do business in US dollars and can your clientele pass US scrutiny?
  3. Taxation: One of the key attractions of offshore banking is the potential for tax efficiency. Some jurisdictions offer low or zero tax rates on income, capital gains, and inheritance. However, you must consider the tax implications in your home country and any tax treaties in place.
  4. Privacy Laws: Different jurisdictions offer different levels of privacy protection. Privacy laws will affect the confidentiality of your information and the degree to which it might be shared with international organizations or foreign governments.
  5. Political and Economic Stability: The stability of the jurisdiction is a crucial consideration. A stable political and economic environment ensures the safety of your funds and smooth banking operations.
  6. Reputation: The reputation of the jurisdiction can impact the perception of your bank and its operations. Some offshore jurisdictions are associated with illicit activities, which can lead to reputational risk.
  7. Legal System: The legal system and its efficiency can impact your bank’s operations. This includes how easy it is to enforce contracts, the protection of property rights, and the independence of the judiciary.
  8. Banking Infrastructure: The jurisdiction should have a well-established banking infrastructure. This includes modern banking systems, professional services support (legal, accounting, etc.), and good communication networks.
  9. Ease of Doing Business: Consider how easy or difficult it is to set up and operate a business in the jurisdiction. This includes the process for obtaining a banking license, bureaucratic efficiency, and any restrictions on foreign businesses.
  10. International Agreements: The jurisdiction’s participation in international agreements can affect information sharing and tax obligations. These can include agreements for the exchange of tax information, anti-money laundering (AML) measures, and agreements to implement the Common Reporting Standard (CRS).
  11. Costs: Consider the costs associated with setting up and maintaining the offshore bank. These can include licensing fees, capital requirements, and operational costs.

Before establishing an offshore or international bank, it’s important to understand your target market and your business objectives. I suggest you start with deciding how close you want to be to US regulators. Just remember that avoiding US oversight means that you can’t have a US correspondent bank and can’t do business in US dollars…and of course, you can’t set up your international bank in Puerto Rico.

International Bank License Jurisdictions in 2023

Here is my list of the top international bank license jurisdictions for 2023. The purpose of this section is to convey my thoughts on each of these options and to give you ideas when selecting the best offshore banking country. 

It is not meant as an exhaustive summary of the process to set up a bank in each of these countries. If it were, this article would never end. You can reach me at info@banklicense.pro for specifics and the costs to set up a new bank or purchase an existing bank license in any of these jurisdictions.

Also, this list is not in any particular order. Each bank license jurisdiction has its positives and negatives. So, I am just trying to cover each in turn as they came to me while writing this post. 

Puerto Rico

The US territory of Puerto Rico has dominated the international bank license industry since 2015. While other countries have one to five operating international banks, Puerto Rico has about 60, with many applications pending. 

The reasons for this are simple: 

  1. The relative ease of securing correspondent banking relationships compared to non-US international jurisdictions (like St. Lucia, for example). 
  2. Prior to 2024 (yes, this is a forward looking statement, see below), the lowest capital and filing fees of any quality jurisdiction. 
  3. Because Puerto Rico is a US territory, banks on the island can join the US banking system, hold dollars, and apply for Fedwire through the Federal Reserve. 
  4. US tax laws generally do not apply in a territory. Thus, Puerto Rico can set its own tax rate. The bottom line is that an international bank in Puerto Rico will pay only 4% in tax, with no withholding tax or tax on dividends when distributions are paid out to an offshore holding company. 
  5. Because the United States has not signed on to the European Union’s automatic exchange of information treaties, they do not apply in Puerto Rico. This provides a level of privacy and protection to non-US depositors and shareholders. 
  6. Because FATCA does not apply to international banks in a US territory, the cost of compliance and reporting is reduced. 

For these and other reasons, the international banking industry in Puerto Rico has grown quickly… some would say too quickly. It has forced regulators to crack down on non-compliant banks and push to increase capital requirements. 

This has also caused regulators to limit the number of licenses they issue each year. There are far more applicants than available licenses and only the best applicants will be approved. 

And, as a result, the cost of buying an operating bank or an existing license has increased dramatically. In most cases, a basic operating bank (that’s not in trouble with regulators) will sell for $5 million. Likewise, a license (Permit to Operate) will be valued at $5 million. If the bank is profitable, the value of the book of business will be added to these prices. And, if the bank had Fedwire, the asking price would be $30 million for a bank operating at break-even. 

The $5 million value comes from two components: 

  1. Time to market of 24 months, and 
  2. The guarantee of success. 

A new license application will require at least 12 months before it is reviewed and then 6 months to be approved, assuming all goes well. You will then receive your Permit to Organize and you’ll need 6 to 12 months to build out the business and convert that Permit to Organize into a Permit to Operate. Therefore, the best case scenario for a new license is 24 months time to market.

The above assumes you’re the best of the applicants. When you buy a bank, if you can pass due diligence, and you qualify to own a bank in Puerto Rico, then you will be approved to purchase. When you apply for a new license, you’re competing with other applicants, all of whom are presumably well qualified. When you purchase a bank, you eliminate the competition. 

Therefore, a buyer of a small bank in Puerto Rico will need $5 million for the purchase price plus $5.3 million paid in capital and the CD.  This must be in cash and a Proof of Funds is required. See below how I got to $5.3m in capital below.

Capital Requirements

At the time of this writing, the capital required for an international bank in Puerto Rico is $5 million with a path to reach $10 million in a few years. This is expected to change to a starting requirement of $10 million in January 2023. 

Existing banks will have 5 years to transition to this new capital requirement. If you purchase a bank, you will have this time to increase capital. If you apply for a new license, you must have $10 million of paid-in capital on day one. 

In addition, banks currently require a CD of $300,000. This will likely increase to $2.5m.

Next, the application fee might increase from $5,000 to $1 million (quite a bump). 

Most experts in the field expect some of these increases to pass, but not all. I will update this post when we have certainty in these fees. But, the bottom line is that existing banks will have an advantage over new applicants. 

Another change for international banks in Puerto Rico for 2023 is the requirement of an annual compliance audit and risk assessment. These were previously required every 4 years and are now mandatory every year… a great profit boon for audit firms, no doubt.

I see these changes as major improvements to the international banking laws of Puerto Rico. There have been way too many undercapitalized banks on the island incapable of executing their business model. Higher capital requirements will eliminate the poor performers and improve the overall reputation of the jurisdiction. 

Process to Start  a Bank in Puerto Rico

Here’s a brief on how to start a bank in Puerto Rico in 10 steps:

  1. Apply for a Permit to Organize as an IFE in Puerto Rico. This is the first step in the process and it allows you to establish a legal entity that can operate as a bank in Puerto Rico. Timeframe 12 to 18 months.
  2. Build out your office space in a building approved by regulators. Your office space must be secure and meet the requirements of the Puerto Rico Office of the Commissioner of Financial Institutions.
  3. Hire a minimum of 4 employees, including a qualified compliance officer. You will need to hire a team of experienced professionals in Puerto Rico to help you run your bank. This includes a compliance officer who will be responsible for ensuring that your bank complies with all applicable regulations.
  4. Purchase, implement and test your core banking system. This is the software that will be used to process transactions and manage your bank’s accounts. Timeline 1 to 6 months.
  5. Negotiate a correspondent account. You might apply for a Fedwire account in year 2 or 3 depending on many factors.
  6. Prepare your compliance manuals and training materials. You will need to develop a comprehensive set of compliance manuals and training materials for your employees.
  7. Finalize your website and marketing collateral. You will need to create a website and marketing materials to promote your bank, which regulators must approve of.
  8. Apply for and receive your Swift code. A Swift code is a unique identifier that is used to identify financial institutions in international payments.
  9. Go through an audit and receive your Permit to Operate. Once you have completed all of the necessary steps, you will need to go through an audit by the Puerto Rico Office of the Commissioner of Financial Institutions. If the audit is successful, you will be issued a Permit to Operate.
  10. Take the business live and begin onboarding clients. Once you have your Permit to Operate, you can begin onboarding clients and offering banking services.

The US standard to cover startup expenses from Permit to Organize through to the Permit to Operate is $1 million. Depending on your core system, you might cut this down to $500,000. Systems can run $25,000 to $1.5 million, with many many values in between. So, the core system is also the core of your startup budget. 

This $1 million value is used throughout the United States and written in the laws of various States as a percentage of initial paid in capital. For example, North Carolina requires a startup budget of 10% of initial capital. In the case of a new applicant, minimum paid-in capital is $10 million, which gives us a startup budget of $1 million. See § 53C-3-4(a)(4) which is commonly 10% as of 2023. 

Other Sources

For information on the process to start a bank in Puerto Rico, see Start a Bank in Puerto Rico in 10 Steps (written in 2020).

For more information on the planned capital requirements for international banks in Puerto Rico, see New International Banking Regulations for Puerto Rico in 2024.

For information on the larger international banks in Puerto Rico, see International Banks in Puerto Rico with Fedwire.

For an article on banks in Puerto Rico that have run into trouble, see Puerto Rico Cracks Down on International Banks: A Look at the Recent Closures.

If you are familiar with US domestic bank licenses, this post might help clarify the differences between Puerto Rico and the United States: US Banking License vs. Puerto Rico International Banking License.

Bermuda

I believe that the up and coming offshore bank licensing jurisdiction is Bermuda. If you don’t want to be in the United States, then consider Bermuda. This is the best option for very well capitalized and professional applicants. 

Once Coinbase set up in Bermuda, the island gained quite a bit of cache in the crypto and fintech space. And, with the opening of Jewel, a crypto-friendly bank run from Silicon Valley, the island’s reputation is only going to grow. 

Yes, it’s a bit early to proclaim Bermuda as the next Puerto Rico. There is only one international bank on the island compared to 60 on Puerto Rico. But, the offshore banking industry is changing quickly and looking forward is necessary. 

Forward looking guesses aside, here are the requirements to set up a bank in Bermuda. 

You must obtain a license from the Bermuda Monetary Authority (BMA). The BMA is the financial regulatory authority in Bermuda and is responsible for ensuring that all banks operating in the country are sound and solvent.

The requirements for obtaining an international banking license in Bermuda are as follows:

  • The bank must be incorporated in Bermuda.
  • The bank must have a paid-up capital of at least USD $10 million.
  • The bank must have $1 million to cover startup expenses (so as to not deplete its paid-up capital during the startup phase).
  • The bank must have a sound business plan.
  • The bank must appoint a qualified management team.
  • The bank must comply with all applicable laws and regulations.

For more on this topic, see Bermuda to Become the Top International Bank License in 2024

For information on setting up a crypto exchange in Bermuda, see Bermuda is the Best Jurisdiction for a Crypto Exchange or Digital Asset Business.

And for general country information, see Country Information – Bermuda and BVI.

British Virgin Islands 

Another jurisdiction with great potential is the British Virgin Islands. This country has maintained a stellar reputation for decades and has a solid banking regulator with large players incorporated there, all be it as booking centers and not necessarily as operating international banks. Like Bermuda, BVI is an interesting option for a very well capitalized and high quality applicant. 

Here’s what you need to know about about the British Virgin Islands: 

The international banking industry in the British Virgin Islands (BVI) is limited but distinctive. With the territory’s stable political climate, favorable tax laws, and robust legal framework, the BVI offers an attractive environment for banking operations.

There is currently one bank, VP Bank, that specifically focuses on international business. As a globally active private bank, VP Bank primarily offers services in wealth management. This focus aligns with the territory’s reputation as a hub for global finance and a preferred jurisdiction for international business companies.

Beyond this, the territory also hosts large general banks that mainly function as transaction booking centers. They cater to a broad range of financial services, including retail, corporate, and investment banking. Notably, two of Puerto Rico’s largest banks, Banco Popular and First Bank, hold licenses in the BVI, signifying the jurisdiction’s strategic importance in the Caribbean banking landscape.

While the presence of international banks may be relatively limited in number, the BVI’s sophisticated legal system, pro-business environment, and strategic location continue to draw attention from financial institutions worldwide. Its growing reputation as a center for financial innovation further underscores the potential of BVI’s international banking industry.

Capital Requirements: 

The following is a recitation of the law issued in 1990 and not accurate for a new applicant in 2023. But, because there has not been a new license issued in many years, this is the best place to start. 

The capital requirements for an international bank license in the British Virgin Islands (BVI) vary depending on the type of license. For a Restricted Class I or Restricted Class II Banking Licence, the minimum paid up capital is US$1 million. For a General Banking Licence, the minimum paid up capital is US$2 million.

In addition to the minimum paid up capital, applicants for an international bank license in BVI must also meet the following requirements:

  • Proven banking experience
  • Physical presence in the BVI
  • Meet the “fit and proper” criteria of the BVI Financial Services Commission (FSC)

The FSC will also require applicants to make a deposit or investment of an additional US$500,000. This is similar to the CD required in Puerto Rico. 

Here are some additional resources that you may find helpful:

My expectation is that the capital requirement in the British Virgin Islands will be between $5m and $10 million based on the quality of the applicant and on what Puerto Rico does in 2024. BVI tends to follow Puerto Rico and Bermuda, but might be more aggressive.

Gibraltar

Another jurisdiction making inroads into the offshore banking industry is Gibraltar. With 9 total banks, and the recent addition of Xapo Bank, a very well funded international bank, Gibraltar is poised to become the Puerto Rico of Europe. 

Gibraltar’s banking industry is a dynamic sector that caters to both domestic and international clients. It enjoys a robust regulatory environment under the Gibraltar Financial Services Commission (GFSC), which is committed to meeting international standards of financial regulation and supervision.

The banking sector in Gibraltar includes a mix of domestic banks serving local individuals and businesses, and international banks providing a range of services to global clients. Many of these banks are subsidiaries or branches of reputable banks from Europe, particularly the UK, reflecting Gibraltar’s historical and regulatory ties to the UK.

Gibraltar has adopted European Union banking directives and maintains a high standard of banking regulation. In addition, it has also adopted strict anti-money laundering measures and requires banks to maintain robust risk management systems, making it a respected banking jurisdiction.

Despite being a small jurisdiction, Gibraltar has positioned itself as an international finance center, offering services in banking, insurance, investment fund management, and fintech. The jurisdiction’s strong regulatory framework, strategic location at the gateway of the Mediterranean, and growing focus on financial innovation, particularly in the area of blockchain and cryptocurrency, continue to attract international banks and financial institutions.

Like Bermuda, Gibraltar is only open to the best capitalized, best run, and most compliant banking operators. Unlike Puerto Rico, this jurisdiction never went through a phase of allowing low budget banks to open… which is why Puerto Rico is busy cleaning up previous messes and why several Puerto Rico banks have closed or been sold in recent years. 

The starting capital of a new bank is €5,000,000. However, you must also account for the European Regulations, which can push this amount up quickly. More specifically, a bank’s Minimum initial and ongoing capital requirement is the higher of €5,000,000 or the capital calculations set out in the Financial Services (Capital Requirements Directive IV) Regulations (CRD IV). If you want to get into the minutia, you can find links here: CRD IV AND CRR.

St. Lucia 

For a pure offshore license on a budget, the only option is St. Lucia. This offshore bank license jurisdiction has a quality reputation and a bank licensed here will be able to get a lower level correspondent partner. 

Below are the capital requirements. My recommendation for an application in St. Lucia is $2.5 million of paid-in capital and a $500,000 startup budget. This is based on experience while the information below is based on the minimum requirements of the law. See the government website.  

To set up a bank in St. Lucia, you must first obtain a license from the Financial Services Regulatory Authority (FSRA). The FSRA is the financial regulatory authority in St. Lucia and is responsible for ensuring that all banks operating in the country are sound and solvent.

The requirements for obtaining a banking license in St. Lucia are as follows:

  • The bank must be incorporated in St. Lucia.
  • The bank must have a paid-up capital of at least USD $1 million for a Class A license or USD $250,000 for a Class B license.
  • The bank must have a sound business plan.
  • The bank must appoint a qualified management team.
  • The bank must comply with all applicable laws and regulations.

Capital requirements

In addition to the license requirements, banks in St. Lucia are also subject to capital requirements. The capital requirements are designed to ensure that banks have sufficient funds to withstand financial shocks and to continue operating in the event of a crisis.

The capital requirements for banks in St. Lucia are as follows:

  • Tier 1 capital must be at least 4% of risk-weighted assets.
  • Total capital must be at least 6% of risk-weighted assets.

The FSRA may impose additional capital requirements on banks that are considered to be at a higher risk of financial distress.

NOTE: St. Lucia has not issued a new license in a few years. The most likely path is to apply for a new license and pass due diligence. Then you will be allowed to purchase an existing bank if the government won’t issue a new license. 

You can download my PDF on International Bank Licenses from St. Lucia here.

Dominica 

For years, Dominica was near the top of any list of offshore bank license jurisdictions. This island has always been the low cost leader with a capital requirement of only $1 million. I’ve written many articles over the years extolling the virtues of Dominica and comparing it to its neighbor, St. Lucia. 

However, as of 2023, Dominica is useless as an international bank license jurisdiction. It has become a joke in the industry and the island to avoid at all costs. 

Why? What’s happened to the offshore bank license industry in Dominica? Corruption, corruption and more corruption. As of 2023, Dominica is a scam banking jurisdiction. Here’s what you can expect if you apply for a bank license in Dominica: 

You’ll spend a great deal of time and money to prepare a license package for Dominica. Then you’ll file it and wait for a response. Eventually, you will meet with regulators and other agencies. 

They will ask for money to move your application along, promising you a license. Then you will go to the next agency and get the same treatment. Time and time again, you’ll be blocked until money is paid with no end in sight. 

Needing to make a political donation, or even pay a bribe, might be the cost of doing business. But, in Dominica, they will keep this up until you simply go away. The government doesn’t want to issue any new licenses, but they do want money. So, they keep leading you on until the cash runs out. 

Those of us in the industry know that Dominica has become a scam. And this is a great way for you, the individual or company seeking an international bank license, to figure out who to hire to set up your bank. If they are actively promoting Dominica, or recommending Dominica, then they are likely useless. 

If they’re paying Google PPC to promote offshore bank licenses from Dominica, run far away from that company. If they tell you Dominica is great and all you need is $1 million in capital, know that they are a waste of time. 

One last note: Even if you could get to the end of the pay line, which you can’t, a bank licensed with $1 million in capital you won’t be able to get a correspondent partner. I suggest you need $1 million in startup costs plus $5 to $10 million minimum paid-in capital to get anywhere in the industry.  

For more information on an international bank license from Dominica, see Dominica Banking License (I wrote this in 2019 and it’s outdated. I have linked to it here for historical reference only).

Cayman Islands

The Cayman Islands invented the international bank licensing industry. They were the first and the best for many years. Then, in 2010, they lost their edge as the United States and others began to push back on privacy and protection. 

The Cayman Islands has been in steady decline since FATCA (2010) and the rising costs of doing business on the islands. The costs of operating on Cayman have always been very high. But, as more and more regulations come in, these costs spiraled out of control. 

Plus, regulators were so busy keeping the United States happy that they were not supporting their local businesses. Just when costs and risks were at their height, regulators demanded more and more audits. 

These increased costs and uncertainty put many of the international banks on the Cayman Islands out of business. And, those that are hanging on, are having a hard time making a profit. 

If you have a need for a license from Cayman, it is possible to apply. There’s been one license granted in the last few years. Also, comments on the amount of capital required is speculative because the most recent international banking law was issued in 2008 (see CMA website).

Just be ready for the fees payable in Cayman. Your license application filing fee will be $250,000 to $600,000 depending on various factors. Then your annual fee can be as high as $1 million. For more, see CMA Fees

Considering the above, it’s easy to see why so many are moving to Puerto Rico. It is very rare for a new applicant, or a buyer, to want to set up in the Cayman Islands in 2023. For more on this topic, see The Decline of the Cayman Islands Offshore Banking Empire.

Belize

The international banking industry in Belize is a significant part of the country’s financial services sector. Belize is known for its attractive legislative framework for international banking, which offers financial privacy, tax benefits, and relatively low entry and operating costs. Belize’s international banking sector mainly serves non-residents, with activities including personal and corporate banking, asset management, and other financial services.

Belize operates a two-tier banking system, consisting of domestic banks, which primarily serve residents, and international banks, which cater mainly to non-residents. The Central Bank of Belize regulates both types of banks, with international banks governed by the International Banking Act.

In terms of regulatory requirements, international banks in Belize are subject to capital adequacy requirements, stringent anti-money laundering (AML) and combating the financing of terrorism (CFT) regulations, and periodic audits to ensure compliance with these and other standards. The minimum required capital under the law for an Unrestricted “A” Class international banking license is USD 3 million, while a Restricted “B” Class license requires USD 1 million. As with most countries, these numbers are outdated and have been modified by regulators in practice. 

It’s worth stating once again that the international banking landscape globally, including in Belize, has been changing in response to increasing international pressure for greater transparency and stricter regulation. As a result, the banking industry in Belize has seen a shift towards stronger regulatory oversight and higher compliance standards. It appears that a new applicant will need $5 to $10 million in capital as many move to follow the lead from Bermuda. 

There are currently three international banks licensed in Belize, down from six a few years ago. These are Caye International Bank, Belize Bank International, and Heritage International. For more information, see the Central Bank’s website

NOTE: Caye International Bank is consistently ranked among the best offshore banks and international banks of the world. For more, see: Caye International Bank, which has been in business since 1996. Here’s an article with their thoughts on the future

While it’s been many years since a new license was issued in Belize, it’s rumored that the current government is open to an application from a quality and well capitalized group. Belize would be an interesting option for a new international bank license applicant.

Panama

Panama was a leading jurisdiction for international banks in the early 2000s but has lost most of its luster since the Panama papers and since bending to US pressure. It is still a solid option for a banking group looking for an international banking license to operate a transaction booking center or for other reasons. 

That is to say, only a bank licensed in a quality or top tier jurisdiction may apply for an international license from Panama. If you don’t already have a banking license, then you can’t open an international bank in Panama. 

The requirements to apply for an international banking license in Panama, given the condition that only banks from reputable jurisdictions may apply, are summarized below:

  1. Application and Business Plan: The applicant must submit an application to the Superintendency of Banks in Panama (Superintendencia de Bancos de Panamá) with detailed information about the bank and its operations. The application must include a comprehensive business plan outlining the nature and scale of the planned banking activities.
  2. Existing Banking License: The applicant must hold an active banking license from a reputable (top tier) jurisdiction. This license should be in good standing and valid in its country of issuance.
  3. Financial Statements: The applicant must provide audited financial statements for the last three years from the existing bank. These should include a record of the bank’s performance and demonstrate its financial strength.
  4. Capital Requirements: The bank must demonstrate a minimum capital adequacy based on Panama’s banking laws. At the time of the last update, this amount was $10 million for an International Banking License.
  5. Good Standing Certificates: Certificates of Good Standing or their equivalent must be provided from the regulatory bodies in the jurisdiction where the bank is currently licensed.
  6. Management and Directors: Information about the management and directors, including their qualifications, experiences, and reputation, must be provided.
  7. Anti-Money Laundering Measures: The bank must demonstrate that it has robust anti-money laundering (AML) and combating the financing of terrorism (CFT) measures in place.
  8. Legal Documentation: Various legal documents must be provided, including the bank’s articles of incorporation and bylaws.
  9. Physical Presence: The bank should establish a physical presence in Panama, including local staff and offices.
  10. Approval: Finally, the Superintendency of Banks in Panama will review the application and, if it meets all the requirements and standards, the banking license will be approved.

This is a high-level summary, and the specific requirements may vary and evolve. If you are currently operating a domestic bank, we can assist you to set up an international bank licensed in Panama. 

St. Kitts & Nevis

Saint Kitts and Nevis, located in the Caribbean, is known for its robust offshore financial services sector. The twin-island nation has established itself as an attractive destination for international banking, mainly due to its strong regulatory environment, political stability, and attractive fiscal conditions.

The international banking industry in St. Kitts and Nevis is regulated by the Financial Services Regulatory Commission (FSRC). The FSRC ensures that international banks adhere to a set of standards and regulations in line with global best practices, including compliance with anti-money laundering (AML) and combating the financing of terrorism (CFT) requirements.

There are only two international banks operating in the jurisdiction:

  • St. Kitts-Nevis-Anguilla National Bank Limited (operated from St. Kitts)
  • Bank of Nevis International Limited (BONI operated from Nevis)

It has been many years since a new license was granted on St. Kitts and Nevis. BONI was created when Bank of Nevis sold its license to do international business. So, now there is BONI and BON as unrelated banks.

Like Belize, it would be interesting to apply for an international license, especially from Nevis. I’ve met with regulators and government officials who have expressed interest in seeing a filing from a quality applicant. 

Dominican Republic

The opportunity in the Dominican Republic is to purchase a general bank license and get permission from regulators to offer international business. You must focus on domestic business, but you may also be allowed to have a sizable international banking component.

It is likely that a domestic license in the Dominican Republic will cost $20 to $30 million. With this in mind, here is a summary of the banking industry in the Dominican Republic. 

The banking industry in the Dominican Republic is an essential part of the nation’s economy, facilitating economic growth, promoting financial stability, and providing vital financial services to individuals and businesses.

The banking sector in the Dominican Republic is regulated by the Superintendency of Banks (Superintendencia de Bancos) under the Monetary and Financial Law. The regulatory framework aligns with international best practices and standards, ensuring the safety and soundness of the banking system.

The banking system in the Dominican Republic is composed of multiple domestic and international banks, offering a broad range of services, including retail banking, corporate banking, investment banking, asset management, and other financial services. The sector is characterized by a few large banks having a significant market share, followed by several medium and small-sized institutions.

One of the most prominent banks in the country is the Banco Popular Dominicano, which, along with Banco de Reservas and Banco BHD León, controls a substantial part of the banking market.

The Central Bank of the Dominican Republic (Banco Central de la República Dominicana) also plays a critical role in maintaining financial stability, controlling inflation, and implementing monetary policy.

The Dominican Republic has made significant strides in recent years to strengthen its banking industry’s regulatory framework, enhance transparency, and bolster anti-money laundering (AML) and combating the financing of terrorism (CFT) measures.

The Dominican Republic’s banking industry offers a few key types of banking licenses. These are regulated by the Monetary and Financial Law and supervised by the Superintendency of Banks (Superintendencia de Bancos). Here are some of the main types:

  1. Commercial Banks: These banks can engage in a broad range of activities, including taking deposits, providing loans, and offering other services such as wire transfers, payment processing, and foreign exchange. This license is generally referred to as the “multiple” license as it allows all manner of banking business. 
  2. Savings and Loans Associations: These institutions primarily focus on accepting deposits and providing loans to their members, often offering favorable rates and terms compared to commercial banks.
  3. Mortgage Banks: These banks specialize in providing mortgage loans for the purchase, renovation, or construction of real estate.
  4. Development Banks: These are often government-backed institutions that provide financing for specific sectors or projects aimed at economic development, such as agriculture, manufacturing, or infrastructure.
  5. Credit Unions or Cooperatives: These member-owned institutions offer a range of banking services to their members, often in rural or underserved areas.

The specific requirements, regulations, and restrictions for each type of banking license vary and are stipulated in the Dominican Republic’s financial laws and regulations. It’s worth noting that all these institutions are required to comply with capital adequacy requirements, anti-money laundering (AML) and combating the financing of terrorism (CFT) regulations, and other regulatory standards.

Banco Multiple License

A “Banco Múltiple” or Multiple Bank in the Dominican Republic is a type of commercial bank that can offer a wide range of banking services in the Dominican Republic and abroad. The term “multiple” refers to the bank’s ability to provide various financial services, including but not limited to taking deposits, providing loans, offering credit cards, facilitating wire transfers, foreign exchange, and other related services.

This type of license is regulated by the Monetary and Financial Law and supervised by the Superintendency of Banks (Superintendencia de Bancos).

Here are the general and capital requirements for a banco multiple in the Dominican Republic:

  • Requirements:
    • The bank must be incorporated in the Dominican Republic.
    • The bank must have a paid-up capital of at least USD $10 million.
    • The bank must have a sound business plan.
    • The bank must appoint a qualified management team.
    • The bank must comply with all applicable laws and regulations.
  • Capital requirements:
    • Tier 1 capital must be at least 10% of risk-weighted assets.
    • Total capital must be at least 12% of risk-weighted assets.

The capital requirements for banks in the Dominican Republic are set by the Superintendencia de Bancos de la República Dominicana (SBP), the financial regulatory authority in the Dominican Republic. The SBP has the power to adjust the capital requirements as needed to ensure that banks in the Dominican Republic are adequately capitalized.

In addition to the capital requirements, banks in the Dominican Republic are also subject to other regulatory requirements, such as liquidity requirements and risk management requirements.

As stated above, I estimate the purchase price of a banco multiple license in the Dominican Republic to be between $20 and $30 million. For more on the Dominican Republic, see: A Review of the Political History of the Dominican Republic.

Switzerland

Note that the following refers to the mini banking license or Fintech financial license available from Switzerland. While this is far from a full banking license, it does have its unique place in the industry. 

It’s also possible to use an aged Swiss Trust to operate a financial services business from Switzerland. For more on this, see: Aged Swiss Trust for Global Financial Services Company. Again, this is not a banking license, but a good start in a top tier jurisdiction. 

The Fintech or mini bank license allows institutions to accept public deposits up to a total value of CHF 100 million, provided these are not invested and no interest is paid on them. This opens up a regulated space for innovative financial companies, such as those operating in the digital and blockchain spaces, to operate without the full requirements of a traditional banking license.

The main features of the license are as follows:

Requirements:

  • The applicant must have its registered office and conduct its business activities in Switzerland.
  • The persons responsible for managing the fintech business must provide assurance of good reputation and guarantee proper business conduct.
  • Business activities are governed by appropriate risk management and a solid internal control system (including compliance).

Capital Requirements:

  • The required minimum capital is either 3% of the accepted public funds, but at least CHF 300,000.

Restrictions:

  • The institution may accept public funds up to CHF 100 million.
  • The accepted public funds may not be invested, and no interest may be paid on them. That is to say, you can’t pay interest to your depositors.

Please note that this is a simplified summary of the regulations and further requirements apply. I have included this here to give you an idea of what’s possible in Switzerland if you wanted to have a fintech in a top jurisdiction to support a bank license from a lesser country. 

For more on this, see Switzerland is quickly becoming a Powerhouse in the Fintech Industry (written in 2019).

Luxembourg

Luxembourg, as one of the top financial centers in the European Union and indeed the world, has a highly developed banking industry that includes a significant number of international banks. It’s home to many global banks, private banks, and specialized financial institutions from all over the world.

The country’s strategic location at the heart of Europe, its multilingual and international workforce, and its strong regulatory environment have made it an attractive destination for international banking activities. In particular, Luxembourg is known for its expertise in areas such as wealth management, fund administration, and other cross-border financial services.

The banking sector in Luxembourg is regulated by the Commission de Surveillance du Secteur Financier (CSSF), which ensures compliance with local and European regulations. The requirements to obtain a banking license in Luxembourg are quite rigorous and include providing detailed information about the bank’s structure, activities, governance, and capital. As per EU requirements, the minimum initial capital requirement for a credit institution (including banks) is EUR 5 million plus the add-ons required by the specific jurisdiction you are operating from (see below).

In addition to these general requirements, banks must also comply with ongoing regulatory requirements, including capital adequacy, liquidity, risk management, anti-money laundering (AML) and combating the financing of terrorism (CFT) regulations, as well as other prudential and conduct of business rules.

It’s worth noting that Luxembourg is fully aligned with international efforts to increase transparency in financial services, and it has taken significant steps in recent years to improve its compliance with international standards.

The capital requirements to start a bank in Luxembourg are as follows:

  • Subscribed and fully paid-up share capital: The minimum subscribed and fully paid-up share capital for a credit institution in Luxembourg is €8.7 million.
  • Additional capital buffers: Credit institutions in Luxembourg may also be required to maintain additional capital buffers, such as the Global Systemically Important Institutions (G-SII) buffer and the Other Systemically Important Institutions (O-SII) buffer.

The capital requirements for banks in Luxembourg are set by the Commission de Surveillance du Secteur Financier (CSSF), the financial regulatory authority in Luxembourg. The CSSF has the power to adjust the capital requirements as needed to ensure that banks in Luxembourg are adequately capitalized.

In addition to the capital requirements, banks in Luxembourg are also subject to other regulatory requirements, such as liquidity requirements and risk management requirements.

Here are some of the factors that the CSSF will consider when determining the capital requirements for a new bank:

  • The size and complexity of the proposed bank’s operations.
  • The risks associated with the proposed bank’s activities.
  • The bank’s management team and its experience in the banking industry.
  • The bank’s financial strength and its ability to withstand financial shocks.

Seychelles

Seychelles is an archipelago nation located in the Indian Ocean off the eastern coast of Africa. Known for its stunning beaches, rich biodiversity, and vibrant culture, Seychelles has a relatively small, but increasingly diverse economy. Traditionally, the Seychellois economy has been dependent on tourism and fisheries, but over the last few decades, it has been expanding into the sectors of offshore business, banking, and financial services.

The banking industry in Seychelles, while not as large or as well-known as those in some other offshore centers, plays a significant role in the country’s economy. It comprises a mix of domestic banks serving the local economy and international banks catering to global clients. However, it’s worth noting that Seychelles is often regarded as a “banking jurisdiction of last resort.”

This is mainly because, in comparison to top-tier jurisdictions, Seychelles has less stringent regulatory requirements for obtaining an international bank license. Hence, entities that may struggle to secure a license elsewhere might find Seychelles a more feasible option. Similarly, if a bank aims to cater to clients who might struggle to access banking services elsewhere, such as those from countries with high levels of economic or political risk (like Russia), Seychelles could be an option.

EDITOR’S NOTE: Whenever you hear “less stringent regulatory requirements,” you can translate that to, good luck getting a correspondent banking partner.

There are currently 7 banks licensed in Seychelles. They are Absa Bank (Seychelles) Ltd, Mauritius Commercial Bank (Seychelles) Ltd., Bank of Baroda, Seychelles International Mercantile Banking Corporation (SIMBC) trading under the name “Nouvobanq,” Seychelles Commercial Bank (formerly Seychelles Savings Bank), Al Salam Bank Seychelles Limited, and Bank of Ceylon. Of these, two are operating as international banks and one is a booking center for a bank from India. 

Note that the following is speculative because the last update to Seychelles banking license law was in 2004. Click here for the banking statute. The last update to fees was in 2010. Of these, one is operating  an international bank and one as a booking center for a bank in India. 

The requirements to obtain a bank license in Seychelles are relatively straightforward. Applicants should have a minimum paid-up capital of US$5 million (the law requires $2 million)), and they must meet certain corporate governance and risk management standards.

The capital requirements for banks in Seychelles are also relatively low. Commercial banks are required to maintain a minimum capital adequacy ratio of 10%, and investment banks are required to maintain a minimum capital adequacy ratio of 12%.

Here are some additional details about the Seychelles banking industry:

  • The Central Bank of Seychelles (CBS) is the country’s banking regulator.
  • The CBS has been working to strengthen the Seychelles’ anti-money laundering and terrorist financing controls in recent years to get off various black and gray lists.
  • The Seychelles is a member of the Financial Action Task Force (FATF), an international body that sets standards for combating money laundering and terrorist financing.
  • The Seychelles has been ranked as a “high-risk jurisdiction” by the FATF in the past, but it has made significant progress in improving its AML/CFT controls.

For an excellent article on the Seychelles banking industry, check out the Nomad Capitalist website. 

Vanuatu, Comoros, and Gambia – a Warning

I include Vanuatu, Comeros, and Gambia on this list because I am asked about them frequently. But, they are here as a warning… definitely not as a recommendation for an international bank license jurisdiction. 

Vanuatu is an island nation located in the South Pacific Ocean. Known for its stunning natural beauty, the country consists of an archipelago of around 83 small islands, some of which have active volcanoes. Vanuatu’s economy is largely based on small-scale agriculture, which provides a living for most of the rural population. The country also has a growing tourism industry thanks to its tropical climate, beautiful landscapes, and rich cultural heritage. Offshore banking and financial services have become important sectors, with Vanuatu providing favorable tax conditions and banking privacy. However, it is worth noting that recent international efforts towards financial transparency have affected the functioning of this sector. Today, it is an option to incorporate an offshore company, but not to operate an international bank. 

Gambia, on the other hand, is the smallest country on mainland Africa, enveloped by Senegal except for its western coastline along the Atlantic Ocean. The Gambia River runs through the center of the country, which is characterized by diverse ecosystems around the central river and abundant wildlife in its numerous nature reserves and parks. The Gambian economy is dominated by farming, fishing, and tourism. In recent years, the government has invested in improving infrastructure and the legislative framework to promote investment and commercial activities. Though smaller compared to global offshore financial centers, The Gambia does have a growing banking sector that caters to local clients.

Then there is Comoros. Comoros is a small island nation located in the Indian Ocean, off the eastern coast of Africa. It is situated between northern Madagascar and northern Mozambique and consists of three main islands, namely Grande Comore, Mohéli, and Anjouan. There’s also a fourth island, Mayotte, which is claimed by Comoros but is still administered by France.

Comoros is one of the smallest and poorest countries in the world, with a population of around 850,000. The economy is largely based on subsistence agriculture, fishing, and remittances from overseas. Despite its economic challenges, the country is known for its biodiversity, including many endemic species.

These three countries, along with a few others, are the scourge of the international bank license industry. Yes, you’ll pay some money to a promoter and will receive a banking license. But, because there is no regulatory body of substance in these jurisdictions, and their reputations are poor, that license is useless. 

  • This is one of the reasons Puerto Rico is the market leader. They have the local regulator, OCIF, and then the US Federal Reserve of New York. Plus, banks in Puerto Rico follow US Federal Standards. Jurisdictions without a strong regulator, or no regulator as in the case of these three jurisdictions, put out a license that won’t be respected by potential correspondent partners. 

If you want a colorful piece of paper for $50,000 then buy a bank license from Vanuatu, Comoros, or Gambia. But, if you want to be able to build a bank capable of operating on the international stage, look elsewhere. 

The issue with Gambia, Comoros, and Vanuatu is that you won’t be able to get a correspondent banking partner with this license. No one will accept a bank license in these jurisdictions, so the license is useless. 

These countries take advantage of those who have dreams of owning a bank but have nowhere near the required capital. They sell you a license that they know you won’t be able to use, which is why these are the worst scammers of the offshore bank license industry.

The bottom line is that setting up an international bank in 2023 is an expensive, complex, and capital intensive endeavor. Only very well funded groups will succeed. If you don’t have the capital to get into a quality jurisdiction, start somewhere else… such as an EMI license in the UK, an Aged Swiss Trust, a Mexican SOFOM, etc. There are many options of legitimate non-bank setups that will allow you to build the business and eventually convert to a full banking charter. 

Here are a few other clear signs that the provider is a scam or a waste of time: 

  1. If the website says, “ready-made licenses for sale,” run the other way. There are almost never ready made licenses in the banking industry (unlike in the offshore company formation business). 
  2. Promises a quick turn around, that’s impossible in 2023. All transfers of ownership require regulatory approval.
  3. Tells you that no due diligence is required or you don’t need to prove the source of funds. This is never true and is a sure sign of a scam.
  4. If they’re promoting Dominica, they either don’t know what they are doing, they are out of date, or they’re taking a cut of the forthcoming bribes. 
  5. Anyone promoting Vanuatu, Comeros or Gambia is most likely a scammer. You’ll never be able to make use of these licenses. 
  6. Basically, if it’s easy to buy a bank, that means that the license is useless because there is no substantive regulator in that jurisdiction.
  7. If the provider offers many different services on their website, it means that they’re a marketing firm and (hopefully) will refer you to someone that knows what they’re doing… at twice the price had you found the subject matter expert on your own. Offshore bank licensing is very specialized and only someone that works in the field full time can keep up. 
  8. If someone promises to get you a bank license for the minimum capital promised in the law, such as $550,000 in Puerto Rico, know that this is probably not true and they don’t know what they are doing. Most laws are outdated and regulators have significantly increased the capital requirement. 
  9. If anyone tells you they have the “right connections” to get a banking license in a jurisdiction that typically doesn’t issue licenses, expect a scam and a never ending list of people asking for bribes until you go away (Dominica). They keep you on the hook with hope until you stop paying. 

For more on this topic, see Scams in the Offshore Bank License Market

I’ld also like to mention that much of the information on the internet is out of date. It’s very important to keep up with changes and work with someone who is regularly in contact with regulators. For a post on this topic, see The Internet and ChatGBT are Wrong About International Bank Licenses in Puerto Rico.

The Future of International Banking

Looking forward, it’s reasonable to assume that the international bank license industry in 2024 and beyond will continue to evolve along the following lines:

  • Regulation: Banks and financial institutions worldwide would likely be facing even stricter regulation and oversight. Regulatory bodies have been increasing their scrutiny on money laundering, terrorist financing, and other illicit financial activities. Transparency, regulatory compliance, and robust risk management would likely continue to be major focus areas.
  • Technology and Digital Banking: The ongoing digital revolution in banking services would likely continue to evolve. More and more banks are expected to offer digital banking services, such as mobile apps, online banking platforms, and digital payment solutions. This trend could impact the licensing process as regulators adapt to oversee these new technologies and services.
  • Competition and Consolidation: Due to increased competition, especially from fintech and big tech companies, traditional banks might look for strategies to stay competitive, including consolidating resources, merging with other institutions, or acquiring fintech companies.
  • Customer-Centric Services: Banks are expected to continue enhancing their focus on customer-centric services. This includes personalized banking products and services, improved customer service channels, and leveraging data analytics to understand customer behavior and preferences.
  • Sustainable and Socially Responsible Banking: With growing awareness of social and environmental issues, banks are expected to pay more attention to sustainability and social responsibility. This includes ethical investment, financing green initiatives, and supporting community development.
  • Cybersecurity: With an increased digital footprint, banks would likely have to invest more in cybersecurity measures to protect customer data and prevent cyber attacks. Regulatory bodies around the world are also paying more attention to cybersecurity, which may affect the requirements for obtaining and maintaining a banking license.
  • Artificial Intelligence (AI) and Automation: AI and automation technologies have the potential to dramatically transform banking operations, from customer service (e.g., chatbots) to risk management and fraud detection. Banks that can effectively leverage these technologies might gain a significant competitive advantage.
  • Open Banking: Open banking, facilitated by APIs (Application Programming Interfaces), allows third-party developers to build applications and services around a financial institution. This trend, already strong in regions like Europe with PSD2 regulation, could increase competition and drive innovation in the banking industry.
  • Blockchain and Cryptocurrencies: The rise of blockchain technology and cryptocurrencies could continue to have significant implications for the banking industry, potentially affecting everything from payment transactions to contract enforcement. This is a popular theme in Puerto Rico.
  • Remote Workforce Management: The COVID-19 pandemic forced many businesses, including banks, to adopt remote working practices. Post pandemic, managing a remote workforce has become a standard part of operations for many banks, with implications for recruitment, management, and IT infrastructure.
    • This is especially relevant to international banking, where you might have a few employees in your country of license and a much larger group in your home country/target market. 
  • Financial Inclusion: Banks may continue to seek ways to provide services to underbanked or unbanked populations. This includes not only providing access to basic financial services but also extending credit and providing tools for wealth management to these populations.

I also expect Puerto Rico to continue to dominate the industry. However, I also expect many of the early license holders to be forced out because they can’t keep up with the capital requirements. As they sell or close, larger players will enter the market which the early adopters proved to have potential. Look for Puerto Rico to mature quickly in the next 2 or 3 years.  

Conclusion

I hope you’ve found this article on international bank licenses to be helpful. For more information, please contact me at info@banklicense.com. I will be happy to review your options and assist you to apply for a new license or acquire an existing bank in the appropriate jurisdiction. 

In most cases, this process will start by preparing your business plan and financial model. For information on drafting a business plan for an international bank, see Business Plan for an Offshore Bank License. I wrote this with Puerto Rico in mind, but the contents and concepts are the same throughout the industry.

Operational International Bank for Sale in Puerto Rico

Operational International Bank for Sale in Puerto Rico

In a remarkable financial event, an operational international bank situated in the American territory of Puerto Rico is currently on the market for a moderate asking price of $5 million. Though the bank is presently unprofitable, the sale presents an exceptional turnkey opportunity for interested investors who are keen to make their mark in the banking industry.

This financial institution comes fully equipped with a highly competent staff of six, which includes a high-quality CEO with extensive experience in the industry. Other assets include an efficient core system, a SWIFT code for smooth international transactions, and a correspondent bank for effecting financial transactions on behalf of individuals or institutions.

The potential for profitability is high, contingent on a prospective buyer’s ability to bring in substantial deposits, upgrade the correspondent bank, integrate debit card services, and join the U.S Federal Reserve system by obtaining Fedwire and Automated Clearing House (ACH) access.

Though the bank currently falls short of profitability, its overall readiness to operate signifies a considerable investment opportunity. The turnkey bank provides an established operational base from which a potential buyer can expand and adjust the institution to their strategic preferences.

A crucial growth strategy would be attracting and retaining a robust customer base by encouraging substantial deposits. This strategy can be achieved through offering attractive rates, excellent customer service, and competitive banking products.

Upgrading the correspondent bank will be essential in improving the bank’s international transaction capabilities. A robust correspondent banking relationship can aid in offering diverse financial services, boosting customer satisfaction and, in turn, profitability.

An additional key consideration will be the implementation of debit card services. In our increasingly digital age, consumers value the convenience and flexibility provided by debit cards. Offering such services would not only cater to existing customer expectations but also potentially attract a broader customer base.

Lastly, the future owner should consider joining the U.S Federal Reserve system and applying for Fedwire and ACH access. This would allow the bank to directly send or receive funds via the Fedwire Funds Service, and it would facilitate the transfer of funds through the ACH network. The integration of these systems could significantly enhance the bank’s overall efficiency and reliability, making it a more appealing choice for potential customers and thereby increasing the likelihood of profitability.

Benefits of Puerto Rico 

In the world of international banking, Puerto Rico holds a unique position due to its hybrid status as a U.S. territory with significant fiscal autonomy. The territory offers a host of benefits that make it an attractive jurisdiction for international banking endeavors, inviting potential investors to explore opportunities. This article will unpack some of the advantages of owning an international bank in Puerto Rico and shed light on why this territory is an increasingly attractive banking hub.

  1. Favorable Tax Regime: Puerto Rico boasts a remarkable 4% corporate tax rate for international banks, thanks to its unique tax laws. This low tax rate provides a significant financial incentive and competitive advantage for banks, as it enhances profitability and provides more capital for reinvestment and growth.
  2. Access to the U.S. Banking System: International banks in Puerto Rico have the unique ability to integrate into the U.S. banking system due to the territory’s status within the U.S. This opens up opportunities to participate in a robust and reliable financial network, facilitating transactions and enhancing operational efficiency.
  3. Ease of Establishing Correspondent Banking Relationships: When compared to international banks in jurisdictions with lesser reputations, banks in Puerto Rico enjoy relative ease in establishing relationships with correspondent banks. These relationships are crucial in the global banking sector, allowing banks to access financial services beyond their immediate geographic reach.
  4. Joining Fedwire and ACH: International banks in Puerto Rico have the opportunity to join the Federal Reserve’s Fedwire and Automated Clearing House (ACH) systems. Membership in these networks enhances a bank’s payment and funds transfer capabilities, enabling them to provide a broader range of services to customers and increasing their competitiveness.

Beyond these clear-cut advantages, other benefits arise from Puerto Rico’s unique status and environment:

  1. Bilingual Workforce: Puerto Rico boasts a bilingual workforce fluent in both English and Spanish. This dual language proficiency can attract a diverse clientele, promoting the bank’s growth and reach in the increasingly globalized world of finance.
  2. Robust Regulatory Environment: Although lighter than on the mainland, Puerto Rico’s banking sector is still subject to rigorous oversight from U.S. banking authorities, which helps maintain high standards of transparency and reliability. This reputation can help to attract clients and partners who prioritize security and compliance.
  3. Geographic Proximity to the Mainland U.S. and Latin America: Puerto Rico’s strategic location provides easy access to both the U.S. and Latin American markets, which can be advantageous for banks aiming to expand their business and build a diverse client base.

In summary, the benefits of owning an international bank in Puerto Rico are plentiful. The territory’s combination of a favorable tax environment, access to the U.S. banking system, relative ease of establishing correspondent banking relationships, and other unique advantages make it a compelling choice for investors looking to establish or expand their footprint in the international banking industry.

The sale of this operational international bank in Puerto Rico provides an extraordinary opportunity for investors seeking to penetrate the banking industry. Despite the bank’s current lack of profitability, the potential for revenue generation through strategic enhancements is significant. Prospective buyers can utilize the turnkey setup to mold the bank into a profitable financial institution, leveraging the existing infrastructure and adding key enhancements to take full advantage of the opportunities this sale offers.

For more information on the operating international bank available in Puerto Rico, please contact me at info@premieroffshore.com.

Best Top Tier Banking Licenses

Best Top Tier Banking Licenses

I usually write about mid-tier or lower-tier international banking licenses. In the middle of the market, we have the US territory of Puerto Rico with Bermuda coming up fast.  In this post, I’ll look at the top-tier banking jurisdictions. 

If you enjoy the following article, you might also like to review the differences between Puerto Rico international banking license and a US banking license. See US Banking License vs. Puerto Rico International Banking License and Process to Apply for a US Banking License

Introduction to the Best Top Tier Banking Licenses

There are many factors to consider when choosing the best jurisdiction to set up a new international bank. Some of the most important factors include:

  • Regulatory environment: The regulatory environment in the jurisdiction should be stable and predictable. The bank should also be subject to the same regulations as other banks in the jurisdiction.
  • Taxation: The tax laws in the jurisdiction should be favorable to banks. The bank should also be able to take advantage of any tax breaks or incentives that are available.
  • Infrastructure: The jurisdiction should have a strong financial infrastructure. This includes a well-developed banking system, a reliable telecommunications network, and a stable political environment.
  • Cost of doing business: The cost of doing business in the jurisdiction should be reasonable. This includes the cost of setting up the bank, the cost of operating the bank, and the cost of complying with regulations.

Some of the best jurisdictions to set up a new international bank include:

  • United Kingdom: The UK has a stable regulatory environment, favorable tax laws, and a strong financial infrastructure. The cost of doing business in the UK is also reasonable.
  • United States: The US has a large and sophisticated financial market. The US also has a strong regulatory environment and favorable tax laws. However, the cost of doing business in the US can be high.
  • Singapore: Singapore has a stable regulatory environment, favorable tax laws, and a strong financial infrastructure. The cost of doing business in Singapore is also reasonable.
  • Hong Kong: Hong Kong has a stable regulatory environment, favorable tax laws, and a strong financial infrastructure. The cost of doing business in Hong Kong is also reasonable.
  • Switzerland: Switzerland has a stable regulatory environment, favorable tax laws, and a strong financial infrastructure. However, the cost of doing business in Switzerland can be high.

Ultimately, the best jurisdiction to set up a new international bank will depend on the specific needs of the bank. The bank should carefully consider all of the factors listed above before making a decision.

In addition to the factors listed above, there are a few other things to consider when choosing a jurisdiction to set up a new international bank. These include:

  • The bank’s target market: The bank should choose a jurisdiction that is attractive to its target market. For example, if the bank is targeting high-net-worth individuals, it may want to set up in a jurisdiction with a favorable tax regime.
  • The bank’s business model: The bank’s business model will also affect its choice of jurisdiction. For example, if the bank is planning to offer a wide range of financial products and services, it may want to set up in a jurisdiction with a well-developed financial infrastructure.
  • The bank’s risk appetite: The bank’s risk appetite will also affect its choice of jurisdiction. For example, if the bank is willing to take on more risk, it may want to set up in a jurisdiction with a less regulated financial system.

By carefully considering all of the factors listed above, banks can choose the best jurisdiction to set up a new international bank.

Detailed Review

When setting up a new international bank, choosing the right jurisdiction can be a daunting task. The decision involves a complex balance of regulatory environments, political stability, economic strength, tax benefits, and market opportunities. This article will explore some of the most favorable jurisdictions for establishing an international bank, based on these criteria.

1. Switzerland

Switzerland has long been known as a global banking center due to its robust financial regulations, political stability, and strong privacy laws. These factors make it an attractive jurisdiction for setting up a new international bank. Swiss banking regulations are stringent, ensuring a high level of trust and integrity within the banking system. Despite recent changes towards more transparency, Switzerland still provides a high level of confidentiality for its banking clients.

Switzerland is known for having a highly-regulated banking system, with strict capital requirements that must be met before a bank can begin operations. To start a bank in Switzerland, an applicant is required to follow the regulations laid out by the Swiss Financial Market Supervisory Authority (FINMA).

One important aspect of this regulatory framework is capital adequacy, which refers to the amount of capital a bank must hold in order to conduct business without encountering financial difficulties. Swiss banks are required to maintain a minimum capital ratio of 8% of risk-weighted assets, which is one of the highest ratios in the world. This means that a bank must have at least CHF 20 million (approx. USD $22,300,000 million) in capital to start operating in Switzerland.

The required amount of capital can vary depending on the size and complexity of the bank, as well as the types of products and services it offers. Some banks may also be subject to additional capital requirements if they engage in riskier activities, such as investing in securities or engaging in foreign currency transactions. In addition, a bank’s capital requirements may be adjusted over time based on changes in its risk profile or other market conditions. Overall, the high capital requirements in Switzerland reflect the country’s commitment to maintaining a stable and secure banking system.

2. Singapore

Singapore’s strategic location, coupled with its well-regulated banking industry, makes it a compelling choice for banking institutions. The country’s political stability, coupled with a strong and resilient economy, makes it an attractive destination for new banking ventures. Singapore’s banking sector is characterized by a strong regulatory framework, which has helped it maintain its reputation as a safe and secure place for banking activities.

3. Luxembourg

Luxembourg has emerged as a significant player in the international banking scene, thanks to its strong regulatory regime and attractive tax laws. The country has a favorable business environment, characterized by political stability, a strong economy, and a strategic location in the heart of Europe. Luxembourg is particularly attractive for banking institutions that are interested in investment banking and wealth management.

4. Hong Kong

Hong Kong’s strong financial services sector, strategic location, and robust regulatory regime make it another top choice for establishing a new international bank. The region serves as a gateway to the lucrative Chinese market and other Asian economies, providing vast market opportunities.

5. Cayman Islands

The Cayman Islands are known for their favorable tax regime, with no direct taxation on banking institutions. They offer a stable political environment and a strong legal framework based on English common law. The jurisdiction has a robust regulatory framework for its banking sector, ensuring financial stability and integrity. The Cayman Islands are a particularly popular choice for banks looking to cater to international clients and offshore businesses.

The Process of Applying for a Top-Tier Banking License 

Please note that this is a generalized guide and the specific requirements and processes can vary significantly based on the jurisdiction and regulatory authority. Please contact us for a quote and additional information at info@premieroffshore.com. .

Applying for a banking license is a complex and rigorous process, requiring detailed planning, preparation, and documentation. This article will outline the general steps involved in obtaining a banking license, with emphasis on the need for a detailed business plan and financial model, proof of funds, and background reports for all investors, officers, and directors. Please note that the process can vary based on jurisdiction and specific regulations of the banking authority in question.

1. Preparing a Detailed Business Plan and Financial Model

A comprehensive business plan is a fundamental part of the banking license application. This document should outline the strategic direction of the bank, the types of services to be offered, the target market, and the proposed operational structure. Key aspects to include are:

  • Mission and Vision: Define the purpose of the bank and its future aspirations.
  • Products and Services: Detail the specific banking products and services the institution plans to offer.
  • Market Analysis: Provide a thorough analysis of the target market and competitive landscape.
  • Operational Plan: Describe how the bank will function operationally, including the technology and infrastructure to be used.
  • Management and Organizational Structure: Detail the proposed organizational hierarchy, roles, and responsibilities.

A robust financial model accompanies the business plan. This model should forecast the bank’s financial performance for at least the next three to five years, taking into account various scenarios and risk factors. It typically includes projected income statements, balance sheets, cash flow statements, and key financial ratios.

2. Proof of Funds

Applicants must demonstrate that they have sufficient capital to establish and operate the bank. This involves providing proof of funds, typically in the form of bank statements or other verifiable documents. The minimum capital requirement varies depending on the jurisdiction and type of banking license.

3. Background Checks

Regulatory authorities require comprehensive background checks for all investors, officers, and directors involved in the proposed bank. These checks aim to ensure that the individuals have a clean record, are of good character, and have the necessary qualifications and experience. The checks typically involve:

  • Criminal Background Checks: To ensure the individuals have no criminal history.
  • Credit Checks: To verify the financial integrity of the individuals.
  • Qualifications and Experience Checks: To confirm that the individuals have the necessary skills, qualifications, and experience to effectively manage a banking institution.

4. Application Submission 

Once the business plan, financial model, proof of funds, and background checks are complete, the banking license application can be compiled and submitted to the relevant regulatory authority. The application will also need to include other documents, such as incorporation documents, internal policies, and procedures.

5. Review and Approval

Following submission, the regulatory authority will review the application, which could involve further inquiries or requests for additional information. If the authority is satisfied with the application, they will grant the banking license. This process can take several months to over a year, depending on the jurisdiction and the complexity of the application.

Obtaining a banking license is a rigorous process, requiring meticulous preparation and due diligence. It’s essential to seek expert advice and assistance throughout the process to ensure that all requirements are met and the application is as robust as possible. While the process may be time-consuming and challenging, it’s a crucial step toward establishing a successful banking institution.

Conclusion

The choice of jurisdiction for setting up a new international bank depends heavily on the specific needs and strategy of the banking institution. Other factors such as the target market, the nature of banking services to be offered, and the bank’s risk tolerance also play a role. The jurisdictions mentioned above offer a blend of regulatory stability, market opportunities, and favorable business environments, making them top choices for establishing a new international bank.

I hope the following has been helpful. For a detailed quote and information specific to a particular jurisdiction, please contact us at info@premieroffshore.com 

Bermuda

Setting Up an International Bank in Bermuda

In this post, I’ll explain why I believe Bermuda is the best jurisdiction for an international bank in 2024 and what’s required to build an international bank in Bermuda. This is a relatively new jurisdiction, with only one completed case as of this writing. But, I expect big things from Bermuda and for them to compete with Puerto Rico for the top spot in international bank licenses. 

Bermuda Poised to Become Significant Financial Center with Coinbase and Jewel Bank

Bermuda is poised to become a significant financial center in the wake of the announcement that Coinbase, the largest cryptocurrency exchange in the world, is setting up a new office in the island nation. Coinbase’s decision to establish a presence in Bermuda is a major vote of confidence in the jurisdiction’s regulatory framework and its commitment to innovation.

In addition to Coinbase, Bermuda is also home to Jewel Bank, an international crypto bank that is licensed by the Bermuda Monetary Authority (BMA). Jewel Bank’s presence in Bermuda provides a safe and secure platform for institutional investors to access the cryptocurrency market.

The combination of Coinbase and Jewel Bank in Bermuda is a major development for the island nation and its financial services sector. These two companies represent the cutting edge of the cryptocurrency industry, and their presence in Bermuda will help to position the jurisdiction as a leading global hub for crypto finance.

Coinbase

Coinbase is a cryptocurrency exchange that was founded in 2012. The company is headquartered in San Francisco, California, and it has over 56 million users worldwide. Coinbase offers a variety of services, including the purchase, sale, and storage of cryptocurrencies.

In January 2023, Coinbase announced that it would be opening a new office in Bermuda and received the license in April of 2023. The office will be staffed by a team of engineers, compliance professionals, and customer support staff. Coinbase’s decision to establish a presence in Bermuda is a major vote of confidence in the jurisdiction’s regulatory framework and its commitment to innovation.

Jewel Bank

Jewel Bank is an international crypto bank that was founded in 2018. The company is headquartered in Bermuda, and it is licensed by the BMA. Jewel Bank offers a variety of services, including the custody of cryptocurrencies, the issuance of crypto-backed loans, and the provision of crypto-related investment products.

Jewel Bank’s presence in Bermuda provides a safe and secure platform for institutional investors to access the cryptocurrency market. The company’s custody services are regulated by the BMA, and its crypto-backed loans are backed by physical gold. Jewel Bank’s investment products are designed to provide exposure to the cryptocurrency market without the need to hold cryptocurrencies directly.

The Future of Finance in Bermuda

The combination of Coinbase and Jewel Bank in Bermuda is a major development for the island nation and its financial services sector. These two companies represent the cutting edge of the cryptocurrency industry, and their presence in Bermuda will help to position the jurisdiction as a leading global hub for crypto finance.

Bermuda has a number of advantages that make it an attractive destination for crypto businesses. The jurisdiction has a stable political environment, a strong legal system, and a well-developed financial infrastructure. Bermuda is also a member of the Financial Action Task Force (FATF), which is an international organization that sets standards for combating money laundering and terrorist financing.

The arrival of Coinbase and Jewel Bank in Bermuda is a major step forward for the jurisdiction’s financial services sector. These two companies will help to attract other crypto businesses to Bermuda, and they will help to position the jurisdiction as a leading global hub for crypto finance.

Bermuda: An Excellent Jurisdiction to Set Up an International Bank

Bermuda is a British Overseas Territory located in the Atlantic Ocean. It is a popular destination for international businesses, including banks. The Bermuda Monetary Authority (BMA) is the regulatory body for banks in Bermuda.

There are several reasons why Bermuda is an excellent jurisdiction to set up an international bank. These include:

  • Stable and politically independent jurisdiction

Bermuda is a stable and politically independent jurisdiction. It has a long history of democracy and rule of law. This makes it a safe and secure place to do business.

  • Strong legal system

Bermuda has a strong legal system based on English common law. This provides businesses with a high level of legal certainty.

  • Well-developed financial infrastructure

Bermuda has a well-developed financial infrastructure. This includes a sophisticated payments system, a deep pool of capital, and a highly skilled workforce.

  • Member of the Financial Action Task Force (FATF)

Bermuda is a member of the Financial Action Task Force (FATF), which is an international organization that sets standards for combating money laundering and terrorist financing. This demonstrates Bermuda’s commitment to fighting financial crime.

  • Low tax rate

Bermuda has a low tax rate. This can save businesses money on their tax expenses.

  • Professional and experienced regulator

The BMA is a professional and experienced regulator. It is committed to ensuring that banks in Bermuda are safe and sound.

Overall, Bermuda is an excellent jurisdiction to set up an international bank. It offers a number of advantages, including a stable political environment, a strong legal system, a well-developed financial infrastructure, and a low tax rate.

Requirements to Set Up a Bank in Bermuda

Bermuda is a British Overseas Territory located in the Atlantic Ocean. It is a popular destination for international businesses, including banks. The Bermuda Monetary Authority (BMA) is the regulatory body for banks in Bermuda.

To set up a bank in Bermuda, you must meet the following requirements:

  • You must be a company incorporated in Bermuda.
  • You must have a minimum paid-up capital of $10 million.
  • You must have a board of directors that is composed of at least three Bermudian citizens or residents.
  • You must have a management team that has experience in the banking industry.
  • You must submit an application to the BMA and meet all of the BMA’s requirements.

The application process for a bank license in Bermuda can take several months. The BMA will review your application and conduct an on-site inspection of your proposed bank. If the BMA approves your application, you will be granted a bank license.

Once you have a bank license, you can begin operating your bank in Bermuda. You will be subject to the BMA’s regulations and supervision. The BMA is responsible for ensuring that banks in Bermuda are safe and sound.

If you are considering setting up a bank, Bermuda is a good option to consider. The BMA is a professional and experienced regulator, and Bermuda offers a number of benefits for businesses. You’ll find it an excellent alternative to Puerto Rico.

Contact Information

For more information about setting up a bank in Bermuda, you can review the Bermuda Monetary Authority website at: https://www.bma.bm/. We will be happy to assist you to form an international bank in Bermuda. For more information, please contact me at info@premieroffshore.com.

In this post, I’ll explain why I believe Bermuda is the best jurisdiction for an international bank in 2024 and what’s required to build an international bank in Bermuda. This is a relatively new jurisdiction, with only one completed case as of this writing. But, I expect big things from Bermuda and for them to compete with Puerto Rico for the top spot in international bank licenses. 

Bermuda Poised to Become Significant Financial Center with Coinbase and Jewel Bank

Bermuda is poised to become a significant financial center in the wake of the announcement that Coinbase, the largest cryptocurrency exchange in the world, is setting up a new office in the island nation. Coinbase’s decision to establish a presence in Bermuda is a major vote of confidence in the jurisdiction’s regulatory framework and its commitment to innovation.

In addition to Coinbase, Bermuda is also home to Jewel Bank, an international crypto bank that is licensed by the Bermuda Monetary Authority (BMA). Jewel Bank’s presence in Bermuda provides a safe and secure platform for institutional investors to access the cryptocurrency market.

The combination of Coinbase and Jewel Bank in Bermuda is a major development for the island nation and its financial services sector. These two companies represent the cutting edge of the cryptocurrency industry, and their presence in Bermuda will help to position the jurisdiction as a leading global hub for crypto finance.

Coinbase

Coinbase is a cryptocurrency exchange that was founded in 2012. The company is headquartered in San Francisco, California, and it has over 56 million users worldwide. Coinbase offers a variety of services, including the purchase, sale, and storage of cryptocurrencies.

In January 2023, Coinbase announced that it would be opening a new office in Bermuda and received the license in April of 2023. The office will be staffed by a team of engineers, compliance professionals, and customer support staff. Coinbase’s decision to establish a presence in Bermuda is a major vote of confidence in the jurisdiction’s regulatory framework and its commitment to innovation.

Jewel Bank

Jewel Bank is an international crypto bank that was founded in 2018. The company is headquartered in Bermuda, and it is licensed by the BMA. Jewel Bank offers a variety of services, including the custody of cryptocurrencies, the issuance of crypto-backed loans, and the provision of crypto-related investment products.

Jewel Bank’s presence in Bermuda provides a safe and secure platform for institutional investors to access the cryptocurrency market. The company’s custody services are regulated by the BMA, and its crypto-backed loans are backed by physical gold. Jewel Bank’s investment products are designed to provide exposure to the cryptocurrency market without the need to hold cryptocurrencies directly.

The Future of Finance in Bermuda

The combination of Coinbase and Jewel Bank in Bermuda is a major development for the island nation and its financial services sector. These two companies represent the cutting edge of the cryptocurrency industry, and their presence in Bermuda will help to position the jurisdiction as a leading global hub for crypto finance.

Bermuda has a number of advantages that make it an attractive destination for crypto businesses. The jurisdiction has a stable political environment, a strong legal system, and a well-developed financial infrastructure. Bermuda is also a member of the Financial Action Task Force (FATF), which is an international organization that sets standards for combating money laundering and terrorist financing.

The arrival of Coinbase and Jewel Bank in Bermuda is a major step forward for the jurisdiction’s financial services sector. These two companies will help to attract other crypto businesses to Bermuda, and they will help to position the jurisdiction as a leading global hub for crypto finance.

Bermuda: An Excellent Jurisdiction to Set Up an International Bank

Bermuda is a British Overseas Territory located in the Atlantic Ocean. It is a popular destination for international businesses, including banks. The Bermuda Monetary Authority (BMA) is the regulatory body for banks in Bermuda.

There are several reasons why Bermuda is an excellent jurisdiction to set up an international bank. These include:

  • Stable and politically independent jurisdiction

Bermuda is a stable and politically independent jurisdiction. It has a long history of democracy and rule of law. This makes it a safe and secure place to do business.

  • Strong legal system

Bermuda has a strong legal system based on English common law. This provides businesses with a high level of legal certainty.

  • Well-developed financial infrastructure

Bermuda has a well-developed financial infrastructure. This includes a sophisticated payments system, a deep pool of capital, and a highly skilled workforce.

  • Member of the Financial Action Task Force (FATF)

Bermuda is a member of the Financial Action Task Force (FATF), which is an international organization that sets standards for combating money laundering and terrorist financing. This demonstrates Bermuda’s commitment to fighting financial crime.

  • Low tax rate

Bermuda has a low tax rate. This can save businesses money on their tax expenses.

  • Professional and experienced regulator

The BMA is a professional and experienced regulator. It is committed to ensuring that banks in Bermuda are safe and sound.

Overall, Bermuda is an excellent jurisdiction to set up an international bank. It offers a number of advantages, including a stable political environment, a strong legal system, a well-developed financial infrastructure, and a low tax rate.

Requirements to Set Up a Bank in Bermuda

Bermuda is a British Overseas Territory located in the Atlantic Ocean. It is a popular destination for international businesses, including banks. The Bermuda Monetary Authority (BMA) is the regulatory body for banks in Bermuda.

To set up a bank in Bermuda, you must meet the following requirements:

  • You must be a company incorporated in Bermuda.
  • You must have a minimum paid-up capital of $10 million.
  • You must have a board of directors that is composed of at least three Bermudian citizens or residents.
  • You must have a management team that has experience in the banking industry.
  • You must submit an application to the BMA and meet all of the BMA’s requirements.

The application process for a bank license in Bermuda can take several months. The BMA will review your application and conduct an on-site inspection of your proposed bank. If the BMA approves your application, you will be granted a bank license.

Once you have a bank license, you can begin operating your bank in Bermuda. You will be subject to the BMA’s regulations and supervision. The BMA is responsible for ensuring that banks in Bermuda are safe and sound.

If you are considering setting up a bank, Bermuda is a good option to consider. The BMA is a professional and experienced regulator, and Bermuda offers a number of benefits for businesses. You’ll find it an excellent alternative to Puerto Rico.

Contact Information

For more information about setting up a bank in Bermuda, you can review the Bermuda Monetary Authority website at: https://www.bma.bm/. We will be happy to assist you to form an international bank in Bermuda. For more information, please contact me at info@premieroffshore.com.

bank risks

The Risks of Buying a Bank

Buying a bank can be a lucrative investment, but it is important to be aware of the risks involved. Some of the most common risks associated with buying a bank include:

  • Loan book risks. The loan book is the collection of all of the loans that a bank has made. If the loan book is full of bad loans, the bank could face significant losses. It is important to carefully review the loan book before buying a bank to make sure that it is not too risky.
  • Regulatory risks. Banks are subject to a wide range of regulations. If a bank is not in compliance with these regulations, it could face fines or other penalties. It is important to carefully review the bank’s compliance history before buying it to make sure that it is not at risk of being fined.
  • Prior transaction risks. Banks often engage in a variety of transactions, including mergers and acquisitions, securities underwriting, and investment banking. If a bank has engaged in any risky transactions in the past, these transactions could pose a risk to the bank’s future. It is important to carefully review the bank’s prior transaction history before buying it to make sure that it is not at risk of being sued or facing other legal problems.

In addition to these risks, there are a number of other risks that could be associated with buying a bank. These risks can vary depending on the specific bank that is being bought. It is important to carefully consider all of the risks involved before buying a bank.

Here are some additional risks that buyers of banks should be aware of:

  • Financial market risk. Banks are exposed to a variety of financial market risks, such as interest rate risk, currency risk, and commodity price risk. These risks can cause the value of the bank’s assets and liabilities to fluctuate, which could lead to losses.
  • Operational risk. Banks are also exposed to operational risk, which is the risk of losses arising from human error, system failures, or natural disasters. Operational risk can be difficult to manage and can lead to significant losses.
  • Strategic risk. Banks can also face strategic risk, which is the risk of losses arising from poor strategic decisions. Strategic risk can be difficult to assess and can lead to significant losses.

Buying a bank is a complex and risky undertaking. It is important to carefully consider all of the risks involved before making a decision to buy a bank. For assistance in purchasing a bank, feel free to contact me at info@premieroffshore.com 

Federal FinTech bank licenses

US Regulators to Issue First Federal FinTech Bank Licenses

US Federal regulators have begun issuing Federal FinTech bank licenses on a very limited basis to the most qualified applicants. I suggest that only the very largest FinTechs will be approved for the Federal FinTech bank licenses, at least in the next year or two. The purpose of the Federal FinTech bank license to allow companies like PayPal and eBay to get a national license rather than separate licenses in every state.

With a Federal FinTech bank license, the company will be allowed to paychecks, lend money, and hold deposits. This license is limited in scope and specialized on FinTechs. The stated purpose is to give more choices to consumers and recognize the value of FinTech businesses in banking.

For more on the logic behind these Federal FinTech bank licenses, see the US Department of Treasury report.

This Federal FinTech bank license gives top firms a path into the banking industry. FinTechs have limited options in the US, and many have had to partner with big banks. Being able to apply for the new Federal FinTech bank licenses will provide these companies with an opportunity to provide a full suite of online banking services to their clients

For example, Square is likely to be an early adopter of the Federal FinTech bank license. Major companies like this, with experience in compliance, KYC and AML are top candidates for a banking license.

I also note that Federal audits and compliance of these FinTech banks will be intense. They will be watched very closely to ensure the security of client funds. Regulation will be significantly more stringent than larger established banks.

So that’s the new Federal FinTech bank license. What if your company is not named Google, Alphabet, or PayPal? Is there a US FinTech bank license you can apply for? Yes, there is, the International Financial Entity license from the US territory of Puerto Rico.

A bank licensed as International Financial Entity in Puerto Rico can conduct all manner of banking business. The only limitation is that you can’t accept clients from Puerto Rico. To put it another way, you can do business with any person or company outside of Puerto Rico.

An International Financial Entity license in Puerto Rico is like the little brother of the Federal FinTech bank license. It’s more akin to a state bank charter and not a Federal charter and a Federal bank holding company is not required.

As such, an International Financial Entity in Puerto Rico is not a member of the Federal Reserve system, is not regulated by the Fed, and Federal Deposit Insurance does not apply. As there is no equivalent of FDIC in Puerto Rico, these banks do not offer deposit insurance.

These banks are referred to in the code as International Financial Entities. This is because the IFE statute can be used for many purposes. You might form a brokerage, cryptocurrency exchange, family office, hedge fund management company, or a bank. If you’ll offer accounts to the general public, you will be permitted to use the word “bank” in your name.

These international banks from Puerto Rico are going to be far more popular over the next two years compared to the Federal FinTech bank licenses. Puerto Rico is issuing 25 licenses a year and I’d expect to see 2 to 5 Federal FinTech bank licenses over the next calendar year.

Puerto Rico has a benefit that no state, nor the Federal Government can match. Form an international bank in Puerto Rico, and operate that International Financial Entity from Puerto and pay only 4% in taxes. Yes, only 4% total taxes. No Federal taxes and no other expenses so long as those operating the bank are residents of Puerto Rico or non-US persons living abroad.

For example, a group of 4 US citizens moves from New York to Puerto Rico and forms an International Financial Entity. Dividends from the IFE to those shareholders are tax-free. This would compare to a combined Federal and New York rate of about 40% on ordinary income from a Federal FinTech bank licensed business.

Likewise, dividends to foreign shareholders (who are not US citizens, green card holders, nor residents) are tax-free. The only tax paid on those corporate profits after salaries and other expenses is 4%. There is no withholding tax on dividends to foreign persons.

And an International Financial Entity in Puerto Rico can be formed at a fraction of the cost of a Federal FinTech bank license. Minimum corporate capital is $550,000, with $250,000 of this being paid-in capital and $300,000 being a CD held at a bank in Puerto Rico. We generally recommend you increase capital to $2.5 million over two years. For more, see: Lowest Cost Offshore Bank License is Puerto Rico.

The reason the US territory of Puerto Rico offers this International Financial Entity license is to bring jobs to the island. Thus, you’re required to have a minimum of 5 employees in Puerto Rico. These employees must be residents of Puerto Rico, which means they must be US citizens or otherwise permitted to work in the United States. That is to say, US employment and immigration laws apply to the territory just as they do to any state.

For more on building an international bank in Puerto Rico or elsewhere, see: The 8 Components of an Offshore Bank License

If you’re excited about the topic of international banks and Federal FinTech bank licenses, you might find my 300-page book interesting. See: Offshore Bank License Guide (Amazon Kindle edition).

I hope you’ve found this article on Federal FinTech bank licenses to be helpful. For more information and a quote to set up an IFE in Puerto Rico or an offshore bank in another jurisdiction, you can reach me at info@premieroffshore.com or call us at (619) 483-1708.

international bank license st lucia

International Bank License in St. Lucia

Here is everything you need to know about forming an international bank in St. Luca. I will summarize the due diligence and capital requirements that need to be met in order to build an international bank in St. Lucia.

The top three international banking jurisdictions in 2018 are Puerto Rico, St. Lucia and Dominica. Countries like Caymans and Belize have fallen off the list because of difficulties in obtaining new licenses.

For my book on international bank licenses, see Offshore Bank License Guide, 2017 (Amazon Kindle)

For an introduction to Puerto Rico, see: Lowest Cost Offshore Bank License is Puerto Rico

The first question prospective international bank license clients ask is about capital. The minimum capital in St. Lucia is $1 million compared to Puerto Rico at $550,000. We generally recommend $5 million in capital from any offshore jurisdiction to cover the requirements of a correspondent account. In Puerto Rico we recommend $2.5 million  

The second question on international bank licenses in St. Lucia is usually about operations and employees. St. Lucia doesn’t have a minimum employee requirement. In general, you should have an office with some employees. Also, all data must be in St. Lucia and accessible to local regulators.

For your information, Puerto Rico requires a minimum of 5 employees on the island. Thus, for someone planning to operate from a foreign country, St. Lucia might have a lower operating overhead.

An International Bank License in St. Lucia is the International Banking Act. These are the official guidelines that regulate the licensing and operation of an international bank in St. Lucia. Basically, this is the bible that needs to be followed to properly maintain your bank.

Your lawyer should have the International Bank Act memorized to the point where he can recite any article verbatim. When you review the International Bank Act you will find many important key points that need to be looked at and addressed before you start operating your international bank in St. Lucia.

For example, Article 15 which mentions how audits will be performed.

“A licensee shall have its accounts audited, annually or at such other times as the Minister may require, by an auditor who shall conduct the audit in accordance with the international accounting standards.”

Your bank is subject to audits by local regulators and these may be performed at any given time without notice. It is vital to keep your affairs in order as your banking license may be revoked if you fail to comply.

Some of the actions that may cause the relevant authority to revoke your license includes:

  • Fail to comply with a request made of that person by the
    Minister or the Director.
  • Offer of any gratuity, bribe or any other inducement prevent or attempt to prevent the Minister, the Director or any officer in the Director’s department acting under the Director’s authority.
  • Carry on any banking business with a resident unless in connection with the rendering of international banking business services from Saint Lucia, or as provided in this Act or in any other law in force in Saint Lucia governing the operations and activities of the licensee.

It is also important to know that the authority regulating your bank is called a Minister and his involvement in the process is all around. A Minister is responsible for all matters involving international financial services.

Some major activities that the Minister overviews involving your international bank are:

Article 13 (1) A share in a licensee under this Act shall not be issued, and no issued shares shall be transferred or disposed of in any manner, without the prior approval of the Minister.

Article 19 Section 3 (c) the Minister may disclose to another regulatory authority outside Saint Lucia information concerning the affairs of a licensee where the disclosure pertains to actions in violation of any law or with respect to the failure of a licensee to comply with generally accepted principles relating to the international banking business.

The Minister also has the authority to:

  • Revoke the license.
  • Require the substitution of any director or officer of the licensee.
  • At the expense of the licensee, appoint a person to assume control of the licensee’s affairs who shall, with the necessary changes, have all the powers of a person appointed as a receiver or manager of a company.
  • Require such action to be taken by the licensee as the Minister considers necessary.

Other important information that you should know regarding your bank is:

Article 54 (2) A company licensed under this Act, or the dividends, royalties, interest, foreign securities, funds, gains or assets generated or managed by a licensee in the course of its international banking business, shall not be subject to the provisions of the Exchange Control Act, or to any other exchange or currency control legislation in force in Saint Lucia.

You will find all of the application forms necessary to apply for an international banking license in the document. You will also find all of the regulations you have to comply with, they may not be as excessive and controlling as in other countries but still need to be noted.

I hope you’ve found this article on the international banking license in St.Lucia to be helpful. For more information, or for assistance in starting a bank in Puerto Rico or St. Lucia, contact us at info@premieroffshore.com or call us at (619) 483-1708.

Banking for a Cryptocurrency Exchange

Banking for a Cryptocurrency Exchange

In this article, I’ll look at where to form an international bank for a cryptocurrency exchange or FinTech group. That is, where to license and operate a new bank to provide FIAT to crypto exchange. Where to form a new bank for the cryptocurrency industry. Where to set up an offshore bank for the FinTech industry.

Puerto Rico is quickly becoming the center of the banking for cryptocurrency world. If you want to form a bank for the cryptocurrency industry, you have two options: 1) Puerto Rico with $550,000 in capital top-tier jurisdictions like Switzerland and Panama with $24 million or more.

So, it’s easy to see why so many new banks are setting up in Puerto Rico. This is also why the existing international banks on the island are growing incredibly quickly.

Per the  data published by the Puerto Rico Financial Institutions Commissioner’s Office indicate that bank deposits by international finance entities (IFE) category jumped by 248 percent to $3.3 billion in the fourth quarter, while total assets for these grew by 161 percent.

From Caribbean Business, “As BitMEX noted, the surge in deposits correlated with the cryptocurrency markets dramatic upswell, and Tether’s market cap grew by 215 percent during the same period.”

This growth is staggering, especially in an industry that has been contracting over the last couple of years. For example, the number of offshore banks operating from the Cayman Islands has decreased from 250 to 150 over the last 24 months. This is due to the increasing costs of compliance, higher capital requirements ($10 million, up from $1 million), difficulties finding and maintaining correspondent partners, and increased regulatory oversight.

At the same time, Puerto Rico issued 24 permits in 2017 and we expect the same number or more this year. This, combined with lower operating costs, relatively easier access to correspondent banks (because Puerto Rico is a US territory, and the fact that Puerto Rico is the only significant jurisdiction not a party to FATCA and Common Reporting Standards, are driving this significant growth.

Note that, when I say lower operating costs, I do not mean less regulation. I mean that the cost of labor and legal expertise is significantly lower in Puerto Rico than the Cayman Islands. As a US territory, it’s financial entities must comply with all US laws, anti money laundering rules, and know your customer rules.

As such, Puerto Rico is the place for a well run, well funded, compliant and professionally managed offshore bank or international financial entity. For more on compliance in Puerto Rico, see: Act 273 Compliance Requirements.

If you don’t want US oversite, then look to a lesser jurisdiction such as Dominica… but good luck getting a correspondent bank. For more information in the various offshore bank licenses, see: Top International Banking Jurisdictions in 2018.

I should also note that this article is focused on banks operating as FinTech businesses, blockchain financial entities, and cryptocurrency to FIAT facilitators. I am not talking about ICOs here. As a US territory, IFEs should avoid ICOs as they are subject to US oversite. The US government has been very hostile to ICOs of late.

As stated above, an offshore bank structured in Puerto Rico under Act 273 will pay only 4% in tax. Run the same bank from New York and you might pay 35%, even after Trump’s tax break. Move to Puerto Rico and swap that rate for a real tax break.

You’ll find that Puerto Rico doesn’t tax dividends to residents from the IFE. So, if the owners move to Puerto Rico under Act 22, they pay zero on capital gains and zero on dividends from their offshore bank. For a list of all of Puerto Rico’s tax incentives, see: A Detailed Analysis of Puerto Rico’s Tax Incentive Programs.

In order to form an offshore bank in Puerto Rico to manage cryptocurrency, you’ll start with the permit to organize. This first step can take 4 months and the average cost is $130,000. Once you have your permit to organize or preliminary license, you have the regulator’s approval to build out your business on the island. See: Here’s the process to start a bank in Puerto Rico.

Your permit to organize allows you to use the word “bank” in your materials. For example, you might issue a US compliant ICO, a Reg D offering, or raise money under the $50 million crowdfunding exemption. It’s only after you have your permit to organize that you should raise money and are allowed use the word bank in your name.  

I hope you’ve found this article on banking for a cryptocurrency exchange to be helpful. For more on forming a bank in the US territory of Puerto Rico, please contact me at info@premieroffshore.com or call us at (619) 483-1708. We’ll be happy to assist you to negotiate an International Financial Entity License.

You might also like to read through my 300 page book on this topic. For the kindle version, see: Offshore Bank License Guide.

Top International Banking Jurisdictions in 2018

Top International Banking Jurisdictions in 2018

In this article, I’ll consider the top international banking jurisdictions for 2018. More specifically, I’ll look at international banks in North, Central and South American, as well as the Caribbean region. These are the areas where I have experience, and not Europe (Switzerland, Andorra, Jersey, Guernsey, etc.)

When we talk about international banking jurisdictions in 2018 or an offshore banking license, we generally mean a license issued by a low or now tax country. The intended purpose of an international bank is to serve clients outside of its country of licensure.

For example, a Class A bank in Panama can do business with locals (Panamanians) and persons living outside of Panama. In most cases, Class A banks do not accept foreign persons.

In contrast, an international banking license generally referred to as a Class B bank, may only accept foreign persons. An international bank licensed in Panama may not do business with people living in Panama and companies based in Panama.

My ranking of top international banking jurisdictions in 2018 is as follows:

  1. The United States,
  2. Canada,
  3. Mexico,
  4. Panama,
  5. The Cayman Islands,
  6. Puerto Rico,
  7. Costa Rica,
  8. Argentina,
  9. St. Lucia,
  10. St. Vincent,
  11. Belize, and
  12. Dominica.

I don’t include Colombia or Brazil on this list because these countries have currency controls and most are trying to move money out of these nation rather than start new international banks there.

Many will think it’s strange that the United States tops the list of international banking jurisdictions. In fact, the US has been the world’s largest tax haven for decades. We incarcerate our citizens that dodge the tax man but welcome billions of dollars from abroad. Doubt this? Have a read through The U.S. Is Becoming the World’s New Tax Haven and The United States Is a Tax Haven for Global Investors.

The traditional international banking jurisdictions in 2018 begin with Panama and end with Dominica. These are the most popular international bank licenses for 2018. As you move down the list, the capital required goes down, which is to say, those on the top of the list require a significant investment.

Of the international bank jurisdictions, a license from Panama is the most difficult to secure. If you already have a general license from a major jurisdiction (the EU, USA, Canada, and Mexico), you can apply for an international license in Panama. In that case, the capital required might be about $10 million. This bank would act as a subsidiary or booking bank for its parent bank.

If you don’t have a major license, you will need to apply for a Class A license in Panama. This is true even if you will accept only foreign clients. A Class A license is likely to require $40 million in the capital and take about 18 months for approval.

The most well known international banking jurisdiction is the Cayman Islands. Cayman has been the go-to country for offshore banking for decades now and has a very advanced financial services sector.

However, Cayman’s international banking license business has been in a tailspin. The number of active offshore banks on the island has decreased from about 250 to 150 in the last 24 months. That’s an incredible contraction.

Basically, all of the smaller banks have been pushed out as compliance costs have increased. As a result, the remaining banks are capitalized with $10 to $50 million depending on their business model. This is up from about $1 million a few years ago.

At the other end of the “active” spectrum is the US territory of Puerto Rico. This island passed an international banking statute in 2012 and has been very active since 2014. There were 24 international banks approved in Puerto Rico in 2017 and I expect the same number, or more, to be issued in 2018. See: International Financial Entities Licenses in Puerto Rico.

The capital required for an international bank license from Puerto Rico is $550,000. You must hire a minimum of 5 employees and run the business from the territory. If you do this, your tax rate will be 4%.

Two of the reasons Puerto Rico is so popular in 2018 are:

  • CRS does not apply to the US territory. Even though the US signed this agreement, it does not carry over to Puerto Rico. As far as I know, PR is the only significant jurisdiction where CRS does not apply.
  • The relative ease of correspondent banking.

These are balanced against an employee requirement, US oversight, and a 4% tax rate.

For a general article on the various tax incentives available in Puerto Rico, see: A Detailed Analysis of Puerto Rico’s Tax Incentive Programs.

Those who don’t want to be to close to the United States, and don’t want the incredible regulation / costs of Cayman, look to St. Lucia and Dominica. I don’t include Belize or St. Vincent in this list because, while these islands have an international banking sector, they haven’t issued a new license in several years. See: Top 5 Offshore Bank License Jurisdictions for 2017.

St. Lucia and Dominica are actively seeking quality bank operators. Dominica has a reputation of being more “active” while St. Lucia is more conservative. Personally, I prefer the slower and more conservative approach. For more on Dominica, see: How to get an Offshore Bank License in Dominica.

The capital required for St. Lucia or Dominica is $1 million. This will get you a permit to incorporate. Then you will need to secure a correspondent banking partner. This will require anywhere from $5 to $12 million in capital, plus a volume guarantee.

I hope you’ve found this article on top international banking jurisdictions for 2018 to be helpful. For more information on setting up an international bank, please contact me at info@premieroffshiore.com or call us at (619) 483-1708. We’ll be happy to assist you to build an international bank in any of the jurisdictions listed above.

You might also find my 300-page book on this topic helpful. You can download it from Amazon here: Offshore Bank License Guide.

Here’s the process to start a bank in Puerto Rico

Here’s the process to start a bank in Puerto Rico

In order to form a new offshore bank in Puerto Rico, also referred to as an International Financial Entity (IFE), you will need to submit a number of documents to government regulators. Here’s a brief summary of the process to start a bank in Puerto Rico.

The process to start a bank in Puerto Rico can be broken down into 4 steps.

First, is the writing of a business plan.

In my experience, the most important step in securing and offshore banking license from Puerto Rico is a quality business plan. I suggest that drafting a quality business plan is 80% of the work that goes into an IFE application.

The introduction section of the business plan should match the Federal Reserve Bank of New York Business Plan guidelines. This is a summary of the business with financials and supporting information.

Then the business plan of an offshore bank in Puerto Rico should tell the story of the IFE. Who is building the bank, what market is it intended to serve, and what niche will it fill.

Writing the business plan can be a long and painful process. It just depends how long it takes me to learn your business and how many holes we need to fill in your plan and on your team. By the time the business plan is complete, all “risks” or areas of concern should have been dealt with and a solid image presented to government regulators.

To be honest, we look at the business plan for an IFE in Puerto Rico as a loss leader. Yes, we charge a flat fee to write the plan. But, the amount of effort that goes into most business plans far exceeds our hourly rate, thus we generally “lose” money on this stage of the project.

Second, file your permit to organize.

Once your business plan is complete, we prepare the application for a permit to organize (or preliminary license for an IFE). This submission will include the plan, financial reports on each shareholder, officer, and director, and police clearance reports from each shareholder, officer, and director.

Note that these police clearance reports can take time. If you’re from a foreign country, you’ll also need to have them notarized and apostilled (if from a treaty country).  For information on US reports, see the FBI website.

Please see the list below from OCIF on the steps to negotiate a permit to organize. For another of my articles on forming an offshore bank, see: Four Steps to Build an Offshore Bank.

Third, form your corporation or LLC, hire your employees and build out your bank.

A permit to organize is the authorization from government regulators to incorporate your banking entity and to set up an IFE on the island. You must have the permission to organize in hand before you can form a company that has the word “bank” in its name.

Now you need to build out your business. Set up an office, hire 5 people, buy and implement a core banking software and hardware system, contract with a correspondent banking partner, and do all of those things necessary to get ready to operate a bank from the island of Puerto Rico.

  • The statute says you need 4 employees. I always recommend 5 in case you lose one.

Note that your IFE must operate from Puerto Rico to receive the 4% tax rate. Any income generated in the US is US source and taxable by the IRS. That is to say, only income generated from work performed on Puerto Rico is PR source and taxable at the discounted rate. For more on this topic, see: What is Puerto Rico Sourced Income for an Act 20 Business.

Fourth, we file your permit to operate and complete an audit with government regulators.

When you’re ready to go live, and you’ve run test transactions with your correspondent partner, you can file your permit to operate. Once filed, regulators will send a team to audit your computer systems and ensure they’re secure. If you’ve used US core banking software and traditional hardware, this should be relatively easy.

Note that you’re not required to set up your own IT system. You can outsource this, along with many KYC and AML processes, to an outside vendor. Most IFEs use one of Puerto Rico based IT platforms.

Your lawyers will also need to file a number of documents and sworn statements from the President / CEO. These basically confirm that you’ve hired the correct people and will abide by the KYC, AML, operational manuals, and compliance documents you’ve provided.

Conclusion

I hope you’ve found this article on the steps to build an offshore bank or IFE in Puerto Rico to be helpful. For more information, please contact me at info@premieroffshore.com or call us at (619) 550-2743. We’ll be happy to assist you with an international financial entity in Puerto Rico.

Below is the process to negotiate a permit to organize from OCIF. You might also find my 300-page book on this topic to be helpful. See: Offshore Bank License Guide, available on Amazon Kindle.

Process for IFE permit to organize

Here is the process to negotiate a permit to organize with government regulators in Puerto Rico. This is a loose translation from the official Spanish version.

(1) The proposed articles of incorporation, partnership agreement or other written document establishing the international financial institution, or the certification required by § 3084 of this title;

(2) a nonrefundable application fee of five thousand dollars ($5,000) to defray the costs of the initial investigation, and

(3) such other documents as may be specified or required by the regulations of the Commissioner.

(a) Every application shall include:

(1) The identity and business history of the applicants;

(2) the city or town in Puerto Rico and the street and number or any other address where its principal   place of business in Puerto Rico shall be maintained;

(3) the identity and business and credit history of any person who, directly or indirectly, possesses or  controls or intends to possess or control ten percent (10%) or more in the capital of the proposed international financial institution;

(4) a statement of the assets and liabilities of any applicant and of any person who possesses or controls or intends to possess or control ten percent (10% ) or more of the interest in the capital of the international financial institution, or of the person of which the proposed international financial institution shall be a unit, for each of the three (3) years preceding the application;

(5) the identity and background of all proposed directors, and officials or persons who intend to act in a similar capacity in the international financial institution, and

(6) such additional information as may be required by the regulations of the Commissioner.

(b) Upon receipt of the sworn application, all the required documents, and the application fee, the Commissioner shall carry out any and all investigations of the applicants and the application, including a review of:

(1) The financial solvency, credit, banking experience and business integrity of the applicants, their directors and officers, or persons who intend to act in a similar capacity in the proposed international financial institution;

(2) the adequacy of the capital available for the operations of the proposed international financial institution;

(3) the adequacy of the articles of incorporation, partnership agreement or other written document belonging to any applicant and, when appropriate, of the articles of incorporation, partnership agreement or other written document establishing the proposed international financial institution, and

(4) the impact that the proposed international financial institution shall have on the economy of Puerto Rico.

(c) Expenses, in excess of the aforementioned five thousand dollars ($5,000), incurred by the Commissioner for the purpose of conducting the initial investigation, shall be defrayed by the applicants by means of a previous deposit made in accordance with the estimate. The Commissioner shall claim said investigation expenses from the applicants.

(d) Should the Commissioner determine that the results of his/her investigation are favorable, he/she may, at his/her sole and exclusive discretion, issue to the applicants a permit to organize an international financial institution, subject to such conditions as the Commissioner may establish.

(e) When the Commissioner issues a permit pursuant to the provisions of this section, the interested party shall file with the Department of State of Puerto Rico the articles of incorporation, partnership agreement, or other written document establishing the proposed international financial institution, or those of the person of which the international financial institution shall be a unit, as well as the certification provided for in § 3084(c) of this title in the case of a unit, and the permit issued by the Commissioner. The Department of State shall issue under its official seal a certification of the filing of the stipulated documents.

Cryptocurrency Banks for Sale

Cryptocurrency Banks for Sale

The demand for offshore cryptocurrency accounts has exploded in 2018. Likewise, the demand for offshore bank licenses and correspondent accounts has increased dramatically. In 2016 I got a call a month asking about cryptocurrency banks for sale. Now we get a call a day asking for an international crypto friendly banks for sale. 2018 is shaping up to be the year for offshore bank licensing.

Why the increase in demand? With countries like the United States and China pushing out cryptocurrency exchanges and crypto traders, the demand for offshore banks has increased dramatically. If an offshore bank has US and EU correspondent accounts that allow funds to flow in and from crypto, that bank has a gold mine.

And the same goes for ICOs. They’ve been forced out of the United States, which means an offshore bank is a perfect vehicle to act as the investment bank and issue an international ICO. See: The Best ICOs for 2018.

Wanting to cash in on this new attention, a few of cryptocurrency banks are for sale. If you’re operating a crypto exchange, an ICO platform, or are a bitcoin billionaire, you might consider buying an offshore cryptocurrency bank for sale.

First, let me define what I mean by an “offshore” bank for sale. An offshore bank is a financial institution licensed in a zero or low tax jurisdiction. In most cases, an offshore bank can provide all manner of international banking services to persons and companies outside of its country of licensure. Conversely, it is prohibited from competing with local banks and may not offer services to locals.

The top offshore banking jurisdictions are Belize, Dominica, St. Lucia, Cayman Islands, Puerto Rico, Cook Islands, Gibraltar, and others. Banks that want to focus on the US often set up in Puerto Rico. Those who want to keep their distance from US regulators prefer Dominica and Belize. For more on this, see: The best offshore bank license jurisdictions.

Second, let me define what I mean by a “cryptocurrency” bank for sale. A cryptocurrency bank is one that has the necessary correspondent and other relationships to send and receive wires from cryptocurrency exchanges. The most important component of an offshore bank providing services to crypto clients is its correspondent banking relationships.

A crypto friendly bank is not necessarily a bank that issues its own token or one that operates on a blockchain. In fact, it may not have any FinTech components at all. The FinTech side of the equation is handled by the exchange and the offshore bank is focused on converting coins to FIAT and back again.

Third, let’s consider some of the issues that arise when you buy a cryptocurrency bank. There are two options when you buy a bank: take over an existing bank with an operating history and a book of business or buy an existing license and include correspondent banking services in the purchase.

When you buy an offshore bank that’s been operating for a few years, you buy its industry reputation and its client base. As with any major acquisition, you’ll need to audit its clients and loan portfolio. When buying an offshore bank, you must also look at its FATCA and CRS compliance to ensure you have no risk of fines from your regulators.

When you buy an offshore bank charter with new correspondent accounts, rather than an operating bank, the risk is that the correspondent banking has not been proven. In that case, you must check out the promoter and his or her experience in correspondent banking. And, of course, include such accounts in the transaction.

A few of the cryptocurrency banks for sale will accept bitcoin for 100% of the purchase price. You will need to replace the bank’s corporate capital with dollars, but the purchase can be completed in bitcoin.

Corporate capital for an offshore bank ranges from $550,000 to $10 million depending on the bank and the jurisdiction. New banks typically have $550,000 to $1 million in capital to support their license plus the amount held by their correspondent bank.

Let’s look at one cryptocurrency bank for sale.

The largest cryptocurrency bank I know of for sale has both US and European correspondent accounts which allow funds to flow in and out of crypto exchanges. Thus, it’s “crypto friendly” for multiple currencies. This bank also has a physical gold program which some investors use as a hedge against crypto volatility.

The keys to its value are:

  1. US and EU correspondent accounts which are crypto friendly,
  2. 15-year operating history and audited financials,
  3. Clean FATCA and CRS history,
  4. Relationships built over the years with regulators and correspondent partners,
  5. Diverse account portfolio with thousands of customers not heavy on crypto,
  6. Moderately profitable in 2017,
  7. Sellers are willing to take back the loan book if required,
  8. Supports US Dollar, Canadian Dollar, Euro, Pound Sterling and Swiss Francs,
  9. Gold purchase and loan programs popular with crypto investors, and
  10. Willing to accept bitcoin for the purchase price.

The purchase price of this offshore bank is $100 million or about 12,000 bitcoin at today’s exchange rate.

By comparison, the cost of a new offshore bank for sale is about $10 million or 1,200 bitcoin. Such a bank would include the permit to organize, permit to operate, compliance, AML and KYC documentation, and correspondent relationships. The buyer would need to install his or her core banking software and connect into the correspondent banks.

The purchase of an offshore cryptocurrency bank is essentially the acquisition of a turn-key operation. Once you install your people and systems, you can begin offering services. This will save you 6 to 12 months compared to starting from scratch and eliminates all of the risks and hurdles of building an offshore crypto friendly bank.

Keep in mind that each and every shareholder will need to be approved by government regulators. We’ll need detailed information on all shareholders, including a clean police or FBI report.

The cost to purchase a new offshore cryptocurrency bank ranges from $10 million to $20 million depending on the jurisdiction. The cost for an offshore bank with an operating history and accounts ranges from $70 million to $100 million. There are very few operating banks sold (I see 1 or 2 per annum). On average, there are 4 new operating crypto banks sold and 30 new licenses (permit to incorporate) issued each year.

Let me end with a comment on starting a new bank with an ICO. This article on cryptocurrency banks for sale is for those who have completed an ICO or have raised the necessary capital. Starting a new bank on a budget is a very different matter and no seller will negotiate with someone pre-ICO (before you can provide a proof of funds).

If you’re pre-ICO and require an offshore bank license, you’ll need to start at the beginning. That means applying for a permit to organize from an offshore jurisdiction like Dominica or Puerto Rico. Once you have the authorization to incorporate a bank in hand, you can raise capital using the term “bank” in your offer documents.

The usual cost of drafting a business plan, preparing basic compliance documents, and negotiating a license from an offshore jurisdiction is $150,000. For more on what it takes to build an offshore bank, see: Four Steps to Build an Offshore Bank.

For an article on funding an offshore bank with an Initial Coin Offering, see: How to start an offshore bank with an ICO.

I hope you’ve found this article on cryptocurrency banks for sale to be helpful. For more information on purchasing an existing offshore bank or setting up a new financial entity, please contact me at info@premieroffshore.com or call us at (619) 483-1708.

The usual process to acquire an international bank is an initial consultation to learn about your requirements and objectives. Then we’ll need a proof of funds for $10 to $100 million and the resumes or background information on each shareholder. And, of course, we’ll need a retainer to represent you in the purchase of an offshore bank. Only when this information is provided will the offshore bank open its books to examination.

How to start an offshore bank with an ICO

How to start an offshore bank with an ICO

Many FinTech startups are seeking offshore banking licenses in 2018. A banking license from a crypto friendly (and hopefully low tax) country is key to many of the initial coin offerings being floated this year. Here’s how to start an offshore bank with an ICO.

Note that this article is focused on those who have not yet raised the capital necessary to launch an offshore bank. It’s intended for pre-ICO firms that are starting out on a budget. If you’ve already raised between $10 and $100 million for this phase of your project, you can purchase an existing bank. For more on this see: Cryptocurrency Banks for Sale.

When you’re pre-ICO, you’ll need to negotiate a permit to organize in a crypto friendly banking jurisdiction before you can market your ICO. Only after you have your permit can you represent to investors that you are in the process of forming an international financial entity.

Countries refer to this license as a permit to organize, preliminary international banking license, permit to incorporate a bank, or something similar. They all mean the same thing – you’ve been approved to form a bank and can begin building your business. No matter the country, the permit to organize is the foundation on which you build an offshore bank with an ICO.

A permit to organize an offshore bank is a license from the government giving you the authorization to incorporate a bank and to begin setting up operations in their country. It’s granted after regulators have reviewed your business plan, financials, and the bios of the founders. When the government is satisfied that your business model is sound and that the people behind the bank have the requisite experience, they’ll grant you a permit to organize.

Once you have this permit, you can incorporate your bank and issue an ICO in the name of that bank. Prior to the permit being issued, you are not allowed to use the word “bank” in any of your marketing materials, white paper, website, or other promotional and sales documents.

After the permit is issued, you have 6 months to raise capital and begin operations. In most countries, you’re allowed to extend the permit for another 6 or 12 months. That means you have 1 or 1.5 years to launch the bank once you have a permit to incorporate in hand.

For a detailed list of the steps to form and launch an international bank, see: The 8 Components of an Offshore Bank License.

The typical cost for legal and other fees to negotiate a permit to organize are $110,000 to $250,000 depending on the jurisdiction. In most cases, this is the only money required to get over the first hurdle and prepare the way for your ICO.

All banks require some amount of corporate capital. For example, a bank in Puerto Rico requires $550,000 ($200,000 paid-in and a CD or bond for $350,000). A bank chartered in Dominica requires $1 million in corporate capital. For more banking jurisdictions, see: Top 5 Offshore Bank License Jurisdictions for 2017.

However, these amounts need not be put up until you file for your permit to operate. That is to say, you can receive your permit to organize without depositing the required corporate capital. You can then use your permit to organize to raise all of the capital necessary to launch and operate the bank. You can use the permit to organize to start an offshore bank with an ICO.

In order to receive the permit to organize, you’ll need to prepare a detailed business plan with financial projections. This plan, and the related compliance documents will be used to convince the regulators that your business model is solid and that you’ll run a clean business.

You will also need to show that your key employees and your board of directors have the necessary experience to launch and run a bank. The plan should include resumes of directors and employees with significant banking experience. We recommend a minimum of 3 directors and 5 is more common. We also recommend that at least one director and one key employee has banking compliance experience (KYC, AML, etc.).

There’s no requirement that you have these employees under contract. Just that they agree to work for the bank once your permit to organize is issued. Thus, it’s possible to build a quality team and business plan without depleting your resources. When you start an offshore bank with an ICO, capital is often at a premium in the early days.

In addition to your compliance personnel, regulators will look closely at your core banking system and your Chief Technology Officer. This person should have the experience necessary to build out the bank’s IT and ensure the security of the data.

The quality of your people and of your business plan are 90% of the work that goes into an application for a permit to organize. If you’ve put in the effort upfront, negotiating the license should be easy for someone with the right connections.

For more on the steps to build out an offshore bank, see: Four Steps to Build an Offshore Bank.

For more on this topic, please see my 300-page book on Amazon Kindle, Offshore Bank License Guide.

I hope you’ve found this article on how to start an offshore bank with an ICO to be helpful. For more information, please contact me at info@premieroffshore.com or call us at (619) 483-1708. We’ll be happy to assist you to draft the business plan, build a team, issue an ICO, and launch the international bank.

Intergovernmental Agreements (IGAs) and Puerto Rico International Banks

Intergovernmental Agreements (IGAs) and Puerto Rico International Banks

This article considers Intergovernmental Agreements (IGAs) and Puerto Rico international banks. These entities are also referred to as offshore banks in Puerto Rico and International Financial Entities in Puerto Rico. This post does not consider fully licensed local banks, only how IGAs relate to IFEs operating under Act 273 as an offshore or international bank.

An Intergovernmental agreement or IGA is an agreement entered into by the United States and a foreign government to avoid FATCA withholding and related issues. An IGA basically says that the US will share information with the foreign government on US accounts held by citizens of the respective country and the foreign country will do the same regarding accounts and assets held by US citizens.

To put it another way, a government may enter into a bilateral agreement with the U.S. to simplify reporting compliance and avoid FATCA withholding. Under a Model 1 IGA, Foreign Financial institutions in countries with IGAs report information on U.S. account holders to their national tax authorities, which in turn will provide this information to the IRS. Under a Model 2 IGA, FFIs report account information directly to the IRS. In turn, the United States provides the same information to the IGA country on its citizens’ assets in America.

It’s this last bit which makes Puerto Rico IFEs interesting to foreign individuals looking for privacy and asset protection outside of their home country. Puerto Rico provides little or no privacy for US persons. Nearly all the same US tax and reporting requirements apply to US persons. Foreigners are another matter.

If a foreign person wants to avoid IGA reporting, they can open an account at an IFE in Puerto Rico. That IFE will likely have a US correspondent banking partner. Thus, the client’s assets end up in the United States and avoid IGA reporting.

And there are legitimate reasons someone would want to avoid IGA reporting. For example, high net worth citizens of Mexico, Colombia, and Brazil are very concerned about being kidnapped. Many times the source of information that begins a kidnapping is a bank teller or government agent that sees how much cash someone has in their accounts and reports it to the kidnappers.

Most Mexicans have no desire to avoid taxes. But their privacy is a matter of life and death… literally.

I should point out here that Puerto Rico is NOT a bastion of tax evasion or money laundering. In fact, it’s quite the opposite. Government regulators in Puerto Rico follow US FDIC guidelines and impose very strict know your client and anti-money laundering rules. Also, the US Federal Government audits IFEs every few years.

Puerto Rico is not welcoming to criminal activity or tax avoidance. The point of my article is that Puerto Rico is not a party to IGAs and thus CRS and FATCA reporting do not apply, period. This is a matter of privacy only.

Because of Act 273 and the fact that IGAs do not apply, the US territory of Puerto Rico is running circles around the rest of the offshore banking industry. This island is issuing about 25 licenses a year where competitors are issuing 1 or 2, or even losing banks.

The bottom line is that every large and fully compliant offshore bank wants to be in Puerto Rico. I’ve even had requests from governments of offshore banking jurisdictions wanting to open a correspondent bank in Puerto Rico.

This is all to say, three of the many reasons for the popularity of Puerto Rico’s Act 273 International Financial Entity is that US FATCA, Common Reporting Standards (CRS) and Intergovernmental Agreements signed between the United States and a foreign country do not apply to IFEs in Puerto Rico.

  • CRS is a global reporting standard for the automatic exchange of information (AEoI) set forth by the Organization for Economic Cooperation and Development (OECD). More than 96 countries have agreed to share information on residents’ assets and incomes in conformation with reporting standards. It is more wide-reaching than FATCA and requires a unified, cross-team effort to ensure readiness and compliance.

The US territory is expressly excluded from IGAs between the US and foreign countries. And, because Puerto Rico has not entered into any IGAs, there is no sharing of account information required between a bank in Puerto Rico and a foreign government.

Likewise, FATCA does not apply to Banks in PR since they are classified as “Territory Financial Institutions.” Nonetheless, the customers of an International Financial Entity in Puerto Rico must complete forms W8 Ben and W8- Ben- E as part of the account opening process. When completing form W8-Ben-E for Goopal you check “Territory Financial Institution” in Part I (5). This applies to individual and corporate customers.

For example, in Brazil’s IGA:

Page 2 Item (a) – The term “United States” means the United States of America, including the States thereof, but does not include the U.S. Territories.”

Page 7 Item (dd) – “does not include a Financial Institution organized or incorporated in a U.S. Territory”

Page 10 Item (b) – “In the case of the United States, with respect to each Brazilian Reportable Account of each Reporting U.S. Financial Institution:”

Page 11 Item (b) number (3) – “the name and identifying number of the Reporting U.S. Financial Institution;”

For more information on setting up an offshore bank or an International Financial Entity in Puerto Rico, please see my 300-page book available on Amazon: Offshore Bank License Guide.

I hope you’ve found this article on Intergovernmental Agreements (IGAs) and Puerto Rico international banks to be helpful. For more information on setting up a fully compliant international bank in the territory, please contact me at info@premieroffhsore.com or call us at (619) 483-1708. We’ll be happy to negotiate the license for you and build out a turn-key international bank.

Four Steps to Building an Offshore Bank

Four Steps to Build an Offshore Bank

When building an offshore bank, there are four steps you must work through. Here’s what you need to plan for and understand when building an offshore bank. These are the four steps to taking an international bank from permit to operational.

First, keep in mind that this article is focused on offshore banks. That is, an international bank formed in a low or zero tax country. One that will do business with people and companies outside of its country of licensure.

Second, these four steps to building an offshore bank are general guidelines. Every jurisdiction has a different set of laws and many use different terminology for these categories. For a complete guide to forming an offshore bank, see my 300-page book, Offshore Bank License Guide, 2017 (Amazon Kindle edition)

The top jurisdictions for an offshore bank are Puerto Rico, Caymans, Belize, Dominica, St. Lucia, Panama, and Switzerland. Puerto Rico issues about 25 licenses a year, while Cayman and the rest issue 1 to 2, depending on the year. Belize hasn’t issued a new license in about 7 years. Puerto Rico’s International Financial Entity license is dominating the industry in 2018.

Because of the popularity of cryptocurrency and ICOs, the value of banks in Switzerland and elsewhere have increased dramatically in the last year. For example, I’m aware of an offshore crypto friendly bank with European and US correspondent accounts that are on the market at $100 million in Bitcoin.  

With that said, here are the four steps to building an offshore bank:

  1. Permit to Organize / Incorporate,
  2. Compliance, AML, IT, Employees, Office, etc.,
  3. Correspondent Bank Account, and
  4. Operating License

The first step in building an offshore bank is your permit to incorporate or permit to organize. We also refer to this as your preliminary license. With this permit, the government is basically saying they will allow you to build and open a bank in their country.

In order to obtain a permit to organize, you must submit a very detailed business plan and financials to your government regulator. You must also file information on each officer, director, and the person involved in the business (including police reports, references and personal, financial data). All of this will be used to judge the group’s banking expertise and ability to run a clean and professional international bank.

This first step is often the most urgent for a startup. Once a government gives you the green light, you can go out and raise money, build out the business, and do those things necessary to launch the bank. It’s during this stage that most offshore banks need the most help to navigate the complex application process.

Once you have your permit to organize, you have the government’s permission to incorporate an international bank. It’s after the permit is issued that you will spend money on building out an office, hiring employees, drafting your detailed operating manuals, building a compliance program, and purchasing hardware and software.

Certain jurisdictions have an employment requirement and some do not. For example, Puerto Rico requires a minimum of 5 employees on the island (the largest IFE has 450 employees). Dominica doesn’t have a fixed number, but you should have account opening and compliance based on the island.

In some countries, you’ll need a secure office environment for your servers and client files. The government will come in to check your facilities before issuing a permit to operate. The same goes for computers and software… the government will come in and test these before allowing you to go live.

The third step in forming an offshore bank is negotiating a correspondent account, is the step that most ignore in the beginning. However, securing a correspondent partner is by far the most difficult task after the permit to organize is issued.

You should be prepared to spend some serious money on consultants and lawyers. You probably spen1 $100,000 to $250,000 to get a permit to organize. Most spend $50,000 to $100,000 on lawyers to negotiate a correspondent account.

Plus, you’ll need capital to fund this account. While you can get a permit to organize in Dominica with $1 million in capital, you’ll need much more than this to secure a quality correspondent partner. Most have $3 to $7 million in funds on top of their corporate capital by the time they go in search of a correspondent bank.

And this is why the government first issues a permit to organize. Then you build out your systems, hire your people, and negotiate your correspondent account. If you need to raise money, you can do so after receiving your permit to organize.

  • Note that you generally don’t need to put up any capital until you’re ready to launch and are applying for your permit to operate.

However, you won’t get your permit to operate unless and until you have a correspondent banking partner. You must have a correspondent bank in place before any government will allow you to go live.

Once you have all of your systems, documents, and people in place, and a signed agreement with a correspondent partner, you can request an operating permit from your regulator.

During this process, government regulators will audit your books, test your security, and meet with your people. They’ll check everything to ensure you’re running a quality bank. One that won’t bring trouble or risk to the island.

Because most of the work with the government was done during the permit to organize stage, the permit to operate should be easy. If you’ve spent money and hired the right people, then this will be a standard audit…. A mechanical process. Regulators will come in and be impressed with your professionalism.

If you’re trying to start an offshore bank on a shoestring budget, the permit to operate will be a challenge. If you don’t have a top-notch compliance person on staff, the government will look at you very closely. If you haven’t purchased a well-known core banking platform, tests will be more in depth.

I hope you’ve found this article on the four steps to build an offshore bank to be helpful. For more information, please contact us at info@premieroffshore.com or call us at (619) 483-1708. We’ll be happy to assist you throughout the offshore bank licensing and operating process.

mexico banking license

Capital Requirements for a Banking License in Mexico

When applying for a new banking license, you must have a certain amount of capital. This article is on the capital requirements to apply for a banking license in Mexico. Note that this is the amount of cash you need to have to apply for the license. To operate the bank, you must maintain an 8.5% reserve and a 2.5% reserve in Mexico.

The amount of capital required for a banking license varies greatly from country to country. The lowest capital amount for a respected jurisdiction is the US territory of Puerto Rico. An international banking license in Puerto Rico required $550,000 in capital. $250,000 in paid-in capital and $300.000 in a CD held in a local bank.

In the Caribbean, most jurisdictions require $1 million to $5 million in capital. This is one of the reasons Puerto Rico issued 24 licenses last year and Caribbean financial centers issued 1 or 2 depending on the country.

For more information, you can read my 300 page Offshore Bank License Guide on Amazon Kindle.

Without any more adieu, here are the capital requirements for a banking license in Mexico.

A. A required minimum capital of $27.5 million USD for banks that carry out the following activities:

  • Take deposits
  • Take loans
  • Issue debt
  • Issue subordinated debt
  • Make deposits in foreign financial institutions
  • Grant loans and debt purchase transactions
  • Act as guarantor
  • Issue third party letters of credit
  • Carry out transactions involving securities
  • Issue convertible debt
  • Carry out commercial transactions
  • Trade gold, silver and foreign currency
  • Offer security deposit boxes
  • Issue letters of credit
  • Act as trustee
  • Offer escrow accounts
  • Act as agent for bondholders
  • Act as payment agent for security issuers
  • Offer bookkeeping services
  • Act as estate trustee
  • Act as agent in a bankruptcy procedure
  • Offer appraisals
  • Purchase and sale of real estate for the bank´s use
  • Leasing transactions
  • Derivatives transactions
  • Factoring transactions
  • Offer payment mechanisms

B. A required minimum capital of $16.5 million USD for banks that carry out the following activities:

  • Take deposits
  • Take loans
  • Issue debt
  • Issue subordinated debt
  • Make deposits in foreign financial institutions
  • Grant loans and debt purchase transactions
  • Act as guarantor
  • Issue third party letters of credit
  • Carry out commercial transactions
  • Purchase and sale of real estate for the bank´s use
  • Leasing transactions
  • Derivatives transactions

C. A required minimum capital of $11 million USD for banks in the following categories:

I. Banks that carry out transactions only with Institutional Investors (as defined below), Qualified Investors (as defined below) or legal entities:

  • Take deposits
  • Take loans
  • Issue subordinated debt
  • Offer escrow accounts

II. Banks that carry out the following activities:

  • Make deposits in foreign financial institutions
  • Carry out transactions involving securities
  • Issue convertible debt
  • Carry out commercial transactions
  • Trade gold, silver and foreign currency
  • Act as trustee
  • Act as agent for bondholders
  • Act as payment agent for security issuers
  • Offer bookkeeping services
  • Act as estate trustee
  • Act as agent in a bankruptcy procedure
  • Offer appraisals
  • Purchase and sale of real estate for the bank´s use
  • Offer payment mechanisms for the bank´s use

III. Banks that carry out any of the following transactions with authorized payment mechanisms:

1. Transactions involving:

  • Deposits
  • Loans
  • Deposits in foreign financial institutions
  • Grant loans and debt purchase transactions with other financial institutions
  • Transactions involving government or bank bonds
  • Transactions with foreign currency:
  • Commercial transactions
  • Trade gold, silver and foreign currency.

D. A required minimum capital of $27.5 million USD for banks that carry out a mix of the transactions listed above that does not fit in any of the aforementioned categories.

Definitions

Institutional Investor: Insurance companies, investment funds or pension funds.

Qualified Investor: Any person with annual investments in securities of $458,000 USD or with an annual income of $152,000 USD.

Conclusion

I hope you’ve found this article helpful. For more information on setting up an international bank, please contact me at info@premieroffshore.com or call us at (619) 483-1708.

You can also read my 300-page book on the topic on Amazon Kindle. Click here to go to Amazon’s site.

ICO hits the Caribbean

ICOs come to the Caribbean

ICOs and cryptocurrencies are coming to the Caribbean. Many Caribbean islands are looking to the licensing of cryptocurrency and ICOs to boost their fledgling financial services sector. The banking, FX (Forex currency conversion), investment and brokerage industries are all moving towards blockchain. The Caribbean island who gets to a solid licensing scheme the quickest might dominate the industry for years to come.

And this move, to ICO and crypto, couldn’t come at a better time for the Caribbean. The offshore banking industry has been decimated in recent years. Puerto Rico is taking over the offshore bank licensing industry because smaller jurisdictions can’t compete with the tax deals from the US territory.

Likewise, offshore banks throughout the Caribbean are closing because it’s become impossible to find and keep correspondent banking relationships. Without the support of bigger banks, the smaller offshore entities are out of business.

I believe crypto will solve many of these issues for offshore banks, but not just yet. For more, see: Blockchain and cryptocurrency are the future of offshore banking.

What’s hot today are ICO platforms and offshore crypto exchanges.

Let’s start with ICOs. This financing method, similar to stock offers, has characteristics that make it different and unique, which is perhaps the main reason why, the regulators are slow to recognize it. The SEC, just this month, equated ICOs to IPO (Initial Public Offering) for regulatory purposes. For more on this topic, see: Crowdsale vs. ICO.

Investors receive ICOs as coins or tokens, they even are given certificates if investments made in Ethereum. ICOs could be done from the mere start of companies, or in financing phases commonly is embodied in a document that is known as “White Paper” explaining the operation and investment.

Does anyone regulate the ICOs?

As mentioned previously, the United States sector called SEC has begun regulating ICOs. Also as, Singapore has MAS, and China has PBoC regulating or banning cryptocurrency, and so forth. Essentially these agency regulate for their own nationals but their is no international regulator for digital investments made. In fact, China has closed down all ICO platforms and cryptocurrency exchanges.

So, you may ask if the investment exists in cyberspace, what is the difference of the physical location? Why do you need a license to operate a crypto exchange?

The physical location, or jurisdiction of your license and/or your investment, is key in avoiding stricter regulations. Many Caribbean jurisdictions are looking very favorably on crypto currency to support their financial services offerings.

Can you imagine your investments being tax free?

The Caribbean is one of the most approachable financial markets in the digital world, flexible and sovereign governments are abundant in these warm waters, and the ICO world is looking for offshore solutions.

The Caribbean holds 13 sovereign island nations and 12 dependent territories, each having its own financial systems and source of income (tourism, local businesses, financial services, corporate formations, etc). Many Caribbean nations are struggling with low economic growth, and feeling the battle of de-risking banks and the high cost of compliance. Digital currency issuance is a viable solution to solve a number of problems in the Caribbean. See How to Raise Money for an International Bank

Where can we avail of this wonderful opportunity?

Barbados Central Bank is working has been working with blockchain since last year with the startup called Bitt which is empowered by California startup Netki. But wait there’s more, Bitt launched a digital Barbadian dollar in a partnership, through blockchain startup Colu.  Basically demonstrates that cryptocurrency, ideally in sovereign nations, could be backed by real government currency. This concept stirred a wild fire in the Caribbean, soon to join similar platforms are Aruban Florins and Bahamian Dollars. Seeing that these hold “traditional” exchanges to the USD, transactions are simplified to tangible notion rather than a stock value if you are still insecure about investing. Your Token conversion is more or less solved and you are giving sustenance to a devastated economy (always think about the greater good).

As for tax havens Puerto Rico has opened the gates for all new companies to incorporate under new tax exemption programs, if your new company wishes to receive funds through ICO in Puerto Rico as of now there are no reasons not to – and local domiciled shareholders could receive 100% of their gains legally, through Act 22.

Then there are those Caribbean jurisdictions that don’t regulate ICOs or crypto at all. If you set up in Dominica, through an offshore corporation, you will have no government oversight. And, if you do set up in Dominica, you will have the opportunity to help shape the laws when the are finally enacted.

In my opinion, building a business and becoming part of a community in Dominica or another island that has not yet drafted crypto statutes is an amazing opportunity. So long as you select the correct political climate, you might well become a major player in the region.

I hope this article on ICOs coming to the Caribbean has been helpful. For more information on structuring an ICO platform, please contact me at info@premieroffshore.com or call us at (619) 483-1708.

bank license compliance

Puerto Rico Bank License Compliance Requirements

An international bank licensed in Puerto Rico must comply with all US compliance requirements. All Puerto Rico Act 273 banks must keep detailed records of account holders, and comply with all Know Your Customer (KYC) and Anti Money Laundering (AML) rules.

In a recent post on Bloomberg, the author implies that non-US persons can open accounts at Puerto Rican International Financial Entities (IFEs) anonymously through the use of an offshore corporation. This is completely false.

All US KYC and AML rules apply in Puerto Rico. All Puerto Rican IFEs follow the standards prescribed by the FDIC (even though none are insured by the FDIC). For more information on FDIC requirements, see: Bank Secrecy Act and Anti-Money Laundering

During the licensing and launch of these international banks licensed in Puerto under Act 273, great attention is paid by government regulators (OCIF) to the KYC and AML procedures of the IFE. There is no way a bank that doesn’t follow standard procedures will be issued a license. It will be a cold day in hell before an IFE is allowed to operate without collecting information on its account holders.

More importantly, OCIF audits these entities regularly to ensure full compliance. Running an IFE from Puerto Rico is very similar to running a bank in California. The major difference is that an IFE pays only 4% in tax vs. nearly 50% in California (Federal and State).

Even with proper KYC and AML compliance, an account in Puerto Rico (or in the United States) offers non-US persons significant asset protection and privacy. Because IFEs in Puerto Rico are specifically designed to offer services to international clients, opening a account at an IFE is good option compared to the larger banks in the US who can’t be bothered with all the reporting required on these accounts. Most US banks don’t have the necessary processes and procedures in place to vet foreign accounts. On the other hand, IFE’s have spent millions on IT to be able to efficiently vet international customers.

One reason for this popularity is that the United States, and Puerto Rico by extension, has not signed on to the Common Reporting Standard global tax compliance program. The Common Reporting Standard (CRS) provides for the automatic exchange of tax and financial information between 100 countries.

The intent of CRS is to force “tax havens” such as British Virgin Islands, Cayman Islands, and Panama (2018) to report all accounts to member states. That is to say, CRS was put in place to force reporting and compliance of cross border transactions between low tax and high tax jurisdictions.

Because the United States has not signed on to CRS, accounts in the US territory of Puerto Rico will not be automatically reported. Considering that the United States started the compliance push with FATCA, some consider its failure to sign onto CRS a bit hypocritical, but we’re apparently to busy making America great again to give a damn what Europe thinks.

Thus, non-US persons have increased privacy and protection in Puerto Rico compared to other offshore jurisdictions. But this is a very long way from IFEs allowing old school anonymous accounts. It’s a fact that no international bank in Puerto Rico will permit anyone to open an account using an offshore corporation without disclosing the ultimate beneficial owner and thoroughly vetting that person’s source of funds.

Yes, non-US persons should open their IFE account under an offshore corporation. The reason for this is that the foreign entity gives you asset protection and privacy. This is NOT done to hide your identity from the bank… it’s so that only you and your banker know who owns the structure. It’s to protect your privacy while, at the same time, allowing the IFE to be fully compliant with US AML and KYC requirements.

I should also point out that IFEs in Puerto Rico must comply with all IRS reporting requirements. Because IFEs don’t usually accept US persons, few have any interaction with the Service. If your IFE does open accounts for US persons, it will have US reporting requirements.

Again, the CRS loophole in Puerto Rico is not the doing of the government of Puerto Rico. It’s the result of US policy that flows down to the territories which have to accept what’s mandated from the mainland. International banks structured in Puerto Rico must comply with all US BSA, KYC, and AML policies. If the US is not a party to a treaty (such as OECD’s CRS), then that treaty doesn’t apply to banks in its territories.

I hope this article on Puerto Rico banking license compliance requirements helps. For more, see: International Financial Entities Licenses in Puerto Rico. For the basics of setting up an IFE as an offshore bank, see: Lowest Cost Offshore Bank License is Puerto Rico.

If you’re considering forming an offshore bank, see: The 8 Components of an Offshore Bank License and take a read through Top 5 Offshore Bank License Jurisdictions for 2017.

We’ll be happy to assist you negotiate a banking license in Puerto Rico. We are the only firm providing a turnkey package and can assist you throughout the process. Please contact us at info@premieroffshore.com or call us at (619) 483-1708 for more information.

future of offshore banking

Blockchain and cryptocurrency are the future of offshore banking

As I watch the offshore banking industry fight it’s way back to respectability and profitability, I expect blockchain and cryptocurrencies to play a major role in the comeback. Small offshore banks are down, but far from out. Blockchain and cryptocurrency will bring with them a paradigm shift in costs, allowing offshore banks to compete with their larger counterparts in top tier jurisdictions.

Note that I’m talking about the systems and technologies behind blockchain and cryptocurrencies in this article. About the value of blockchain in the offshore banking industry. So, let me get the volatility issue out of the way up front.

Yes, Ethereum, Bitcoin, and the rest are volatile. Ethereum lost about 50% of it’s value recently, and Bitcoin 25% before making a comeback on a deal to prevent the “fork.” And some believe the Ethereum market is a major bubble because of ICOs.

Such assets don’t fit well onto the balance sheets of certain offshore banks because of the regulatory policies of Central Banks.  

For example, Belize is not the jurisdiction for an offshore bank that holds cryptocurrency. Their basic capital requirement is 20% and goes higher the more volatile the asset. Want to hold $1 of pink sheet stock? You need $1 of cash on your books.

But there are offshore jurisdictions that are working to attract Crypto banks. For example, the US territory of Puerto Rico just issued a license for a Cryptocurrency International Financial Entity (their version of a banking license). Dominica is also active in the issuance of quality offshore banking licenses and makes allowances for cryptocurrency.  

And a number of open-sourced groups have been formed to increase the availability of blockchain technology for offshore banks. For example, the Enterprise Ethereum Alliance became the world’s largest open-source blockchain initiative on July 18, 2017. With members like MasterCard, Cisco and Scotiabank, I have high hopes for this team.

Scotiabank makes EEA interesting as as association offshore banks. Scotia holds a banking license in Puerto Rico, and licenses throughout the Caribbean, but no US license. Scotia is closely tied to Bank of America, and has offices in the United States, but no US charter.

With that said, the value of blockchain and cryptocurrency for offshore banks is in the following three areas:

  1. The ability to transmit FIAT and cryptocurrency via blockchain outside of the high cost legacy systems like SWIFT and Fedwire.
  2. The ability to transact without the oversight and compliance costs of a correspondent bank.
  3. The ability to finance through ICOs and act as a platform for international ICOs for your clients.

Operational Efficiency

I believe that, because of it’s ability to transmit efficiently, blockchain will revolutionize the offshore banking industry. Offshore banks are being crushed by the high costs of compliance and by the outdated systems they’re forced to use.

When a small international bank wants to send a wire, they need to ask their correspondent for permission. Then the correspondent charges a fee, an agent takes a cut (if it’s a nested account), SWIFT charges a fee, and so on. Many banks are forced to charge $100+ to send a wire and net $15 per transfer.

As a result, the only service an offshore bank can offer is wealth management and cash management / retained earnings. You can’t run most business accounts through an offshore bank because the wire fees will eat you alive. Likewise, you can’t easily make payments to vendors or make small transfers in any currency. And, finally, very few clients want to go through the hassle of sending an international wire.

An offshore bank operating over blockchain, or network like Ripple, can send FIAT or crypto ledger to ledger, thereby bypassing high cost wire systems. This will allow them to transmit money across borders at little or no cost.

Once these blockchain systems become available on a wider scale, offshore banks will be able to compete with larger correspondent banks who currently have a monopoly on money transmissions.

I don’t think we’ll need to wait long for blockchain to dominate the offshore banking industry. I have clients setting up in Puerto Rico now under Act 273 that will transfer multiple FIAT currencies over blockchain.

Offshore Bank Compliance Issues and Blockchain

Then there’s the ability to control your compliance costs by reducing or eliminating your exposure to correspondent banking partners. The bane of any offshore bank is correspondent banking. Ask any international banker what they worry about and they’ll say correspondent banking, compliance risks from corresponding partners, and how to keep their correspondent accounts open.

All quality banks will need to deal with AML and KYC. No matter how you transact, you must protect your bank from money launderers and criminals. On the other hand, FATCA and KYC (or even KYCC, Know Your Customer’s Customer), are out of control. The United States and the EU can fine an offshore bank out of existence for an honest mistake and everyone is running scared. Most of these compliance requirements are being pushed upon offshore banks by their correspondent partners.

Reducing the number of transactions processed through your correspondent bank reduces costs, reduces compliance, and allows you to do business on your terms, not those imposed by a global bank.

Someday, you might be able to eliminate the the correspondent parter all together which will change the game. For more, see: How to Setup a Bank for the Marijuana Industry.

Initial Coin Offerings and Offshore Banks

Finally, there’s the ICO market. For many reasons, these offerings are best facilitated by an offshore bank. The bank is best suited to perform the due diligence, secure the transaction, issue the tokens, hedge that token, and providing the FIAT currency against the Crypto that comes in.

ICOs have allowed startups around the world to raise hundreds of millions of dollars by issuing digital tokens.  Over half a billion dollars has been raised through these Initial Coin Offerings in the first 6 months of 2017. Amazing growth considering the ICO didn’t even exist 2 years ago.

And the speed of these ICOs is incredible. Genosis raised $12 million in 10 minutes back in April while Brave took in $35 million in less than 30 seconds. Demand for ICOs is strong and the opportunity for offshore banks is significant.

Running these ICOs through an offshore bank will maximize the privacy of the investors and may reduce SEC and other regulations. Operating outside of the purview of US regulators is sure to unlock capital and allow investors to place their capital more efficiently.

And there are plenty of reasons people prefer to hold their crypto offshore. For example, privacy, asset protection, etc. Also, the US IRS is in the process of auditing most crypto accounts at CoinBase. They can do this because of a John Doe summons issued to the brokerage last year.

While there are ICOs which are open to all US persons, the SEC just issued guidance saying that ICOs are regulated transactions (Reg D, Reg S, accredited investor standards, etc). The government hasn’t prosecuted anyone yet, but we all expect they will… and when that happens, some heads will roll. The SEC issued its first statement on ICOs July 25, 2017. See: Using a blockchain doesn’t exempt you from securities regulations.

It also appears that US brokerages will be subject to the money transmission laws of each state. See: Washington’s New Cryptocurrency Exchange Rules Are Now in Effect.

If an offshore business were to run an ICO through an offshore bank, they should avoid these regulations. Of course, you can’t market the offering in the United States without registering and must follow the KYC and AML rules of your jurisdiction. But, the use of an offshore bank for an offshore ICO is sure to reduce costs and streamline the process.

I’m  also looking forward to the first ICO by an offshore bank. A high tech international bank focused on privacy and blockchain is a perfect candidate for a big dollar ICO. For more, see: How to Raise Money for an International Bank.

Conclusion

I hope you’ve found this article on why I believe blockchain and cryptocurrencies are the future of offshore banking to be helpful. If you’re considering forming an offshore bank, you might also read through Tax Planning for an International Bank License.

For more information on setting up an offshore bank, or for assistance in opening a correspondent account, please contact us at info@premieroffshore.com or call us at (619) 483-1708.