Offshore Banking News and Commentary

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Tax Benefits of Going Offshore

The United States tax code is a hopelessly complex mess with as many loopholes for the wealthy as there are stars in the sky. There are many tax benefits of going offshore, and some of them can great for the “regular guy.”

Multinational corporations and billionaires spend big money on political campaigns and on lobbyists to ensure their interests are protected, and they expect a strong return on these “investments.” For example, a 2009 study found that each dollar put toward lobbying translated into $6 to $20 of tax benefits. Searching through these negotiated tax breaks leads you to a list of tax benefits of going offshore.

Just how ridiculous has the US tax code gotten? According to the IRS, taxpayers spent more than six billion hours in 2011 complying with the tax code – that’s enough to create an annual workforce of 3.4 million people. If that workforce was a city, it would be the third largest city in the United States. If that workforce was a company, it would employ more individuals than Walmart, IBM, and McDonalds, combined.

Even the mighty IRS seems overwhelmed by the complexity of the current tax laws. According to the National Taxpayer Advocate – part of the Internal Revenue Service – the Service cannot meet the needs of taxpayers.

Of the 115 million phone calls the IRS received in fiscal year 2012, it was only able to answer (actually pick-up) 68 percent of the calls. The IRS also failed to respond to almost half of all taxpayer letters within the agency’s own established time frame. And in 2011, the U.S.  Treasury Inspector General’s reported to Congress that most taxpayers who contact the IRS do not receive helpful responses.

Such complexity means that the well informed and well represented have a major advantage over the average citizen. While billionaires can afford hundreds of thousands of dollars a year in legal fees to structure their affairs to minimize tax, diversify their investments, and protect their assets, the average citizen is at a major disadvantage.

With this in mind, I spend my time researching and writing on the various ways the average person might utilize the tools designed for the Googles and Mitt Romneys of the world for their benefit. It is my hope that my website and articles will level the playing field just a bit.

Tax Benefits of Going Offshore

In the world of international tax planning, there are many regulations that can be utilized by anyone living, working, or investing abroad, to reduce your US tax bill. Some will eliminate tax on your salary, or allow you to opt out of the Social Security and Medicare taxes, while others, such as those that apply to IRA LLCs, can allow you to invest in just about anything offshore, with leverage, tax free.

The information provided below on the tax benefits of going offshore is a brief summary of a variety of complex tax rules. It is not meant as a complete analysis of these laws, nor is it tax or legal advice specific to your situation. Please contact me at or at (619) 483-1708 to discuss your situation in detail.

Foreign Earned Income Exclusion

The key to many of the offshore tax benefits of going offshore is the Foreign Earned Income Exclusion. This section of the tax code allows you to earn up to $97,600 from work, either as a self-employed person or as an employee. To qualify, you must be out of the US for 330 out of 365 days or a qualified resident of another country.

Anyone living and working abroad can qualify for this exclusion, so long as you meet the requirements of the 330 day test or the residency test, you are golden. The exclusion applies to Federal Income Tax, and not Self Employment tax, so additional planning may be required if you are running your own show.

I note that only those living in low tax countries will get much play from this exclusion. If you are based in a place with a tax rate that is about the same, or even higher, than the United States, then the Foreign Tax Credit will step in and prevent double taxation, without the need for the FEIE.

In other words, if your US Federal tax rate is 35%, and your rate in France is 40%, you have no need of the FEIE because you are already paying more in tax than you would in the United States. You can deduct your French tax on your US tax return without concerning yourself with qualifying for the FEIE.

Conversely, if you are living tax fee in Panama, drawing a salary of $100,000, and fail to qualify for the FEIE, then 100% of your income is taxable in the United States. Without the FEIE, there is no benefit to working abroad in a low tax country!

Take Your Retirement Account Offshore

By moving your IRA or other retirement account in to an offshore LLC, you can take control over your savings, invest in foreign real estate or projects, and hold cash outside of the United States in any currency you like. Even better, you can do all of this while maintaining the tax free or tax deferred status these accounts enjoy.

For the sophisticated investor, the tax benefits of going offshore can be enormous! I will list the in order of importance.

First, if your IRA invests in certain hedge funds (typically, the most profitable ones), the income generated is probably taxable to your IRA at the prevailing corporate tax rate, which is currently 15% to 39%. Most investors will pay about 34% on taxable income earned in their retirement account. In addition, you must file IRS Form 990-T to report that income and pay the tax.

–        Note that only very specific types of income, known as Unrelated Business Income (UBI), is taxable in a retirement account. This tax is called UBIT.

By moving your IRA in to an offshore LLC, and investing through a UBIT Blocker Corporation, you can completely eliminate UBIT. Your IRA can invest in a hedge fund, or any other UBI generating venture, and pay zero US tax.

This tax loophole was created for large pension funds, but is available to any tax exempt organization or charity, including offshore IRA LLCs. Hedge funds that wish to attract pension funds, retirement accounts, or non-US investors, must set up an offshore module of their fund (known as a Master/Feeder structure), whereby the tax exempt groups (your IRA) and foreign persons invest in the offshore division, while US persons invest in the US division. Then, these groups are combined in the master fund, from which investments are made and returns generated.

Offshore IRA LLCs have been used by the uber rich for years, and became big news during the previous presidential election. Many news outlets reported that Mr. Romney was able to grow his IRA LLC to over $100 million through the use of this type of international tax planning. To read more about his use of these structures, click here for the NY Times and here for a very partisan article on the Huffington Post.

Likewise, IRA LLCs that wish to invest in an active business will benefit from being offshore. Your IRA LLC can own up to 50% of any active business. The profits generated, especially if that business is structured as a partnership, are often Unrelated Business Income and taxable to the IRA.

If the company is offshore, then it may be operating free of US income tax. If you buy in through a specially designed offshore IRA LLC, profits paid out to you may also be tax free because your offshore structure effectively blocks the US from taxing those profits. For additional information, see the UBIT Blocker section of my website.

Those are the basics of taking your IRA offshore…child’s play, if you will. Here is the monster tax benefit of going offshore: You can eliminate UBIT on leverage by going offshore. Let me explain.

When you borrow money, or leverage up your IRA, the profits generated from that leverage are taxable (under the UBIT rules). So, if you buy a rental property for $100,000 with your IRA, paying $50,000 from your retirement account and get a non-recourse loan of $50,000 for the balance, when you receive rental payments, or sell the home, 50% of the net income will be taxable as UBI.

The same is true with brokerage and forex accounts. Your provider may be willing to give you 10 to 1, 30 to 1 or even 100 to 1 leverage on your deposit. But, if this is an onshore retirement account, the profits generated with that leverage are taxable.

By taking these transactions offshore, through a specialized offshore IRA LLC with UBIT Blocker Corporation, you can eliminate UBIT on borrowing and leverage. Tax free leverage is the key to generating big tax free profits in your retirement account.

For the “asset protection” benefits of moving your retirement account offshore, see my article: Can the Government Seize my IRA? If you are concerned with privacy or protecting your IRA from creditors and government appropriation, moving your IRA offshore, and in to a bank that does not have a branch in the US, is your best and only defense.

Stop Paying Social Taxes

Are you tired of supporting the Obamanation through social and medical taxes? Or, forgetting the political hyperbole, do you want to cut your US taxes? You can opt out of employment and social taxes by moving offshore. If you qualify for the Foreign Earned Income Exclusion, and are an employee of a company based outside of the US, then you need not pay Social Security, Medicare, or any other social taxes on your salary.

However, if you are an independent contractor, or are otherwise self-employed, then you must still pay Self Employment tax, at a rate of around 15%. So, assuming you qualify for the FEIE, on a salary of $97,000 you pay no Federal Income Tax but around $14,000 in SE tax. For a husband and wife, each drawing a salary, the SE tax will doubled to about $28,000.

The same is true if you are an employee of a US corporation while living abroad. You get the benefit of the FEIE, but must pay your share of social taxes (about 7.5%), as must your employer. All Social Security, Medicare, Obamacare, and related taxes still apply to the Expat and his employer, so long as you are employed by a US company.

Like the employee of a foreign company, you can eliminate SE tax by incorporating your business offshore and become an employee of that company. You can incorporate in any tax free country (such as Belize), and it does not matter where you are living or working, it does not matter if you are the owner and sole employee, nor does it matter if all of your clients are in the United States. So long you are living and working abroad, qualify for the FEIE, and are running an active business, you can eliminate SE tax by incorporating offshore. Your corporation should bill your clients and you can draw a salary from the net profits that entity of up to the FEIE amount (currently $97,600).

–        You might combine the offshore company with a US LLC if you wish to open accounts in the US and get paid by check, PayPal, or credit card.

Defer Tax with Offshore Mutual Funds

For the uninitiated, investing in an offshore mutual is a bad idea. Punitive rules (the opposite of loopholes) have been written in to the tax code by the US mutual fund industry which are quite hostile to investing in these types of products offshore.

In most cases, an offshore mutual fund investment is governed by the Passive Foreign Investment Company (PFIC) section of the code. Like a US mutual fund, you only pay tax when you cash out. But, unlike a US fund, the tax man is going to crush your profits. First, when tax is paid, all income and gains are taxed at the highest ordinary income rate (presently 39.6%).  There is no long-term capital gains treatment.  Second, losses are disallowed.  Third, you have to assume that all of the gains are earned ratably over the time the investment was held — even if the fund lost money the first few years and only made its gains in the last year when you cashed out.   Why is that bad?  Because of the final part of the quadruple whammy – interest charges, compounded annually.  Annually compounded interest at the underpayment interest rate (which is set by the Treasury Department each quarter and has been anywhere from 5% to 10% over the last several years) is charged on deferred tax.

And here is the loophole for the offshore professional: If the PFIC meets certain accounting and reporting requirements, a PFIC shareholder can elect to treat the PFIC as a qualified electing fund.  The effect is that the PFIC shares are taxed like U.S. shares.  The owner of a foreign mutual fund treated as a QEF may: 1) elect to pay tax on income as it is accrued in your account, or 2) choose to defer tax until money is received. If both the QEF and deferral elections are made, you pay tax on the profits plus 3% interest per year when you receive a distribution.

If your offshore mutual fund is returning profits greater than your interest rate of 3%, or the fund has profits some years and losses in others, the QEF with deferral elections are major tax benefits. This is especially important for a fund with losses, as these losses do not flow through to your tax return, so deferral can eliminate some quite harsh tax consequences of going offshore.

These elections allow the well-educated investor to access some of the high flying offshore mutual funds without the punitive taxes meant to keep the uninformed in the United States.

Eliminate Tax in Your Country of Residence

While the United States taxes you on your worldwide income, no matter where you live, and no matter where your clients are located, most countries do not charge you for foreign source income…which is to say, you pay no tax on income earned outside of their borders or, the majority of nations tax you only on income earned within their territory.

With this in mind, planning may eliminate tax from your country of residence. For example, if you are living in Panama, selling products or services to customers in the United States, and operating a through corporation in Belize, Panama may not tax you on the net profits of that Belize entity. Conversely, if you are living and working in Panama, operating through a Panama corporation and/or selling to people living in Panama, then Panama wants its cut.

By incorporating your business in a country other than where you reside, you may be able to legally avoid paying any tax to that country. When you combine a tax free country of incorporation (Belize), with a country with a territorial tax system (Panama), and the Foreign Earned Income Exclusion, it is possible to earn a significant amount of money from your business and pay zero income tax to any nation.

In the case of a business with employees and local expenses, you may form a corporation in Panama and bill your Belize corporation from that Panamanian entity. You should only bring in enough money to Panama to pay your bills, but draw your salary from the Belize company. In this way, the Panama company will break-even and no tax will be due.

I am often asked why countries like Panama allow this setup. It is because 1) you will pay employment and other taxes on your employees, and 2) you will spend money and indirectly contribute to the economy by living and basing your business in that country. A business that employees local workers is a major benefit to any efficiently run economy.

Retain Earnings Offshore

For the entrepreneur, qualifying for the FEIE and taking that salary through an offshore corporation is the first line of defense against the IRS. It allows you to take out $97,600 in salary free of Federal Income Tax. If a husband and wife are both involved in the day to day operation of the business, each may qualify for the exclusion, resulting in up to $195,200 in tax free salary.

So, what if your net profit is more than FEIE? If you take more than the Exclusion out of the corporation, you will pay tax on it as earned. If you leave it in the corporation, it will be classified as retained earnings and not taxable in the United States until it is distributed as a dividend or other payment.

–        This assumes you are incorporated in a country, such as Belize, that will not tax your corporate profits or retained earnings.

Two important caveats: 1) interest or capital gains derived from these retained earnings is taxable as earned, and 2) you may not borrow retained earnings from your corporation or use them for your personal benefit. They must remain in the corporation or be used for business expenses and expansion.

You might be wondering why large companies based in the US get offshore exclusions while you must make the drastic step of moving abroad to receive these benefits? In fact, multinationals must follow similar rules to qualify by having an active division with employees outside of the US in order to retain some earnings offshore.

To put it another way, a small business, that is owned and controlled by a US person, must move all of its operations outside of the US to gain these benefits. A large corporation can achieve the same by moving an autonomous division abroad.

For additional information on this topic, see my article: How to Manage Retained Earnings in an Offshore Corporation.


As you can see, there are a number of tax benefits for those offshore. If you are living, working, and/or investing abroad, you should consult with a professional to ensure you are taking advantage of these benefits. For the business owner who has a non-US partner, additional incentives may be available but are outside of the scope of this article.

I will end by pointing out that big tax breaks come with big tax reporting requirements. US tax compliance should be a primary component for anyone considering going abroad and is the foundation of an international tax or business strategy. Be sure to contact a licensed US representative, and do not rely on a foreign provider, whenever incorporating offshore.


Hiding Money in the U. S. of A.

Want to hide money from the tax man? Come to America – Hiding Money is big big business.

“…the U.S. system welcomes foreigners with arms wide open and eyes wide shut.”

A few days ago, I met with the president of a large international investment bank in Panama. We’ve been friends for a number of years and went to one of my favorite places for dinner, Chalet Suizo – 1985, in El Cangrejo. After a few drinks, we got to talking about money laundering and the U.S.’s attempts to “stop the evil and protect us from terrorists.”

My friend’s view was that the vast majority of money laundering is done in the United States by American banks. He believes that 80% to 90% of the money hidden from international tax authorities is invested in the United States, and that there is nothing these foreign governments can do to get to it. Most of this money is from Europe, but a great deal comes from Mexico, Venezuela, Colombia, and other parts of Latin America.

Every international banker I’ve ever met will agree with this assessment, as do a number of scholarly studies. In fact, some estimate the amount of money hidden in the U.S. in the billions of dollars. It represents a very significant portion of fund held in U.S. dollars, and the liquid capital of many prominent banks.

While the Department of Justice is aggressively going after its citizens for not paying up, the government is making it easier to bring in untaxed money and protecting foreigners from discovery. While it is near impossible for a U.S. citizen to get an account abroad, anyone can open an account in the United States with no questions asked.

Don’t believe me? Here is how the system really works:

Let’s say you, an upstanding U.S. citizen, want to open an account in Panama. First, you might not be able to find an institution willing to take your money…about 90% of the banks are closed to Americans. Second, if you manage to talk your way past the front door, you will have a battle on your hands to get an account approved. You will be required to travel to Panama for an interview where you must:

1. explain why you need the account,

2. prove where the money came from (source of your savings),

3. where the money that will go through the account will come from (prove your business model),

4. provide two forms of ID,

5. provide two professional reference letters (these will be verified),

6. provide statements and a letter from your U.S. bank saying how long you’ve been a client, that your account is in good standing, and how much money you usually have at the bank,

7. pass a WorldCheck screening,

8. undergo a due diligence investigation by the bank’s compliance department that will take weeks, and

9. if this is a corporate account, the above is required for all shareholders and directors, not just those who are signors on the account.

If you manage to get an account open and operating, each time you write a check or send a wire, the bank will want to know why you are sending the money and to whom. Recipients of any significant wire transfers will also need to go through a WorldCheck screening before the wire will be initiated.

And these rules apply to all foreigners, not just Americans. Are you a Colombian or Venezuelan working in Panama? You must go through all the same due diligence. In fact, I know of only one bank in Panama that will accept smaller accounts from Colombians, compared to 3 or 4 banks that accept Americans.

Want to open an account in the U.S. with your Panama corporation? Good luck! While my well-healed clients (those with $250,000+ at a bank with long standing relationships with a private banker) have been able to open these accounts, average Americans are being told to pound sand. I’ve even seen some Americans with foreign entities at Wells Fargo and Bank of America kicked to the curb after the account was opened and compliance had time to review the file.

Now, let’s say you are a Mexican citizen and you want to open an account in the United States. Just walk in to any branch with your “passport” or other ID and you’ll have an account within 15 minutes. There are no questions asked, no references required, and no background checks. In fact, the bank does not even bother to verify the passport or ID document in any way. The only due diligence the bank will undertake is to run the name on the account through their database to see if you’ve bounced a check or had problems under that name at other banks.

Well, what if you are an undocumented worker or illegal immigrant in the U.S. and want an account? No problem. Just show up with some sort of ID and get an account. No verification required. This is not a secret…institutions like Union Bank and Bank of America have marketed these services to undocumented workers and let them know in advance that no questions will be asked.

Note: Back in 2007, bank accounts for illegals were a hot political topic and got a lot of press. For an example, see: These days, they are common practice and no one cares.

What’s the catch? If you have a checking or savings account and are not a U.S. citizen, or can’t be bothered to fake a Social Security card, you won’t earn interest on your account. Yes, the bank makes their money…they just don’t give you a cut.

Now, here’s the story that really got me thinking and initiated this article:

A friend in Panama called me this morning and told me about opening a corporate account at a large bank in the United States by email with no questions asked. She is 28 years old, Panamanian with no ties to the U.S., and has had a small savings account at this bank in America for about 6 months. She sent an email to her representative basically saying:

“Hey, I have a small CD and savings account at your bank and I want a corporate account for my new business. I will form a corporation in Panama and want to know what is required to open a checking account at your bank.”

The banker wrote back (I summarize): “Dear Senorita, We will be happy to take your money and we don’t need nothing. Just let me know the name of the company you will form and I’ll will have your account ready today. We don’t want to know anything about the shareholders, source of funds, or business, and we don’t need a copy of the company documents. By the way, we have a special on a combo checking, savings, and corporate CD, which will save you money on fees…I suggest we open all 3 accounts today.”

After battling for so many clients to open accounts abroad, stories like this really hurt. Basically, the bank was willing to open the account under any corporate name, with no due diligence or hassle. She did not even need to form the corporation…just provide a name…any name…and the account will be ready.

While the IRS is locking up Americans with unreported income, the U.S. system welcomes foreigners with arms wide open and eyes wide shut. My friend has no intentions of doing anything illegal, but her experience proves how easy it would be for non-nationals to hide and launder funds in the U. S. of A.

Keep in mind that it is the United States who is pushing for “compliance” worldwide and forcing banks in countries like Panama to put up so many barriers to new clients. This means that citizens have very few options abroad, which may force them to return their funds to U.S. banks. At the same time, it pushes foreign money out of smaller countries and in to the American system (path of least resistance), where accounts are easy and no one gives a damn where the money came from.

Essentially, America gets its cake ($5 billion+ and counting in taxes and penalties raised on the backs of Americans with international accounts) and to eat it too (billions in the banking system and in U.S. dollars from undisclosed and unreported sources).

Swiss Banking

Swiss Banking is Dead

Let’s face reality. Swiss banking is dead. It’s a brisk day here in Geneva with highs in the mid 40’s and a strong breeze coming off the lake. I spent the day ringing in the New Year with a group of investment advisers and bankers on Rue de Rhone, all of whom are typically Swiss about what’s happening to their country.

With Swiss banking privacy in the rear view mirror, banks are struggling to find their place. In days gone by, they were able to charge high fees in exchange for their integrity and a history of defending their client’s rights. Now, after rolling over for the Americans, Swiss banking is in a tailspin.

But the Swiss are pressing on. To a man, their attitude is that, while this is a permanent contraction, business will go on in one form or another. Those who can adapt to a new world order will succeed, and those who can’t will be left behind. Life changes and goes on.

Switzerland’s biggest banks, UBS and Credit Suisse, have shed 7,000 jobs and the downsizing is expected to continue. In addition to losing its allure, an overpriced Swiss Franc, a weak Euro, and other economic woes have hit this small country of nearly 8 million hard.

And those who still have their jobs are looking at significant pay and bonus cuts, as bank profits have fallen sharply. Because of a significant decrease in international business, combined with higher regulatory and other costs, salaries and all types of compensation are lower. Lower margin as forced to compete on price and not on privacy and protection.

In addition to lost respect and business affecting all Swiss banks, UBS has been singled out and smashed time and time again by U.S. authorities. In 2009, UBS paid the U.S. tax man $790 million and the U.S. SEC $200 million to avoid criminal prosecution, and gave up info on 17,000 accounts, which precipitated the current mess. Then, in May of 2011, UBS came up with another $160 million for the SEC. With cash strapped agencies smelling blood in the water, regulators are currently suing UBS for $1 billion in damages related to the U.S. mortgage crisis.

Not wanting to kill the cash cow, the Justice Department has given UBS conditional immunity on the LIBOR rate fixing case they are planning. Conditional immunity indicates that UBS confessed and gave evidence against others in the pending investigation.

A corporation can avoid criminal conviction and fines for antitrust crimes “by being the first to confess participation in a criminal antitrust violation, fully cooperating with the division, and meeting other specified conditions,” according to the Justice Department.

While the Swiss may be stoic, I believe this new world order will continue for the foreseeable future and that Switzerland as a world financial center is done. When banking secrecy was torn asunder, Switzerland lost its competitive advantage. Why hold money in Switzerland over Luxembourg, Singapore, or smaller and more competitive nations such as Andorra? The Americans have succeeded in doing what even World War II could not…turn Switzerland in to just another pretty tourist destination.

Offshore Bank Licenses go the way of the Dodo

Offshore Bank Licenses go the Way of the Dodo

The issuance of offshore banking licenses to anyone willing to put up some cash is a thing of the past. Back in the day, if you wanted to get in to the financial services industry, all you needed to do was find a small Caribbean island somewhere, put $50,000 to $500,000, and open a bank.

Offshore Bank: A bank that can only do business with foreigners. An offshore bank costs much less to open and operate, when compared to a fully licensed bank. These are sometimes referred to as Class B banks.

Fully Licensed Bank: This is a bank with an offshore bank license that can do business with anyone…be they residents or citizens of the country of licensure or foreigners. A country always strives to protect its own, so the barriers to forming a fully licensed bank are traditionally much higher than for an international license. These are usually referred to as Class A banks.

An offshore bank might offer its CDs and investment products over the internet, through brokers in the U.S., and bolster their image by forming non-bank entities in more respected jurisdictions to act as marketing divisions. Even brokerages in the U.S. have created offshore banks and offered high risk / high returns through these entities.

Shockingly, a few of these offshore bank licenses were granted to poorly regulated institutions that became breeding grounds for fraud. One example I am very familiar with is Millennium Bank of St. Vincent. This bank was formed by a Swiss banker and operated under a Swiss Trust Company.

Why a Swiss Trust? When the bank was newly formed, they found it hard to get clients and purchased a 75 year old Swiss Trust Company to bolster their image.
The bank marketed 5 to 20 year CDs at outrageously high interest rates. If you wanted your money back before the maturity date, there were severe penalties. In 2009, Millennium Bank was shut down and charged with operating a $68 million Ponzi scheme.
For more information, see:

A case that garnered much more attention in the United States was that of R. Allen Stanford. Mr. Stanford formed Stanford Bank in Antigua and began selling investment products in the U.S. around 1992.
It was shown at trial that he repeatedly paid off the Antiguan regulators to hide a $7 billion Ponzi scheme. He was convicted in March of 2012 and sentenced to 110 years in prison.

I would like to note that Stanford also operated a bank in Panama with a full service offshore bank license. In this country, the regulators took their business seriously. When the bank collapsed, everyone with accounts received 100% of their money back. I have U.S. clients today who are still hoping and trying to get some money out of the U.S. brokerage firm and the bank in Antigua.

For more information, see:

Of course, this is a situation where a few bad apples spoiled things for everyone. Most offshore bank licenses were given to banks offering legitimate and interesting investment products and were quite stable. However, they were bastions of privacy, and the governments of the world took this opportunity to force many of them out of business.

Cases like Stanford and Millennium reflect poorly on a small countries economy and banking sector. When investors perceive risk in a particular country or in the offshore sector in general, they want a higher return on their investment. When traditional banks are forced to increase interest rates paid to clients, their margins decline significantly.

Also, when banks with offshore bank licenses are perceived as higher risk by the major countries, these countries impose more due diligence and limitations on the offshore bank and its correspondent accounts. When the rigors of due diligence increase, the cost of compliance skyrockets and the bank must choose to play along or lose its ability to do business in U.S. dollars, Euros, Pounds, etc.

As a result of the changes to the industry, the only new offshore licenses being issued are to banks with full service charters from a major jurisdiction. For example, if you want an offshore banking license in Panama, you must already have a fully licensed bank in the United States, United Kingdom, etc.

Internet Scams: There are several websites offering to sell offshore bank licenses. Watch out! Most countries require an existing license be “reviewed” when it is transferred. Upon review, corporate capital may be increased, or other barriers may arise, making operation impossible.

So, what is an entrepreneurial international financial services company to do? One can always get a full offshore bank license in an international jurisdiction, such as Panama. If you don’t have the $10m to $20m in corporate capital required, I suggest you consider simpler options for setting up deposit taking entities, offering investment services, providing for Forex trading, etc. Some possibilities are the Swedish Credit Union, a Panama Offshore Financial Company, a Swedish Trust Company, a New Zealand Offshore Financial Company, a master/feeder fund in Cayman or BVI, or a Swiss Trust Company (yes, these are still available, even considering the cautionary tale of Millennium Bank).

The Panama Offshore Financial Company is a relatively new financial entity designed for businesses registered in Panama that wish to offer services such as payment processing, credit card management, the trading of metals, leasing, factoring, etc. These companies can’t take deposits or operate like a bank.

A New Zealand Offshore Financial Company can provide “Bank” type services for individuals and corporations worldwide without limitations on the number of clients, deposit amounts or currency. A NZOFC may engage in the following businesses, but may not use the word “Bank” in its name. It is the entity most similar to an offshore bank license.

-Deposit taking & lending

-Debit and credit services

-Issuing of financial guarantees and instruments

-Cash Management

-Current Accounts

-Term Deposits

-Issuing of CDs

-Wire transfer services

-Fund management

-Marketing of investments

Of course, today’s regulatory environment makes transaction processing, opening and maintaining correspondent (client) accounts, and reporting, a significant challenge. Even with an unregulated entity, such as those described above, owners and operators of companies in the international financial industry must take care and keep up with the many requirements of doing business.

When you combine the changes to the offshore banking industry with the challenges by U.S. and E.U. tax authorities, engaging in any type of international business is certain to become more difficult as time goes on. With legitimate banks forced out of business, privacy and security being lost at every turn, and a mad dash for tax revenues from any and all sources, you take your life in your hands when you operate an international banking or financial services company and, god help you if you stand in the way of the tax man.

In my experience, attacks on international banks and financial service providers are a precursor to assaults on individual liberties. Just take a look at the attack on Switzerland of a few years ago and how that led to persecution of everyday Americans.

We truly live in interesting times. As goes the financial sector goes personal privacy and security. Watch this industry carefully and follow the money!

If you would like additional information on offshore bank licenses and related entities, please contact us at (619) 483-1708 or email

Editor’s Note: Please click here to read a more recent and detailed article on Offshore Bank Licenses by Mr. Reeves.