OFFSHORE FINANCIAL CENTRE

INTRODUCTION:
In todays highly integrated global network, international Offshore Financial
Centers (OFCs) have come to play a vital role in facilitating investment worldwide.
An offshore centre exists by usage. Its recognized by an amalgam of features
which, taken together, offer particular advantages for investment by non- residents.
OFCs are jurisdictions where offshore banks are exempt from a wide range of
regulations, which are normally imposed on onshore institutions. Specifically
deposits are not subject to reserve requirements. Bank transactions are mostly tax
exempt from regulatory scrutiny with respect to liquidity or capital adequacy.
Information disclosure is also low. Offshore financial centers provide financial
management services to foreign users in exchange for foreign exchange earnings.
Offshore centers to offer the most favorable operating conditions. These frequently
include:
Very low or no taxation
Light or moderate regulation and the promise of little interference from
authorities.
Bank secrecy protection

DEFINITION:
An offshore financial centre (or OFC), although not precisely defined, is usually a
low-tax, lightly regulated jurisdiction which specializes in providing the corporate
and commercial infrastructure to facilitate the use of that jurisdiction for the
formation of offshore companies and for the investment of offshore funds."The use
of this term makes the important point that a jurisdiction may provide specific
facilities for offshore financial centers without being in any general sense a tax
haven."

CHARACTERISTICS OF AN OFFSHORE FINANCIAL CENTRE

Jurisdictions that have relatively large numbers of financial institutions engaged
primarily in business with non-residents;
Financial systems with external assets and liabilities out of proportion to
domestic financial intermediation designed to finance domestic economies
Centers which provide some or all of the following services: low or zero taxation;
moderate or light financial regulation; banking secrecy and anonymity.

Taxation

Although most offshore financial centers originally rose to prominence by

facilitating structures which helped to minimize exposure total avoidance has played a
decreasing role in the success of offshore financial centers in recent years.
Although most offshore financial centers still charge little or no tax, the increasing
sophistication of onshore tax codes has meant that there is often little tax benefit
relative to the cost of moving a transaction structure offshore.

Critics of offshore financial centers argue that a lack of transparency in offshore

financial centers means that they are vulnerable to being used in illegal tax evasion
schemes. A number of international organizations also suggest that offshore financial
centers engage in "unfair tax competition" by having no, or very low tax burdens,
and have argued that such jurisdictions should be forced to tax both economic
activity and their own citizens at a higher level.

Regulation
Most offshore financial centers now promote themselves on the basis of "light but
effective" regulation, and generally only seek to regulate high-risk financial
business, such as banking, insurance and mutual funds. Critics of offshore financial
centers suggest that they are not effectively regulated in all areas, and in particular
that they are vulnerable to being used by organized crime for money laundering.
However, partly in response to international initiatives and partly in a defensive

move to protect their reputations, most offshore financial centers now apply fairly
rigorous anti-money laundering regulations to offshore business.
Some even argue that offshore jurisdictions are in many cases better regulated than
many onshore financial centers. For example, in most offshore jurisdictions, a
person needs a license to act as a trustee, whereas (for example) in the United Kingdom
and the United States, there are no restrictions or regulations as to who may serve in
a fiduciary capacity.

Confidentiality
Critics of offshore jurisdictions point to excessive secrecy in those jurisdictions,
particularly in relation to the beneficial ownership of offshore companies, and in
relation to offshore bank accounts. The criticisms are slightly difficult to assess. In
most jurisdictions banks will preserve the confidentiality of their customers, and all
of the major offshore jurisdictions have appropriate procedures for law
enforcement agencies to obtain information regarding suspicious bank accounts.
However, there are certainly well documented cases of parties using offshore
structure to facilitate wrongdoing, and the strong confidentiality laws in offshore
jurisdictions have clearly played a part in the selection of an offshore vehicle for
those purposes

OFFSHORE BANKING CENTERS:

The development of the concept of offshorebanking center is one of the most important
legal, social and economic phenomena. This has occurred thanks to a lot of modern
factors such as development in technology and communication, the spectacular
growth in transnational companies and of course the development of transnational banking.
Actually, nowadays the offshore banking activity is seen as the most dynamic sectors
of financial activity. However, the well known concept offshore banking brings
some negative connotation as well and an image of unethical, illegal or even
criminal activity. This is a very narrow view in relation to what offshore banking
activity represents in its entirety because it transcends activities as tax evasion
or money laundering. In contrast, many offshore banking centers ensure
compliance with international norms and practices. The creation of
offshore banking sector is the result of the laws and represents a legitimate
phenomenon in itself.
Aim to supply the demand of increase revenue. They take advantage of what in
modern times it is called financial sector which goes beyond criminality,
illegality and f i n a n c i a l a b u s e o r f r a u d . Tod a y o ffs h o r e b a n k i n g
c e n t e r s a i m a t f a c i l i t a t i n g t a x a t i o n f o r investors, use of modern and
sophisticated banking, dynamic investment and mutual funds. Moreover,
offshore banking centers view the principle of confidentiality in banking issues as
an essential and crucial element which deserves to be protected and guaranteed.

At

the

sam

e time let us not forget that in many

parts of the world the offshore banking sector is the main contributor to economic
development and growth in the jurisdiction were it exists .The offshore banking
sector developed step by step. The basic structure of tax havens elevated to such
sophisticated entity as offshore financial center with multiple financial
services, including offshore banking. The movement of banking institutions
offshore resulted in a huge scale offshore bank deposits. This resulted in the
creation of a big network of onshore external financial centers and onshore-related
offshore finance centers. The development of such a big network was primarily
possible due to rapid development of telecommunications and air travel. Thus, the
offshore banking sector is rightly seen as one of the most dynamic sector. This
7

sector is using heavily in its activity the rapid development of modern technologies
and at the same advances it. In terms of offshore banking centers, in terms of total
deposits, the global market is dominated by two key jurisdictions: Switzerland
and the Cayman, although numerous other jurisdictions also provide offshore
banking to a greater or lesser degree,. Some offshore jurisdictions have steered
their financial sectors away from offshore banking, as difficult to properly regulate
and liable to give rise to financial scandal.

OFFSHORE BANKING

INTRODUCTION

10

11

Offshore simply means anything outside of a countrys jurisdiction. So if Im in the

US which is considered onshore, any other country outside US jurisdiction is
referred to as offshore. The term Offshore banking originates from the Channel
Islandshttp://en.wikipedia.org/wiki/Channel_Islandsbeing "offshore" from the United
Kingdom, and most offshore banks are located in island nations to this day, the
terms used figuratively to refer to such banks regardless of location, including
Swiss

banks

and

those

of

other

landlocked

nations

such

ashttp://en.wikipedia.org/wiki/LuxembourgLuxembourgandAndorra. For a depositor

offshore banking is associated with the services of a bank from the country other
than his country of residence. If you have invested or deposited funds to a bank
outside the country (referred as Offshore Bank), where you live, you are engaged
in offshore banking. On the other hand, any bank in your country of residence is
often referred as a domestic bank. You dont have to be rich to take advantage of
offshore banking so should you consider it? If you think that offshore banking is
exclusively for the rich and famous then you are very much mistaken. In fact
offshore banking is much more relevant now than it has ever been and the fact that
many, if not most, of the UK banks offer offshore banking services alongside their
onshore banking services reflects this. With more and more people working
overseas, it becomes crucial that your money is put into a bank that you know and
trust. Stability is key and, rather than trust local banks / governments/ economies
with your hard earned cash, consider all your options. Offshore banking has often
been associated with the underground

economy and organized crime, via tax

evasionhttp://en.wikipedia.org/wiki/Tax_evasionandmoney

laundering;

however,

legally, offshore banking does not prevent assets from being subject to
personalhttp://en.wikipedia.org/wiki/Income_taxincometaxoninterest. Except for certain
persons who meet fairly complex requirements, the personal income tax of many
countries makes no distinction between interest earned in local banks and those
12

earned abroad. Persons subject to US income tax, for example, are required to
declare on penalty of perjury, any offshore bank accounts which may or may not be
numbered bank accounts they may have. Although offshore banks may decide not
to report income to other tax authorities, and have no legal obligation to do so as
they are protected byhttp://en.wikipedia.org/wiki/Bank_secrecybank secrecy, this does
not make the non-declaration of the income by the tax-payer or the evasion of the
tax on that income legal.

13

14

15

16

17

FEATURES
Offshore banking is blessed with a number of Features.
The most significant ones are:
Offers higher level of privacy as opposed to the local banks
No taxation
18

 Protection against financial insecurities and instabilities in the local economy

Less restrictive regulations
Easy access deposits
Except for the developed nations that offer for complete financial stability,
individuals from the various undeveloped countries that are surrounded with
instability may opt to resort to offshore banking for better steadiness in assets and
resources
Offshore banks offer better rate of interest

19

 Offers features that banks in the domestic realm may not possess like unspecified
bank account etc
Offers investment opportunities far greater and better in variety and quality than
the ones available locally
Exceptionally preferable for international workers The quality of the regulation is
monitored by supra-national bodies such as the International Monetary Fund(IMF).
Banks are generally required to maintain capital adequacy in accordance with
international standards. They must report at least quarterly to the regulator on the
current state of the business. In the 21st century, regulation of offshore banking is
allegedly improving, although critics maintain it remains largely insufficient.

Other significant benefits of offshore banking are:

Since it provides a broad range of features, offshore banking can provide you
absolute safety and security- As offshore banks are mostly located in a jurisdiction
with sound economic and political condition, it provides stability- Many of the
offshore banking facilities assure privacy and confidentiality- Above all, offshore
banking system provides flexibility, i.e., it provides flexible structure to business
owners and expatriates requiring global access to their funding order to acquire the
full benefits above mentioned, it is recommended to review or examine your
decision of opening an account with an offshore bank. Primarily, it must be
checked whether the offshore bank you have chosen is located in such a
jurisdiction that can meet your requirements. The next to be considered is that
whether the chosen offshore bank renders all the services it mentions. Despite any
challenge, setting up an offshore bank account is considered a wise decision.

20

OFFSHORE BANKING MYTHS

There are lots of offshore banking myths that prevent people from taking
advantage of the benefits that an offshore account can offer. Once you
know the truth about using offshore banks, though, you can make educated
decisions that help you protect your assets from law suits and privacy
invasion.

Offshore Accounts Are Illegal

21

22

Perhaps the most persistent offshore banking myths are those that question the
legality of using offshore accounts. Most of the time, this misperception comes
from movies and television shows. The truth is that offshore accounts are perfectly
legal as long as you use them properly. For instance, an offshore account can help
you pay fewer taxes, but your country of residence will still require you to pay
some taxes.

Offshore Accounts Arent Safe

Other offshore banking myths question whether accounts are safe. There are some
cautionary tales about people losing all of their money because their
offshore accounts suddenly disappeared. This, however, only happens in
countries with poor legal systems. When you choose offshore accounts in stable

23

countries like Panama, you dont have to worry about the safety of your
assets. In fact, you might find that the Republic of Panama has a system that
is more stable than your own countries.

Offshore Accounts Are Only for Wealthy People

Offshore accounts are useful for lots of people, not just those who are
wealthy. You wouldnt want to spend the time and money establishing an
offshore account for just a couple thousand dollars, but many people find
that they can benefit from opening an offshore account that protects their
assets from lawsuits and invasions of privacy.

THE HISTORY OF OFFSHORE BANKING:

For those of you who can remember the 1970s, youll probably remember the UK and Europe
levied the highest, most punitive taxes in the developed world, with high earners in the UK
having their earnings taxed at a rate of 85 per cent, giving rise to the phrase tax
exile, where the likes of the Rolling Stones, Michael Canine, Pink Floyd, Sean Connery
moved abroad for years at a time to avoid paying high rates of income tax.

24

25

26

And then the government and financial institutions in the Channel Islands
predominantly Jersey and Guernsey realized that, rather than a person leave the
UK to save tax, their assets could be moved offshore to Channel Island banks
and tax could be saved that way. The Channel Islands fall into two separate selfgoverning bailiwicks Jersey and Guernsey, both of whom are British Crown
Dependencies, but neither is part of the United Kingdom. The Channel Islands assisted dejected
investors with two key offerings: confidentiality and lower taxation. The offshore
banking industry was born. The Channel Islands bankers persuaded their clients
that any deposits placed into offshore banks would be anonymous, free from the
scrutiny plaguing the mainland and the UK, and would be liable for minimal taxation. .As
word spread across Europe and indeed throughout the world, other small island
nations and jurisdictions seized upon the opportunity and began strengthening
regulations regarding banking practices and client confidentiality in the hopes of
attracting foreign depositors; thus becoming offshore banking jurisdictions and
offshore financial centers. This became particularly popular in the small island
nations of the Caribbean, which many tend to associate with offshore banking
jurisdictions. Rightly or wrongly, offshore banking has become synonymous with
"tax haven", jurisdictions characterized by low - or zero - taxation on interest,
dividends, royalties and foreign derived income, as well as having some degree of
banking confidentiality. Over time this term has evolved to include other popular
banking jurisdictions such as Switzerland, Austria, Lichtenstein, Luxembourg and more
recently the United Arab Emirates (UAE),Singapore and Hong Kong. These gained
popularity for the same reasons the small island offshore financial centers did: they
implemented sound banking practices codified in law and regulations guarantee in
confidentiality, low taxation and security. Although an abridged and streamlined
version of history, these are, fundamentally, the roots of the modern offshore
banking industry.
27

OFFSHORE BANKING DEVELOPMENT AND APPEARANCE

Many economists argued that offshore banking sector represented the new
beginning of the international capitalism. They traced the evolution of
the offshore banking s e c t o r

to

the

development of transnational

corporations. In this context the evolution of the international banking

came as a response to the modern phenomenon of capital which
obviously goes beyond national borders. At the same time the rapid growth and
boom of the technology sector gave a great incentive and facilitated the
creation of the international offshore banking area. This permitted global
access of world market information and subsequently its management and control.
Under the traditional national and international sectors there were several
constraints which gave the possibility for offshore activity to grow. These are:
the extension of national tax bases; intermittent fiscal and monetary instabilities;
the existence of foreign exchange controls and fluctuations; limiting cross-border
controls; conservative banking laws and regulations with r e g a r d t o f o r e i g n
a n d d o m e s t i c i n d u s t r i a l e n t r y, sy s t e m s o f s u p e r v i s i o n a n d l i q u i d i t
r e q u i r e me n t s , c o n s t r a i n t s o n t h e i s s u e o f f o r e i g n a n d d o m e s t i c
b o n d s , t h e a d mi s s i o n o f securities to capital markets, stock exchange,
28

insurance regulations ; company laws which restricted business. The

evolution of the offshore banking center is described from the perspective of its tax
and banking functions.

Offshore banking center came with innovative solutions to all these

constraints that were mentioned above. Let us refer for example to taxation.
There are 3 models of offshore banking centers from the perspective of taxation:
with zero-tax (here even residents do not pay taxes);with low-tax; tax at normal
rates but exemption or other preferential treatment is granted to nonresident

investors

or

investment

for

certain

categories

of

income.

Notwithstanding the fact that the above categories refers only to

t a x a s p e c t s o f o ffs h o r e banking activity, it clearly shows the scope of such
centers.

ADVANTAGES OF OFFSHORE BANKING

Access to politically and economically stable nations:
Offshore banks can sometimes provide access to politically and economically stable
jurisdictions. This will be an advantage for residents in areas where there is risk of
political turmoil, who fear their assets may be frozen, seized or disappear (see the
Corral to For example, during the 2001Argentine economic crisis). However it is
29

often argued that developed countries with regulated banking systems offer the
same advantages in terms of stability.

Lower cost base with high returns:

S o m e o ffs h o r e b a n k s m a y o p e r a t e w i t h a l o w er c o s t b a s e a n d c a n
p r o v i d e h i g h e r interest rates than the legal rate in the home country due to
lower overheads and a lack o f g o v e r n m e n t i n t e r v e n t i o n . Ad v o c a t e s o f
o ffs h o r e b a n k i n g o f t e n c h a r a c t e r i z e government regulation as a form
of tax on domestic banks, reducing interest rates on deposits.

Growth of developing countries:

Offshore finance is one of the few industries, along with
tourism, i n w h i c h geographically remote island nations can competitively
engage. It can help developing c o u n t r i e s s o u r c e i n v e s t m e n t a n d cr e a t e
g r o w t h i n t h e i r e c o n o mi e s , a n d c a n h e l p redistribute world finance from
the developed to the developing world.

Tax free income:

Interest is generally paid by offshore banks without tax being deducted.
This is an advantage to individuals who do not pay tax on worldwide income, or
who do not pay tax until the tax return is agreed, or who feel that they can illegally
evade tax by hiding the interest income.

30

31

 Financially engineered banking services:

Some offshore banks offer banking services that may not be available from
domestic banks such as anonymous bank accounts, higher or lower rate loans
based on risk and investment opportunities not available elsewhere.

Other advantages:
Offshore banking is often linked to other structures, such as offshore companies,
trusts or foundations, which may have specific tax advantages for some
individuals. Many advocates of offshore banking also assert that the
creation of tax and banking competition is an advantage of the industry,
arguing with Charles Tie bout that tax competition allows people to choose an
appropriate balance of services and taxes. Critics of the industry, however,
claim this competition as a disadvantage, arguing that it encourages a "race to the
bottom" in which governments in developed countries are pressured to
deregulate their own banking systems in an attempt to prevent the off
shoring of capital.

32

DISADVANTAGES OF OFFSHORE BANKING

Financial security:
Offshore bank accounts are less financially secure. In banking crisis which swept
the world in 2008 the only savers who lost money were those who had
deposited their funds in offshore branches of Icelandic banks such as Keep thing
Singer & Friedlander. Those who had deposited with the same banks
onshore received all of their money b a c k . I n 2 0 0 9 Th e I s l e o f M a n
a u t h o r i t i e s w e r e k e e n t o p o i nt o u t t h a t 9 0 % o f t h e claimants were
paid , a l t h o u g h t h i s o n l y r e f e r r e d t o t h e n u mb e r o f p e o p l e w h o h a d
received money from their depositor compensation scheme and not the
amount of money refunded. In reality only 40% of depositor funds had
been repaid24.8% in September 2009 and 15.2% in December 2009 . Both
offshore and onshore banking centers often have depositor compensation
schemes.

For

example

The

Isle

of

M a n compensationschemehttp://www.gov.im/fsc/investor/dep_comp.xmlguarantees
50,000 of net deposits per individual depositor or 20,000 for most other
categories of depositor and point out that potential depositors should be aware that
any deposits over that amount are at risk. However only offshore centers such as
the Isle of Man have refused to compensate depositors 100% of their f u n d s
following Bank collapse. Onshore depositors have been refunded
i n f u l l regardless of what the compensation limit of that country has
stated http://news.bbc.co.uk/2/hi/business/7658725.stmthus banking offshore is
historically riskier than banking onshore.

33

 Association:
Offshore banking has been associated with the underground economy and
organized crime, through money laundering. Following September 11, 2001,
offshore banks and tax havens, along with clearing houses, have been accused
of helping various organized crime gangs, terrorist groups, and other state or
non-state actors.
Tax :
The existence of offshore banking encourages tax evasion, by providing tax
evaders with an attractive place to deposit their hidden income.

Offshore jurisdictions are often remote, so physical access and access to

information can be difficult. Yet in a world with global telecommunications this
is rarely a problem. Accounts can be set up online, by phone or by mail.

Developing countries can suffer due to the speed at which money can be
transferred in and out of their economy as hot money. This Hot money is
aided by offshore accounts, and can increase problems in financial disturbance.

Offshore banking is usually more accessible to those on higher incomes,

because of the costs of establishing and maintaining offshore accounts. The tax
burden in developed countries thus falls disproportionately on middle-income
groups. Historically, tax cuts have tended to result in a higher proportion of the
tax take being paid by high-income groups, as previously sheltered income is
brought back into the mainstream economy

34

IMPORTANCE OF OFFSHORE BANKING

Offshore banking has now become an important segment of the international
financial system. Offshore banking is simply a practice of working with an
offshore bank.
An offshore bank refers to a bank located outside the country where the
depositor lives. Usually, these banks may be located in such a jurisdiction
with substantial financial as well as legal advantages.
Offshore banks provide a continuum of services in connection with financial
management, such as, deposit taking, money transmissions, creation of
provision of foreign exchange, trade finance, credit facilities, investment and
fund management, corporate administration, and trustee service.
Creation of a bank account with an offshore bank is great alternative
particularly for those who have to travel frequently or someone whose career
changes a lot.
People prefer offshore banking for a myriad of other purposes such as
expansion

of

your

business,

tax-free

35

36

investment,

and

anonymity with regard to financial matters, asset protection, and estate

planning. A specialty of offshore banking is that an account can be opened
37

with an offshore bank simply as a saving account. Account can also be opened to
carry out main business functions.
Apart from these, through an offshore bank, you can even make investments
and take loans.
This type of banking has now been legally used by many individuals and
corporations worldwide.
Offshore banking is usually preferred by people falling under three
categories, such as, high net worth individuals, expatriates, and business
owners
Nowadays, many of the corporate clients including multinational corporations,
large industrial as well as trading companies, shipping companies, and
banking corporations, are also getting attracted to the benefits offered by
offshore banking.
One of the prime benefits of offshore banking is that it provides access to
economically as well as politically stable jurisdictions. This proves to be
advantageous to such people whose residing area has risks of political
disorders.
. There are certain offshore banks that function with low cost base, which in
turn can offer higher interest rates to the depositors when compared to their
home country.
Another great benefit is that it is a great way for developing countries to
enhance their economic growth, since offshore banking allows redistributing
finance from the developed economies to the developing economies.
Offshore banking is usually associated with formations including offshore
trusts, offshore foundations, and offshore companies, which in turn may
provide some kind of benefits in the form of tax as well as asset protection.
38

As a healthy competition is seen in the industry of offshore banking

regarding tax benefits, it enables to choose the most appropriate facility
offering tax advantages.

In addition, offshore banking allows you to easily move your assets, if you
want to join an employment or spend long periods outside your home
country.

39

40

41

42

OFFSHORE BANKINGRECENT TREND NEED FOR OFFSHORE BANKING

Quite simply, Offshore Accounts facilitate greater financial privacy. Residents of
the UK and EU can now enjoy the same financial benefits as offshore companies
and affluent individuals have done for many years. It is an affordable and
secure solution, providing anonymous offshore banking and offshore asset
protection for everyone. Shielding finances and assets from creditors, legal
action and the divorce courts, for example, are some of the major reasons to bank
offshore. Overseas Bank Accounts can be opened in the name of offshore
43

companies in order to provide the maximum possible anonymity, privacy and offshore asset
protection.
In the past, Offshore Bank Accounts was perceived as just for the wealthy. This is
no longer the case. There is a distinct rise in the number of Europeans who are
investing or depositing their money into anonymous bank accounts.
In doing so, they achieve complete offshore protection.

Anonymous Banking:
Most

offshore

jurisdictions

have

fiercely

strict

p r i v a cy

and

c o n f i d e n t i a l i t y r e g u l a t i o n s established which help to ensure that the

identities and transactions of individuals and, indeed, companies are carefully
shielded and protected. Whilst this confidentiality is almost legendary, it is not
possible to guarantee absolute privacy and anonymity. All offshore financial centers,
just like onshore financial institutions, throughout the world have an implicit legal
obligation to comply with investigations into suspected serious criminal activity
such as money-laundering and, more recently, the funding of terrorism. This
is the only time that OFCs will impart information to a third party. In the vast
majority of offshore bank accounts
and companies, where there is no compelling criminal or terrorism accusation,
personal information including the details of the owner of the offshore account
and transactional information are completely shielded. These OFCs are
d e s i g n e d t o p r o vi d e c o m p l e t e c o n f i d e n t i a l i t y a n d s e r v e t o t o t a l l y
p r o t e c t a n d s a f e g u a r d individual and company information. This, the
highest level of confidentiality available anywhere in the world, is especially
worthy

of

note

as

it

relates

to

protecting

assets

from

legal

44

action

within the home jurisdiction and civil matters such as divorce or inheritance
matters. The only time that an offshore bank will divulge even the slightest amount
of information will be when they are compelled to by a foreign government
IF certain rigorous standards and tests have been met by the governmental
body. This would be in the case of substantial evidence in a money laundering or
terrorism case. The overseas banks do everything in their power to protect the
identity and information surrounding the accounts they hold as their
primary concern is safeguarding their investors. It is in the interest of these
offshore financial centers to ensure that no leaks or breaks in confidentiality
occur as it would completely shatter the confidence of other offshore
account holders and investors. Along with losing face, they would stand to lose
millions of pounds worth of business. Other offshore vehicles and entities provide
an even deeper and tighter level of anonymity and confidentiality. These include
the International Business Company (the IBC) or Offshore trusts, although these
are more complicated to set up and run than simply opening an offshore bank
account. Although anyone can open an offshore bank account, the objective should
be to address the need of, and to strike the appropriate balance between,
effective asset protection, reduced taxation, complete anonymity, security of
transactions and accessibility.

Who can go offshore

45

So, if youre thinking of upping sticks and heading abroad, or if you already own
an overseas home or you perhaps regularly work abroad for your company, you
may benefit substantially from an offshore bank account. Expatriates, those who own a
property abroad or people termed as having an international lifestyle, can all potentially
profit from an offshore bank account. By its very nature such an account is flexible
and when youre living abroad or sending money back and forth between more
than one country or transacting in more than one currency, then the very thing you
need is flexibility from an offshore account. Common misconceptions of offshore
banking include theories on hiding money, a service reserved for the rich and
famous or a plan to evade or even avoid taxation! Many of the leading high street
banks offer offshore banking services to clients so accessible is offshore banking
to all. Basically offshore banking is the management of financial assets from a
jurisdiction other than the one in which you live. For some people it does have
very real and legitimate taxation advantages, but for the vast majority of us, it is all
about simplicity of money management. Offshore banking in its simplest form suits
those who make the very most of the fact that we can travel, live and work
anywhere, invest in properties overseas or different money markets and who think
outside the small box that is the UK.

OFFSHORE BANKING SERVICES

It is possible to obtain the full spectrum of services from offshore banks, including
Acceptance of Deposits Major types
Checking accounts: A deposit account held at a bank or other financial institution,
for the purpose of securely and quickly providing frequent access to funds on
46

demand, through a variety of different channels. Because money is available on

demand these accounts are also referred to as demand accounts or demand deposit
accounts.
Savings accounts: Accounts maintained by retail banks that pay interest but
cannot be used directly as money (for example, by writing a cheque). Although not
as convenient to use as checking accounts, these accounts let customers keep liquid
assets while still earning a monetary return.
Money market account: A deposit account with a relatively high rate of interest, and
short notice (or no notice) required for withdrawals. In the United States, it is a
style of instant access deposit subject to federal savings account regulations, such
as a monthly transaction limit.
Time deposit: A money deposit at a banking institution that
cannot be withdrawn for a preset fixed 'term' or period of time.
When the term is over it can be withdrawn or it can be rolled over
for another term. Generally speaking, the longer the term the better the
yield on the money.

Credit

47

Credit is the trust which allows one party to provide resources to another
party where that second party does not reimburse the first party immediately
(thereby generating debt), but instead arranges either to repay or return those
resources (or other materials of equal value) at alter date. The resources provided

48

may be financial (e.g. granting a loan), or they may consist of goods or

services(e.g. consumer). Credit encompasses any form of deferred payment.
C r e d i t i s e x t e n d e d by c reditor, a l s o k n o w n a s l ender, t o a debtor,
a l s o k n o w n a s a borrower .Credit does not necessarily require money. Th e
c r e d i t c o n c e p t c a n b e a p p l i e d i n b a r t er economies as well, based on the
direct exchange of goods and services (Ingham 2004 p.12-19).However, in
modern societies credit is usually denominated by a unit of account .
Unlike money, credit itself cannot act as a unit of account. Movements of
financial capital are normally dependent on either credit or equity transfers.
Credit is in turn dependent on the reputation or creditworthiness of the
entity which takes responsibility for the funds. Credit is also traded in financial
markets. The purest form is the credit default swap market, which is essentially
a traded market in credit insurance. A credit default swap represents the price
at which two parties exchange this risk the protection "seller" takes the
risk of default of the credit in return for a payment, commonly denoted in
basis points (one basis point is 1/100 of a percent) of the notional amount
to be referenced, while the protection "buyer" pays this premium and in the case
of default of the underlying (a loan, bond or other receivable), delivers this
receivable to the protection seller and receives from the seller the par
amount (that is, is made whole).

Wire-and Electronic Funds Transfers

Electronic money (also known as e-currency, e-money, electronic cash, electronic
currency, digital money, digital cash, digital currency, cyber currency) refers to
money or scrip which is only exchanged electronically. Typically, this
involves the use of computer networks, the internet and digital stored
49

value systems. Electronic Funds Transfer (EFT), direct deposit, digital

gold currency and virtual currency are all examples of electronic money.
The Netherlands has also implemented a nationwide electronic money
system known as Chipknip for general purpose, as well as OV-Chipkaart
for transit fare collection. In Belgium, a payment service company,
Proton, owned by 60 Belgian banks issuing stored value cards, was
developed in1995. A number of electronic money systems use contactless
payment transfer in order to facilitate easy payment and give the payee more
confidence in not letting go of their electronic wallet during the transaction.

Foreign Exchange
T h e f o r e i g n e x c h a n g e m a r k e t ( f o r e x , F X , or c u r r e n c y m a r k e t ) i s a
g l o b a l , w o r l d w i d e decentralized over-the-counter financial market for trading
currencies. Financial centers around the world function as anchors of trading
between a wide range of different types of buyers and s e l l e r s a r o u n d t h e
c l o c k , w i t h t h e e x c e p t i o n o f w e e k e n d s . Th e f o r e i g n e x c h a n g e
m a r k e t determines the relative values of different currencies. The primary
purpose of the foreign exchange is to assist international trade and investment, by
allowing businesses to convert one currency to another currency. For example, it
permits a US business to import British goods and pay Pound Sterling, even
though the business's income is in US dollars. It also supports speculation, and
facilitates the carry trade, in which investors borrow low-yielding currencies and
lend (invest in) high-yielding currencies, and which (it has been claimed) may lead
to loss of competitiveness in some countries. In a typical foreign exchange
transaction, a party purchases a quantity of one currency by paying a
quantity of another currency. The modern foreign exchange market began
50

forming d ur i n g t h e 1 9 7 0 s w h e n c o u n t r i e s gr a d u a l l y s w i t c h e d t o
f l o a t i n g e x c h a n g e r a t e s f r o m t h e previous exchange rate regime, which remained
fixed as per the Breton Woods system.

Letters of Credit and Trade Finance

A s t a n d a r d , c o m m e r c i a l l e t t er o f c r e d i t ( L C ) i s a d o c u me n t i s s u e d
m o s t l y by a f i n a n c i a l institution, used primarily in trade finance,
which usually provides an irrevocable payment undertaking. The letter of
credit can also be payment for a transaction, meaning that redeeming the letter of
credit pays an exporter. Letters of credit are used primarily in international trade
transactions of significant value, for deals between a supplier in one
country and a customer in another. In s u c h c a s e s , t h e I n t e r n a t i o n a l
Chamber

of

Commerce

Uniform

Customs

and

Practice

for

Documentary Credits applies (UCP 600 being the latest version).[2] They are also
used in the land development process to ensure that approved public facilities
(streets, sidewalks, storm water ponds, etc.) will be built. The parties to a letter of
credit are usually a beneficiary who is to receive the money, the issuing bank of
whom the applicant is a client, and the advising bank of whom the beneficiary is a
client. Almost all letters of credit are irrevocable, i.e., cannot be amended or
canceled without prior agreement of the beneficiary, the issuing bank and
the confirming bank, if any. In executing a transaction, letters of credit
incorporate functions common to gyros and Traveler's cheques. Typically, the
documents a beneficiary has to present in order to receive payment include a

51

commercial invoice, bill of lading, and documents proving the shipment

were insured against loss or damage in transit.

Investment management and Investment custody

Investment management is the professional management of various securities
(shares, bonds and other securities) and assets (e.g., real estate) in order to meet
specified investment goals for the benefit of the investors. Investors may be
institutions (insurance companies, pension funds, corporations, charities,
educational establishments etc.) or private investors (both directly via investment
contracts and more commonly via collective investment schemes e.g. mutual funds
or exchange-traded funds). Investment managers who specialize in advisory
or

discretionary

management

on

behalf

of

(normally

Wealthy) private investors may

often refer to their services as wealth management or portfolio management often
within the context of so-called "private banking. The provision of 'investment
management services' includes elements of financial statement analysis, asset
selection, stock selection, plan implementation and ongoing monitoring
of investments. Investment management is a large and important global industry in
its own right responsible for caretaking of trillions of Yuan, dollars, euro, pounds
and yen. Coming under the remit of financial services many of the world's largest
companies are at least in part investment managers and employ millions of staff
and create billions in revenue.

52

Trustee services
A b o ar d o f d i r e c t o r s i s a b o d y o f e l e c t e d or a p p o i n t e d m e mb e r s
w h o j o i n t l y o v e r s e e t h e activities of a company or organization. The
body sometimes has a different name, such as board of governors, board of
managers, board of regents, board of trustees, board of visitors, or executive board.
It is often simply referred to as "the board." A board's activities are determined by
the powers, duties, and responsibilities delegated to it or c o n f e r r e d o n i t b y a n
a u t h o r i t y o u t s i d e i t s e l f . Th e s e m a t t e r s ar e t y p i c a l l y d e t a i l e d i n
t h e organizations bylaws. The bylaws commonly also specify the
number of members of the board, how they are to be chosen, and when they are to meet.
In an organization with voting members, e.g., a professional society, the board acts
on behalf of, and is subordinate to, the organization's full assembly, which usually
chooses the members of the board. In a stock corporation, the board is elected by
the stockholders and is the highest authority in the management of the
corporation. In a non-stock corporation with no general
m e mb e r s h i p ,

e.g.,

u n i v e r s i t y,

the

board

is

the

voting
supreme

g o v e r n i n g b o dy o f t h e institution; its members are sometimes chosen by the

board itself.

General duties of trustees

Trustees have certain duties (some of which are fiduciary). These include the duty
to carry out the express terms of the trust instrument, the duty to defend the trust,

53

the duty to prudently invest trust assets, the duty of impartiality among the
beneficiaries, the duty to account for their actions and to keep them informed about
the trust, the duty of loyalty, the duty not to delegate, the duty not to profit, the
duty not to be in a conflict of

Interest position and the duty to administer the trust in the best interest of the
beneficiaries. These duties may be expanded or narrowed by the terms of the
instrument creating the trust, but in most instances cannot be eliminated
completely. Corporate trustees, typically trust departments at large banks, often
have very narrow duties, limited to those explicitly defined in the trust indenture.
A trustee carries the fiduciary responsibility and liability to use the trust assets
according to the provisions of the trust instrument (and often regardless of their
own or the beneficiaries' wishes). The trustee may find himself liable to claimants,
prospective beneficiaries, or third parties. In the event that a trustee incurs a
liability (for example, in litigation, or for taxes, or under the terms of a lease) in
excess of the trust property they hold, they may find themselves personally liable
for the excess.
Trustees are generally held to a "prudent person" standard in regard to meeting
their fiduciary responsibilities, though investment, legal, and other professionals
can be held to a higher standard commensurate with their higher expertise. Trustees
can be paid for their time and trouble in performing their duties only if the trust
specifically provides for payment. It is common for lawyers to draft will trusts so as to
permit such payment, and to take office accordingly: this may be an unnecessary
expense for small estates.

54

Corporate Administration
Management in all business and organizational activities is the act of getting
people together to accomplish desired goals and objectives using available
resources efficiently and effectively. Management comprises planning, organizing,
staffing, leading or directing, and controlling an o r g a n i z a t i o n ( a g r o u p o f
one or more people or entities) or effort for the purpose of
accomplishing a goal. Resourcing encompasses the deployment and manipulation
of human resources, financial resources, technological resources, and natural
resources. Because organizations can be viewed as systems, management can also
be defined as human action, including design, to facilitate the production of useful
outcomes from a system. This view opens the opportunity to 'manage' oneself, a
pre-requisite to attempting to manage others.

1. Depositor should find out whether offshore banking jurisdiction follows bank
secrecy policy. Bank secrecy is in fact one of the main benefits that offshore
banking offers though offshore bank accounts and in practice all tax
havens provide such benefits, however the degree to which anonymity
is ensured varies from one jurisdiction to another, therefore it is worth
deepening into the legislation of the country to determine to what
extent bank secrecy is ensured.
2. . Depositor should specify what services does offshore banking center
offers. Can he/she receive a credit card? In what currencies can he/she

55

open an account? What about foreign exchange operation, offshore

investment opportunities, letter of credit provision, time deposits, checking,
online banking and etc? Before actually making a decision of opening an
offshore bank account one should have a clear idea about advantages and
disadvantages of a specific bank and financial sector in general. It may happen
so that a you may start with opening just account and later decide to use
other offshore services as well. It may turn out that other services are
not available in this offshore banking jurisdiction and moving to other
jurisdiction may be quite costly.
3. Dont forget to check out the taxation policy for the jurisdiction you choose.
Although many offshore banking centers have low or no taxes, there are
cases when this is not the case. In other words not all offshore banking
centers are tax havens and not all tax havens are offshore banking centers;
Although

d i ffe r e n t

banks

in

d i ffe r e n t

o ffs h o r e

banking

j u r i s d i c t i o n s r e q u i r e d i ffe r e n t documents for opening offshore bank

accounts, most of them typically ask for the following documents:

For a Personal Account:

1. Filled out bank application form.
2. Signature sample.
3 . N o t a r i z e d c o p y o f p a s s p o r t w i t h c l i e n t s o r i g i n a l s i g n a t u r e
o r a ny o t h e r a c c e p t a b l e identification
4.

Original bank references for

each signatory of the account

5. Document confirming clients address; Bank application form varies

from bank to bank. Some require it to be signed in front of the

56

public notary, while some in front of bank officer; some do not have any of
these requirements.

For Corporate Offshore Bank Account:

1. Memorandum and Articles of Association (original or certified copy);
2. Certificate of Incorporation (original or certified copy)
3. Board resolution to open account (original or certified copy);

OFFSHORE BANK ACCOUNT COSTS

Offshore Bank Account Tariffs & Fees
Offshore bank accounts are frequently opened under the name of an
offshore company.
The reason for this is the increased privacy as all banking transactions, if
traced, would be under the name of the offshore company, not the client.
Establishing an offshore bank account in this way c o u l d c o s t b e t w e e n
$ 3 5 0 t o $ 5 5 0 , p l u s t h e c o s t o f s e t t i n g u p t h e offshore company
An offshore company typically costs between $1495 and $2,495.
So, one could expect the total offshore account costs to be about the
$1845 for both.
I t i s e s s e n t i a l t h a t a n y p o t e n t i a l o w n e r o f a n o ffs h o r e b a n k
a c c o u n t s h o u l d r e s e a r c h t h e necessary information to make a strong,
informed decision when proceeding with an offshore bank account setup
a n d f o r mi n g a n o ffs h o r e c o mp a n y.

57

 .Offshore Bank Accounts have to be opened with an initial deposit

to activate the account.
.Although, some offshore provider's bank account types, fees,
interest rates, etc. vary; most offshore financial institutions (OFCs)
have competitive costs and a high level of bank account security.
Additionally, the interest rates tend to be higher than in the UK and EU,
providing

an

58

extra

benefit for those saving abroad.

Process fees, courier charges and various small costs (for notary, etc.) will
be incurred during the process of establishing an offshore bank account.

59

 The Offshore Company UK has helped thousands of individuals and

companies open private banking accounts, offshore companies and
corporations and can assist you in establishing the right offshore vehicles for
you.

OFFSHORE BANKING IN INDIAOFFSHORE

BANKING IN THE INDIAN CONTEXT

India has made a cautious beginning in offshore banking by permitting for the first
time Offshore Banking Units (OBUs) to be set up in Special Economic Zones (SEZs). The
SEZs have been set up with a view to providing an internationally competitive and
hassle free environment for export production. SEZs will be specially delineated duty free
60

enclave and deemed to be a foreign territory for the purpose of trade operations and
duties / tariffs so as to usher in export-led growth of the economy. The OBUs
virtually would be foreign branches of Indian banks located in India. These OBUs, inter
alia, would be exempt from reserve requirements and provide access to SEZ units and
SEZ developers to international finances at international rates. The Reserve Bank
of India (RBI) has permitted banks operating in India, whether Indian, public/private
sector or foreign, to set up OBUs in the SEZs. The OBUs would carry out essentially wholesale
banking operations. The OBUs will be set up as branches of the banks and therefore no
separate assigned capital will be required. All prudential norms applicable to overseas
branches of Indian banks would apply to OBUs. Thus, the necessary risk management
practices that are in vogue internationally would have to be adopted by the OBUs.
The OBUs will be regulated and supervised by RBI. They will be required to scrupulously
follow Know Your Customer and other anti money laundering directives of RBI from
time to time. Unlike the OFCs in other developing countries which conduct offshore
banking in a significant manner, the OBUs in India have a limited mandate. In fact, the
approach appears to be facilitating the SEZ policy rather than introducing offshore
banking in India. This is in line with the cautious policy stance adopted by the
regulators in regard to the opening up of the financial sector. Notwithstanding the
limited scope for offshore banking in the light of the relevant regulations, many Indian
banks have set up OBUs in SEZs. Available feedback is encouraging. Over the years,
India has tightened the legal framework to combat money laundering and other
cross border financial crime. These include the Prevention of Money Laundering Act 2002

Passed keeping in
view the FATF deliberations and recommendation and international initiatives at the United
Nations and others. There are other laws such as The Smugglers and Foreign

61

Exchange Manipulation (Forfeiture of Property) Act of 1976, The Code of Criminal

Procedures 1973, Prevention of Corruption Act, 1988, The Narcotic drugs and
Psycho tropic Substances Act of 1985.

ROLE OF RESERVE BANK OF INDIA IN OFFSHORE

BANKING
The role of Reserve Bank of India has been very critical in initiating the process of
offshore banking in India. For plenty of years, the various Indian banks had been
trying to convince the Reserve Bank of India to introduce offshore banking in the
country. Eventually, the Reserve Bank of India understanding the needs and
prospects of offshore banking in India, allowed the setting up of offshore units in
the special economic zones. Many of the Indian banks made use of that provision
to set up offshore banks in India.

Reserve bank of India Offshore banking units guidelines Scheme for Setting
up Of Offshore Banking Units (OBUs) In Special Economic Zones (SEZs)
The Government of India has introduced the Special Economic Zone (SEZ) scheme with a
view to providing an internationally competitive and a hassle free environment for
export production. As per the Governments policy, SEZs will be a specially
delineated duty free enclave and deemed to be a foreign territory for the purpose of
trade operations and duties / tariffs so as to usher in export-led growth of the
economy. It was also indicated by the Union Commerce Minister in his speech announcing the
62

Exim Policy for 2002-07 that for the first time, Offshore Banking Units (OBUs) would be
permitted to be set up in SEZs. These units would be virtually foreign branches of
Indian banks but located in India. These OBUs, inter alia, would be exempt from CRR,
SLR and give access to SEZ units and SEZ developers to international finances at
international rates.

The Scheme:
Eligibility Criteria
Banks operating in India viz. public sector, private sector and foreign banks
authorized to deal in foreign exchange are eligible to set up OBUs. Such banks
having overseas branches and experience of running OBUs would be given
preference. Each of the eligible banks would be permitted to establish only one
OBU which would essentially carry on wholesale banking operations.

Licensing

63

Banks would be required to obtain prior permission of the RBI for opening an OBU in a SEZ
under Section 23(1)(a) of the Banking regulation Act, 1949. Given the unique
nature of business of the OBUs, Reserve Bank would stipulate certain licensing
conditions such as dealing only in foreign currencies, restrictions on dealing with
Indian rupee, access to domestic money market, etc. on the functioning of the
OBUs. The parent bank's application for branch license should itself state that it
proposes to conduct business at the OBU branch in foreign currency only. No
separate authorization with respect to the OBU branch would be issued under FEMA. As
currently in vogue with respect to designating a specific branch for conducting
foreign exchange business, the parent bank may designate the branch in SEZ as an OBU
branch. A separate Notification No. FEMA71/2002-RB dated September 7, 2002 issued by the
Exchange Control Department (ECD) of RBI on OBUs is enclosed.

Capital
Since OBUs would be branches of Indian banks, no separate assigned capital for such branches
would be required. However, with a view to enabling them to start their operations, the parent
bank would be required to provide a minimum of US$ 10 million to its OBU.

Reserve Requirements
1 CRR

64

RBI would grant exemption from CRR requirements to the parent bank with reference to its
OBU branch under Section 42(7) of the RBI Act, 1934.

2 SLR
Banks are required to maintain SLR under Section 24(1) of the Banking Regulation Act, 1949
in respect of their OBU branches. However, in case of necessity, request from
individual banks for exemption will be considered for a specified period under Section 53
of the Banking Regulation Act, 1949.

Resources and deployment

The sources for raising foreign currency funds would be only external. Funds can
also be raised from those resident sources to the extent such residents are permitted
under the existing exchange control regulations to invest/maintain foreign currency
65

accounts abroad. Deployment of funds would be restricted to lending to units

located in the SEZ and SEZ developers. Foreign currency requirements of
corporate in the domestic area can also be met by the OBUs. If funds are lent to
residents in the Domestic Tariff Area (DTA), existing exchange control regulations
would apply to the beneficiaries in DTA.

Permissible Activities of OBUs

OBUs would be permitted to engage in the form of business mentioned in Section 6(1) of the
BR Act, 1949 as stipulated in the enclosed ECD Notification no. FEMA71/2002-RB dated
September 7, 2002and subject to the conditions of the license issued to the OBU
branches.

Prudential Regulations
All prudential norms applicable to overseas branches of Indian banks would apply to the
OBUs. The
OBUs would be required to follow the best international practice of 90 days' payment
delinquency norm
For income recognition, asset classification and provisioning. The OBUs may follow the credit
risk management policy and exposure limits set out by their parent banks duly approved by
their Boards.
The OBUs would be required to adopt liquidity and interest rate risk management
policies prescribed by
RBI in respect of overseas branches of Indian banks as well as within the overall risk
management and

66

ALM framework of the bank subject to monitoring by the Board at prescribed intervals.
The bank's Board would be required to set comprehensive overnight limits for each
currency for these branches, which would be separate from the open position limit
of the parent bank.

Anti-Money Laundering Measures

The OBUs would be required to scrupulously follow "Know Your Customer (KYC)" and other
anti-money laundering instructions issued by RBI from time to time. Further, with a
view to ensuring that anti-money laundering instructions are strictly compiled with
by the OBUs, they are prohibited from undertaking cash transactions, and
transactions with individuals.

Regulation and Supervision

OBUs will be regulated and supervised by RBI through its Exchange Control Department,
Department of Banking Operations and Development and Department of Banking
Supervision.

Reporting requirements
OBUs will be required to furnish information relating to their operations as are
prescribed from time to time by RBI.
67

Ring fencing the activities of OBUs

The OBUs would operate and maintain balance sheet only in foreign currency and would not
be allowed to deal in Indian Rupees except for having a special Rupee account out
of convertible fund to meet their day to day expenses. These branches would be
prohibited to participate in domestic call, notice, tem, etc. money market and payment
system. Operations of the OBUs in rupees would be minimal in nature, and any such
operations in the domestic area would be through the Authorized Dealer (distinct from
OBUs)which would be subject to the current exchange control regulations in force.
The OBUs would be required to maintain separate nostro accounts with correspondent banks
which would be distinct from nostro accounts maintained by other branches of the
same bank. The Ads dealing with OBUs would be subject to ECD regulations.

Priority sector lending

The loans and advances of OBUs would not be reckoned as net bank credit for
computing priority sector lending obligations.

Deposit insurance
Deposits of OBUs will not b e covered by deposit insurance.

68

India provides distinct advantages in attracting offshore banking units, because it

has a stable economic and political performance, a vast market, technical
manpower that could find employment in these centers. Another advantage is
that the Indian market would open a little before the Tokyo market closes, and
close before New York opens, thus providing a vital time link for
international money market dealers. In an era where many Indian
corporations are functioning abroad and many corporations are granted
permission to seek overseas finance, establishing an offshore unit will help tap the
resources:
Exporters would benefit in terms of finer margins on loans and better foreign
exchange rates available via an offshore banking unit. The benefits of multicurrency operations which, to an extent, minimize currency fluctuation risk
will be an added advantage:
Salaries paid by offshore banks and local
Expenditure incurred by them contributes to the economy's welfare. For
smaller countries, the benefit would be greater. For a larger country such as
India, however, this may not form a significant portion of the total income.
India may earn revenue in the form of license fees, profit taxes imposed on
the banks operating in the area. It may also get the benefit of banks' funds in
the form of capital and liquidity requirements.
The country can gain improved access to the international capital markets.

69

 The domestic financial system may become more efficient through increased
competition and exposure of the domestic banks to the practices of offshore
banks.
Offshore banking centers will provide opportunities to train the local staff
which will, in turn, contribute to faster economic growth.

Offshore banking units would help channelize non-resident Indian

investments.

Setting up offshore banking centers would trigger enforced development of

more advanced communication facilities a must for their functioning.

OFFSHORE DEVELOPMENT - A FAVOURITE DESTINATION INDIA

Softwares are the ultimate need of the present business. Every business
organization needs softwares to carry out their business processes successfully and
efficiently. The organization always wants a well worthy software in a very
optimum price, so they tend to look for a better option of solutions and off course
in a lesser price to maximize the profits.

Due to the high market value of USD, UK-POUND and EURO the development cost of the
software are most likely to be very high in these Developed Nations. Therefore, the
business organizations are looking for a lower cost options and the same quality of work as
well. So, they are Outsourcing their Business Processes to the developing nations like
India. India is considered as the best destination to outsource the IT related work in the
last 5 years from the USA, UK and other European Countries.
70

India is the leading beneficiary of the IT related outsourcing,

because of the following reasons
A large pool of Technically Qualified Professionals are available in India with
above average IQ, which makes it a large force in the IT related works.
The most important advantage is the cost factor - in India a Professional Software
Engineer or IT Professional is available to work for a monthly salary of less than
USD500 equivalent which is not likely to be happened in US/UK etc. The quality of
services provided by them is at par the International Standards and they are flexible to
work in any time zone of this world.
The Geographical Distance is not a problem for the Software or IT related services. It is
possible to implement the developed software online from any place connected to
Internet unless it is Avery complex application and the support needed for the maintenance
can be provided from any place in the world via Internet. So, the Geography has now become
History for the modern day technology.

THE SCOPE FOR OFFSHORE BANKING IN INDIA

The favorable factors for an OFC in India are well known. These include
availability of skilled and quality banking, legal professionals, vastly Improvised
Tele communication systems ensuring connectivity, the time zone advantage. The
benefit by way of fillip to local economy is also well understood. However, clearly
the regulatory regime governing it would be critical. Accordingly the proponents of
offshore banking would need to address the key concerns of the regulator. Apart

71

from the apprehension of offshore banking being used for dubious ends
and in financial
crime, the regulator would also be concerned about the systemic risks to the
financial system. It would perhaps not be inappropriate to evolve a regulatory framework with
a road map for informed public debate. Such a framework would need to address
issues such as First, should only offshore banking be permitted or other activities
within the umbrella of an OFC? Some of the other activities may appear as meeting
specific needs such as insurance, fund management, trusts, etc. Second, for an OFC being
set up should there be a single regulator for all the activities of the OFC or different
regulators mirroring the pattern in the corresponding onshore sub sectors? Also,
should there a single regulator for onshore and offshore banks? Third, should there
licensing of firms in the OFC as it is currently stipulated for OBUs in SEZs? Or should it be
simple incorporation as is the practice in most OFCs? Or should licensing be
restricted to financial intermediaries? Fourthly, granted that licensing would be
required for OBUs, who would be the eligible parties not just banks operating in
India as per current policy, but also foreign banks, their subsidiaries/ affiliates?
What would be the permissible activities? Here again the regulator would need to
strike a balance between the fundamental objective of ensuring financial stability
and the business growth compulsions of the OBUs. For instance, if private banking
were to be permitted, the requirements of confidentiality would need to temper the
anti-money laundering safeguard measures. The RBI is today well respected in the
international community as a proactive regulator in the adoption of international
standards and the maintenance of financial stability while at the same time, aiding
development and growth. A slew of policies adopted by RBI in the last few years
have been aimed at strengthening the banking system. These include adoption of
prudential norms, consolidated supervision, connected lending, using technology to
upgrade settlement systems, payment systems, widening and deepening the various segments
72

of the financial markets, the unrelenting emphasis on up gradation of risk

management systems of financial intermediaries. The gradualist approach to
financial liberalization has paid rich dividend. The way forward appears to involve
at the first step, an assessment of the robustness of the existing legislative and
regulatory framework may be done keeping in view the principles of cross border
cooperation, information sharing transparency, ongoing monitoring. Perhaps
certain overseas jurisdictions with whom India can have reciprocal arrangements
can be identified, that will ensure proper due diligence while licensing OBUs and
subsequent supervision. In sum, the question before us
May not whether to have an OFC, but how can we set up a well regulated OFC that will be
beneficial to the Indian economy.

WHAT IS AN OBU?
An offshore banking unit (OBU) of a bank is a deemed foreign branch of parent
bank situated within India, and shall undertake international banking business
involving foreign currency denominated assets and liabilities.

About PUNJAB NATIONAL BANK (PNB) Parent Bank

PNB is one of the premier banking institutions of India with a glorious history of 117
years (est. in 1895), and is one of the top Public Sector Banks in India, owned
predominantly by the Govt. Of India. PNB is listed on the Bombay Stock Exchange and
other major Stock Exchanges of the country.
Since its humble beginning in 1895 with the distinction of being the first Indian bank to
73

have been started with Indian capital, PNB has achieved significant growth in business
which at the end of March 2012 amounted to $ 123 Billion (Rs. 673363 cores). Today,
with assets of more than $ 83 Billion (Rs. 4,58,194 core), PNB is ranked at 195 th
amongst Top 500 Global Banks, as per Brand Finance Global Banking 500 for 2011 and
features at the 25th place amongst the Top 50 most valued corporate brands by Brand
Finance-ET. It is the 2nd largest bank in country with network of 5675 branches
(including 5 oversea branches) and customer base of more than 7 Cores.
More importantly, during 2011-12, PNB has been recognized as the Best in Corporate
Social Responsibility (CSR) Overall by World HRD Congress and been recognized as
the Best Socially Responsive Bank by the Business World & PwC. Above all, the
Bank was recognized as the " Best Bank " by Business India.
The OBU of PNB is situated at Santacruz

Electronics Export Promotion Zone

(SEEPZ), Andheri East in Mumbai (Bombay), the financial capital of India, and is a
Deemed Foreign Branch of PNB, although located within the country.

HOW DOES IT ADD VALUE FOR YOU

74

Multi Currency Deposits accepted.

Maturities ranging from 15 days to 5 years. Deposits for 15 days up to 1 month are
accepted subject to minimum deposit amount of USD 100,000/-, GBP 60,000/- and
EURO 100,000/Attractive Rates of interest on Deposits.
Multi Currency Borrowing option.
Competitive Rates of interest on Borrowings.
Rates of interest linked to LIBOR of corresponding period.
Full reparability of maturity value of deposits.
Investment opportunity that affords better returns at no additional risk.
Render service at par with international banks.
Loans against deposits in foreign currency facility available at better rates.
Your EEFC (Exchange Earners Foreign Currency) Accounts facility available.
Higher rates of interest via-a-via Fixed deposits subject to minimum deposit of USD
5,000 or its equivalent.
General Terms and Disclaimer

Interest rates on OBU deposits

75

Interest rates on Foreign Currency deposit being accepted by OBU has been
reviewed and it has been decided that OBU will offer the following interest rates
on USD, GBP & EUR deposits with effect from 01st Aug 2012 (Subject to change)

(Percent per Annum)

76

Period of Deposit

US Dollars

15 days

0.22**

1 Month

0.25**

2 Months

0.34**

3 Months

0.45

Above 3 Months up to 6 months 0.70

Above 6 Months to less than 1

year

1.47

1 Year to less than 2 Years

3.05

2 Years to less than 3 Years

2.42

3 Years to less than 4 Years

3.48

10

4 Years to less than 5 Years

3.63

11

5 Years only

3.79

77

* Deposit in currency of USD, GBP, EURO applicable only if

amount is USD 250000.00 or equivalent.
Minimum Deposit Amount USD 5,000 or its equivalent.
Premature withdrawal of deposits permitted with penalty of 0.50%.
Half Yearly compounding of interest.
Tax Deductable at Source as per rules.
Deposits are at fixed rate of interest.
Additional interest can be considered on single deposit of USD 1 Million and
above.
Please confirm above rates of interest before placing the deposits.

78

Open a deposit account with OBU

ACCOUNT OPENING FORM OFF-SHORE BANKING UNIT

Account

No.____________

(to be filled in by the bank)

To
Punjab National Bank
Date__________________
_____________
______________
Dear
Please

Sir,
open

the

account

in

the

name

of

_____________________________________as per details below (In

capital letters and expanded initials)
79

PERSONAL DETAILS
Name

Passport Date of
No

Issue

Place
of
Issue

Valid Nationalit Occupatio

up to y

_______________
_
First applicant
_______________
_
Second Applicant
_______________
_
Third Applicant

Date of Birth (in case of minor account) ______________ Date of

Majority_____________
Overseas
Address____________________________________________________
_____
Mailing/Correspondence
address_____________________________________________
Mailing
instructions

(if

any)_________________________________________________
(Please enclose photocopy of relevant pages of passport and two
copies of recent passport size photographs for each account holder)
DETAILS OF REMITTANCES OF INITIAL FUNDS (Please tick
as applicable)
80

Demand

Draft

No.

______________Dt.

_______________for__________________
issued

by_________________________________

Mail

Transfer/Telegraphic

(amount)
(enclosed)
Transfer

No.________________Date_________________
for_________________through_________________________
(

Foreign

Currency

Notes/Traveler

Cheques

( ) Transfer from NRE/FCNR Account No.

TYPE OF ACCOUNTS (Please indicate by )
( ) With Cheque Book facility ( ) Without Cheque Book facility ( ) Term
Deposit account for a period of_______________

Contact Us

81

Mail

:Punjab

National

Bank

Offshore

Banking

Unit,

SEEPZ,

Andheri

(E),

Mumbai 400096, INDIA

Telephone :Branch

Head

(Chief-00-91-22-28291631

Manager)
Sr. Manager

FAX

Manager
:

E-mail

:satyavrat@pnb.co.in

-00-91-22-28293300
-00-91-22-28293222
00-91-22-28293333

chandrakant@pnb.co.in
obu@pnboffshore.com
ganeshpawar@pnboffshore.com

SWISS OFFSHORE BANKING

82

 Swiss offshore banking has a solid reputation due to its long history as a
centre for wealth management, asset protection, tax-advantaged investment
and of course bank secrecy.
Its bankers are regarded as some of the most trustworthy and experienced in
the world.
It also has some of the strictest bank secrecy laws. These provide that
anyone who divulges personal banking information without the permission
of a court faces fines and a jail sentence. Bank secrecy should not be lifted in
cases of tax evasion (e.g. on-reporting), only in those of tax fraud (e.g.
willfully forged documents). However it is up to a judge to decide on a case
by case basis into which category a dispute falls.

Swiss Bank Secrecy Law

Swiss bank secrecy has existed since 1934, when the custom of client
confidentiality was written into the legal code by the Swiss Banking Act.
Under the principle of bank secrecy, privacy is statutorily enforced, with
Swiss law strictly limiting any information shared with third parties,
including tax authorities, foreign governments or even Swiss authorities,
except when requested by a Swiss judge's subpoena.
However Swiss bank secrecy is not enforced in cases such as divorce or
bankruptcy, where information regarding account details may be legally
obtained. In other criminal matters such as money laundering and terrorism
bank secrecy may also be breached.

83

EU Savings Tax Directive

Switzerland is part of the EU Savings Tax Directive, which requires overseas

savings interest to be declared among participant countries. Foreign Swiss account
holders who are affected by this law (EU nationals) have the choice of declaring
their offshore bank account or letting their Swiss bank deduct a 35% withholding
tax at source. These taxes are then redistributed by the Swiss government, leaving
privacy intact.

Numbered Accounts

Numbered accounts are those which carry a number rather than name to identify
the account holder when transactions are made. In June 2004 anti-money
laundering laws came into effect which spelled the end of these accounts in their
traditional format. These bank accounts now require complete identification
Swiss banks must complete due diligence on all their clients.

Wealth Management and Portfolio Management

It is not easy to get a Swiss bank account with a private Swiss banker. These
accounts will start at around 1,000,000 USD, and you must turn up in Switzerland
in person to open one. If you have a substantial amount to invest you may even get
84

a managed portfolio where your own private banker manages your funds according
to your instructions or guidelines to balance risk, security and liquidity with
maximum returns. The availability of telephone or internet offshore banking
services will depend on the Swiss private bank.

Concerns

over

the

Safety

of

Swiss

Offshore

Banking
Swiss bank accounts and Swiss offshore banking have made headlines over
the undeclared accounts of US citizens held at global banks UBS and Credit
Suisse. The Swiss government has allowed bank secrecy to be pierced in a
small number of cases judged to be tax fraud.
These banks made it possible for such problems to occur by opening
offshore banking units or US branches and thus making themselves subject
to US law. As a result accounts at large banks such as these with branches in
your home country are not viable options if you are looking for confidential
offshore banking. Swiss bank secrecy still applies absolutely to Swiss banks
that limit their operations to the borders of Switzerland and in these there has
been no operational change. Those who break bank secrecy will go to jail
and the banks may be sued for compensation.
Another concern has been the news that the CIA and US Treasury
Department have tapped the SWIFT system that is used for clearing
international financial transactions, seriously compromising bank secrecy in

85

offshore banking centers. The US government cannot legally use this

information but the knowledge that they have it does not
inspire confidence.

STATISTICS CONCERNING OFFSHORE BANKING

Offshore banking is an important part of the international financial system. Experts
believe that as much as half the world's capital flows through offshore
centers.http://en.wikipedia.org/wiki/Tax_havensTaxhavenshttp://en.wikipedia.org/wiki/
Tax_havenshave 1.2% of the world's

population and hold 26% of the world's wealth,

including 31% of the net profits of United States multinationals. According to Merrill
Lynch and Gemini Consulting's World Wealth Report for 2000,one third of the wealth
of the world's high net-worth individualsnearly $6 trillion out of $17.5trillion
may now be held offshore. Some $3 trillion is in deposits in tax haven banks and
the rest is insecurities held by international business companies(IBCs) and trusts. The
IMF has said that between $600 billion and $1.5 trillion of illicit money is
laundered annually, equal to 2% to 5% of global economic output. Today, offshore
is where most of the world's drug money is allegedly laundered, estimated at up to
$500 billion a year, more than the total income of the world's poorest 20%. Add the
proceeds of tax evasion and the figure skyrockets to $1 trillion. Another few
hundred billion come from fraud and corruption. "These offshore centers awash in
money are the hub of a colossal, underground network of crime, fraud, and
corruption" commented Lucy Komisar quoting these statistics.
Among offshore banks, Swiss banks hold an estimated 35% of the world's private and
institutional funds (or 3 trillionhttp://en.wikipedia.org/wiki/Swiss_francsSwiss francs),
and the Cayman Islands(1.9 trillion US dollars in deposits) are the fifth largest
banking centre globally in terms of deposits. Each year, an increasing number of
86

investors around the world are attracted by international financial centers to

establish business in a form of an offshore company, offshore trust, offshore
mutual fund, offshore insurance company, open an offshore bank account or even
start their own offshore bank. It is estimated, that around 60% of the world's wealth
is held on offshore accounts by using offshore companies or offshore trusts and
that around 50% of the world's trade in goods are transacted through various
offshore jurisdictions As the years have progressed, so has the application of
offshore services along with the number of offshore jurisdictions offering such
benefits. Offshore companies or offshore trusts are not the illicit hideaways from
tax authorities as sometimes presented. When setup and managed correctly, they
can in fact provide enormous tax savings and asset protection in a perfectly legal
manner. In simple terms, an international business or offshore company is usually a
normal limited liability company, which is used as a tool by corporations and
individuals throughout the world to legally direct profits out of high tax countries
into offshore jurisdictions or so called international offshore centers, thus taking
advantage of the low or zero taxation and various double tax treaties.

87

LEGAL ASPECTSTRENDS IN REGULATION OF OFFSHORE

BANKING
Since offshore banking emerged and grew in response to restrictive regulatory
regimes, there are certain inherent risks that can potentially affect international
financial stability. Three can be readily identified. First, the contagion effect with
the increasing integration of financial markets worldwide and the explosive growth
in cross-border capital flows, problems in a bank in a OFC can be transferred
rapidly to other market jeopardizing the stability of those markets. Second, the lack
of reliable data on activities in OFCs may hinder effective supervision. Third, competitive
liberalization may lead to lowering regulatory standards in OFCs in order to attract a
higher share of global business. Internationally regulators have been addressing the
systemic issues posed by offshore banking. The `Basle Concordat of 1975 was
88

implemented on best efforts basis for almost two decades. The bankruptcy of Bank of
Credit and Commerce International (BCCI) in 1992 hastened the adoption of international
supervisory standards. BCCI was a landmark in the sense that thereafter, it has
become difficult for a bank incorporated in a jurisdiction with limited domestic
market to carry on business in other countries. The standards adopted by the Basle
Committee for Banking Supervision are as follows: All international banks should
be supervised by a home country authority that capably performs consolidated
supervision; The creation of cross-border banking establishments should receive
the prior consent of both the host country and home country authority; Home
country authorities should possess the right to gather information from their crossborder banking establishments; If the host country determines that any of these
three standards is not being met, it could impose restrictive measures or prohibit
the establishment of banking offices. This was followed by the Report of a Working
Group of the Basle Committee which, inter alia, aims at improving access of home and
host regulators to data necessary for effective consolidated supervision6

and

ensuring all cross border banking operations are subject to home and host
supervision. Subsequently there have been several international and regional
supervisory and regulatory initiatives. These are aimed, inter alia, at curbing
involvement of OFCs in financial crime such as money laundering, tax evasion, lax
financial regulation including inadequate supervision.

89

Changing Legislation look at how legislation has affected offshore investors

Just as you would undertake due diligence on the Prospective offshore bank with
which youre Considering opening an account, the bank is checking you out to
make sure you are who you say you are. In effect, the bank will want to know a lot
more about you than it would have a few years back, mainly because of money
laundering and its association with terrorism.
The legislation governing offshore banking was forever changed as a consequence
of what happened on the morning of September 11th2001. The US sought to crack
down on potential terrorists who were using the offshore banking network to move
money around by initiating
Far-reaching banking regulations
Applicable to all accounts
(Worldwide) that was transacted in
US dollars. Following 9/11 the US in produced the USA PATRIOT
Act, which authorizes the US authorities to seize the assets of a bank where it is
believed that the bank holds assets for a suspected criminal. Similar measures have
been introduced in some other Countries.
This doesnt impact the normal offshore client directly (we assume your desire to
open an offshore bank Account is a legitimate one), but part of it is the clause
entitled: Know Your Customer which is the due diligence and bank regulations
that financial institutions must perform to identify their clients and ascertain
relevant information pertinent to doing Financial business with them.

90

The international response to money laundering has been coordinated by the

Financial Action Task Force(FATF),also known by its French name, Grouped'
action financiered (GAFI), whose original 40 principles form the basis of most
international responses to money. As well as the opportunity to quail terrorist
financing activities the Governments of Europe sawn opportunity to use terrorism
as an excuse to clamp down on what really annoyed them about Offshore banking tax avoidance. The European Union Savings Directive (EUSD), which came in to
effect in July 2005, contains the so-called European Union withholding tax, a tax
deducted from minter esteemed by European Union residents on their investments
made in another member state, by the state in which the investment is
held.

This

directive makes EU residents with offshore bank accounts choose

between one of two options:
1) Allowing their offshore bank(s)to report savings income directly to local
tax authorities.
2) Pay tax immediately at such time income is provided to the accountholder
by their offshore bank.
Over time, it is expected an increasing number of offshore banks Will be
affected by this decision. In addition, if the account holder chooses
The second option mentioned above, then the tax rate used to collect monies due is
scheduled to risein2011.This increase in the tax rate is viewed as a way of
eventually forcing all account holders in offshore banks to choose the first option
mentioned above - namely allowing those banks to report directly to their country
91

Tax collecting agencies. Any interest you receive on your accounts can either have
tax withheld at source, or alternatively, you may continue to receive gross interest,
but the bank will have to report details about you and the interest
You have received to the tax authority in the EU member state where you are
resident. As a rule of thumb, there generally no tax deducted on interest earned.
Also, any offshore income may not be subject to tax. Depending where you live,
income on an offshore bank account tor investments may not be subject to tax in
your country of residence, if that money is no remitted into your country of
residence. Moreover, i
Jurisdictions such as the Isle of Man and the Channel Islands, theres no
inheritance tax, capital gains tax or death duties.
Perhaps the most prevalent taxon offshore banking is a withholding tax. When a
dividend (or royalties or interest) is paid internationally, the
Country from which the payment is made usually taxes the payment
As it leaves, by 'withholding' a proportion of it, usuallybetween10 percentand30
percent. If there is a double tax treaty between the two countries concerned, its
often possible to Reduce the tax, or to reclaim some or all of the money. Some
receiving countries allow the withheld tax to be set off against domestic tax
liabilities. There's no point in setting up an offshore account if you do not really
need one. If you could easily do what is required with a simple domestic account,
that's the best course to follow. On the other hand, if some of the ideas above
struck a chord with you, maybe it is a good time to move offshore.

Is Offshore Banking Legal?

92

Is offshore banking legal? This is a question often asked these days, as various
nations seek to clampdown on offshore tax havens and offshore banking. And
while such banking may raise eyebrows in certain quarters, or invite disapproving
comments from politicians seeking to balance budgets and maximize tax revenue,
the fact is banking offshore is perfectly legal. However, it helps if one first clarifies
the situation by defining the words "offshore" and tax havens. Offshore simply
means some place other than your home country. So if you're in the USA, then having a bank
account in the UK would be considered offshore. Or if you live in Australia and
have a bank account in Singapore then that would be offshore also. Neither of
these places are known tax havens of course, but never-the-less they would be
considered "offshore" if you banked there but didn't live there. So while an
offshore account may very well be in a tax haven, it doesnt have to be. There are
various negative associations with the term tax haven, as such countries are
widely perceived to be places where unsavory characters do shady business
dealings or worse, engage in money laundering. But the truth is, a tax haven is simply a
country where either no income tax is paid, or less tax compared with other countries.
The motivation for a country to become a low tax or no tax haven is usually to gain
some competitive advantage. They do this by offering financial and incorporation
services designed to attract foreign business - and boost the local economy. And
this is usually the essence of the hostility towards such places. Most developed Western
countries have a large socialist component to their economies, where high taxes are used to
fund various social welfare programmers. So when some countries lower or eliminate their
income tax it naturally attracts those who seek to pay less tax - both companies and
individuals. The fact is, any sovereign nation has the right to determine its own tax
rules and the rate of tax they seek to impose. And its perfectly natural for there to
be

tax

competition

in

the

world.

Without

it,

nations
93

would find no barrier to raising taxes and would

no doubt exploit all of us in the process. Low tax and no tax nations provide an
important counterbalance to the high tax countries and the existence of such tax
competition is healthy and should not be discouraged. So if you see the advantage
of banking in another country - offshore - then you is certainly free to dose. And
provided you live in a country without currency exchange controls - which is most
of the developed world - then transferring your funds to an overseas bank account
is a simple matter, and like I said 100% legal. However, there can be
complications, if you don't know your own countrys rules and
Regulations. Give you one example. If you're a US citizen or resident, then you are
obliged to report the existence of any offshore bank account with a balance of
$10,000 or more - or the existence of accounts where the aggregate balance is over
$10,000. You're allowed to have as much money as you like in the account - but are
required to report it. Most other countries do not have this requirement. Another
example would be the existence of various funds transfer reporting requirements.
These vary from country to country, but let's say you wanted to transfer $50,000
from your domestic bank account to an offshore one - then it's highly likely the
transaction would be reportable by your bank, meaning they would have to notify
the relevant authorities that it has been done. Given these potential reporting
requirements another obvious question would be, "So what are the advantages of
banking offshore?". And the potential answers are many. It could be to seek more
security, more financial privacy, to diversify currencies, or that overseas business
dealings make having such a bank account necessary. Having access to foreign
currencies is becoming increasingly useful, given the wild fluctuations between the
value of such currencies. Right now, for example, the USD is on a long term downward trend,
due to the negative economic fundamentals affecting the country. This means that
anyone inside the USA, whose funds are exclusively in US dollars, is likely to see
94

the value of their savings erode over time. Holding such savings in a stronger
currency would be a rational decision, and using an offshore bank to achieve this
would be a sane financial strategy. At the end of the day, given the increasing
global nature of living and business, its perfectly natural for people to consider
opening bank accounts in other countries if they can see any personal gain to be
had
From it. And as long as that demand exists there will always be reasons and ways
to bank offshore.

Why criminals go offshore?

Criminal organizations are making wide use of the opportunities offered by
financial haven sand offshore centres to launder criminal assets, thereby creating
roadblocks to criminal investigations. Financial havens offer an extensive array of
facilities to foreign investors whore unwilling to disclose the origin of their assets.
[...] The difficulties for law enforcement agencies are amplified by the fact that, in
many cases, financial havens enforce every strict financial secrecy, effectively
shielding foreign investors from investigations and prosecutions from their home
countries (BLUM, LEVI, NAYLOR and WILLIAMS, 1998).Criminals prefer financial
centers and offshore jurisdictions because the anonymity guaranteed by their
banking, tax and company regulations provides an effective shield against requests
for information by law enforcement agencies. Anonymity, in fact, is an essential
requisite for the laundering of criminal proceeds and their reinvestment in the
legitimate economy without incurring the law enforcement risk. It is possible to
argue that the lesser this risk (due to the legislation governing the services offered
by financial centre sand offshore jurisdictions), the greater the probability that
organized crime groups will use financial centers and offshore jurisdictions to
95

launder the proceeds of their criminal Therefore the answer to the question is- NO, setting
up offshore is not illegal. However, withholding information about your offshore
investments is illegal in some countries. An offshore jurisdiction should be
perceived as just another foreign country, but with certain advantages. These can
take the form of banking secrecy laws, advantages in forming companies for
international trade through tax treaties, noninterest tax, no inheritance taxes, no
capital gains tax, no individual tax, and many others. Depending on your personal
needs or preferences, there will normally be one or more offshore jurisdictions
offering the services you are looking for. This is one of the most frequently asked
questions concerning the legality of offshore banking, and in short, yes, offshore
banking is legal. Offshore banking is a benefit to all of society and is indispensible.
Using offshore banking for tax evasion purposes is what is not legal, and that is
usually what is associated with offshore banking in general and is the cause of the
misconception. Offshore banking is also associated with criminal activities such as
money laundering.
Let's clarify the

distinction of legal and legal and

examine why offshore banking will remain legal While Offshore banking has often
been associated with the underground economy and organized crime, via tax evasion
and money laundering; however, legally, offshore banking does not prevent assets
from being subject to personal income tax on interest. Except for certain persons who
meet fairly complex requirements, the personal income tax of many countries makes
no distinction between interest earned in local banks and those earned abroad.
Persons subject to US income tax, for example, are required to declare on penalty of
perjury, any offshore bank accounts which may or may not be numbered bank
accounts they may have. Although, and have no legal obligation to do so as they
are protected by bank secrecy, this does not make the non-declaration of the
96

income by the tax-payer or the evasion of the taxon that income legal. Following
September 11, 2001, there have been many calls for more regulation on international
finance, in particular concerning offshore banks, tax havens, and clearing houses
such as Clear stream, based in Luxembourg, being possible crossroads for major
illegal money flows. Defenders of offshore banking have criticized these attempts
at regulation. They claim the process is prompted, not by security and financial
concerns, but by the desire of domestic banks and tax agencies to access the money
held in offshore accounts. They cite the fact that offshore banking offers a
competitive threat to the banking and taxation systems in developed countries,
suggesting that Organization (OECD) countries are trying to stamp out competition.

Is it legal to set up an offshore bank account so that a court order cannot

take money from your accounts?

It is illegal to "conceal" assets offshore form the IRS, and/or to deny the possession
of such assets in a written or oral statement when there is pending action or a
judgment in place for creditor debt, alimony, restitution for personal injury suit and
so forth. The reliability of offshore asset depositories is dicey at best and may
become a nightmare rather than a haven for the depositor. If the action is in any
way connected with bankruptcy or any federal litigation such as the IRS, it is
considered a federal felony and carries a mandatory prison sentence of 5-years for
each count of which the person is found guilty. As previously mentioned, offshore
banking is often associated with illegal activities. One of these illegal activities is
tax evasion. If you set up an offshore bank account, you will still need to report

97

your savings. Not reporting all of your money in an offshore account can lead to
you be brought up on tax evasion charges. It is important to note that you have the
ability to prevent this from happening. As long as you choose to use your offshore
bank account legally, there shouldnt be any disadvantages to having

one If you are planning on using your offshore account to avoid a lawsuit or to
evade taxes, you may want to reexamine your decision. As previously mentioned,
there are serious consequences for doing this. As long as you plan on using your
offshore account in a legal way, you can benefit immensely from offshore banking.

FUTURE PROSPECTSOFFSHORE BANKING TRENDS TO EXPECT

IN 2011

The banking world has seen huge changes over the last three years, and
2011 will continue to manifest the Reactions to the economic and financial
crises show consumers have less tolerance for risk, governments have secrecy,
and more business and consumers are moving their money back onshore.
But these changes in 2011competition in low tax jurisdictions and more money
flowing between continents. The banking world has seen huge changes over
the last three years, and 2011 will continue to manifest the Reactions to the
economic and financial crises show consumers have less tolerance for risk,

98

governments have secrecy, and more business and consumers are moving
their money back onshore.

Competition: Hong Kong, Singapore will see competition as low tax zones.
Emerging markets are experiencing the fastest increase in high net worth
individuals (i.e., persons with $1world, creating a new stream of revenue
from consumers seeking wealth protection. This will help to ENS offshore
banking in low tax jurisdictions, especially from Asian hubs. According to are port
from K PM Grates, Global competitive developments over the past decade mean
that many jurisdictions now have corporate lower levels. Low tax jurisdictions
must fight to remain competitive in 2011 or tax rates may not be enough over the
long term. Hong Kong, rated last month as the most globalized economy in the world in 2010,
"is face in maintain its number one status in terms of globalization, according to
Agnes Chan, Ernst &Youn gs Reg Hong Kong and Macau. Despite its success
in evolving to become the most globalized economy in the world rest on its laurels
Chan said.

99

100

101

102

Regulations: Greater transparency will be demanded from both individuals

and financial in criminal enforcement efforts followed through.

A number of sanctions in overseas banking are likely to be enforced during in

2011, offshore assets be the for organizations. Requirements imposed will include
stricter and more extensive asset reporting, looser privacy scrutiny all around. The
U.S. is making bank accounts for non-residents more transparent. If the U. S. joins
the Directive (ESTD), non-U.S. account holders information will be
divulged, diminishing the attraction to in directive would give the U.S.
greater access to information about its residents accounts are will also be a
103

focus of governments. The U.S. is also stepping up enforcement and investigation

of tax e banks. But this could also mean more witch-hunting, both for individual
taxpayers and the professionals who bigger cases could be used to make
examples of and set precedents. Stronger regulations under the Bank S in
crease in filing disclosure statements (FBAR filings), intensified programs for antimoney laundering, an suspicious activity and cross-border transaction. The
IRS has announced plans to introduce a new Program, but with stricter
measures and repercussions than a similar program introduced two years ago.

Asset protection: Investors will head east.

With an increasingly unfavorable mood to offshore investing in western and OECD
countries, more investors Europe and the U.S. Investing individuals and
institutions may choose to protect their assets by moving them that offer greater
growth outlooks in the recovery stages of the global recession, as well as
greater privacy, Middle East. This is potentially damaging for the very countries
asking for greater sanctions, as legal use of ore presents a large portion of
financial revenue for the U.K. s banking system and the U.S.
technical jurisdiction in the world.

Technology: Trends that will make it easier to conduct business abroad.

Just a year ago, amidst intense IRS and OECD pressure, UBS bankers in
Switzerland were confident that the pr have minimal effect on the Swiss offshore
financial sector. However, a recent case where identities were leak shows the

104

pervasiveness of the Internet; secrecy is fast becoming a non-option for offshore

banking providers. Is in legal low-tax hubs. Growth in cloud computing results in
more business conducted virtually. Get ready processed over the web, and
more business conducted internationally. Trends to watch in 2011 include
sec

105

106

107

108

109

110

111

Institutions, challenges and opportunities in tokenization, cloud computing and key

management.

Consumer Behavior
112

Much that will happen this year will be dictated by consumer behavior. Recession
and collapses of real estate scared investors away from risk. In a recent interview
with Financial Wealth Magazine, ABN AMRO Chief Banking Asia, Hans Deidre,
shared that in the post-financial crisis climate, high net worth clients had increase
Products: Simpler, more liquid investment products, that offer more peace of mind.
Diversifying: Increasing diversification to non-equity asset classes (e.g. bonds and
funds).
Proximity: Investments made closer to home country and region.
Information: more product information But one thing that has t changed,
Deidre noted, is appetite is still very much driven by market sentiment.
with these consumer trends, offshore and offshore banking in Hong Kong
investing with mitigated risks. Offshore wealth management will
continue to remain dominant; according Magazine Asia will continue to be a
key growth market for wealth management, outpacing the global average wealth
growth rates.

THE FUTURE OF THE OFFSHORE INDUSTRY

Since the 911 incident, the international crackdown on money laundering has
created a divide in the offshore industry, primarily between jurisdictions eager to
comply with international standards of anti-laundering regulation and those that are
less co-operative. The driving force behind those initiatives, have been influential
organizations such as the Financial Action Task Force (FATF). The FATF was
established by the G-7 countries in 1989 and is an inter-governmental body whose purpose
is the development and promotion of policies, both at national and international
levels, to combat money laundering and terrorist financing. As the FATF seek to
113

apply more international pressure, it will become increasingly difficult for the less wellregulated regimes to do business.

114

Another major issue is the exchange of information, the profile of which has been
raised in the current climate. The recently agreed EU Savings Tax Directive will change the
face of the offshore industry, although to what extent is somewhat harder to predict.
Previously no information was exchanged automatically in Europe unless there
were concerns about illegal activities on a bank account. However, with the
introduction of the EU Tax Directive, customers living within the EU are likely to
be forced to engage with these issues, either by having to pay a withholding tax or
agreeing to exchange information. The new directive will affect not only the EU Member
States but "all territories under their control", Switzerland and the USA. The UK
has recently announced that if the Cayman Islands fail to voluntarily to comply with
these new rules, the United Kingdom will legislate on its behalf. To this effect, Hong Kong will
soon become a much more important jurisdiction for tax planning as it is one of the only
respectable and well-regulated "offshore" banking centers which will not be
subject to the new EU directive on automatic exchange of information and with
holding tax. Hong Kong should also be seriously considered for clients wishing to
register an offshore company, as it is one of the few respectable locations in the
world that tax on a Territorial Basis. Consequently, this means that corporation
tax is ONLY charged on profits derived from trade, profession or business carried on in
territory of Hong Kong. Income sourced elsewhere, even if remitted to Hong Kong, is treated

115

as tax free. In general, the regulatory regime in respect of offshore banking may be
expected to move forward on the basis of following four broad principles:
First, consolidated supervision of banking operations through greater cooperation between home country and host country regulators;
Second, higher transparency with reference to supervisory systems and programmer including
dissemination of guidelines, publications of data of OFCs;
Third, technical assistance to upgrade regulatory systems, supervisory policies
and procedures through adoption of `best in class processes and policies.
Fourth, setting up systems for independent monitoring of activities of OFCs and complying
with supervisory standards.

But establishing offshore centers also comes with a price:

The supervision and regulation of offshore banks may involve substantial

costs.
Encouraging offshore banking may result in the diminution in autonomy of
domestic monetary policy, since it is difficult to draw a line always between
the offshore and onshore operations, particularly in the absence of exchange
control.
Offshore banking provides scope for tax evasion by residents. For instance,
in Hong Kong, it was found that residents place deposits with offshore banks
and take loans of the same amount. The interest on loan would be a

116

deductible expenditure for taxation, while the income from interest on

deposits is not taxed.
Offshore banks may prove to be harmful competitors to the local banks and may inhibit
their growth.

CONCLUSION
In offshore banking, finding the right offshore service(s) that will allow you
achieve your objectives at a reasonable cost and within the shortest possible time
frame is paramount and should be considered with the utmost importance.
Considering that the stock markets are continuously changing, the way that your
offshore banking is handled must be in the best order, if not perfect. The bottom
line is for you to find an offshore services firm that can service your needs and, has
your interests and objectives at heart since it is your retirement benefits you are
most likely to use. If you are able to find this type of institution then you can rest
assured that your offshore account will grow successfully and will provide your
needs well into the twilight of your life.

117

BIBLIOGRAPHY AND WEBLIOGRAPHY:

https://www.pnbindia.in/En/ui/Content.aspx?Id=1063
http://www.offshorebankingtoday.com/how-to-open-an-offshore-bankaccount/
http://www.offshorebankingtoday.com/swiss-bank-account-swiss-bankingoffshore-bank-account/
http://www.offshorebankingtoday.com/category/asia/
International banking & finance. By Dipak Abhyankar

118