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yyyyyyyyyyMEANING OF

BANK 

The word bank  was borrowed in Middle English from Middle French banque, from Old Italian banca, from Old High German banc , bank "bench,counter". Benches were used as desks or exchange counters during theRenaissance by Florentine bankers, who used to make their transactions atopdesks covered by green tablecloths.

A bank  is a financial intermediary and appears in several related basic forms:

• a central bank issues money on behalf of a government, andregulates the money supply

• a commercial bank  accepts deposits and channels thosedeposits into lending activities, either directly or throughcapital markets. A bank connects customers with capitaldeficits to customers with capital surpluses on the world'sopen financial markets.

• a savings bank , also known as a building society in Britain isonly allowed to borrow and save from members of a financialcooperative

Banking is generally a highly regulated industry, and governmentrestrictions on financial activities by banks have varied over timeand location. The current sets of global bank capital standards arecalled Basel II. In some countries such as Germany, banks havehistorically owned major stakes in industrial corporations while inother countries such as the United States banks are prohibited fromowning non-financial companies. In Japan, banks are usually thenexus of a cross-share holding entity known as the keiretsu. InIceland banks had very light regulation prior to the 2008 collapse.

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Meaning and Origin of Offshore

Banking

An offshore bank is a bank located outside the country of residence of the depositor, typically in a low tax jurisdiction (or tax haven) that provides financial and legal advantages. Theseadvantages typically include:

• greater  privacy (bank secrecy)• low or no taxation (i.e. tax havens)• easy access to deposits (at least in terms of regulation)•  protection against local political or financial instability

While the term originates from the Channel Islands being"offshore" from the United Kingdom, and most offshore banks arelocated in island nations to this day, the term is used figuratively torefer to such banks regardless of location, including Swiss banks and those of other landlocked nations such as Luxembourg andAndorra. The term offshore banking has been inspired from the

fact that these banks are mostly located in the island nations-offshore. However, with numerous exceptions to the fact, likecountries like Switzerland, Luxembourg etc, this term is now usedin global context as well.

Offshore banking has often been associated with the undergroundeconomy and organized crime, via tax evasion and moneylaundering; however, legally, offshore banking does not preventassets 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 todeclare on penalty of  perjury, any offshore bank accounts —whichmay or may not be numbered bank accounts —they may have.

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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 by bank secrecy, this does not make the non-declarationof the income by the tax-payer or the evasion of the tax on that

income legal. Following September 11, 2001, there have beenmany calls for more regulation on international finance, in

 particular concerning offshore banks, tax havens, and clearinghouses such as Clearstream, based in Luxembourg, being possiblecrossroads for major illegal money flows.

Defenders of offshore banking have criticised these attempts atregulation. They claim the process is prompted, not by security and

financial concerns, but by the desire of domestic banks and taxagencies to access the money held in offshore accounts. They citethe fact that offshore banking offers a competitive threat to the

 banking and taxation systems in developed countries, suggestingthat Organisation for Economic Co-operation and Development (OECD) countries are trying to stamp out competition.

Offshore banking is one of the most sought after banking solutionsin today's world. Offshore banking denotes the banking options

opted by an individual outside the country of residence.

Offshore banking is blessed with a number of features. The mostsignificant ones are:

• Offers higher level of privacy as opposed to the local banks

•  No taxation

• Protection against financial insecurities and instabilities inthe local economy

• Less restrictive regulations

• Easy access deposits

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• Except for the developed nations that offer for completefinancial stability, individuals from the various undevelopedcountries that are surrounded with instability may opt toresort to offshore banking for better steadiness in assets and

resources

• Offshore banks offer better rate of interest

• Offers features that banks in the domestic realm may not possess like unspecified bank account etc

• Offers investment opportunities far greater and better invariety and quality than the ones available locally

• Exceptionally preferable for international workers

Offshore Banking -Development,

Appearance

Many economists argued that offshore banking sector representedthe new beginning of the international capitalism. They traced theevolution of the offshore banking  sector to the development of transnational corporations. In this context the evolution of theinternational 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 thetechnology sector gave a great incentive and facilitated the creationof the international offshore banking area. This permitted globalaccess of world market information and subsequently itsmanagement and control.

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Under the traditional national and international sectors there wereseveral constraints which gave the possibility for offshore activityto grow. These are: the extension of national tax bases; intermittentfiscal and monetary instabilities; the existence of foreign exchange

controls and fluctuations; limiting cross-border controls;conservative banking laws and regulations with regard to foreignand domestic industrial entry, systems of supervision and liquidityrequirements, constraints on the issue of foreign and domestic

  bonds, the admission of securities to capital markets, stock exchange, insurance regulations ; company laws which restricted

 business.

Also it has to be mentioned from the international perspective therewas a lack of coherent set of international fiscal principles andlaws in which transnational company could operate across border.

The evolution of the offshore banking center is described fromthe perspective of its tax and banking functions. More recently,however, other constraints onshore have served as an incentiveelement which pushed for offshore investment and haveemphasized the importance of that investment. These include: the

need to provide for what is seen as the vulnerability of  professionals and investors to creditors; the desire to avoid onshorelaws and regulations which mandate the reservation of assets tospouses and heirs; the need for savings and investment vehicle for ordinary persons.

Offshore banking center came with innovative solutions to allthese constraints that were mentioned above. Let us refer for example to taxation. There are 3 models of offshore bankingcenters from the perspective of taxation: with zero-tax (here evenresidents do not pay taxes); with low-tax; tax at normal rates butexemption or other preferential treatment is granted to non-residentinvestors or investment for certain categories of income.

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 Notwithstanding the fact that the above categories refers only totax aspects of offshore banking activity, it clearly shows the scopeof such centers.

 Advantages of offshore banking • Access to politically and economically stable nations:

Offshore banks can sometimes provide access to politicallyand economically stable jurisdictions. This will be anadvantage for residents in areas where there is risk of 

 political turmoil, who fear their assets may be frozen, seizedor disappear (see the corralito for example, during the 2001Argentine economic crisis). However it is often argued that

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

• Lower cost base with high returns:

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Some offshore banks may operate with a lower cost base andcan provide higher interest rates than the legal rate in thehome country due to lower overheads and a lack of government intervention. Advocates of offshore banking

often characterise government regulation as a form of tax ondomestic banks, reducing interest rates on deposits.

• Growth of developing countries:

Offshore finance is one of the few industries, along withtourism, in which geographically remote island nations cancompetitively engage. It can help developing countriessource investment and create growth in their economies, andcan help redistribute world finance from the developed to thedeveloping world.

• Tax free income:

Interest is generally paid by offshore banks without tax beingdeducted. This is an advantage to individuals who do not paytax 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.

• Financially engineered banking services:

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

• Other advantages:

Offshore banking is often linked to other structures, such asoffshore companies, trusts or foundations, which may havespecific tax advantages for some individuals.

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Many advocates of offshore banking also assert that thecreation of tax and banking competition is an advantage of the industry, arguing with Charles Tiebout that taxcompetition allows people to choose an appropriate balance

of services and taxes. Critics of the industry, however, claimthis competition as a disadvantage, arguing that it encouragesa "race to the bottom" in which governments in developedcountries are pressured to deregulate their own bankingsystems in an attempt to prevent the offshoring of capital.

Disadvantages of offshore banking 

• Financial security:

Offshore bank accounts are less financially secure. In a banking crisis which swept the world in 2008 the only saverswho lost money were those who had deposited their funds inoffshore branches of Icelandic banks such as KaupthingSinger & Friedlander. Those who had deposited with thesame banks onshore received all of their money back. In2009 The Isle of Man authorities were keen to point out that90% of the claimants were paid, although this only referredto the number of people who had received money from their depositor compensation scheme and not the amount of money refunded. In reality only 40% of depositor funds had

 been repaid 24.8% in September 2009 and 15.2% in

December 2009. Both offshore and onshore banking centresoften have depositor compensation schemes. For exampleThe Isle of Man compensation scheme guarantees £50,000 of net deposits per individual depositor or £20,000 for mostother categories of depositor and point out that potentialdepositors should be aware that any deposits over that

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amount are at risk. However only offshore centres such as theIsle of Man have refused to compensate depositors 100% of their funds following Bank collapses. Onshore depositorshave been refunded in full regardless of what the

compensation limit of that country has stated thus bankingoffshore is historically riskier than banking onshore.

• Associated with underground economy:

Offshore banking has been associated in the past with theunderground economy and organized crime, through moneylaundering. Following September 11, 2001, offshore banksand tax havens, along with clearing houses, have beenaccused of helping various organized crime gangs, terrorist groups, and other state or non-state actors. However, offshore

 banking is a legitimate financial exercise undertaken bymany expatriate and international workers.

• The jurisdictions are at remote places:

Offshore jurisdictions are often remote, and therefore costlyto visit, so physical access and access to information can bedifficult. Yet in a world with global telecommunications thisis rarely a problem for customers. Accounts can be set uponline, by phone or by mail.

•

Accessible mostly to higher income group:

Offshore private banking is usually more accessible to thoseon higher incomes, because of the costs of establishing andmaintaining offshore accounts. However, simple savingsaccounts can be opened by anyone and maintained with scalefees equivalent to their onshore counterparts. The tax burden

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in developed countries thus falls disproportionately onmiddle-income groups. Historically, tax cuts have tended toresult in a higher proportion of the tax take being paid byhigh-income groups, as previously sheltered income is

 brought back into the mainstream economy. The Laffer curve demonstrates this tendency.

• Offshore bank accounts are sometimes touted as the solutionto every legal, financial and asset protection strategy but thisis often much more exaggerated than the reality. EuropeanSavings Tax Directive

In their efforts to stamp down on cross border interest paymentsEU governments agreed to the introduction of the Savings TaxDirective in the form of the European Union withholding tax inJuly 2005. A complex measure, it forced EU resident saversdepositing money in any country other than the one they areresident in to choose between forfeiting tax at the point of 

 payment, or allowing notification by the offshore banks to taxauthorities in their country of residence. This tax affects any cross

 border interest payment to an individual resident in the EU.

Furthermore the rate of tax deducted at source will rise in 2008 andagain in 2011, making disclosure increasingly attractive. Savers'choice of action is complex; tax authorities are not prevented fromenquiring into accounts previously held by savers which were notthen disclosed.

 Banking services

It is possible to obtain the full spectrum of financial services fromoffshore banks, including

• A cceptance of Deposits

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financial (e.g. granting a loan), or they may consist of goods or services (e.g. consumer credit). Credit encompasses any form of deferred payment.[1] Credit is extended by a creditor , also known asa lender , to a debtor , also known as a borrower .

Credit does not necessarily require money. The credit concept can be applied in barter economies as well, based on the directexchange 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 thereputation or creditworthiness of the entity which takesresponsibility for the funds. Credit is also traded in financialmarkets. The purest form is the credit default swap market, whichis essentially a traded market in credit insurance. A credit defaultswap represents the price at which two parties exchange this risk – the protection "seller" takes the risk of default of the credit inreturn 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 inthe case of default of the underlying (a loan, bond or other receivable), delivers this receivable to the protection seller andreceives from the seller the par amount (that is, is made whole).

• W ire- and Electronic Funds Transfers

Electronic money (also known as e-currency, e-money, electroniccash, electronic currency, digital money, digital cash, digitalcurrency, cyber currency) refers to money or scrip which is onlyexchanged electronically. Typically, this involves the use of computer networks, the internet and digital stored value systems.Electronic Funds Transfer (EFT), direct deposit, digital goldcurrency and virtual currency are all examples of electronic

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money. Also, it is a collective term for financial cryptography andtechnologies enabling it.

While electronic money has been an interesting problem for 

cryptography (see for example the work of David Chaum andMarkus Jakobsson), to date, the use of e-money has been relativelylow-scale. One rare success has been Hong Kong's Octopus cardsystem, which started as a transit payment system and has growninto a widely used electronic money system. London Transport'sOyster card system remains essentially a contactless pre-paidtravelcard. Two other cities have implemented functioningelectronic money systems. Very similar to Hong Kong's Octopus

card, Singapore has an electronic money program for its publictransportation system (commuter trains, bus, etc.), based on thesame type of (FeliCa) system. The Netherlands has alsoimplemented a nationwide electronic money system known asChipknip for general purpose, as well as OV-Chipkaart for transitfare collection. In Belgium, a payment service company, Proton,owned by 60 Belgian banks issuing stored value cards, wasdeveloped in 1995.[1]

A number of electronic money systems use contactless paymenttransfer in order to facilitate easy payment and give the payee moreconfidence in not letting go of their electronic wallet during thetransaction.

• Foreign E xchange

The foreign exchange market (forex, FX, or currency market) is aglobal, worldwide decentralized over-the-counter financial marketfor trading currencies. Financial centers around the world functionas anchors of trading between a wide range of different types of 

 buyers and sellers around the clock, with the exception of weekends. The foreign exchange market determines the relativevalues of different currencies.

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The primary purpose of the foreign exchange is to assistinternational trade and investment, by allowing businesses toconvert one currency to another currency. For example, it permits aUS business to import British goods and pay Pound Sterling, even

though the business's income is in US dollars. It also supportsspeculation, and facilitates the carry trade, in which investors

 borrow low-yielding currencies and lend (invest in) high-yieldingcurrencies, and which (it has been claimed) may lead to loss of competitiveness in some countries.

In a typical foreign exchange transaction, a party purchases aquantity of one currency by paying a quantity of another currency.

The modern foreign exchange market began forming during the1970s when countries gradually switched to floating exchangerates from the previous exchange rate regime, which remainedfixed as per the Bretton Woods system.

• Letters of Credit and Trade F inance

A standard, commercial letter of credit (LC) is a document issuedmostly by a financial institution, used primarily in trade finance,

which usually provides an irrevocable payment undertaking.

The letter of credit can also be payment for a transaction, meaningthat 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 acustomer in another. In such cases, the International Chamber of Commerce Uniform Customs and Practice for DocumentaryCredits applies (UCP 600 being the latest version).[2] They arealso 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 whois to receive the money, the issuing bank of whom the applicant isa client, and the advising bank of whom the beneficiary is a client.Almost all letters of credit are irrevocable, i.e., cannot be amended

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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 giros andTraveler's cheques. Typically, the documents a beneficiary has to

 present in order to receive payment include a commercial invoice, bill of lading, and documents proving the shipment were insuredagainst loss or damage in transit.

• Investment management and I nvestment custody

Investment management is the professional management of varioussecurities (shares, bonds and other securities) and assets (e.g., realestate) in order to meet specified investment goals for the benefitof the investors. Investors may be institutions (insurancecompanies, pension funds, corporations, charities, educationalestablishments etc.) or private investors (both directly viainvestment contracts and more commonly via collectiveinvestment schemes e.g. mutual funds or exchange-traded funds).

The term asset management is often used to refer to the investmentmanagement of collective investments, (not necessarily) while the

more generic fund management may refer to all forms of institutional investment as well as investment management for 

 private investors. Investment managers who specialize in advisoryor discretionary management on behalf of (normally wealthy)

 private investors may often refer to their services as wealthmanagement or portfolio management often within the context of so-called "private banking".

The provision of 'investment management services' includeselements of financial statement analysis, asset selection, stock selection, plan implementation and ongoing monitoring of investments. Investment management is a large and importantglobal industry in its own right responsible for caretaking of trillions of yuan, dollars, euro, pounds and yen. Coming under theremit of financial services many of the world's largest companies

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foreign persons in Swiss bank accounts declined by 28.1% between January 2008 and November 2009.

Terrorist Finance Tracking Program

A series of articles published on June 23, 2006, by The New York 

Times, The Wall Street Journal and The Los Angeles Times 

revealed that the United States government, specifically theTreasury Department and the CIA, had a program to access theSWIFT transaction database after the September 11th attacks (see

the Terrorist Finance Tracking Program) rendering offshore banking for privacy severely compromised.

Regulation of offshore banksIn the 21st century, regulation of offshore banking is allegedlyincreasing, although critics maintain it remains largely insufficient.The quality of the regulation is monitored by supra-national bodiessuch as the International Monetary Fund (IMF). Banks aregenerally required to maintain capital adequacy in accordance withinternational standards. They must report at least quarterly to theregulator on the current state of the business.

Since the late 1990s, especially following September 11, 2001,there have been a number of initiatives to increase the transparency of offshore banking, although critics such as the Association for the Taxation of Financial Transactions for the Aid of Citizens 

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(ATTAC) non-governmental organization (NGO) maintain thatthey have been insufficient. A few examples of these are:

• The tightening of anti-money laundering regulations in many

countries including most popular offshore banking locationsmeans that bankers are required, by good faith, to reportsuspicion of money laundering to the local police authority,regardless of  banking secrecy rules. There is moreinternational co-operation between police authorities.

• In the US the Internal Revenue Service (IRS) introducedQualifying Intermediary requirements, which mean that thenames of the recipients of US-source investment income are

 passed to the IRS.• Following 9/11 the US introduced the USA PATRIOT Act,

which authorises the US authorities to seize the assets of a bank, where it is believed that the bank holds assets for asuspected criminal. Similar measures have been introduced insome other countries.

• The European Union has introduced sharing of information between certain jurisdictions, and enforced this in respect of certain controlled centres, such as the UK Offshore Islands,

so that tax information is able to be shared in respect of interest.

Joseph Stiglitz, 2001 Nobel laureate for economics and former World Bank Chief Economist, told to reporter Lucy Komisar,investigating on the Clearstream scandal:

"You ask why, if there's an important role for a regulated bankingsystem, do you allow a non-regulated banking system to continue?It's in the interest of some of the moneyed interests to allow this tooccur. It's not an accident; it could have been shut down at anytime. If you said the US, the UK, the major G7 banks will not dealwith offshore bank centers that don't comply with G7 banks

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Creation of a bank account with an offshore bank is greatalternative 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 investment, and anonymity with regard tofinancial matters, asset protection, and estate planning.

A specialty of offshore banking is that an account can be openedwith an offshore bank simply as a saving account. Account canalso be opened to carry out main business functions. Apart fromthese, through an offshore bank, you can even make investmentsand take loans.

This type of banking has now been legally used by manyindividuals and corporations worldwide. Offshore banking isusually preferred by people falling under three categories, such as,high net worth individuals, expatriates, and business owners. Highnet worth individuals are usually people with a non-refundableincome in excess of one million US dollars. Included in theexpatriates are people residing oversees away from their country

for employment purposes or any other reasons.

Business owners are usually those people who own business andwhose shares are owned by family members or any other close

 people. Nowadays, many of the corporate clients including multinational corporations, large industrial as well as trading companies,shipping companies, and banking corporations, are also gettingattracted to the benefits offered by offshore banking.

One of the prime benefits of offshore banking is that it providesaccess to economically as well as politically stable jurisdictions.This proves to be advantageous to such people whose residing areahas risks of political disorders. There are certain offshore banksthat function with low cost base, which in turn can offer higher interest rates to the depositors when compared to their home

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country.

Another great benefit is that it is a great way for developingcountries to enhance their economic growth, since offshore

 banking allows redistributing finance from the developedeconomies to the developing economies. Perhaps the most

 prominent of the offshore banking is tax benefits, i.e., most of theoffshore banks makes payment of interest without deducting thetax.

This is highly beneficial to individuals who do not make tax payment on worldwide income or who do not make payment until

the tax return is agreed. Further, many of the services rendered bythe offered by offshore banks many not be available from bankslocated in home country.

Offshore banking is usually associated with formations includingoffshore trusts, offshore foundations, and offshore companies,which in turn may provide some kind of benefits in the form of taxas well as asset protection. As a healthy competition is seen in the

industry of offshore banking regarding tax benefits, it enables tochoose the most appropriate facility offering tax advantages. Inaddition, offshore banking allows you to easily move your assets,if you want to join an employment or spend long periods outsideyour home country.

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 soundeconomic and political condition, it provides stability

- Many of the offshore banking facilities assure privacy and

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confidentiality

- Above all, offshore banking system provides flexibility, ie, it provides flexible structure to business owners and expatriates

requiring global access to their fund

In order to acquire the full benefits above mentioned, it isrecommended to review or examine your decision of opening anaccount with an offshore bank. Primarily, it must be checkedwhether the offshore bank you have chosen is located in such a

 jurisdiction that can meet your requirements. The next to beconsidered is that whether the chosen offshore bank renders all the

services it mentions.

Despite any challenge, setting up an offshore bank account isconsidered a wise decision.

Benefits of Offshore Banking for Corporations

Offshore banking has been around for many years. It issynonymous with illegal activities like tax evasion and moneylaundering. The growth of offshore financial havens like Bermuda,Seychelles, Isle of Man and the Dominican Republic was fuelled

 by illegal transactions.

However the offshore banking industry has started to change because companies have realized the potential of legal offshore

 banking services. The growth of reputable financial hubs like HongKong, Singapore and New Zealand as offshore banking centershave contributed to cleaning the reputation of the service. The

 banking industry itself is credited with tightening rules andregulations on what is acceptable behavior for banks dealing inoffshore banking services. Besides that account opening

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compliance with international norms and practices. The creation of offshore banking sector is the result of the laws and represents alegitimate phenomenon in itself.

The demand for  offshore banking services is determined by severalfactors. Offshore banking centers aim to supply the demand of increase revenue. They take advantage of what in modern times itis called financial sector which goes beyond criminality, illegalityand financial abuse or fraud. Today offshore banking centers aimat facilitating taxation for investors, use of modern andsophisticated banking, dynamic investment and mutual funds.Moreover, offshore banking centers view the principle of 

confidentiality in banking issues as an essential and crucialelement which deserves to be protected and guaranteed. At thesame time let us not forget that in many parts of the world theoffshore banking sector is the main contributor to economicdevelopment and growth in the jurisdiction were it exists.

The offshore banking sector developed step by step. The basicstructure of tax havens elevated to such sophisticated entity asoffshore financial center with multiple financial services, including

offshore banking. The movement of banking institutions offshoreresulted in a huge scale offshore bank deposits. This resulted in thecreation of a big network of onshore external financial centers andonshore-related offshore finance centers. The development of sucha 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 mostdynamic sector. This sector is using heavily in its activity the rapiddevelopment of modern technologies and at the same advances it.

In terms of offshore banking centres, in terms of total deposits, theglobal market is dominated by two key jurisdictions: Switzerland and the Cayman Islands, although numerous other offshore

 jurisdictions also provide offshore banking to a greater or lesser 

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degree. In particular, Jersey, Guernsey and the Isle of Man areknown for their well regulated banking infrastructure. Someoffshore jurisdictions have steered their financial sectors awayfrom offshore banking, as difficult to properly regulate and liable

to give rise to financial scandal.

Offshore banking centers offer the following benefits:

Exemption from minimum reserve requirements.

Freedom from control on interest rates.

Low or non-existent taxes and levies.

Weakened Bank Secrecy

Since starting to survey offshore jurisdictions on April 2, 2009, theOrganization for Economic Cooperation and Development((OECD)) at the forefront of a crackdown on tax evasion, won'tobject to governments using stolen bank data to track down taxcheats in offshore centers. The recent sharing of confidential UBS

 bank details about 285 clients suspected of willful tax evasion bythe United States Internal Revenue Service was ruled a violation of 

 both Swiss law and the country’s constitution by a Swiss federaladministrative court. Nevertheless, OECD has removed 18

countries, including Switzerland, Liechtenstein and Luxembourg,from a so-called "grey list" of nations that did not offer sufficienttax transparency, and has re-categorized them as “white list”nations. Countries that do not comply may face sanctions. Anotable exception is Panama, whose canal is currently needed byall Western nations, provides it with a unique type of immunity to

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international pressure. Given the enlargement of the canal toaccommodate larger shipping, it is unlikely in the foreseeablefuture that Panama would likely succumb to international pressuretoward transparency.

List of offshore financial centres

Offshore financial centres include:

• Antigua and Barbuda• Bahamas

• Barbados• Belize• Bermuda• British Virgin Islands• Cayman Islands• Channel Islands (Jersey, Guernsey, Alderney, Sark and

Herm)• Cook Islands•

Cyprus• Dominica• Gibraltar is no longer an offshore centre since 30 June 2006.

 No new Exempt Company certificates are being issued fromthat date.

• Ghana • Hong Kong• Isle of Man• Labuan, Malaysia• Liechtenstein• Luxembourg• Malta• Macau• Mauritius• Monaco

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• Montserrat•  Nauru•  New Zealand• Panama• Saint Kitts and Nevis• Seychelles• Singapore• Switzerland• Turks and Caicos Islands

The following are designated as offshore financial centres by the

IMF, the FSF and recently Ministry of Finance (Brazil):

• Alderney• American Samoa• Andorra• Anguilla• Antigua• Aruba•

Bahamas• Bahrain• Barbados• Belize• Bermuda• British Virgin Islands• Brunei• Cayman Islands• Cook Islands• Costa Rica• Curaçao• Cyprus• Denmark • Djibouti• Dominica

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• Portugal • Samoa• Saint Helena, Ascension and Tristan da Cunha• San Marino• Seychelles• Singapore• Sint Maarten• Solomon Islands• St Kitts and Nevis• St Lucia• St Vincent and the Grenadines• Swaziland

• Switzerland• Thailand• Tonga• Turks and Caicos Islands• United Arab Emirates• United Kingdom 

o London• United States 

o

Alaskao Delawareo  Nevadao  New York o Wyoming

SCOPE OF OFFSHORE BANKING IN INDIA

ONE of the significant features of the Exim Policy is the proposalto permit offshore banking units (or overseas banking units) inSpecial Economic Zones (SEZs). Offshore banking refers to theinternational banking business involving non-resident foreign

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currency-denominated assets and liabilities. It refers to the bankingoperations that cover only non-residents, and does not includedomestic banking. An offshore banking centre is a place wheredeliberate attempt is made to attract international banking by

offering many concessions in the form of taxes and levies imposedat lower rates.

A more important relaxation is the exemption of the offshore banksfrom restrictions on operations. Offshore banking units in thesecentres can carry on their activities with international enterprises or investors without conflicting with the domestic fiscal and monetary

 policy.

Entry is relatively easy, especially for large international banks, incontrast to the situation in neighbouring countries that may strictlylimit or prohibit the entry of foreign banks.

Licence fees are generally low.

Close proximity to the important loan outlets or deposit sources;for instance, Bahrain is an offshore base for petro-dollars.

Offshore banking is an extension of the euro-currency concept tothe East, which provides a link between euro-currency markets andthe final borrowers. They provide essential time zone links that aretruly world-wide, and ensure that the market operates 24 hours aday. While offshore banking is an integral part of the euro-market,what distinguishes it from the mainstream euro market is that itwas specially set up by host countries to promote international

 banking.

Offshore banking units are branches of international banks or other subsidiaries or affiliates. They do not carry retail business, butgenerally provide wholesale banking services — project financing,syndicated loans, issue of short-term and medium terminstruments, such as negotiable certificates of deposits and capital

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notes — as well as merchant banking activities in foreign currencydenominated bonds and equity shares.

The deals are mostly between banks or with large borrowers or 

multinational corporations. MNCs prefer transacting in offshorefinancial centres because of certain apparent advantages:Avoidance of high tax incidence; freedom from exchange control;maintenance of secrecy of deals due to non-interference fromgovernment and regulatory authorities; and deferring tax byfloating subsidiary units in such centres and delaying their remittance of profits to the parent company, when it would betaxed.

Participation of the Indian banks

Few Indian banks, such as State Bank of India, Indian Overseas Bank, Bank of India and Bank of Baroda, have set up offshore banking units for deposittaking and final lending at Bahrain, Hong Kong, Colombo, Cayman Islands,and so on. Indian Bank, Bank of Baroda and Union Bank of India jointlyfloated a deposit taking company, IBU International Finance, in Hong Kongfor both offshore and onshore banking.

The benefits for the Indian banks from these ventures are:

Sizeable profits — as these ventures involve relatively low operating  With multi-currency deposit bases, the banks would be able to serve  

 better the needs of their customers who have set up joint ventures abroad inthe form of foreign currency finance.

The banks would strengthen the country's balance of payments through  repatriation of profits from the venture.

Offshore banking centre in India

Financial experts have been pleading to establish an offshore banking centre in India. Geographically, India provides distinctadvantages in attracting offshore banking units, because it has astable economic and political performance, a vast market, technicalmanpower that could find employment in these centers. Another 

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advantage is that the Indian market would open a little before theTokyo 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 abroadand many corporations are granted permission to seek overseasfinance, establishing an offshore unit will help tap the resources:

Exporters would benefit in terms of finer margins on loansand better foreign exchange rates available via an offshore

 banking unit. The benefits of multi-currency operationswhich, to an extent, minimize currency fluctuation risk, will

 be an added advantage.

Salaries paid by offshore banks and local expenditureincurred by them contribute 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 asignificant portion of the total income.

India may earn revenue in the form of licence fees, profittaxes imposed on the banks operating in the area. It may alsoget the benefit of banks' funds in the form of capital and

liquidity requirements.

the country can gain improved access to the internationalcapital markets.

the domestic financial system may become more efficientthrough 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 enforceddevelopment of more advanced communication facilities — amust for their functioning.

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But establishing offshore centers also comes with a price:

The supervision and regulation of offshore banks mayinvolve substantial costs.

Encouraging offshore banking may result in the diminutionin autonomy of domestic monetary policy, since it is difficultto draw a line always between the offshore and onshoreoperations, 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 placedeposits with offshore banks and take loans of the sameamount. The interest on loan would be a deductible

expenditure for taxation, while the income from interest ondeposits is not taxed.

Offshore banks may prove to be harmful competitors to thelocal banks and may inhibit their growth.

For long, Mumbai was considered suitable for establishingoffshore banking here. The city has all the requirements — goodsinfrastructure in the form of telecommunications and services,abundant and well-trained manpower and presence of many

international banks, both Indian and foreign, already engaged ininternational banking.

The Sodhani Committee on Foreign Exchange Reforms (1996) hasrecommended allowing Indian banks and financial As against thegeneral recommendation of permitting offshore banking units onlyat Mumbai, the present proposal is to permit them at SpecialEconomic Zones. This is a wise move since both offshore banking

centres and SEZs have many things in common as regardsadministration and purpose. The establishment of offshore centresin India was foreseen when the Foreign Exchange Regulation Act(FERA) was replaced by the Foreign Exchange Management Act,1999 (FEMA). Article 10 of FEMA included offshore bankingunits as one of the authorities to whom the RBI could delegate

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 powers for dealing in foreign exchange. The question is: Will theseoffshore banking units fulfill Mr Maran's cherished goals? TheRBI is expected to bring out regulations regarding setting up theseunits in India. A lot depends on how far these regulations are

liberal and pragmatic.

What are the benefits of offshore banking?

Offshore banking services provide wide range of benefits andopens up distinct opportunities. Opening such an account providesa powerful tool for keeping money secure and making it exemptedfrom taxes. Using an offshore bank account provides opportunitiesthat are not available to domestic banking users. The mostimportant of those are bank secrecy / confidentiality andexemption from taxes on gains. Income generated in form of 

interest on deposits is not taxed by the income tax. Customers alsoget possibility to invest globally.

Perhaps the most important benefit that offshore banking providesis that the account is strictly private. The confidentiality of alloperations conducted through the account is protected by the

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legislation. The account is protected from creditors, tax authoritiesand other interested parties. It is to some extent a defense tool.

How do I get an offshore bank account?

Very easily. Open an HSBC Offshore Bank Account in Sterling,US dollars or Euros in minutes

Why to go offshore?

According to the offshore financier Terry Neal companies and

individuals decide to move to offshore jurisdictions in order to geta better protection, benefit from offshore banking privacy, enjoythe tax-free economic environment and reduce risks and costs.

Terry Neal enumerates and analyzes several motivating factors for going offshore. For instance, an owner of an offshore companygets the opportunity to invest in global securities including top

 performing funds not available to citizens of the country, where the

investor resides. For example, U.S. persons are restricted, not bylaw, but by virtually all of the world’s top performing offshoremutual funds, from participating in their collective investment. Indeveloping countries, where the financial markets areunderdeveloped they provide few investment opportunities;therefore it is natural that local investors seek such opportunitieselsewhere. On the other hand, offshore banking account owners getaccess to full set of banking products that may not be available intheir countries and may not appear there for several decades.

Can I avoid taxes with offshore banking?

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Most offshore banking centers are at the same time tax havens(low or no tax jurisdictions). Some offshore jurisdictions exemptall incomes from all taxes, while others exempt only those incomesthat were generated by sources outside the jurisdiction. Although

offshore banking centers do not tax your incomes, your homecountry may be taxing foreign generated income. So you mustcheck your country’s legislation: if your countries authorities donot tax income generated from foreign sources, then your offshoreincomes shall not be taxed, but if they do (like US does), youshould report them, otherwise it will be considered as tax evasion.

Is offshore banking legal?

It is legal; nobody will come and arrest you for having offshore bank account, or for being a shareholder of an offshore company,or for making an offshore investment. It is absolutely legal service

 provided by a licensed financial institution that licensed in fullcompliance with the legislation of a tax haven.

Is offshore banking safe and secure?Offshore jurisdictions are politically stable countries with strongeconomies and developed financial sector. Financial sector istightly regulated to eliminate risk of bank failures and ensure agood image of a jurisdiction making offshore banking highlysecure.

Is my information kept anonymous and confidential?

Most financial institutions in offshore banking centers provideanonymity to their clients. Generally bank secrecy is ensured by acountry’s legislation. Degree of bank secrecy varies from one

 jurisdiction to another; therefore if you are interested primarily in

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 bank secrecy, you should check the legislation first to be sure towhat extent your personal information is protected

Which one is the best tax haven? What country is the best option?

“It depends”. It depends what exactly you are looking for. If it is bank secrecy, then Panama may be a good choice. If you areresident of UK and want to go offshore, then you may want tochoose services provided by Channel Islands (Jersey, Guernsey,and Isle of Man). The answer varies according to your priorities.We provide here description for major tax havens, so it is up to you

which one to choose.

Which banks provide offshore bank accounts?

Offshore bank accounts are provided by both local banks operatingat offshore banking centers and also by reputable international

 banking institutions, such as HSBC and Barclays. Actually you can

open an HSBC Offshore Bank Account in Sterling, US dollars or Euros in minutes.

Is offshore banking really linked with criminal affairs and criminalfinancing?

Despite the fact that offshore banking provides bank secrecy, high

degrees of privacy and confidentiality, this sector is strictlyregulated and supervised business and this leaves very small spacefor criminal affairs. Opening an offshore bank account is not assimple as it may seem at the first sight. There are a feworganizations like Financial Action Task Force (FATF), BaselCommittee and the Offshore Group of Banking Supervisors

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(OGBS) that impose strict regulations on offshore banking sector of a tax haven. Tax havens that do not comply with the regulationsimposed by these organizations risk to see themselves in a black list. This makes it almost impossible to transfer funds banking

institutions from jurisdiction that is in the black list. Such approachmakes tax haven authorities interested in to reduce or completelyeliminate illegal transaction and makes very hard for criminals toengage in money laundering. So it is very important that the bank your choice has good reputation and is incorporated in a tax haventhat has good reputation