OFFSHORE FINANCIAL CENTRE

INTRODUCTION:

In today’s 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. It’s 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

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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."

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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

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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

rigorousanti-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

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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 offshore banking 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

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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 inancia l abuse or f raud. Today offshore banking

centers a im a t fac i l i ta t ing taxat ion for 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

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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

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.

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OFFSHORE BANKING

INTRODUCTION

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Offshore simply means anything outside of a country’s jurisdiction. So if I’m 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

Islands http://en.wikipedia.org/wiki/Channel_Islands being "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/Luxembourg Luxembourg andAndorra . 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 don’t 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

evasion http://en.wikipedia.org/wiki/Tax_evasion andmoney laundering; however, legally,

offshore banking does not prevent assets from being subject to

personalhttp://en.wikipedia.org/wiki/Income_tax incometax oninterest. 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

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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_secrecy bank 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.

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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

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• 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

• 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.

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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.

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 lawsuits and privacy

invasion.

Offshore Accounts Are Illegal

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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 Aren’t 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

countries like Panama, you don’t 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 wouldn’t want to spend the time and money establishing an

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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, you’ll 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.

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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 self-

governing 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

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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.

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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 sec tor 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 regard to fore ign

and domest ic indust r ia l ent ry , sys tems of supervis ion and l iquid i t

requi rements , cons t ra in ts on the i ssue of fore ign and domest ic

bonds , the admiss ion of securities to capital markets, stock exchange,

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.

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Offsho

re 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 non-resident

investors or investment for certain categories of income. Notwi ths tanding the

fac t tha t the above ca tegor ies refers only to tax aspects of

of fshore 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

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 opera te wi th a lower cos t base and can

provide h igher interest rates than the legal rate in the home country due to

lower overheads and a lack of government in tervent ion . Advocates of

of fshore banking of ten charac ter ize government regulation as a form

of tax on domestic banks, reducing interest rates on deposits.

• Growth of developing countries:

O f f s h o r e f i n a n c e i s o n e o f t h e f e w i n d u s t r i e s , a l o n g w i t h

tourism, i n w h i c h geographically remote island nations can competitively

engage. It can help developing countr ies source inves tment and crea te

growth in the i r economies , and can he lp 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.

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• 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

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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.

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 back. In 2009 The Is le of Man

author i t ies were keen to point out tha t 90% of the claimants were

paid , a l though th is only refer red to 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 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 Is le of

Man compensationscheme http://www.gov.im/fsc/investor/dep_comp.xml guarantees

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£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 funds

fo l lowing Bank col lapse . Onshore deposi tors have been refunded

in fu l l regardless of what the compensation limit of that country has

stated http://news.bbc.co.uk/2/hi/business/7658725.stm thus banking offshore is

historically riskier than banking onshore.

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.

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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

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.

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People prefer offshore banking for a myriad of other purposes such as

expansion of your business, tax-free

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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

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

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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.

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.

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OFFSHO

RE BANKING-

RECENT 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

companies in order to provide the maximum possible anonymity, privacy and offshore asset

protection.

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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 f ie rce ly s t r ic t pr ivacy and

conf ident ia l i ty regula t ions 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 OFC’s 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 OFC’s are

des igned to provide comple te conf ident ia l i ty and serve to to ta l ly

protec t and safeguard individual and company information. This, the

highest level of confidentiality available anywhere in the world, is especially

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worthy of note as it relates to protecting assets from legal

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

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So, if you’re 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 you’re 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

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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

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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 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.

Credi t i s extended by c reditor, a l so known as l ender, t o a debtor,

a l so known as a borrower .Credit does not necessarily require money. The

credi t concept can be appl ied in bar ter 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

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financial capital are normally dependent on either credit or equity transfers.

Credit is in turn dependent on the reputation or credit worthiness 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

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-Chip ka

art 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

42

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

The fore ign exchange market ( forex , FX, or currency market ) i s a

g lobal , wor ld wide 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 se l le rs a round the

c lock, wi th the except ion of weekends . The fore ign exchange

market 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

forming dur ing the 1970s when countr ies gradual ly swi tched to

f loa t ing exchange ra tes f rom the previous exchange rate regime, which remained

fixed as per the Breton Woods system.

43

Letters of Credit and Trade Finance

A standard , commercia l le t te r of c redi t (LC) i s a document i ssued

most ly by a f inancia 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 such cases , the In ternat ional

Chamber of Commerce Uniform Customs and Prac t ice 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

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

were insured against loss or damage in transit.

Investment management and Investment custody

44

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.

Trustee services

A board of d i rec tors i s a body of e lec ted or appointed members

who jo in t ly oversee the activities of a company or organization. The

45

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 conferred on i t by an

author i ty outs ide i t se l f . These mat ters a re typica l ly de ta i led in

the organization’s 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 vot ing

membership , e .g . , a univers i ty , the board i s the supreme

governing body of the 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,

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

46

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.

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,

47

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

o n e o r m o r e p e o p l e o r e n t i t i e s ) o r e f f o r t f o r t h e p u r p o s e o f

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.

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.

1. . Depositor should specify what services does offshore banking center

offers. Can he/she receive a credit card? In what currencies can he/she

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

48

not available in this offshore banking jurisdiction and moving to other

jurisdiction may be quite costly.

2. Don’t 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 di f ferent banks in d i f ferent of fshore banking

jur i sd ic t ions requi re d i f ferent 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. Notar ized copy of passpor t wi th c l ient ’s or ig ina l s ignature

or any other acceptable identification

4. Original bank references for

each signatory of the account

5. Document confirming client’s address; Bank application form varies

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

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);

49

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 could cos t be tween

$350 to $550, p lus the cos t of se t t ing up the 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 essent ia l tha t any potent ia l owner of an offshore bank

account should research the necessary information to make a strong,

informed decision when proceeding with an offshore bank account setup

and forming an offshore company.

.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 (OFC’s)

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

50

extra

benefit for those saving abroad.

51

Process fees, courier charges and various small costs (for notary, etc.) will

be incurred during the process of establishing an offshore bank account.

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 INDIA OFFSHORE

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

52

SEZ shave 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

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 antimony 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

53

Nations and others. There are other laws such as The Smugglers and Foreign

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

Procedures 1973, Prevention of Corruption Act, 1988, The Narcotic drugs and

Psychotropic 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 unit’s 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 Government’s policy, SEZs will be a specially

delineated duty free enclave and deemed to be a foreign territory for the purpose of

54

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

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

55

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

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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

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

located in the SEZ and SEZ developers. Foreign currency requirements of

57

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

ALM framework of the bank subject to monitoring by the Board at prescribed intervals.

58

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.

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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.

In

dia provides distinct advantages in attracting offshore banking units, because it has

60

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 multi-

currency 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.

The domestic financial system may become more efficient through increased

competition and exposure of the domestic banks to the practices of offshore

banks.

61

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

Software’s are the ultimate need of the present business. Every business

organization needs software s 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.

India is the leading beneficiary of the IT related outsourcing,

because of the following reasons –

62

•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

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

63

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

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

64

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

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

65

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

Multi Currency Deposits accepted.

66

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

67

Interest rates on OBU deposits

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)

Period of Deposit US Dollars

1 15 days 0.22**

2 1 Month 0.25**

3 2 Months 0.34**

4 3 Months 0.45

5 Above 3 Months up to 6 months 0.70

6Above 6 Months to less than 1

year1.47

7 1 Year to less than 2 Years 3.05

68

8 2 Years to less than 3 Years 2.42

9 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

Period of Deposit GB Pound

1 15 days 0.55**

2 1 Month 0.56**

3 2 Months 0.62**

4 3 Months 0.75**

5 Above 3 Months up to 6 months 1.00

6 Above 6 Months to less than 1 1.77

69

year

7 1 Year to less than 2 Years 3.49

8 2 Years to less than 3 Years 2.80

9 3 Years to less than 4 Years 3.82

10 4 Years to less than 5 Years 3.92

11 5 Years only 4.06

Period of Deposit EURO

1 15 days 0.07**

2 1 Month 0.11**

3 2 Months 0.17**

4 3 Months 0.29**

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5 Above 3 Months up to 6 months 0.54

6Above 6 Months to less than 1

year1.35

7 1 Year to less than 2 Years 3.49

8 2 Years to less than 3 Years 2.80

9 3 Years to less than 4 Years 3.82

10 4Years to less than 5 Years 3.92

11 5 Years only 4.06

* 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.

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Additional interest can be considered on single deposit of USD 1 Million and

above.

Please confirm above rates of interest before placing the deposits.

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

72

Date__________________

_____________

______________

Dear Sir,

Please open the account in the name of

_____________________________________as per details below (In

capital letters and expanded initials)

PERSONAL DETAILS

NamePassport

No

Date of

Issue

Place

of

Issue

Vali

d up

to

Nationalit

y

Occupatio

n

_______________

_

First applicant

_______________

_

Second

Applicant

_______________

_

Third Applicant

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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)

( ) Demand Draft No. ______________Dt.

_______________for__________________ (amount)

issued by_________________________________ (enclosed)

( ) Mail Transfer/Telegraphic Transfer

No.________________Date_________________

for_________________through_________________________

( ) Foreign Currency Notes/Traveler Cheques

( ) Transfer from NRE/FCNR Account No.

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TYPE OF ACCOUNTS (Please indicate by √)

( ) With Cheque Book facility ( ) Without Cheque Book facility ( ) Term

Deposit account for a period of_______________

Contact Us

Mail :Punjab National Bank

Offshore Banking Unit,

SEEPZ, Andheri (E),

Mumbai 400096, INDIA

Telephone :Branch Head (Chief

Manager)

-00-91-22-28291631

Sr. Manager -00-91-22-28293300

Manager -00-91-22-28293222

FAX : -00-91-22-28293333

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E-mail :satyavrat@pnb.co.in

chandrakant@pnb.co.in

obu@pnboffshore.com

ganeshpawar@pnboffshore.com

SWISS OFFSHORE BANKING

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.

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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.

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

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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

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.

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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

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_havens Taxhavens http://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 individuals”—nearly $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

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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_francs Swiss 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 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.

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LEGAL

ASPECTS TRENDS 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

implemented on best efforts basis for almost two decades. The bankruptcy of Bank of

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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 cross-

border 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

1 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.

Changing Legislation look at how legislation has affected offshore investors

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Just as you would undertake due diligence on the Prospective offshore bank with

which you’re 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 doesn’t 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.

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

83

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 into

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

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.

84

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 nor emitted into your country of

residence. Moreover

Jurisdictions such as the Isle of Man and the Channel Islands, there’s no

inheritance tax, capital gains tax or death duties.

Perhaps the most prevalent tax on 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, it’s

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?

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

85

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 doesn’t 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 it’s

perfectly natural for there to be tax competition in the world. Without it, nations

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

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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 country’s 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 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, it’s perfectly natural for

people to consider opening bank accounts in other countries if they can see any

personal gain to be had

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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 centre’s to launder criminal assets, thereby creating

roadblocks to criminal investigations. Financial havens offer an extensive array of

facilities to foreign investors who’re 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

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

88

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

income by the tax-payer or the evasion of the tax on 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

89

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

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 shouldn’t be any disadvantages to having

one If you are planning on using your offshore account to avoid a lawsuit or to

90

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,

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

91

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 &Young ’s 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.

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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

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 anti-

money 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.

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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

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

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100

101

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

management.

Consumer Behavior

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. â€

with these consumer trends, offshore and offshore banking in Hong Kong

investing with mitigated risks. Offshore wealth management will

103

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

apply more international pressure, it will become increasingly difficult for the less well-

regulated regimes to do business.

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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

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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

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 co-

operation 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.

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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

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.

BIBLIOGRAPHY AND WEBLIOGRAPHY:

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https://www.pnbindia.in/En/ui/Content.aspx?Id=1063

http://www.offshorebankingtoday.com/how-to-open-an-offshore-bank-

account/

http://www.offshorebankingtoday.com/swiss-bank-account-swiss-banking-

offshore-bank-account/

http://www.offshorebankingtoday.com/category/asia/

International banking & finance.By Dipak Abhyankar

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