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59
OFFSHORE BANKING T. Y. B & I
Chapter I
Introduction
59
OFFSHORE BANKING T. Y. B & I
Bank bank is a
financial
intermediary
that accepts deposits and
channels those deposits into
lending activities. Banks
are a fundamental
component of the financial
system, and are also active
players in financial
markets. The essential role
of a bank is to connect
those who have capital
(such as investors or
depositors), with those who
seek capital (such as
individuals wanting a loan,
or businesses wanting to
grow).
A
Banking is generally
a highly regulated industry,
and government restrictions
on financial activities by
banks have varied over
time and location. The
current sets of global
standards are called Basel
II. The most recent trend
has been the advance of
universal banks, which
attempt to offer their
customers the full spectrum
of financial services under
the one roof.
The oldest bank still
in existence is Monte dei
Paschi di Siena,
headquartered in Siena,
Italy, which has been
operating continuously
since 1472.
The name bank
derives from the Italian
word banco "desk/bench",
used during the
Renaissance by Jewish
59
OFFSHORE BANKING T. Y. B & I
Florentine bankers, who
used to make their
transactions above a desk
covered by a green
tablecloth. However, there
are traces of banking
activity even in times
ancient, which indicates
that the word 'bank' might
not necessarily come from
the word 'banco'.
DefinitionThe definition of a bank
varies from country to
country.
Under English common
law, a banker is defined as
a person who carries on the
business of banking, which
is specified as:
conducting current
accounts for his
customers
paying cheques
drawn on him, and
collecting cheques
for his customers.
In most English
common law jurisdictions
there is a Bills of Exchange
Act that codifies the law in
relation to negotiable
instruments, including
cheques, and this Act
contains a statutory
definition of the term
banker: banker includes a
body of persons, whether
incorporated or not, who
carry on the business of
banking' (Section 2,
Interpretation). Although
this definition seems
59
OFFSHORE BANKING T. Y. B & I
circular, it is actually
functional, because it
ensures that the legal basis
for bank transactions such
as cheques does not depend
on how the bank is
organised or regulated.
Banking in India
Structure of the organized banking sector in India.
Number of banks are in brackets.
Banking in India
originated in the last
decades of the 18th
century. The oldest bank in
existence in India is the
State Bank of India, a
government-owned bank
that traces its origins back
59
OFFSHORE BANKING T. Y. B & I
to June 1806 and that is the
largest commercial bank in
the country. Central
banking is the
responsibility of the
Reserve Bank of India,
which in 1935 formally
took over these
responsibilities from the
then Imperial Bank of
India, relegating it to
commercial banking
functions. After India's
independence in 1947, the
Reserve Bank was
nationalized and given
broader powers. In 1969
the government
nationalized the 14 largest
commercial banks; the
government nationalized
the six next largest in 1980.
Currently, India has
96 scheduled commercial
banks (SCBs) - 27 public
sector banks (that is with
the Government of India
holding a stake), 31 private
banks (these do not have
government stake; they
may be publicly listed and
traded on stock exchanges)
and 38 foreign banks. They
have a combined network
of over 53,000 branches
and 49,000 ATMs.
According to a report by
ICRA Limited, a rating
agency, the public sector
banks hold over 75 percent
of total assets of the
banking industry, with the
private and foreign banks
holding 18.2% and 6.5%
respectively
Banking in India
originated in the last
decades of the 18th
century. The first banks
were The General Bank of
59
OFFSHORE BANKING T. Y. B & I
India which started in 1786,
and the Bank of Hindustan,
both of which are now
defunct. The oldest bank in
existence in India is the
State Bank of India, which
originated in the Bank of
Calcutta in June 1806,
which almost immediately
became the Bank of
Bengal. This was one of the
three presidency banks, the
other two being the Bank of
Bombay and the Bank of
Madras, all three of which
were established under
charters from the British
East India Company. For
many years the Presidency
banks acted as quasi-central
banks, as did their
successors. The three banks
merged in 1921 to form the
Imperial Bank of India,
which, upon India's
independence, became the
State Bank of India.
The Bank of Bengal, which
later became the State
Bank of India.
From World War
I to
Independence
The period during the
First World War (1914-
1918) through the end of
the Second World War
(1939-1945), and two years
thereafter until the
independence of India were
challenging for Indian
banking. The years of the
First World War were
59
OFFSHORE BANKING T. Y. B & I
turbulent, and it took its toll
with banks simply
collapsing despite the
Indian economy gaining
indirect boost due to war-
related economic activities.
At least 94 banks in India
failed between 1913 and
1918.
Post-
independence
The partition of India in
1947 adversely impacted
the economies of Punjab
and West Bengal,
paralyzing banking
activities for months.
India's independence
marked the end of a regime
of the Laissez-faire for the
Indian banking. The
Government of India
initiated measures to play
an active role in the
economic life of the nation,
and the Industrial Policy
Resolution adopted by the
government in 1948
envisaged a mixed
economy. This resulted into
greater involvement of the
state in different segments
of the economy including
banking and finance. The
major steps to regulate
banking included:
In 1948, the Reserve
Bank of India, India's
central banking
authority, was
nationalized, and it
became an institution
owned by the
Government of India.
In 1949, the Banking
Regulation Act was
enacted which
empowered the
Reserve Bank of
59
OFFSHORE BANKING T. Y. B & I
India (RBI) "to
regulate, control, and
inspect the banks in
India."
The Banking
Regulation Act also
provided that no new
bank or branch of an
existing bank could
be opened without a
license from the RBI,
and no two banks
could have common
directors.
However, despite these
provisions, control and
regulations, banks in India
except the State Bank of
India, continued to be
owned and operated by
private persons. This
changed with the
nationalization of major
banks in India on 19 July
1969.
Nationalization
By the 1960s, the
Indian banking industry
had become an important
tool to facilitate the
development of the Indian
economy. At the same
time, it had emerged as a
large employer, and a
debate had ensued about
the possibility to
nationalize the banking
industry. Indira Gandhi,
the-then Prime Minister of
India expressed the
intention of the GOI in the
annual conference of the
All India Congress Meeting
in a paper entitled "Stray
thoughts on Bank
Nationalization." The
paper was received with
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OFFSHORE BANKING T. Y. B & I
positive enthusiasm.
Thereafter, her move was
swift and sudden, and the
GOI issued an ordinance
and nationalized the 14
largest commercial banks
with effect from the
midnight of July 19, 1969.
Jayaprakash Narayan, a
national leader of India,
described the step as a
"masterstroke of political
sagacity." Within two
weeks of the issue of the
ordinance, the Parliament
passed the Banking
Companies (Acquisition
and Transfer of
Undertaking) Bill, and it
received the presidential
approval on 9 August 1969.
A second dose of
nationalization of 6 more
commercial banks followed
in 1980. The stated reason
for the nationalization was
to give the government
more control of credit
delivery. With the second
dose of nationalization, the
GOI controlled around 91%
of the banking business of
India. Later on, in the year
1993, the government
merged New Bank of India
with Punjab National Bank.
It was the only merger
between nationalized banks
and resulted in the
reduction of the number of
nationalized banks from 20
to 19. After this, until the
1990s, the nationalized
banks grew at a pace of
around 4%, closer to the
average growth rate of the
Indian economy.
The nationalized
banks were credited by
some, including Home
59
OFFSHORE BANKING T. Y. B & I
minister P. Chidambaram,
to have helped the Indian
economy withstand the
global financial crisis of
2007-2009.
Liberalisation
In the early 1990s,
the then Narsimha Rao
government embarked on a
policy of liberalization,
licensing a small number of
private banks. These came
to be known as New
Generation tech-savvy
banks, and included Global
Trust Bank (the first of
such new generation banks
to be set up), which later
amalgamated with Oriental
Bank of Commerce, Axis
Bank(earlier as UTI Bank),
ICICI Bank and HDFC
Bank. This move, along
with the rapid growth in the
economy of India,
revitalized the banking
sector in India, which has
seen rapid growth with
strong contribution from all
the three sectors of banks,
namely, government banks,
private banks and foreign
banks.
Currently (2010),
banking in India is
generally fairly mature in
terms of supply, product
range and reach-even
though reach in rural India
still remains a challenge for
the private sector and
foreign banks. In terms of
quality of assets and capital
adequacy, Indian banks are
considered to have clean,
strong and transparent
balance sheets relative to
other banks in comparable
economies in its region.
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OFFSHORE BANKING T. Y. B & I
The Reserve Bank of India
is an autonomous body,
with minimal pressure from
the government. The stated
policy of the Bank on the
Indian Rupee is to manage
volatility but without any
fixed exchange rate-and
this has mostly been true.
With the growth in
the Indian economy
expected to be strong for
quite some time-especially
in its services sector-the
demand for banking
services, especially retail
banking, mortgages and
investment services are
expected to be strong. One
may also expect M&A’s,
takeovers, and asset sales.
59
OFFSHORE BANKING T. Y. B & I
CHAPTER II
OFFSHORE BANKING
Offshore bank
An offshore bank is a
bank located outside the
country of residence of the
depositor, typically in a low
tax jurisdiction (or tax
haven) that provides
financial and legal
advantages. These
advantages typically
include:
greater privacy (see
also bank secrecy, a
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OFFSHORE BANKING T. Y. B & I
principle born with
the 1934 Swiss
Banking Act)
low or no taxation
(i.e. tax havens)
easy access to
deposits (at least in
terms of regulation)
protection against
local political or
financial instability
While the term
originates from the Channel
Islands being "offshore"
from the United Kingdom,
and most offshore banks
are located in island nations
to this day, the term is used
figuratively to refer to such
banks regardless of
location, including Swiss
banks and those of other
landlocked nations such as
Luxembourg and Andorra.
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.
Although offshore banks
may decide not to report
income to other tax
authorities, and have no
legal obligation to do so as
they are protected by bank
secrecy, this does not make
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OFFSHORE BANKING T. Y. B & I
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
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 for Economic
Co-operation and
Development (OECD)
countries are trying to
stamp out competition.
Advantages of
Offshore Banking
1. Offshore banks provide access to
politically and economically stable
jurisdictions. This may be an
advantage for those residents in
areas where there is a risk of
political turmoil who fear their
assets may be frozen, seized or
disappear. However, developed
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OFFSHORE BANKING T. Y. B & I
countries with regulated banking
systems offer the same advantages
in terms of stability.
2. Some offshore banks may
operate with a lower cost base and
can provide higher interest rates
than the legal rate in the home
country due to lower overheads and
a lack of government intervention.
Advocates of offshore banking
often characterize government
regulation as a form of tax on
domestic banks, reducing interest
rates on deposits.
3. Offshore finance is one of the
few industries, along with tourism,
that geographically remote island
nations can competitively engage
in. It can help developing countries
source investment and create
growth in their economies, and can
help redistribute world finance from
the developed to the developing
world.
4. Interest is generally paid by
offshore banks without tax
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.
5. 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.
6. Offshore banking is often linked
to other services, such as offshore
companies, trusts or foundations,
which may have specific tax
advantages for some individuals.
7. Many advocates of offshore
banking also assert that the creation
of tax and banking competition is
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OFFSHORE BANKING T. Y. B & I
an advantage of the industry,
arguing with Charles Tiebout 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 offshoring of capital.
Disadvantages of
Offshore Banking
A. 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.
B. The existence of offshore
banking encourages tax evasion, by
providing tax evaders with an
attractive place to deposit their
hidden income.
C. 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.
D. 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.
E. Offshore banking is usually more
accessible to those on higher
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OFFSHORE BANKING T. Y. B & I
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.
ACTIVITIES OF
OFFSHORE BANKS:
Offshore banks engage in a
wide variety of transactions: foreign
currency loans (including
syndicated loans) and the taking of
deposits, the issue of securities,
over-the counter (OTC) trading in
derivatives for risk-management
and speculative purposes, and the
management of customers' financial
assets.
Foreign currency lending and
its associated funding is normally
an asset driven business, sometimes
originated in the OFC, but often
originated elsewhere and booked
and funded in the OFC, normally
for tax reasons.
A significant proportion of
Eurobonds floated in international
capital markets is also issued in
OFCs, although the marketing and
selling of such instruments would
normally be done in major financial
markets. Recently, the use of
special purpose vehicles registered
in OFCs has led to a growing
volume of structured finance deals,
which again mainly for tax reasons
are domiciled in OFCs.
The use of OTC derivative
instruments blossomed over the last
decade, but was mainly
concentrated in a few centers. As
59
OFFSHORE BANKING T. Y. B & I
derivatives entail substantive
counterparty, settlement, liquidity
and legal risks they require the
infrastructure of developed financial
centers, where their use is more
prevalent.
Deposit taking from individual
customers is an activity specialized
in by a number of OFCs. Normally,
the banks involved in this business
are major international banks with a
high reputation (deposit insurance is
normally not available). The
attraction is normally related to tax,
both income and capital taxes. The
proceeds of this type of business are
normally invested in high quality
marketable assets in major financial
centers.
European
Savings Tax
Directive
In their efforts to
stamp down on cross
border interest payments
EU governments agreed to
the introduction of the
Savings Tax Directive in
the form of the European
Union withholding tax in
July 2005. A complex
measure, it forced EU
resident savers depositing
money in any country other
than the one they are
resident in to choose
between forfeiting tax at
the point of payment, or
allowing notification by the
offshore banks to tax
authorities in their country
of residence. This tax
59
OFFSHORE BANKING T. Y. B & I
affects any cross border
interest payment to an
individual resident in the
EU.
Furthermore the rate
of tax deducted at source
will rise in 2008 and again
in 2011, making disclosure
increasingly attractive.
Savers' choice of action is
complex; tax authorities are
not prevented from
enquiring into accounts
previously held by savers
which were not then
disclosed.
Chapter III
OFFSHORE BANKING SERVICES
59
OFFSHORE BANKING T. Y. B & I
Offshore Banking services
It is possible to obtain
the full spectrum of
financial services from
offshore banks, including:
deposit taking
credit
wire- and electronic
funds transfers
foreign exchange
letters of credit and
trade finance
investment
management and
investment custody
fund management
trustee services
Deposit account
A deposit account is
a current account, savings
account, or other type of
bank account, at a banking
institution that allows
money to be deposited and
59
OFFSHORE BANKING T. Y. B & I
withdrawn by the account
holder. These transactions
are recorded on the bank's
books, and the resulting
balance is recorded as a
liability for the bank, and
represent the amount owed
by the bank to the
customer. Some banks
charge a fee for this
service, while others may
pay the customer interest
on the funds deposited.
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
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 can not
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
59
OFFSHORE BANKING T. Y. B & I
earning a monetary
return.
Money market
deposit 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 (finance)
Credit is the
provision of resources
(such as granting a loan) by
one party to another party
where that second party
does not reimburse the first
party immediately, thereby
generating a debt, and
instead arranges either to
repay or return those
resources (or material(s) of
equal value) at a later date.
It is any form of deferred
payment. The first party is
59
OFFSHORE BANKING T. Y. B & I
called a creditor, also
known as a lender, while
the second party is called a
debtor, also known as a
borrower.
Credit need not
necessarily be based on
formal monetary systems.
The credit concept can be
applied in barter economies
based on the direct
exchange of goods and
services, and some would
go so far as to suggest that
the true nature of money is
best described as a
representation of the credit-
debt relationships that exist
in society.
Credit is
denominated by a unit of
account. Unlike money (by
a strict definition), credit
itself cannot act as a unit of
account. However, many
forms of credit can readily
act as a medium of
exchange. As such, various
forms of credit are
frequently referred to as
money and are included in
estimates of the money
supply.
Credit is also traded
in the market. 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
59
OFFSHORE BANKING T. Y. B & I
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).
Electronic money
Electronic money
(also known as e-currency,
e-money, electronic cash,
electronic currency,
digital money, digital cash
or digital currency) refers
to money or scrip which is
exchanged only
electronically. Typically,
this involves the use of
computer networks, the
internet and digital stored
value systems. Electronic
Funds Transfer (EFT) and
direct deposit are all
examples of electronic
money. Also, it is a
collective term for financial
cryptography and
technologies enabling it.
While electronical
money has been an
interesting problem for
cryptography (see for
example the work of David
Chaum and Markus
Jakobsson), to date, use of
digital cash has been
relatively low-scale. One
rare success has been Hong
Kong's Octopus card
system, which started as a
transit payment system and
has grown into a widely
used electronic cash
system. Singapore also has
an electronic money
implementation for its
public transportation
59
OFFSHORE BANKING T. Y. B & I
system (commuter trains,
bus, etc), which is very
similar to Hong Kong's
Octopus card and based on
the same type of card
(FeliCa). There is also
another implementation
based upon the same
system in the Netherlands,
known as Chipknip.
Foreign exchange
market
The foreign
exchange market (forex,
FX, or currency market)
is a worldwide
decentralized over-the-
counter financial market for
the trading of currencies.
Financial centers around
the world function as
anchors of trading between
a wide range of different
types of buyers and sellers
around the clock, with the
exception of weekends.
The purpose of the
foreign exchange market
'Forex' is to assist
international trade and
investment. The foreign
exchange market allows
businesses to convert one
currency to another foreign
currency. For example, it
permits a U.S. business to
import European goods and
pay Euros, even though the
business's income is in U.S.
dollars. Some experts,
however, believe that the
unchecked speculative
movement of currencies by
large financial institutions
such as hedge funds
impedes the markets from
correcting global current
account imbalances. This
carry trade may also lead
59
OFFSHORE BANKING T. Y. B & I
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
started forming during the
1970s when countries
gradually switched to
floating exchange rates
from the previous exchange
rate regime, which
remained fixed as per the
Bretton Woods system.
The foreign exchange
market is unique because of
trading volume
results in market
liquidity
geographical
dispersion
continuous operation:
24 hours a day except
weekends, i.e. trading
from 20:15 UTC on
Sunday until 22:00
UTC Friday
the variety of factors
that affect exchange
rates
the low margins of
relative profit
compared with other
markets of fixed
income
the use of leverage to
enhance profit
margins with respect
to account size
59
OFFSHORE BANKING T. Y. B & I
Market size and
liquidity
Main foreign exchange
market turnover, 1988–
2007, measured in billions
of USD.
The foreign exchange
market is the largest and
most liquid financial
market in the world.
Traders include large
banks, central banks,
currency speculators,
corporations, governments,
and other financial
institutions. The average
daily volume in the global
foreign exchange and
related markets is
continuously growing.
Daily turnover was
reported to be over US$3.2
trillion in April 2007 by the
Bank for International
Settlements. Since then, the
market has continued to
grow. According to Euro
money's annual FX Poll,
volumes grew a further
41% between 2007 and
2008.
Letter of credit
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OFFSHORE BANKING T. Y. B & I
After a contract is
concluded between buyer
and seller, buyer's bank
supplies a letter of credit
to seller.
Seller consigns the goods
to a carrier in exchange for
a bill of lading.
Seller provides bill of
lading to bank in exchange
for payment. Seller's bank
exchanges bill of lading for
payment from buyer's bank.
Buyer's bank exchanges
bill of lading for payment
from the buyer.
Buyer provides bill of
lading to carrier and takes
delivery of goods.
A standard,
commercial letter of credit
("LC") is a document
issued mostly by a financial
institution, used primarily
in trade finance, which
usually provides an
59
OFFSHORE BANKING T. Y. B & I
irrevocable payment
undertaking.
The LC can also be
source of payment for a
transaction, meaning that
redeeming the letter of
credit will pay 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. 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 cancelled
without prior agreement of
the beneficiary, the issuing
bank and the confirming
bank, if any. In executing a
transaction, letters of credit
incorporate functions
common to giros and
Traveler's cheques.
Parties Involved in
Letter of Credit:
1. Beneficiary :
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OFFSHORE BANKING T. Y. B & I
He is usually
an exporter.
Beneficiary is
entitled to payment
as long as he can
provide the
documentary
evidence required by
the letter of credit.
Upon requesting
demand for payment
the beneficiary
warrants that all
conditions of the
agreement have been
complied with. If the
beneficiary (seller)
conforms to the letter
of credit, the
confirming bank
must pay him.
2. Issuing Bank:
Usually
Importer's bank. The
issuing bank’s
obligation to the
buyer is to examine
all documents to
insure that they meet
all the terms and
conditions of the
credit. The issuing
bank is not liable for
performance of the
underlying contract
between the customer
and beneficiary.
3. Advising Bank i.e.
Confirming Bank:
It is usually a
foreign
correspondent bank
of the issuing bank.
The advising bank
would be responsible
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OFFSHORE BANKING T. Y. B & I
for sending the
documents to the
issuing bank. The
advising bank has no
other obligation
under the letter of
credit. If the issuing
bank does not pay the
beneficiary, the
advising bank is not
obligated to pay. If
confirming bank is
different from
advising bank then
confirming bank is
correspondent bank
of the issuing bank.
Correspondent in
such case obligates
itself to insure
payment under the
letter of credit.
4. Applicant
(Importer):
He is the one
who originates the
process of L/C. It is
on his behalf that the
issuing bank issues
L/C.
Investment
management
Investment
management is the
professional management
of various securities
(shares, bonds and other
securities) and assets (e.g.,
real estate), to meet
specified investment goals
for the benefit of the
investors. Investors may be
institutions (insurance
companies, pension funds,
corporations etc.) or private
investors (both directly via
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OFFSHORE BANKING T. Y. B & I
investment contracts and
more commonly via
collective investment
schemes e.g. mutual funds
or exchange-traded funds) .
The term asset
management is often used
to refer to the investment
management of collective
investments, (not
necessarily) whilst the
more generic fund
management may refer to
all forms of institutional
investment as well as
investment management for
private investors.
Investment managers who
specialize in 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
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.
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OFFSHORE BANKING T. Y. B & I
Fund manager (or
investment adviser in the
United States) refers to
both a firm that provides
investment management
services and an individual
who directs fund
management decisions.
Trustee
Trustee is a legal
term for a holder of
property on behalf of a
beneficiary. A trust can be
set up either to benefit
particular persons, or for
any charitable purposes
(but not generally for non-
charitable purposes):
typical examples are a will
trust for the testator's
children and family, a
pension trust (to confer
benefits on employees and
their families), and a
charitable trust. In all cases,
the trustee may be a person
or company, whether or not
they are a prospective
beneficiary.
Not every bank
provides each service.
Banks tend to polarize
between retail services and
private banking services.
Retail services tend to be
low cost and
undifferentiated, whereas
private banking services
tend to bring a personalized
suite of services to the
client.
Private Banking
Private banking is a
term for banking,
investment and other
financial services provided
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OFFSHORE BANKING T. Y. B & I
by banks to private
individuals investing
sizable assets. The term
"private" refers to the
customer service being
rendered on a more
personal basis than in
mass-market retail banking,
usually via dedicated bank
advisers. It should not be
confused with a private
bank, which is simply a
non-incorporated banking
institution.
Historically private
banking has been viewed as
very exclusive, only
catering for high net worth
individuals with liquidity
over $2 million, although it
is now possible to open
some private bank accounts
with as little as $250,000
for private investors. An
institution's private banking
division will provide
various services such as
wealth management,
savings, inheritance and tax
planning for their clients. A
high-level form of private
banking (for the especially
affluent) is often referred to
as wealth management. For
private banking services
clients pay either based on
the number of transactions,
the annual portfolio
performance or a "flat-fee",
usually calculated as a
yearly percentage of the
total investment amount.
The word "private"
also alludes to bank secrecy
and minimizing taxes
through careful allocation
of assets or by hiding assets
from the taxing authorities.
Swiss and certain offshore
banks have been criticized
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OFFSHORE BANKING T. Y. B & I
for such cooperation with
individuals practicing tax
evasion. Although tax fraud
is a criminal offense in
Switzerland, tax evasion is
only a civil offence, not
requiring banks to notify
taxing authorities.
Wealth
management
Wealth
management is an
investment advisory
discipline that incorporates
financial planning,
investment portfolio
management and a number
of aggregated financial
services. High Net Worth
Individuals (HNWIs), small
business owners and
families who desire the
assistance of a credentialed
financial advisory specialist
call upon wealth managers
to coordinate retail
banking, estate planning,
legal resources, tax
professionals and
investment management.
Wealth managers can be an
independent CERTIFIED
FINANCIAL
PLANNER™, MBAs,
CFA Charterholders or any
credentialed professional
money manager who works
to enhance the income,
growth and tax favored
treatment of long-term
investors. One must already
have accumulated a
significant amount of
wealth for wealth
management strategies to
be effective and is also one
of the key areas that are
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OFFSHORE BANKING T. Y. B & I
growing at a tremendous
rate.
Wealth management
can be provided by large
corporate entities,
independent financial
advisers or multi-licensed
portfolio managers whose
services are designed to
focus on high-net worth
customers. Large banks and
large brokerage houses
create segmentation
marketing-strategies to sell
both proprietary and non-
proprietary products and
services to investors
designated as potential high
net-worth customers.
Independent wealth
managers use their
experience in estate
planning, risk
management,and their
affiliations with tax and
legal specialists, to manage
the diverse holdings of high
net worth clients. Banks
and brokerage firms use
advisory talent pools to
aggregate these same
services.
The events of 2008 in
the financial markets
caused investors to address
concerns within their
portfolios. "The past 18
months have challenged
traditional thinking about
investing and asset
allocation, diversification,
and correlation. For
individual investors, risk
tolerances have been tested,
investment assumptions
have been overturned, and
fundamental truisms have
been questioned." For this
reason wealth managers
must be prepared to
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OFFSHORE BANKING T. Y. B & I
respond to a greater need
by clients to understand,
access, and communicate
with advisers regarding
their current relationship as
well as the products and
services that may satisfy
future needs. Moreover,
advisors must have
sufficient information, from
objective sources,
regarding all products and
services owned by their
clients to answer inquiries
regarding performance and
degree of risk-at the client,
portfolio and individual
security levels. "This state
of affairs poses a dilemma
for wealth managers, who,
for a generation, have
adhered to the core
principles of asset
allocation and earned their
keep by preaching the
mantras of 'buy and hold',
'invest for the long term',
and when things get tough,
'stay the course'.”
Today wealth
management advisors must
have access to an objective
content repository. This
repository must contain a
current and readily
available profile of the
clients holdings.
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
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OFFSHORE BANKING T. Y. B & I
through offshore centers.
Tax havens have 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
$17.5 trillion—may now be
held offshore. Some $3
trillion is in deposits in tax
haven banks and the rest is
in securities held by
international business
companies (IBCs) and
trusts.
The IMF has said that
between $600 billion and
$1.5 trillion of illicit money
is laundered annually,
equal to 2% to 5% of
global economic output.
Today, offshore is where
most of the world's drug
money is allegedly
laundered, estimated at up
to $500 billion a year, more
than the total income of the
world's poorest 20%. Add
the proceeds of tax evasion
and the figure skyrockets to
$1 trillion. Another few
hundred billion come from
fraud and corruption.
"These offshore centers
awash in money are the hub
of a colossal, underground
network of crime, fraud,
and corruption" commented
Lucy Komisar quoting
these statistics. Among
offshore banks, Swiss
banks hold an estimated
35% of the world's private
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OFFSHORE BANKING T. Y. B & I
and institutional funds (or 3
trillion Swiss francs), and
the Cayman Islands (1.9
trillion US dollars in
deposits) are the fifth
largest banking centre
globally in terms of
deposits. However, recent
data by the Swiss National
Bank show that the assets
held by foreign persons in
Swiss bank accounts
declined by 28.1% between
January 2008 and
November 2009.
Characteristics/
Features of
Offshore
Banking
Centers This unit will
be permitted to set up in
special economic zones
(SEZ). These banks would be
virtually foreign branches of
these banks but located in
India.
1. These overseas
banking units
(OBCs) would
be exempted
from credit
rating ratio
(CRR), (SLR)
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OFFSHORE BANKING T. Y. B & I
would give
access to SEZ
units and SEZ
developers
finance at
international
rates.
2. The OBU’s
would operate
and maintain
balance sheet
only in foreign
currency and
would not be
allowed to deal
in INR expect
for having a
special rupee
account out of
convertible fund
to meet their day
expenses.
3. Operation of the
OBU’s in rupees
would minimal
in nature and
any such
operations in the
domestic’s area
would be subject
to the current
exchange
control
regulations in
force.
4. The OBU’s
would be
required to
maintain
separate nostro
accounts with
correspondent
banks which
would be
distinct from
nostro accounts
maintained by
other branches
of the bank. The
ads dealing with
OBU’s would be
subject to ECD
regulations.
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OFFSHORE BANKING T. Y. B & I
5. These accounts
can be opened
by non- resident
individual’s
corporate, trusts
or offshore
companies.
Indian
residents/corpor
ate are eligible
to open foreign
current A/c’s
under FEMA.
6. Given the
unique nature of
business of the
OBU’s, reserve
bank would
stipulate certain
licensing
conditions such
as dealing only
in foreign
currencies,
retractions on
the dealing with
Indian rupee,
access to
domestic money
market. etc on
the functioning
of the OBU’s.
59
OFFSHORE BANKING T. Y. B & I
CHAPTER IV
Regulation of Offshore banks
59
OFFSHORE BANKING T. Y. B & I
Regulation of offshore banks
In the 21st century,
regulation of offshore
banking is allegedly
improving, although critics
maintain it remains largely
insufficient. 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.
Since the late 1990s,
especially following
September 11, 2001, there
have been a number of
initiatives to increase the
transparency of offshore
banking, although critics
such as the Association for
the Taxation of Financial
Transactions for the Aid of
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OFFSHORE BANKING T. Y. B & I
Citizens (ATTAC) non-
governmental organization
(NGO) maintain that they
have been insufficient. A
few examples of these are:
The tightening of
anti-money
laundering
regulations in many
countries including
most popular
offshore banking
locations means that
bankers are required,
by good faith, to
report suspicion of
money laundering to
the local police
authority, regardless
of banking secrecy
rules. There is more
international co-
operation between
police authorities.
In the US the Internal
Revenue Service
(IRS) introduced
Qualifying
Intermediary
requirements, which
mean that the names
of the recipients of
US-source
investment income
are passed to the IRS.
Following 9/11 the
US introduced 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.
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OFFSHORE BANKING T. Y. B & I
The European Union
has introduced
sharing of
information between
certain jurisdictions,
and enforced this in
respect of certain
controlled centers,
such as the UK
Offshore Islands, so
that tax information
is able to be shared in
respect of interest.
Main Function of
offshore Banking
1. Multi currency
deposits
accepted
2. Maturities
ranging from
15 to 5 years.
Deposits for 15
days up to
1month are
accepted
subject to
minimum
deposit amount
of US$
100,000/- GPB
60,000/- &
Euro 100,000/-
3. Attractive rates
of interest on
deposits
4. Multi
currencies
burrowing
option
5. Rates of
interest linked
to LIBOR of
corresponding
period.
6. Full
reparability of
maturity valve
of deposits.
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OFFSHORE BANKING T. Y. B & I
7. Loans against
deposits both in
foreign
currency.
Higher rates of interest
via FCNR deposits subject
to minimum deposits
subject to minimum
deposits of US$ 5000/- or
its equivalent.
Example of
offshore banking.
The world’s local
bank, HSBC is a leading
force in the offshore
banking industry by
offering a wide range of
services for expatriates and
people looking to bank and
invest abroad. They can
live up to their boast of
being the world’s local
bank by forming and
keeping strong ties and
connections with banks
throughout the world,
allowing them to maintain
a global presence.
Offshore banking
usually refers to using the
services of banks and
financial services located
outside the account
holder’s country of
residence. Such banking
institutions are usually
located in jurisdictions
considered as tax havens.
Oftentimes investors and
those who chose to
expatriate are able to grow
investments to maturity tax
free. Other benefits of
offshore banking include
added confidentiality and
privacy. Some offer
anonymously numbered
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OFFSHORE BANKING T. Y. B & I
accounts and reside in
countries that impose
strong secrecy enforcement
laws.
Now with the
advances in technology and
the globalization of
business worldwide, the
need to conduct business
abroad is more prevalent
than ever. More and more
individuals and businesses
have the need for offshore
banking services such as
HSBC and other major
international financial
centers. Not only do we
have a greater need for
international bank
accounts, we also require
instant access to account
information and customer
support, either through the
phone or the internet.
HSBC and other major
offshore banking services
have caught on to this and
have focused on being
geared towards meeting
clients’ needs.
HSBC excels in
providing top of the line
quality products and
services that anticipate
customer needs and
improve the offshore
banking experience. HSBC
offshore banking service is
the division of HSBC that
handles international
accounts. They offer
everything from aiding in
providing temporary
housing to establishing
local and multi-currency
bank accounts. Health
insurance services are also
provided.
Online offshore
banking services have
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OFFSHORE BANKING T. Y. B & I
become a must and HSBC
offers instant access to
financial information and
customer support on the
internet or over the phone.
The new innovations and
advances in software have
also enabled HSBC and
other online financial
service providers to
upgrade their security
systems. That’s part of the
reason offshore banking
services are known for
privacy. Asset protection is
also a major issue among
individuals and
corporations alike. Holding
assets overseas offers an
extra layer of protection
from lawsuits and
malicious litigations.
A frequently asked
question is whether
offshore banking is legal or
not. This is due to the fact
that offshore banks have
usually been associated
with the wealthy and
famous, and have been
surrounded by illegal
activities, such as money
laundering and drug
money. The fact is offshore
bank accounts are legal and
will remain that way for the
simple fact that holding an
offshore account just means
transferring assets to
another country. The
international economy
depends on the ability to
move funds in and out of
countries, even
governments have this
need. Offshore bank
accounts are legal and will
remain that way.
Not only that, they
are now beneficial to the
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OFFSHORE BANKING T. Y. B & I
common person. It’s no
longer the way it was when
offshore accounts were
reserved for the seven
figure group. Now you and
I can take advantage of
these banks and we can
have access to it all
instantly on the internet.
HSBC offers some of the
most exciting and dynamic
financial vehicles in the
offshore banking industry.
It’s definitely worth
checking to see if you can
benefit from a HSBC
offshore account.
59
OFFSHORE BANKING T. Y. B & I
CHAPTER V
Procedure for offshore bank A/c
Procedure for offshore bank A/c
Offshore Bank Account Setup
59
OFFSHORE BANKING T. Y. B & I
Setting up your
offshore banking account is
as easy as talking with our
representatives. You can call
to discuss the information
needed for popular
jurisdictions and we can
assist you with opening a
new bank account. Most
offshore banks will require an
eligible introducer. This is
someone who already has a
relationship with the bank.
OffshoreCompany.com is an
eligible introducer for many
financial institutions
throughout the world.
Common items that may
be necessary when setting up
offshore bank accounts:
Application forms with
original signatures
Valid passport copy or
driver's license
Banking references
Corporate legal
documents
Offshore banks have
different requirements. Once
the offshore bank account has
been processed, the
confirmation is sent typically
via email. At that time the
bank will wait for a wire
transfer of initial deposit in
order to activate your new
account. Some expenses
include opening fee,
additional banking cards (if
applicable), courier and other
expenses. Again, these will
vary between the offshore
banking account providers.
Once the bank account is
active, you typically receive
online access to create your
user account and password.
You may also receive items
such as an easy-to-use digital
signature device, test key
table and other enabling tools
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OFFSHORE BANKING T. Y. B & I
to access your account
balance and perform
transactions quickly, easily,
privately and securely.
Offshore Bank Account Costs
Offshore banking
accounts are generally
opened under the name of
offshore companies or
corporations. This increases
privacy; all banking
transactions are traced under
the name of a company, not
the client. Opening an
offshore bank account in this
facet could cost anywhere
between $350 to $550 and
the cost of the company. An
offshore company typically
runs between $1495 and
$2,495. So, the total is
usually $1845 for both.
Offshore banking
accounts need to be opened
with an initial deposit to
activate your account.
Though some provider's
proprietary account types,
fees, interest rates, etc. vary,
most offshore financial
institutions have competitive
costs. The interest rates tend
to be higher than domestic
institutions. The process of
establishing the offshore
bank account will incur
processing fees, courier
charges and some small
miscellaneous costs, for
things such as notary charges,
etc. OffshoreCompany.com
has helped thousands of
Americans open private
financial accounts,
companies and corporations
and can assist in your needs
today.
Finding out what
jurisdictions and bank is right
59
OFFSHORE BANKING T. Y. B & I
for you is easy. Simply call
our representatives and
explain your needs or fill out
the inquire now form and we
will call you.
Offshore Bank Accounts and
Security
Banking privacy and
security is a major concern. It
is a priority that you and your
money are safe.
OffshoreCompany.com
regularly recommends
banking institutions that
participate in a central
banking system. The system
is highly regulated and
implements stringent
accounting practices, which
provides a stronger
infrastructure and
independent oversight for
local offshore banks. Many
institutions provide secure
and private offshore banking
accounts to American and
foreign corporations and
local government officials.
The institutions provide
employment and support the
local economy. Because of
the economy's dependence on
the financial services sector,
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OFFSHORE BANKING T. Y. B & I
the privacy and financial
safety laws are a
longstanding and stable. It is
critical that all prospective
clients make the right choice
of jurisdiction. We perform
extensive research on many
of the top offshore bank
account providers and are
glad to provide helpful
information to help you make
the proper choice.
Offshore banks in
some countries participate in
mandated financial protection
insurance systems. Security
and privacy is taken very
seriously. Offshore banking
security and privacy is
statutorily enforced, meaning,
it's the law, limiting any
information whatsoever to be
shared with a third party,
including foreign
governments. Naturally, laws
permit offshore bank account
providers to share
information in cases of severe
criminal acts or terrorism.
Banking privacy is not taken
lightly. In Switzerland, for
example, any employee
violating a customer's privacy
is punished severely by law
including stiff fines and jail
time.
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OFFSHORE BANKING T. Y. B & I
CHAPTER VI
Questionnaires & Company Case
Study
Questionnaires
1.What is offshore banking?
Offshore banking can be defined as using the services of a
bank located in a different jurisdiction or country than the
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OFFSHORE BANKING T. Y. B & I
depositor resides in. Offshore banks are usually located in places
considered as tax havens and also provide additional
confidentiality and security for the depositor.
The term offshore was originated from the British Channel
Islands, tax havens located literally offshore from the United
Kingdom. These were the original tax havens and they started the
usage of the term offshore for describing the industry. Those
islands became major international banking centers because of
those tax benefits and regulations. They were optimal places to
hold assets abroad or save and invest.
Offshore bank accounts are often less regulated than domestic
banks due to fewer restrictions from their governments. This
allows for more types of offshore banking accounts and ways in
which they can be manipulated.
2. What Are The Offshore Banking
Secrets To Make Huge Amounts Of
Money?
In investigating offshore banking secrets to make huge
amounts of money, I ran across several articles that warned the
information may be inaccurate. I am reporting to you what I have
gleaned from this information. It will be up to you to check out
the accuracy of this information before you make any major
decisions about your money and how to invest or bank it.
There are two types of high yield investment programs
available. The first has to do with offshore banking, secret
59
OFFSHORE BANKING T. Y. B & I
international financial rules approved by the US Federal Bank, or
Treasury department. The second involves small investments and
trading in gold, currency, or futures.
If you are contacted about participation in the first program, it
will usually involve an offshore bank or investment house. The
person who is trying to get you to buy in will claim there is a
legal loophole in income taxes or international lending. You will
be solicited to buy into this program, being told you will make
huge profits within 30 to 90 days. When the 90 days passes and
you have seen no money, the person who got you involved will
tell you to be patient that the money is coming. This person will
also ask you to sign up other people, claiming the more people
you can bring into the deal will help him to pay you what you are
owed. You need to realize there is no loophole in income tax
rules, nor are there any secret rules involving international
lending. This is fraud plain and simple, and if you participate in
this scheme you may be charged with attempted fraud. You need
to steer clear of this scheme and notify the authorities
immediately.
The second investment program is about smaller amounts of
money. These programs say they will pay out 1-10% a day. Even
up to 100% per month. It is important to know that while great
deals of these programs are scams, some of them may be legal.
This usually involves day trading in the stock market, on futures,
gold, and currency. You could put in as little as $20 in the
program and earn a percent or so every business day. You will be
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OFFSHORE BANKING T. Y. B & I
allowed to withdraw the funds at any time, although by leaving
the money in, your earnings would grow and give larger payoffs.
Experienced day traders actually do make anywhere from 1-
20% each day. This average is more like 2% a day. The money
you pay into the program would be put together with the money
of other participants and invested by the day trader using 50%
margins; the trader could pay 1% daily to the investors and still
make money on the deal. If the trader is good at what he does, he
could be right about 80% of the time and never lose more than
3% of the investment on bad trades. This program is workable
and is not a scam; unless the day trader does not plan on giving
back any of the proceeds. You will have no way of knowing
which is true.
Another type of high yield investment program involves the
selling of ebooks and software. Invested money is put together
and spent on advertising for the sale of ebooks and other software
that can be downloaded. It is run on the principle that for every
$100 spent in advertising, a return of $300 in revenue will be
realized. A payout of 50% a month can be realized for the
investors. This program can work, but there is a limit to how long
it will last. The market for the product will soon be saturated and
the sales will decline. The profits would wane and the program
would have to be shut down. Those who got in at the beginning
will be the winners here.
These are a few of the many offshore banking secrets to make
huge amounts of money. Others can be found on the internet. Use
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OFFSHORE BANKING T. Y. B & I
caution when something sounds too good to be true, as it probably
is.
3. What Is Offshore Banking And Bank
Account?
If you want to invest in property, save some money tax-free, or
form a corporation, protecting your assets with an offshore bank
account is a great idea. You have a choice of which offshore bank
you want to open an account with. Your offshore banking and
bank account should include an account package that is tailored
for your business needs.
When looking for an offshore bank, you want to find one that
offers you more than one jurisdiction and a wide range of
multicurrency bank accounts. Some clients prefer an anonymous
ATM card that does not have their name printed on it. They are
able to withdraw money anonymously anytime they feel the need.
An offshore bank, bank account is usually in a low tax
jurisdiction that provides legal and financial advantage over other
banks. The advantages of having an offshore bank, bank account
are: Strong privacy and secrecy, easy access to deposits, less
restrictive legal regulation, protection against local financial
instability, and low or no taxation.
Interest is usually paid by offshore banks without tax
deduction. This is an advantage to individuals who do not pay tax
on worldwide income. Some offshore banks offer different
services than domestic banks. Higher interest rates and
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OFFSHORE BANKING T. Y. B & I
anonymous bank accounts are a couple of the services offered by
offshore banks.
4. What do you mean by Free Offshore
Banking?
Offshore banking means transferring money and assets
overseas to be managed by banking institutions in jurisdictions
outside of your country of residence. The term offshore refers to
the British Channel Islands just located physically offshore from
the main land. Those islands were tax havens, thus becoming very
attractive places to establish investments that can grow tax free.
Banking institutions flocked to the opportunity to take advantage
of those islands. Other countries that offer those same benefits
began following suit and the practice became widespread. Now
the term has been expanded to mean just having assets anywhere
outside of your own country of residence. Usually those
jurisdictions have laws in place that favor the offshore banking
industry. Those laws usually enforce privacy and confidentiality
as a requirement from banking institutions. They also have less
strict restrictions and regulations allowing for more flexible
offshore accounts that are easier to manipulate in various ways.
Also, it’s not free to establish an offshore banking account.
They usually require a sizable sum of money in most offshore
banking accounts. This ranges from around two thousand dollars
to ten thousand dollars, depending on the account type and period
of holding. Some range from no money to a very small deposit
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such as one dollar. The documentation requirements in some
jurisdictions’ banks are very few and often only one document is
required.
Offshore banking has become a large industry that circulates
trillions of dollars on a daily basis. The competitions has become
fierce and banks are willing to offer more for less or free to attract
new customers and to inform people that could benefit the most
from their services.
5. Is Offshore Banking Legal?
This is one of the frequently asked questions about offshore
banking, and in short, YES, offshore banking is legal. Offshore
banking is so legal that, it’s always going to remain 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. This article will clarify the distinction and examine
why offshore banking will remain legal.
The term offshore was originated from the British Channel
Islands, tax havens located literally offshore from the United
Kingdom. Now the term is used to refer to all tax havens whether
islands or not. Technically, just moving your money from an
account in your country of residence to another jurisdiction is
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OFFSHORE BANKING T. Y. B & I
considered offshore banking, even if it’s not a tax haven. This is
the main reason why offshore banking will always be legal.
The thing that is NOT legal is banking offshore for tax
evasion. Depending on which country you resides in, it is usually
illegal to take money out of the country or making money
overseas and never submitting it to your country of residence or
declaring it. Saving on taxes is not the only advantage of using
offshore banking accounts. There are many other benefits,
including but not limited to:
-Optimized account Privacy
-Protection from aggressive litigations
-More competitive account structures ad interest rates
-global access to your money
-Ability to bank in multiple currencies
-Access to global business opportunities
And not to forget that those who reside in countries with
corrupt or unstable economic systems have the opportunity to
bank in an economically and politically stable jurisdiction.
6. What services are available?
Just like with your regular domestic banks, you can obtain a
full spectrum of services can be obtained from your offshore
banking center.
These services include personal and corporate checking and
savings accounts. These offshore financial centers also offer
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secure internet banking facilities that allow for wire and
electronic funds transfers, debit and ATM cards which are
accepted worldwide, credit cards, Loans and mortgages. Some
even go so far as offer Anonymous numbered accounts to provide
for extra confidentiality.
Investment management and custody is also provided by some
banks. They also have Corporate Administration services, trustee
services, fund management and foreign exchange. Banks tend to
specialize between retail and private banking, so all the listed
services might not be available at every bank. Retail banks tend to
be more economical and offer standard services. Private banking
services, while more costly than their retail counterparts, tend to
offer more personalized services for their clients.
Privacy is the first to come to mind, considering that offshore
entities have no obligation to release any of your personal or
business information. Unless evidence can be shown proving your
involvement in criminal activity, your information will not be
given to any governing body or tax authority. Pretty much, they
can’t sue for or seize things which they don’t know exist.
Because of offshore banking centers usually being located in
Tax havens, your assets can grow almost free from any form of
taxation. Thus, tax efficiency is another important benefit of
holding assets overseas. This does not mean that you can avoid
taxes altogether.
Asset Protection is another one of the main benefits offered by
offshore banking services. Holding offshore accounts gives you
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protection from Invasive bureaucracy, lawsuits, and it also
protects your assets from seizures.
7. What do you mean by Offshore
Investment Banking?
Governments and onshore financial institutions are constantly
trying to misinform us about the legitimate nature of offshore
investment banking. A lot of people are now taking to time to
research and are finding out the many benefits of the offshore
world. Of course it’s worth mention before I get ahead of myself
that offshore banking is not for everyone and experienced
financial advisers should be consulted before actually investing
offshore. Like any other financial decision due diligence should
be performed before any cash is spent.
It’s usually believed that just the famous and the rich can
benefit from investing offshore, but that is changing now. Regular
everyday people like you and I can start enjoying offshore profits
too, and best of all, it’s not even that hard to do. With the internet
and innovative offshore investment banking services, an
individual can remotely manage funds without ever needing to
travel to the jurisdiction or having to meet face to face with
representatives of the investment company managing the funds.
The confidentiality and asset protection of assets in offshore
investments is effortless due to the majority of jurisdictions
imposing strong anti-disclosure regulations on the financial
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institutions operation within their borders. You don’t have to do
much to keep your investments under wraps.
International business is the new trend and large financial
institutions that need to expand their clientele base focus on
making it easier for international customers to access their
services. This is a good thing, because a lot of these offshore
investment banking services offer highly competitive investment
vehicles and a lot of times generate greater returns on investments
than domestic investments. Another added bonus is the tax havens
that the offshore investments banks are located in allow for tax
free growth of the investment until maturity. These institutions
also make it easier on the remote investor.
Investment banking abroad has proved to be profitable if
approached properly. The higher interest rates and looser
regulations and restrictions on what one can do with an account
allow for greater opportunities for success. One other benefit of
investing online is that newer business opportunities that you
wouldn’t usually come across in your country become within
your grasp because the international markets have many more
participants and players. The chance to come across interesting
investments that could realize unusual profits also keep investing
and banking offshore interesting.
8. What are the Offshore Banking
Interest Rates?
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There’s a wide misconception that on current accounts,
offshore accounts yield higher interest rates than their onshore
counterparts. Sadly, this is not usually true and both onshore and
offshore banks offer the same low interest rates on current
accounts. There are usually fees associated with constantly
accessing funds except on checking’s or current accounts, which
have poor interest rates most of the time, just like any other bank.
Offshore Banking Was usually considered as being for the rich
and famous, but International banking institutions are competitive
and need to reach more customers. This resulted in offshore
banking services putting together more attractive packages and
reducing fees while increasing interest rates to draw in more
business. They can remain flexible while offering advantages just
because of the laws in the countries they are located. There are
interest rate benefits though, just in a different account type.
Savings interest rates are a whole other topic. Offshore banks
usually do offer higher rates for savings accounts than their
onshore competitors. This interest rate also gets better the larger
the lump sum or frequency of contribution the client can commit.
Longer amounts of time also increase the potential for higher
interest rates. It is suggested to use a combination of offshore
banking accounts for the optimal returns and flexibility. Truly
high interest rate offshore bank accounts are not too easy to come
by, and they don’t offer the flexibility of lower interest current
accounts. A combination of high interest savings accounts, for
long term returns, and a low interest rate current account for,
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accessibility to your money is probably one of the best investment
package strategies for maximized profit from offshore accounts.
COMPANY CASES STUDIES
1) Intermediate Group
Holding Company
Telco Ltd., a company
incorporated and managed in
South Africa and engaged in
telecommunication services,
is going to invest in China.
Its Chinese operations will be
both manufacturing and
providing services. Telco
intends to penetrate the
Chinese market for
telecommunication, and
according to some market
research carried out before,
the operations will be highly
profitable within a couple of
years. How to structure
Telco's investment in a tax
effective manner?
Suggested solution:
Dividends paid by the
Chinese subsidiary to the
South African parent will not
trigger Chinese withholding
tax if the South African
investor qualifies as a
"foreign investment
enterprise" under Chinese
law. This is the case, among
others, if the Chinese
company is wholly foreign-
owned. Upon receipt of the
dividends by the parent in
South Africa, additional
South African corporate tax
may be due.
The channeling of the
dividends to a group holding
company, and subsequently
to the South African investor
in such a way that South
African tax due on the
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dividend received, could be
an interesting solution.
This could be achieved
by structuring the investment
through a Seychelles group
holding company established
as a CSL (special license
company) under Seychelles
law. The dividends received
by this company are only
subject to 1.5% tax in the
Seychelles.
Due to special
provision in the treaty
between the Seychelles and
South Africa, no further tax is
payable in South Africa upon
redistribution of the
dividends to the parent, if
any. Therefore, the maximum
tax burden is limited to 1.5%.
If this would be
preferred, the dividends
Personal service company.
2) Albert Smith is
currently working in
Luxembourg as an
independent IT
consultant through a
Luxembourg management
company. Therefore, he is
currently paying Luxembourg
taxes (rates up to 38%).
Mr. Smith is going to
conclude a new service
contract to work in Italy for a
US-company. The US
Company has a European
office in the UK. It is
contract work and the US
Company is using Albert's
services by sub-contracting
him out to one of its clients in
Italy.
Mr. Smith wonders
whether he can reduce his
Italian income tax exposure
(rates up to 45%), for
example, by using an
offshore company which is
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OFFSHORE BANKING T. Y. B & I
directly or indirectly
controlled by him.
Suggested solution:
Mr. Smith could set up
a new personal service
company in country which
has a good tax treaty with
Italy, thus ensuring - with
some proper structuring - that
any fees paid for Albert's
work in Italy are taxed in the
country of residence of the
service company. The
company makes Albert
available for working in Italy.
The personal service
company is fully owned by a
personal service company set
up by Albert in an offshore
jurisdiction. Thus, it is
necessary that the service
company is established in a
country which does not levy
a withholding tax on
dividends paid abroad.
A country meeting
these conditions is Malta.
Although the Italian-source
fees received by the Maltese
company are subject to tax at
a rate of 35%, two-thirds of
the Maltese tax will be
refunded upon the
distribution of the dividends
offshore, thus reducing the
tax burden in Malta to
11.67%. Malta does not levy
a withholding tax on
dividends.
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OFFSHORE BANKING T. Y. B & I
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OFFSHORE BANKING T. Y. B & I
CHAPTER
Conclusion
Conclusion
Many economists
argued that offshore banking
sector represented the new
beginning of the international
capitalism. They traced the
evolution of the offshore
banking sector to the
development of transnational
corporations. In this context
the evolution of the
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OFFSHORE BANKING T. Y. B & I
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 foreign and
domestic industrial entry,
systems of supervision and
liquidity requirements,
constraints on the issue of
foreign and domestic bonds,
the admission of securities to
capital markets, stock
exchange, insurance
regulations ; company laws
which restricted business.
Also it has to be
mentioned from the
international perspective
there was a lack of coherent
set of international fiscal
principles and laws in which
transnational company could
operate across border.
The evolution of the
offshore banking center is
described from the
perspective of its tax and
banking functions. More
recently, however, other
constraints onshore have
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OFFSHORE BANKING T. Y. B & I
served as an incentive
element which pushed for
offshore investment and have
emphasized the importance
of that investment. These
include: the need to provide
for what is seen as the
vulnerability of professionals
and investors to creditors; the
desire to avoid onshore laws
and regulations which
mandate the reservation of
assets to spouses and heirs;
the need for savings and
investment vehicle for
ordinary persons.
Offshore banking
center came with innovative
solutions to all these
constraints that were
mentioned above. Let us refer
for example to taxation.
There are 3 models of
offshore banking centers
from the perspective of
taxation: with zero-tax (here
even residents do not pay
taxes); with low-tax; tax at
normal rates but exemption
or other preferential
treatment is granted to non-
resident investors or
investment for certain
categories of income.
Notwithstanding the
fact that the above categories
refers only to tax aspects of
offshore banking activity, it
clearly shows the scope of
such centers.
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OFFSHORE BANKING T. Y. B & I
Bibliography
From the International Banking & Insurance
textbook of T.Y. B&I.
INTERNATIONAL BANKING – K
VISWANATHAN
INTERNATIONAL BANKING – DEEPAK
ABHYANKAR
Webilography
www. Wikipedia.com
www.ANSWERS.COM
www.HSBC.com
www.google com
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