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

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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

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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

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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.

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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

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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

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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

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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

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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

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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

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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

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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

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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

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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

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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

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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 :

59

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

59

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

59

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.

59

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

59

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

59

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

59

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

59

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

59

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

59

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)

59

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.

59

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

59

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.

59

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.

59

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

59

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

59

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

59

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

59

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,

59

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.

59

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

59

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

59

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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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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OFFSHORE BANKING T. Y. B & I

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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OFFSHORE BANKING T. Y. B & I

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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OFFSHORE BANKING T. Y. B & I

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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OFFSHORE BANKING T. Y. B & I

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