OFFSHORE BANKING

Presented BY

Kashif Hussain

R.no: 27

OverviewIntroductionFinancial servicesConcernsDuties of licensed offshore banksProhibition of certain accountsAffect on the international financial systemOfferingsCustomersOffshore banking location criteriaAdvantages & DisadvantagesConclusion

Offshore BankingOffshore banking refers to the deposit of funds by a company or individual in a bank that is located outside their national residence. Usually in a jurisdiction, that offers low tax or tax haven(a state where tax is levied at low rate or not at all). Although the term implies that these banks are located on islands, many offshore banks are, in fact, found in onshore locations, such as Panama, Luxembourg and Switzerland.

Functions of Offshore BankingAn offshore bank provides the same services as an onshore

bank does. It is an institution in which to deposit savings, and it also provides investment services for its clients. Depositors do not need to go in person to open an account. Because offshore banks are found in places that would entail long travel times, they frequently open accounts based on certified documentation of the individual, identity, and assets. For large deposits, accounts may be established through onshore intermediaries located in the depositor & country of residence.

Purpose of offshore BanksAccess international credit market Access international correspondent account networks Provide clients with tax effective loans Provide clients with actual banking secrecy Accept deposits outside the controlled environment Avoid strict debt-equity ratios and lending restrictions imposed

by more severely regulated onshore jurisdictions Avoid huge minimum capital requirements imposed by more

severely regulated onshore jurisdictions Operate in the securities market without limitations

Financial ServicesCreditWithdrawalsForeign ExchangeElectronic Funds TransferLetter of Credit and Trade Finance Trustee ServicesInvestment Management

ConcernsLinkages with criminal organization and

underground EconomiesIncome tax policies of Different NationsMinimum Capital Funds

Duties of Licensed Offshore BanksOffice and locationSecrecy of Customer AccountEntertain Customers From politically unstable

AreasFacilitate foreign tradeDiscourage the activities like money laundering

Prohibition of Certain AccountsNo licensed offshore bank shall accept any money

on deposit or loan which is repayable on demand by cheque, draft, order or any other Instrument drawn by the depositor on the licensed offshore bank.

No licensed offshore bank shall open an account for a customer whose identity is not known to the offshore bank.

How does offshore banking affect the International financial systemOffshore banking is significant segment to

international financial system as it is, some of 50% global capital flows through offshore centers as according to global wealth report.

Almost one third of “ High net worth individuals” $6 trillion out of $17.5 trillion hold offshore.

According to IMF between $600 billion and 1.5 trillion of illegal money if laundered yearly that is equal to 2-5% of global economic output.

Contd……..It is believed that the drug money world wide is approximating

to $500 billion is laundered offshore. This is more than 20% of the accumulated income of world poorest nations.

In addition $1 trillion is added from tax evasion and some more hundreds of millions of dollars is obtained from corruption and frauds.

Among offshore banks, Swiss banks hold an estimated 35% of the world's private 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

OfferingsSaving AccountCheaper LoansMoney TransferTax PlanningDeposit taking and providing custody for accounts

from disputed areas.

Customers of Offshore Banks Individual ClientsHigh Net worth individualExpatriatesBusiness Owners etc.

Corporate ClientsMultinational CompaniesShipping Companies etc.

Offshore Banking LocationThe principal criteria in determining the location of an offshore bank are:LegislationThe banking legislation of a suitable offshore banking centre should

permit:Low capitalization without statutory minimum capital and reserve

requirements Loan raising without mandatory debt-equity ratios Unrestricted lending activities Complete foreign ownership of offshore banks Cash management without minimum liquidity rules Non-disclosure of client activities

Contd…..TaxationExchange controlsOther criteria

Political and economic stability Availability of banking and professional expertise Access to telecommunications

AdvantagesLow tax or tax free environmentNo exchange controlMore competitive interest ratesSmall amount of required equity capitalNo reserve requirements and liberal bank controlProtection of funds for people from disputed areas

DisadvantagesLack of Financial SecurityAssociations with Underground EconomyHarm to Government Tax RevenuesTax Competition: A Race to the BottomChanging Tax Burdens

Examples of offshore Banks1.Banca Privada d’Andorra (Andorra), 2.Banque Audi

(Lebanon), 3.Bank of Tokyo-4.Mitsubishi UFJ (UAE, Japan), 5.Bank of Valletta (Malta), 6.Bank SinoPac (Taiwan), 7.Butterfield (Bahamas, Bermuda, Cayman Islands) 8.Crèdit Andorrà (Andorra, Panama), 9.Crédit Libanais (Lebanon), 10.Credicorp Bank (Panama), 11.Finansbank (Turkey), 12.FBME (Cyprus, Tanzania), 13.HSBC (Hong Kong), 14.Is Bank (Turkey), 15.Jyske Bank (Gibraltar), 16.Maduro & Curiel’s Bank (Curaçao), 17.National Bank of Abu Dhabi (UAE), 18.OCBC (Singapore), SEB (Estonia, Sweden), 19.State Bank of Mauritius (Mauritius) 20.UBS (Switzerland), 21.Arab Bank (Jordan, Lebanon, UAE),

ConclusionOffshore banking is the significant part of banking

because of its affect on international financial market.

Its been successful in safeguarding the funds of clients from disputed areas

It has been successful in providing the tax effective environment

However there is always a danger of associating it to criminal and terrorist organizations.

It can easily be used for money launderingIt has its pros and cons but it depends upon the

clients that how they utilize it