Increasing globalization of the world economy has resulted in a number of opportunities for individuals and corporations to not only make investments but also to hold bank accounts in other countries. Offshore Private Banking is one means by which funds can be deposited in a bank in an offshore location.
The term offshore denotes a foreign country. The term private bank originally implied that the stock of the bank was privately held. However, that may not necessarily be true anymore as a number of private banks are public corporations and have their stock listed on stock exchanges.
When we think of offshore private banks, we usually tend to think in terms of Swiss banks that have vast amounts of undeclared wealth and assets deposited under unnumbered individual bank accounts. However, there are a number of countries that have banks that provide offshore banking services.
What are the advantages of offshore banking?
Offshore banks are located in countries that are tax havens. These countries have either little or no taxes. The rates of interest that are offered on money deposited in accounts in these banks are also much higher than the rates that a bank in a regulated economy would be able to offer.
This has a compound effect on capital as businesspersons have the advantage of not having to pay taxes and have the opportunity of earning a higher interest rate on money deposited.
Offshore banks provide a high degree of personalized services to individual bank holders that nationalized or government banks would not be able to offer. These banks provide their account holders with portfolio management and advice on how to plan and organize their investments.
Confidentiality and discretion are the two major hallmarks of offshore private banks. These banks are protected by a number of laws that make protect them from having to declare an individual account holding. The laws of the countries where such banks are situated also impose strict penalties on banks that are guilty of breach of trust and confidentiality.
What are the major concerns about offshore banking?
Advocates of offshore banks may emphasize that these banks are healthy for the banking industry because of the above advantages. However, one of the major concerns of offshore banking is that the very advantage that sets them apart from other banks, namely confidentiality, makes these banks a source of illegal flow of money and money laundering.
As a result, the funds from offshore banking activities are often used to fund organized crime, and terrorist activities.
However, an increasing number of legislations are being contemplates to control money laundering by international account holders in offshore banks.
As a result of specialized services and the higher rate of interests, these banks will always remain an attractive investment option. Offshore Private Banking will probably be subjected to greater control and regulation to address the concerns of money laundering and illegal flow of money.