Section 11

What is Banking Offshore?

Hollywood, the news media, prosecutors and others have all heightened our awareness of this colorful world, particularly in the past decade. And these stories can be flights of fantasy for the listener. As it has been said, "Truth is stranger than fiction."

But in the world of offshore banking, these activities constitute only a fraction of offshore commerce. For instance, most people probably do not realize that nearly every major U.S. corporation has established their own offshore bank, offshore insurance company, offshore trust, offshore corporation or any number of offshore vehicles to make more money, conduct international tax planning, disguise business activities and for a host of other reasons, all of which may be perfectly legal. Nor would most people care. On the surface, it just is not dazzling. But it may be very exciting to the accountant involved in orchestrating a multi-million dollar tax reduction strategy. The point is, day to day business activities of this kind do not warrant the public's attention and therefore seldom surface.

Nevertheless, legitimate offshore financial activities far exceed their criminal counterparts. If this were not true, all activities evolving from offshore would immediately be discredited by the established financial communities of the world. Weeding out criminal activities would be simple. However, the truth of the matter is, offshore banking, business, finance and investments have tremendous credibility and have international acceptance and recognition.

Aside from personal considerations and limitations, there are three significant reasons why an American is not banking offshore today.

1. They are turned off by the negative connotation associated with it.

2. They lack trust in foreign financial institutions.

3. They lack knowledge on the subject of offshore banking.

Let us take a moment to analyze each of these three reasons.

Offshore banking has a negative connotation - Derogatory images of offshore banking have prevailed over the truth that it is a multi-trillion dollar industry comprised of well established financial institutions. No wonder most of the world's rich squirrel their money and assets offshore.

Lack of trust in foreign financial institutions - Americans have maintained a false sense of trust in U.S. institutions, accounting for great losses as seen in the demise of hundreds of U.S. banks and savings institutions in the recent past. Guarantee agencies like the FDIC are also in big trouble. Many foreign financial institutions are hundreds of years old and financially stronger. They commonly maintain higher liquidity ratios than their U.S. counterparts. Distrust in foreign institutions has mostly to do with lack of knowledge of financial institutions and markets.

Lack of knowledge on the subject of offshore banking - In the eyes of many Americans, offshore banking is a dirty word, supported by well publicized events that grossly exaggerate or distort the industry. Governments are strong proponents of citizens keeping their money at home. As offshore banking is more complex than our traditional ideas of banking in our hometown, it may discourage an informative look at the unfamiliar. But the principles are actually simple, and while unfamiliar only at first, can render great rewards.