Section 14

Evaluating Offshore Banking Centers

1. Political and economic stability
2. Government attitude
3. Exchange controls
4. Communications
5. Banking services
6. Secrecy and confidentiality
7. Location
8. Tax treaties

Depending on your personal viewpoint and objectives, the order of this list may vary. You may even have a couple of items to add. Let us consider each of these areas.

Political and economic stability - Political and economic stability are essential to financial and banking stability. Political factions, civil unrest and poor economic performances can threaten continuity in financial and banking services and undermine the strength of a small independent sovereignty like a tax haven.

Government Attitude - Government attitudes toward tax haven activities is important to stability. A political party in office today may favor tax haven business, but a change in parties may jeopardize the present financial and banking industries. A government that welcomes offshore business, and possibly offers financial incentives, sends a positive signal to offshore investors.

Exchange controls - The best situation is to bank in a country with no exchange controls. Some tax havens have imposed mild restrictions. It is important that depositors can freely move their money in and out of the bank and the country. Otherwise, why would one keep funds there. A country that imposes strict exchange controls is blatantly oppressive. Funds restricted from movement are always subject to possible confiscation.

Communications - There are two ways to do business with a foreign bank, in person or by some means of communication. With state-of-the-art communications and electronic funds transfer capabilities, there is little reason to visit your offshore bank, unless a vacation is in order. Good communications capabilities are more valuable than location. Funds can be transferred in and out of a bank offshore by simply writing, telephoning, faxing or telexing your account representative.

Banking services - Some countries offer superior banking services or services that are not made available in other countries. Switzerland, the Cayman Islands and the Bahamas are examples of state-of-the-art banking. But generally, bank services will be measured bank by bank.

Secrecy and confidentiality - Privacy is important and valuable in financial matters and offshore banking. In the zealous quest to fight crime worldwide, financial privacy has been eroded by government muscling. Some such as Liechtenstein and Austria guard this dwindling commodity by not succumbing to outside pressures. These countries have enacted and enforced strict laws governing confidentiality in financial and banking affairs that carry stiff penalties including fines and jail sentences. But not all countries do. If utmost privacy is desired, it is imperative to know in advance the secrecy laws of the tax haven and the practices of the prospective bank.

Location - Location is not ranked high on our list in this high-tech world, but occasionally it can be important. Additional privacy can be gained if you personally visit your bank.

Tax treaties - Many tax havens do not impose a withholding tax on interest, returns and profits like Switzerland where 35% is taken out before your money is given to you. The only way to avoid this tax is to bank in a country where none exists or where the country, as in the case of Switzerland, has a double taxation agreement with the United States allowing the American depositor to avoid paying taxes twice to two different countries on the same money.