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Offshore banking refers to banks that operate outside
the resident country of the bank's customer. Typically, these banks represent an advantage to
the customer over domestic banks. Lower taxes, more
privacy, and better security are examples of such advantages. Interest rates and service fees
may be structured very differently to fit the specific needs of the customer.
Offshore banks are regulated by local and international
agencies much like local banks. A common misperception of offshore banks is that they are used
to launder money, disguise the account holder from authorities, and to channel money without
being traced. But this is generally no truer of offshore banks than of domestic banks.
Compliance to law is what keeps all banks in operation and good standing, essential to their
main goal: making money. Security and reporting practices are often more conservative in
offshore banks, but are subject to international search warrants that cite probable cause.
Numbered accounts are always traceable back to their original individuals and institutions.
Reporting account activity to tax agencies is often limited or non-existent, but does not
excuse the customer from their own reporting responsibilities. Similarly, creditors generally
do not have access to offshore banking information.
International law has yet to force offshore banks and
individual account holders to report client offshore investment profits to resident countries.
A corporation can be established in the country of the offshore bank, its capital gains profits
exempt from tax reporting. Nearly all the major corporations in the world use offshore banking
to some extent. In recent years, competition in offshore
banking has created opportunities for individuals and
corporations of lesser means to be able to use this same tax shelter. Internet access, debit
cards, and credit card processing increase accessibility.
Offshore banks in more politically and economically stable countries offer additional security
for account holders. Tie-ins with limited national currencies is often minimized, resulting in
less volatile fluctuation in account cash value. Many offshore banks invest in global financial
instruments with the specific design to capitalize in any economic climate. That is, while one
country's currency value decreases, another may increase by similar proportions. Having
investments in both helps negate the fluctuation that more nationalized investments experience.
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