Private banking in the Caribbean has developed almost beyond recognition from the early days. Suitcases full of cash being flown around tropical islands in small planes are now only found in the movies!
Offshore banks in the Caribbean now comply almost universally with tough international due diligence and KYC standards. In terms of services, security and stability, they compete very favorably with more traditional banking havens.
Services offered typically include online/internet banking, multi-currency accounts, offshore credit and debit cards with or without names printed on them, online brokerage accounts with access to exchanges around the world, around the clock… and even investments in physical precious metals like gold and silver.
Should you be looking at banking offshore for asset protection and privacy? I prepared the following FAQ about Caribbean offshore banks on behalf of Caribpro, to help you answer that very question.
What is Offshore Banking?
An offshore bank account is simply an account you open at bank outside your country of residence. For the bank, it is account held by someone who is non-resident in their country. In contrast, a bank in your country of residence would be referred as a domestic bank.
Isn’t Offshore Banking Illegal?
No. This is a myth, perpetuated by the media and some governments. Some people, myself included, would argue that the governments want to frighten people to keep their money in the country, where the government can control it more easily.
The truth is that opening an offshore bank account is completely legal in most of the world, including USA, Canada, Western Europe, Australia etc. Only a few countries with very strict capital controls (like North Korea) legally prohibit their citizens from holding offshore bank accounts.
What is of course illegal is evading your tax obligations, or failure to comply with reporting requirements established by law. Unlike with a domestic bank account, an offshore bank will not normally report anything to anybody, so the burden of reporting shifts to you. It’s therefore very important to have a good understanding of the way these rules might apply to you, either through reading and research, or through taking professional advice.
Do I need to be super-rich to bank offshore?
No, this is another myth. Of course for banks the cost of servicing accounts held by non-residents is usually higher. For this type of account, compared to domestic accounts, they need better qualified staff who get paid more and must frequently travel, make international calls etc. They also frequently need to hire international lawyers and compliance officers. So, most private banks do aim their services at wealthy individuals, and in terms of the fees charged for things like credit cards or wire transfers, the fees are usually higher than domestic banks.
If you invest more you will certainly get a more personalized service. But there are also offshore banks that are more than happy to cater to those with as little as a few hundred dollars to deposit. I would say that anyone who has a little nest-egg built up for their retirement should consider some kind of offshore diversification. Specific recommended banks, with their contact details, are listed in my Practical Offshore Banking Guide, available free to members of Q Wealth Report.
Why do people bank offshore today?
Despite the propaganda, I find most people going offshore today are usually not very concerned about taxes. They are usually looking to diversify globally and invest money on which they have already paid taxes, or tax-free money such as IRAs and other retirement accounts.
Most clients I refer to offshore banks are looking for geographical diversification. For example, they see the constant ‘stealth devaluation’ of the dollar, the pound and the euro, and would like to increase their international investing exposure. Or, they are concerned about being sued in today’s crazy legal system that awards multi-million-dollar judgments for minor errors, and they want to put as many legal roadblocks as possible in place to make their assets less of a target.
We also deal with people, young and old alike, from all over the world who are setting up small businesses in areas like e-commerce that don’t rely on a bricks and mortar establishment in one place. These businesses can often benefit from the expertise and services of the offshore banks in the Caribbean and beyond.
Are offshore banks safe?
Generally speaking, yes. Most offshore and private banks around the world are very well run and conservatively managed. They do not have investment banking divisions. They stick to traditional banking services that are possibly less profitable, but much less risky. The vast majority of the banks that have gone out of business or needed bailing out in the last few years were in the USA and Western European countries, with the notable exception of Switzerland where no bank has ever gone bankrupt in their entire history.
Of course, there are a few offshore banking scams around, and as with any other financial transaction, it’s important to exercise due diligence and caution. Further details of how to do this are available in my Practical Offshore Banking Guide.
What is the best country to open an offshore bank account?
There is no one-size-fits-all answer to this. It depends on things like your country of residence and citizenship, and also the purpose for which you need the account. Sometimes the actual bank you choose is really more important than the country, since the bigger banks have offices in many countries and can refer you to the one that best suits your needs.
There are however some offshore banking jurisdictions that have specialties. For example, Cayman is good for mutual funds, Nevis is good for Americans seeking asset protection, Panama is good for Latin Americans because of the language, the British Virgin Islands and St Lucia have strong connections in Asia, etc.
Do I have to travel to open an offshore account?
Not necessarily. The majority of banks do want to meet their clients in person, and most clients like to see the bank they are entrusting with their money. But some banks do allow for accounts to be opened by mail. Normally you will have to send certain documents, such as a bank reference letter and a notarized copy of your passport. Then they might follow up with a short interview by telephone or video-conferencing. Some private bankers also spend a lot of time on the road visiting clients.
Can US citizens open offshore accounts?
Yes, but it is more difficult for Americans. Because of the restrictions imposed by the US government, such as the HIRE Act and FATCA, many of the best offshore banks are now refusing to deal with Americans. It’s nothing personal, just that the cost of dealing with all the US regulations now makes it uneconomic to do business with Americans.
However, with the current crisis more Americans than ever before are recognizing the need to invest globally, so there is also a big market waiting for banks there. There are still a number of foreign banks that will open accounts for US citizens and residents. Some of them are listed in my Practical Offshore Banking Guide, mentioned above.
What about Caribbean Offshore Banks in the global context?
The Caribbean is particularly convenient for people from the USA and Canada, due to its proximity. This is part of its traditional appeal. Clients can fly in for a Friday meeting at the bank, spend the weekend on the beach or golf course, and be back in the office on Monday.
However, private banking is very much a global business these days and many clients are extremely mobile. Innovations like internet banking and international credit and debit cards mean that proximity is no longer so important. Many Americans are banking in the Far East, while Asian clients are choosing to open bank accounts in the Caribbean.
At the end of the day to choice is down to you. You need to find a bank and a banker you are comfortable doing business with, whether you are looking for a simple internet banking service with a debit card for receiving and accessing international wire transfers, or a long term, complex relationship of trust to look after your family finances for generations to come.
Bill Freeman