July 4: Offshore Banking Hidden Truths

by David Jenyns on July 4, 2007

In the legal community (lawyers, governments), offshore banking refers to a bank licensed to do business only outside the jurisdiction in which it is incorporated and licensed. This means that a bank holding an offshore banking license may connect in many of the activities including but not limited to savings, checking and loans normally carried out by any other bank.

Nevertheless this offshore bank cannot propose or give these services to the residents of the particular jurisdiction that the offshore bank is incorporated and licensed in.

Some jurisdictions allow licensed offshore banks to provide services normally provided by any other mainstream bank: in Vanuatu for instance, the ANZ and Westpac banks – despite being strictly speaking offshore banks to Vanuatu – can still provide any and all banking services to residents and non-residents alike.

Other jurisdictions, such as the United States, tend to limit the functions of offshore banks to the provision of a few specified services.

To the general community, an offshore bank is any bank outside the investor’s nation of domicile. For example, a US inhabitant maintaining any type of account in a bank in Canada would class that bank as offshore.

Any time you have money deposited or invested within a bank in a country outside the country in which you live and work, you are considered to be banking offshore even if that bank is only across an imaginary borderline – such as the one between the US and Canada.

You might believe that a bank is a bank, no matter what its structure – offshore bank, offshore licensed bank, or domestic bank. In reality, it makes no difference how a bank is actually set up and structured, where it is licensed or where it does commerce, since all banks generally use the same channels to facilitate the movement of cash.

Because all banks are indirectly connected through their correspondent and inter-bank relationships, in theory there should be no real confusion arising from bank transactions, regardless of jurisdiction.

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