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Offshore banking

Globalization lays the groundwork for international entrepreneurship, advanced wealth management and asset protection. Offshore jurisdictions are financial centres with a prominent position for international transactions. Offshore financial centres can be the host state of a financial institution or used to register an international business corporation with international statue. The global financial system facilitates international payments in conjunction with several correspondent banks. As such, offshore banking is a going concern.

The scope and nature of the offshore industry allows for enhanced privacy. Therefore, financial institutions are unable to screen the legitimacy of all transactions. The result is that bank customers are often requested to provide supportive evidence of transactions, and information on their counterparts. Suspicious Activities Reports and Currency Transaction Reports are forwarded by financial institutions to the domestic Financial Intelligence Unit. Information can be share with law enforcement who decides on further action.

Offshore banking allows for financial privacy in a favourable jurisdiction for asset and wealth management. The upside of such enhanced privacy contains side effects as well. Financial institutions and jurisdictions that fail to comply with local regulation and international standards can be penalized. The international community sanctions unwilling individuals, nations and corporations and in its wake enablers like financial institutions. The objective of these sanctions is to trigger a response from the public to isolate and condemn rogue actors, where participants risk being dragged into identical regulatory sanctions.

The choice for an offshore jurisdiction to incorporate, manage wealth, and utilize banking facilities deserves attention. Over the years, offshore banking gained territory as a conduit for obscure activities. Legitimate customers often pay the price for forced intervention and regulatory action. Therefore, it is recommended for stakeholders to estimate risk and consider the banks’ profitability and capital position, the availability and functioning of a domestic deposit guarantee scheme, and the general risk profile of the bank.