Are you planning to open an offshore bank account? Well read this article and think again. Even though offshore banking is a completely legal way to manage your money conveniently and with more flexibility, it is not entirely hanky dory. There is always a dark side to everything. Before we make any decision assessing the depth of the dark is important. While most articles will sight out the advantages and the ups of offshore banking, this article will give you a good understanding of the disadvantages and downs associated with offshore banking.
Offshore banking has been linked to organized crime and underground economy through money laundering. Offshore banks, clearing houses and supposed tax havens have often been accused of helping terrorist groups, organized crime gangs, and state or non-state actors. Offshore banking sure comes with a goodwill risk.
Privacy and secrecy are not synonyms
One of the major reasons for people to consider offshore banking is privacy. Privacy means that you don’t need to publish your details publically like annual reports; it does not mean that you can conceal your income from your government. Privacy clearly means confidentiality and secrecy refer to as an act of concealment. And both these terms are very distinct. Whether you are a US citizen/resident or a citizen/ resident of UK or for that matter the citizen/resident of any other country you are legally bound to report your offshore bank account to your government. Hence confidentiality associated with your offshore bank account is an advantage of offshore banking, but the myth of secrecy associated with it is not.
The False Low-Cost Tag
Most of the people advocate offshore banking by attaching the low-cost tag to it. People who advocate the same, such as consultants from different tax havens are the ones who cost you more than anything else. When they tell you to conceal your bank account placed in their country from the government of your country and advice you to not report your offshore account in your IT return in US, Europe, Australia and Wherever is that you are a citizen and a resident of, they put you in tremendous trouble with your nations tax authorities. The low-cost tag can cost you a fortune in the form of legal fees, fines, and penalties.
A major disadvantage of offshore banking is that when you open an offshore bank account, you need to make a high minimum deposit. This amount surely varies from one bank to another, but it still requires you to make a high minimum deposit and maintain a high minimum balance in the account at all times.
Financial Crisis Risk
Another alarming reason for not indulging in offshore banking is that should the country of your offshore bank be hit with a financial crisis your money deposited in that bank will go unprotected, and you may incur a major financial loss due to the same. Hence if at all you wish to open an offshore bank then you must ensure that you have done enough research about your offshore bank’s guarantees.
No Depositor Compensation
Onshore banks usually offer their clients a depositor compensation scheme. However, if you are an offshore bank account holder, this will likely not be available to you. Offshore banks only guarantee only till a certain amount, any value of money exceeding that limit will be at a higher risk of loss in comparison to an onshore bank.
Ensure you make a wise decision around this concept because you obviously don’t want to make more effort in this direction if the acquired value is much lower than exhibited by most of the offshore banking’s devil’s advocate.