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Thinking about an Offshore Bank Account? Is Offshore Banking Even Legal? The Basics of Setting up an Offshore Bank Account

Have you ever wondered whether you might benefit from having an offshore bank account? Taking steps to ensure that your assets are protected and do not fall victim to frivolous lawsuits are not only perfectly legal, they can be part of any asset protection strategy.

Although the phrase “offshore banking” conjures up all types of negative images of criminals, money laundering, and tax evasion, these are false depictions. The reality is, business people and entrepreneurs all across the nation take advantage of offshore banking, and there are perfectly legal ways to move a portion of your savings to offshore bank accounts, whether it is for asset-protection or to take advantage of the very competitive interest rates paid by foreign banks, which can include up to 4% interest on deposits.

Why Store Your Savings Offshore?

You probably already knew that the United States is the most litigious country that has ever existed in the history of the world. In addition, the state of California, per capita, is usually either #1 or #2 in the nation for lawsuit filings, consistently, for year after year.  Some critics go so far as to claim that it is virtually impossible to avoid a lawsuit during the course of doing business in the state of California, and the likelihood of facing legal proceedings at some point or another dramatically increases the more successful your business becomes. More money, more problems!

In this highly litigious landscape, it is extremely common for business owners, partners, members, directors, officers, and others involved in the operation of the business to be personally named in the lawsuit papers whenever a legal claim comes up.

This can cause a great deal of frustration to the individuals involved – the whole point of a corporate form is to protect the business owners from individual liability. What is the point of going through all the rigmarole of keeping good business records, operating a business lawfully, respecting the corporate form, etc., if you will end up being personally named in a lawsuit from the get-go anyway?

Uniform Fraudulent Transfer Laws – When It Becomes Too Late to Transfer Your Money

The other shoe that drops, when it comes to dealing with lawsuits naming you as a personal defendant, is the operation of uniform fraudulent transfer laws, which basically restrict your ability to transfer your savings to protect them from lawsuits and liabilities, once you become aware of a claim. If you receive a written legal demand, if you are named in a lawsuit, or are served, by that point, it is usually too late to transfer assets. You can be sued for separate civil claims asserting “fraudulent transfers”.

This type of claim asserts that you did or are doing things to intentionally impede, hinder, obstruct, or otherwise impair the plaintiff to collect on their claim.  Liability does not have to be ascertained first, before a UFTA claim can be brought. In other words, a plaintiff can include this claim in their lawsuit papers, without actually having any evidence that you have engaged in any type of fraudulent transfers. All 50 states permit UFTA claims to be brought, and UFTA claims come with a variety of enhanced remedies, such as bank account freezes, pre-judgment attachment of assets, and seizures of assets. This stuff is ugly. And it can truly wreak havoc on your or your business’s finances.

With all these risks, it is easy to see why there are many reasons to store a portion of your savings away from the reach of predators.

The Basics of Going Offshore

Once you have made the decision to establish an offshore bank account, the question is how to go about finding a reputable bank that you can trust. There are many options available, and a matter of preference when it comes to how you prefer to do your banking.  Banks in Hong Kong, Singapore, Seychelles, Lichtenstein, Isle of Man, Panama, and other locations can offer a variety of savings, checking, and multicurrency accounts.  Foreigners can generally open bank accounts, without being citizens, provided the banks’ requirements are met.

Generally, it is easier opening bank accounts for a business than individual, so one of the popular options often involves setting up a business offshore, and then funding/capitalizing that business with the assets you would like to park overseas.  It is generally straightforward to have nominees in those countries serve as the business’s officers, secretary, or fulfill other roles.

What Do You Need to Open Offshore Bank Accounts?

To open an offshore bank account, you generally need to provide a variety of personally identifying information, such as your name, address, passport, utility bills, Social Security number, and other information. In some cases, a bank reference, such as bank statements for 6 to 12 months, is required.

Obviously, the goal with offshore accounts is to make banking as easy as possible, so that you do not have to make personal visits half-way around the world to make deposits or withdraw funds.  Although the restrictions are constantly increasing due to increased scrutiny from U.S. regulatory bodies, some advocates of offshore banking argue that this is all the more reason to open bank accounts now, so that you are grandfathered in, before even further regulations take effect as time goes on.

Things You Should Be Aware Of

With all that said, there are a few important points to mention, if you are thinking about taking advantage of offshore bank accounts.

  • Currency Transaction Costs.  It is important to remember that when banking offshore, your assets may be held in a different currency. This may allow you to earn interest on your deposit, but could result in foreign tax libel [liability?], depending on how much you [earn?] from interest. In addition, if you intend to make regular withdrawals and deposits, other than simply store those funds overseas for a rainy day, then you may end up paying expenses on exchanging currency at the exchange rates in place at the time.
  • Money Laundering and Tax Evasion.  The IRS has, in recent years, stepped up its aggressiveness in pursuing offshore banks that accept deposits from U.S. citizens, without investigating whether those monies are the product of money laundering and tax evasion. So, if you seek to deposit funds directly with an offshore bank, they request that you provide a variety of documentation that the funds you are seeking to deposit truly are savings, not revenues which you are seeking to avoid paying tax liabilities.
  • Risk and Risk Tolerance. Also, it should not be understated that offshore banking is inherently not right for most average Americans. It involves placing large amounts of assets in banks located in far-away locations, some of which do not have tax-treaties, legal reciprocity, or other recognizance of U.S. laws.  These types of investments are not right for the average American consumer that wants to ensure their assets are “FDIC insured” and have no appetite for risk, including the risk present in all investments, which is, the risk that you could lose 100% of the assets invested.

There are also a variety of transaction costs – dealing with lawyers, lawyers overseas, exchange rates, accounting professionals, tax professionals, and others that you will need to guide you to keep your offshore assets in compliance with U.S. tax, banking, and other regulations.  Obviously, the point of all this is to protect your assets, not to start engaging in tax evasion or transactions that could give rise to liability to U.S. regulatory bodies.


Getting Legal Help

AXIS Legal Counsel’s Business and Corporations Practice provides legal advice to numerous businesses with a wide range of business matters. Axis  represent small, medium-sized, and large business clients with a wide variety of business and corporate law matters. We represent early-stage companies as well as established businesses on a wide variety of business law matters, ranging from contracts and transactions, intellectual property, labor/employment law, business financing, mergers and acquisitions, real estate, insurance, business succession planning, and general advice and counsel.  For information on retaining AXIS Legal Counsel to represent your business in connection with any legal matter, contact [email protected] or call (213) 403-0100 for a confidential consultation.


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