Three Distinct Types of Offshore Bank

In general the banks we work with, like all offshore banks, specialise in some or all of these three distinct offshore market segments:
Private banking: catering to rich individuals, including their personal investment companies, foundations etc Small commercial/retail offshore business: for those who don’t have sufficient balances to qualify for private banking International commercial banking: for international businesses requiring trading services
Allow me to explain in more detail...
Private Banking
Although private banking is not a simple business, there is a very simple model to keep in mind: "keeping rich people happy". The definition of private banking varies but is generally understood as investment management offered on a personal basis by a bank to an individual with disposable wealth of more than, let’s say, $1,000,000.
Private banks were originally so called because they were owned by wealthy private individuals. Under Swiss law these bankers were personally liable for the obligations of the bank. If a bank failed, bankruptcy was not an option. It was disgrace and jail. As a result, no old line private banks ever failed.
With globalization and the need to serve customers abroad, almost all the old ‘private banks’ have now been bought out and are subsidiaries of bigger international banks. Though, if you have the cash and the desire, there are a few true private banks remaining. Some of them are so discreet and private that to this day they don’t even have a nameplate outside their offices. Needless to say, you won't find then listed in this report either! But if you have over a million or so to invest, fill out the referral form and we can make suitable introductions.
Anyone can get a personal private banker assigned in an elite private bank with about €300,000 opening deposit. When we say walk in, you will of course need an introduction, identification and references.
Private banks offer all kinds of accounts, from simple cheque and deposit accounts to complicated commodity and swap operations, and even – yes – investments in sub-prime mortgage-backed securities.
Private bankers normally prefer to be approached and considered as objective financial advisers or family confidants rather than as an investment salesman. They are wealth managers, accustomed to dealing with the wealthy, and their services don’t come cheap.
Consequently private banks may not be the most effective choice for a reasonably sophisticated investor who wants to play an active role in the management of his investments. However, if you just want to stick a million in a safe haven, visit once a year on vacation and follow your portfolio on a monthly basis, then private banking is just what you need. You can expect and demand above-average returns and an extremely high level of personal service.
Family Office Services
A family office is a typically a private company or foundation that manages investments for a single wealthy family. The company's financial capital is the family's own wealth, often accumulated over many generations. Traditional family offices provide personal services, like managing household staff and making travel arrangements. Other services typically handled by the traditional family office include property management, day-to-day accounting and payroll activities, and management of legal affairs.
More recently the term "family office" or multifamily office is used to refer primarily to financial services for relatively wealthy families. Family office services are an extension of private banking. More and more private banks are offering what are, effectively, outsourced family offices. If you have a few million upwards to invest, you might want to ask about family office services offered by your offshore bank. Who knows, you could find such services very useful.
Small Offshore Commercial Business
Numerous offshore banks offer services to expatriates as they perceive such business to be relatively risk free, easy to manage, and profitable. In essence, expatriate services encompass managing accounts for people resident outside their home countries who may be employed, self-employed or retired. The focus of expatriate banking providers is online banking, call centres, and the provision of "packaged" investment products.
Although the service offered should be professional and online banking excellent, the relationship between the bank and client could not be characterised as personal or in any way similar to the relationship between a client and a top-flight private bank.
Be careful: Some banks try to get away with providing this level of service but calling it private banking. HSBC is one.
International Commercial Activities
Many of our readers are interested not just in investing, but in doing active business offshore. In such circumstances an offshore bank that specialises in private banking or expatriates will not be suitable. Our commercial clients seek similar services to an onshore commercial bank and will require access to some or all of the following services:
Cash management Foreign exchange and treasury services
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International trade - letters of credit, documentary collections, cross-border guarantees and global correspondents Bulk cheque clearing Risk management tools to cover foreign exchange risks, interest rate risk etc Financing Payment, receivables and payroll solutions Selling solutions: e-commerce and merchant services Expertise in specific fields such as energy, aviation, shipping, aircraft financing or real estate.
The Selection Process
OK, time for the next step. You have done your research and have found some banking ‘possibilities.’ They look fine to you, and you appear to be acceptable to them. With that first hurdle over, you need to apply some more selection criteria. When choosing an offshore bank, there are two main factors you must take into account (besides of course privacy which we have already covered):
Stability – is it a well established, solvent bank?
Quality of Service – are they fast and efficient?
Stability
Due diligence and KYB (“Know Your Banker”) is essential. There’s no point in jumping out of the frying pan into the fire.
There is no reason to save your hard-earned cash from your taxman or ex-spouse or other leeching types, only to have it disappear into a virtual black hole when your offshore bank closes its doors. Neither do you want your investment manager to churn away your money on “hot” deals that never pan out, but that bring him fat commissions.
These days with the internet, it is relatively easy for anyone to set up a bank. You need a licence, but jurisdictions you barely knew existed, like Montenegro or Somalia, will for a fee, provide all comers with a valid government-issued banking licence. Try to avoid banking in these high-risk areas as they attract far too many con artists and dreamers. Before investing any money, make sure the bank you are investing in is run by professional bankers and by some Eastern European teenager with good web programming and design skills, who just decided last month that it would be profitable to be a bank president.
Most financial houses seem solid until they collapse unexpectedly. The Marc Harris Organisation in Panama attracted many clients. Marc Harris is currently serving a long jail sentence in Florida. Swedish-run Bank Crozier of Grenada and St Lucia also seemed highly professional. Paritate Bank in Latvia impressed a lot of people with innovative products, flexibility and good customer service. Now they are all defunct. They all sank, taking with them their clients’ money. (Actually Paritate is back up and running again, but the old investors never did get their money back).
Another thing to consider when reviewing internet sites of banks in exotic locales: Any bank anywhere that appeals to shady characters will be (sooner, rather than later) shut down by regulators. You don’t want your hard earned money to get mixed up in such ugly messes. So stay away from banks that explicitly encourage you to hide your money.
It is almost unheard of for big banks in civilized, well-regulated first world countries, like the UK or Luxembourg, to be corrupt from top to bottom. But, of course, even the unlikely can happen! That is exactly what did happen not so many years ago with the Bank of Credit and Commerce International (BCCI) which was registered in the UK and Luxembourg.
The bottom line is that due diligence is important. Most offshore banks are highly reputable, stable, well managed and professional. It’s the ones that are not who grab the headlines. But it’s important to ask questions until you are entirely comfortable, and to ask for second opinions (from people who know what they are talking about) if you don’t feel totally confident in your own offshore knowledge. Don’t believe everything you read on the net or in a glossy brochure.
Quality of Service
“Different strokes for different folks,” they call it. You would be surprised how quality service means such different things to different people. To some, it might be a friendly old Swiss banker who will buy you lunch, give you a nice golf umbrella and chat for a few hours. He will want to learn all about your financial, business and social situation.
Other people may prefer a banker who just does as he is told and never suggests that you have any personal meetings. You may prefer it if your banker doesn’t even know what you look like. Maybe all you want is a good internet interface so you can wire money in or out in the middle of the night if you want to, with super smooth technological efficiency.
Some people love it that their personal banker knows and trusts them enough to move six or seven figures based on a single phone call or email. This would shock other of my clients who want to log in first through a five step encrypted security system with three passwords plus a one-time code generator operated by a 6-digit PIN in order to give instructions!
Buying banking services is like buying any other services. You can look at websites and brochures, talk to the people. How fast and efficiently do they respond to phone calls and emails? That is always a good indicator. I have dealt with banks who will reply to emails in a foreign language within five minutes if you e-mail them in the middle of the night, and others who simply absolutely never reply to email, or who specify on their websites that they will respond “within five business days.”
Then, too, nothing is forever. If you receive poor service or hear any rumours you don’t like, you can pull out immediately. At least you should be able to. That’s something worth checking too!
Understanding the Products on Offer
Products offered by banks around the world are broadly the same, though they often go under different names. However, there are products you might come across in the offshore arena that you may not be entirely familiar with, or you may not have known that such wondrous possibilities existed!
Here are a few definitions and explanations:
Safe Deposit Boxes
A safe deposit box is a locked box reserved for you in the vault of your bank. It’s a place where you can keep small, high-value items. People typically use safe deposit boxes for documents such as physical stocks or bonds, or for small, high value goods that they want to keep safe... like valuable coins, jewellery or a stash of microchips. You might keep these items for pure investment purposes – say gold bullion or uncut diamonds – or for more sentimental reasons (your great-grandmother’s wedding jewellery for example).
Typically you will keep the keys to the box, while the bank controls access to the vault where all the boxes are located. Normally the bank does not keep a duplicate key... so if you lose the key you will have to pay for a specialist locksmith to come in and break open the box, then you’ll have to buy the bank a new box too. Needless to say this is expensive, so do take care of your keys!
Multi-Currency Accounts vs. Multiple Currency Accounts
Different banks (and different countries) maintain different accounting systems.
Multi-currency accounts are quite common in offshore banks. These are very flexible in that they allow you to keep many different currencies in the same account. You have just one account number, but when you look at your statement on the internet you will see different balances... X amount of US dollars, Y amount of Euros etc. If you send a transfer to a multi-currency account, the bank will typically keep the deposit in the currency received, rather than converting it to any particular default currency.
Other banks also allow you to hold balances in different currencies, but operate on a different system – a separate account number for each currency. This means that, if you wish to operate in a number of different currencies, you need to maintain multiple accounts. The net result is basically the same, but you will have a series of account numbers and you must take care not to confuse them. For example, if you send US dollars to the Euro account number, the bank will assume you want to convert that balance to Euros and will do so without informing you.
Precious Metals Storage
Many Q Wealth members have invested in assets like gold and silver and have made huge returns on their money over the past few years as commodity prices have shot through the roof. Perhaps
strangely, however, if you ask the average banker how to buy gold, they don’t know – so they will tell you it is not a good investment. You have to be insistent.
Some banks offer a basic service where you can buy gold and simply store it in your safe deposit box. This certainly works, but may not be the most practical way of handling it. Why? Because each time you want to buy or sell, you have to visit the bank personally. Only you have access to your box. Fine if it’s around the corner, but not if it’s around the world.
There are various other practical ways of buying gold such as Perth Mint Certificates or Exchange Traded Funds.
However for the purposes of this report and understanding offshore banking products generally, suffice to say it’s important to understand the difference between allocated storage, and unallocated – also known as pooled storage. Both these systems are used by private offshore banks.
“Allocated” means that a certain piece of metal (specific gold bars, coins or whatever) belongs to you. The metals are stored in the bank’s general vault, rather than in a specific safe deposit boxes, but they are specifically allocated as your assets. For practical purposes, therefore, you can instruct the bank to buy and sell on your behalf without you having to travel there.
“Unallocated” or “pooled” storage means that the bank simply has X amount of gold in its vault, and allocates so many grams, ounces or kilos to your account as part of a book-keeping exercise. But the banker cannot in this case take you down to the vault and point out your specific gold bar. Again you can instruct the bank to buy and sell on your behalf.
Allocated storage of course is better, but pooled storage tends to work out a lot cheaper in terms of the actual fees the bank charges for taking care of the metals in its vault.
Numbered Accounts
Numbered accounts (or pseudonymous accounts, which are the same but are known by code words instead of numbers) are not all that different from normal bank accounts. The usual account records, such as statements and what regular bank staff can see in their computers, omit reference to the customer's name or other identifying information, replacing it with a code number or the pseudonym. The relationship between the code number or pseudonym and the actual customer is known only to a few senior managers within the bank.
It is important to emphasize that the bank has an obligation to know the true identity of both the account holder and its beneficial owner. There is no such thing as an anonymous account.
Typically the way numbered accounts work these days is that you will have a numbered account and a regular account in the same bank. Numbered accounts cannot be used for regular transactions such as wire transfers or checking. So when you want to make a deposit or withdrawal, your private banker will personally carry out a cash transaction at the counter between the two accounts. In the accounting records, the transaction will appear on your personal account as a cash deposit or withdrawal, so there will be no direct link to your numbered account.
Of course, within reason and subject to normal limits, you can carry out cash transactions directly on the numbered account.
Brokerage Accounts
A regular bank or ‘cash’ account is simply used for depositing and transacting in a currency such as pounds, dollars or francs. Your brokerage account, however, can be used for buying stocks, funds and other investments on the world markets. The brokerage account may be stand-alone, or may be linked to your offshore bank account in the same institution. Either way, you will typically have to transfer funds from the cash account to the brokerage account before you can buy stocks.
Plastic Cards
Almost all offshore banks will offer you the option of linking some kind of plastic payment card to your account. This may be anything from a hole-in-the-wall cash card through to a premium travel and entertainment card like the Platinum American Express or Diners Club. The most common brands, of course, are Visa and MasterCard, and there are even more variations on these cards than there are banks.
You personal banker will be happy to explain the range of cards available and what are the principal differences between products like debit cards, deferred debit cards, secured credit cards and so on.
What your banker will not explain, however, is that you may well be able to enhance your privacy by obtaining a card from a completely different bank.
Why? Because the moment you use a card issued in your name by your principal offshore bank, you are creating a permanent electronic trail in the systems of the card network operator (for example Visa). So your banking records are no longer exclusively held by your offshore bank. The card networks typically process data all over the world, exposing it to numerous jurisdictions where investigators might be tempted to go on fishing trips.
Anonymous Cash Cards
Like numbered accounts, anonymous cash cards do still exist, but there is a lot of hearsay and legend surrounding them. Here are the facts.
By anonymous cash card we refer to a plastic card which, together with a PIN code, can be used for withdrawing cash in automated teller machines around the world. It can also be used sometimes in merchants such as supermarkets, but acceptance is generally limited to certain locations. It’s anonymous because, unlike normal credit and debit cards, there is no name printed on the card nor encoded on the magnetic strip.
Anonymous Cash Cards
Like numbered accounts, anonymous cash cards do still exist, but there is a lot of hearsay and legend surrounding them. Here are the facts.
By anonymous cash card we refer to a plastic card which, together with a PIN code, can be used for withdrawing cash in automated teller machines around the world. It can also be used sometimes in merchants such as supermarkets, but acceptance is generally limited to certain locations. It’s anonymous because, unlike normal credit and debit cards, there is no name printed on the card nor encoded on the magnetic strip.
It is not 100% anonymous, however. You do have to show ID to obtain such a card in the first place, and you also have to comply with all regular know your customer and due diligence rules. There are also strict withdrawal limits. These restrictions are necessary to make sure the card issuing bank operates legally and to ensure that the cards are not abused by money launderers.
There is one very, very big advantage to the anonymous cash card. That is when you use it internationally, the transaction is processed only based on the card number. The card network operator does not know who you are. The due diligence information (like passport copy) that you have provided is stored safely offshore in the card issuer’s office, away from prying eyes and protected by strict banking privacy laws. This is in stark contrast to regular international debit cards which have names not just printed on the card but also embedded in the magnetic strip so the name can be captured electronically.
Another advantage of the anonymous cash card is that should it fall into the wrong hands, the loss is minimal. Without the PIN (which hopefully you have stored only in your head) the card is useless. There is no chance somebody could empty out your offshore account before you notice the card is missing. And, because it’s a stand-alone card, there is no chance that somebody could find out even the country, let alone the actual bank, where your principal offshore account is held. All you have to do is make one phone call and the card can be cancelled and replaced.
Finally, another advantage is legally avoiding reporting requirements. Anonymous cash cards do not class as a bank account. They are regarded as pre-paid products, something between the electronic equivalent of a traveller’s cheque and a pre-paid phone card. So if your country requires you to report offshore accounts, you don’t need necessarily need to report an offshore anonymous cash card. Note: this report is prepared for a global readership. Some countries may have differing rules in this regard. If you are not sure about the reporting requirements in your country of residence, please check with your local tax authorities or a professional qualified in your jurisdiction.
You might be wondering how, if the card is not linked to your principal bank account, you can withdraw money from it? Simple: it is a prepaid product. You prepay, by means of an offshore wire transfer, an amount you are likely need over the period you determine. You can keep these transfer amounts relatively low so they remain under the radar.
Pre-paid debit cards