Offshore Banking Unit
What are Offshore Banking Units?
An offshore banking unit is a branch of a multi-national bank situated in an international financial centre. Offshore banking units can accept deposits from foreign banks and other offshore banking units (OBU's) but not domestic deposits from the host country. This is to prevent competition between local and offshore banking sectors. They can use the deposits to make loans unrestricted by their "home authority" and they will usually receive concessions from local monetary authorities too. They may for example be exempt from currency controls, the minimum reserve requirement or interest rate restrictions.
Offshore Banking Units Worldwide
Offshore banking units are located in major banking centres and particularly in major offshore financial centres. For U.S. Banks the Cayman Islands, Honk Kong, Panama and Singapore are particularly favored due to their friendly regulatory environment and tax laws. Alternatives include Bahrain, the Channel Islands and other offshore tax havens which may fit a bank's particular requirements.
Offshore banking units have grown rapidly since the 1970's. During the 1980's some offshore banking units were experiencing more than 20% growth per year. Many private investors also flocked to these offshore banking branches to benefit from enhanced privacy and the ability to receive gross interest. Banking with well known brands helped to persuade these investors that their privacy was assured.
In the last decade offshore banking units have become more restricted as government administrations worldwide seek to curb tax avoidance and impose greater financial control over unrestricted "offshore money".
When they want access to accounts which they suspect contain "dirty money", foreign governments pressure the offshore banking branches of large international banks to give up offshore account information by leaning on the home branch. US banks are particularly susceptible. If authorities suspect an offshore banking unit of harboring tax-evading accounts, it can seize an equivalent amount of "evaded" taxes at the bank's home branch. This for the bank is almost the same as seizing the accounts themselves. Banks find themselves in a legal quagmire and forced to reveal confidential information against their will. For this reason offshore accounts at these kinds of offshore banking branches are not necessarily as private as the laws of the tax haven.
But it can also happen in reverse - the Swiss Bank UBS was forced to pay a fine and reveal confidential account information supposedly protected by Swiss bank secrecy, because it had branches in the US which authorities could threaten with legal action.
Find out about how to get yourself a confidential offshore banking account
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