Is Offshore Banking Synonymous with Money Laundering?

Typically when you hear about someone or a company having offshore accounts, the first thing that comes into your mind probably is that the ill-gotten money has been stashed away from local authorities. But is it really so?

What if the business or person has legitimate reasons to keep money out of the country? What makes it this activity in line with law and what makes it illegal?

Malicious people and parties that either earn money though illegal activities or hide the income, prefer to use cash as it can be difficult to trace. When the money starts rolling in, so does the expenses.

This creates an issue as the lifestyle and expenses cannot be hidden and when it comes to the authorities, these people will eventually be investigated and asked to justify it as their legitimate income sources will be insufficient to keep up with their expenditures.

To avoid this, people involved in illegal activities will need to introduce the money back into the financial system. This is far more easier than it sounds. They cannot simply walk up to their bank and deposit large cash amounts as it would certainly raise suspicion.

The preferred method of avoiding authorities snooping around is to move the cash out of the country. This can be done through several methods, including using bogus bank accounts to send money across the border to a tax friendly nation.

When done, this money can be sent back through regular banking channels as “white/clean money”. Since it is done in a legal way, no one asks around and the bad actors continue their work.

People and companies can and do use offshore banking and it is a pretty common practice. There are several reasons to do it.

In case of an individual, the person could be a multi nationality holder and live in different countries. The same person (and even a firm) could have business interests that would require to have a banking account offshore.

Another reason is tax havens. Many countries offer lower taxes and that means investing money there means you pay less to the government. Some nations even don’t have any taxation system at all.

Another popular reason is the stability of the economic conditions in the country.

Developed nations can have far lower inflation rates and saving money there means hedging against value erosion.

When it comes to differentiating between money laundering and legal offshore banking, it can be a tricky situation.

Until a few decades ago, the banking sector wasn’t digitized enough and moving money was easy (in some countries, it still is easy as the banks still rely on using paper based working systems and are still in the process of transitioning to a complete digital landscape).

Though over the years, banks, financial institutions and regulatory authorities have gotten smart, they face ever new ways of thwarting money laundering. Rise of digital payment processors, banking alternatives such as cryptocurrencies and other means make it difficult.

Many countries such as USA counter this by having laws that people and firms have to declare their foreign assets and even pay taxes on these if they intend to bring it back home or gain profits from it.

The first thing you should do is to check that as a citizen of your country, can you legally operate and maintain an offshore account? Consult a banking and/or tax lawyer to know what exact prerequisites are placed under KYC and AML laws.

If having a foreign currency that offers stability in terms of inflation hedging is your target, you might find that having a foreign currency account in a local bank might be a better and much easier option.

Many banks around the world offer different currency accounts apart from the local one and you can keep your foreign currency within the legal jurisdiction of your country without the worry of having another bank half a world away.

But if you want to have a business in another country, or simply want to enjoy lower taxes/higher profits, you will be better off having an offshore account. We suggest you to look up countries that offer what you need and that you contact a reputable bank.

Just don’t forget to check up with your authorities on any restrictions, asset declaration or filing income and paying your taxes!

There are hundreds of thousands of legal offshore bank accounts, may be in the millions but that doesn’t captivate our minds. Always remember that you have to make sure you’re doing it right — otherwise, your plan can backfire and result in monetary penalties, even some jail time.

If you aren’t sure whether you can set up your offshore bank account in the right way, at the right jurisdiction, you should connect with an experienced and reputable agency/service.

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