INSIGHT INTO OFFSHORE BANKING INVESTMENTS ******************************************************************************** Back  in 1986 ... 20 years ago ... I wrote and published a short  booklet,    "Offshore Banking Is Not Evil!" -- Over 85,000 copies  of it were sold (for $10) or given away. While surfing  the net recently, I found it posted on over a dozen sites ...  some of them even gave me credit for writing it (most didn't)  ... others used pieces of the report and included their own  opinions -- SO ... Here it is as it was first published  back in 1986 ...nothing has really changed since  then. OFFSHORE BANKING IS NOT EVIL! If  it weren't for the lies, distortions, and self-serving  propaganda distributed by the Government, the I.R.S., and the  Bankers, you wouldn't cringe every time you hear the term "Offshore Banking." Why? - Because most people haven't the foggiest idea of what Offshore Banking is, they simply  accept the distortions they read in the controlled media and ASSUME that Offshore Banking is some form of criminal  activity. Or, they ask their lawyer, accountant or financial  planner and he, being as uninformed as they are, advises that  it is too risky, illegal, immoral, or unethical. The  fear and suspicion surrounding Offshore Banking is really only  a matter of "Lack of Knowledge & Information". Very few  people, including both those who condemn it and those who  promote it, really KNOW what offshore banking is. BUT, the  Government, the I.R.S., and the Bankers do know that money  held outside the U.S. is money they cannot legally control,  tax, or use for their purposes. That's why they are adamant in  their defamation and condemnation. They don't know what it is,  but they know it takes money out of their  hands. Unfortunately, those who promote offshore  banking have done little, or nothing, to alleviate or satisfy  the fears and suspicions of the public. As a matter of fact,  because they themselves do not know what offshore banking  really is, these promoters have given the Government, the  I.R.S., and the Bankers the ammunition needed to keep the  public in a state of fear and suspicion regarding offshore  banking, investments, and opportunities. Helping keep your  money in U.S. banks; paying you less and taxing what little  you do earn. So... before we go any further... lets  define Offshore Banking. Then, unlike the politicians,  bureaucrats, bankers, and promoters, YOU will know what the term means. WHAT IS OFFSHORE BANKING? The term  "offshore banking" actually has TWO (2) different and very  distinct definitions; but, I couldn't find either one of them  in any of my dictionaries. One meaning is "MECHANICAL" and the  other is "FUNCTIONAL". Only by knowing both definitions and understanding the relationship, yet distinct differences,  between the two, will you be able to make a decision based on  KNOWLEDGE rather than ASSUMPTION. Since the  "Mechanical" and the "Functional" definitions of offshore  banking have been so intermingled and confused by almost  everyone, it will be necessary to, first define them  separately and distinctly, and then explain why the confusion  exists. MECHANICAL DEFINITION In the "legal" community (lawyers, governments, etc.) the term Offshore  Banking is: A bank "licensed" to do business only outside the  jurisdiction in which it is chartered &  licensed. That means: A bank holding an offshore  banking "license" may engage in most, some, or all activities  (including but not limited to checking, savings, loans, etc.)  normally carried on by any other bank -- but -- that bank CAN  NOT offer or provide those services to the "residents" of the jurisdiction in which the bank is chartered and licensed. An example: A bank, "licensed offshore," in  the Bahamas may offer its banking services to anyone outside  of the Bahamas -- but -- that bank CAN NOT offer or provide  those services to the residents of the Bahamas. Some  jurisdictions allow offshore "licensed" banks to provide any  and all services normally provided by any other bank. Other  jurisdictions (such as the United States) limit an offshore  "licensed" bank to providing some few specified  services. YES -- the United States, through the Federal  Reserve Board, does authorize offshore banking -- but -- so  U.S. bankers can continue to defame and condemn offshore  banking, the Federal Reserve Board has decided to call the  U.S. Offshore Banks by the officious title, "International  Banking Facilities (IBF)." "International Banking  Facility" or "IBF" means a set of asset and liability accounts  segregated on the books and records of a depository  institution, United States branch or agency of a foreign bank,  or an Edge Act or Agreement Corporation that includes only  international banking facility time deposits and international  bank facility extensions of credit. -- 12 C.F.R 204.8(a)(a)  published at Fed. Reg. 32429 (1981). The U.S. law,  although it does not call itself offshore banking, contains  the very elements under which offshore banks are licensed in  other jurisdictions -- i.e. the IBF must be licensed as a  bank; maintain a set of asset and liability accounts on the  books; and CAN NOT provide services to residents of the United  States. As you can see from the U.S. law authorizing  IBF's offshore "licensed" banks are most often (but not  always) A BOOKKEEPING SYSTEM ONLY. Offshore "licensed"  banks, by and large, are BOOKKEEPING SYSTEMS ONLY. For that  reason, they have a very, very low overhead cost in doing  their business. They do not spend their depositors money on  fancy buildings; redundant employee's wages; or the expensive,  non- productive accoutrements found in most U.S. banks.  Therefore, an offshore "licensed" bank is in a position to pay  higher interest to its depositors by virtue of the fact that  less money is spent on fancy and expensive non-productive  frills. Because offshore licensed banks are, by and  large, Bookkeeping Systems Only, they keep and maintain their  operational cash accounts in "checking accounts" with other  commercial banks. Checks drawn on the account are used by the  offshore licensed bank to pay its debts, make loans, invest,  pay interest, or any other normal business purpose. The  Bookkeeping System of an offshore licensed bank, which records  the assets, liabilities, income and expense of the bank,  maintains the records of the bank's depositors and allows the  officers of the bank to make investments and loans from the  public deposits held. The yield from those investments and  loans are the earnings of the bank, which are used to pay the  expenses of the bank and interest to the depositors and the net operating profit to the bank are much, much higher than in  a commercial bank with all of its expensive, non-productive  costs. FUNCTIONAL DEFINITION To the "depositor  public" at large, an Offshore Bank is: ANY BANK OUTSIDE THE  COUNTRY IN WHICH THE DEPOSITOR LIVES. That means: Any  bank outside the United States is an offshore bank, if you are  a resident of the United States. An example: If a U.S.  resident maintains an account of any kind in a bank in Canada;  that bank is an offshore bank for that account  holder/depositor. And, the same holds true for a Canadian  having an account in a U.S. bank. Any time you have  money deposited in, or invested with, a bank in a country  outside of the country in which you live and work, you are  "Banking Offshore," even if that bank is just across the  imaginary borderline between the U.S. and  Canada. Throughout this report, the terms "Offshore  Bank" and "Offshore Banking" shall be used for any bank or  banking service that qualifies under the FUNCTIONAL  DEFINITION, -- at anytime we refer to a bank under the  MECHANICAL DEFINITION, it shall be referred to as an "Offshore  Licensed Bank." Of course, any bank situated in the country where you live and work shall be referred to as a"Domestic  Bank." WHAT ARE ESSENTIAL DIFFERENCES? A Bank is a Bank is a  Bank is a Bank -- whether that bank be a Domestic Bank, an  Offshore Bank, or an Offshore Licensed Bank. No matter  how a bank is structured, where it is licensed &  chartered, or where it does business, ALL BANKS use the same  channels (exchanges, clearing houses, etc.) to facilitate the  movement of funds internationally and/or domestically.  Therefore, since all of the banks in the world are indirectly  connected through their correspondent and inter-bank  relationships, there is no real confusion arising from the  transacting of banking business. The confusion  regarding Offshore Banking is only a matter of "legal  jurisdiction," arising from the fact that no country may  impose its laws in another country without the country's  consent and cooperation. Because of the wide variety of  laws around the world, what is illegal in one country may be entirely legal in another country. Any country can, through  its various policing agencies, investigate any person residing  in their country for a violation of their laws. That same  country, however, has no legal right to investigate the  activities of any person in any other country without first  obtaining the consent and cooperation of the country in which  the investigation is to be conducted. Even then, the  investigation must be conducted under the law of the country  in which the investigation is to take place, not under the laws of the country conducting the investigation. As an  example: The U.S. can not investigate anything in Canada,  without the consent and cooperation of the Canadian  government, and the Canadian Government is totally within its  international rights to refuse to consent or cooperate in the  investigation, Further, countries will not (usually),  without a specific treaty or agreement, assist another country  in enforcing or investigating a crime that is not a crime in  their country. As an example: income tax evasion is a  crime in the U.S., however, in countries that do not impose an income tax, income tax evasion is not a crime. Therefore, those countries are not obligated (and usually don't) assist  the U.S., or any other country, in enforcing or investigation a tax law which does not exist in their own  jurisdiction. THEREIN lies the confusion -- Offshore  Banks, and Offshore Licensed Banks, located in countries that  do not have income tax laws do not (usually) assist the U.S.  Internal Revenue Service in enforcing, or investigation  violations of U.S. tax laws. Therefore, without the consent  and cooperation of those countries, the I.R.S. cannot (in most  cases) get information regarding financial transactions  conducted in those countries by Tax Evaders in the  U.S. Since the I.R.S. is the tax-collecting arm of the  U.S. Government; upon which the Government depends to collect  moneys for its self-serving purposes, the Government readily and willingly supports the I.R.S. in its condemnation of  Offshore Banking. But, why do the Bankers join in the condemnation? The reason is simple. If you take your  savings account out of a U.S. bank and place it, offshore, in a bank in another country, the U.S. bank doesn't have your  money to use any more. To keep you from doing that, the  Bankers jump on the bandwagon to condemn Offshore Banking;  even though a good many of them do have deposits from other countries and do, therefore, benefit from Offshore Banking themselves. As long as they can keep YOU confused, fearful and suspicious about Offshore Banking, they have YOUR MONEY in  their banks to use for this purpose. IS IT ILLEGAL TO BANK OFFSHORE? The U.S. DOES NOT and WILL NEVER have a law forbidding the taking of money out of this  country. WHY? No country that depends upon  international commerce for its existence can write such a law without destroying its own economy. And, if you will notice,  the U.S. has consistently and continuously had an  international trade deficit; which simply means we "buy" more  internationally than we "sell". If the U.S. had a law  forbidding or restricting the movement of U.S. Dollars outside  this country, we would have NO international trade. Companies  overseas would not be able to buy U.S. goods because they  wouldn't have any U.S. dollars, and companies in the U.S.  would not be able to buy goods overseas, because the companies  in those countries wouldn't be able to accept U.S. dollars. Therefore, you, as a resident of the U.S., may  legally move your money anywhere in the world you want. There  is NO RESTRICTION on the amount you move, where you move it,  or how you move it. The ONLY REQUIREMENT imposed upon  you by the U.S. Government is that you must "REPORT" any  movement of cash or certain monetary instruments out of this  country of $5,000 or more. If you've ever been on an  international flight of the U.S., you can probably remember  being given a form to complete that asked you if you were  carrying cash or bearer form negotiable instruments over  $10,000 in value. If you read the complete form, it told you  that it was NOT ILLEGAL to have the money with you, or to take  it out of the country, but it was illegal not to report  it. REPORTING REGULATIONS How many times have you been told that, if you send a deposit of more than $10,000  to an offshore bank, you MUST report it to the  Government? THAT'S WRONG! The law (P.L. 91-508,  31 USC 5316) requires ONLY the reporting of the transportation  of "currency or certain monetary instruments" in an amount  exceeding $10,000. That means: You may move as much money as you want offshore, at any time, WITHOUT REPORTING IT TO ANYONE, as long as you don't send "currency or certain  monetary instruments." You probably know what  "currency" is, but what are the "certain monetary instruments"  referred to in the law? Both "currency" and the "certain  monetary instruments" are defined at law 1 CFR 103.11, as amended), and those definitions are repeated  here: CURRENCY: The coin and currency of the  United States or of any other country, which circulate in and are customarily used and accepted as money in the country in  which issued. It includes U.S. silver certificates, U.S. notes  and Federal Reserve notes, but does not include bank checks or other negotiable instruments no customarily accepted as  money. MONETARY INSTRUMENTS: Coin or currency of  the United States or of any other country, travelers' checks,  money orders, investment securities in bearer form or  otherwise in such form that title thereto passes upon  delivery, and negotiable instruments (except warehouse  receipts or bills of lading) in bearer form or otherwise in  such form that title thereto passes upon delivery. The term  includes bank checks, travelers checks and money orders which  are signed but on which the name of the payee has been omitted, but does not include bank checks, travelers' check or  money orders made payable to the order of a named person which  have not been endorsed or which bear restrictive  endorsements. If you will notice, the last phrase of  the definition of "Monetary Instruments": clearly states,  "does not include bank checks, travelers' checks or money  orders made payable to the order of a named person which have not been endorsed or which bear restrictive endorsements." (By the way, a "person" under the law  includes any individual such as you or me, and any legal  entity such as a corporation or bank.) So... if you  make a check or money order payable to an offshore bank (which  is a "person" under the law), even if it is for over $10,000,  you DO NOT have to "report" the transaction to  anyone. Or... if you have a check or money order which  is payable to you, you can endorse it with a restrictive  endorsement -- i.e., "Pay To The Order Of: XYZ Bank" -- and  you DO NOT have to report the transaction to anyone. By  the way, the U.S. Customs Service has published a circular  (Circular: ENF-4-$:E:P) for its employees which clearly  defines and illustrates (with drawings and pictures) exactly  which monetary instruments must be reported and which ones are  "exempt" from reporting requirements. Although you DO  NOT have to report your transactions to anyone -- no matter  how much money you send for deposit offshore unless you send  "currency" or the "certain monetary instruments") - - you will  still have to file a "Report of Foreign Bank and Financial  Accounts". (Treasury Form 90.22.1) on or before June 30 each  year -- but -- if you have 25 or more foreign accounts, you  won't have to report where those accounts are or how much  money you have in each account; unless the Department of  Treasury specifically asks you for that information at a later  date. Update 2006: Owing to the various "terrorist"  acts initiated since 9/11/2001, there have been some up dating's  and changes in most of the rules and regulations regarding the  movement of money worldwide. For that reason, you may want to  a search for "P.L. 91-508, 31 USC 5316" on Google. Although I  didn't find any major changes, there are some new rules and  regulations of which you should be aware. UTILIZING AN OFFSHORE ACCOUNT LEGALLY Anyone who holds a Checking or  Savings Account in a U.S. Bank may, legally, move that account to any other bank, anywhere in the world (offshore). If  you have a Savings Account in a U.S. Bank, the odds are that  you have already paid your income tax on that money; before  putting it in your Savings Account. Therefore, your only  further tax obligation on that money is to pay the income tax  on the interest you earn. As an example: If you are a  tax-paying, law-abiding person, and have saved $100 from your paycheck, you have already paid the taxes on your income. The  $100 is your after-tax money, therefore you don't pay taxes on  it again. At the end of the year, when the bank sends you your  Savings Account statement, you add your interest earnings to  your income tax statement and pay your taxes on that earned  income. The same thing holds true if you have your  savings account in an offshore bank. At the end of the year,  when you get your statement, you simply add the amount of  interest earned to your income tax and pay the taxes on that  earned income. HIGHER INTEREST EARNINGS Statistically,  Eurodollar (offshore) accounts pay at least 20%more than  domestic U.S. dollar accounts. You can prove it for yourself  by simply comparing the current U.S. T-Bill rate to the Euro-Dollar Bond rate; as published in the financial section  of your daily newspaper. The Euro-Dollar Bond rate is ALWAYS  higher by at least 20% or more. Beyond that statistical  difference, Offshore Banks can usually offer much higher  interest rates than their U.S. counterparts because one of the  highest non-recoverable costs of doing business in the U.S. is  taxes (income, property, ad valorem, etc..), significantly  reducing the earnings available for distribution to their  depositors and investors. Banks operating in, or from, tax  haven jurisdictions; not being burdened with those  non-recoverable tax costs, can offer their depositors a much  higher return. As a matter of fact, in some  jurisdictions (outside the U.S.), banking establishments are tax exempt on their earnings, or they are allowed certain  exceptional write-downs of earnings, in order to protect the bank's depositors. With the huge drop in interest rates  in the U.S., Offshore Banking opportunities have become even  more attractive. At this writing, interest rates offered in the Offshore Banking community are as much as 2 to 4 times the  interest rates available from U.S. Banks. (And, some offshore  investment opportunities are averaging as high as 6 to 8 times the interest earnings available from U.S. Banks.) MYTHS  & FACTS MYTH: Offshore Banks can't really pay the  high interest rates they offer because, if banks could really pay those rates, U.S. banks would try to meet the competition  and do the same. FACT: Take a closer look at the  financial statements of any U.S. Bank. You will find that  their "gross" profits against public deposits can range from  25% to 40% -- but -- they have written laws to limit the  amount of interest they can pay you on your deposit. The U.S.  banks put their earnings into unnecessary and non-productive  accouterments, while offshore banks do without the fancy  buildings and unnecessary frills and share their profits with  their customers.