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Offshore Banking – How to Carry Out Due Diligence on Offshore Banks
OK, so you’ve decided to open a bank account. You’ve done your research and found some banking ‘opportunities’. They seem good to you and you seem acceptable to them. With this first hurdle over, you need to apply some other selection criteria. When choosing an offshore bank, there are two main factors to consider (besides privacy and confidentiality of course)
- Stability – is the bank well established and solvent?
- Quality of Service – are they fast and efficient
Due diligence and KYB (“Know Your Banker”) are essential. There is no point in jumping from the frying pan into the fire.
There’s no reason to save your hard-earned money from the taxman or your stingy ex-husband, only to have it disappear into a virtual black hole when your offshore bank closes its doors. Nor do you want your investment manager to throw your money into “hot” deals that never pan out but bring in hefty commissions.
These days with the internet, it’s relatively easy for anyone to set up a bank. You need a license, but jurisdictions you barely knew existed, like Montenegro or Somalia, will provide all comers with a valid government-issued banking license for a fee. Try to avoid banks in these high-risk areas as they attract many fraudsters and dreamers. Before you invest money, make sure the bank you are investing in is run by professional bankers and not some Eastern European teenager with good programming and web design skills who just decided last month that it would be profitable to become a bank president!
Most offshore financial houses seem stable until they suddenly collapse. The Marc Harris organization in Panama attracted many clients. Marc Harris is currently serving a lengthy prison sentence in Florida. The Swedish-run Crozier Bank of Grenada and St Lucia also looked very professional. Paritate Bank in Latvia impressed many with innovative products, flexibility and good customer service. Now they are all extinguished. All sank, taking their customers’ money with them. (Paritate is actually back up and running again, but the old investors never got their money back).
Another thing to consider when reviewing bank websites in exotic countries: Any bank anywhere that appeals to shady characters will be shut down (sooner, not later) by regulators. You don’t want your hard-earned money getting 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 and well-regulated first world financial centers like Luxembourg to be corrupt from top to bottom. But, of course, even the impossible can happen! This is exactly what happened not 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 proper care is important. Most offshore banks are highly reputable, stable, well managed and professional. It’s those who aren’t who grab the headlines. But it’s important to ask questions until you’re completely comfortable and seek second opinions (from people who know what they’re talking about) if you don’t feel completely confident in your offshore knowledge. Don’t believe everything you read on the net or in a glossy brochure. Always ask for a copy of the annual report to begin with, and if you don’t feel confident analyzing it yourself, ask a professional like an accountant or financial advisor. Next, do online searches for the bank name and SWIFT code, which should bring up any negative comments or involvement in shady deals.
Quality of Service
“Different strokes for different folks,” they call it. You’d be surprised how quality service means so many different things to different people. For 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 know everything about your financial, business and social situation.
Other people may prefer a banker who does as he is told and never suggests that you have any personal meetings. You might prefer it if your banker doesn’t even know what you look like. Maybe all you want is a good web interface so you can transfer money or go out in the middle of the night if you want, with super smooth technological efficiency.
Some people like 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 my other customers 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 to provide instructions!
Buying banking services is like buying any other service. You can look at websites and brochures, talk to people. How quickly and efficiently do they respond to phone calls and emails? This is always a good indicator. I’ve dealt with banks that will respond to emails in a foreign language within five minutes if you email them in the middle of the night in their local time, and others that simply absolutely never respond to email, or that specify on their websites that they will respond “within five working days”. Well that kind of defeats the purpose of emailing, doesn’t it?
Then, too, nothing is forever. If you receive poor service or hear any rumors you don’t like, you can withdraw immediately. At least you should be able to. This is worth checking out too!
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