Is It Legal to Have an Offshore Bank Account?

Yes, now let’s all go out for a drink.

Just kidding. We take this question very seriously as asset protection professionals. But we’re also human, and understand why offshore accounts sometimes get a bad rap (and rep). If you’ve only heard about them in crime dramas or outrageous news reports, you’re hardly to blame if you’ve gotten the impression that offshore banking is, well, a bit shady. Today, we hope to show you such impressions are mythical and in fact, ordinary citizens open perfectly legal offshore accounts all the time. And to their benefit, from a lawsuit prevention point of view. (For more, see Why Ordinary People Set Up Offshore Bank Accounts.)

But what about the not-so-ethical Americans?

Brutal Reality, Coming Up Cold: Yes, you can use an offshore account to commit illegal acts. But if you do, that’s on you, not the offshore account. 

The truth you haven’t heard yet is that there’s nothing--absolutely nothing--inherently illegal about Americans using these accounts. In fact, it’s often a smart move from an asset protection standpoint. Let’s sort out legal fact from legal fiction when it comes to offshore banking. Along the way, you will find some helpful tips for operating a current or future account.

Legality of Offshore Baking: Can Americans Use Offshore Banking?

Let’s take a quick look at how American law has addressed the subject of offshore banking as of 2019. We must focus on U.S. law this time, though there are plenty of excellent reasons why individuals from other countries may enjoy the benefits of offshore banking. If you’re among them, check with a qualified lawyer in your jurisdiction.

There isn’t a single piece of American law that restricts any citizen from owning and operating an overseas account. This has always been a perfectly lawful method of asset protection, and you don’t need to explain your reasoning for opening an offshore account to anyone at all. Except your attorney, who should be in the loop when considering opening foreign accounts, moving money in or out of the country, or making other financial moves that could affect you or your businesses legally.

Major financial transactions CAN impact your legal structures in ways you’re unaware of--so you’re not “bugging” your attorney by asking him or her to do their job. It’s their job to let you know about legal traps you could fall into, but the bank for instance, has no such obligation.

Warning: Foreign Scammers Will Use Ignorance of the Law Against Americans

One thing to be aware of is that scammers are aware that Americans generally don’t know their own law, let alone that of other countries. Scammers simply create accounts OFFERING banking services directly. “Directly” means via email, personal message, something you either must click on or download an attachment to see in full. These types of messages are almost always a type of scam for your information known as phishing/spearphishing (which REIs are targeted for). Scammers often lie about American law to try to pressure you to click links, take bait, or even just keep talking. 

Here’s what to do if you get a fishy email: shut your mouth, don’t reply, and don’t even click on anything.  STFU, for your own sake. Google the company, at least. If it doesn’t exist, scam confirmed. And that’s why we don’t talk to strangers about offshore accounts.

It’s critical to vet any foreign bank you intend to use to ensure its legitimacy before you even begin broaching the topic of opening an account. You’ll want to also check out reviews from other foreigners about the bank. There are entire sites dedicated to assisting you in finding reviewed, legit offshore options. But there is also real law in pertaining to U.S. citizens about their conduct in using offshore accounts.

The law known as the Federal American Tax Compliance Act (FATCA), is the most essential law you should understand. We’ll dive deeper into its spirit below, but for now, what you need to know is basics of the law itself, since it does apply to all of us as federal law.

Introducing FATCA: The Basics and How the Law Can Affect Your Offshore Account

Here’s the deal with the FATCA, and once again, that’s the Federal American Tax Compliance Act of 2010. It was amended in 2014, the most recent change at the time of this writing.

Now federal law may sound very scary and authoritative, but it’s just basically a reminder to not do the kinds of illegal things we strongly suspect haven’t even crossed your mind. After all, you’re smart enough to be reading RLS’s content. We know your style’s more about following the law than trying to figure out how to break it.

That’s why we’ll reward you by cutting to the chase about FATCA’s requirements:

• Uncle Sam divides up American citizens for the purpose of this law into those living abroad, earning abroad, or remaining at home. Noncitizens/green card holders are separate.
• FATCA laws are about how to report your taxes, not how to use your account. “How” questions are up to the account’s country, not yours.
• To comply with FATCA’s reporting obligations, you might need to fill out the following: 
  • IRS Forms, usually Form 8938. Even then, the lowest number you’re obligated to report is at the $50,000 mark for unmarried or single-filing individuals. You may not even have to worry about reporting, but of course don’t assume--check.
  • Other forms from an agency known as FinCEN. FinCEN’s website lists their requirements and who must file clearly and plainly.
• Laws covering your account’s use are the foreign country’s laws on the topic. To be certain of your own compliance, check the laws in the country hosting the account. 
• FATCA is still mostly for the foreign banks, not U.S. Citizens.

If you’re ultra-curious about the tax law, our research team found the most palatable article on the subject straight from the horse’s (read: IRS’s) mouth. Our writing team found you the most tolerable yet comprehensive explanation from IRS.gov. Even though they’re pros, read it at your own risk. It’ll likely collect dust in your bookmarks, unless you’re a CPA/financial pro. In which case you may be in for a riveting night of hot, fascinating intimate IRC details.

Is Offshore Banking a Form of Tax Evasion?

Certainly not, because tax evasion is a crime. Again, there’s nothing criminal about using an offshore account on its own. There is, however, a grain of truth to these suspicions.

Some Americans have mismanaged their accounts into illegal situations. Still others have exploited the asset protection gifts of offshore banking for blatantly selfish/immoral personal gain. In 2009, the U.S. Department of Justice took action against several institutions that were conspicuously setting up accounts and essentially advertising to global citizens seeking to outrun the Taxman. These actions preceded FATCA, which if you follow to the letter and don’t commit criminal offenses, makes your offshore account no more significant than any of the millions that other investors lawfully use.

News reports of individuals committing tax evasion might be true. You’re safe as long as you don’t join in. Or attempt to hide your banking activities from Uncle Sam if FACTA says you shouldn’t. Avoid those two things, and you’re set.

Staying on the Right Side of the Law With Your Offshore Bank Account

Since American law doesn’t say much of these accounts, it’s easy to comply. Provided you’ve followed the advice above, are complying with FACTA, and have at least one attorney and CPA on your side, you’ve got everything you need to get started offshore banking fearlessly. Heck, some of these banks will take as little as $500. If legalities are your only concern, you can stop worrying today and start considering your options--and helping pros.