Why Ordinary People Set Up Offshore Bank Accounts – Offshore Banking And Asset Protection

We are always getting questions about offshore accounts here at Royal Legal Solutions. Perhaps this is because offshore accounts are one way many investors become acquainted with some principles of asset protection, though the subject is also frequently misunderstood. Regardless, we thought it was high time to give you a straightforward guide to how these accounts work, what you need to do to open one, and how to manage an offshore bank account like a pro. 

Aren’t Offshore Bank Accounts for Criminals?

Of course not. You might see a couple allude to their vast offshore networks of hidden millions on primetime television, but that is truly the stuff of storytelling. The truth is decidedly less glamorous, but also decidedly saner. Almost anyone can open an offshore account, and furthermore, almost anyone can enjoy the asset protection benefits, privacy, and other perks of doing so. See Is It Legal to Have an Offshore Bank Account? for more.

An ordinary real estate investor may use an offshore account for a few reasons. Some basic uses include holding cash assets, taking advantage of foreign banking privacy laws, protecting income from legal attacks, or even preventing lawsuits altogether if used in conjunction with other asset protection tools. But that’s barely making a dent in the surface of the power of these accounts.

Now if you had asked a different question about the relationship between crime and offshore banking, we would have been forced to give you a different answer. So while these accounts are absolutely and unequivocally not “for criminals,” it would be dishonest to imply criminals have never used or attempted to use offshore accounts to mask ill-gotten gains. 

So, have certain types of criminals exploited offshore banking before? Sure. But most countries don’t like hosting criminals, even in their banking systems. Accordingly, many have enacted legislation to discourage crimes that could be facilitated by the use of an offshore account. Such crimes include money laundering or fraudulently establishing offshore accounts. 

Pay attention to how any country you’re considering banking in addresses or responds to these threats. A strong rule of law is desirable in your banking host country for a number of reasons, including basic stability of the account and currency. 

offshore banking

Benefits of Using Offshore Bank Accounts: The Appeal for the Ordinary Investor

Naturally, you can expect a lot of variation between countries. Each gets to make its own banking laws, and how well financial privacy is enforced is just one thing to consider. Yet even amongst all of this variation, there are some common threads. Of the perks we talk about below, it’s vital to be clear about the fact that your unique personal situation is going to determine which benefits you get and to what degree you will likely enjoy them. Here are just a few of the top reasons why perfectly ordinary people take advantage of offshore banking. You might be surprised by how downright innocent, even boring they are if your only exposure to the concept is fiction or the occasional sensationalized magazine article.

Stability and Control: Break Free of Banking As Usual

Destabilization of currencies isn’t just the stuff of dystopian fiction. It can and does happen around the world, perhaps more often than you think. If you happen to live in a totalitarian regime–or have an understanding of the stranglehold that dictators and unopposed leaders can have on a country’s economic prosperity–you already know this truth. Most Americans don’t worry about the U.S. Dollar, but take a look at what happens in countries like Zimbabwe that experience genuine financial crises. At one point, their government was simply lopping zeros off of the ends of their bills to combat hyper-inflation. The country set a world record by printing trillion dollar bills. While now that trillion dollar note may seem like a fun novelty to buy on Ebay, it was pretty serious business for everyone who relied on that currency to live their ordinary lives.

Americans sometimes suffer from the common logical fallacy of thinking instability is limited to “other” places like Zimbabwe. But if you look at actual statistics, you might find our system isn’t as secure as you think. Further, our banks are generally overleveraged and have been in crisis multiple times in recent history. Even if you assume financial crises are flukes, we can still look at worldwide economic data. 

For instance, one meta-study looking at global trends measured security metrics–everything from how much cash banks keep on hand to what actually backs the currency–and ranked the world’s nations in order. Quick: Where do you think the U.S. ranked? At the top? Near the top of the list?

The American banking system is considered the 40th safest in the world. You read that correctly. 39 countries outranked us–and they’re certainly the ones you want to look at if stability is a major motivation for your own accounts.

Offshore banking can help prevent local or regional situations affecting currency or government stability from directly affecting your personal finances. Even if the world outside is in chaos, you can rest easy if your money’s safely sheltered offshore. Offshore banking can be used to keep your money far away from civil conflict, creditors, and the world’s other uncertainties and predators.

Currency Options and Diversification

With offshore accounts, you aren’t confined to the U.S. Dollar. You will select which currency, or even which mix of currencies, you’d like to default to for your bank account. This ability to diversify appeals to many real estate investors. There may be economic advantages to exploring possible alternatives to your primary currency. Insufficient research, on the other hand, could actually cost you. When in doubt, call a pro. 

Asset Protection Benefits of Offshore Banking 

15 million new lawsuits are filed yearly in the U.S. If you do a quick back-of-the-envelope calculation, that’s one lawsuit for every dozen adults. Real estate lawsuits in particular are always a very real threat, one that actually gets more serious as you become more successful. So in the era of “Everybody gets a lawsuit,” no wonder the idea of shoving the bulk of your fortune away from potential litigants and other unsavory characters. 

While you can absolutely accomplish asset protection goals with domestic tools, offshore banking offers you the luxury of simply moving everything of yours worth having away from a position of vulnerability and into one of security. In this case, we’re literally moving money overseas into a different jurisdiction rather than into an entity structure, but the principle remains the same. 

Even better, because you choose where to place your funds, you stay in control without being personally at risk. Generally speaking, it is more difficult to “go after” foreign-held assets than domestic ones. But if you pick wisely, you may receive additional asset protections from your host country. In this sense, you get to pick which legal rulebook you are going to play by–a tremendous advantage for anyone who is building wealth with their business.

Taking Anonymity Even Deeper: Banking Privacy 

Your privacy is one reason to consider offshore banking. Countries like Switzerland are famous for their tendency to protect the individual’s rights to a high degree. If privacy is a major motive for you, ask yourself: from whom? Because it is possible to have privacy from people and governments alike. It will likely help you plan to know if your major concern is say, creditors over the Taxman or vice versa. Fortunately, you can evade too much interaction with either through intelligent use of offshore accounts.

Greater Selection, Financial Perks 

Interest rates on foreign bank accounts often blow their American counterparts out of the water. Think about it: instead of shopping from a few select banks (let alone the big names we all know), you now have literally the entire world of finance to pick and choose from. If you want a high-interest savings account, you can have that. A qualified attorney and/or financial advisor may be able to offer additional insight into your personal situation. Frankly, this benefit isn’t even specific to real estate investors. Anyone in the West, including Europe, may want to consider the far more generous interest rates, particularly if inflation is a concern in your country of residence. You’re likely to find better deals overseas.

Are There Special Requirements for Offshore Bank Accounts?

Depending on where you open your account, you may be required to provide additional documents to verify your identity or even previous bank statements to verify income. Basically, you’re dealing with a sovereign nation that has its own laws, each with advantages and drawbacks. Many of the nations with reputations for being tax havens have implemented their own legislation to prevent blatant abuse of their banking systems. Such laws are generally designed to prevent money laundering and should not pose major problems for investors. One thing to consider when deciding where to open your account is which taxes exist in the offshore destination. Many popular choices have no inheritance or capital gains taxes, and that’s just scratching the surface of this issue.

You won’t need anything terribly unusual to open your account. It’s ultimately up to the destination bank and country, but most investors find proof of identity sufficient. Occasionally you may be asked to provide bank statements or income verification to comply with the aforementioned security laws. But some countries may not ask much of you at all.

Operating Your Offshore Bank Account

After you establish an offshore account, there’s the matter of actually using it. You may notice you have the option to select your preferred currency, a luxury most Americans don’t have. Some investors take great care making this decision, as this detail can be leveraged for greater economic stability (particularly where an investor’s local currency is volatile) and other opportunities.

How to Make Offshore Bank Deposits

Deposits into your account are generally fairly straightforward. The international wire transfer is by far the most popular way to fund such an account. This method of electronic funding is available worldwide, and therefore useful in its ubiquity. Some fees may apply. The smartest way to make deposits will depend on a few local and bank-specific factors.

How to Make Offshore Bank Withdrawals

Making withdrawals from offshore accounts can be done a number of ways depending on how the account is set up. Let’s not forget that these are still real banks. You usually can get an ordinary business checking or personal checking account, or event separate accounts with separate cards to be on the safe side. Check local laws (and perhaps even double-check with a local professional from outside the bank) to be sure you can make withdrawals in the amounts and with the frequency you expect to. Always know which way your money is flowing, and what it has “touched” in terms of your assets. Simple hands-on management of your own assets and balances can save you some major headaches down the road.

Offshore Banking Can Be For Everyone

While there are many variables and no true one-size-fits-all asset protection plan involving offshore banking, reaping its benefits is easy. Speaking of which, there’s a final one that is huge, but difficult to quantify. It’s the feeling of knowing you have an emergency plan that can withstand a financial disaster. The feeling of knowing you’re prepared. It’s tough to hang a price tag on genuine security.

Scott Royal Smith is an asset protection attorney and long-time real estate investor. He's on a mission to help fellow investors free their time, protect their assets, and create lasting wealth.

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