From: m@BlueRose.com (M Carling)
Date: Thu, 20 Jan 94 10:04:17 PST
To: cypherpunks@toad.com
Subject: Barriers to offshore banking
Message-ID: <9401201751.AA12316@BlueRose.com>
MIME-Version: 1.0
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szabo@netcom.netcom.com (Nick Szabo) writes:

>The middle class avoids current offshore banking because it
>is user-hostile and puts their life savings at high risk.

They may be user hostile, but they are not necessarily risky. And the  
middle class uses offshore banks a great deal. Offshore means any  
bank outside the US. Swiss banks are quite reliable, though they  
occasionally provide information to the US government and they  
withhold taxes on interest earned. Austrian banks are just as  
reliable and offer not just numbered accounts, but password  
protected, numbered accounts, and do not tax interest earned. There  
are many other places with reliable banks that will protect one's  
privacy. The Channel Islands have a system of government that dates  
to 1066, numbered bank accounts, and the largest bank on the Islands  
is the tenth largest bank in the world.

>An offshore bank often takes a week or more to service requests for 

>statements sent by snail-mail.  


That's why most people use faxes to communicate with offshore banks.  
I would be surprised if email didn't follow soon.

>Offshore banks are notorious for obsconding with customers' money. 


In a few jurisdictions, this is true. For example all that is  
required to set up a bank in Grenada is to form a corporation with  
the word "Bank" in the name. That's it! No regulations at all. Most  
jurisdictions in which offshore banking take place regulate several  
different types of banks. Class A banks are the type one finds in the  
US, with tellers, etc. Class B banks are typically run by a company  
which sets up the bank and are almost always prohibited from doing  
any business with the local residents. Class B banks are usually  
divided into restricted and unrestricted. An unrestricted bank can do  
business with anyone not a resident of the country in which the bank  
exists, while a restricted bank can do business only with parties  
named at the time the bank is formed. Reserve and capitalization  
requirement vary from country to country but unrestricted banks must  
nearly always meet tougher requirements than restricted banks, and  
Class A banks must meet tougher requirements than Class B banks. For  
example, in the Bahamas, a restricted Class B bank must have a  
minimum capitalization of $100,000 and pay an annual license fee of  
$5000. For an unrestricted Class B bank, it is $1,000,000 and $25,000  
respectively. I don't have figures available for a Class A bank but  
they are much higher and the Class A bank would be subject to  
regulation.

>Reputation information on these banks is hard to find to 

>nonexistant.  


It's not that hard to find. Many offshore banks are more than 100  
years old.

>The typical offshore bank customer spends $1,000's on legal fees to 

>obtain information on reputable banks, the legality of what they are 

>doing in both the local and offshore jurisdictions, and to set up 

>obscure, sophisticated legal entities.  


True but misleading. The typical offshore bank customer spends about  
$1000 to $2000 to set up a corporation, so that the bank acount is  
not in his own name. This obviates the requirement to tell the IRS  
when an American opens a bank account in a foreign country.

>There aren't any good statistics, but I'd guess that most of the 

>money saved by going offshore is lost to legal fees and fraud.

If that were true, there wouldn't be offshore banks. The tax savings  
probably outweigh the legal fees by 10 to 1 or more in most cases,  
and fraud exists, but is not so rapant that people stay away.

M Carling