INTRODUCTION

MEANING:
A Offshore Bank is a bank located outside the country of resident of depositors,
Which is mostly in a low tax or no tax area that provided financial and legal
advantage to their deposits. Which will held to generate additional profit for
example UK registered offshore bank can provide service to client from any
county except to permanent Non-resident of UK. This is main formal different
between offshore bank and onshore bank.

HISTORY OF OFFSHORE BANKING IN INDIA

The establishment of offshore centres in India was foreseen when the Foreign
Exchange Regulation Act (FERA) was replaced by the Foreign Exchange
Management Act, 1999 (FEMA). The concept of offshore banking in India is
introduced through Special Economic Zones(SEZ) in the Exim policy 19972002.Offshore banking formally started in India from 2002. Branches of Indian
banking business to non-residents. Hence they are designated as Offshore
Banking UnitsIndian Banks such as State bank of India, Punjab National Bank,
Bank of Baroda, ICICI, etc. Have set up offshore banking Units in SEZs. SBI
was the first bank to set up the Offshore Banking Unit in SEEPZ ( a SEZ
located at Andheri). Indian Bank such as State Bank of India, Bank of Baroda.
Indian Overseas banks, bank of India, HDFC bank have set up their Offshore
Units abroad at place Like Singapore, Cayman Islands, Hong Kong, Colombo,
and so on.

ROLE OF RESERVE BANK OF INDIA IN OFFSHORE

BANKING
The role of Reserve Bank of India has been very critical in initiating the process
of offshore banking in India. For plenty of years, the various Indian banks had
been trying to convince the Reserve Bank of India to introduce offshore banking
in the country. Eventually, the Reserve Bank of India understanding the needs
and prospects of offshore banking in India, allowed the setting up of offshore
units in the special economic zones. Many of the Indian banks made use of that
provision to set up offshore banks in India.

Reserve bank of India Offshore banking units guidelines Scheme for Setting
up of Offshore Banking Units (OBUs) In Special Economic Zones (SEZs)
The Government of India has introduced the Special Economic Zone (SEZ) scheme with a
view to providing an internationally competitive and a hassle free environment
for export production. As per the Governments policy, SEZs will be a specially
delineated duty free enclave and deemed to be a foreign territory for the purpose
of trade operations and duties / tariffs so as to usher in export-led growth of the
economy. It was also indicated by the Union Commerce Minister in his speech announcing
the Exim Policy for 2002-07 that for the first time, Offshore Banking Units (OBUs) would
be permitted to be set up in SEZs. These units would be virtually foreign branches of
Indian banks but located in India. These OBUs, inter alia, would be exempt from
CRR, SLR and give access to SEZ units and SEZ developers to international finances at
international rates.

The Scheme:

1) Eligibility Criteria:
Banks operating in India viz. public sector, private sector and foreign banks
authorized to deal in foreign exchange are eligible to set up OBUs. Such banks
having overseas branches and experience of running OBUs would be given
preference. Each of the eligible banks would be permitted to establish only one
OBU which would essentially carry on wholesale banking operations.

2) Licensing:
Banks would be required to obtain prior permission of the RBI for opening an OBU in a
SEZ under Section 23(1)(a) of the Banking Regulation Act, 1949. Given the
unique nature of business of the OBUs, Reserve Bank would stipulate certain
licensing conditions such as dealing only in foreign currencies, restrictions on
dealing with Indian rupee, access to domestic money market, etc. on the
functioning of the OBUs. The parent bank's application for branch license
should itself state that it proposes to conduct business at the OBU branch in

foreign currency only. No separate authorization with respect to the OBU branch would
be issued under FEMA. As currently in vogue with respect to designating a specific
branch for conducting foreign exchange business, the parent bank may designate
the branch in SEZ as an OBU branch. A separate Notification No. FEMA71/2002-RB
dated September 7, 2002 issued by the Exchange Control Department (ECD) of RBI on
OBUs is enclosed.

3) Capital:
Since OBUs would be branches of Indian banks, no separate assigned capital for such
branches would be required. However, with a view to enabling them to start their operations,
the parent bank would be required to provide a minimum of US$ 10 million to its OBU.

4) Reserve Requirements:
a) CRR

RBI would grant exemption from CRR requirements to the parent bank with reference to its
OBU branch under Section 42(7) of the RBI Act, 1934.

b) SLR
Banks are required to maintain SLR under Section 24(1) of the Banking Regulation Act,
1949 in respect of their OBU branches. However, in case of necessity, request
from individual banks for exemption will be considered for a specified period under
Section 53 of the Banking Regulation Act, 1949.

5) Resources and deployment:

The sources for raising foreign currency funds would be only external. Funds
can also be raised from those resident sources to the extent such residents are
permitted under the existing exchange control regulations to invest/maintain
foreign currency accounts abroad. Deployment of funds would be restricted to
lending to units located in the SEZ and SEZ developers. Foreign currency
requirements of corporate in the domestic area can also be met by the OBUs. If
funds are lent to residents in the Domestic Tariff Area (DTA), existing exchange
control regulations would apply to the beneficiaries in DTA.

6) Permissible Activities of OBUs:

OBUs would be permitted to engage in the form of business mentioned in Section 6(1) of
the BR Act, 1949 as stipulated in the enclosed ECD Notification no. FEMA71/2002-RB
dated September 7, 2002and subject to the conditions of the license issued to the
OBU branches.

7) Prudential Regulations:

All prudential norms applicable to overseas branches of Indian banks would apply to the
OBUs. The
OBUs would be required to follow the best international practice of 90 days' payment
delinquency norm
For income recognition, asset classification and provisioning. The OBUs may follow the
credit risk management policy and exposure limits set out by their parent banks duly
approved by their Boards.
The OBUs would be required to adopt liquidity and interest rate risk
management policies prescribed by
RBI in respect of overseas branches of Indian banks as well as within the overall risk
management and
ALM framework of the bank subject to monitoring by the Board at prescribed intervals.
The bank's Board would be required to set comprehensive overnight limits for
each currency for these branches, which would be separate from the open
position limit of the parent bank.

8)

Anti-Money Laundering Measures:

The OBUs would be required to scrupulously follow "Know Your Customer (KYC)" and
other anti-money laundering instructions issued by RBI from time to time.
Further, with a view to ensuring that anti-money laundering instructions are
strictly compiled with by the OBUs, they are prohibited from undertaking cash
transactions, and transactions with individuals.

9) Regulation and Supervision:

OBUs will be regulated and supervised by RBI through its Exchange Control Department,
Department of Banking Operations and Development and Department of Banking
Supervision.

10) Reporting requirements:

OBUs will be required to furnish information relating to their operations as are
prescribed from time to time by RBI.

11) Ring fencing the activities of OBUs:

The OBUs would operate and maintain balance sheet only in foreign currency and would
not be allowed to deal in Indian Rupees except for having a special Rupee
account out of convertible fund to meet their day to day expenses. These
branches would be prohibited to participate in domestic call, notice, term, etc.
money market and payment system. Operations of the OBUs in rupees would be minimal
in nature, and any such operations in the domestic area would be through the Authorized
Dealer (distinct from OBUs) which would be subject to the current exchange
control regulations in force. The OBUs would be required to maintain separate Nostro
accounts with correspondent banks which would be distinct from Nostro accounts
maintained by other branches of the same bank. The Ads dealing with OBUs
would be subject to ECD regulations.

12) Priority sector lending:

The loans and advances of OBUs would not be reckoned as net bank credit for
computing priority sector lending obligations.

13) Deposit insurance:

India provides distinct advantages in attracting offshore banking units, because

it has a stable economic and political performance, a vast market,
technical manpower that could find employment in these centers.
Another advantage is that the Indian market would open a little before the
Tokyo market closes, and close before New York opens, thus providing a
vital time link for international money market dealers. In an era where
many

Indian

corporations

are

functioning

abroad

and

many

corporations are granted permission to seek overseas finance, establishing an

offshore unit will help tap the resources:
Exporters would benefit in terms of finer margins on loans and better foreign
exchange rates available via an offshore banking unit. The benefits of multicurrency operations which, to an extent, minimize currency fluctuation risk will
be an added advantage:
1. Salaries paid by offshore banks and local.
2. Expenditure incurred by them contributes to the economy's welfare. For
smaller countries, the benefit would be greater. For a larger country such as
India, however, this may not form a significant portion of the total income.

3. India may earn revenue in the form of license fees, profit taxes imposed on
the banks operating in the area. It may also get the benefit of banks' funds
in the form of capital and liquidity requirements.
4. The country can gain improved access to the international capital markets.
5. The domestic financial system may become more efficient through
increased competition and exposure of the domestic banks to the practices
of offshore banks.
6. Offshore banking centers will provide opportunities to train the local staff
which will, in turn, contribute to faster economic growth.
7.

Offshore banking units would help channelize non-resident Indian

investments.

8. Setting up offshore banking centers would trigger enforced development of

more advanced communication facilities a must for their functioning.

FUNCTIONS OF OFFSHORE BANKING IN INDIA

1) Deposits and Savings:

Offshore bank provide the same service of onshore bank thus. It is an

organisation which deposits the savings and it also provide Investment
services for its consumer.
2) Borrowings and Landings of Foreign Currency:
The measure functions of offshore banking is Borrowing and Landing
short and long term in Currencies ($, Yen, Euro, etc.) which are held
outside countries are origin, by banks organisation and Individuals.
3) Banking Activities:
Subject to the terms of its license the offshore banks will be able to
undertake any from banking activities such as Debt factoring, foreign
currency management lease finance etc.
4) Financial Services:
Offshore banks provide financial service to its clients. This include Letter
of Credit, Electronic fund Transfer etc.

5) Merchant banking Activities:

They also perform important of Merchant banking activities, that is Issue
Management Raising of capital through issue of Equity shares and
Foreign Currency Bonds.
6) Deals with Derivative Market:
They also dealing derivative instruments for speculator and Risk
Management purpose. They cover the risk such as Currency risk, Credit
risk, Interest risk, etc.

The favourable factors for an OFC in India are well known. These include
availability of skilled and quality banking, legal professionals, vastly improved
telecommunication systems ensuring connectivity, the time zone advantage. The
benefit by way of fillip to local economy is also well understood. However,
clearly the regulatory regime governing it would be critical. Accordingly, the
proponents of offshore banking would need to address the key concerns of the
regulator. Apart from the apprehension of offshore banking being used for
dubious ends and in financial crime, the regulator would also be concerned
about the systemic risks to the financial system. It would perhaps not be
inappropriate to evolve a regulatory framework with a road map for informed
public debate. Such a framework would need to address issues such as
First, should only offshore banking be permitted or other activities within the
umbrella of an OFC? Some of the other activities may appear as meeting
specific needs such as insurance, fund management, trusts, etc.
Second, for an OFC being set up should there be a single regulator for
all the activities of the OFC or different regulators mirroring the pattern in the
corresponding onshore sub sectors? Also, should there a single regulator for
onshore and offshore banks?
Third, should there licensing of firms in the OFC as it is currently stipulated
for OBUs in SEZs? Or should it be simple incorporation as is the practice in
most OFCs? Or should licensing be restricted to financial intermediaries?
Fourthly, granted that licensing would be required for OBUs, who would be
the eligible parties not just banks operating in India as per current policy, but

also foreign banks, their subsidiaries/ affiliates? What would be the permissible
activities? Here again the regulator would need to strike a balance between the
fundamental objective of ensuring financial stability and the business growth
compulsions of the OBUs. For instance, if private banking were to be permitted,
the requirements of confidentiality would need to temper the anti-money
laundering safeguard measures. The RBI is today well respected in the
international community as a proactive regulator in the adoption of international
standards and the maintenance of financial stability while at the same time,
aiding development and growth. A slew of policies adopted by RBI in the last
few years have been aimed at strengthening the banking system. These include
adoption of prudential norms, consolidated supervision, connected lending,
using technology to upgrade settlement systems, payment systems, widening
and deepening the various segments of the financial markets, the unrelenting
emphasis on upgradation of risk management systems of financial
intermediaries. The gradualist approach to financial liberalisation has paid rich
dividend. The way forward appears to involve at the first step, an assessment of
the robustness of the existing legislative and regulatory framework may be done
keeping in view the principles of cross border cooperation, information sharing
transparency, ongoing monitoring. Perhaps certain overseas jurisdictions with
whom India can have reciprocal arrangements can be identified, that will ensure
proper due diligence while licensing OBUs and subsequent supervision. In sum,
the
question before us may not whether to have an OFC, but how can we set
up a well-regulated OFC that will be beneficial to the Indian economy.

DIFFERENTS BETWEEN OFFSHORE VS COMMERCIAL

BANK

Offshore banks

Commercial banks

An offshore bank is located

A commercial bank is a

outside

financial institution that is

the

country

of

resident of depositors
Which is mostly in a low
tax or no tax area that

authorized by law to receive

Meaning

money from businesses and

individuals and lend money to

provided financial and legal

them. Commercial banks are

advantage to their deposits.

open to the public and serve

individuals, institutions, and
businesses.

Offshore banking provides

Commercial banks Provides

Account open for foreigners Account open Account open for resident in
only
India and Non Resident in
India.
Offshore banking dealing
with foreign currency only.

Commercial banks dealing

Dealing
currency

RBI provides Tax free

benefits for offshore bank

with both Indian currency and

foreign currency.

RBI provides tax deducted

Tax Benefits

from commercial bank for

Income Tax Act,1956

NOSTRO, VOSTRO,

Savings Accounts, Current

LORO, are this type of

Accounts, Recurring Accounts,

accounts provided by
offshore bank

Type of
account

The Interest rate in offshore

bank is higher as compared

fixed deposits Accounts, are

provide for commercial bank
The Interest rate in commercial

Interest rates bank is lessor.

to commercial bank
Offshore banks are set-up in
India are high cost of
maintenance

Commercial bank are set- up

Maintenances in India are low cost of

cost

maintenance

ADVANTAGES OF OFFSHORE BANKING

1) Access to politically and economically stable nations:
Offshore banks can sometimes provide access to politically and economically stable
jurisdictions. This will be an advantage for residents in areas where there is risk
of political turmoil, who fear their assets may be frozen, seized or disappear.
(For example, during the 2001 Argentine economic crisis). However it is
often argued that developed countries with regulated banking systems offer
the same advantages in terms of stability.

2) Lower cost base with high returns:

S o m e o ffs h o r e b a n k s m a y o p e r a t e w i t h a l o w er c o s t b a s e a n d
c a n pr o v i d e h i g h e r interest rates than the legal rate in the home country due
to lower overheads and a lack o f g o v e r n m e n t i n t er v e n t i o n . Ad v o c a t e s
o f o ffs h o r e b a n k i n g o f t e n c h a r a c t e r i z e government regulation as a
form of tax on domestic banks, reducing interest rates on deposits.3)

3) Growth of Developing Countries:

Offshore finance is one of the few industries, along with
tourism,

in

which

geographically

remote

island

nations

can

competitively engage. It can help developing c o u n t r i e s s o u r c e i n v e s t m e n t

a n d c r e a t e gr o w t h i n t h e i r e c o n o mi e s , a n d c a n h e l p redistribute
world finance from the developed to the developing world.

4) Tax free income:

Interest is generally paid by offshore banks without tax being
deducted. This is an advantage to individuals who do not pay tax on
worldwide income, or who do not pay tax until the tax return is agreed, or who
feel that they can illegally evade tax by hiding the interest income.

5) Financially engineered banking services:

Some offshore banks offer banking services that may not be available from
domestic banks such as anonymous bank accounts, higher or lower rate loans
based on risk and investment opportunities not available elsewhere.

DISADVANTAGES OF OFFSHORE BANKING

1) Association:

Offshore banking has been associated with the underground economy and
organized crime, through money laundering. Following September 11, 2001,
offshore banks and tax havens, along with clearing houses, have been

accused of helping various organized crime gangs, terrorist groups, and other
state or non-state actors.

2) Tax:
The existence of offshore banking encourages tax evasion, by providing tax
evaders with an attractive place to deposit their hidden income.
3) Offshore jurisdictions are often remote, so physical access and access to
information

can

be

difficult.

Yet

in

world

with

global

telecommunications this is rarely a problem. Accounts can be set up

online, by phone or by mail.
4) Developing countries can suffer due to the speed at which money can be
transferred in and out of their economy as hot money. This Hot
money is aided by offshore accounts, and can increase problems in
financial disturbance.
5) Offshore banking is usually more accessible to those on higher incomes,
because of the costs of establishing and maintaining offshore accounts.
The tax burden in developed countries thus falls disproportionately on
middle-income groups. Historically, tax cuts have tended to result in a
higher proportion of the tax take being paid by high-income groups, as
previously sheltered income is brought back into the mainstream
economy

FEATURES OF OFFSHORE BANKING

1) Offers higher level of privacy as opposed to the local banks.
2) No taxation.

3) Protection against financial insecurities and instabilities in the local

economy.
4) Less restrictive regulations.
5) Easy access deposits.
6) Except for the developed nations that offer for complete financial
stability, individuals from the various undeveloped countries that are
surrounded with instability may opt to resort to offshore banking for
better steadiness in assets and resources.
7) Offshore banks offer better rate of interest.
8) Offers features that banks in the domestic realm may not possess like
unspecified bank account etc.

IMPORTANCE OF OFFSHORE BANKING

1) Offshore banking has now become an important segment of the
international financial system. Offshore banking is simply a practice of
working with an offshore bank.
2) An offshore bank refers to a bank located outside the country where the
depositor lives. Usually, these banks may be located in such a jurisdiction
with substantial financial as well as legal advantages.

3) Offshore banks provide a continue service in connection with financial

management, such as, deposit taking, money transmissions, creation of
provision of foreign exchange, trade finance, credit facilities, investment
and fund management, corporate administration, and trustee service.
4) Creation of a bank account with an offshore bank is great alternative
particularly for those who have to travel frequently or someone whose
career changes a lot.
5) People prefer offshore banking for a myriad of other purposes such as
expansion

of

your

business,

tax-free

investment, and
anonymity with regard to financial matters, asset protection, and estate
planning. A specialty of offshore banking is that an account can be
opened with an offshore bank simply as a saving account. Account can also be
opened to carry out main business functions.
6) Apart from these, through an offshore bank, you can even make
investments and take loans.
7) Offshore banking is usually preferred by people falling under three
categories, such as, high net worth individuals, expatriates, and business
owners
8) Nowadays, many of the corporate clients including multinational corporations,
large industrial as well as trading companies, shipping companies, and
banking corporations, are also getting attracted to the benefits offered by
offshore banking.
9) One of the prime benefits of offshore banking is that it provides access to
economically as well as politically stable jurisdictions. This proves to be
advantageous to such people whose residing area has risks of political
disorders.
10) There are certain offshore banks that function with low cost base, which
in turn can offer higher interest rates to the depositors when compared to
their home country.
11)

Another great benefit is that it is a great way for developing

countries to enhance their economic growth, since offshore banking

allows redistributing finance from the developed economies to the
developing economies.

12)

Offshore banking is usually associated with formations including

offshore trusts, offshore foundations, and offshore companies, which in

turn may provide some kind of benefits in the form of tax as well as asset
protection.
13)

As a healthy competition is seen in the industry of offshore

banking regarding tax benefits, it enables to choose the most appropriate

facility offering tax advantages. In addition, offshore banking allows you
to easily move your assets, if you want to join an employment or spend
long periods outside your home country.

OFFSHORE BANK ACCOUNT COSTS

1) Offshore bank accounts are frequently opened under the name of an
offshore company.
2) The reason for this is the increased privacy as all banking transactions, if
traced, would be under the name of the offshore company, not the client.
3) Establishing an offshore bank account in this way c o u l d c o s t b e t w e e n
$ 3 5 0 t o $ 5 5 0 , p l u s t h e c o s t o f s e t t i n g u p t h e offshore company an
offshore company typically costs between $1495 and $2,495.
4) So, one could expect the total offshore account costs to be about the
$1845 for both.

5) I t i s e s s e n t i a l t h a t a n y p o t e n t i a l o w n e r o f a n o ffs h o r e b a n k
a c c o u n t s h o u l d r e s e a r c h t h e necessary information to make a strong,
informed decision when proceeding with an offshore bank account setup
a n d f o r mi n g a n o ffs h o r e c o mp a n y.
6) Offshore Bank Accounts have to be opened with an initial deposit to
activate the account.
7) Although, some offshore provider's bank account types, fees,
interest rates, etc. vary; most offshore financial institutions (OFCs) have
competitive costs and a high level of bank account security.
8) Additionally, the interest rates tend to be higher than in the UK and EU,
providing

an

extra benefit for those saving abroad.

9) Process fees, courier charges and various small costs (for notary, etc.) will
be incurred during the process of establishing an offshore bank account.
10)The Offshore Company UK has helped thousands of individuals
and companies open private banking accounts, offshore companies
and corporations and can assist you in establishing the right offshore
vehicles for you

PUNJAB NATIONAL BANK (PNB) Parent Bank

PNB is one of the premier banking institutions of India with a glorious history of 117
years (est. in 1895), and is one of the top Public Sector Banks in India, owned
predominantly by the Govt. Of India. PNB is listed on the Bombay Stock Exchange and
other major Stock Exchanges of the country.
Since its humble beginning in 1895 with the distinction of being the first Indian bank to
have been started with Indian capital, PNB has achieved significant growth in business
which at the end of March 2012 amounted to $ 123 Billion (Rs.673363 cores). Today,
with assets of more than $ 83 Billion (Rs.4,58,194 core), PNB is ranked at 195 th
amongst Top 500 Global Banks, as per Brand Finance Global Banking 500 for 2011 and
features at the 25th place amongst the Top 50 most valued corporate brands by Brand
Finance-ET. It is the 2nd largest bank in country with network of 5675 branches
(including 5 oversea branches) and customer base of more than 7 Cores.
More importantly, during 2011-12, PNB has been recognized as the Best in Corporate
Social Responsibility (CSR) Overall by World HRD Congress and been recognized as
the Best Socially Responsive Bank by the Business World & PwC. Above all, the
Bank was recognized as the " Best Bank " by Business India.
The OBU of PNB is situated at Santa cruz Electronics Export Promotion Zone
(SEEPZ), Andheri East in Mumbai (Bombay), the financial capital of India, and is a
Deemed Foreign Branch of PNB, although located within the country.

HOW DOES IT ADD VALUE FOR YOU

1) Multi-Currency Deposits accepted.

2) Maturities ranging from 15 days to 5 years. Deposits for 15 days up to 1 month
are accepted subject to minimum deposit amount of USD 100,000/-, GBP
60,000/- and EURO 100,000/3) Attractive Rates of interest on Deposits.
4) Multi-Currency Borrowing option.
5) Competitive Rates of interest on Borrowings.
6) Rates of interest linked to LIBOR of corresponding period.
7) Full reparability of maturity value of deposits.
8) Investment opportunity that affords better returns at no additional risk.
9) Render service at par with international banks.

Interest rates on OBU deposits

Interest rates on Foreign Currency deposit being accepted by OBU has been
reviewed and it has been decided that OBU will offer the following interest
rates on USD, GBP & EUR deposits with effect from 01st Aug 2012 (Subject to
change)

(Percent per Annum)

Period of Deposit

US Dollars

15 days

0.22**

1 Month

0.25**

2 Months

0.34**

3 Months

0.45

5
6

Above 3 Months up to 6
months
Above 6 Months to less than 1
year

0.70
1.47

1 Year to less than 2 Years

3.05

2 Years to less than 3 Years

2.42

3 Years to less than 4 Years

3.48

10

4 Years to less than 5 Years

3.63

11

5 Years only

3.79

OFFSHORE BANKING IN THE INDIAN CONTEXT

India has made a cautious beginning in offshore banking by permitting for the
first time Offshore Banking Units (OBUs) to be set up in Special
Economic Zones (SEZs). The SEZs have been set up with a view to
Providing an internationally competitive and hassle free environment for export
production. SEZs will be specially delineated duty free enclave and deemed to
be a foreign territory for the purpose of trade operations and duties / tariffs so as
to usher in export-led growth of the economy.
The OBUs virtually would be foreign branches of Indian banks located in
India. These OBUs, inter alia, would be exempt from reserve requirements and
provide access to SEZ units and SEZ developers to international finances at
international rates. The Reserve Bank of India (RBI) has permitted banks

operating in India, whether Indian, public/private sector or foreign, to set up

OBUs in the SEZs. The OBUs would carry out essentially wholesale banking
operations. The OBUs will be set up as branches of the banks and therefore no
separate assigned capital will be required.
All prudential norms applicable to overseas branches of Indian banks would
apply to OBUs. Thus, the necessary risk management practices that are in vogue
internationally would have to be adopted by the OBUs. The OBUs will be
regulated and supervised by RBI. They will be required to scrupulously follow
Know Your Customer and other antimony
Laundering directives of RBI from time to time.
Unlike the OFCs in other developing countries which conduct offshore
banking in a significant manner, the OBUs in India have a limited
Mandate. In fact, the approach appears to be facilitating the SEZ policy
Rather than introducing offshore banking in India. This is in line with the
cautious policy stance adopted by the regulators in regard to the opening up of
the financial sector. Notwithstanding the limited scope for offshore banking in
the light of the relevant regulations, many Indian banks have set up OBUs in
SEZs. Available feedback is encouraging.
Over the years, India has tightened the legal framework to combat money
laundering and other cross border financial crime. These include the Prevention
of Money Laundering Act 2002, passed keeping in view the FATF deliberations
and recommendation and international initiatives at the United Nations and
others. There are other laws such as The Smugglers and Foreign Exchange
Manipulation (Forfeiture of Property) Act of 1976, The Code of Criminal
Procedures 1973, Prevention of Corruption Act, 1988, The Narcotic drugs and
Psychotropic Substances Act of 1985.

ACCOUNT OPENING FORM OFF-SHORE BANKING

UNIT

Why You Need an Offshore Bank Account Today

1) Dilute Your Political Risk

Today, the biggest threat to your savings isnt market risk. Its your own
government.
Theres no doubt government poses an increasing risk to your savings.
Governments are sinking hopelessly deeper into insolvency. Predictably, they
are turning to the same desperate measures theyve used throughout history.
Its only prudent to expect more bail-ins (as weve seen in Cyprus), bank
deposit taxes (as weve seen in Spain), retirement savings nationalizations (as
weve seen in Poland, Hungary, Portugal, and Argentina), and capital controls
(as weve seen in Cyprus and Iceland), among other destructive actions. And
these are just a few recent examples.

If you think these kinds of things cant happen in your country, think again.
According to Judge Andrew Napolitano:
...people who have more than $100,000 in the bank are targets for any
government thats looking for money to shore up its own inability to manage
its finances.
A big part of any strategy to reduce your political risk is to place some of your
savings outside of the immediate reach of thieving bureaucrats in your home
country. Setting up a foreign bank account in the right jurisdiction is a
convenient way to do just that.
That way your home government cant easily confiscate, freeze, or devalue all
of your money with a couple of taps on the keyboard. If your home government
imposes capital controls, an offshore bank account would help ensure you could
access your money when you need it most.
In short, keeping some of your savings in the right foreign bank can largely
protect you from madness in your home country.

2) Sounder Banking Systems and Banks

Almost all of the banking systems in Western countries are fundamentally
unsound. Theyve leveraged themselves to the hilt. The promises of insolvent
governments are all that back them. Worse, most of these banks only keep a tiny
bit of cash on hand to meet customer withdrawal requests. This means, in the
event of another Lehman-style financial shock, you could have trouble
accessing your money.

Many people put more thought into what reality show they are going to watch
on TV tonight than which bank they choose to be custodians of their savings.
Many dont even realize they have other practical options.
There are banks in stable jurisdictions with low debt that dont gamble with
customer deposits (i.e. your money). Many of these banks are much better
capitalized, keep more cash on hand, and are otherwise much more
conservatively run than those in the U.S.
These offshore banks are almost always more responsible custodians of your
hard earned savings.

3) Asset Protection
Maybe you think its just other people who live on the lawsuit firing lineand
you live somewhere else. Think again.
The Legal Resource Network reports that 15 million lawsuits are filed in the
U.S. every year.
That works out to a new lawsuit for one out of every 12 adults each yearyear
after year. Unless youre exceptionally lucky, sooner or later your turn will
come. Youre not going to like it.
Its no fluke that 80% of the worlds lawyers, over 1.2 million of them, work in
the U.S. Thats where the action is. Your money is the trophy theyre competing
for.
While there is no such thing as 100% protection, a foreign bank account can
help make you a less attractive target.

An offshore bank account also protects you from overzealous government

agencies armed with the summary power to freeze your assets. Thats because
their reach doesnt extend beyond the U.S.
If you ever find yourself in a wrestling match with a government agency or a
frivolous lawsuit, a foreign bank account give you resources you can count on.

4) Currency Diversification
Holding foreign currencies is a great way to diversify your portfolio risk,
protect your purchasing power, and internationalize some of your savings.
Chances are, though, your domestic bank offers few, if any, options for holding
foreign currencies.
Offshore banks, on the other hand, commonly offer convenient online platforms
for holding foreign currencies.

5) Higher Interest Rates for Your Deposits

In what amounts to a war on savers, the European Central Bank and the Fed
have manipulated interest rates to near historic lows. These artificially low
interest rates effectively transfer wealth away from savers, who would otherwise
enjoy higher returns on their deposits, to borrowers.
In fact, if you live in the West, theres a good chance the interest youre earning
on your savings isnt even keeping pace with the real rate of inflation.
If you look abroad, though, you can find banks that pay significantly higher
interest rates than what youd find at home.

6) Ensure Access to Medical Care Abroad

If youre unable to receive timely treatment in your home country, an increasing
possibility with the disastrous Obamacare, you may want to access medical care
abroad.
In the worst-case scenario, this could mean the difference between life and
death.
Suppose, for whatever reason, you cannot get the medical care you need in your
home country and you have to go abroad. You would have to transfer money
abroad to pay for it. However, if your home government has already imposed
capital controls, it could be difficult or impossible to pay for the medical care
you need.
This is where having a foreign bank account, which isnt hostage to capital
controls in your home country, can help ensure you can always pay for the
medical care you need.

7) The Ability to Act Quickly

When it comes to international diversification, its always better to be a year
early than a minute too late. Once a government has imposed capital controls or
levied bank accounts, its too late to protect your money.
If you dont already have one, you should open an offshore bank account now,
even if its a small one. Just having one available, regardless of how much
money you initially put in it, gives you meaningful benefits. It gives you the

option to act quickly and transfer more money abroad in the future, should the
situation warrant it.

8) Maintain Limited Privacy

Americans who have an aggregate of $10,000 or more in foreign financial
accounts at any time during the year must report it. However, if the aggregate
total of your foreign financial accounts remains under $10,000 for the year, and
you are not using a trust, LLC, or other structure, you dont necessarily have to
report it. Always consult with your tax advisor on these matters.

9) Peace of Mind
An offshore bank account is like an insurance policy. It helps protect you from
unsound banks and banking systems and the destructive actions of a bankrupt
government. It also makes you a hard target for frivolous lawsuits and ensures
you can pay for medical care abroad. Knowing that youve taken a big step to
protect yourself should give you more peace of mind.

10) Maximize Your Personal Freedom

Having a foreign bank account gives you more options. More options means
more freedom.
Its a crucial step in freeing yourself from absolute dependence on any one
country.

IS SETTING UP OFFSHORE ILLEGAL?

No, setting up offshore is not illegal. However, withholding information about

your offshore investments is illegal in some countries. An offshore jurisdiction

should be perceived as just another foreign country, but with certain advantages.
These can take the form of banking secrecy laws, advantages in forming
companies for international trade through tax treaties, no interest tax, no
inheritance taxes, no capital gains tax, no individual tax, and many others.
Depending on your personal needs or preferences, there will normally be one or
more offshore jurisdictions offering the services you are looking for.
This is one of the most frequently asked questions concerning the legality of
offshore banking, and in short, Yes, offshore banking is legal. Offshore banking
is a benefit to all of society and is indispensible.
Using offshore banking for tax evasion purposes is what is not legal, and that is
usually what is associated with offshore banking in general and is the cause of
the misconception.
Offshore banking is also associated with criminal activities such as money
laundering. Let's clarify the distinction of legal and legal and examine why
offshore banking will remain legal
While Offshore banking has often been associated with the underground
economy and organized crime, via tax evasion and money laundering; however,
legally, offshore banking does not prevent assets from being subject to personal
income tax on interest. Except for certain persons who meet fairly complex
requirements, the personal income tax of many countries makes no distinction
between interest earned in local banks and those earned abroad. Persons subject
to US income tax, for example, are required to declare on penalty of perjury,
any offshore bank accountswhich may or may not be numbered bank
accountsthey may have. Although, and have no legal obligation to do so as

they are protected by bank secrecy, this does not make the non-declaration of
the income by the tax-payer or the evasion of the tax on that income legal.
Following September 11, 2001, there have been many calls for more regulation
on international finance, in particular concerning offshore banks, tax havens,
and clearing houses such as Clearstream, based in Luxembourg, being possible
crossroads for major illegal money flows.
Defenders of offshore banking have criticized these attempts at regulation. They
claim the process is prompted, not by security and financial concerns, but by the
desire of domestic banks and tax agencies to access the money held in offshore
accounts. They cite the fact that offshore banking offers a competitive threat to
the banking and taxation systems in developed countries, suggesting that
Organization for Economic Co-operation and Development (OECD) countries
are trying to stamp out competition.

Is it legal to set up an offshore bank account so that a court order cannot

take money from your accounts?

It is illegal to "conceal" assets offshore form the IRS, and/or to deny the
possession of such assets in a written or oral statement when there is pending
action or a judgment in place for creditor debt, alimony, restitution for personal

injury suit and so forth. The reliability of offshore asset depositories are dicey at
best and may become a nightmare rather than a haven for the depositer. If the
action is in anyway connected with bankruptcy or any federal litigation such as
the IRS, it is considered a federal felony and carries a mandatory prison
sentence of 5-years for each count of which the person is found guilty.
As previously mentioned, offshore banking is often associated with illegal
activities. One of these illegal activities is tax evasion. If you set up an offshore
bank account, you will still need to report your savings. Not reporting all of
your money in an offshore account can lead to you be brought up on tax evasion
charges. It is important to note that you have the ability to prevent this from
happening. As long as you choose to use your offshore bank account legally,
there shouldnt be any disadvantages to having one If you are planning on using
your offshore account to avoid a lawsuit or to evade taxes, you may want to
reexamine your decision. As previously mentioned, there are serious
consequences for doing this. As long as you plan on using your offshore account
in a legal way, you can benefit immensely from offshore banking.

THE FUTURE OF THE OFFSHORE BANKING

Since the 911 incident, the international crackdown on money laundering has
created a divide in the offshore industry, primarily between jurisdictions eager
to comply with international standards of anti-laundering regulation and those
that are less co-operative. The driving force behind those initiatives, have been
influential organizations such as the Financial Action Task Force (FATF). The
FATF was established by the G-7 countries in 1989 and is an inter-governmental
body whose purpose is the development and promotion of policies, both at

national and international levels, to combat money laundering and terrorist

financing. As the FATF seek to apply more international pressure, it will
become increasingly difficult for the less well-regulated regimes to do business.
Another major issue is the exchange of information, the profile of which has
been raised in the current climate. The recently agreed EU Savings Tax
Directive will change the face of the offshore industry, although to what extent
is somewhat harder to predict. Previously no information was exchanged
automatically in Europe unless there were concerns about illegal activities on a
bank account. However, with the introduction of the EU Tax Directive,
customers living within the EU are likely to be forced to engage with these
issues, either by having to pay a withholding tax or agreeing to exchange
information. The new directive will affect not only the EU Member States but
"all territories under their control", Switzerland and the USA. The UK has
recently announced that if the Cayman Islands fail to voluntarily to comply with
these new rules, the United Kingdom will legislate on its behalf.
To this effect, Hong Kong will soon become a much more important jurisdiction
for tax planning as it is one of the only respectable and well-regulated
"offshore" banking centres which will not be subject to the new EU directive on
automatic exchange of information and withholding tax.
Hong Kong should also be seriously considered for clients wishing to register
an offshore company, as it is one of the few respectable locations in the world
that tax on a Territorial Basis. Consequently, this means that corporation tax is
ONLY charged on profits derived from a trade, profession or business carried on
in territory of Hong Kong. Income sourced elsewhere, even if remitted to Hong
Kong, is treated as tax free.

In general, the regulatory regime in respect of offshore banking may be

expected to move forward on the basis of following four broad principles:
First, consolidated supervision of banking operations through greater
co-operation between home country and host country regulators;
Second, higher transparency with reference to supervisory systems and
programmes including dissemination of guidelines, publications of
data of OFCs;
Third, technical assistance to upgrade regulatory systems, supervisory
policies and procedures through adoption of `best in class processes
and policies.
Fourth, setting up systems for independent monitoring of activities of
OFCs and complying with supervisory standards.

CONCLUSION
In offshore banking, finding the right offshore service(s) that will allow you
achieve your objectives at a reasonable cost and within the shortest possible
time frame is paramount and should be considered with the utmost importance.
Considering that the stock markets are continuously changing, the way that your
offshore banking is handled must be in the best order, if not perfect. The bottom
line is for you to find an offshore services firm that can service your needs and,
has your interests and objectives at heart since it is your retirement benefits you
are most likely to use. If you are able to find this type of institution then you can

rest assured that your offshore account will grow successfully and will provide
your needs well into the twilight of your life.

BIBLIOGRAPHY

Websites
https://en.wikipedia.org/wiki/Offshore_bank
www.investopedia.com/terms/o/offshore-banking-unit.asp
www.internationalman.com/articles/offshore-banking

Books