Corporations and individuals bank overseas for many reasons. There are the issues of security, doing business in privacy, gaining more access to foreign markets, facilitating international customers, traders and business partners and capitalizing on advanced banking facilities and services. Most of these aims are possible because overseas banks offshore are specially designed to operate on an international scale given the fact that their primary purpose is to serve corporations and individuals are non-residents of the jurisdiction under which they operate.
Overseas banks offshore must be licensed in order to operate and are regulated by both domestic and international banking laws. In order to be licensed, offshore banks must first meet specific standards that are established with regard to capital and shareholder requirements, directorship, banking business and operations conducted, management, presence in the jurisdiction, quality of staff, track record and overall competence of the institution in being able to provide overseas banking services.
Licenses for overseas offshore banking are usually very specific and are classified according to the services or type of banking business or business that they are issued for. Generally, though several classes of overseas banking offshore licenses are issued by a single jurisdiction to facilitate banking business in general, an ‘unrestricted banking license’ and a ‘restricted banking license’ are the two main offshore banking license that are issued. Unrestricted banking licenses allow offshore banks to conduct several types of banking businesses and to be engaged in providing multiple services, whereas unrestricted banking offshore licenses are issued to banks that are established for the purpose of serving a special group of individuals, groups or corporations with certain banking services.
For the offshore company, offshore banking is very essential in that offshore banks facilitate international transactions and help offshore companies to carry out their affairs. If offshore companies were to depend mainly on domestic banks to transact, they would have been very frustrated given that many domestic banks conduct international transfers but do not always have the capacity to manage multiple, complex international transactions that are involved in the trading of goods and market securities.
It is thus important that offshore companies equip themselves with suitable foreign banking services and capitalize on specialized services that are offered for asset management and protection, financial guidance and counseling, tax planning and securities trading. Most of the additional services are available via private banking but many overseas banks give their customers access to offshore trust and asset protection services. Foreign companies are equally capable of benefiting from overseas bank accounts and offshore banking facilities.
For security purposes, offshore banks are required to maintain a physical presence in the country under whose jurisdiction they are licensed. These overseas banks would normally be required to file annual audits and statements to the relevant monetary authority and supervisory checks would be conducted to ensure that the banking environment and business are in keeping with all regulatory standards. Some of these standards are specially aimed at fighting and reducing money laundering and the other financial crimes. These standards intend to protect the customer as well as the bank and the country in which it operates.
For offshore companies and individuals with overseas bank accounts, it means going through due diligence screening, which requires them as customers to identify themselves, provide acceptable and thorough summary of their business activities, personal information of the real owners of the offshore or foreign company and other relevant information. The effects of money laundering are far reaching and this is one of the few ways in which offshore banking can be used in the fight against the circulation of the proceeds of crime, while maintaining its powerful and central role in international business.
Overseas banking is important for trade and very importantly, provides an alternative to being restricted with the system of domestic banking which has its shortcomings.