Choosing An International Banking Center: Banking Laws and Beyond
By Peter Zipper
Interest in international banking is growing, as people around the world are looking outside their own national borders for investment, travel, and new life experiences.
The growth in international travel, coupled with the increasing use of the internet to make a living or help manage businesses from afar, have led to growing use of international banking and international trusts to facilitate more mobile lives.
Some people who never intend to live outside their home country also open international bank accounts and trusts, simply to relocate or diversify their financial affairs, rather than their lives.
International Banking Centers Serve Legitimate Purposes
By an international bank, I mean a bank outside the borders of his home country that is specifically designed to move a variety of currencies easily across national borders for legitimate investment and business purposes. Such banks tend to be located in jurisdictions that specifically choose to support international banking as an economic sector, and have created legal requirements and protections to do so.
Such international banking centers serve a variety of different purposes for various types of individuals and corporations. Not all of those purposes are legitimate, and there is no question that there has been and continues to be inappropriate use of international banking centers by drug traffickers, terrorist organizations and racketeers.
However with the introduction of anti-money laundering laws in most advanced international centers, the world’s governments and international economic organizations such as the OECD have had some success in preventing abuses.
While money laundering remains a problem in some international financial centers, international banks serve many legitimate and legal customer needs. Among the main legal uses of international banking centers are:
- Tax-efficient structuring of international trade;
- Holding and investment companies;
- International investment funds;
- Protection of personal wealth using trusts;
- International financial services;
- Captive insurance companies;
- Shipping registries.
What Should You Look for In an International Banking Center?
The individual investor who wants to put into place any of these financial structures may need to set up accounts in an international bank in one of the world's international banking centers. Since not all international banking centers offer the same protections and advantages, you need to choose not only the individual bank you want to trust with your money, but also the international banking center that provides the best international banking environment for your needs. The basic advantages to look for in an international banking center are:
1. A low tax regime -- Normally international banking centers charge no local tax, or minimal taxes on international accounts; and generally free from taxes on profits from selling assets, such as wealth tax. Belize, for example, is a no-tax jurisdiction.
2. Privacy and confidentiality -- Due to self-regulation, disclosure of the identity of beneficial parties of any account or financial structure is very much restricted.
3. No exchange controls -- Depositors can feel secure knowing that their money can be taken out, or that more can be put in, at any time.
4. Minimal government intervention -- The best jurisdictions offer suitable regulations that support greater confidentiality and less restriction, without government intervention.
5. Political and financial stability -- Money is safest and devaluation least likely in countries whose government, politics and economy are all stable.
6. High expertise in the financial world -- The great advantages offered by international banking centers attract high-level financial experts to work in their banks. Again, Belize is a good example, recognized as "...a leader in getting its practitioners qualified and is rated as first in Central America,” according to Campbell’s College in the U.K.
7. Asset protection -- Assets held under certain structures such as IBC’s and Trusts are protected from lawsuits, judgments and divorce settlements.
8. Structures to maximize foreign investment -- International income under certain structures accumulates tax-free, leaving more to invest. In addition, international investments also accrue at a significantly faster rate than onshore investments, due to the elimination of capital gains tax.
Beyond Banking Laws: Host Countries Are Not All Equal
While most international centers have established legal and regulatory conditions to provide the basic features listed above, not all are equally advantageous to North American investors in particular.
In choosing an international bank, you are also choosing a country in which to place your money. Features of the host country itself that you should consider include:
1. Reputation -- There are many international financial centers, and the number has steadily increased in recent years. The fact that the center is well-respected and has not been classified as a tax haven or linked to illegal activity should provide prospective clients with some reassurance about that jurisdiction.
2. Geography and physical infrastructure – An international financial center must provide good communications, easy access and a comfortable place to do business. Translating your business into a foreign language, or communicating your needs to someone whose native language is different from your own can result in misunderstandings, frustrations, delays and mistakes. Similarly, look for an international banking center with easy access through daily flights from your home country, and one providing comfortable accommodations. Even the time zone of the banking center affects the ease with which you can conduct your business, whether by phone, email or in person.
3. Human infrastructure – Look for an international banking center with readily available expertise in banking, law, accountancy, insurance, translation and interpretation of other languages, trust administration, company administration and clerical tasks. Again, it is also useful if the local official and business language is easily understood by clients. Factors such as strong local economy with good living standards for employees, easy work permit regulations, and the absence of civil strife assure a skilled workforce with available back-up services.
4. Legal system – Legal systems vary widely throughout the world. The U.K. and its former colonies, including the U.S., Canada, Belize and some other Caribbean countries, operate under a common law system. The legal systems of Latin American countries that were patterned after Spain or other Latin European nations function very differently. For North Americans, a common law system is much easier to understand and work within.
5. Minimal reporting – For maximum protection and privacy, seek a country that does not require public disclosure of beneficial ownership of companies, or maintain a central registry of trusts, and where banks are required by law to provide clients and business confidentiality.
Due to a growing trend in international travel, as well as increasing ease of conducting international business through the internet, international banking and international trusts have become an attractive financial option. Before deciding on an international bank and banking center in which to place your confidence, and your money, make sure you find one that is well regulated, with a reputation as a favorable alternative among the international business community.
Peter Zipper is the president of Caye International Bank, Ltd., based in Belize. He has been involved in private banking for over 30 years, and is an authority on offshore banking and investment centers. For more information about Caye International Bank and banking in Belize, click here.