Offshore Banking Regulation

“’Knock three times and ask for Roscoe.’

“That’s what offshore banking used to be,” Peter Zipper, an offshore banker with more than three decades of experience, explained this morning to the crowd attending this week’s Offshore Summit.

“But those days are over,” Peter continued.

“In 1999, there was a global banking conference, which I attended, during which the world of offshore banking was changed dramatically. One specific outcome of that convention, for example, was the end of the numbered account. Ever since, if you want to bank with Roscoe, you’ve got to reference your account number,” Peter assured the group.

The offshore banking industry is right now experiencing another dramatic upending, this time not in the interest of cleaning up banking dumps but with the clear and straightforward agenda to track the movement of money around the world more tightly and to tax every possible dollar along the way.

In July of this year, the U.S. IRS finally released its requirements for foreign banks to be compliant with FATCA rules. Now banks are working to try to meet those requirements by the fast-approaching deadline of Jan. 1, 2014.

“That is,” Lief continued, “maybe you’re thinking that you’d like to identify those banks that don’t intend to comply with IRA regs and do business with them alone?

“That’s not a practical strategy,” Lief explained. “A non-compliant bank won’t be able to bank in the United States or to transact business in U.S. dollars. In other words, any bank that wants to deal in U.S. dollars will be compliant. I’m not sure which banks that fact leaves out, but I’m guessing you aren’t going to be able to conduct whatever business you want to conduct through them.

“One way for a bank to comply with FATCA rules,” Lief said, “is to have no U.S. account-holders. A number of banks around the world are going this route, but not all, of course, and the American looking to diversify his banking offshore still has good options.”

Lief offered six recommendations for good offshore banks that are still accepting U.S. clients. Then he offered a non-recommendation for one bank that we’d formerly done business with personally. This bank sent us the dreaded “We’re closing your account” letter two months ago. They provided no explanation for why they were throwing us out and closing our account and gave us but 30 days to move the money.

“The worst part,” Lief explained, “was that this was the one instance where I hadn’t taken my own advice. I didn’t have a second, backup account for this corporation, so I had to scramble. I spent a good number of the 30 days I’d been allowed knocking on the doors of banker-friends, trying to find one who’d open a new account for me before the deadline. I finally found one (it’s one of the banks on my top six list).”

One symptom of the shake-up (shake-down?) taking place in the offshore banking world right now is rising fees. Banks are passing along the costs of complying with FATCA rules to clients.

“One bank in Panama,” Lief explained, “is now charging a fee of any foreigner interested in opening an account with them. This fee is payable up front, before any other discussion takes place. If, after reviewing your paperwork, the bank decides it will not open an account for you, the fee is not refundable.”

Lief closed his offshore banking remarks this morning with three pieces of advice:

• Create redundancies. For every foreign bank account you have, you need a second, back-up account…

• When you have the opportunity to open an offshore account…open it. “You’re here in Panama this week,” Lief said. “To open a bank account in Panama, you need to visit the bank in person. So, again, you’re here. I suggest you make an appointment with one of the Panama-based banks I’m recommending to start the process of opening an account while you have this chance.”

• Don’t close any foreign account you have if you don’t have to—even if you have no immediate need for it. You never know when or if you’d be able to replace it in the future…

Kathleen Peddicord