OFFSHORE BANKING

CHAPTER: 1.

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1.1 INTRODUCTION TO BANKING

Banking has become a part and parcel of our day-to-day life. Today, banks offer
an access to a common man. They carry out variety of functions apart from their
main functions of accepting deposits and lending. Banking is a service industry.
Bank provides financial service to the people, business and industries. Merchant
banking, money transfer, credit cards, ATMs are some important financial
services provided by the modern banks.
Banking in India is mainly governed by Banking Regulation Act, 1949 and
Reserve bank Of India Act, 1934. The Reserve Bank is responsible for licensing
of banks and branches and it also regulates credit limits to state co-operative
banks on behalf of primary co-operative banks for financing SSI unit.

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1.2 MEANING OF BANK

The term bank is taken from the French word “Banco” which means a bench or
an exchange table.Banking sector acts as the backbone of modern
business.Development ofany country mainly depends upon the banking sector.

A bank is a financial institution that accepts deposits from the public and creates
credit. A banking system is also referred as a system provided by a bank which
offers cash management services for customer, reporting the transactions of their
accounts and portfolios throughout the day for the past three decades. India’s
banking systems has several outstanding achievements to its credit. All the banks
safeguards the money and valuables and provides loans, credit and payment
services, such as checking accounts, money orders and cashier’s cheques. The
banks also offer investment and insurance policies.

1.2.1 DEFINITION
Banking:
According to section 5(C) of Banking Regulation Act 1949,” Accepting for the
purpose of lending and investment, of deposits of money from the public,
repayable on demand, order or otherwise and withdrawable by cheque, draft or
otherwise.”

According to Prof. Kinley,” A bank is an establishment which makes to

individuals such advances of money as may be required and safely made, and to
which individuals, entrust money when not required by them for use.”

According toSayers,” Bankers are institutions whose debts are usually referred to
as bank deposits and commonly accepted in final settlement of others people
debts.”

According to Crowther,” The bankers business is to take the debts of other

people to offer his own in exchange, and there by create money.”

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1.3 ORIGIN OF BANK

Banking is an independent business which originated during the fourteenth
century in England. It was conducted mainly by a class of people called ‘Jews of
Lombardy’. These people i.e. Jews became popular as ‘Lombard’s’ since they
conducted their business in the Lombard street of England. Earlier they
transacted their business on the benches in the market place.
In 1949, Banking Regulation Act was passed. It gave regulatory powers to
Reserve Bank of India over commercial banks. Prior to 1955 all commercial
banks were privately owned. In 1955 the government nationalized the Imperial
Bank of India (Now State Bank of India). In 1959, SBI took seven banks of
princely states as subsidiaries. In 1969, 14 banks were nationalized and 1980
another 6 banks were nationalized.
The origin of banking, in the modern era is traced in Italy. The word bank is
supposed to have been deceived from the German language “Banck”, meaning a
mound or heap, from which Italians adopted ”Banco” which means a bench at
which the money changers used to change one kind of money into another and
transact their banking business.
The first bank in India called The General Bank of India was established in the
year 1786. The East India Company established The Bank of Bengal/Calcutta
(1809), Bank of Bombay (1840) and Bank of Madras (1843). The next bank was
Bank of Hindustan which was established in 1870. These three individual units
(Bank of Calcutta, Bank of Bombay and Bank of Madras) were called as
presidency Banks. First Bank completely run by Indians was Allahabad Bank in
1865. Punjab Nationalized Bank Ltd. Was set up in 1894. Between 1906 and
1913. Bank of India, Central Bank of India, Canara bank, Indian Bank and Bank
of Mysore were set up. Then Reserve Bank of India was established in April
1935.
After Independence, Government has taken most important steps. In 1955, the
Imperial Bank of India was nationalized and name given State Bank of India. Till
the year 1980 approximately 80% of the banking segments in India were under
Government’s ownership.
On the suggestions of Narsimhan Committee, the Banking Regulation Act was
amended in 1993 and thus the gates for the new private sector banks were
opened. The following are the major steps taken by the Government of India to
Regulate Banking institutions in the country:

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1949: Enactment of Banking Regulation Act.

1955: Nationalization of State Bank of India.
1959: Nationalization of SBI subsidiaries.
1961: insurance cover extended to deposits.
1969: Nationalization of14 major banks.
1971: Creation of credit guarantee corporation.
1975: Creation of regional rural banks.
1980: Nationalization of seven banks with deposits over 200 crore.

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1.4 FEATURES OF BANKING

FEATURES OF BANKING

DEALING IN MONEY

AGENCY AND UTILITY

SSSSSSSSSSESERVICES
CREDIT CREATION

COMMERCIAL NATURE

WITHDRAWABLEDEPOSITS

FINANCIAL INSTITUTION

GIVING ADVANCES

1. DEALING IN MONEY
The bank deals in money. They accept deposits from the public. There are
different types of deposits such as savings current, fixed, recurring, etc. banks
advances money as loans to the needy people. Bank operates mostly with cash
and bank money such as cheque, draft etc.

2. AGENCY AND UTILITY SERVICES

Banks act as an agent of the customer. They provide variety of agency services.
Fund transfer, credit cards, Tele banking, cheque clearing, bills collection are
some of the services provided by the banks as an agents.

3. CREDIT CREATION

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The banks can create credit. Every deposit can create credit. Additional money
can be created for the purpose of lending. The Reserve Bank of India has adopted
certain measures to control credit created by the banks

4. COMMERCIAL NATURE
All the banking functions are carried out with the aim of making profit.
Therefore, the nature of business of banks is commercial. They pay interest on
deposits which are advanced to the needy person at a higher rate of interest.
Therefore, there is a fixed and minimum margin of profit in banking operations.

5. WITHDRAWABLE DEPOSITS
The deposits made by the customers can be withdrawn by cheques, draft or
otherwise. The customers have an option to withdraw money either by cheque or
withdrawal slips. The deposits are also withdrawable on demand .However; fixed
deposits can be withdrawn by cheques by the customers.

6. FINANCIAL INSTITUTION
Bank is a financial institution which deals with other people money i.e. money
given by depositors.

7. GIVING ADVANCES
The bank lends out money in the forms of loans to those who require it for
different purpose.

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1.5 TYPES OF BANKS

TYPES OF
BANKS

1. COMMERCIAL BANKS
Banking business is mostly undertaken by commercial banks. Commercial bank
undertakes the ordinary banking business of receiving deposits, advancing loans,
discounting bills of exchange. They are mainly profit making /seeking
institutions. Modern commercial banks provide other services such as safe
deposit locker, payments of insurance premium, etc. They usually lend only for
short duration and satisfy main the working capital needs of the industry. Canara
Bank, Bank of Baroda, Dena Bank etc. is examples of commercial banks.

2. CENTRAL BANK
A Central Bank is at the top of all banking institutions in the country. It acts as a
guardian of the money market. In India, the Reserve Bank of India (RBI) acts as

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a central bank operates under the ministry of finance. The Banking regulation act
1949 gave extensive regulatory powers to RBI over the commercial banks. It is a
banking authority regulating and controlling activities of money market. Thus, it
is an institution which is charged with the responsibility of carrying out monetary
policy.

3. SAVING BANKS
The major function is to collect the small savings of the people and to channelize
them in to some productive uses. They encourage the habit of savings. They
provide good interest. Certain restrictions are imposed on the withdrawals of the
amount saved with these institutions. They are mainly operated by post offices in
England and India.

4. INDUSTRIAL BANKS/DEVELOPMENT BANKS

Industrial banks provide long term capital to the industries. They make a
specialist of borrowing and lending for long periods. The funds are raised by
issue of shares and debenture and also by accepting long term deposits from the
public. Examples of such banks are Industrial Development Bank of India
(IDBI), Industrial credit And Investment Corporation of India (ICICI), etc.

5. AGRICULTURAL BANKS
Agriculture banks are those provides both long and short term finance to
agriculture. Long term finance is provided to the framers for the improvement of
permanent nature of land, for purchasing agriculture equipment, etc. short term
finance are given meeting the current expenditure on seeds, wages, etc. For
example, NABARD, Regional rural banks etc.

6. EXCHANGE BANKS
These banks finance foreign trade. In India, commercial banks provide short term
finance at pre-shipment and post shipment stage. Commercial banks also provide
medium term finance. The long term finance is provided by the Export-Import
Bank of India (EXIM).

7.CO-OPERATIVE BANKS
Co-operative Banks provide funds to framers and even traders and small scale
industrialists. They accept deposits from the members of the public. The co-
operative bank operates on three tier system.

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CO-OPERATIVE BANKS
PRIMARY CO-
OPERATIVE SOCIETIES

CENTRAL CO-
OPERATIVE BANKS

STATE CO-OPERATIVE
BANKS

A. PRIMARY CO-OPERATIVE SOCIETIES

Primary co-operative societies provide short term funds to the members for the
purpose of purchasing seeds, fertilizers etc. The loans are payable in installments.
These banks are mostly operating at the village level.
B. CENTRAL CO-OPERATIVE BANKS
These banks operate at the district level. They are established to provide funds to
the primary co-operative societies who do not have sufficient resources to grant
advance to their members.
C. STATE CO-OPERATIVE BANKS
These banks operative at the state level. These banks collect funds from the
public. They provide financial assistance to central co-operative banks.

1.6 FUNCTIONS OF BANK

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PRIMARY SECONDARY
FUNCTIONS FUNCTIONS

ACCEPTING MONEY TRANSFER

DEPOSITS

FACTORING
LENDING MONEY

CREDIT CARDS

ATM

TELE-BANKING

I. PRIMARY FUNCTIONS
A.ACCEPTING DEPOSITS
Banks collect funds in the form of deposits from the public. There are different
types of deposits.
1. SAVING DEPOSITS
Saving deposits are meant for the households of the lower and middle income
classes who want to save a part of their income to meet their future needs and
earn an income from savings .The rate of interest is low withdrawal are restricted
in certain terms.
2. FIXED DEPOSITS/TIME DEPOSITS

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Lump sum amount is deposited at one time for specific period. The rate of
interest depends on the maturity period. Withdrawal is not allowed before expiry
date. Those who have surplus funds go for fixed deposits.
3. CURRENT DEPOSITS/DEMAND DEPOSITS
Current account is operated by businessman. Withdrawals are freely allowed. No
interest is paid. In fact, there are service charges. The account holder gets the
benefits of overdraft facility.
4. RECURRING DEPOSITS
Recurring account is operated by salaried person and petty traders. A certain sum
of money is deposited into the bank periodically. Withdrawals permitted only
after the expiry date. A higher rate of interest is paid.

B.LENDING MONEY

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A bank has to invest funds in different ways to earn income. Banks provides
loans and advances to the traders, industrialist, against the security of some
assets.
1. TERM LOANS
The bank advance a lump sum amount for the certain period, of an agreed rate of
interest. The loan is repaid in installment together with interest. Term loan may
be:
A.SHORT AND MEDIUM TERM LOANS:
Banks provide short and medium term loan to the business firm. Loans can be
given with or without security. The loan once repaid in full or in part cannot be
drawn again by the borrower unless the banker sanction new fresh loan. The short
term loan is granted for short period and medium term loan is granted for a
period from 1 year to 5 years.
B. LONG TERM LOANS:
Long term loan are granted for more than five years. The loan policy in respect of
each broad category of nature is to be laid down by every bank with the approval
of its board. There is always a time gap between the date of sanctioning and its
disbursement by the financial institution to the concerned borrowing company.
2. CASH CREDIT
The client is allowed cash credit up to a specific limit fixed in advance. It can be
given to current account holder as well as to other who do not have an account
with the bank. Separate cash credit account is maintained. The advance is given
for a longer period and a larger amount of loan is sanctioned than that overdraft.
3. OVERDRAFT
Overdraft is given to the current account holders. No separate account is
maintained. All entries are made in current account .A certain amount is
sanctioned as overdrafts which can be withdrawn within a certain period of same
time say 3 months or so. Interest is charged on actual amount withdrawn. An
overdraft facility is granted against a collateral security.
4. BILLS DISCOUNTING
The bank can advance money by discounting or purchasing bills of exchange
both domestic and foreign bills. The bank pays the bill amount to the drawer the

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beneficiary of the bill by deducting usual discount charges. On maturity, the bill
is presented to the drawee or acceptor of the bill and the amount is collected.

II. SECONDARY FUNCTIONS

1) Money transfer
2) Factoring
3) Credit cards
4) ATM
5) Tele-banking
6) Internet banking
7) Insurance products
8) Foreign exchange

1.7 NEEDS OF BANKS

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♦ Banks help the businessmen and all other people by accepting their
deposits and allowing withdrawals by cheques and transfer of money.

♦ Bank act as an agent of their customers in performing the functions such

as collection of dividends, pensions, purchase and sale of securities and
payments of salary and their expenses.

♦ It also acts as an agent as well as banker of the government. They collect

money from the public, tax-payers and businessmen on behalf of the
government and the payments are also made through the banks.

♦ They collect savings and other funds from the people and rechannalise
these funds to borrowers for financial investments. Thus banks, by
collecting saving, lending money and generating money play an
important role in the economic development of a country.

♦ Banking done electronically is electronic banking. Delivery of bank’s

services to a customer at his office or home by using Electronic
Technology can be termed as Electronic Banking.

♦ Automated Teller Machines and the plastic cards are needed for the
customers for the facility round the clock (24 hrs.) banking.

♦ Customers also expect the transaction of electronic payment systems like

EFT, RTGS, EGS and TT etc.

1.8 SCOPE FOR BANKING

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Money Deposited in a bank remains safe. Precious articles too can be kept in
the safe custody of banks in lockers.

 Bank provides credit facilities to their customers. Customers with bank

accounts also enjoy better credit in the business world.
 Banks encourage the habit of saving. It also collects and realizes bills,
cheques, interest and dividend, warrants etc. on behalf of their customer
and provides a convenient and safe means of transferring money from
one place to another and facilitates business dealing/transactions.
 Banks meet the financial needs of small, scale business unit which are
located in economically backward areas.
 Banks also provides payment settlements through some products like
cheque, pay order, multi city cheques, Demand Draft, Debit and Credit
cards etc.
 There is a wide scope for the industries and entrepreneurs for the project
finance like to start a new unit, rupee and foreign currency loans,
subscription to shares/debenture etc., for the financial services like
merchant banking, equipment leasing, suppliers/buyers credit and finance
to leasing and hire purchase companies.
 Exim Bank provides refinance facilities to the schedule commercial
banks and financial institution against their export-import financing
activities.
 The banking sector has improved manifolds in terms of capital adequacy,
asset classification, profitability, income recognition, provisioning,
exposure limits, investment fluctuation reserve, risk management etc.

1.9 ADVANTAGES & DISADVANTAGES

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ADVANTAGES
Commercial banking can help a small business by making it easier to
manage day-to-day financial tasks. An established commercial account with
a bank will make it easier to borrow money when you grow your business.
Often a business is assigned a representative who works directly with the
company to find the best services and solutions for the issues the business is
facing. For example, the company may save money by outsourcing payroll
processing. Banks also offer invoicing services, with personalized invoices,
and can set up transfers to other banks which will simplify accounting
procedures. Some banks offer retirement account management for your
employees as well as other employee benefits. This can save you money,
and make it easier to manage all of the services you offer employees. Some
banks allow you to make deposits online by scanning checks. Your bank
may offer you discount on your merchant services fees. Commercial banking
allows you to set up direct deposits for your employees as well as for any
invoices you need to pay to others, which will save you time.

DISADVANTAGES
Commercial banking or business accounts are often more expensive than
traditional bank accounts. Banks may charge fees for night deposits, for
processing a certain number of checks and for the payroll services.
Depending on the size of your business, some of the services offered may
not be needed, and you may still be charged for the services even if you're
not fully using them. Different banks may offer different services and charge
different fees, and it can be difficult to compare the services. Signing up for
a commercial account before your business is ready for one will cost you
and may slow the growth of the business. If you choose the wrong bank, you
may have a difficult time opening a new account and transferring all of the
services to another bank. This can cost you both time and money.

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1.10 OFFSHORE BANK

INTRODUCTION

An offshore bank is a bank located outside the country of residence of its

depositors, with most of its account holders being non-residents of the
jurisdiction. An account held in a foreign account, especially in a tax
haven country, is often described as an offshore account. Typically, an individual
or company will maintain an offshore account in a low-tax jurisdiction (or tax
haven) that provides financial and legal advantages, such as:

 greater privacy
 little or no taxation (i.e. tax havens)
 Protection against local, political, or financial instability.
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 people 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 foreign bank accounts—which may or may not
be numbered bank accounts—they may have. Although offshore banks may
decide not to report income to other tax authorities, 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 the 9/11 attacks, there have been many calls for more
regulation on international finance, in particular concerning offshore banks, tax
havens, and clearing houses such as Clear stream, based in Luxembourg, being
possible crossroadsfor 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
the Organization for Economic Co-operation and Development (OECD)
countries are trying to stamp out competition.

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1.11 ORIGIN OF OFFSHORE BANKING

The term originates from the Channel Islands being "offshore" from the United
Kingdom, and while most offshore banks are located in island nations to this day,
the term is used figuratively to refer to any bank used for these advantages,
regardless of location. Thus, some banks landlocked Switzerland, Luxembourg
and Andorra may be described as "offshore banks". These institutions were set
up as tax havens to attract more investment. Currently, many jurisdictions where
offshore banks are located do not tax deposits. Offshore baking is also known as
“private banking”

Offshore banking, is a segment of the finance industry whose birth can be traced
back to Vienna, Austria. Offshore banking was born when the neutrality of
Switzerland was established during the Vienna Congress in 1815. Some
accounts, however, claim that offshore banking originated in the Channel Islands
of France.

Despite the contradictions, one thing is clear: that offshore banking was born out
of the need for individuals to find a haven for their wealth. During the post-
Napoleon Europe, wealthy families and merchants saw the need to find a safe
place to keep their growing assets. This was an era in Europe defined by constant
economic turmoil and political strife.

The ruling elite sought ways to finance their wars and lead lives of luxury, and
with the increasing numbers of affluent families, taxation had grown to become
the easiest and most rewarding way to get more money. During this time,
European kingdoms, empires, and territories imposed higher taxes without
providing equivalent services such as security. Prevalent insecurity due to
societal imbalances and exorbitant taxation forced the wealthy to safeguard their
dwindling fortunes abroad.

In the mid-1800s, bankers in the Northwestern Islands of France cashed in on

frustrations faced by the Europe’s super-rich by inviting them to deposit their
wealth in their banks to enjoy strong asset protection, lower taxation, and get
banking confidence. Before long, offshore banking was open to the rich and
opening accounts with these banks spread among the royals, industrialists, and
the European elite families.

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Since the foundation of the first offshore banks in Vienna and Chanel Islands,
offshore financial institutions have maintained an impressive resume of
safeguarding the wealth of foreign investors from unreasonable financial
regulations and scrutiny, socioeconomic turmoil, and punitive taxation by
regimes among other threats. The 'snowball’ effect that resulted led to smaller
“offshore jurisdictions” rushing to tap the revenue flowing freely into the small
islands that were being revamped as tax havens.

The Coining of “Offshore banking” and elite banking

According to historyandpolicy.org, the demand for secure banking practices and

sound financial regulation dramatically augmented the increase in the number of
banking institutions offering such financial services.

By the late 19th century, the evolution of the rules of offshore banking boosted
the confidence that wealthy individuals had on offshore jurisdictions and the
amount of monies they attracted rolled into billions. It was during this time that
the term “offshore banking” was coined to describe the small offshore financial
centers and tax havens that offered strong, safe, and anonymous banking backed
by sound financial and regulatory practices.

Elite offshore banking is believed to have spread from Europe to the rest of the
world at the beginning of the 20th century. As investors and wealthy families
flocked from around the world to take advantage of the offshore tax havens, more
institutions were established in economically sound and politically stable
locations.

This form of banking grew very popular in the trade circles as the banks were
willing to customize their fiscal policies to offer depositors great advantages and
potential investors a wonderful haven to save their money. While this was a
beneficial approach, a more compact structure was required to ensure sustenance
and feasibility in the long-term.

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Offshore Banking Today

The Bloomberg Billionaire Index shows that 30 percent of the 200 richest people
in the world put their wealth in or through an offshore entity. Although
Switzerland remains the most popular haven for investment, there are many
independent jurisdictions around the world that provide as much secrecy and
favorable wealth safekeeping environment like it.

In May 2015, the European Union signed a protocol with Switzerland making
amendments to the countrys existing savings laws to transform it into an
automatic exchange of financial information agreement based on a global
standard.

The newly revised agreement means that residents of EU will no longer enjoy the
anonymous and privacy banking benefits the country has offered to foreign
depositors since the 19th century. While this move is seen as a significant step in
the fight against tax evasion and fraud, it could as well be the most significant
step in the death of offshore banking as we know it.

Today, people working away from home are heavily involved in expat banking,
adopting measures in order to send money home and receive incentives. The
future of this industry is surely a bright one, with traditional barriers being
brought down and newer, more inclusive and flexible approaches being adopted
across the board.

DEFINITION
Located or based outside of one’s national boundaries. The term offshore is used
to describe foreign banks, corporations, investments and deposits. A company
may legitimately move offshore for the purpose of tax avoidance or to enjoy
relaxed regulations. Offshore financial institutions can also be used for illicit
purposes such as money laundering and tax evasion.

Offshore finance can betermed as the provision of financial services by banks

andtheir agents to non-residents. These services include the borrowing of money
from non-residents and lending to non-residents. Offshore banks primarily
provide financial services to the non-resident borrowers and lenders.

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OBJECTIVE OF OFFSHORE BANKING

1. To know the concept of offshore banking.

2. To study about the working of an offshore banking.
3. To access the growth of this sector &demand of an offshore
banking.
4. To know about the advantages & disadvantages of an
offshore banking.
5. To know about the features of an offshore banking.
6. To know about scopes of an offshore banking.
7. To study the comparison of an offshore banks and
jurisdiction.
8. To know the tax havens of the offshore bank and how it
varies from domestic banks.

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1.12 SCOPE OF OFFSHORE BANKING

 Offshore banking constitutes a sizable portion of the international financial
system.
 Experts believe that as much as half the world's capital flows through
offshore centers.
 Havens have 1.2% of the world's population and hold 26% of the world's
wealth, including 31% of the net profits of United States multinationals.
 An estimated £13-20 trillion is hoarded away in offshore accounts.
 Some $3 trillion is in deposits in tax haven banks and the rest is in
securities held by international business companies (IBCs) and trusts.
 Among offshore banks, Swiss banks hold an estimated 35% of the world's
private and institutional funds (or 3 trillion Swiss francs), and the Cayman
Islands (1.9 trillion US dollars in deposits) are the fifth largest banking
centre globally in terms of deposits.
 However, recent data by the Swiss National Bank show that the assets held
by foreign persons in Swiss bank accounts declined by 28.1% between
January 2008 and November 2009.

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1.13 OFFSHORE BANKING SERVICES

It is possible to obtain the full spectrum of financial services from offshore banks,
including:
• Acceptance of Multi-Currency Deposits
• Multi-Currency borrowing option.
• Loans against deposits in foreign currency
• Derivatives products
• Issuance of L/C, Bank Guarantee, Bill Discounting
and collection & negotiation of trade bills
• Long term finance and short term finance (working capital) in all countries
• External Commercial Borrowings (ECB) etc.

OTHER SERVICES
 Savings accounts
 Credit
 Deposit taking
 Foreign exchange
 Fund management
 Investment management and investment custody
 Debit and Credit Cards
 Letters of credit and trade finance
 Wire- and electronic funds transfers

Not every bank provides each service. Banks tend to polarize between retail
services and private banking services. Retail services tend to be low-cost and
undifferentiated, whereas private banking services tend to bring a personalized
suite of services to the client.

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CHAPTER: 2.
FINDING
&ANALYSIS

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2.1 MEANING OF OFFSHORE BANK

An offshore bank is a bank located outside the country of residence of its
depositors, with most of its account holders being non-residents of the
jurisdiction. An account held in a foreign account, especially in a tax haven
country, is often described as an offshore account. These institutions were set up
as tax havens to attract more investment. Offshore banking involves the securing
of assets in financial institutions in foreign countries. This practice, which may be
limited by the laws of the customer’s home nation, can be used to avoid certain
unfavorable circumstances should the funds be kept in a financial institution in
the home nation. This can include the avoidance of tax obligations as well as
making it more difficult for these assets to be seized by a person or entity in the
home nation. For those who work internationally, the ability to save and use
funds in a foreign currency for international dealings can be a benefit. This can
provide a simpler way to access funds in the needed currency without have to
account for rapidly changing exchange rates.

2.2. OFFSHORE BANKING IN THE INDIA

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 ex
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 OBU’s. Thus, the necessary riskmanagement 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 anti- Money laundering directives of
RBI from time to time.

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2.3 FEATURES OF OFFSHORE BANKING:

• They will be permitted to be set up in Special Economic Zones.

• These banks will be virtually (almost) foreign branches of the banks but located
in India.
• The Overseas Banking Units (OBUs) would be exempted from CRR, SLR etc.
• 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 to meet their day to day expenses. These branches will not be
allowed to participate in domestic call and money market etc.
• These accounts can be opened by Non-Resident Individuals, Corporates, Trusts
or Offshore companies.

2.4 THE BENEFITS OF OFFSHORE BANKING:

As fellow expatriates, we know what's important to you and your family, which
is why we want to share the seven main reasons we believe offshore banking
could be right for you.

1) Security
In many countries, bank deposits do not have the same protection as you may
have been used to at home. By using an offshore bank, based in a highly
regulated, transparent jurisdiction, such as the Isle of Man for example, you can
feel secure that your money is safe.

2) Service
Offshore bank accounts usually provide a highly personalised service, giving you
round-the-clock access to your money through online and telephone banking,
seven days a week, 365 days of the year.

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A relationship manager may also be assigned to your account, so you will always
have a personal point of contact.
The best banks offer the highest service levels, which can be appealing for expats
who have international financial obligations and opportunities.

3) Convenience
As an expatriate, being able to keep your bank account in one place, no matter
how many times you move countries, is a major benefit.
In fact, this reason alone is enough for many people to open an offshore bank
account.

4) Tax
There can be expat tax advantages to using an offshore bank - but whether these
apply in your case will depend on your personal circumstances, such as country
of residence.
Tax benefits can range from keeping your money outside of the tax jurisdiction
of your home country, to protecting it from taxes in the country in which you are
currently living.

5) Investing
A good offshore bank will provide you with a wide choice of funds and
investments that are not usually available either in your home country or where
you are currently living.
Investing through an offshore bank is straightforward, and there may be advice or
tools on hand to help you create an investment portfolio appropriate to your risk
profile and the outcomes you want to achieve.

6) Foreign exchange services

With multi-currency accounts usually coming as standard, transferring money
between accounts will be fast and free.
And, if you need to transfer money between currencies, some offshore banks
provide a competitive foreign exchange rate, compared to a regular banking
service.

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This is one of the biggest advantages of offshore banking facilities for expats
with international financial obligations.

7) Lending and credit

Depending on the bank you choose, some offshore accounts are basically a
private banking service - a benefit of which is that lending and credit facilities are
often much more flexible and tailored to your needs.
For example, you may find very competitive mortgage rates are available for
property, particularly if the property is in a mainstream market like the UK.

2.5 THE FACTS ON OFFSHORE BANKING:

Whether using the term offshore banking, international banking or foreign

banking, the practice of banking in a jurisdiction outside an individual’s, or
companies, place of residence is still a popular strategy.

Globalization and competitiveness between jurisdictions to attract foreign

investment means there are fewer barriers to investing in other countries,
including setting up and offshore company or opening a bank account offshore.
Due to bad press and general misconceptions about offshore banking there are a
few myths about setting up bank accounts in foreign markets. However,
entrepreneurs looking to expand their business to international markets can enjoy
a number of benefits from this strategy.

Following are 5 facts about offshore banking to give some insight into potential
benefits.
1) Offshore banking is legal – Provided you follow the correct procedures of the
jurisdiction in which you are setting up a bank account and you meet the legal
obligations of your residential jurisdiction. Different jurisdictions will have
different requirements in terms of required due diligence but an experienced
corporate service provider can guide you through this process.

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2) The legitimate purpose of offshore banking is not to evade tax – As

mentioned; there are a number of benefits of international banking strategies.
Legal tax planning and protection of financial assets are two of these.

3) Offshore banking is not totally tax-exempt – while many of the traditional

banking jurisdictions do not charge account holders tax on their deposits, some
countries do charge withholding taxes on the income earned from accounts held
by foreign individuals and companies. It is also crucial to remember that some
countries, such as the US, tax worldwide income.

4) Offshore accounts can be undertaken in thriving developed countries – the

view of setting up a bank account in a small tropical island is common and there
are many small jurisdictions that are attractive for foreign investors. However,
there are many options including some of the most technologically advanced
jurisdictions in the world, such as Singapore and Hong Kong. Offshore accounts
can still enjoy all the benefits of a local bank account including multi-currency
accounts, electronic transfer, cards etc.

5) It is not always necessary to travel to the jurisdiction to open an offshore

account – This does depend on the offshore banking jurisdiction but working
with an experience corporate service provider can aid in completing the bank
account opening process with minimal inconvenience.

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2.6 TOP TEN REASONS WHY YOU NEED AN

OFFSHORE BANKING
Reason #1: Dilute Your Political Risk
According to Judge Andrew Napolitano: “People who have more than $100,000
in the bank are targets for any government that’s 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 the immediate reach of
the thieving bureaucrats in your home country. Obtaining an offshore bank
account is a convenient way to do just that. That way your savings cannot be
easily confiscated, frozen, or devalued at the drop of a hat or with a couple of
taps on the keyboard. In the event capital controls are imposed, an offshore bank
account will help ensure that you have access to your money when you need it
the most. In short, your savings in an offshore bank will largely be safe from any
madness in your home country.

Reason #2: Sounder Banking Systems and Banks

Almost all of the banking systems in Western countries are fundamentally
unsound—leveraged to the hilt and backed by the promises of insolvent
governments. Worse, most of these banks only keep a tiny fraction of cash on
hand to meet customer withdrawal requests. This means that in the event of a
financial shock like another Lehman-style event, you could have trouble
accessing your money.
If you look to bank in a jurisdiction with low debt and a history of a stability, you
can find banks that don’t gamble with customer deposits (i.e., your money), are
much better capitalized, keep more cash on hand, and are otherwise much more
conservatively run than those in the US.
Offshore banks are almost always more responsible custodians of your hard
earned-savings.

Reason #3: Asset Protection

While there is no such thing as 100% protection, an offshore bank account can
help make you a hard target.
An offshore bank account also protects you from being paralyzed by a lightning
seizure by any government agency armed with a summary power to freeze your
assets, since such summary powers can’t reach beyond the US. If you ever find
yourself in a wrestling match with a government agency or with a frivolous
lawsuit, you’ll have resources you can count on.

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Reason #4: Currency Diversification

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

Reason #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 historical lows. These artificially low interest
rates amount to a wealth transfer from savers—who would otherwise enjoy
higher returns on their deposits—to borrowers. In fact, if you live in the West,
there’s a good chance that the interest you’re earning on your savings isn’t even
keeping pace with the real rate of inflation.
If you look abroad, though, you can find banks that pay interest rates
significantly higher than what you’d find at home.

Reason #6: Ensure Access to Medical Care Abroad

In the case you’re denied or delayed treatment in your home country—an
increasing possibility with the disastrous Obamacare—you may want to seek
medical care abroad.
In a dramatic scenario, this could be the difference between life and death.
Suppose that for whatever reason, you cannot get the medical care you need in
your home country and have to go abroad. That means you’ll have to transfer
money abroad to pay for it. But if capital controls are imposed, it could be
difficult or impossible to transfer funds abroad to pay for the medical care you
need.

Reason #7: The Ability to Act Quickly

When it comes to international diversification, it’s always better to be a year
early than a minute too late. Once a government has imposed capital controls or
levied bank accounts, it will be too late to take protective action.
If you don’t already have one, you should open an offshore bank account now—
even if it’s a small one. Just having one available—regardless of how much
money you initially put in it—gives you meaningful benefits. Namely the option
to act quickly and transfer more money abroad in the future, should the situation
warrant it.

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 OFFSHORE BANKING

Reason #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 file an FBAR (FinCEN Form 114).
However, if the aggregate total of your foreign financial accounts remains under
$10,000 for the year, and they are not held in a trust, LLC, or other structure, you
can legally maintain your privacy.

Reason #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 allows you
to pay for medical care abroad. Knowing that you have taken a strong measure to
protect yourself from these things should give you a degree of mental comfort.

Reason #10: Maximize Your Personal Freedom

Having an offshore bank account gives you more options. More options means
more freedom.
It’s a crucial step in freeing yourself from absolute dependence on any one
country.
Achieve that freedom, and it becomes very difficult for any government to
control your destiny.

Conclusion
It’s no secret that it is becoming harder and harder to open an offshore bank
account. Soon it could be impossible. This is a strong incentive to act sooner
rather than later to get one—even if you don’t plan to use it immediately.

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2.7 TYPES OF OFFSHORE FINANCIAL CENTERS:

Offshore financial centers can be classified into three main groups.

1) Primary OFCs:
Primary OFCs are the large international full service centers with advanced
settlement and payment system, operating in liquid regional markets where both
the sources and uses of funds are available. London, the US international
Banking facilities and Japanese offshore market.

2) Secondary OFCs:
Secondary OFCs differ from primary OFCs in that they intermediate funds in and
out their region, according to whether the region has deficit or surplus of funds.
Such OFCs includes Hong Kong and Singapore Asian currency units from South
East Asia and Luxembourg for Europe.

3) Booking OFCs:
Booking OFCs do not engaged in regional intermediation of funds, but rather
serve as registries for transactions arranged and managed in other jurisdictions.
These OFCs are sometimes referred to as tax havens and include most Caribbean
OFCs.

2.8 BANK FORMATION REQUIREMENTS

The information and backgrounds required from the bank license applicant, in an
overwhelming majority of jurisdictions, are as follows:

 Bank name and its legal form

 Applicant status (whether the matter concerns establishment of a branch office
of a foreign bank or a new company)
 Names and curricula vitae of the bank directors
 Certificates of police clearance of applicants and directors
 Bank and business references

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 OFFSHORE BANKING

 Submission of information about economic management of the firms of the

applicant(s)
 Identification of the bank shareholders
 Identification of the type of issued shares of the bank (registered shares,
priority shares, shares without voting rights, etc.)
 Denomination of the issued shares of the bank and type of currency used
 Capital structure of the bank and capital security
 Capital reserves of the bank Information stating from what resources the bank
will be invested
 Document of certifying that the registered capital has been paid up (if
registered in the host country)
 Document certifying that all taxes, stamp duties and royalties have been
settled
 Identification of the registered office in the host country
 Identification data of the registered agent or representative (if required)
 Identification data of the auditor and lawyer with a registered office in the
host country
 Type of intended services which are to be provided
 Territorial operational range of the bank
 How the company will protect itself from fraudulent or criminal conduct
 Business plan of the bank (the authorities generally require a balance sheet
from 3 to 10 years)
 Benefits for the host country resulting from the bank operation
 Signed and presented applications for the issue of the bank license

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2.9 BASIC TYPES OF OFFSHORE BANK LICENSES

In general terms it is possible to divide offshore bank licenses into two basic
types of license's, which can have a number of further subtypes:

TYPES OF OFFSHORE
BANK LICENSES

GENERAL BANK RESTRICTIVE BANK

LICENSE LICENSE

GENERAL BANK LICENSE

Understood in a majority of jurisdictions as a license for providing bank services,
at the place of registration and internationally, direct to the general public. The
bank acts as any other bank entity; it can accept deposits from the public and
perform common bank services with residents or non-residents.

In an overwhelming majority of countries, however, the activity is limited to

providing services to non-residents, i.e. offshore banking services only. This type
of offshore bank is established in lieu of providing commercial bank services in
an offshore regime.

RESTRICTIVE BANK LICENSE

Often referred to as the "internal" license, is a license that:

 limits territorial activities of the bank

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 OFFSHORE BANKING

 limits the possibility of providing services in foreign currencies

 limits the possibility of providing services to certain people

In a majority of cases, the bank cannot accept deposits from the public and it can
provide its services only to those entities for which the bank license was issued.
This bank is used as a so-called "corporate bank" for active Cash Flow
management.

2.10 WAYS TO BECOME A HIGH-QUALITY TOOL FOR:

 Tax planning
 Increase in image of the financial group or holding
 Active cash flow management
 Issuing bonds and guarantees for tender proceeding purposes
 Easier access to bank information about business partners and competitors
 Easier access to financial markets
 More progressive financing of business activities of a holding or financial
group
 Establishment of confidential and flexible bank accounts
 Providing loans and credit facilities

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2.11 FINANCIAL SERVICES BY OFFSHORE BANKING

IN INDIA
Offshore banks in India offer lot of financial services:

Acceptance of
Multi-
Currency
Deposits
Multi-
External
Currency
Commercial
borrowing
Borrowings
option
(ECB) etc

FINANCIA
L
Long term SERVICES Loans against
finance and deposits in
short term foreign
finance currency

Issuance,
collection & Derivatives
negotiation of products
trade bills

• Acceptance of Multi-Currency Deposits

• Multi-Currency borrowing option
• Loans against deposits in foreign currency
• Derivatives products
• Issuance of L/C, Bank Guarantee, Bill Discounting
and collection & negotiation of trade bills
• Long term finance and short term finance (working capital) in all
countries
• External Commercial Borrowings (ECB) etc.

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2.12 DOCUMENTS REQUIRED FOR OFFSHORE BANK

ACCOUNT:
Documents are mandatory for opening offshore bank accounts:

Photo
Identity

Letter
of Passport
Verificatio Photocopy
n

Income Proof
Source of
Proof Income
Statement
Why to
Open
Account

Photo identity
Passport photocopy
Proof of income
A statement detailing why person want to open the account.
Proof that the money being transferred is from a legal source.
A letter of verification from person bank, employer or a professional may
also be required.

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2.13 ADVANTAGES & DISADVANTAGES OF

OFFSHORE BANKING
OFFSHORE BANKING ADVANTAGES
 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.
 Some offshore banks may operate with a lower cost base and can provide
higher interest rates than the legal rate in the home country due to lower
overheads and a lack of government intervention.
 Advocates of offshore banking characterize government regulation as a form of
tax on domestic banks, reducing interest rates on deposits. Most offshore
countries offer very similar interest rates than those that are offered back home.
 Offshore finance can help developing countries source investment and create
growth in their economies, and can help redistribute world finance from the
developed to the developing world.
 Interest is generally paid by offshore banks without tax being deducted.

OFFSHORE BANKING DISADVANTAGES

 Offshore bank accounts are sometimes less financially secured. Onshore
depositors have been refunded in full, regardless of what the compensation limit
of that country has stated. Thus, banking offshore is historically riskier than
banking onshore.
 Offshore banking has been associated in the past 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

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state or non-state actors. However, offshore banking is a legitimate financial

exercise undertaken by many expatriate and international workers.
 Offshore jurisdictions are often remote, and therefore costly to visit, so
physical access and access to information can be difficult. This problem has been
alleviated to a considerable extent with the advent and realization of online
banking as a practical system.
 Offshore private banking is usually more accessible to those on higher
incomes, because of the costs of establishing and maintaining offshore accounts.
However, simple savings accounts can be opened by anyone and maintained with
scale fees equivalent to their onshore counterparts.
 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. The Laffer curve demonstrates this
tendency.
 Offshore bank accounts are sometimes touted as the solution to every legal,
financial and asset protection strategy but this is often much more exaggeration.
 Due to the fact that banking regulations vary from nation to nation, it is
possible the country in which your funds are located does not offer the same
protections as other nations.

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2.14 WHICH BANKS ARE OFFSHORE?

Any bank you have ever heard of probably has an offshore term. In part this is
because it’s a way for the bank in question to manage their own global tax affairs
more efficiently and in part’s because international or offshore banking is very
big business.
All the high street names in the UK have an offshore presence for example, and
many experts choose to stay with a brand they know when they go offshore.
Other banks are specifically housed in a single offshore jurisdiction. Such banks
are often only open to private banking customers i.e. high net worth, personality
introduced clients.

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2.15 PROBLEMS AND PROSPECTS OF HAVING

OFFSHORE BANKING UNITS IN INDIA:
 So far India has a stable economic and political performance; it also has a
vast market, technical manpower required for successful running of an
OBU
 India, due to its location, can provide a vital time link between London and
New York markets for international money market dealers.
 Exporter would benefit in terms of finer margins on loans and better
foreign exchange rates available via an offshore banking unit.
 With globalization in tune, Indian OBUs can finance the Indian corporates
functioning abroad through their own OBUs.
 Setting up an OBU can fetch Indian banks an additional source of income
in the form of license fees, and can access the funds of such banks by way
of capital and liquidity requirements.
 The country can gain improved access to the international capital markets
and at the same time I will encourage competition which will help in
improving the domestic financial system as well.
 The offshore banking units would help to tap and mobilize Non-Resident
Indian investments thereby enabling inflow of foreign capital which can
further help in improving BOP position.
 Setting up offshore banking centre would naturally lead to development of
communication and other infrastructural facilities as they are very much
essential for conducting business as an offshore unit.

PROBLEMS ASSOCIATED WITH SETTING UP OF

OFFSHORE BANKING UNITS IN INDIA:
 The supervision and regulation of offshore banks may involve substantial
costs.
 There is a very thin line of difference between offshore and onshore
operations if strict regulations are not kept, it may result into loss of
revenue and undesirable business practices.
 Offshore banking provides scope for tax evasion by residents.
 Offshore banks poses threat to the local banks by imposing competition
and may inhibit their growth.

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2.16 CHALLENGES OF FORMING AN OFFSHORE

BANK:
All these jurisdictions will require a proper front office and at least two
employees locally where the bank is licensed. Most offshore jurisdictions today
are favoring a more restrictive approach that favors only existing banks or at least
substantial financial companies, such as Swiss Trust Companies, which can prove
they have been in existence for a while and have favorable balance sheets to back
that up. Legislation is constantly being revised so it is an onerous task to keep up
to date with all the information.

Most of the available jurisdictions have increased the amount of paid-in capital
requirement for an unrestricted or Class A license to at least $500,000. In
addition, they require a minimum balance sheet of at least $1M, which, more
often than not, must be deposited with the Central or Government Bank, by way
of a security deposit in the event the bank is wound-up.

In most cases now, at least $2 to $3M or more is the preferable minimum amount
to show for an assured approval, along with a strong business team with relevant
banking or financial services experience. Also, as mentioned above, there is the
requirement to set up a physical operation in the jurisdiction granting the license
with at least two local people employed, one of whom must be of a managerial
caliber appointed as director and will need to have hands-on, detailed knowledge
of the bank’s operations.

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2.17 SCHEMES ON OFFSHORE BANKING

* ForeignCurrency Non-Resident Deposit Account (FD)

* Non-Resident External Deposit Account Scheme (SB/CA/FD/RD)

* Non-Resident Ordinary Deposit Account Scheme (SB/CA/FD/RD)

* MoneyTransfer Schemes

* NRI REMIT Scheme

* Exchange of Foreign Currency Travellers Cheques/Notes

* WorldTravel Card

* Gold (Metal) Loan Scheme for Domestic Jewellery Manufacturers.

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 OFFSHORE BANKING

2.18 DIFFERENCE BETWEEN ONSHORE AND

OFFSHORE
The words onshore and offshore have gained currency is banking. There are
countries having excessive taxations and other rules that cause problems for
common people in their banking operations. On the other hand, there are
countries that are considered as safe havens for banking as they have strict
privacy rules and several tax advantages that help people to save a lot of money.
When people from other countries open bank accounts in these countries, it is
referred to as offshore banking while those continuing to have bank accounts in
their own countries are said to be involved in onshore banking.

The eligibility requirements and processrequired opening an

offshore/onshore banking account
Opening an onshore account or a bank account in own country is a relatively
well-known process: visit the bank, fill up a form, submit required identification
and address proof ad pay the initial deposit amount.
With increased international compliance and anti-money laundering measures in
place, offshore banks also require identification and address proofs and
increasingly, proof indicating source of income.
However, more often than not, it is not necessary to travel to the jurisdiction to
open an offshore account. They allow opening bank accounts by phone, fax,
email, and courier and through the Internet.
Maintenance
Initial and maintenance deposits with onshore banks are much lesser in
comparison to their offshore banks. Offshore accountsrequire a minimum balance
to start with. And, many offshore banks prefer to set minimum requirements in
Assets under Management (AUM) or Funds under Management (FUM) which
refers to the total assets the offshore bank manages on behalf of the customer.
Benefits
While onshore banks in many countries have expanded their product/service
portfolio to deliver a wide range of offerings to their countries, these are not
necessarily tailored towards the specific needs and requirements of high net
worth individuals and business houses operating in several countries.

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 OFFSHORE BANKING

Offshore banks fill that void by providing a premium set of banking products and
services. The benefits of holding an offshore account would include:
 Protection from political or economic turmoil in resident country.
 A history of regulatory stability
 Nil or negligible taxation on income, capital gains and even on inheritances
 High levels of data confidentiality
 Asset protection from potential legal action
 Currency diversification

However, it is important to remember that standard onshore banking products

like savings/current accounts and fixed deposits enjoy deposit insurance
protection from the respective country’s banking regulator. Such protection is
generally not available for offshore banking products.

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2.19 REGULATION OF INTERNATIONAL BANKS

In the 21st century, regulation of offshore banking is allegedly increasing,
although critics maintain it remains largely insufficient. The quality of the
regulation is monitored by supra-national bodies such as the International
Monetary Fund (IMF). Banks are generally required to maintain capital adequacy
in accordance with international standards. They must report at least quarterly to
the regulator on the current state of the business.
Since the late 1990s, especially following September 11, 2001, there have been a
number of initiatives to increase the transparency of offshore banking, although
critics such as the Association for the Taxation of Financial Transactions for the
Aid of Citizens (ATTAC) non-governmental organization (NGO) maintain that
they have been insufficient. A few examples of these are:

 The tightening of anti-money laundering regulations in many countries

including most popular offshore banking locations means that bankers are
required, by good faith, to report suspicion of money laundering to the
local police authority, regardless of banking secrecy rules. There is more
international co-operation between police authorities.
 In the US the Internal Revenue Service (IRS) introduced Qualifying
Intermediary requirements, which mean that the names of the recipients of US-
source investment income are passed to the IRS.
 Following 9/11 the US introduced the USA PATRIOT Act, which authorizes
the US authorities to seize the assets of a bank, where it is believed that the bank
holds assets for a suspected criminal. Similar measures have been introduced in
some other countries.
 The European Union has introduced sharing of information between certain
jurisdictions, and enforced this in respect of certain controlled centers, such as the
UK Offshore Islands, so that tax information is able to be shared in respect of
interest.

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 OFFSHORE BANKING

 The Bank Secrecy Act requires that Taxpayers file an FBAR for accounts
outside of the United States that have balances in excess of $10,000
 FATCA (the Foreign Account Tax Compliance Act) became law in 2010 and
"targets tax non-compliance by US taxpayers with foreign accounts [and] focuses
on reporting by US taxpayers about certain foreign financial accounts and
offshore assets [and] foreign financial institutions about financial accounts held
by U.S. taxpayers or foreign entities in which U.S. taxpayers hold a substantial
ownership interest."

Joseph Stieglitz, 2001 Nobel laureate for economics and former World Bank
Chief Economist, told to reporter Lucy Komisar, investigating on the Clear
stream scandal:
"You ask why, if there's an important role for a regulated banking system, you
allow a non-regulated banking system to continue. It's in the interest of some of
the moneyed interests to allow this to occur. It's not an accident; it could have
been shut down at any time. If you said the US, the UK, the major G7 banks will
not deal with offshore bank centers that don't comply with G7 banks regulations,
these banks could not exist. They only exist because they engage in transactions
with standard banks.
In the 1970s through the 1990s, it was possible to own your own personal
offshore bank; mobster Meyer Lansky had done this to launder his casino money.
Changes in offshore banking regulation in the 1990s in the form of "due
diligence" (a legal construct) make offshore bank creation really only possible for
medium to large multinational corporations that may be family-owned or -run.

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2.20 STATISTICS CONCERNING OFFSHORE

BANKING
 Offshore banking is an important part of the international financial system.
Experts believe that as much as half the world's capital flows through offshore
centers.
 Tax havens have 1.2% of the world's population and hold 26% of the world's
wealth, including 31% of the net profits of United States multinationals.
 According to Merrill Lynch and Gemini Consulting's “World Wealth Report”
for 2000, one third of the wealth of the world's “HIGH NET-WORTH
INDIVIDUALS”—nearly $6 trillion out of $17.5 trillion—may now be held
offshore. Some $3 trillion is in deposits in tax haven banks and the rest is in
securities held by international business companies (IBCs) and trusts.
 The IMF has said that between $600 billion and $1.5 trillion of illicit money is
laundered annually, equal to 2% to 5% of global economic output. Today,
offshore is where most of the world's drug money is allegedly laundered,
estimated at up to $500 billion a year, more than the total income of the world's
poorest 20%.
 Add the proceeds of tax evasion and the figure skyrockets to $1 trillion.
Another few hundred billion come from fraud and corruption.
 "These offshore centers awash in money are the hub of a colossal, underground
network of crime, fraud, and corruption" commented Lucy Komisar quoting
these statistics.
 Among offshore banks, Swiss banks hold an estimated 35% of the world's
private and institutional funds (or 3 trillion Swiss francs), and the Cayman
Islands (1.9 trillion US dollars in deposits) are the fifth largest banking centre
globally in terms of deposits.
 The New York Times, The Wall Street Journal, and The Los Angeles
Times revealed that the United States government, specifically the US Treasury
Department and the CIA, had a program to access the SWIFT transaction
database after the September 11th attacks rendering offshore banking for privacy
severely compromised.

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CHAPTER: 3.
REVIEW OF
LITERATURE

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A.WILLIAM SCHENCK (1990)

New Business Opportunities in commercial banking, The banker noted that as
globalization widens the competition will come from foreign banks as well as
other domestic banks and non —bank financial service companies. The winners
in the banking industry will be those institutions who focus on customers, build
depth and quality of management, provide consistent and reliable service and
deliver high —quality, competitively priced products.

S.M. PADWAL (1991)

Liberalization and its impact on banking and finance perceived that international
wave of liberalization of economic system was likely to be witnessed in Indian
banking and also the development of high degree of diversification in banking
activity. The study concluded that increased competition would necessitate
marketing approach to tap unexplored/under explored market segment in rural,
semi- urban and metro Politian market segment.

NAVINCHANDRA JOSHI (1993)

Imperative need for Galvanizing factoring services, Banking Finance found that
factoring services have become a big helping hand in the USA, U.K and western
countries. It was further observed that economy of the country also gets geared to
meet new challenges of paucity of funds or liquidity for industrial investment. It
was found that no credit rating machinery is available in factoring services and it
is needed to be developed within banks.

G.H. DEOLALKAR (1994)

Indian Banking today and tomorrow presented a case for international factoring
in India. The Kalyansundaram committee recommended introduction of the
factoring services in the country that factoring is to be deemed as a specialized
financial activity concomitant to working capital finance provided by banks or
even independent of that. It was observed that factoring is a supportive financial
service and it should be available to importers and exporters to improve their
terms of trade and competitiveness in respect of dealings in suitable products and
markets as well as credit worthy of buyers. In India international factoring

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business will not get recognition particularly export factoring business unless
factoring companies gain a suitable recognition.

A.K. SENGUPTA (1995)

Introduction of International factoring in India: issue, problems and prospects,
thesis submitted to Dept. of commerce, University of Poona conducted study on
international factoring in India and observed that there is substantial scope for
introduction of international factoring in the country. It was observed that by
introduction of international factoring services would open up an alternate
window for the exporters. He further pointed that there is need to scrutinize the
some issues before launching of schemes. These issues are classified in to legal,
policy, strategies dimensions, organizational and structural. In the legal issues
absence of comprehensive legal framework for international factoring was
noticed. Policy and strategies dimension includes type of services, pricing
policies, need for development of credit rating system, marketing of factoring
services etc. and the organizational and structural issues contains the
organizational framework to launch the services in India

P. BANNERJEE (2003)
Global factoring business: Trends and performance, Fianace studied the trends
and performance of global factoring business. It was observed in the study that
Factoring is expanding in all parts of the world. The compound growth rate of
world total factoring volume is 13.54 per cent during the span of 19 years.
However, domestic factoring dominates the market share in the total factoring
business. The share of domestic factoring is between 92.97 per cent to 95.01 per
cent of total factoring business during the study period. The upward growth rate
of factoring business in some major countries viz Finland, France, Germany,
Italy, Japan, Netherland and Spain has been particularly noticeable. However,
concentration ratio, Hirschman-Herfindal index and Entropy index imply that
factoring business is still highly concentrated in a few countries although it is
expanding slowly in other countries.

LABUAN IBFC
Labuan IBFC was created as an offshore financial hub on October 1990 and was
operating under the name of Labuan International Offshore Financial Centre
(IOFC). At the time it was established to strengthen the contribution of financial

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services to the Gross National Products Malaysia as well as to develop the island
and its surrounding vicinity.

Labuan IBFC is Malaysia's only offshore center, strategically located Labuan

Island off the North West coast of Sabah which is it part of the Borneo land mass.
Since its inception, the jurisdiction has developed by leaps and bounds such that
today, it is home to more than 6,500 offshore company and more than 300
licensed financial institutions including world-leading bank. Supported by a well-
developed infrastructure that includes modern amenities as well as a full range of
service providers for the business community, Labuan IBFC is embarking on an
aggressive growth strategy to become the premier international business and
financial center in the Asia pacific region.

There are five core areas that Labuan IBFC intends to focus on, leveraging on its
key strengths. These five are offshore holding companies, captive insurance,
Shariah-compliant Islamic Finance structures, public and private funds and
wealth management. Given the burgeoning interest around the world in Islamic
finance, Labuan IBFC is well placed to enhance its lead as an Islamic financial
hub. Labuan IBFC's position is further enhanced by the formation of the
Malaysian International Islamic Finance Centre initiative that was launched in
August 2006.

OFFSHORE FINANCIAL CENTERS IN THE WORLD

An offshore financial centre (OFC) is usually a smalllow-tax jurisdiction
specializing in providing corporate and commercial services to non-
resident offshore companies, and for the investment of offshore funds. The term
was coined in the 1980s. The International Monetary Fund (IMF) defines an
offshore financial centre as "a country or jurisdiction that provides financial
services to nonresidents on a scale that is incommensurate with the size and the
financing of its domestic economy."

Views of offshore financial centres tend to be polarized. A proponent suggest that

reputable offshore financial centres play a legitimate and integral role in
international finance and trade and that their zero-tax structure allows financial
planning and risk management and makes possible some of the cross-border
vehicles necessary for global trade, including financing for aircraft and shipping
or reinsurance of medical facilities. Proponents point to the tacit support of
offshore centres by the governments of the United States (which promotes
offshore financial centres by the continuing use of the Foreign Sales

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Corporation (FSC)) and United Kingdom (which actively promotes offshore

finance in Caribbean dependent territories to help them diversify their economies
and to facilitate the British Eurobond market). Opponents view them as draining
tax revenues away from developed countries by allowing tax arbitrage, and
rendering capital flows into and out of developing countries opaque. Very few
commentators express neutral views.

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CHAPTER:4.

FIELD
STUDY

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CANARA BANK
Canara Bank is one of the largest public sector banks owned by the Government
of India. Its headquarters is in Bengaluru. It was established at Mangalore in
1906, making it one of the oldest public sector banks in the country. The
government nationalized the bank in 1969. As of 30 June 2017, the bank had a
network of 6089 branches and more than 10519 ATMs spread across India. The
bank also has offices abroad in London, Hong Kong, Moscow, Shanghai, Doha,
Bahrain, South Africa, Dubai, Tanzania and New York.

OVERSEAS SUBSIDIARIES, BRANCHES AND

OFFICES
Canara Bank established its international division in 1976. In 1983, Canara Bank
opened its first overseas office, a branch in London. Two years later, Canara
Bank established a subsidiary in Hong Kong, Indo Hong Kong International
Finance. In 2008-9, Canara Bank opened its third foreign operation, this one a
branch in Shanghai. Later Canara Bank established a branch each in Leicester
and Bahrain, and converted its Hong Kong subsidiary into a branch. It also has a
representative office in Sharjah.
Together with State Bank of India, Canara Bank established a joint venture in
Moscow, Commercial Bank of India LLC.
Canara Bank provides the general manager and the branch managers for Al
Razouki Intl Exchange Co (LLC), which a number of business leaders and non-
resident Indians (NRIs) established in 1981 in the United Arab Emirates to
facilitate remittances to India by tourists and NRIs.

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Since 1983, Canara Bank has been responsible for the management of Eastern
Exchange Co. WLL, Doha, Qatar, which Abdul Rahman M.M. Al Muftah
established in 1979.
Canara Bank opened its seventh overseas branch in New York, United States on
10 June 2014.

SUBSIDIARY COMPANIES
 Canfin Homes Limited (CFHL), with a network of 110 branches and 28
satellite offices throughout India
 Canbank Factors Limited
 Canbank Venture Capital Fund Limited
 Canbank Computer Services Limited
 Canara Bank Securities Limited
 Canara Robeco Asset Management Company Limited
 Canbank Financial Services Limited
 Canara HSBC Oriental Life Insurance Company Limited.

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CHAPTER: 5.
CONCLUSION

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Conclusion is based on the finding and analysis of offshore banking. It

includes he operation of offshore bank branches. Offshore banking is a
service provided by the country to the customers from other countries. No
restrictions on the use of foreign exchange or the free movement of funds in
and out of the territory. It is beneficial for tax as tax is not deducted in
offshore bank account which attracts the customers who are not interest to
pay tax. Rate of interest of offshore bank account is depending upon the
rates of the offshore bank situated country. It is considered as International
Banking Business. It is completely opposite of onshore banking. It is legal
and also conducted by the higher authorizes such as in India, Reserve Bank
of India and regulated under FEMA act. It also helps channelizing Non-
Resident Indian Investment. It requires highly advanced telecommunication
and other infrastructural facilities involving huge investments. They also
face various problems and challenges. There are wide range services
provided by the offshore banking which also includes various schemes.
Onshore banking and offshore banking are differing by eligibility,
maintenance of accounts, benefits, scheme etc.

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CHAPTER: 6.
BIBLIOGRAPHY
&
WEBLIOGRAPHY

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BIBLIOGRAPHY
 International Banking & Insurance (vipul Publication)
 Journal & other Magazines

WEBLIOGRAPHY
 en.wikipedia.org/wiki/Offshore bank
 www.sovereignman.com/offshore-bank-account
 www.internationalman.com/articles/offshore-banking
 differencebetween.com/difference-between-onshore-and-vs-offshore/
 http://offshorebankingadvisor.com/offshore-bank-account.html

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