Keeping Offshore Banks Under Control - And Why You Should Beware of Blacklisted Countries and Banks

KEEPING OFFSHORE BANKS UNDER CONTROL - AND WHY YOU SHOULD BEWARE OF BLACKLISTED COUNTRIES AND BANKS
A 2003 report from the US Senate called for the monitoring, and eventual banning, of all transactions with ‘high risk’ offshore banks. Five years later, with the US economy in crisis and the money-printing presses running at full capacity, we see more and more efforts by governments to impose exchange controls by the backdoor. Here, Peter Macfarlane revisits this article originally published in 2004.
What’s a high-risk bank? The Minority report defines these as:
(1) Shell banks without physical presence in any jurisdiction;
(2) Offshore banks holding restricted licences (barred from transacting business with the citizens of their own licensing jurisdictions); and
(3) Banks licensed by jurisdictions that do not cooperate with international anti-money laundering efforts.
A few years ago, the tax haven island of Vanuatu in the Pacific (where I believe my friends from the Q Wealth Report are registered these days) was temporarily ostracised from the world banking system. They had refused to cooperate with American demands to delve into the banking records of Vanuatu’s American customers. American banks were therefore instructed to freeze all funds in transit to or from Vanuatu banks. Needless to say, this kind of hardball worked: starved of greenbacks, Vanuatu started co-operating very quickly. All banking centres do international deals in dollars. Nobody can afford to be cut off from all dollar transactions. Or can they????
The USA is very serious in its ongoing endeavours to ferret out Americans who have unreported assets abroad. If your banker knows you as an American citizen or resident, it is very likely that sooner, rather than later, Big Brother will be getting reports on your offshore fiscal activities. The same applies to European Union taxpayers.
In addition to holding accounts in alternative names, such as a trust, foundation or corporation, you should simply stay away from the kind of operations that have been targeted for extinction. Big Brother is out to destroy the safe havens where ‘black’ or untaxed cash used to hide. So what, exactly, should you stay away from?

INSIDE THE MURKY WORLD OF SHELL BANKS
What is a shell bank? This term refers to a bank which has no physical presence in any jurisdiction.
For example, consider the Cayman Islands. Of approximately 570 licensed banks, most do not maintain a real, operational bank branch in the islands. They are usually affiliated with banks that maintain offices in other countries. The Caymans serve merely as a place to book loans and other transactions - as if they took place offshore.
Hanover Bank was one of the many shell banks singled out as an example. It was an Antiguan licensed bank that apparently operated primarily out of its owner’s spare bedroom in Ireland. Another, the ‘M.A. Bank,’ was a Cayman-licensed bank. They claimed to have an office in Uruguay. Really, says the report, this bank operated from Argentina.
Banks like these often have beautiful websites and offer very professional customer service, but they have no brick and mortar presence - anywhere. This simple fact makes them high-risk operations in terms of bankruptcy and disappearance with customer deposits. They tend to be run by businessmen (often conmen) who decide it would be profitable to own a bank. They buy a charter, print up business cards, make a flashy website and presto! A bank is born.
The bank may issue certificates of deposit that are only worth anything if the operator of the shell decides (at his sole discretion) to redeem them. These banks are not staffed by professionals. They may have no staff at all. They may have no assets, or their only asset may be a small bank account at another bank.
Shell banks, even if they had not been targeted for extinction by Uncle Sam, are best avoided. Unless you happen to be the owner of the shell bank in question, it makes no sense to trust them with any of your assets.
A personal acquaintance of mine, a prominent Latin American TV star, owned a shell bank in recent history. She bought a charter very cheaply from a gentleman in Vancouver, Canada, who peddled such things at seminars. The pitch was that if you owned an offshore shell bank, you could accumulate profits tax free offshore from your business in a high tax location. The bank could take deposits from your friends, borrow money for you to use, and in general be a prestige thing. It was all supposed to be legal.
The chap who sold these bank charters for over twenty years was finally caught in a sting and convicted of conspiracy to evade USA and Canadian taxes. He was sent to jail, but made a bargain to turn over all his records to the Internal Revenue Service in return for a reduced sentence. The names and transaction details of his clients were all revealed to the international press.
Fortunately, our friend had not yet started to use her bank. As she was a non-citizen, non-resident, physically outside of the United States, she politely declined the invitation to testify at the criminal trial. Had she been sucked in, she probably would have been asked incriminating questions and joined quite a few other unlucky suckers facing jail for ‘obstruction of justice.’ Bottom Line: Avoid Shell Banks!

RESTRICTED-LICENCE OFFSHORE BANKS
These banks are common in tax and banking havens. They have restricted licenses barring them from transacting banking activities with citizens in their own licensing jurisdiction. Sometimes they are also forbidden use or deal in the local currency of the licensing jurisdiction.
Restricted offshore banks are high risk for a variety of reasons. The licensing country has little incentive to monitor banks not allowed to do business with local citizens or in the local currency. All they want is the annual license fee. Why would you want to keep your assets with a bank when the country where it resides doesn’t allow it to do any business locally?
The exception to this rule would be where such a restricted offshore bank is fully and unconditionally guaranteed by a respectable, first class parent bank. For example, in Belize, the three largest offshore banks are all owned by large, world-class banks. In the event of any problems, the parent company will step in and make good on any depositor losses.
However, take notice from the Senate Report. These banks are subject to special attention. If you carry out any transactions with such banks, your deals might come under the loupe. You are much better off hiding your secret funds in major local banks. Use banks that don’t advertise in the international expat magazines. Avoid banks who give seminars actively targeting the offshore market. Instead, seek private referrals from people you trust. The best place to hide a rough diamond is in the sand.

BLACKLISTED COUNTRIES
The final high-risk group of banks is those in ‘blacklisted’ countries. Once again, transfers to and from banks in these countries are automatically flagged for special attention.
There are various blacklists. There is the money-laundering blacklist maintained by the Financial Action Task Force (FATF). Then there is the OECD’s tax blacklist. The OECD is a Paris-based bureaucracy whose employees all enjoy total exemption from taxes. They maintain a richly-stocked, tax-free wine cellar, too, - all at taxpayers’ expense, of course. The mission of these hypocrites is to make sure that everyone else pays taxes!
Other blacklists are maintained by the European Union, the USA and many national tax departments. The blacklists are constantly changing. As one jurisdiction rolls over and plays ball, another will be targeted. You can search for the various blacklists on the internet (http://www.lowtax.net/ would be a good starting point).
For example, we quote again from the Senate report, which we think you will find informative:
In June 2000, for the first time, Financial Action Task Force formally identified 15 countries and territories whose anti-money laundering laws and procedures have “serious systemic problems” resulting in their being found “non-cooperative” with international anti-money laundering efforts. The 15 were: the Bahamas, Cayman Islands, Cook Islands, Dominica, Israel, Lebanon, Liechtenstein, Marshall Islands, Nauru, Niue, Panama, Philippines, Russia, St. Kitts and Nevis, and St. Vincent. 22 additional countries were to be named in later evaluations. FATF established 25 criteria to assist it in the identification of non cooperative countries or territories.
FATF recommended that, until the named jurisdictions remedied identified deficiencies, financial institutions around the world should exercise heightened scrutiny of transactions involving those jurisdictions. As a final threat, the FATF said, if improvements were not made, FATF members will “consider the adoption of counter-measures.”
By now, the above list is out of date. But it behoves you to keep up.
Even though you might instinctively like to give your full support and backing to these gutsy deniers of Big Brother, discretion would suggest the propriety of a reduced exposure. Simply moving funds to or from the blacklisted locations invites too much scrutiny and questions.

WHY YOU SHOULD AVOID USING US DOLLARS IN OFFSHORE TRANSACTIONS
Here’s a question: “How did the US government gather information for their bank blacklist?” The answer is well worth reading for anyone concerned about financial privacy.
Here’s your answer. We quote:
“The Staff was able to gather information about these banks by conducting interviews, obtaining court pleadings and reviewing subpoenaed material from US correspondent banks.”
In other words, they were able to blacklist particular banks because they transacted business in US dollars. There were abundant records of dealings with people and institutions physically present in the USA! Why? Because, like almost all foreign banks, the offshore banks settled their dollar transactions through US-based ‘correspondent banks.’
What are ‘correspondent banks?’ Virtually all international US dollar transactions clear through the USA. Most of the world’s banks hold correspondent accounts in either New York City or Miami. When a non-USA bank has to transfer dollars to another bank-even if that receiving bank is not in the USA - they instruct their correspondent to transfer the money to the American correspondent of the receiving bank. At the moment, that is the simplest and most efficient way of transferring funds. This leaves a paper trail of all USA DOLLAR transactions in the USA!
This happens even if you transfer dollars domestically between two banks in the same foreign country - it doesn’t matter what country. The transaction will still always clear through the USA. There will always be a paper trail of who sent how much to whom and for what reasons. This record is an open book to US investigators. Needless to say, any dollar accounts in any country may be frozen or seized at the whim of any Big Brother agent.
Is there any way to avoid US clearing? Yes.

DOLLAR CLEARING FACILITIES OUTSIDE THE USA
There is a limited amount of dollar clearing going on outside the USA. This takes place in London, Zurich, Panama and Hong Kong. But it this is for checks, not for wire transfers. If you write a dollar check drawn on a UK bank and deposit it in another UK bank, it will normally clear in London. The same applies in Switzerland or Hong Kong.
However, opportunities to settle ordinary transactions like this are few and far between. It is better not to rely on banks to do much of anything unless you know what you are doing. You never know when a bank will suddenly change its system - or when someone you give a check to will inadvertently deposit it in another country outside the closed clearing system.
Of course, one private citizen can always deliver a bag of bank notes in cash. But, as explained in other sections, many business people are now obliged to report cash transactions or face criminal money laundering charges for failure to file.
But here is a neat trick! Some countries use the US dollar as their currency but give it a different name. For example, the Panamanian Balboa (currency code PAB) is fixed 1:1 with the dollar. There is no such thing as a ‘Balboa’ banknote - only coins. There are only USA dollar banknotes in circulation in Panama. The same applies in Ecuador, El Salvador and, even up until recently, in Cuba. So, you can effectively move dollars while on paper you are moving another currency.

A BETTER ALTERNATIVE: USE OTHER CURRENCIES
The only way to be sure your transaction will never be routed through the US is to use other currencies. Euros are a popular alternative being the world’s second major currency. Other obvious choices are British pounds, Swiss Francs, Japanese Yen or Australian dollars. If you want to be really low profile, you can choose to deal in a minor but stable currency like Norwegian Kroner.
A newer way to transfer funds below the radar is to use digital currency. You can establish an online account and transfer gold, barter dollars, or various other methods of payment.

SHOULD EUROPEANS AVOID EUROS IN OFFSHORE BUSINESS?
Just as US dollar transactions clear in the US, Euro transactions clear in the European Union. Since every EU country has its own central bank, Euro clearing is not centralized on one system like the American dollar. It’s still a bit more haphazard and EU investigators monitoring transactions still have to get on planes to follow a trail, rather than pressing a few buttons. There is no system (yet) to monitor all international Euro transfers in real time.
European clearing banks are also less demanding about the information that must be shown on transfers. For example, unlike American correspondent banks, they don’t (yet) insist on information such as beneficiary’s address or detailed reasons for the payment. Unfortunately, by the time you read this, things may be tougher. European banks and governments are falling all over each other to be the first to catch up.
If you want privacy as a European Union resident, you should carry out your offshore transactions in the currency of a far-away land: perhaps Canadian or Australian dollars, for example.
The same rule naturally applies for everyone else. Brits should avoid using pounds; Swiss avoid using Swiss Francs, etc. For ultimate privacy, we also recommend looking into private, digital currency. This option is explored in other Peter Macfarlane articles.