Offshore Bank Accounts: How to Protect Money Overseas - Alper Law (2024)

An offshore bank account allows a person to keep money in another country, outside the reach of U.S. courts and judgment creditors. It is extremely difficult to garnish or collect the funds in an offshore bank account. The best offshore bank accounts do not have branches within the U.S. and are not subject to U.S. court jurisdiction.

Many people view offshore banking as an exotic tool for privacy and tax avoidance—and only for the very wealthy. But offshore banking can be a useful tool for asset protection planning with even moderate wealth.

Some of the most popular places to open an offshore bank account include Nevis, Switzerland, Singapore, and Belize.

How to Open an Offshore Bank Account

To open an offshore bank account, a person must:

1. Locate a bank in a jurisdiction that opens accounts for U.S. individuals.
2. Review the jurisdiction’s laws to determine if they would thwart collection from a U.S. judgment creditor.
3. Determine the bank’s fee structure to make sure it is economical to open an account at the bank.
4. Assess comfort level with the bank’s accessibility, including online banking, wiring, and EFT procedures.
5. Complete the bank’s application, including all of the bank’s due diligence requirements.
6. Once approved, transfer funds to the offshore account using one of the bank’s approved methods.

Most offshore banks will require a copy of your passport, an up-to-date picture, and proof of address (such as a utility bill, creditor card statement, or lease agreement). In addition, U.S. citizens will need to provide a W9 form.

In prior years, a U.S. citizen could easily open an offshore bank almost anywhere in the world. Swiss banks were popular because they kept confidential the names of their U.S. customers. Judgment debtors used offshore banks in asset protection countries to hide and defend money from U.S. civil judgments.

However, since 9/11, the United States government has made it difficult for U.S. citizens to open a foreign bank account. Swiss bank accounts are no longer confidential and do not generally accept U.S. customers. Foreign countries now cooperate with the IRS to stop U.S. citizens from using foreign financial accounts to evade U.S. taxation. A U.S. citizen can no longer easily open a personal account at a foreign bank in any country.

A few foreign banks in countries known for asset protection still allow U.S. individuals to open bank accounts. These banks will typically hire a third-party service,such as KROLL, to conduct a background check on the potential customer to make sure there is no criminal or negative banking history and that the customer is not involved in disputes with the U.S. government. The banks seek to minimize their own risk during the onboarding process.

Garnishment of Offshore Bank Accounts

Some people with creditor concerns have significant amounts of cash held in U.S. banks or financial institutions.Bank accountsare an important focus of asset protection planning. A creditor that obtains a money judgment hopes to satisfy the judgment quickly, and seizing the judgment debtor’s liquid cash held in bank accounts is an attractive target.

Garnishmentis the collection tool available to creditors to seize a debtor’s bank accounts. By serving a writ of garnishment on the debtor’s U.S bank the judgment creditor may freeze the account and subsequently take the money in the account to satisfy the judgment.

A creditor starts a typical bank garnishment by serving awrit of garnishmenton the debtor’s bank, causing the bank to freeze the debtor’s accounts. The debtor then has an opportunity either to claim that the money in the account is exempt from legal process or to challenge garnishment procedures.

A court will order the bank to pay the money in the account to the creditor up to the amount of the judgment unless the court finds that the debtor’s money is protected from garnishment.

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See Also

The Top 50 Safest Banks in Europe 2023How To Open And Access an Offshore Bank AccountTop 6 Countries to Consider for Offshore Bank Accounts in 2023 | AirCorporateBest International Banks in the US

Garnishing an Offshore Bank Account Is Difficult

Several Florida cases have held that a Florida court may issue a writ of garnishment only against banks located within the court’s geographical jurisdiction. Even U.S. banks located outside of Florida, with no branches in Florida, are not subject to writs of garnishment issued by a Florida court.

No Florida court has ever permitted a writ of garnishment of an offshore bank account that does not have branches in the United States. Offshore bank accounts provide asset protection because the banks have no branches within the United States subject to any U.S. state or federal court jurisdiction.

To garnish a debtor’s foreign financial account, a creditor would have to first domesticate the U.S. judgment in the foreign country where the account was opened. Then, the creditor would have to hire a foreign attorney to enforce the newly domesticated judgment against the debtor’s foreign bank account. The process is possible only when the United States has an agreement with a foreign country regarding the reciprocity of judgments, but even then, the process is costly and complicated.

Many countries have no agreements with the U.S. regarding judgment reciprocity. These countries refuse to recognize U.S. judgments. These so-called asset protection countries are popular for offshore bank accounts. A creditor cannot use its U.S. judgment to garnish bank accounts in these asset protection countries.

Instead, the judgment creditor must start a new lawsuit in foreign courts under the country’s own laws and procedures to get a new judgment. Then the creditor with the new foreign judgment would have to find equitable remedies to prevent further movement of the money.

Advantages of Offshore Bank Accounts

There are three key reasons to use an offshore bank account:

1. Protect assets against domestic creditors
2. Ensure the ability to finance litigation
3. Diversify in currency.

1. Asset protection.

Offshore banks are not subject to U.S. state court jurisdiction. A court cannot enter a garnishment order against a bank situated outside the United States.

Moving funds to an offshore bank provides substantial leverage in settlement negotiations. A creditor would need to decide whether it is worth the risk of substantial legal fees and time spent in pursuing funds deposited at an offshore bank account.

2. Ability to finance litigation.

People under threat of litigation from a federal agency, such as the DOJ, FTC, or SEC, can consider storing funds at an offshore bank to ensure their availability. One of the most powerful tools that a Federal agency wields is the ability to freeze the U.S. financial accounts of the defendant before the lawsuit begins.

Most offshore accounts would not be subject to an asset freeze entered by a U.S. court, allowing the defendant to still finance a legal defense.

3. Currency diversification.

With few exceptions, depository accounts at U.S. banks can only hold U.S. dollars. Offshore bank accounts, on the other hand, can often hold currencies of any type, allowing the depositor to diversify their cash holdings.

Often offshore banks will offer higher interest rates on deposits than domestic banks as well.

Disadvantages of Offshore Bank Accounts

Offshore bank accounts offer several advantages, such as privacy, potential tax benefits, and asset protection. However, they also come with a number of disadvantages:

1. Legal and Regulatory Complexity: Offshore banking is often subject to complex legal and regulatory environments, which can be difficult for individuals to navigate. The laws governing offshore accounts are different and typically more complex than those for domestic accounts.
2. Increased Scrutiny from Tax Authorities: Due to their use in tax evasion and money laundering, offshore accounts are often subject to high levels of scrutiny from tax authorities. If you have an offshore account, you’re required to report it and any income generated from it to your home country’s tax authority, like the Internal Revenue Service (IRS) in the United States.
3. Costs: Offshore bank accounts often require higher minimum deposits and maintenance fees than domestic bank accounts. In addition, there may be transaction fees or other costs associated with moving money between your offshore and domestic accounts.
4. Access and Convenience: Depending on where your offshore account is located, you may find it difficult to access your money when you need it. Offshore banks are often in different time zones, and there may be language barriers or other obstacles to communication. In addition, it’s usually not possible to access an offshore account through local ATMs or bank branches.
5. Risk of Bank Failure: Just like any other bank, offshore banks can fail. If this happens, you may have difficulty getting your money back, particularly if the bank is in a jurisdiction with weak deposit insurance or other investor protections.
6. Reputation Risk: Holding an offshore account can sometimes carry a stigma, as these accounts are sometimes associated with illegal activities like money laundering and tax evasion. This can potentially cause reputational damage, particularly if you’re a public figure or run a business.
7. Changing Regulations: Governments around the world are increasingly cracking down on offshore tax evasion and money laundering. This has led to increased regulations and transparency requirements for offshore accounts, which could diminish some of their advantages in the future.

Best Country to Open an Offshore Bank Account

There is no one best country to open an offshore bank account. That being said, some jurisdictions definitely have more favorable laws for U.S. judgment debtors seeking to protect their cash deposits from domestic creditors. Some of the most popular countries for offshore bank accounts include:

• Bermuda. Known for its low taxes and political stability.
• Cayman Islands. The Cayman Islands are recognized for strict banking secrecy laws.
• Isle of Man. The Isle of Man is well-known for its low taxes and strong financial regulation.
• Switzerland. Switzerland is widely regarded as the premier county for banking privacy. The country is well-developed and home to large international banks. Switzerland does have a treaty with the United States to recognize U.S. judgments.
• Nevis. Nevis is a small island nation in the Caribbean that is popular for offshore asset protection tools.. Unlike many other countries, Nevis does not recognize foreign judgments.

Offshore Company Bank Accounts

A U.S. citizen unable to open an offshore account in their individual name and passport number can indirectly deposit money in an offshore bank account through a foreign entity.

The individual first establishes an offshore legal entity such as a trust, LLC, or corporation. They appoint a non-U.S. citizen as an authorized agent of the entity, such as a trustee, LLC manager, or corporate officer. Then, the offshore entity opens a bank account in the entity’s name.

It may be easier for the offshore entity to open an account because its agent is not a U.S. citizen. The U.S. citizen can access the money by requesting the entity’s foreign agent to transfer money from the offshore account to the U.S. citizen’s domestic bank.

For businesses, opening an offshore bank account can have a number of advantages, such as:

• Access to a wider range of financial services and products, including currency trading and international payments.
• Lower costs for cross-border transactions.
• Ability to manage currency risk by holding multiple currencies in the account.
• Potential tax benefits, such as lower corporate tax rates in the jurisdiction where the account is held.

Offshore Bank Account vs. Offshore Trust

Assets in an offshore bank account owned by a foreign LLC or trust are more protected than if the account were instead owned by the individual directly.

However, to obtain that added protection, the individual open must give up the direct control over the funds they would enjoy through direct ownership. Plus, an offshore LLC or trust is more expensive to set up and maintain.

Cost

The cost of opening an offshore bank account depends on the specific bank and jurisdiction. Initial fees include an application fee and due diligence fee. Your U.S. attorney will also charge a legal fee for assistance in locating and setting up an offshore bank account.

Ongoing fees depend on the bank. The best offshore banks do not charge a percentage maintenance fee, which could eat into the savings. Instead, they charge per transaction, such as for incoming and outgoing wires.

FAQs about Offshore Bank Accounts

Below are answers to some frequently asked questions about offshore bank accounts.

About the Author

Gideon Alper specializes in asset protection planning for individuals and their families.

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