Why do Rich People Use Offshore Banks? | InternationalWealth.info (2024)

For starters, opening offshore bank accounts is perfectly legal. In earlier days, offshore jurisdictions were synonymous with tax evasion. Today, however, they are associated with asset protection, privacy, and confidentiality HNWIs enjoy if they put their money in offshore banks. This is also the reason for millionaires to set up accounts with offshore banks.

How common is it for HNWIs to set up offshore bank accounts?

It is due to the Paradise Papers that we now know that even Elizabeth II, the late Queen of the United Kingdom, used to keep her money in offshore bank accounts.

The Paradise Papers also mentioned UHNWIs and multinationals like Amazon, Facebook, McDonald’s, and Nike. The plumping majority of the enterprises and firms referred to therein were legitimate businesses trying to hide their money from the government to avoid paying a fair share of taxes.

Say, in the mid-2010s, Apple transferred billions of dollars to the Jersey offshore jurisdiction boasting a 0% company tax rate for overseas businesses. In their online statement, the Apple representatives insisted the effective tax rate on overseas profits amounted to 21% and the company “had paid each dollar in taxes it was obliged to pay in each country worldwide”.

According to Chris Mathers, who authored the famous Crime School: Money Laundering book, “the same applies to extremely wealthy families who happen to periodically transfer their funds to offshore trusts”.

“These guys don’t practice tax evasion, at least this is what their lawyers say. They try to minimize the amount of taxes to pay”, – he claims.

The US Senate representatives, on the other hand, believe that it is due to the gaping hole in the federal tax legislation that HNWIs still keep their billions in offshore bank accounts.

As provided for by the law, the US citizens shall report any foreign bank accounts they have and pay taxes on any income received. In reality though not everyone is that well-behaved and law-abiding. The US Senate members consider the 12-year old law on countermeasures to combat offshore tax evasion to be the one easy to avoid. As a result, HNWI tax payers still use tax evasion schemes involving offshore companies and secret bank accounts to successfully hide multi-billion revenues from the IRS.

The Robert Brockman’s case is a perfect illustration of how loopholes in the US tax code may be used for tax evasion purposes. Accused of concealing over USD 2,000,000,000 in profits from the IRS in 2020, the US billionaire is said to have been involved in a complex and long-standing tax evasion scheme involving several shell companies, foreign trusts, and offshore accounts.

Robert Brockman passed away in early August 2022, while his case was about to go to court. Brockman’s case inspired the Senate to pursue a financial investigation. The civil case against his assets is still under way.

Why do people have offshore accounts in 2023?

The confidentiality and privacy the offshore financial system offers to the rich allows them to hide assets from the government, creditors, and the public eye alike.

While some business people are known to use their offshore accounts to manage overseas businesses and investments, the others just spend the most of their time in offshore jurisdictions every year. With offshore accounts, multi-currency savings and investing are an easy task.

Dozens of the UHNWIs from the Forbes billionaire and statesmen list representing over 90 countries and territories have offshore accounts and investments abroad.

According to the OECD study, at least USD 11,300,000,000,000,000,000 are now sitting in offshore banks and jurisdictions.

Billionaires protect their wealth through well-considered and thought out real estate, yacht, private jet, and life insurance purchase. Here’s how they optimize asset taxation:

• money transfers between bank accounts
• real estate planning
• inherited assets
• complex financial schemes.

Most billionaires still keep their money in Swiss banks to enjoy the famous bulletproof asset protection. If a HNWI has an asset protection trust in the Cook Islands, their money is not necessarily kept in the said trust.

Those interested in setting up overseas bank accounts as individuals are welcome to take a look at the International Wealth guide at the link above.

Switzerland wary of accepting billionaire money

Where do millionaires keep their money? Switzerland used to be the preferred location. Considered to be a low tax rate jurisdiction, Switzerland is more of a midshore than an offshore jurisdiction. Swiss banks still accumulate the most of HNWI money on the global scale.

Switzerland has joined the international fight against money laundering. It accepts major risks by helping UHNWIs to preserve their wealth abroad.

After US and European markets became less profitable due to high confidentiality requirements, offshore banks from Switzerland saw it as an opportunity to grow their profit margins in developing economies. As of now, they are servicing multiple newly-minted billionaires from Asia. It will be extremely challenging to guarantee they are perfectly clean. The local policy may as well turn into a nightmare for both the above UHNWIs and their banks.

The Sueddeutsche Zeitung from Germany learnt about over 18,000 customer accounts in the Credit Suisse bank from Switzerland associated with corruption since 1940.

The Credit Suisse representatives rejected any possibility they either didn’t notice or ignored the warning signs of crappy customers. They didn’t comment on what some people said but claimed that over 60% of accounts potentially associated with issues the German article brought up had been closed before 2015.

The above leaks damage not only the moral or political reputation of Swiss banks but their commercial prospects as well. HNWIs still prefer to keep their money in Swiss offshore accounts expecting the Swiss confidentiality laws to protect their personal data to the utmost.

If you are unsure whether you need an offshore bank account, go ahead and book a free initial consultation with the International Wealth experts as to offshore account setup. For this purpose, feel free to contact us at info@internationalwealth.info.