Most people believe that “offshore” banking is illegal, and quite comparable to money laundering.  However, it is not illegal.  Offshore banking is only illegal when you do not inform tax authorities about your decision to bank offshore.  It is very important to discuss the idea before-hand with a qualified financial advisor. The problem is found when you do not report taxes on these offshore accounts, whether you forget or try to sneak it past the government.  The IRS believes that they lose an average of $70 billion a year to taxes lost to these tax havens abroad. Most offshore banks are domiciled in Panama, the islands of the Caribbean and the Bahamas. 

Offshore banking allows people to save tax legitimately by having interest paid on their savings before the deduction of tax.  The tax saving advantages of banking offshore are generally only available to a few people who are usually expatriates, non-residents in a high taxation country and with tax liability in a country where taxation is low or even non-existent. However, the asset protection benefits, personal privacy advantages, and the potential to access better account structures and services are available to the majority of us when we choose to bank offshore.

Many offshore jurisdictions are strongly regulated to protect investors and to prevent money laundering, which can grant those who bank offshore a greater degree of confidence and security. Many jurisdictions have strict guidelines that cover the maintenance of client privacy, which grant those seeking personal and asset protection the assurance that their identity and transactions will remain confidential. Offshore structures such as bank accounts and trusts are often used to protect your assets from potential unfair litigation.

There are many benefits to banking offshore. Most offshore banks allow you more flexibility and access. As well, offshore banks generally pay better interest rates and often have lower charges. It is common that offshore banks offer flexibility and the benefits necessary for those who regularly travel for work or pleasure; as for those who travel often, multiple currencies and easy transactions from all around the world are another benefit to doing offshore banking. 

However, there are some issues with offshore banking. It is important to know the risks of offshore banking, as it is possible that a situation may arise that your offshore bank may not meet international standards (such as those set by the Financial Action Task Force and the Organization for Economic Cooperation and Development) and your account can then be frozen and inaccessible. 

It is common that most offshore investors are fairly ordinary people - dentists from Chicago, manufacturers from Frankfurt and merchants from Tokyo - who have been advised by their accountants to funnel at least some of their assets offshore.  Offshore banking is infamous for housing accounts to drug dealers and terrorists.  The amounts of money to be invested within various countries is a limited amount, as you most likely will not be able to invest $3 billion into a Caribbean bank.  It is now becoming more common that most offshore banks will not take more than $5,000 in cash deposits and will generally require a third-party testimony, by an accountant or lawyer, as to the source of the deposit.