It seems that Panama is one of the most well kept secrets when you look at what media publishes about offshore banking. It is true that Switzerland and the Cayman Islands are currently the dominating offshore jurisdictions but I wouldn’t be surprised at all if this will change very soon. When it comes to Switzerland then what happened to them with the UBS case was pretty much U.S. blackmailing account holders data by threatening to damage UBS business through it’s branches in jurisdictions where U.S. has power. Many offshore banks are open to such attacks and history has shown that governments who don’t like tax havens have taken advantage of this.

Now what makes Panama so great is their Panama canal which is needed currently by most of the Western nations. Experts agree that this canal provides Panama with a unique type of immunity against international pressure. It is very unlikely for any country to force Panama to loosen it’s banking secrecy because they risk with loosing access to the canal. This canal is really like a golden goose for Panama and hasn’t only been beneficial to offshore banking but for many different offshore services. Some call Panama the Switzerland of Latin America but Panama is really much better than Switzerland and any other jurisdiction these days.

Offshore-dervied income is not taxed and does not need to be reported in Panama. You can register a company or a Foundation that banks in there and has an office in Panama. You will not pay any Panama taxes if all the income is derived from offshore. Income tax has to be paid on revenue generated from Panama though. Bearer Share Corporations is another good reason why you might want to consider Panama. You can have full anonymity with Bearer Share which most of the jurisdictions have eliminated these days thanks to international pressure.

Panama uses U.S. dollar so there are no currency conversion costs to worry about and no currency devaluation problems either that plague most of the little tax haven countries. It is a stable and free country. They have free elections and they care about their people. About 15%-20% of the work force are employed by the 135 banks and there are about 400,000 corporations registered in there. Only information sharing that is going on is related to criminal cases on file in a court as a criminal prosecution. This means serious criminal cases like money laundering, narcotics trafficking, terrorism and child pornography. They have little interest in pursuing fiscal crimes. Income tax violations in Panama are considered civil offenses only.

Their savings and loan guarantees aren’t the best $10,000 per account but since there are so many banks to choose from this is nothing to worry about. Bank has to post $10,000,000 cash with the government as one of their license requirements. They also have their own ACH system for online transfers. Transfer from one Panama bank to another costs about $1.00 per transaction and currently there are about 30 banks in that system. This is a country that was built and maintained by U.S. up to 2000. It is in excellent shape loaded with skyscrapers, affordable homes, food and medical care. They have modern electrical systems and water you can drink and perhaps even better Internet than in your country.

You won’t have any problems communicating in English with most of the institutions. It is a low crime country that is only some hours away from Florida. One of the most exciting movements that could make you consider Panama though is that they are very much supported by United States. In fact with the world banking crisis it was found that people backing the Panama Free Trade Agreement including Citigroup and AIG have subsidiaries in Panama that would be empowered with the new rights if the FTA goes through. So this is a sign that even though there is a lot of fight against tax havens it might be that U.S. just wants to concentrate the tax haven customers into jurisdiction where they can benefit from this offshore money.

I haven’t written much about disadvantages and in recent years list of disadvantages has definitely got much longer. This article is going to concentrate on various disadvantages of offshore banking sector that you should be aware of before you decide to get an account.

Security issues

Firstly offshore bank accounts can be considered less secure financially. This is all down to what bank and what jurisdiction you choose of course and there are cases where it is completely opposite. With world banking crisis in 2008 the only savers who lost money were the ones using offshore branch of an Icelandic bank in the Isle of Man. They did not receive a full refund even after 11 months, by mid November 2009 though 90% of the Depositors were paid. To make sure the same thing doesn’t happen to you you should always weigh all the terms of the bank.

Most of the jurisdictions guarantee certain amount of the deposits. Isle of Man deposit sums were guaranteed £20,000 – £50,000. Often enough offshore banking jurisdictions have lower guarantees than in non-offshore jurisdictions. If you find a favorable jurisdiction but the guarantee is too small for your deposits then you can usually open accounts in different banks in the same jurisdictions and all these accounts will be all guaranteed by that amount. Best option would be to open accounts in different jurisdictions if possible to minimize risks ever further. In any case, depositors should be aware that any deposits over the guaranteed amount are at risk and offshore banking jurisdictions may guarantee much less than at your average bank although their savings account interest rates may be lower.

Offshore banking has also been associated with money laundering and organized crime. After September 11, 2001 offshore banks, tax havens and clearing houses were accused of helping terrorist groups and organized crime. According to IMF between $600 billion and $1.5 trillion of illicit money is laundered annually which is about 2% – 5% of global economic output. Offshore is where most of the world’s drug money is allegedly laundered. In 2006 there were series of articles published which revealed that Treasury Department and the CIA had a program to access the SWIFT transaction database after the September 11th attacks which render offshore banking for privacy severely compromised for US.

Accessibility

Offshore jurisdictions are usually remote and this means that it can get very expensive to physically visit your bank. Today with advanced global telecommunications this is rarely a problem though as accounts can be set up online, using phone or email. Still for individuals who require physical access or access to documents that can’t be sent over the internet it means extra expenses not common with “onshore” banks.

Besides physical access being a disadvantage these banks are often also more accessible to individuals with higher income. Costs of owning offshore accounts can be much larger than with your regular bank account. Most of the time this isn’t a problem with simple savings accounts though. Historically when there have been tax cuts then this has resulted in high-income groups paying the higher proportion of the tax take. This happens because previously sheltered income is brought back into the mainstream economy.

Summary

Offshore bank accounts have been advertised as a solution to every legal, financial and asset protection strategy but this is often too exaggerated. There are many ways to look at it but in the end you just have to analyze if this is viable option for you or not. Is it accessible considering your income level and if it is are there any risks that you are not able to handle.

Now that the whole world is coming out of recession it seems that offshore banking sector has also changed. In some ways offshore banking has become much more transparent. There are all sorts of documents one needs to fill out when applying for an offshore account which clear banks from responsibility in case things go bad. So when you think about it then not much has changed. Sure for people who hold large sums on these accounts they can’t escape paying taxes if they are required by US law for example. But when it comes to internet based businesses, phone support companies, consultancy businesses etc.. then people are still registering these companies in countries with better “climate”.

Since these companies operate in offshore country it is obviously possible to use it’s banks for and there is really nothing to worry about most of the time in such cases. Some countries do force you to pay taxes even on businesses that operate outside the country but lot of people seem to go the route of just not mentioning it. Offshore banking accounts for purpose of paying less taxes for companies that are not operating in the same offshore country itself are uncommon these days because there is no benefit in this anymore really. Fully offshore operations are much more common though and in some cases undetectable when business operators decide to take this route.

Most of these offshore operations are fully transparent though and this is honestly the best way to approach offshore banking. Even if you live in a country with toughest laws but you want to stay out of trouble then there are offshoring countries that offer you citizenship or business permits which enable you to move your whole business into more favorable jurisdiction. It is always best to consult with a lawyer when starting to offshore your business but make sure it is not just any lawyer. Many of the best companies that offer full offshoring services also offer you consultations and some of them do this even free depending on the size of your business.

Like I have written before on this site, offshore banking is still strong and it is probably never going anywhere unless we finally reach global socialism. You just have to make sure that you provide all the documentation when needed and don’t try to hide anything. Reason why governments make so much noise about this is because they know that businesses can go offshore and there is not much they can do about this when done right. They are trying to do anything to stop people from going this route and sometimes they haven’t got anything else besides just scaring the business community by arresting people who got caught with something illegal which involved offshore banks.

Information that circulates in the media however is usually not so detailed and people are left with a illusion that offshore banking is dead. While the reality is that some young journalist who doesn’t have a clue forwarded the exact message government authorities want the community to receive. If you see some of the statements some tax department representative has given and see with what offshore bank CEO was charged with you usually see two very different stories. Your job is to question why is this so and do some of your own research or hire somebody who does this for you.