Offshore Banking – How to Carry Out Due Diligence on Offshore Banks

OK, so you’ve decided to open a bank account. You have done your research and have found some banking ‘possibilities.’ They look fine to you, and you appear to be acceptable to them. With that first hurdle over, you need to apply some more selection criteria. When choosing an offshore bank, there are two main factors you must take into account (besides of course privacy and confidentiality)

  • Stability – is it a well established, solvent bank?
  • Quality of Service – are they fast and efficient


Due diligence and KYB (“Know Your Banker”) is essential. There’s no point in jumping out of the frying pan into the fire.

There is no reason to save your hard-earned cash from your taxman or avaricious ex-spouse, only to have it disappear into a virtual black hole when your offshore bank closes its doors. Neither do you want your investment manager to churn away your money on “hot” deals that never pan out, but that bring him fat commissions.

These days with the internet, it is relatively easy for anyone to set up a bank. You need a license, but jurisdictions you barely knew existed, like Montenegro or Somalia, will for a fee, provide all comers with a valid government-issued banking licence. Try to avoid banking in these high-risk areas as they attract far too many con artists and dreamers. Before investing any money, make sure the bank you are investing in is run by professional bankers and not by some Eastern European teenager with good web programming and design skills, who just decided last month that it would be profitable to be a bank president!

Most offshore financial houses seem solid until they collapse unexpectedly. The Marc Harris Organisation in Panama attracted many clients. Marc Harris is currently serving a long jail sentence in Florida. Swedish-run Bank Crozier of Grenada and St Lucia also seemed highly professional. Paritate Bank in Latvia impressed a lot of people with innovative products, flexibility and good customer service. Now they are all defunct. They all sank, taking with them their clients’ money. (Actually Paritate is back up and running again, but the old investors never did get their money back).

Another thing to consider when reviewing internet sites of banks in exotic locales: Any bank anywhere that appeals to shady characters will be (sooner, rather than later) shut down by regulators. You don’t want your hard earned money to get mixed up in such ugly messes. So stay away from banks that explicitly encourage you to hide your money.

It is almost unheard of for big banks in civilized, well-regulated first world financial centers like Luxembourg, to be corrupt from top to bottom. But, of course, even the unlikely can happen! That is exactly what did happen not so many years ago with the Bank of Credit and Commerce International (BCCI) which was registered in the UK and Luxembourg.

The bottom line is that due diligence is important. Most offshore banks are highly reputable, stable, well managed and professional. It’s the ones that are not who grab the headlines. But it’s important to ask questions until you are entirely comfortable, and to ask for second opinions (from people who know what they are talking about) if you don’t feel totally confident in your own offshore knowledge. Don’t believe everything you read on the net or in a glossy brochure. Always ask for a copy of the annual report, for starters, and if you do not feel confident to analyze it yourself, ask a professional such as an accountant or financial adviser. Then, do internet searches on the bank’s name and SWIFT code, that should bring up any negative comments or involvement in dodgy deals.

Quality of Service

“Different strokes for different folks,” they call it. You would be surprised how quality service means such different things to different people. To some, it might be a friendly old Swiss banker who will buy you lunch, give you a nice golf umbrella and chat for a few hours. He will want to learn all about your financial, business and social situation.

Other people may prefer a banker who just does as he is told and never suggests that you have any personal meetings. You may prefer it if your banker doesn’t even know what you look like. Maybe all you want is a good internet interface so you can wire money in or out in the middle of the night if you want to, with super smooth technological efficiency.

Some people love it that their personal banker knows and trusts them enough to move six or seven figures based on a single phone call or email. This would shock other of my clients who want to log in first through a five step encrypted security system with three passwords plus a one-time code generator operated by a 6-digit PIN in order to give instructions!

Buying banking services is like buying any other services. You can look at websites and brochures, talk to the people. How fast and efficiently do they respond to phone calls and emails? That is always a good indicator. I have dealt with banks who will reply to emails in a foreign language within five minutes if you e-mail them in the middle of the night their local time, and others who simply absolutely never reply to email, or who specify on their websites that they will respond “within five business days.” Well that rather defeats the object of emailing, doesn’t it?

Then, too, nothing is forever. If you receive poor service or hear any rumours you don’t like, you can pull out immediately. At least you should be able to. That’s something worth checking too!

Source by Peter Macfarlane