While in general I am all for the increasingly stringent regulations and compliance requirements which have been introduced in the financial services sector in recent years, I do acknowledge that it has made it difficult for many expats living abroad to open offshore bank accounts.
The term offshore can conjure up images of corrupt politicians hiding funds away or billionaires sheltering cash to avoid paying tax. In fact, many banks now prefer to use the term international bank accounts to get away from this negative connotation. The reality is that the vast majority of offshore bank accounts are held by people just like you or me who simply need a practical solution for storing liquid assets for entirely legitimate reasons. An offshore bank account is an account which is held in a different jurisdiction to the one the account holder lives in, nothing more sinister than that!
There are many reasons why an individual might opt for an international or offshore account. One reason is tax efficiency, another is security. For those living in certain countries economic or political instability might mean that it is prudent to keep a minimum of cash in that country’s banking system to cover day-to-day expenses while protecting excess cash in a safer jurisdiction. In addition, spreading liquid savings across different countries can certainly diversify risk and exposure to currency fluctuations.
These are all valid reasons for holding an offshore account nevertheless, I would argue that flexibility and convenience is the number one reason why most expatriates opt for an offshore account. Being able to make withdrawals in a variety of currencies can be a practical solution for many expats particularly those that travel widely with work, and those who relocate on a regular basis. Offshore accounts also work well for those earning in a currency which is different to the one where they live or for those who have debts in one country but earn in another, like the many expats living in Asia who are paying off mortgages on properties back home.
In recent years, onerous reporting standards have made it increasingly difficult for expats to open offshore accounts. Since 2014 FATCA in particular has caused a huge headache for many of the estimated 6 million Americans living abroad with certain banks choosing to close their doors to American clients rather than having to deal with the obligatory regulations and compliances. To give one example, the president of the French banking association earlier this year warned that French banks may be forced to close down 40,000 accounts of so-called ‘accidental’ Americans before the end of 2019 when the period of grace granted to the country for IRS reporting comes to an end.
It’s not just FATCA though. As the fight against corruption, bribery and money laundering ramps up Know Your Customer (KYC) requirements aimed at tackling these issues are being introduced by regulatory bodies in many countries around the world. KYC is the term used to describe the due diligence process of identifying and verifying the identity of clients as well as putting in place internal controls and monitoring systems. It is why scrutiny has increased on transactions such as the opening of new bank accounts and international currency transfers.
If you are having difficulty opening an offshore account, Infinity may be able to help. We have close relationships with a number of banks and the knowledge and expertise required to help you provide all the documents required to open an account. Our consultants are up-to-date with current onboarding compliance requirements and can simplify the process for you. Do feel free to get in touch and find out more.
I can honestly say that my main driving force at Infinity is a fundamental belief that good financial planning makes people’s lives better. People working abroad really do have an enviable opportunity to make a huge success of their lives, and making good financial decisions is essential…as well as working damn hard!