szabo@netcom.netcom.com (Nick Szabo) writes:
The middle class avoids current offshore banking because it is user-hostile and puts their life savings at high risk.
They may be user hostile, but they are not necessarily risky. And the middle class uses offshore banks a great deal. Offshore means any bank outside the US. Swiss banks are quite reliable, though they occasionally provide information to the US government and they withhold taxes on interest earned. Austrian banks are just as reliable and offer not just numbered accounts, but password protected, numbered accounts, and do not tax interest earned. There are many other places with reliable banks that will protect one's privacy. The Channel Islands have a system of government that dates to 1066, numbered bank accounts, and the largest bank on the Islands is the tenth largest bank in the world.
An offshore bank often takes a week or more to service requests for
statements sent by snail-mail.
That's why most people use faxes to communicate with offshore banks. I would be surprised if email didn't follow soon.
Offshore banks are notorious for obsconding with customers' money.
In a few jurisdictions, this is true. For example all that is required to set up a bank in Grenada is to form a corporation with the word "Bank" in the name. That's it! No regulations at all. Most jurisdictions in which offshore banking take place regulate several different types of banks. Class A banks are the type one finds in the US, with tellers, etc. Class B banks are typically run by a company which sets up the bank and are almost always prohibited from doing any business with the local residents. Class B banks are usually divided into restricted and unrestricted. An unrestricted bank can do business with anyone not a resident of the country in which the bank exists, while a restricted bank can do business only with parties named at the time the bank is formed. Reserve and capitalization requirement vary from country to country but unrestricted banks must nearly always meet tougher requirements than restricted banks, and Class A banks must meet tougher requirements than Class B banks. For example, in the Bahamas, a restricted Class B bank must have a minimum capitalization of $100,000 and pay an annual license fee of $5000. For an unrestricted Class B bank, it is $1,000,000 and $25,000 respectively. I don't have figures available for a Class A bank but they are much higher and the Class A bank would be subject to regulation.
Reputation information on these banks is hard to find to
nonexistant.
It's not that hard to find. Many offshore banks are more than 100 years old.
The typical offshore bank customer spends $1,000's on legal fees to
obtain information on reputable banks, the legality of what they are
doing in both the local and offshore jurisdictions, and to set up
obscure, sophisticated legal entities.
True but misleading. The typical offshore bank customer spends about $1000 to $2000 to set up a corporation, so that the bank acount is not in his own name. This obviates the requirement to tell the IRS when an American opens a bank account in a foreign country.
There aren't any good statistics, but I'd guess that most of the
money saved by going offshore is lost to legal fees and fraud.
If that were true, there wouldn't be offshore banks. The tax savings probably outweigh the legal fees by 10 to 1 or more in most cases, and fraud exists, but is not so rapant that people stay away. M Carling