Offshore Pitfalls

Restructuring your finances offshore is an important step towards personal liberty and financial privacy. However, it is of utmost importance that you do your due diligence prior to sending your hard earned money offshore. Unfortunately, the offshore legal and financial world is full of shady banks, trust companies, law firms, and a wide host of unscrupulous financial consultants that are foaming at the mouth to scam you from your life savings. By following our 7 cardinal rules of offshore, you should be able to stay out of trouble.

Seven Cardinal Rules of Offshore

Rule # 1: Don't put all of your eggs in one basket. When going offshore for the first time, be cautious and initially transfer only a small portion of your overall wealth. If that small portion amounts to a sizeable sum of money, then open a few accounts at separate banks or brokerage firms, to diversify among several financial institutions.

Rule # 2: Don't put your money in Offshore Trust Companies. Today's offshore trust companies offer essentially the same services as banks - some even provide you with debit cards, checkbooks, internet access and investment trading. However, trust companies are not banks! In most reputable offshore jurisdictions, banks are regulated by a specific banking authority established for the purpose of monitoring and regulating banks credit policies, investments, liquidity, etc. Offshore trust companies are not regulated the way banks are, so they basically have a license to steal! Essentially, when you put your money into a trust company, you are signing away your rights to your own money. If the trust company goes bankrupt, you can kiss your hard earned money goodbye.

Rule # 3: Don't put your money in jurisdictions where banking laws are not enforced. When selecting an offshore bank, it is important that the bank be located in a jurisdiction where the government has good banking laws in place, and they are enforced by a competent authority. Otherwise, the bank will have the freedom to embezzle all of the depositors funds and get away with it. Panama and Switzerland, for example, have excellent banking laws, and competent authorities that enforce those laws. However, there are a handful of other jurisdictions that we cannot say the same for.

Rule # 4: Don't put your money in extremely small private banks. In many offshore jurisdictions, one can obtain an offshore banking license for as little as US$100,000, including capitalization. There are dozens of small start-up offshore internet banks offering their services on the web - stay away from them! Make sure that the bank has been around for at least 5 years, and the bank holds deposits of at least US$300 million. Be sure to ask who the banks independent auditors are, and make sure they are reputable. Also, every reputable bank publicly provides published consolidated financial statements - ask for them to verify the banks financial stability.

Rule # 5: Don't allow lawyers, consultants, or nominee directors to sign on your accounts. When opening offshore accounts, it is important to have complete signatory control, or to only allow TRUSTED individuals to sign on your accounts. Many offshore firms secretly appoint their nominee directors as signatories when they assist you in opening your corporate accounts, which enables them to deduct their annual fees, management fees, etc. Beware, because most of them will also throw in a secret " annual account management fee", which is normally about 3% or more of your funds! Ask for full disclosure of fees prior to establishing your offshore structure and/or accounts. If you want the extra privacy of having a lawyer, consultant, or nominee sign on your account, be sure there is a signed account management agreement or fiduciary agreement to document the responsibilities of each party.

Rule # 6: Always ask for references. When dealing with law firms, financial consultants, or any other offshore organization, be sure to ask for professional commercial references, and verify them. If their references are not known, reputable organizations, then they are not worth considering as references. You must be 100% confident that your law firm or financial consultant is reputable, otherwise, they can potentially perpetrate your financial accounts after you have funded them.

Rule # 7: Take caution in using your offshore accounts. It is important to use caution, and basic common sense when using your offshore accounts. Think of your offshore accounts as a "nest egg" for that rainy day - as a back up in case you get sued or divorced, etc.. Don't use your offshore accounts as you do your personal domestic accounts. For example, don't use your offshore debit card or checkbook to pay your personal bills (phone, cable, electric, etc.).

If you have any further questions concerning the pitfalls of offshore, please contact our offices.