The concept of offshore Banking
The term offshore banking has been defined in a variety of ways and its meaning has changed over time. It its broadest connotation offshore banking implies some tax privileges, freedom from exchange controls and absence or at least a reduced level of supervision and regulation. It involves foreign currencies and transactions are conducted between non-residents. In other words, offshore banking is carried out in any foreign currency by banks that are domiciled in specifically designated centres with customers that are non-residents of these centres.
Offshore banking may also be described as the carrying on of banking and financial activities in an environment which is essentially free of financial and exchange controls i.e., tax havens or low tax areas commonly referred to as ‘ Offshore Finance Centres ’. These conditions also normally include favorable banking regulations and banking laws considerably less stringent than those in most domestic jurisdictions.
An offshore centre may also be defined as a place, which could be a country, an area or a city, which has made a deliberate attempt to attract international banking business by reducing or eliminating restrictions upon operations as well as by lowering taxes/ or other levies. International banking business here refers to non-resident, foreign currency dominated, assets and liabilities.
There are several geographic regions in which offshore centres are located. It comprises, among others, the Bahamas, the Cayman Islands, the Netherlands Antilles and Panama. There are twenty one such centres including the Bahamas, Hong Kong, Jersey, Luxemburg, Panama and Singapore. This number has increased now. It may be noted that the distinction between major international financial centres, such as, London, and offshore financial centres has been further blurred by the international deregulation of the 1980s.
Offshore banks may be created by the corporate group to handle external borrowing or to consolidate intra-group finance or banking transactions. Corporations involved in international trade may use an offshore bank as a foreign or multi-currency management centre.
Professor Rafiqul Islam
Faculty of Business & Economics (FBE)