10 Best Countries for Offshore Banking

In the light of Panama Papers and the subsequent drama that erupted over them, it may be a good time to look for 10 best countries for offshore banking. After all, you don’t want your hard-earned monies to fall into the hands of the evil government, do you?

Despite popular notion, offshore banking isn’t a recent development. It was first established in 1815, after the Vienna Congress, when Switzerland gained their neutrality and thus opened its bank to the international money seeking refuge in their vaults. The USA joined the list of offshore banking locations in the late 19th century. British discovered the charm of stashing their money overseas in the 1920s, fueled by several courts’ decisions that allowed such behavior. In the years following the World War 2, the rest of the world followed suit. By the beginning of the 21st century, it seemed that everyone and their uncle had an offshore account, preferably on some exotic Caribbean island.

People use offshore banking for various reasons. The most popular is tax evasion, but money laundering or asset hiding are high on the list as well. Strictly speaking, these reasons don’t always have to be illegal, but their morality is often questionable, and political leaders that resort to these measures are often exposed to the public rage, as the Prime Ministers of Iceland and Ukraine, Sigmundur Davíð Gunnlaugsson, and Arseniy Yatsenyuk learned in the past week. It remains to be seen whether David Cameron will be able to avoid their fate. Strangely enough, Vladimir Putin, who is supposedly linked with some $2 billion stashed in Panama banks, seems largely unaffected by the fallout.

Unfortunately, writers on Insider Monkey don’t get paid enough even to consider an offshore account, let alone make one. Hence, we can’t tell you first hand which countries are the best for offshore banking. In order to do so, we had to resort to the old-fashioned research. We curated two lists, one made by Wolters Kluwer and other by Viva Tropical and came up with 23 countries. To narrow it down, we used the list of best offshore banks, created by Streber, a popular blog on the topic of offshore banking. Each country was awarded points for banks operating within its jurisdiction. Finally, we used Tax Justice Network’s Financial Secrecy Index (FSI) to determine the best countries for offshore banking. FSI is a tool created to determine which countries, through their banking regulation, offer tax havens to the rich and wealthy (and often criminal) elite. We decided that this is the most important factor, so most points were awarded in this category.

Without further ado, let’s see which countries are the best for opening an offshore account and stashing your rainy day cash (especially if you come from one of the top US cities for saving money).

10. The Channel Islands – Jersey and Guernsey

Bank Score: 3 FSI Score: 11 Total Score: 14
(FSI Score breakdown: FSI Rank: 5; FSI 1,013.1)

The Channel Islands dubious status within the UK (technically, they aren’t part of the UK but rather British Crown dependencies and as such, fiscally autonomous) has allowed them to become one of the world’s largest offshore banking hub. The proximity to London and its powerful banks has further fueled the development of their network of banks, trust and hedge funds. However, in 2013, both Jersey and Guernsey have signed OECD’s Common Reporting Standard and have since signed a number of bilateral treaties on the exchange of tax information, which led to the decline in offshore banking.

9. Panama

Bank Score: 4 FSI Score: 13 Total Score: 17
(FSI Score breakdown: FSI Rank: 13; FSI 415.6)

A flood of 11.5 million documents regarding some 214,000 offshore companies that came from the office of Mossack Fonseca & Co has severely undermined the Panama’s status as stable offshore location. But the truth of the matter is that this is just a tip of the iceberg and that Mossack Fonseca is just one of the companies that provide corporate services in Panama, albeit one of the largest. Long term effect on Panama’s banking sector have yet to be assessed, as well as those on world’s economy.

8. Luxembourg

Bank Score: 2 FSI Score: 16 Total Score: 18
(FSI Score breakdown: FSI Rank: 6; FSI 816.9)

The Grand Duchy of Luxembourg is a microstate, wedged between Germany, Belgium, and France. It is the largest tax haven in EU. Similar to Switzerland, their success is based on secrecy. Whistleblowers can easily end up in jail in Luxemburg. Growing pressure from Brussels may soon put an end to the most profitable sector of Luxemburg’s economy.

7. Lebanon

Bank Score: 4 FSI Score: 15 Total Score: 19
(FSI Score breakdown: FSI Rank: 5; FSI 1,013.1)

Lebanon may be a strange addition to this list to people who aren’t familiar with this country. Lebanese diaspora is estimated to number anywhere between 5 and 16 million people, some of which are very high-profile businessmen, like Carlos Smith, Carlos Ghosn (CEO of Renault), and Nicholas Hayek (CEO of Swatch). Lebanon has made it possible for all of them to keep their money in their home country by lax banking regulation. Lebanese in foreign countries were quick to take the opportunity, to the tune of US$175 billion worth of savings in country’s banks, which amounts to about 400% of Lebanon GDP. So far, Lebanon was adamantly against all international calls to cooperation with foreign tax services. If they keep it up, we may see them rising up on the list in future.

6. Cayman Islands

Bank Score: 2 FSI Score: 17 Total Score: 19
(FSI Score breakdown: FSI Rank: 5; FSI 1,013.1)

The Cayman Islands, another Overseas Territory of the United Kingdom, operates within the UK with significant autonomy in fiscal issues, the fact they have managed to use to their benefit. The Cayman Islands offshore paradise begun as a shady shelter for laundering drug money from nearby Latin and South America. They have slowly distanced themselves from drug lords, moved up in the world, and are now considered a legitimate offshore location.

5. USA

Bank Score: 0 FSI Score: 19 Total Score: 19
(FSI Score breakdown: FSI Rank: 5; FSI 1,254.7)

The lack of prominent American names in Panama Papers has cast a shadow of doubt on its handlers’ integrity. They have been publicly accused of manipulating the source documents for political purposes. But the truth is much simpler. Americans don’t need to go to Panama to find a safe haven for their money. They have plenty of them at home. Delaware and Nevada are often named as two states that have done their utmost to bend their banking laws to ensure the flow of foreign capital. The basis for the USA becoming an offshore banking location was established in 1921 when the Revenue Act exempted bank deposits owned by foreign nationals for taxation. Although in theory, US citizens shouldn’t benefit from this, once the money is transferred through several shell companies registered in various parts of the world, it can be very difficult to trace the original owner.

4. United Arab Emirates (Dubai)

Bank Score: 6 FSI Score: 14 Total Score: 20
(FSI Score breakdown: FSI Rank: 10; FSI 440.7)

Dubai, unlike its neighbors, lacks massive oil reserves. What little they do have, they have invested in the banking sector, which was designed to attract foreign capital. Often criticized for their lax banking regulation and even worse enforcement, Dubai has established itself as a premier offshore banking location, conveniently situated on the crossroads of Europe, Asia, and Africa. Dubai’s free port, established in the early 1900s, has played a crucial role in creating Dubai’s reputation of “no questions asked” business hub, a fact often exploited by people with a desire to keep their wealth undetected.

3. Switzerland

Bank Score: 4 FSI Score: 21 Total Score: 25
(FSI Score breakdown: FSI Rank: 1; FSI 1,466.1)

Now we enter the big league. The top three places on our list are reserved for countries that have established themselves as global financial centers long before anyone ever heard of the British Virgin Islands and other exotic locations. Switzerland’s famous secrecy laws regarding banking have secured its leading position among countries that attract the most offshore accounts. Despite the effort to keep status quo, growing pressures from EU and USA may force Swiss banks to finally open their book to taxmen, thus severely undermining their reputation and maybe even destroy the oldest tax haven in history.

2. Hong Kong

Bank Score: 6 FSI Score: 20 Total Score: 26
(FSI Score breakdown: FSI Rank: 2; FSI 1,259.4)

One of the largest financial centers in the world, Hong Kong did lose some of its appeal to foreign money once it reverted back to Chinese control. One of its main advantages was its ambiguous status as a crown colony under the UK jurisdiction. Once that was lost, a part of trust it enjoyed among international bankers went with it. However, the Chinese government has done everything in its power to assure the world that nothing has changed and that in Honk Kong it is business as usual. For a moment at least, they seem to have managed that.

1. Singapore

Bank Score: 9 FSI Score: 18 Total Score: 27
(FSI Score breakdown: FSI Rank: 4; FSI 1,147.1)

Honk Kong’s long-time rival has managed to snatch the first place on our list. The combination of a high number of trustworthy banks and high FSI (fourth overall) have secured top spot among 10 best countries for offshore banking for Singapore. The world’s only island city-state seems to be doing everything right when it comes to attracting offshore accounts. Traditionally oriented to Southeast Asia, Singapore is seeing more and more Chinese accounts being open, as they try to stay out of the grasp of the Chinese government.