Offshore Account Repayment

Offshore companies and IBC’s incorporated in international financial centers have tailored financial needs. Private banks and specialized offshore financial institutions cooperate with traditional banks of international allure to provide such services to a global audience. Enhanced privacy laws and bank secrecy regulation often protects legitimate actions from public scrutiny. However, the role of financial institutions as the gatekeeper and initial control mechanism of the financial system results in the submission of Suspicious Activities Reports (SAR) and Currency Transaction Reports (CTR) to the designated Intelligence Units. For smaller banks that fall outside the scope of systemic banking, control, supervision and potential punishment of violations is comprehensive. As a consequences, several smaller banks have been placed under statutory administration, closed and dissolved over the years. Offshore account repayment then becomes a critical and important task for account holders.

Beneficiaries of offshore companies often have only indirect relationships with the country of incorporation and where they conduct their financial activities and maintain their banking relationships. Structuring is interesting from the perspective of corporate efficiency and financial privacy. However, there is also risk involved. For example, the Commonwealth of Dominica repelled its IBC regulation that previously provided non-resident business activities with a tax exempt status, and the Bahamian Lucayas Bank was placed under statutory administration by the responsible regulator for its unclear capital position. Both examples reveal just two of the many difficulties of transacting in multiple jurisdictions at the same time. These corporate structures have advantages, but the disadvantages should not be forgotten.

The offshore financial industry provides small and medium sized enterprises with equally attractive opportunities as multinationals and public companies. However, the rules between home and host countries may sometimes differ. As such, non-public companies often face difficulties with local tax authorities and other stakeholders. Many offshore businesses have seen their bank accounts blocked, and relationship with financial institutions terminated. The superlative degree is that smaller private banks and financial institutions that mainly deal with offshore companies allegedly infringe international standards and banking law and see their license terminated. The latter is of particular importance because it often results in severe loss of money for account holders who pay attention to incorrect culprits.

Offshore bank failure is one of the most comprehensive and misunderstood events in the range of corporate defaults. Account holders and other creditors are often sidetracked by the exorbitant rescue missions with tax payer money, bank nationalizations and under normal circumstances the role of the central bank as a lender of last resort. The novel bank bail-in that triggered public outrage during the European sovereign debt crisis and mainly impacted Greece and Cyprus, became mainstream. As such, financial institutions are, unless a failure disrupts society, treated equally as regular corporate liquidation with asset write-downs and a mandatory creditor hierarchy. The only difference is that licensed financial institutions are members of a local deposit protection scheme that covers, with few exceptions, account deposits to a pre-defined maximum.

As revealed by recent (offshore) bank failures, account holders must pay close attention to the resolution procedures. Recovery takes place in a staged and isolated format where creditors must file their claims within a specific timeframe to avoid disqualification. Furthermore, as indicated by traditional liquidation procedures, assets are monetized and can only be distributed once. Those who miss important deadlines or fail to comply with the requirements for claim filing risk losing their right to reclaim their deposits. A clear incentive to retain advise from experienced industry professionals.