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Offshore Banking Isn’t Illegal, But Hiding It Is

What Are the Ramifications of Offshore Banking?


Offshore banking might be something you’re interested in if you’re curious about the Panama Papers scandal. Maybe you’ve even thought about keeping some of your money in an offshore account? You may have hesitated because you don’t want to get in trouble with the IRS.

Some people are attracted to offshore banking because they think it is glamorous, but it is actually very ordinary.


How Offshore Banking Works


Let’s get rid of words like “stash,” “hide,” and “offshore bank account” which can be misleading. It’s not illegal to use the services of a bank that’s located in another country. And in some cases it literally applies to be offshore–like a bank account in the Bahamas, for example. But in other cases, it could be as simple as doing business in Canada which is just a drive away.

As little as $300 is all that is needed to start an account with some foreign banks, making the practice not just for the wealthy. Banks overseas, like banks everywhere, set their own account minimums and other terms for customers.

The required compliance leads some foreign banks to refuse business with certain foreign clients, as per the Organization for Economic Cooperation and Development (OECD) and World Trade Organization (WTO) rules on customer information reporting.

Different countries comply with these laws to different extents, with some countries not complying at all.


What About Swiss Bank Accounts?

The famed “Swiss bank account” comes with strict Swiss privacy laws, which is the reason for their popularity. These accounts, or James Bond-like accounts, places rich people’s money out of the grasp of their own country’s government, the IRS, for example.

Switzerland has agreed to turn over information to foreign governments on their account holders, effectively ending any tax evasion that could have come with having an unreported, or hidden, account. This is a change from the past, when Swiss banks didn’t even attach names to accounts.


Offshore accounts offer many benefits

There are plenty of legitimate reasons to hold money out of your home country, not just tax evasion. There are a few things to consider when thinking about earning money abroad. First, there’s the tax treatment. In many countries, you can earn money tax-free. If you move your money offshore, you can earn capital gains and pay zero taxes to that country.\nIn recent years, even the United States has become one of the world’s favorite tax havens. The primary reason thatNevada, Wyoming, and South Dakota now hold a large amount of foreign money is not for favorable tax treatment.

The stability of developed nations such as the United States and Switzerland is one of the main advantages of keeping foreign money in these countries. People living in nations with political and economic upheaval fear that their money, as well as their lives, could be in danger. What if the economy collapses OR there’s a civil war? If they keep their money overseas, it will be harder for their government to seize it if they are pursued for some reason.

An overseas bank account gives the account holder more opportunities to invest internationally and serves as a currency hedge against a possible collapse of their home currency. Although it is less important, a notable benefit is that due to currency exchange rates, in other countries, an investor might be perceived as a high-roller and receive the benefits that come with being wealthy, although this might not be the case in the United States.

If you earn or hold money abroad, you are still responsible for U.S. taxes. Americans are required to file the IRS FBAR form and report any money exceeding $10,000 that is held in foreign accounts. The foreign-earned income tax exclusion applies to money earned abroad, but the rest is taxable.


Special Considerations for Offshore Accounts


As long as you don’t establish an offshore account for the purpose of tax evasion, there is nothing illegal about it. The Foreign Account Tax Compliance Act (FATCA) requires banks around the world to report any balances and activity of American citizens to the IRS, or else they will face fines.

Inevitably, there will be people who use the system to profit illegally, despite the efforts of U.S. firms that hold foreign money to use a team of lawyers to make sure they are reporting their foreign activity to their home country accurately and legally. Between 2-5% of global GDP, or about USD $2 trillion, is estimated by the United Nation’s Office on Drugs and Crimes as the proceeds from illicit funds and money laundering.

Offshore bank accounts are not illegal, and they are also not tax-exempt. You can invest in them for legitimate business reasons, although they will not be secret.


I’ve Lived Overseas and Have a Foreign Bank Account, Is This Legal?


You must declare the existence of your overseas bank account to the IRS using a FACTA. However, if the account is worth more than USD $200,000 and you live abroad (or more than $50,000 and you live inside the U.S.), you must file a more comprehensive IRS Form 8938.


Why Is Hiding Offshore Financial Accounts Illegal?

Why Is It Illegal to Hide Offshore Financial Accounts?

Governments around the world are cracking down on offshore bank accounts, and for good reason. Offshore financial accounts can be used to evade taxes, launder money, and commit other financial crimes. In addition, they can also be used to stash away stolen money or to hide assets in case of a divorce.

1. What are offshore financial accounts, and why is it illegal to hide them?

Offshore financial accounts are bank accounts, investment accounts, or any other type of financial account that is held in a foreign country. People often use offshore financial accounts to hide their assets from the government or from creditors. It is illegal to hide offshore financial accounts from the government, and doing so can result in significant fines or even prison time.

2. How do authorities find out about offshore financial accounts?

Authorities use a variety of methods to find out about offshore financial accounts. One common method is to request information from foreign banks. Banks are required to report information about their customers to authorities, including information about accounts that are held offshore. Authorities may also request information from companies that provide offshore financial services. In addition, authorities often use data-mining techniques to identify taxpayers who may have hidden offshore accounts.

3. What are the consequences of hiding offshore financial accounts?

There can be serious consequences for hiding offshore financial accounts. The most obvious consequence is that you may have to pay taxes on the income that was earned in the account. You may also be subject to penalties and interest charges. In some cases, you may even be subject to criminal prosecution.

Another consequence of hiding offshore financial accounts is that it can be difficult to get your money back if you need it. The bank may be unwilling to release the funds to you, or you may have to go through a complicated process to get them. This can be especially frustrating if you need the money for an emergency.

Finally, hiding offshore financial accounts can damage your relationship with the IRS. The IRS may suspect that you are trying to evade taxes, and this can lead to an audit or other investigation.

4. How can people avoid getting in trouble for hiding offshore financial accounts?

There are several ways that people can avoid getting in trouble for hiding offshore financial accounts. One way is to disclose the account to the IRS. Another way is to file a Report of Foreign Bank and Financial Accounts (FBAR). People can also avoid getting in trouble by following the rules for offshore financial accounts.

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