Christian Reeves is the author behind the offshore tax and international business site, Premier Offshore. He’s been helping clients create tax compliant international asset protection structures since 2000 and is one of the most prolific authors on the topic.
Christian sat down with our executive editor in Panama this week to discuss the state of the offshore banking industry.
Dan Wilhelm: Good evening Christian, thanks for joining us at the Marriott in Panama for this event. It’s been a great week!
Christian Reeves: Thanks Dan. It’s been enjoyable conference with a lot of very interesting speakers and top tier business leaders.
Dan Wilhelm: We’ve heard a lot this week about offshore banking and how difficult it has become. Can you give us your take on the industry?
Christian Reeves: Sure, I’d be happy to. I’m always ready to pontificate on (or complain about) offshore banking any chance I get.
It’s become nearly impossible for US citizens to open small offshore bank accounts. If you have $2.5 million or more, plenty of banks will take your business. For the rest of us, we’re left to beg to get an international bank account.
A few years ago, I’d tell clients I would charge them to open an offshore corporation and give them the bank account for free. Today, we could give the corp for free and just charge to open the account.
I’d say about 75% of our time, and 99% of the headache of running our business, is spent dealing with offshore banking issues.
Dan Wilhelm: Wow, opening an offshore bank account has become that difficult? Why do you think that is?
Christian Reeves: It all started with the United States and their war on offshore banking. It began in 2003 and came to a head in 2005. The IRS was persecuting US persons by putting them in jail and international banks by charging them massive fines. Basically the government made examples of one or two citizens in each state to throw the fear of god and prison in anyone with unreported income offshore.
Then came the Foreign Account Tax Compliance Act (FATCA) and all the reporting requirements. This turned international bankers into unpaid IRS agents forced to report on their clients. Today, all transactions that go through a foreign account owned by an American are reported to the US government, just as if those transfers were made in the US.
All of these reporting requirements cost banks hundreds of millions of dollars. They had to hire teams of compliance people, invest big time in technology, and still bare at risk of a sneaky gringo opening an account outside of their FACTA systems.
About 1/3rd of an offshore bank’s overhead is now dedicated to compliance. It’s killed their margins and pushed up costs.
And these are costs that US banks don’t need to pay. American banks don’t need to deal with FATCA or any of these offshore issues.
For these reasons, about 90% of foreign banks have closed their doors to Americans. If you have a US passport, green card, or spend significant time in the US, you’re not welcome in the majority of foreign banks.
Dan Wilhelm: Is it only US citizens with these offshore banking issues?
Christian Reeves: It all started with the United States, but it’s now spread around the globe like a virus. Most EU countries have a version of FATCA called the Common Reporting Standard. For more on these non-US compliance programs, see: Global Tax Transparency.
The same applies in China and throughout Asia. I just met with a Chinese FinTech company. Their credit card processing group spends ⅓ of its budget on compliance.
Dan Wilhelm: Are there some offshore banks out there that you recommend?
Christian Reeves: Yes, there are several banks we work with. As I said, if you have a few million bucks, and want an investment advisor to manage your cash, there are plenty of Swiss and EU private banks which will be happy to have you.
For the rest of us, there are a few offshore banks that specialize in smaller accounts. They charge higher fees to cover their compliance costs, so be ready! Don’t expect to get a free account or one with no monthly charges as you would in the US. Also, you ain’t going to get a free toaster when you open an offshore bank account!
For example, Caye Bank in Belize and Capital Security Bank in the Cook Islands both do a good job. Also, both allow you to open accounts by courrier. Caye’s minimum account size is $5,000 and CSB’s is $20,000.
Dan Wilhelm: Thanks for your time today Christian. We look forward to seeing you at our next event.
Christian Reeves: Thanks Dan, I’ll be there.