Why Should Offshore Banking Be Made Illegal?

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Offshore Banking

Offshore banking refers to the practice of having a bank account in a foreign country. Offshore banking occurs, for example, where an American citizen residing in the United States maintains a bank account in Canada. Offshore centers are countries that allow off-shore banking. Offshore banking is often synonymous with wealthy individuals who need to conduct financial activities outside of their home countries in order to conceal their money from their mother country, and it is often considered to be a method of tax evasion. To be specific, many of those people who operate offshore bank accounts usually evade tax on their wealth as there is no they have no money in their countries for its to be taxed (Parker, n.d.).

Problems with Offshore Banking

Although offshore banking may have several flaws in maintaining the integrity in the financial sector, it may also have some positive impacts such as setting competition among local financial service providers and including banks (Rose and Spiegel, 1312). However, the problems associated with offshore banking are more compared to their advantages. Problems such as money laundry that is more associated with offshore banking make the idea of offshore banking practice that may be fatal to many economies of the world. This paper argues why offshore banking should be outlawed.

Impact on Illegal Activities

The occurrence of the large-scale money laundry that took place in 2009 in Swiss is a clear indication of the harboring nature of offshore banking (Young, 1). Due to the differences in the legislations that govern the banking sectors of different countries, some countries especially those that act as offshore centers do not advocate for the confiscation of money in bank accounts of people with questionable characters. In cases where serious financial frauds have taken place, it becomes difficult for a single government to handle the confiscation process because of lack of jurisdiction in a foreign country. Such instances hinder the control of illegal activities including the funding of terrorism. The ability of people moving their money into foreign countries gives room for illegal dealings that can cause irreversible harm to individuals and the economy.

Effect on National Economies

The idea of people keeping the money in foreign countries denies their mother countries the tax and financial money for normal financial service provisions. When people send money to foreign countries, they deprive their mother countries the basic monetary flow in their countries. If the rich people can decide to keep their money in offshore centers, then it means that the country will suffer from the lack of cash flows among the people and this may lead to an economic depression. Many people also take advantage of the tax-free offers in foreign countries to evade tax through offshore banking. When a large number of people decide to evade tax through offshore banking, then it means that their countries will lose tax and may impact on the country’s GDP in the long run.

Loopholes and Fraudulent Activities

Offshore banking provides loopholes through which bandits in corrupt countries use for money laundry. Many countries with a high level of corruption index have lost money through offshore banking. Such cases are common in developing countries, especially in Africa. Countries in this continent have witnessed the loss of public funds which are stolen by public leaders and transferred to foreign bank accounts. In most cases, the amounts of money transacted through offshore banking are usually huge, and if they are probably stolen from the public funds kit, they usually cause substantial impacts to the economies from which they are stolen.

Insufficient Regulations

Some offshore centers do not have strict rules that regulate offshore banking, and hence they create loopholes through which fraudulent activities take place with a lot of easy. Lack of strict restrictions in the banking sector is very dangerous, and it is the source of money channeling to illegal groups including terrorism groups. Such cases created by offshore banking activities can be avoided completely if offshore banking is outlawed. Some countries that allow offshore banking create unhealthy competition to countries that have outlawed offshore banking. Offshore centers create incentives to lure people to bank with them. As people, get aggrieved with the higher interest rates offered in offshore centers, they shift from their banks in their countries to go and in offshore banks.

Inadequate Confidentiality

Using an example of Cayman Island with a strong confidentiality law in banking, (Young, 7) explains how offshore centers only have these laws as a superficial commitment. The laws are only meant to suit such states in fitting to the international legislations on money laundry, but there is a very little commitment by these states to ensure the confidentiality in their banking laws to benefit their financial sectors as well as the entire economy. There is a lot of secrecy surrounding the issue of offshore banking in most of the offshore centers. Such centers only have the international legislations on money laundry, but in the real sense, the laws are not used at all in such states.

Encouragement of Illegal Activities

Offshore banking is used by offshore centers to grow their economies and in return encourage illegal activities mainly money laundry although indirectly (Alba, 28). Despite the fact that there are international legislations on money laundry to prevent such activities, offshore centers are not doing enough to prevent such cases from happening. They only have these laws to shield themselves from economic sanctions that may befall them for the failure of having these laws. From the discussed points in this paper, it is clear why offshore banking should be outlawed.

Works Cited

Alba, Ricardo M. "Fraud Control In Offshore Banking Centres." Amicus Curiae, vol 1999, no. 20, 2012, School Of Advanced Study, doi:10.14296/ac.v1999i20.1447.

Parker, Tim. "Offshore Banking Isn’T Illegal. Hiding It Is". Investopedia, 2017, http://www.investopedia.com/articles/managing-wealth/042916/offshore-banking-isnt-illegal-hiding-it.asp.

Rose, Andrew K., and Mark M. Spiegel. "Offshore Financial Centres: Parasites Or Symbionts?". The Economic Journal, vol 117, no. 523, 2007, pp. 1310-1335. Wiley-Blackwell, doi:10.1111/j.1468-0297.2007.02084.x.

Young, Mary Alice. Banking Secrecy And Offshore Financial Centers. 1st ed., New York, Routledge, 2013,

January 25, 2023

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