The cornerstone product offered by every offshore haven is a legal system that protects against unwanted and unauthorized disclosure of financial matters. Bank secrecy means that, by law, bank employees are prohibited from revealing information concerning a customer’s account. This prohibition is buttressed by criminal sanctions including fines and imprisonment.
The mutual goal of the financial institution and the government in the offshore jurisdiction is to protect the confidentiality of the customer’s business matters from third party inquiries. Foreign governments, creditors, spouses, and litigants cannot legally obtain information concerning the existence or activity of any account.
But as we have seen, with few exceptions, existing traditions of individual financial privacy in the Western democracies have yielded to the power of commercial interests, tax authorities, and litigants in a broad variety of civil matters. Most often, the bank acts on its own behalf to gather and distribute customer account information for marketing purposes.
Increasingly, the banks assume the role of agents for the government, collecting and feeding information on customers directly to the tax authorities. In Sweden, tax collectors have virtually unlimited access to all personal and financial information of account holders. French and British authorities have similar access, and banks must notify officials of the amount of interest earned on an account.
U.S. law requires that financial institutions provide the government with the names and Social Security numbers of account holders. The earnings on every account must be submitted, and copies of every transaction must be retained and made available to those with the proper legal authority.
A recently announced proposal by the Federal Deposit Insurance Corp. to “Know Your Customer” would require banks to set internal policies to verify customers’ identities and sources of income. They would also have to monitor accounts for evidence of “suspicious transactions” that might indicate illegal activities or money laundering. Under this proposal, any larger than usual cash withdrawal or deposit would obligate the bank to inquire about the use or source of the funds. Unless the customer provides a satisfactory explanation, the bank is required to alert law enforcement authorities.
European countries which have preserved or developed a tradition of bank secrecy include Austria, Switzerland, Liechtenstein, Luxembourg, the Channel Islands, and Gibraltar. In the Caribbean, the established havens are the Bahamas, Bermuda, and the Cayman Islands. Some of the newer entries such as the Cook Islands and Turks and Caicos now provide legitimate bank secrecy products.
It is advisable to be wary of those countries offering privacy services which have a significant level of political and social corruption. In certain countries, it is well-known among professionals, that for a modest bribe to the right person-a bank employee or government official-the purported secrecy would quickly evaporate. If there is any uncertainty on this issue, it is probably best to choose other available alternatives.
For more information see Article “Are Secret Accounts and Offshore Havens Gone for Good?” by Robert J. Mintz