Offshore Banking: Ethically Sinful or Economically Healthy?

As of late, bankers and financiers have been lambasted by the media as unethical and unpatriotic for stashing their money in offshore accounts. Even the term offshore banking evokes images of men in suits drinking champagne and eating fondue on Elysium – in which case it would be called extraterrestrial banking. Beginning with confidential financial services in the Channel Islands, eventually progressing to small nations in the Caribbean, and most recently on the coast of Africa, these offshore financial havens allowed individuals to evade high taxation and keep their banking history under wraps from government oversight. Hollywood and high-taxing governments have successfully created a negative stigma regarding offshore banking, making it appear as if the system is used only by criminals, drug dealers, unethical Wall Street drones, and sociopaths lacking basic human empathy. What kind of selfish monster would try and hide his money overseas so as to not pay for education for school children, unemployment benefits, or congressmen’s pensions?

Source: Cord Cardinal

The picture that has been painted for us is, in fact, far removed from reality. Offshore banking provides a plethora of benefits over typical banking. These include higher interest rates, the possibility of doing transactions in multiple currencies, access to otherwise unavailable overseas investments, and ease of conducting international business. Offshore bank accounts can be remarkably useful, but only if they are executed correctly. In an article published August 24th, the Globe and Mail recommends hiring an expert before setting up an account so the money does not get taxed twice and “just [to] make sure you’re upfront about it to keep the tax man happy.” The article also explains the steep penalties for not reporting income properly, with fines of up to $2500/year in the United States, not including interest. Caution and careful planning are crucial when setting up an account and deciding whether or not it is actually going to be a benefit or a liability. Forbes published an article last year explaining how “it’s considerably more difficult now than it was even a couple of years ago for Americans to open and access an offshore bank account. At least without renouncing American citizenship.”

Beyond what offshore banking provides for those who put their money in the bank, there are also benefits for the countries providing these services. According to The Economist, African countries like Gambia are becoming offshore financial centers because it and similar states have few other options for economic growth beyond tourism and peanuts.

Offshore banking has an undeserved reputation as unethical despite providing jobs for third world countries, facilitating international business, and maybe even inspiring Congress to rewrite the tax code.

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