If you are considering forming an offshore bank or filing for an offshore banking license, you need to be ready for a lot of red tape, a significant vetting process, and to maintain a sizable deposit with the central bank (your corporate capital).
These days, countries are very cautious when issuing an offshore banking license. If any bank fails in a small country, it can result in a loss of confidence in the entire system. Maybe more important these days, no nation can risk the wrath of the US.
In fact, I regularly tell people that the good old days of offshore banking are dead and gone. This is because you may need to file for a fully licensed bank, and not just an internationally licensed offshore bank. For the differences in an offshore banking license and a fully licensed bank, please check out my article: Offshore Bank Licenses go the Way of the Dodo
I would also like to point out that you will need a complete business plan with 3 to 5 years financials / projections, a quality operations team and an experienced board of directors with a few locals, compliance and risk management materials, and other items before beginning the application process. If you have these things, you are ready to select a jurisdiction. If not, I can assist you to create them.
With that said, if you want to form an offshore bank or secure an offshore banking license, then here is how it is done.
- Throughout this article I will use offshore banking and offshore banking license in their general sense, which is as a license from any “offshore” jurisdiction.
There are a number of countries that offer offshore banking licenses. They include:
- Antigua,
- Belize,
- Cayman Islands,
- Cook Islands,
- Dominica,
- Panama,
- St. Vincent,
- Samoa and
- Vanuatu
Types of Offshore Banking Licenses
There are two classes of offshore banking license: 1) a general license which allows you to conduct all types of banking business, including with local businesses and individuals, commonly referred to Class A license, and 2) a restricted license which limits your business to those activities listed in your license.
The restricted license is what most think of when they talk about an offshore banking license. It is limited to conducting business with people and companies outside of your country of licensure and is (was) easier and cheaper to obtain. It is this license which has “gone the way of the dodo” in most countries.
In some countries, you can make simplify the application process by adding more limitations to your license. For example, if you want to issue credit cards, then you might exclude all other types of banking business in your license.
Where to get an Offshore Banking License
It is very important you apply for a license in a country that is likely to approve your request. Local knowledge and experience can save you a year of wasted time and money.
Each country negotiates offshore banking licenses differently, annual fees range from $9,000 to $500,000, and the paid in capital varies from $150,000 to $10,000,000. The current needs and long term plans of your business will determine which jurisdiction and license is right for you. There is no “one size fits all” in the complex world of offshore bank licensing.
For example, Belize is a good location for a full service bank focused on US$ transactions because of its currency, proximity to the US and Mexico, and its $500,000 capital requirement for an unrestricted international bank. However, this process can take 6 to 12 months and they focus heavily on the banking credentials of management. There are currently seven Class B offshore banks in Belize.
Contrary my other article, it may be possible to obtain an international banking license / class B license from Belize. Such an application would need to be from respected parties with a solid business plan, and then, and only then, would the application be considered.
The two most popular offshore banking jurisdictions are Cayman Islands and Panama. Cayman Islands and Panama are both fully US compliant countries, which means they offers no privacy from US government authorities.
There are about 70,000 companies registered in Cayman, along with 350 banks and 700 insurance companies. There is over US $1 Trillion in assets in Cayman banks. The strength of Cayman is the strong financial services available within a zero tax jurisdiction, world market acceptance and trust, an unrestricted offshore banking license requires a corporate net worth of only $400,000, and the license fee is $70,000.
Panama is the most popular jurisdiction in Latin America with about 40 fully licensed banks and about 30 banks holding international licenses. The strength of Panama is its location and that most transactions are in United States dollars. Minimum corporate capital for a Class A bank is US$10,000,000 and US$3,000,000 for a Class B offshore bank license.
- These are the minimums allowed by law. It is common for the banking commission to require higher levels of capital based on the business model prior to granting a license.
NOTE: Cayman and Panama only issue international licenses to banks that have a fully regulated Class A banking license in another major jurisdiction. That means that you must have a license from another respected country before you can apply for an international banking license in these countries. A new business is thus required to file for a Class A license and put up at least $10M in cash.
At the other end of the spectrum, Samoa offers a Class B2 license which is intended to facilitate lending and related activities within a controlled group of companies. With this license, each account holder must be listed in the bank’s license and the bank cannot market to the general public. Paid in capital is only $250,000. Samoa also offers licenses that are compatible with start-up international banks…in fact,
several banks that were licensed in the Cook Islands have now moved to Samoa.
Finally, Vanuatu offer a full service offshore banking license and an efficient application process with corporate capital of at least $500,000. An approved bank may offer checking accounts and credit cards, and is guaranteed tax free status. Annual government fees are currently US$10,750.
NOTE: Corporate capital requirements discussed above are the minimum allowed by each government’s Banking Act. The final requirement may be significantly higher, depending on the business model of the bank.
New Zealand Financial Services Company
If a fully licensed bank is not in the budget, or a 6 to 12 month wait is not practical, you might consider a New Zealand Financial Services Company.
Compared to a fully licensed offshore bank, the NZFSC is quick to setup, not regulated by a government agency, no corporate capital is required, no business plan or other analysis is required, and the startup costs are comparatively small.
The cost of a New Zealand Financial Services Company is about $67,500. Setting up correspondent accounts at traditional institutions, such as ANZ, Bank of New Zealand, and HSBC is not included.
A New Zealand Financial Services Company may engage in the following businesses, but may not use the word “Bank” in its name.
- Deposit taking & lending
- Debit and credit services
- Issuing of financial guarantees and instruments
- Cash Management
- Current Accounts
- Term Deposits
- Issuing of CDs
- Wire transfer services
- Fund management
- Marketing of investments
The NZFC is the most cost effective solution because there is no government licensing or oversight required and no minimum corporate capital. This is also why it can be difficult to operate. It is a challenge to obtain correspondent accounts, SWIFT access, and other back office facilities without the trappings of a bank. For this reason, I suggest a NZFSC must be operated like a bank, where you are free to select and modify levels of corporate capital, compliance, etc.
Please note that New Zealand is not a tax free jurisdiction. Careful planning is required to reduce or eliminate the 33% corporate tax and 2% tax on interest paid to your customers. For example, New Zealand can be the country of licensure and the business can be managed from Panama. Panama will not tax the international profits, and New Zealand source income will be minimized.
Correspondent Accounts & Other Supporting Entities
The biggest hurtles offshore banks face are in its correspondent relationships and back office services. If you wish to process transactions in US dollars, you must have a correspondent account with a US bank. To have such an account, you must buy in to the US regulatory system and agree to provide information on your clients under FACTA. US correspondents take these requirements very seriously and require maximum due diligence and compliance from their customers. Should you fail to know and disclose your clients, the correspondent bank has significant liability to the US.
Correspondent accounts are required for efficient operations. Therefore, securing and maintaining these “partnerships” for an offshore bank is a major undertaking. Once you have your offshore banking license, we can assist you in finding and negotiating correspondent accounts, back office services, and any other transactional support required.
The Bottom Line of Offshore Banking Licenses
Based on my experience, I have found that preferred country in which to form an offshore bank is Belize, the most respected is Panama, and the least expensive is Vanuatu. Both Panama and Belize banks offer a full slate of services, and banks in Vanuatu are more commonly utilized by “captives.”
I have many years of experience in both Belize and Panama and regularly work with new businesses looking to enter these markets.
You will find that the time required and total costs associated with operating a NZFC are far less than those of forming a fully licensed bank. However, the NZFC has very specific uses, while a bank can engage in any banking activity permitted under the license as negotiated.
I hope this information is helpful. Feel free to contact me with any questions. My direct email is info@premieroffshore.com or phone me at 619-564-4062. I offer a free and confidential consultation for those looking to setup an offshore bank or secure and offshore banking license.
My services include writing the business plan, negotiating and acquiring the license, and then building any necessary correspondent accounts. If you require qualified board members, or other associates, I have excellent contacts in both Panama and Belize.