International Banking License

Since 2000, the number of countries offering offshore banking licenses has been declining steadily. As of 2006, there are seven jurisdictions remaining. Because the reputations of these countries' banking sectors is of great importance, the application and licensing process is long, arduous and costly. However, once approved, the benefits are significant and these high barriers to entry have resulted in limited competition.

The banking sector has always been perceived by the public, as well as by the business world, as a symbol of wealth and economic power. The same applies to offshore banks, which can be advantageously formed to legally save taxes and maintain earnings and profits in a low or zero tax jurisdiction.

Countries that offer offshore banking licenses include: Antigua, Belize, Cayman Islands, Cook Islands, Dominica, Panama, St. Vincent, Samoa and Vanuatu.

There are two basic types of banking licenses: 1) General licenses that allow you to conduct all types of banking business, commonly referred to as "Class A" and; 2) Restricted licenses which limit your business to those activities listed in your license.

Each country negotiates their 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 banking.

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 8 to 10 months and focuses heavily on the banking credentials of management. There are currently only 6 offshore banks in Belize and a new license is difficult to obtain.

The two most popular jurisdictions are Cayman Islands and Panama. Cayman Islands are a fully compliant country, which means it offers no privacy from US tax 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 license (called Class B in this country) requires a corporate net worth of only $400,000, and the license fee is only $70,000. The concern is the lack of privacy from US tax authorities.

Panama was the second most popular jurisdiction for Class A banks, with about 80 through 2006. However, it has not issued any new licenses in several months and many believe they will drastically rework their offshore banking laws. The strength of Panama is its location and privacy. Its weaknesses are the US$10,000,000 in corporate capital for a Class A or US$3,000,000 for a Class A Restricted and difficulties in newly licensed banks getting correspondent relationships. The restricted license is the most common in Panama, with only two unrestricted banks.

At the other end of the spectrum, Samoa offers a Class B2 license which is excellent for 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 other licenses that are excellent for start-up international banks…in fact, most banks 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.

NOTES: I generally recommend Vanuatu for smaller operations, with larger banks being formed in Cayman Islands.

The corporate capital discussed above is the minimum allowed by each government’s Banking Act. The final requirement may be significantly higher, depending on the intentions of the bank.

Also, the above discussion is focused on offshore banking centers and does not consider countries such as Switzerland. For reference, a Swiss bank would require at least CHF 15 millions capital, although the Swiss Banking Commission doesn't seem to give licenses to banks with less than CHF 30M (about $24M USD) in capital. Also, the board must be made up of a majority of Swiss citizens, separation of the CEO, CFO, compliance and other positions. With all positions filled, you probably have a staff of 20 in Switzerland before applying for the license.

Transferability

There are a number of scams on the internet concerning the sale of existing banking licenses. Banking licenses are not transferable without the written permission of the issuer's banking authority. While older licenses may have verbiage in them about transferability, the current law of the country has probably made that clause void. This means that the new owners must go through the same due diligence as the original owners.

Corresponding & Other Supporting Entities

Some clients simply need an offshore banking license. Others require a fully functional bank and look to me to make the bank work, in addition to forming the entity and securing the license.

The biggest hurtles an offshore bank faces is in its correspondent relationships and back office services. The structure I most commonly use to support an offshore bank is an aged Swiss Company (ie. a Swiss Corp formed in the 1980’s or later) that owns a Vanuatu or Cayman bank. Click here for more information on Swiss companies.

Because Switzerland taxes dividend distributions coming from the Swiss parent, you might utilize Danish or Panamanian financial services company for distributions. This eliminates dividend level withholding tax.

In this way, you can run the bank’s back office in Switzerland and pass profits from Cayman or Vanuatu to the parent. The relevant tax treaties provide for tax free distributions of dividends, thus you can run outbound payments through Denmark or Panama, negating the Swiss 35% withholding tax.

The Swiss Company manages the money of the offshore bank, accessing Swiss banking and currency programs without a Swiss correspondent account. For an offshore bank to qualify for a Swiss correspondent account, they must subject themselves to the same audit and compliance regulations as a fully licensed Swiss bank, which is very costly and time consuming.

Business Plan

The first step in securing a banking license is to develop a complete business plan. The plan should include the short and long term objectives of the business, three or five-year financial analysis, backgrounds of the principals, market analysis, money laundering prevention guidelines, etc., and will guide us through licensing and business development. The business plan is filed with the Central Bank in the country where the license is requested. As a part of the field work, I will travel to and meet with each of the bank's directors and beneficial owners. This is to ensure that everyone involved fully understands the scope and objectives of the project. Once the business plan is complete and agreed upon by the parties, we will select the best jurisdiction and license for your needs.