The offshore financial sector is believed to have started in Vienna, Austria over 200 years ago in 1815 when Switzerland declared its neutrality during the Vienna Congress.
An offshore financial centre is not always actually offshore and is actually defined as a country or jurisdiction that provides financial services to non-residents on a scale that is bigger than the size and financing of its domestic economy. The use of the word “offshore” does not refer to the actual location of the entity, but rather the fact that the owners are offshore, as in located in another jurisdiction. Despite the concept being born in the 1800s, the term “offshore financial sector” was first noted in academic papers in the late 1970s and referred to cities or countries that have made significant efforts to attract non-resident foreign currency denominated businesses.
The concept for offshore banking came from the need for businesses and individuals to find a way to ensure privacy and security for wealth and assets. During post-Napoleon Europe, merchants and wealthy dynasties wanted a way to protect their growing assets during a time when Europe was in the grips of political strife and economic turmoil. As these individuals became more wealthy, taxation increased as well and kings, governments and empires often increased taxes without providing much notice or added value such as security. These exorbitant rates of taxes, combined with societal insecurity forced the wealthy to seek places abroad that could safeguard their fortunes.
By the 1850’s, banks in Northern France had started inviting the elite to deposit their wealth in local banks, promising lower taxation, asset protection, and higher levels of banking confidence. In due course, offshore banking became more widespread and every royal, elite, and industrialist from London to Ljubljana was opening accounts.
Since the days of the first offshore banks in Vienna, Switzerland, Northern France, institutions modelled on these foundations have managed to keep up an impressive standard of protecting investors wealth from unreasonable financial laws and scrutiny. As time passed, smaller countries often with limited economic opportunities sought to tap the revenue on offer.
By the beginning of the 20th century, offshore banking spread throughout the rest of the world as more and more institutions sought out politically stable and economically sound locations. This form of banking became very popular with businesses and corporations and hundreds of offshore banks sprung up, all offering unmatched benefits and advantages over traditional types of accounts. As competition between jurisdictions increased, requirements relaxed and services became more and more accessible to those that needed them.
In 1934, the country introduced its Swiss Banking Act which made it illegal for banks to provide any personal information about account holders and their accounts to the authorities of any country, unless under extremely rare circumstances. Around the same time, the UK introduced similar laws as well as setting precedence allowing companies registered in the UK, but with headquarters abroad, not to pay tax to the government. Today, whilst restrictions are tighter, both Switzerland and the UK remain popular offshore choices.
In the Caribbean, offshore banking really took off after WWI, due in part to its close proximity to the United States. Following the war, industrialists, plantation owners, and stock market traders were enticed to the growing Caribbean banking sector as it offered a more convenient solution than competing jurisdictions in Europe.
Around the time that the offshore banking industry started to establish, many of the Caribbean nations that were previously under British rule, became liberated. Offshore banking presented an easy yet powerful way to profit from the booming business environment in the US. As the world healed after WWI, wealthy individuals looked for ways to protect themselves from any future catastrophes. Many European banks opened up branches in these new jurisdictions, ready to offer services to American millionaires.
After the Second World War, the development of transportation, finance, trade, and of course, prevailing peace helped the global economy get back on its feet. Then in 1957, the Bank of England created an informal allowance for UK-based banks to partake in unregulated deals with non-UK clients, as long as transactions were in foreign currency.
UK banks forged relationships with banks in former British colonies and were able to easily and legally make financial transactions that did not need to be made public or open to scrutiny. It was then that offshore banks took off.
According to Bloomberg, 30% of the 200 richest people on the planet have their wealth either in, or through an offshore entity. Whilst Switzerland remains the world’s most famous, and popular offshore jurisdiction, there are a growing number of other options that provide comparable confidentiality and financially beneficial conditions.
Jurisdictions like Panama, the British Virgin Islands, Cayman Islands, the Marshall Islands, and Seychelles offer a wide range of offshore products including companies, bank accounts, and foundations. These products can service a wide range of functions and needs, bringing the ultimate beneficial owner a number of fiscal, business, and financial benefits. If you are interested in conducting business in, from, or with an offshore jurisdiction, you can benefit from our over 21 years of experience by contacting Fast Offshore today.