The following is my answer to a Quora
question: “Why
has offshore banking been associated with criminal activities and money
laundering?”
Offshore banking is simply having
transactions and accounts in a bank that regulated under an international
banking license, an offshore banking license, as opposed to a local license. The terms of the off offshore banking license
prohibit the bank from establishing any business activities in the jurisdiction
of establishment so as not to compete against local banks.
Offshore banking has less regulation and
transparency, and this makes it attractive to funds of dubious origin. As such, it is a magnet for money laundering. Accounts with offshore banks are often used to
for tax evasion. Aside from this,
offshore banks have a lot of legitimate business. There is greater privacy and discretion, fund
transfers tend to be easier, it is a legitimate means of tax avoidance, and
most importantly, offshore banking protects your funds from political
instability in the more challenging parts of the world. It is that last reason why we have offshore
banking in many financial centres.
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