Data Protection and Offshore Banking

Ankita Tiwari

27 Mar, 2023

The demand for offshore banking has increased over the past couple of years. With the increase in inter-relatedness between politics and the economy, investors are inclining more towards offshore banking. Offshore bank account is easy to open and the consumer can easily access the account online making it a favorable choice for individuals looking for a wealth management strategy. However, the risk of a data breach is the reason which might prevent individuals from engaging in offshore banking. Some offshore jurisdictions provide flexible regulations for opening an account in their country. It might look complicated but it offers advantages over the domestic banking system. This blog discusses how an individual can invest in offshore banks to ensure data protection.

What is offshore banking?

This is banking in a depository institution located outside of the country of residence of the depositor. Earlier offshore banking was limited only to small nations like Belize, the Cayman Islands, and Cyprus however, now some of the major countries like China and European nations like Switzerland and Netherlands also provide offshore banking. Even though each of the countries providing offshore banking has its own regulations governing the operation of banks but in the end, they tend to accomplish similar objectives. The regulations of these countries help ensure the data protection of their customers and the safety and security of the bank. These offshore banks also have a separate due diligence system that keeps an eye on people with illicit motives.

What are the reasons for offshore banking?

• This banking comes with many benefits and one of the major benefits of offshore banking is data protection which other countries generally do not provide. In other countries, some laws make the identity of bank account holders very easy to locate. Such as the United States which has laws like the US Bank Secrecy Act of 1970^[1] and the USA Patriot Act. India has Information Technology Act and Rules framed thereunder which allow the data collector to collect financial information such as bank accounts, credit or debit cards, or details of other payment instruments. Even though there are certain laws on banking secrecy ensuring data protection but the collection of data by the government authorities in India might be sufficient to disregard the privacy of the account holders. Whereas offshore banking regulations hold the privacy of their account holders in the highest regard and these jurisdictions are under no obligation to provide information on the account holders to any third party. However, instances of serious criminal matters such as terrorism, smuggling, and money laundering are exceptions to not providing any information to the third party. Offshore banking jurisdictions have legislation that mandates the privacy and confidentiality of account holders and protects the assets of individuals from civil litigation.
• Not just data protection, offshore banks also protect from lawsuits. Placing assets in offshore bank accounts protect the assets from frivolous lawsuits as it becomes difficult to bring a lawsuit against an asset when it is not in the same jurisdiction as that of an individual’s residence. Further the privacy laws of these offshore banking jurisdictions are very strict which discourages many lawyers from pursuing a lawsuit against a person having an offshore banking account.
• This provides the freedom of engaging in wealth management services. Less government intervention in banking affairs significantly affects the investment opportunities available to offshore banks and their clients. International funds can be utilized to receive better exchange rates. It makes it easier to invest in emerging markets and developing countries and receive a better return as compared to what they would receive domestically. Offshore banks also provide certain other additional investment and business opportunities such as holding a stock market portfolio, etc. Sometimes they also offer favorable interest rates to their account holders.
• The offshore bank accounts are generally numbered accounts keeping the individual or the corporate structure behind it completely anonymous. These accounts only display a unique code or number for identification purposes and no details of the account holder. Offshore banks not only have a limited exchange of information with foreign governments but also with local governments.

How to invest in offshore banking?

1. Data protection in offshore banking begins with the individual itself
   The individual accessing his offshore finances from an unsecured gadget can be the cause of his inconvenience. For computerized banking, the individual must ensure that the PC or cell phone being used should have a refreshed antivirus program to shield the banking activity from viruses and hackers. This banking should never be done from a public gadget or wifi association. Doing so puts sensitive data in danger. Strong passwords should be used to secure data while appreciating the perks of offshore banking.
2. Get a hold of the offshore Jurisdiction’s Regulations
   Analyzing the regulations and compliance to see if banks are urged to provide information to governments or ensure account holders’ privacy. For instance, the EU General Data Protection Regulation (GDPR) provides a significant level of safety to the information of individuals. While conducting research, an individual should remember information security as not all offshore banking jurisdictions provide the same level of safety.

Who can do Offshore Banking?

It is a myth that only wealthy individuals can avail the benefit of offshore banking. The benefits of data protection, asset protection, and flexibility in offshore banking are available to every person whether juristic or natural, who wants to avail themself of lucrative investment opportunities in foreign markets.

How do offshore banks ensure Data Protection?

Individuals investing in offshore banks must need to know how banks handle information at their end. All banks might not deal with the information in the same way. So individuals must analyze the bank’s information practices. An offshore bank might be providing several benefits but if an individual’s data is at stake then it might not be a lucrative option to invest in that particular offshore bank. On the other hand, data protection is not the only reason to protect wealth and data, other factors must be considered while choosing the correct bank.

• First, the individual must verify if the offshore bank follows a two-factor confirmation step.
• A second layer of security can be added at the time of signing in. The second layer of security can be in the form of a security test. This two-factor verification provides greater security than just one-step confirmation.
• The third security step can be to sign up for notification from an offshore bank. This simple step can ensure that all alerts relating to the transactions are directed to the individual. This step will enable the individual to act faster and get a quick result if any information is leaked.

Conclusion

The Covid-19 pandemic has completely altered consumer demands. This banking is experiencing ever-increasing demand from several individuals willing to opt for a safe spot to secure their assets while obtaining various benefits at the same time. Offshore banking allows individuals to take benefit of lower taxes and high levels of data security. This banking can be an absolute safe spot for assets and for obtaining wealth management strategies, an individual should always be alert while banking on the web.

Also Read:
Offshore and Onshore Company: A Detailed Comparison
Opening a Bank Account outside India under FEMA Rules
The Digital Personal Data Protection Bill, 2022: An Overview