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Offshore Banking facilities and operational Procedure 

Offshore Banking facilities is a business process from one country to another. An offshore bank is a financial institution located in a country in which typically accepts depositor funds from non-residents. Offshore banks are typically located in a low tax jurisdiction, also known as a ‘tax haven’, that often provides legal or fiscal advantages. These advantages typically include:

1. Greater privacy

2. Low or no taxation (i.e. tax havens)

3. Easy access to deposits (at least in terms of regulation)

4. Protection against local political or financial instability

Origins of Offshore Banking

The term offshore bank may have originated from the United Kingdom’s Channel Islands, which are “offshore” from Great Britain. Major offshore banking operations: Bahamas, Bahrain, The Cayman Islands, Hong Kong, Netherlands, Panama & Singapore.

Definition of ‘Offshore Banking Unit

Offshore banking units (OBUs) deploy funds/invest in foreign currency when they accept deposits from foreign banks and other OBUs. OBUs’ activities are not restricted by local monetary authorities or governments, but they are prohibited from accepting domestic deposits.

Types of Offshore Banking :

  1. Paper Center : A paper center normally serves as a location of record.
  2. Functional Center : A functional center mobilize resources, arrange loans and switch currencies (if necessary).

Offshore Banking facilities

.   1. Free or concessional rates of taxes and levies.

      2.  Freedom from the central bank control on interest rates and other credit  control features.

      3.   Exemption from the minimum reserve requirements.

      4.   Obtaining license is easier and license fees are generally low or exempted.

 Benefits of offshore banking

  1. Offshore banking services provide wide range of benefits and opens up distinct opportunities.

2. Opening such an account provides a powerful tool for keeping money secure and making it exempted from taxes.

  3. Using an offshore bank account provides opportunities that are not available to domestic banking users.

4. Income generated in form of interest on deposits is not taxed by the income tax.

5. Customers also get the possibility to invest globally.

Functions of an Offshore Bank

   1. Deposit-taking
    2.  Investment
    3.  Wire- and electronic funds transfers  
4. Discounting of export bills.
5. Foreign exchange
    6. Letters of credit and trade finance
    7  Investment management and investment custody
    8   Fund management
    9   Trustee services
   10  Corporate administration

Not every bank provides each service. Banks tend to polarize between retail services and private banking services. Retail services tend to be low-cost and undifferentiated, whereas private banking services tend to bring a personalized suite of services to the client.

Off -Shore Banking Units in Bangladesh:

Foreign investors do not have the opportunity of availing credit facilities from the Different Financial Institutions (DFI) of Bangladesh.

In order to cater the need of financial support, off-shore Banking facilities is being provided to the foreign-owned/ Join Venture/local owned unit in the EPZ’s of Bangladesh. Woori Bank and Standard Chartered Bank started first off-shore banking units in the country in 1996. Presently 07 nos of Foreign Banks & 25 nos of Private Commercial Banks in Bangladesh have been licentiate for doing offshore banking operations.

Offshore Banking facilities Operational Procedure 

In 1985 the establishment of OBUs in Bangladesh has been allowed to serve industrial enterprises operating in the EPZ. The following major provisions as per the circular letter No. BCD (P) 744(27) of December 1985 of Banking Control Department.

  1. The OBUs will operate through completely separate counters and maintain its own accounts relating to off-shore banking business separately.
  2. The operations of the Offshore Banking facilities Units shall be subject to the relevant laws of Bangladesh except those in respect of which exemptions are provided.
  3. Any bank willing to operate an OBU in Bangladesh will have to obtain license from Bangladesh Bank. The bank applying for license for offshore banking unit must have well-established links with important international financial centers.

a. The OBUs will be free to accept deposits from or to borrow from persons/institutions not resident in Bangladesh including Bangladeshi Nationals working abroad.

b.  The OBUs will also be free to accept deposits from or to borrow from Type-A (wholly   foreign-owned)  and from Type B (foreign portion) units in the Export Processing Zones in Bangladesh.

c. The OBUs shall not accept deposits from persons/institutions resident in Bangladesh including Type-B (Joint Venture- local portion) and Type-C (Wholly local owned) units in the Export Processing Zones in Bangladesh.

  1. There will be no statutory capital and reserve of liquidity requirement for an OBU. It will, however, be required to furnish to the Bangladesh Bank an assurance from its head office that it will maintain a sound liquidity position at all times and that the Head office will assist the OBU with funds whenever required.
  2. The OBUs shall carry on transactions in freely convertible specified foreign currencies i.e. US Dollar, Euro, Pound Sterling, Japanese Yen, Swiss Franc, Canadian Dollar, Swedish Croner, Singapore Dollar and South Korean Won.
  3.  The OBUs shall be free to make loans/advances to persons institutions not resident in Bangladesh and also to make loans/advances to Type-A (wholly foreign owned) units in the Export Processing Zones in Bangladesh. The effective rate of profit should not exceed LIBOR*+4%.
  4. Banks functioning in Bangladesh may also maintain correspondent relation with OBUs in the manner they maintain such accounts with their foreign correspondents.
  5. The OBUs will submit reports/returns to Bangladesh Bank as and when asked for. The books and records of OBUs shall have to be kept ready for inspection at any time by Bangladesh Bank.
  6. The OBUs will be free to take out insurance abroad and not be subject to local insurance laws.
  7. The OBUs, regardless of its locations in Bangladesh, would get coverage under EPZ act, 1980.
  8. Date of Commencement of the OBUs operation should be communicated to the Bangladesh Bank within 7(Seven) days of such commencement.
  9. The operations of Offshore Banking facilities shall not be closed without prior permission of the Bangladesh Bank.

Who can open Offshore account?

  1. Any non-resident individual or institutions.
  2. Type A, B & C units of EPZ.
  3. Foreign expertise individual / institution working/operating in Bangladesh.

How to open and operate an Offshore Bank account :

Each offshore bank and foreign jurisdiction has its own requirements. The following is an overview of the requirements to open an offshore bank account.

The Basic Requirements Offshore Banking facilities :

The basics of opening an offshore bank account are similar to opening a bank account in your home country. Offshore banks will ask for personal information, such as name, date of birth, address, citizenship, and occupation.

To verify personal information, applicant has to submit a copy of passport, driver’s license, or other identifying documents issued by a governmental agency. Additionally, banks are concerned with verifying the residence or physical address of the applicant since this may affect taxation issues. This requirement may be satisfied by presenting a utility bill or similar documents.

Additional Verification Documents Offshore Banking facilities :

1. Financial reference documents from applicants’ current bank i.e., bank statements for the last six to 12 months. 
2. Nature of transactions expected to take place through the account.
3. Source of fund.

Depositing to an Offshore Bank Account :

Offshore bank accounts are most often funded electronically through international wire transfers. One can deposit in offshore bank account easily through electronic wire transfers.

Withdrawing from an Offshore Bank Account :

Many offshore banks issue a normal debit/ATM card that allows customer an easy access and withdrawal of funds worldwide.

Some offshore banks offer checks. However, this is usually not a preferred method of withdrawing funds.

The best option may be to use two accounts: one offshore, one domestic. In this way, electronic wire transfers can be used to transfer larger amounts of offshore funds to a domestic account where they can be easily accessed.

Prospects of off shore Banking in Bangladesh:

Rising reserve and remittance encouraged local banks to peg offshore banking business, once dominated by a few foreign banks.Regulatory body Bangladesh Bank believes that allowing more offshore banking will help utilize the huge foreign currency reserves and increase competition among players.

Scope of Off Shore Islamic Banking:

Offshore Islamic banking solutions including deposits, financing, trade financing and other banking services to cater to the needs of both Muslim and non-Muslim communities.

Offshore Banking fundamentals Operating under strict confidentiality and protecting the secrecy of each client’s business affairs and transactions Islamic banks may offer the following range of Offshore Islamic Banking services:

Deposits

1.   Al Wadiah Demand Call Account (AWDCA)

2.  International Mudharabah Investment

Financing

1.   Murabahah (Cost-Plus Financing)

2.   Ijarah Financing (Leasing)

Trade financing

1.   Wakalah Bills for Collection (WBC)

2.   Letter of Credit Wakalah / Murabahah (LCW/M)

3.   Murabahah Trust Receipt (MTR)

4.   Bank Guarantee (BG)

Banking services Offshore Banking facilities

1.   Global electronic wire transfers

2.   Foreign exchange operations

3.   Other banking services

Shariah Compliance

Offshore Banking fundamentals that undertake Islamic banking and offshore financial business are required to :

i. Establish a Shariah Supervisory Council (SSC) or engage the services of an existing SSC available in the market to ensure that the products and services offered are Shariah compliant;

ii.To channel all funds pooled in the Islamic banking and investment portfolio into Shariah-compliant activities; and

Conclusion Offshore Banking facilities :

Inadequate infrastructure, inefficient and dilatory bureaucracy and out dated legal system cannot attract offshore funds. Bangladesh needs to address these issues seriously paying the way for entry of offshore funds to fulfill its policy of attracting foreign investment

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