Offshore Bank Accounts

An offshore bank account is a depository account maintained at a bank outside the United States.

Offshore bank accounts are viewed by many as an exotic tool for privacy and tax avoidance—and only for the very wealthy. But actually an offshore bank account can be a useful tool for asset protection planning for people with even moderate wealth.

Some people with creditor concerns have significant amounts of cash held in banks or financial institutions. Bank accounts are an important focus of asset protection planning. A creditor that obtains a money judgment hopes to satisfy the judgment quickly, and seizing the judgment debtor’s liquid cash held in bank accounts is usually the first target. Garnishment is the collection tool available to creditors to seize a debtor’s bank accounts.

How Garnishments Normally Work

A creditor starts a garnishment by serving a writ of garnishment on the debtor’s bank causing the bank to freeze the debtor’s accounts. The debtor then has an opportunity to claim either that the money in the account is exempt from process or to challenge garnishment procedures.

A court will order the bank to pay the money in the account to the creditor up to the amount of the judgment unless the court finds that the debtor’s money is protected from garnishment.

What’s Different with an Offshore Bank Account?

Several Florida cases have held that a Florida court may issue a writ of garnishment only against banks located within the court’s geographical jurisdiction. Even U.S. banks located outside of Florida, with no branches in Florida, are not subject to writs of garnishment issued by a Florida court.

No Florida court has ever permitted a writ of garnishment of a foreign bank without branches anywhere in the United States. Offshore bank accounts provide asset protection because the banks have no branches within the United States subject to the jurisdiction of any U.S. state or federal court.

To garnish a debtor’s foreign financial account, a creditor would have to first domesticate the U.S. judgment in the foreign country where the account was opened. Then, then the creditor would have to hire a foreign attorney to enforce the newly domesticated judgment against the debtor’s foreign bank account. The process is possible if and when the United States has an agreement with a foreign country regarding reciprocity of judgments, but even then, the process is costly and complicated.

Many countries have no agreements with the U.S. regarding judgment reciprocity. These countries refuse to recognize U.S. judgments. These so-called asset protection countries are popular for offshore bank accounts. A creditor cannot use its U.S. judgment to garnish bank accounts in these asset protection countries.

Instead, the judgment creditor is required to start a new lawsuit in foreign courts under the country’s own laws and procedures in order to get a new judgment. Then the creditor with the new foreign judgment would have to find equitable remedies to prevent further movement of the money.

Can a U.S. Citizen Open an Offshore Bank Account?

In prior years, a U.S. citizen easily could open an offshore bank almost anywhere in the world. Swiss banks were popular because they kept confidential the names of their U.S. customers. Judgment debtors used offshore banks in asset protection countries to hide and defend money from U.S. civil judgments.

However, since 9/11 the United States government has made it much more difficult for U.S. citizens to open a foreign bank account. Swiss bank accounts are no long confidential and do not generally accept U.S. customers. Foreign countries now cooperate with the IRS to stop U.S. citizens from using foreign financial accounts to evade U.S. taxation. A U.S. citizen no longer easily open a personal account at a foreign bank in any country.

However, some foreign banks in countries known for asset protection still allow U.S. individuals to open bank accounts. These banks will typically hire a third party service, such as KROLL, to conduct a background check on the potential customer to make sure there is no criminal or negative banking history. The banks will seek to minimize risk during the onboarding process.

Offshore Banking Through Offshore Companies

In additional to a personal bank account, a U.S. citizen can indirectly deposit money in an offshore bank account though a foreign entity.

The individual first establishes an offshore legal entity such as a trust, LLC or corporation, and he appoints a non-U.S. citizen as an authorized agent of the entity, such as a trustee, LLC manager, or corporate officer. Then, the offshore entity opens a bank account in the entities name.

It may be easier for the offshore entity to open an account because the entity’s agent is not a U.S. citizen. The U.S. citizen can access the money by requesting the entity’s foreign agent to transfer money from the offshore account to the U.S. citizen’s domestic bank.

Is an Offshore Trust or LLC Better than an Offshore Bank Account?

Everything else being equal, assets in an offshore bank account owned by a foreign LLC or trust are generally more protected than they would be if the account was instead owned by the individual directly.

However, to obtain that added protection the individual open must give up the direct control over the funds that they would enjoy through direct ownership of the offshore account. Plus an offshore LLC or trust is significantly more expensive to set up and maintain.

How to Open an Offshore Bank Account

To open an offshore bank account for asset protection, a U.S. person should:

1. Locate a bank in a jurisdiction that opens accounts for U.S. individuals.
2. Review the jurisdiction’s laws to determine if they would thwart collection from a U.S. judgment creditor.
3. Determine the bank’s fee structure to make sure it is economical to open an account at the bank.
4. Assess comfort level with the bank’s accessibility, including online banking, wiring, and EFT procedures.
5. Complete the bank’s application, including all of the bank’s due diligence requirements.
6. Once approved, transfer funds to the offshore account using one of the bank’s approved methods.

If you would like help locating a suitable offshore bank for asset protection, please contact us.

FAQs about Offshore Bank Accounts

Last updated on July 16, 2021