What Is an Offshore Banking Unit?
An offshore banking unit (OBU) is a branch of a multi-national bank located in a financial center away from its home country. OBUs cannot accept deposits from the people of that country, only from other banks and OBUs.
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Locations
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Offshore banking units are typically located in major offshore financial centers. Hong Kong, Singapore, the Cayman Islands and Panama are favored by U.S banks due to their regulatory concessions and tax laws.
History
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The 1970s saw the rapid growth of OBUs. According to Capital Conservator, the 1980s saw some units experience 20 percent growth per year. Private investors also began to use OBUs in greater numbers to benefit from increased privacy and the ability to receive gross interest.
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Restrictions
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Government administrations have sought to stop tax avoidance by restricting OBUs over the last decade. According to Capital Conservator , when the government wants access to offshore accounts they suspect contain "dirty money," they put pressure on the home branch of the bank until it reveals the supposedly confidential information. The opposite can also occur. For example, the Swiss Bank UBS was forced to pay a fine and reveal confidential account information supposedly protected by Swiss bank secrecy, because it had branches in the US which authorities could threaten with legal action.
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References
- Photo Credit bank image by Pefkos from Fotolia.com
