Offshore Account

Holding an account abroad is legal and common. Exporters keep foreign currency, expatriates bank where they work, and investors use overseas markets. The account becomes a problem when it hides income or assets from the home tax authority or from creditors, or when it is used to move criminal money. Some offshore centres have offered low or zero tax, strict secrecy and easy company formation, which attracted that kind of use. Today, information exchange under the Common Reporting Standard and FATCA means that many offshore banks report their foreign customers to the customers' home authorities. Many countries also require residents to declare foreign accounts. Banks may rate customers with offshore links and no clear business reason as higher risk and ask for more evidence. Banks judge such accounts by purpose: a clear business reason is accepted, while an unexplained one invites enhanced checks.

A resident of Country A opens an account in a small financial centre and deposits a large sum without declaring it at home. The foreign bank reports the account under automatic exchange, and Country A's tax authority compares it with the resident's tax return and finds no matching income.