Demystifying Offshore Banking⏤ what it is, the benefits and what you need to look out for 

The other Friday (3^rd March 2023), I had a meeting with some two gentlemen from a UAE and Indian-based wealth management firm. This was at the Nsambya-based Mestil Hotel. 

Apparently, they had come for a private banking conference (they’re wealth managers), to meet potential clients – investors or High Net Worth Individuals (HNWIs) to invest for them their money outside Uganda in what can be called offshore investment management or commonly known as offshore banking.

This particular meeting was given to me courtesy of another Dubai/UAE-based banker who also runs a consulting firm in the Middle East; doing business/company incorporation, bank account opening, and offshore wealth management for individuals and entities intending to operate in UAE. 

His company is also into management consulting. He forwarded the contacts to me instructing me to meet the two gentlemen here in Uganda. Of course, I grabbed the opportunity. We talked, among other things, about partnerships, business consulting and wealth management, and investing. 

It was their second time in Uganda. The first time they came to Jinja, the source of the Nile – and from the smile on their faces, they loved the visit. So all you tour company owners reading this, you know the first spot for your clients. 

In 2020, upon having a virtual meeting with the Dubai consultant, I was slated to appear on a morning talk show on Fat Boy’s internet radio, Reckless Radio aka RX Radio with Crystal, courtesy of Nicholas Asingwire (formerly at Sauti Tech). Unfortunately, it never materialised, but there is always a ‘next time’. 

I was to talk about offshore banking or investing in offshore bank accounts (for a Ugandan), what it is, what’s involved, and the general landscape. But I guess the Mestil meeting gave me something more I can talk home about, and probably aspire for a talk on a radio show – for real!

Offshore Banking; what it is and the landscape

Offshore banking is the economic activity of having or opening up a bank account outside your country of citizenship or residence for the purpose of investing wealth or money or (legally, ‘hiding your wealth’ or diversifying your portfolio (list of investments). 

This is common through international banks. Generally, having an offshore bank account has negative connotations, so the softer term is private banking. 

An example is; if a prominent businessman or investor – any, like uncle Patrick Bitature, Mbiire or any member of Kwagalana Group decided to approach a wealth manager outside Uganda, say in Switzerland or Mauritius to open an account in one of the banks there and transfers or keeps his money in it. 

It’s a bit hard but in my perspective, ‘classifiedly’ simple or possible. The softer way (private banking), is where you have an exclusively personal bank account for your wealth or money (for investing or saving), with a lot of perks.

Offshore banking has been viewed with mixed feelings since its seen as carrying money out of the country, investing it or keeping it in countries where there is low or no taxation; money laundering, etc⏤ the reason you have things like Panama Papers, and WikiLeaks. Disclosing such information is termed illegal since it exposes private financial information of prominent people in government, business, politics, celebrities, etc., and the world views them as people who evade tax, money launderers, etc, but with more of these destinations for offshore banking opening up, transparency, but with client confidentiality, has become a key feature. 

The countries below are some of those prominent with offshore accounts or private banking and include; 

1. Cayman Islands
2. Seychelles Islands
3. Mauritius
4. Panama
5. Nevis
6. Belize
7. Germany
8. Switzerland
9. Singapore
10. Hong Kong 

Panama was once in the limelight due to the Panama Papers saga that leaked in 2016 and a list of top global personalities were mentioned to have hidden money in accounts located in Panama – probably laundered money, money from corruption, fraud, illegal investments, tax-free money, etc., were mentioned. 

Panama is a tax haven – meaning your investments or money in those accounts are not taxed (or if taxed, it’s a very minute percentage). The money invested is also safe though. Another common Panama-like country is Switzerland (with terms like Swiss Banks, and Swiss Accounts) and the Cayman Islands (top of the list). Mauritius is also emerging as a popular destination for especially African growing wealthy class- because of its proximity and ease of access. 

Talking of size, roughly in the whole world, about 10% – 20% of the population have offshore bank accounts or wealth piled up in tax havens outside their home countries.

But why do people have or keep money or wealth offshore?

There is a number of reasons, and yes, you could be knowing some of them. But reasons vary from one person or investor to another. Some of the reasons that can be found are;

1. To keep their money or wealth safe; for example in case of currency devaluations due to political risk (after a civil war) and also avoid the destruction of their money or being stolen amidst riots or during war situations, etc.- most of these offshore banking destinations have stable political and economic climates. Offshore banking also protects one’s wealth from erratic local currencies as usually accounts are held in major international currencies.
2. To diversify their investments/assets; e.g. not to put all money in real estate (bizimbe, malls, flats, apartments) alone – which can be destroyed in case of a war, not only money in savings accounts alone, etc. This also helps you to capitalise on global business opportunities.
3. To enjoy low taxes compared to their home country; Most destinations of offshore banking have in place several favourable tax regimes as well as have signed a variety of double taxation treaties and investment protection agreements with several other countries which make it attractive to transact or route international transactions. 
4. To avoid the public domain; Money hates noise⏤ both public and private. If it’s not state authorities, holders of offshore bank accounts are tucking their money or wealth away from the prying eyes of the public. Money hates noise.  
5. To keep wealth for their next of kin/children/spouses as an inheritance; common with generational wealth creators or investors. Talk of Western royal families, African First Families, wealthy empire owners, etc. Again, the stable political and economic climates come in handy here.

Much as having money or wealth in offshore bank accounts could be seen as illegal, many could actually be doing it for legal or genuine reasons, like some of the above. With the world demanding more transparency under such frameworks as the Financial Action Task Force (FATF)- the global money laundering and terrorist financing watchdog, offshore banking has become cleaner and more transparent. 

To reflect this openness and transparency, this is offshore banking is increasingly being referred to, as private banking. 

Private banking is where an individual, usually called HNWI, opens up a VERY private bank account for financial or wealth investment reasons. You should be someone doing billions and not millions. A local international bank (even here in Uganda) opens for you an account that you can access yourself anytime. 

Apart from that, the common things (features and perks) you enjoy with such a bank account are; 24/7 account access, high safety of money or wealth, high-interest rates, a dedicated relationship officer to cater for you, can get your money from anywhere, fewer bank charges, diversity in investment, etc. 

In fact if one can not do mainstream offshore, private banking is the option; but remember even some of the banks make investments for you in an offshore investment vehicle. The bank becomes your investment broker or wealth manager.  

In Uganda (or any other country), offshore banking or private banking takes the names or products like StanChart Private Banking, Equity’s Supreme Banking, Bank of Africa’s Elite Banking. DFCU’s Pinnacle Banking, Stanbic Affluent Banking, and I&M Bank’s Offshore Banking etc.  

The product’s minimum amounts may be low but that’s the only difference, overtime the small double-digit millions build up to be nine zero amounts. There is also Citi Bank’s private banking that offers offshore accounts for wealth management.  

Citi bank is arguably the world’s biggest offshore banker or broker to wealthy families in the Western part of the world and top celebrities. The likes of Gupta Family of South Africa, the Tan Family known for Alliance Global, the Naughton Family of Ireland, Elton John Family, etc.

In offshore banking, such a broker or wealth management company does the investment for you but also gives you the features of private banking. Many politicians, and government officials in Uganda may be doing offshore banking or through our local private banking. 

The latter could be left to a few wealthy Ugandans, prominent investors/business people, top/seniors bankers, expatriates, tourists, etc. Even if it’s offshore banking accounts, you will be referred to a  country that has economic ties with Uganda (at least). You can easily know, and they will tell you that they are promoting bilateral investments or economic relations with such a country. A common one is Mauritius. 

Uganda has good bilateral economic relations with Mauritius (a tax haven) so it makes it easier  and popular for many a Ugandan businessman, politician or government official to take his or her wealth or money there. In Uganda, it’s estimated that roughly between 2% – 3% is the size of the population involved in offshore or private banking and you can bet the percentage or market size is still growing, thanks to years of economic growth and with it, a growing class of the rich and wealthy. 

There is of course many more Ugandans who are potential offshore banking clients, but they are the more traditional type whose wealth is stuck and tucked away in land and real estate. Many local investors, businessmen and politicians, have their wealth in this form. They pump in a lot of money.

For example the case of land, a politician or big city investor will spot a small piece of land in Naguru, say 50ft x 100ft that could be priced at UGX500 million, and he takes it at UGX1Bn, causing the doubling of prices of neighbouring or surrounding pieces of land or houses. 

You will not believe it one day when someone tells you that a house on a 100ft x 50ft plot of land in Beverly Hills costs less than the same here in Naguru, Kololo or Muyenga. Hidden wealth in immovable property!

Therefore, in your individual pursuit of offshore banking or private banking, there are some perks (thumbs up) and pangs (thumbs down). Here we go;

The Thumbs Up

1. 24/7 access to your account or money, anywhere in the world, especially with internet/PC/online banking portals.
2. Personalised customer service with a dedicated client relationship manager and other perks.
3. Safety of your wealth or money is guaranteed, from political risk and economic risk mostly. You are far from the protection that local banks or regulators can offer.
4. Wealth owners enjoy very low to zero taxes on their money compared to the big tax bands in Uganda. There are also tax rebates.
5. Your wealth is away from the public domain and even state agencies.
6. Very low account management fees/levies/charges; usually charged once a year but not so frequently.
7. High-interest rates on your funds; between 7% and 10% or higher. 
8. Helps maintain, and preserve inter-generational wealth among families.
9. Possibility of owning a joint offshore account as a couple or family.
10. You can receive a salary from another country outside Uganda (if doing remote work).

The Thumbs Down

1. To the state authorities, be ready to be called a money launder, a tax evader – crimes.
2. At the individual level, be ready to be called corrupt, fraudster, mufele,  etc., even when the source of your money is legit.
3. It requires you to be tech-savvy – know mobile, PC/online banking and also you need to be cyber security conscious.
4. Funds can get frozen if there are succession discrepancies or illegalities. Some banks will not give you that money or allow your heir to inherit the wealth if several signatories from co-heirs are not got. So beware.

Researched Thinking Tips

As I conclude, if at all you are investing your wealth through a global or local bank or wealth manager or broker, you need to take note of the following;

1. Compare bank/wealth managers’ interest rates – Much as most banks offering offshore banking give good interest rates, you should do a comparison (or hire a financial advisor to do it) between and amongst all of them. After all, all of them will invest it offshore. So pick the best. Same for offshore wealth managers/brokers.
2. Fees charges – Also compare this among all the banks. Some charge you monthly, others once a year. Ensure all hidden charges are disclosed to you when interacting with the wealth managers, brokers or relationship officers form the bank.
3. Option of online/internet/mobile/PC banking – Surely, you need to access your money on the go anywhere in the world, when you travel. Expats and tourists need these a lot as you will run out of cash at some point or need to check accounts often. But most banks have this am certain.
4. Availability of several broker branches–What would happen if you went to Mauritius, Panama or Seychelles and there is no Citi Bank branch and yet you have a branch in Uganda that invested for you your wealth offshore? The issue here is it would be easier to access or use other services if a branch was present and they would attend to you well since you are a globe-trotting client.
5. Services offered – Offshore banking/private banking comes with other perks like free internet when at their premises, free coffee, sometimes free holiday trips, paid accommodation, etc. Consider if the bank or wealth manager offers such.
6. Language of transaction – It would be hard for you to transact in a language you don’t understand. Ensure that when opening an offshore account via bank or wealth manager or broker, the language is known to you on paper, when speaking to the personnel and the language used in online/digital platforms. 

You will face challenges if the online or digital platform is in Chinese and yet your physical account and paperwork are in English. So, take note of that. Ensure their online platforms have a provision for language conversion or translation menus.

Otherwise, if you feel this article speaks to you, let us know by leaving a comment. If you also feel there is someone who might need this article, please feel free to share it with them. You could make a difference in their financial independence journey.