Are Foreign Bank Accounts Legal for US Citizens?

Offshore bank accounts legally offer some advantages over domestic bank accounts. However, opening an offshore account takes effort, and there are important reporting requirements.

What Is an Offshore Bank Account?

An offshore bank account is a checking or savings account at a bank located outside the United States with no branches within the United States. The bank should be in a politically stable country that does not have reciprocal treaties with the U.S. government.

Offshore Bank Accounts Offer Asset Protection

Offshore bank accounts provide asset protection because money in the account is beyond the jurisdiction of U.S. courts. A U.S. judge does not have the power to impose a writ of garnishment on a bank account located in a foreign country. A judge could garnish your account if the foreign bank also had bank branches within the U.S.

A U.S. civil judgment should not interfere with your access to funds in an offshore bank.

Legal Uses of Offshore Bank Accounts

Offshore bank accounts are legal for legitimate personal and business planning. Legal uses of offshore accounts include:

• Asset protection: offshore bank accounts cannot be garnished by U.S. courts.
• Investment opportunities: offshore financial accounts provide access to foreign currency and international markets
• Multinational business: offshore bank accounts facilitate money transfers to international trading and multinational businesses.
• Privacy: offshore bank accounts provide enhanced privacy

Illegal Uses of Offshore Bank Accounts

Offshore bank accounts may not be used to conduct illegal activities or to evade legally required reporting. Examples of misuse of offshore accounts include:

• Tax evasion: interest earned in offshore financial institutions is taxable. Offshore accounts cannot legally hide money from the IRS.
• Money laundering: depositing funds from illicit activities in an offshore account is criminal.
• Hiding assets: you are required to disclose your offshore accounts to a creditor seeking to collect a money judgment.

Reporting Requirements for Offshore Bank Accounts

U.S. law requires that you report all offshore financial accounts to I.R.S. Federal law requires filing forms including a Report of Foreign Bank and Financial Accounts (FBAR), and failure to comply results in substantial I.R.S. fines. Offshore jurisdictions may have their own reporting requirements.

How To Open An Offshore Bank Account

We are often asked to help our clients open a personal bank account in a foreign county.

We explain that U.S. government has moved to prevent misuse of offshore accounts, and that the U.S. now has agreements with countries such as Switzerland to disclose U.S. customers. We advise that it’s best to first create an offshore trust or offshore LLC and have the trustee/manager open a foreign bank account.

You still have to submit personal information such as passports and references if you are associated directly or indirectly with an offshore financial institution.

Summary

Offshore bank accounts provide asset protection and other benefits. There are substantial financial and criminal risks for failure to file required reporting forms with the U.S. government. It is difficult for individual U.S. citizens to open a personal offshore bank account without the assistance of a foreign trustee.