International Banks & Banking: the Basics

The concept of international banking gives rise to a lot of confusion. As is so often the case when you work in several countries, the terms used can means different things to different people.

So, as in all aspects of living and working in another country, you need to understand the basics before the salesmen get their teeth into you.

What is International Banking?

Before we can answer this question, we need to sort out some key terms. I have tried to keep them simple and as different as possible from each other.

Be careful. People will often use these expressions to mean other things – and vice versa.

Terminology

International Bank

At its simplest, this is just a bank – any bank – that offers services to people living in another country – or to people living in the country where it is based, but who are engaged in banking activity in another country.

For example, assume that the (fictional) English Bank of St Edmund has the necessary licence to offer banking services to foreigners and that it has systems in place to help people engaged in international transactions: e.g., by offering accounts denominated in a foreign currency (so that the customer can hold, say, US Dollars or Euro) or by transferring money to a bank in another country.

This would make the Bank of St Edmund an “International Bank” – at least on these narrow terms.

Measured in this way, most banks in the developed world are International Banks. However, in some countries some banks are not authorised to undertake any international activity, so even this basic definition has some value.

Each International Bank has its own policies outlining with whom they will do business. Often, they will only offer these international services to well established companies and more wealthy individuals with complex (and profitable) banking requirements. However, especially in areas with large migrant communities, many will accept ‘ordinary’ customers with routine banking needs.

Multinational Bank

These are banks that have branches in more than one country. For example, Wells Fargo, HSBC, Royal Bank Canada & Banco Santander

Some on these multinational banks are genuinely multinational operations. Others operate as groups of related companies.

They usually have specialist departments with expertise in dealing with various foreign countries.

Some customers find it simpler to have the same banking company looking after its affairs in each of the locations where the customer is engaged.

However, other customers may find that there is no branch of their chosen bank within a considerable distance of the places where they live and work and prefer to deal with a a more convenient local bank offering international banking facilities. Others prefer to be a bigger (and more important) customer in a smaller bank – provided it has the facilities they need.

These banks tend to set out their stall to attract business clients that are internationally active and wealthy individuals with international needs – though most also offer services to purely local customers as well.

Offshore Bank

This term is used in two very different ways.

At its simplest, an offshore bank is simply a bank located outside the country where the customer is based. However, it is often used with an extra layer of meaning: that the bank is located in a ‘tax haven’

So, at the simpler level, if I live in Germany and have a holiday home in Spain, when I open an account there to pay the electricity bill I will be opening an offshore account. However, Spain is far from a tax haven and few would think of an account there as an ‘offshore account’.

I prefer to use the phrase “Foreign Bank” for a bank that is not in a tax haven and “Offshore Bank” only to refer banks located in low tax jurisdictions.

Many major banks offer offshore accounts.

Foreign Bank

See above.

Tax Havens

A tax haven is a place where certain taxes are levied at a very low rate or not at all. They hold a huge percentage of the world’s wealth – an estimated 8% or US$ 7.6trillion.

Many tax havens have, traditionally, also been associated with banking secrecy (see below), asking few questions about new customers and generally being complicit in widespread criminality and tax evasion. Whilst the main tax havens have been ‘persuaded’ to abandon these practices, they still prevail in many places.

In 2000 the OECD drew up a list of “non-cooperative” tax havens. This has been whittled down over the years but individual countries also maintain their own lists. There is now (July 2018) an EU list showing the countries that appear in the blacklists of at least 10 member states.

As of 5 June 2018, the EU list is composed of:

  • American Samoa
  • Guam
  • Namibia
  • Palau
  • Samoa
  • Trinidad and Tobago
  • US Virgin Islands

Banking Secrecy

Bank secrecy (or bank privacy) is a legal principle in some jurisdictions under which banks are not allowed to provide personal and account information about their customers to any person or authority unless certain conditions apply (for example, a criminal complaint has been filed). In some jurisdictions there is what boils down to a complete ban on any disclosure.

The list of such places is, gradually and after the application of much pressure, getting shorter.

Whilst some people may value such secrecy as they are preoccupied about their privacy, without doubt it is also helpful to – and widely used by – organised crime and for the purposes of heavyweight tax evasion.

Of course, if you bank in a place with bank secrecy and they are later forced to give it up, the details then released to the world’s tax collections can have disastrous consequences for the people on this list – especially if they have ‘forgotten’ to disclose the assets for tax purposes back home.

Can you manage with just one bank?

If you merely travel to another country on a regular basis or if you just do business by selling to another country, you will often find that you don’t need any banking facilities there.

An experienced international bank – and a good FX (foreign exchange) specialist will probably be all you need.

However, if you own property in another country – e.g. a holiday home – or if you rent property there – e.g. an office – or if you employ people there you will find a bank account essential.

You may also find it a much better solution if you are sending or receiving lots of small payments.

What sort of banking do you need?

Even if they need a foreign bank, most people & companies only need fairly simple banking arrangements:

Overseas

  • A regular (checking) account: to pay your bills and receive any income
  • A debit or credit card: to pay your expenses. This can be cheaper than using your main credit/debit card

Back home

  • A regular (checking) account that can be used for international transfers: to pay your bills and receive any income
  • One or more foreign currency accounts: if you want to keep funds in (say) Yen, Euro or Pounds in your home country. This can save you a lot on currency conversion costs
  • A debit or credit card: to pay your expenses

See our individual country guides for details about what is available in the countries of interest to you.

Choosing a bank

Don’t tell anyone, but most banks offer pretty much the same services.

Important factors in deciding which bank to engage might include:

  • Language skills
  • Do you get on well with the manager?
  • Do they already deal with similar businesses?
  • Convenient location

Look out for their proposed charges – particularly their fees for just keeping the account open and for the things you are likely to want to do (such as receiving funds from abroad and sending money to another country). These can vary greatly from bank to bank.

Documentation needed

Obviously, this varies from country to country. Expect to need quite a lot and for the process to take some time. Our country guides show what is needed in each country.

Even opening a foreign currency account in your own country can be quite complex and take some time.

This depends upon your detailed needs and any legal restrictions that apply in your country.

Should you maintain your account in your own country?

Generally – and unless there are strong tax or regulatory reasons for not doing so in your case – it is a good idea to maintain a banking facility “back home”, even if you have moved away to live somewhere else. This is definitely so if you intend to return.

Discuss your plans with your bank

Keeping your bank account open usually makes it much cheaper to receive any payments due to you back home, pay any bills that need to be paid and send any sums you need to send to your new home.

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