Many offshore banking institutions have been established in tax havens in recent years. Many of these institutions are subsidiaries of major international banks. Such institutions pay interest free of withholding tax and engage in international financing from offshore bases which are free from exchange controls. Such banking institutions and their associated trust companies are able to provide a wide range of financial services to their international clientele. Offshore banking institutions are also used by the smaller business Organization and indeed in some cases by individual owners to act as offshore cash management centers.
In the past, certain offshore centers such as Montserrat and Anguilla have lacked the supervision which should accompany the setting up of smaller banking institutions. Indeed the British Government introduced a moratorium on the setting up of banking institutions in its Caribbean dependencies until such time as adequate legislation had been brought in and bank supervisors appointed. Of these jurisdictions one of the first to meet British Government requirements was the Turks and Caicos Islands. Under its banking regime two types of license are available, namely, a national and an overseas, the latter only permitting banking activities outside the Islands. In either case a bank would have to maintain a physical or representative presence in the Islands. A combined license can be granted. The management of the proposed bank would be required to display a sound knowledge of banking with evidence of ability and experience and no less than two directors must be appointed. In respect of those banks wishing to deal with the general public without restriction, substantial capital resources would have to be demonstrated.
One jurisdiction which does permit the setting up of the smaller banking institutions, whilst at the same time providing a supervisory regime, is the Republic of Vanuatu (formerly known as the New Hebrides). Another Pacific jurisdiction favored by smaller institutions is Samoa.
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