Banks promoting tax free offshore banking to net foreign deposit

In a move to build foreign deposits, increase their dollar liquidity and boost the country's foreign exchange reserve, private commercial banks are holding a series of roadshows abroad to promote Bangladesh as a new tax haven.

The shows are highlighting the recently passed offshore banking law that offers various benefits to foreign depositors such as tax exemptions, easy cross-border fund transfers, and relaxed financial regulations.

An offshore bank account is held in a country where the account holder does not reside. It provides the ability to handle payments, savings, and investments in multiple currencies, making it convenient for managing regular international transactions.

City Bank recently held a road show in two European countries to attract foreign investors to invest in offshore banking products that they have already developed.

The bank already designed offshore deposit products with maximum interest offering nearly 9% to attract foreign investors to park their money in offshore books in Bangladesh. 

It is the first bank that launched such a campaign abroad soon after the cabinet approved the law on 28 February setting a target of building a $1 billion reserve by 2024, according to the bank.

The bank is planning to go for a massive campaign in many other countries after Eid with the primary target to reach non-resident Bangladeshis. It has trained nearly 450 employees over offshore banking operations. 

IFIC Bank, another private commercial bank held a roadshow in Oldham, Manchester of UK in the second week of this month, according to the bank.

The bank is planning to set up a big campaign in New York in April targeting the huge gathering in Times Square on Bangla new year celebration. IFIC  is now in the process of developing its deposit products for offshore banking. 

Many other banks are also developing offshore deposit products and planning to go for massive campaigns after Eid to build foreign deposits which will increase their dollar liquidity and boost the country's foreign exchange reserve, according to industry insiders. 

The size of offshore banking stood at Tk83,000 crore at the end of September last year which was equivalent to nearly $8 billion and almost the entire amount was borrowed from foreign sources, according to central bank data.

'No risk of laundering or scam'

Mashrur Arefin, managing director and CEO of City Bank, told The Business Standard that their offshore book size was nearly $450 million which was borrowed from foreign banks. There were no deposit products before the offshore banking law. 

Now, City Bank has designed various deposit products with maturity from three months to five years with minimum 6.82% to maximum 8.46% interest rate, he added. Any customer staying abroad can open an offshore banking account now visiting the bank's website just filling up the account opening form. 

Participants in the roadshow expressed fear about scam and monitoring by government agencies and through the roadshow, the bank tried to build their confidence clearing confusions, he said. "The new law offers tax and duty free investment, so there will be no question about investors' money." 

He said the new offshore law is a revolutionary initiative taken by the current governor of Bangladesh Bank in a short time when the country is in prime need to build foreign currency deposits to boost reserves. 

He said many countries boost their reserves through opening up offshore banking like Mauritius, and India's GIFT city.

Addressing money laundering concerns raised from various quarters, Mashrur said he does not see any risk as the law allows transactions only through bank to bank. So, the money channelling from the banks abroad will comply with the money laundering act of respective countries.

IFIC Bank's roadshow

Shah A Sarwar, managing director of IFIC Bank, said they initiated a roadshow targeting second and third-generation Bangladeshi nationals who do not hold Bangladeshi passports and are not interested in sending remittances but are seeking financial products for investment. 

"We have received a very positive response following the roadshow in Manchester, UK," he added.

Sarwar mentioned that the bank is developing deposit products aligned with the interest rates set by the Bangladesh Bank. 

The Bangladesh Bank permits banks to offer up to SOFR plus 4% to foreign lenders and depositors, encouraging them to deposit their funds in their offshore unit. Considering the current SOFR, banks can offer a maximum interest rate of 9.3% for offshore deposits.

Regarding the risk of money laundering, Sarwar said there are always legal and moral aspects to consider in international fund transfers. However, Bangladesh's offshore banking law mandates fund transfers only through banking channels, which minimises the risk.

How you can open offshore banking account

Under the new offshore banking law, both residents and non-residents can hold offshore accounts in two ways — direct and indirect account opening options. 

In the direct account opening option, a non-resident can open an offshore account directly from abroad through the respective bank's online portal. Direct account holders will manage their account by themselves. 

In the indirect account, a resident Bangladeshi can open an account at a Bangladeshi branch on behalf of someone living abroad. The indirect account holder must provide an undertaking form signed by the remitter who will send remittance to that account. 

Once the indirect offshore account is opened, the Bangladeshi resident can use or encash dollars anytime anywhere. They can also spend any amount abroad beyond the annual travel limit of $12,000 set by the Bangladesh Bank. 

At present City bank offers both direct and indirect account opening options in offshore banking for individuals and non-individuals with depositing minimum $5,000 dollar for term deposits.  

Why the offshore banking law passed in a short time 

The Bangladesh Bank moved to draft the offshore banking law soon after Singapore launched a massive crackdown on money laundering in August last year in the background of some of the ultra-high net worth foreign individuals living in the country.

Some other countries including Canada and UK also moved to track illegal money sources which put some Bangladesh conglomerates in trouble with their laundered money. 

For instance, a recent Bloomberg report said former land minister Saifuzzaman Chowdhury Javed holds real estate assets in the UK alone are equivalent to at least 1% of Bangladesh's total foreign currency reserves.

When the country faced a severe decline in foreign exchange reserves, the government took immediate action after the national election held in January this year to repatriate laundered money.

A senior executive of the Bangladesh Bank, involved with drafting the offshore banking law, said the government approved the law quickly to provide a convenient means of repatriating corruption money laundered abroad.

He said certain Bangladeshi business groups faced difficulties due to illegal investments in some countries, particularly with the crackdown initiated in Singapore. 

The new law will provide them with a means to repatriate money without scrutiny, granting them the benefits of a tax haven for bringing back their funds, he added. 

The Offshore Banking Act 2024 was swiftly passed in Parliament on 5 March, just a week after the cabinet approved the draft. 

Finance Minister Abul Hassan Mahmood Ali introduced the bill, which was passed by a voice vote. 

Earlier, while participating in the discussion on the bill, four Jatiya Party MPs including Opposition Chief Whip Mujibul Haque Chunnu, said big thieves, big fishes, political leaders, smugglers use offshore banking to make their money legal through banking in island countries like the Bahamas and thus launder the money abroad.

He also named some people from Bangladesh who have appeared in the newspaper for money laundering. 

According to the law, non-resident individuals or foreign firms investing in Bangladesh can open offshore bank accounts, with transactions permitted in five currencies: US Dollar, Pound, Euro, Japanese Yen, and Chinese Yuan. 

Many expatriates maintain bank accounts in both their home country and the country they reside in, and some also consider opening offshore accounts as an effective way to save, invest, and manage money while abroad.

India's offshore banking size

India also established a tax haven offshore Gujarat International Finance Tec-City (GIFT City) in 2015, aiming to make it an offshore financial hub in Prime Minister Narendra Modi's home state of Gujarat.

The tech city is attracting banks, fund managers and reinsurers around the globe as many foreign fund managers such as JPMorgan are opening their offices in the city. 

Foreign currency transactions are tightly regulated in India, but the GIFT receives numerous fiscal benefits. These benefits include tax exemptions on interest income paid to non-residents lending money to units in GIFT city's international finance service centre (IFSC). 

Besides, the transfer of specified securities listed on IFSC exchanges by non-residents is not considered a taxable transfer, meaning gains from such transactions aren't treated as capital gains and are not taxed in India. Also, investments in GIFT enjoy exemptions from Securities Transaction Tax and Commodity Transaction Tax. 

India's GIFT City aspires to integrate its economy into the global financial system, ensure capital flow and connectivity with global financial markets in a business-friendly environment

The offshore status of the GIFT IFSC bundled with various relaxations and less restrictive financial regulations makes it an attractive destination for foreign investors allowing unrestricted movement of funds invested in the form of repatriation of profits, dividends and investments back to the home country.