There are numerous major, multinational banks with offshore subsidiaries. These types of offshore banks are typically very well capitalized and have substantial reserves. In the better offshore jurisdictions, these banks are highly regulated by the local Central Bank or financial services commission, and are probably more fundamentally sound than some U.S. banks. However, it should be noted that the majority offshore jurisdictions do not have any form of depositor’s insurance that is comparable to the Federal Depositors Insurance Corporation (FDIC) coverage in the United States. So, except for the high and sometimes exorbitant fees and extremely slow service, offshore banking is quite similar to U.S. banking.

However, the settlor should be aware of the fact that small offshore banks (which nearly always have inadequate capital and reserves) must be avoided. In fact, some offshore jurisdictions have been plagued by banking scams, such as the First International Bank of Grenada scandal. This is where con artist Van Brink set up a licensed bank, and then made off with an estimated $200 million of depositors’ money. Brink even set up a phony “International Deposit Insurance Corporation” (IDIC) to give depositors the impression that the bank’s deposits were fully reserved and insured!

So what the depositor should remember is you get what you pay for. Thoroughly check the reputation of the bank yourself.

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