Welcome to the grey zone of offshore banking an area which in theory should be visible to the Revenue Commissioners but in practice is often used to hide funds..
Opening an offshore deposit account or buying an offshore insurance or investment product is not difficult for Irish residents. And neither are they illegal unless the depositor/ investor fails to disclose the transaction to the Revenue Commissioners. Since the removal of Central Bank exchange controls the only regulations pertinent to where Irish people hold their money are Revenue regulations. The 1992 Finance Act set out the position on Irish residents opening foreign bank accounts. As well as requiring Irish residents to disclose the opening of a foreign bank account, it put an onus on any intermediary including financial institutions opening an offshore account for an Irish resident to notify the Revenue of the name, address of the depositor and the amount of the original deposit.
A deposit was defined in the Act as "a sum of money paid to a person on terms under which it will be repaid with or without interest and either on demand or at a time or in circumstances agreed by or on behalf of the person making the payment and the person to whom it is made". Whether insurance/investment products qualify under that definition of deposit is not clear. The tax implications of an offshore insurance policy will depend on the structure of the fund, how the money is locked in and how the return is paid, according to the Revenue Commissioners. One of the aims of the 1992 provisions was to prevent funds being spirited out of the State to avoid detection by the Revenue. But it appears that funds still find their way into foreign accounts without the knowledge of the Revenue Commissioners. Financial institutions have managed to assist customers while keeping within the letter of the legislation. The common practice, confirmed by the institutions, is to give customers contact names and telephone numbers for offshore subsidiaries without actually setting the account up for them. If a branch manager of an Irish bank or building society sets up the offshore account for an Irish resident, he/she is obliged to notify the Revenue. But the provision of an offshore contact name or number allows the customer to set up the account and places the onus on the customer to disclose its existence to the Revenue. Most of the Irish banks and building societies have offshore subsidiaries to which they can refer customers. They argue that since customers are entitled to open accounts abroad they will do it whether their Irish bank/building society assists with contact numbers or not. One senior banker said: "All they have to do to get the telephone number of our subsidiary in the Isle of Man or any bank there is to ring directory enquiries or look at the advertisements in the English newspapers. At least if we give them the numbers we can keep the deposits within the group."
In the same way, contact names/telephone numbers of offshore companies selling insurance/investment type products may be provided, allowing the customer to invest their funds. AIB's insurance/investment subsidiary Ark Life, for example, has an offshore subsidiary in the Isle on Man which can offer investment bonds to Irish residents, though it cannot offer them life assurance products. The banks and building societies insist that they follow "very strict procedures" in dealing with requests to set up offshore accounts.
Another banker said: "We have to be very careful about the barrier between what is legitimate and what is not. If a branch manager opens an account abroad for a customer and doesn't declare it, he can be held personally liable. What we have told branch managers to do is to provide the name, address and telephone of our manager in the offshore location if we have an operation in the particular area." Asked how a customer could move funds to the offshore location, the banker said: "They could close their account with us and we would give them a draft. They could post or deliver to the offshore bank." The Isle of Man and Channel Islands subsidiaries of some Irish institutions offer Irish pound accounts Irish depositors therefore avoid any currency risk.
Asked was this not helping Irish residents to hide funds from the Revenue, he argued: "Under EU legislation an Irish citizen can put money anywhere. It is a free country. If they want their money we have to give it to them. There is no law restricting anyone. The onus is on the individuals to make their own tax declarations". Another banker insisted that there was no way his group would "collude with sending money offshore".
One banker explained: "all we can say is that we have a branch there and here is the name and phone number of the manager there. We can't set up the account because that is against the law, but we can give the details and then the onus is on the taxpayer to declare that they have opened the account." On the sale of insurance products he added: "A branch cannot be involved in directly selling offshore policies . . . but giving a name and address is not selling directly whereas telling the customer that you will get someone to call him could be". The move towards offshore deposit accounts followed the tightening up of the rules on non-resident accounts in 1983. Up until then, it was not uncommon for Irish residents who wanted to hide funds from the Revenue Commissioners to open "non-resident accounts" in Irish financial institutions. Against a background of high tax rates, a significant level of payment in cash for goods and services and a historical reluctance to disclose details of their financial affairs, some Irish residents opened "non-resident" deposit accounts.
The normal channel was that a customer would open an account often in their own name but sometimes in a false name, using the address of a family member or friend living abroad.
This account was then tagged as "non-resident" by the financial institution, ensuring that the account holder was not liable for tax on interest earned and was not easily visible to the tax authorities. Each institution held a list of its non-resident accounts which could be inspected by the Revenue. As long as an official at the bank knew the individual who had opened the account, the account holder could withdraw from or lodge to the account at any time. But in 1983, when bank officials became liable for ensuring that these accounts genuinely belonged to non-residents, customers whose accounts were not genuine had to look for alternatives.
If someone approaches a bank employee now trying to open a non-resident account, the employee must ask a number of questions to establish the identity and address of the individual. These provisions were strengthened in 1992 and 1995 financial institutions are now required to know any new customers and establish the sources of their funds. The onus is on the bank employee to be satisfied that the customer is a bona fide non-resident.
For a non-resident account to be legitimate it must meet a number of Revenue requirements:
The individual must genuinely not reside in the Republic.
If it is being opened by a third party, for example, someone opening an account for a sister living in Canada, there should be a clear money trail from Canada to Ireland. . . . lodging used Irish notes should arouse suspicion. What would be expected would be a cheque or draft from Canada or Canadian dollars.
The beneficial owner must sign a form stating he/she is non-resident and giving his/her full name and address.
There is an onus on a bank if it is suspicious to ensure that the details are correct and that the account holder is a genuine non-resident. Where the financial institution is in doubt, it can require the individual to furnish an affidavit.
Apparent "non-resident" accounts started to appear after 1979 when exchange controls were introduced under which Irish people had to get Central Bank permission to open accounts in "the sterling area". This covered a wide range of locations from Nigeria to the Caymen Islands and Britain. Before that Irish residents were free to hold accounts in these areas. Banking sources said that there were significant levels of deposits held overseas by Irish residents before 1979. When the exchange controls came in, existing account holders did not have to close their accounts but opening new accounts required permission from the Central Bank. There were tales of Irish residents arriving in bank branches in Newry and Belfast with case loads of cash to open bank accounts. One industry source told a tale of a bank manager allegedly caught embezzling branch funds. The manager was not prosecuted, he maintained, because he threatened to blow the whistle on the bank's "non-resident" accounts.
Another source said: "There was a widespread culture of tax evasion in the 1970s and 1980s. And the government appeared to condone it by only requiring banks to return details of accounts earning interest of over £50 per annum."
