Offshore Bank Formation & Incorporation in Panama

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The bank sector and banks were always perceived by the public, as well as by the business world, as a symbol of wealth and economic power. The same applies also in the case of offshore banks, which can be advantageously formed in a number of leading as well as new offshore jurisdictions and financial centers. In most jurisdictions it is almost impossible for a new applicant, who wants to offer banking services, to establish a bank company, unless the applicant is a renowned and respected international bank incorporation.

The authorities protecting the tax sector from adverse impacts, which could put in doubt the stability of the bank sector of the country in question or its goodwill, have thought out a number of bureaucratic and financial barriers which lead serious but less well capital-endowed applicants to be excluded from the possibility of applying for a bank license. A number of countries require the registered capital of a bank to amount to hundreds of millions of dollars, which must often be fully paid up before the issuing of the license or they focus their attention only on those entities who already have a bank license in another country.

But still many entities, especially international corporate conglomerates, are interested in obtaining a bank license for the providing of bank services for the needs of their various corporate holdings. The bank license which is referred to as "internal" or “captive” in many jurisdictions can be obtained in a standard manner in many offshore locations at surprisingly advantageous prices and under favorable conditions. A full or partially limited general or international bank license is more demanding with respect to the minimum required registered capital amounts. Nonetheless there are locations where it is possible to get even this type of license under acceptable conditions.

Basic Types of Offshore Bank Licenses

In general terms it is possible to divide offshore bank licenses into two basic types of license's which can have a number of further subtypes.

General bank license is understood in a majority of jurisdictions as a license for the providing of bank services at the place of registration and internationally direct to the general public. The bank acts as any other bank entity, it can accept deposits from the public and perform common bank services with residents or non-residents. In an overwhelming majority of countries, however, the activity is limited to providing services to non-residents, i.e. offshore banking services only. This type of offshore bank is established in view of providing commercial bank services in an offshore regime.

Restrictive bank license (often referred to as the "internal" license) is a license which limits territorial activities of the bank or the possibility of providing services in foreign currencies or even just to certain persons. In a majority of cases, the bank cannot accept deposits from the public and it can provide its services only to those entities which are provided for in the bank license. This bank is used as a so called corporate bank for active Cash Flow management.

The offshore bank company established that way can become a high-quality tool for:

• Tax planning
• Increase in image of the financial group or holding
• Active cash flow management
• Issuing bonds and guarantees for tender proceeding purposes
• Easier access to bank information about business partners and competitors
• Easier access to financial markets
• More progressive financing of business activities of a holding or financial group
• Establishment of confidential and flexible bank accounts
• Providing loans and credit facilities

Most offshore banks are not subject to taxation, withholding taxes, stamp duties, fees and taxes for checks issued or accepted or to other forms of direct and indirect taxes. Another significant factor for offshore banking is the strict anonymity and confidentiality, which many potential depositors look for. These offshore banks are also fully respected entities in the wider international community, which is also displayed by the fact that a vast majority of them are domiciled in one of the tax havens, such as Bahamas, Cayman Islands, Jersey, Guernsey, Labuan, Isle of Man or Hong Kong.

Leading bank centers with very low or no taxes and a slightly more liberal environment are concentrated to a significant extent into three geographic areas-Caribbean, Europe and Pacific. The truth is that the laws of these different foreign jurisdictions differ very much and that one jurisdiction may be at a certain moment far more attractive than another jurisdiction, and therefore it is necessary to perform an analysis before selection of a location. The advantages which are available to proprietors of private international banks significantly prevail over the advantages offered by a majority of other investment or financial related entities, such as investment funds, mutual investment co-operatives, credit and loan co-operatives, investment societies, etc. Financial activities exclusive to banks only, as tools for direct access to international capital markets or inter-bank advantages in the form of wholesale borrowing and reduction of foreign exchange fees are suddenly available to natural persons as an offshore bank owner.

The information and backgrounds required in an overwhelming majority of countries of the world from the bank license applicant are as follows:

• Bank name and its legal form
• Applicant status (whether the matter concerns establishment of a branch office of a foreign bank or a new company)
• Names and curricula vitae of the bank directors
• Certificates of police clearance of applicants and directors
• Bank and business references
• Submission of information about economic management of the firms of the applicant(s)
• Identification of the bank shareholders
• Identification of the type of issued shares of the bank (registered shares, priority shares, shares without voting rights, etc.)
• Denomination of the issued shares of the bank and type of currency used
• Capital structure of the bank and capital security
• Capital reserves of the bank
• Information stating from what resources the bank will be invested
• Document of certifying that the registered capital has been paid up (if registered in the host country)
• Document certifying that all taxes, stamp duties and royalties have been settled
• Identification of the registered office in the host country
• Identification data of the registered agent or representative (if required)
• Identification data of the auditor and lawyer with a registered office in the host country
• Type of intended services which are to be provided
• Territorial operational range of the bank
• How the company will protect itself from fraudulent or criminal conduct
• Business plan of the bank (the authorities generally require a balance sheet from 3 to 10 years)
• Benefits for the host country resulting from the bank operation
• Signed and presented applications for the issue of the bank license

All these jurisdictions will require a proper front office and at least two employees locally where the bank is licensed. Most offshore jurisdictions today are favoring a more restrictive approach that favors only existing banks or at least substantial financial companies, such as Swiss Trust Companies that can prove they have been in existence for awhile and have favorable balance sheets to back that up. Legislation is constantly being revised and so it is impossible to keep up with all the information to date.

Most of the available jurisdictions that are shown below in the table with their fees have increased the amount of paid-in capital requirement for an unrestricted or Class A license to at least $500,000 and require a minimum balance sheet of at least $1M, which more often then not must be deposited with the Central or Government Bank, by way of a security deposit in the event the bank is wound-up.  In most cases now at least $3M or more is the more preferable minimum amount to show for an assured approval along with a strong business team with relevant experience.  Also as mentioned above there is the requirement to set up a physical operation in the jurisdiction granting the license with at least two local people employed, one of whom must be of a managerial caliber who will need to have hands-on detailed knowledge of the bank’s operations.

Comparison of Formation Costs and License Fees

• The Incorporation Fee includes professional fees for the incorporation of the company, fee for the preparation of corporate documents, notaries, legalization, filing fees and a duty payable for standard authorized capital. Please note that all fees displayed here are subject to change.
• Annual Domiciliation Fee, payable annually in advance, includes the provision of office's facility, as required by local company law, Company Secretary or Registered Agent.
• Expenses for delivery of documents by courier are charged additionally.
• Minimum paid in capital requirements vary from $1M on up. (Restrictive licenses paid in capital amounts are usually in the $250,000 to $500,000 range).

If interested in setting up a bank in one of these jurisdictions please with your detailed requirements and plans.

Please note that it is our experience that the vast majority of those who come to us seeking to obtain a bank license, either lack the necessary capital, business longevity, banking experience or other requirements needed to satisfy the licensing authorities in most of the above jurisdictions. Moreover, many of these jurisdictions, although theoretically open to newcomers, can be highly selective in who they actually grant licenses to, even if the applicant meets all the minimal requirements.

Many still have that the nostalgic belief that there our still real countries offering bank licenses with minimal capital requirements such as existed in the decades of the 1980’s and 1990’s.  All such countries have long since curtailed their relaxed requirements and are no longer issuing offshore bank licenses. Hence the list above should be considered highly subjective and subject to continuous ongoing change.  The countries listed will all issue licenses under certain conditions but the reality we have found is that even though the minimum requirements may still be in place, the reality is that a license will only be issued if the candidate comes to the table with an offering that is considerably above what the minimum requires.

A case in point is that countries like St. Vincent and Vanuatu have a $1M minimum capitalization requirement (which is the absolute minimum you will find anywhere these days).  However, at least 2 or 3 times that minimum requirement would probably be what is required to have a successful outcome. Therefore we recommend that a successful potential candidate needs to have at least $3M in minimum capital to be assured of a successful and reasonably expedited licence acquisition process.

Incorporating Banks in Panama

Why do we recommend Panama at this time as a country to seriously consider for incorporating a bank?

Apart from the fact that we live and work here in Panama and have some insider connections, these are our top 10 reasons as to why you should consider incorporating a bank here:

1. A well regulated and respected international banking centre - the largest in all of Latin America with only one bank failure since 1990 (no international depositors lost money).

2. Although the $3M capitalization requirement for an international (offshore) license is higher then in some other less distinguished jurisdictions, only $250,000 of that actually has to be held by the government bank - the rest can stay with the bank as working capital.  Most jurisdictions require a lot more, if not all of the minimum capitalization amount to be deposited - and frankly we don't know of any jurisdiction where much less then $2M will now obtain you a bank license even if the official minimum capitalization amount is still only $1M.

3. Fast track (60 day) sponsored SWIFT membership.  The banking superintendent department takes care of the application process for this most important bank facility and allows your bank to be a member without waiting the normal two year waiting period that will usually apply for new banks.

4. Guaranteed sponsored correspondent account opening.  Banks formed in most jurisdictions today have a very difficult time in obtaining bank correspondent accounts with major banks when they are just starting out.

5. Strongest banking secrecy laws in the world.  Since Panama has strong money laundering laws plus is a neutral country (think Panama canal), the U.S. and Europe have largely left Panama alone and have not brought any pressure to bear for banking privacy laws to be amended.

6. Decision guaranteed within 90 days - please note that the decision may be a request for further information or documentation, but that is never a bad sign.

7. Panama has the best business and technology infrastructure in the hemisphere south of the U.S. / Mexico border.

8. Panama is a good communication hub compared to the majority of offshore jurisdictions which are much harder to get to for clientele wishing to visit.

9. Panama provides you the opportunity to grow your bank in a zero tax environment with relatively little bureaucratic red tape.

10. Due to recent local bank consolidation at the upper end (HSBC Panama buying Banistmo, Citibank Panama buying Banco Uno etc.), the Panama bank superintendent’s office is encouraging new bank licence applications at this time, therefore now is the time to take advantage of this window of opportunity.

The average cost to form a bank here is about $50,000 in licencing and legal fees.  It could be somewhat less or it could be a little more, depending on what professional services you provide yourself or whether you need turn key assistance in Panama with things like preparing the business plan and provision of a local senior bank director to serve as the bank's local officer.

So, are there any other options available for deposit taking financial institutions that do not require such exacting licensing protocols?

Yes, there are several non-bank options that can be effectively used for deposit taking activities. The two most popular are the Swedish credit union and New Zealand Offshore Financial Company.  None of these options require proof of capitalization. 

In Panama there is also the financiera option which is a growth track many have used to becoming fully fledged  banks.  The financiera is a finance company authorized to accept loans (in reality €œdeposits€) from clients and then the funds are loaned out.  This is nothing more than a classic €œsavings and loan€ type of operation. The most common type of financieras in Panama are those offering consumer types of loans, but almost any type of lending can be approved on the application. $500,000 is required to be deposited into a local bank as proof of capitalization. The financiera would have to be a local operation with a proper staffed office.  If this is of interest more information can be provided upon request.

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