Cyprus: A Lesson in Safe Banking Practices

Readers of our News & Commentary know that we are outspoken advocates of safe banking practices.  Offshore planning is difficult enough, and sometimes the selection of a jurisdiction for business or estate planning objectives is not appropriate for banking.

Take Cyprus, for example.  A member of the European Union, Cyprus has been a popular offshore tax haven for Russian business for several generations.  The two countries share an Orthodox Christian heritage, and Cypriots have come to be well versed in the unique style of services required of Russian clientele.  Moreover, Cyprus’ membership in the EU offers some assurance of political and (arguably) economic stability.

With a population of just over 1 million people, Cyprus is not the smallest country on the planet.  Its GDP is approximately US $23.5 billion per annum, which is quite respectable for a small country.  Yet the size of the proposed bailout that Cyprus requested from the European Union is over US $7 billion, almost a third of Cyprus’ entire annual GDP.  By any measure, Cyprus is in real financial trouble, and its citizens are unwilling to bail out their banking sector without help from the EU or Russia.

At Lighthouse, we are keenly aware of the risks our clients face when banking in offshore jurisdictions.  As difficult a situation as Cyprus finds itself in, consider that Cyprus’ population is 30 times larger than the typical jurisdiction used for asset protection planning.  Most asset protective jurisdictions are not members of the European Union, and a bailout from a much larger country is highly unlikely in the event of a bank failure in a small Caribbean or Pacific Island jurisdiction.

The lesson from all this is to consider conducting your banking somewhere other than where you engage in business and estate planning.  Sometimes the use of a small offshore jurisdiction for banking is preferable, such as when asset protection is paramount.  Even then, there are plenty of asset-protective, financially stable jurisdictions that can provide world-class service for business and estate planning structures, even if those structures rely on the laws of an offshore jurisdiction with no measurable banking sector.  Good examples of asset-protective banking jurisdictions include Hong Kong, Singapore, and Switzerland.

Please contact us in our Swiss or Hong Kong offices to learn how Lighthouse can help you secure safe banking arrangements for your offshore business and estate planning structures.