Don’t Let Someone Steal Your Offshore Account

If you read the "fine print" when you open an offshore bank account, you’ll likely find a clause similar to this one:

“The bank is entitled, but is not obliged to rely upon and act in accordance with any notice, demand or other communication … by any verbal, telephone, telegraphic, telex, or electronic message if believed by the bank to be genuine and to be presented or delivered by or on behalf of the customer, without incurring liability should it be false or there be any ambiguity therein…The bank shall not be liable for consequences of forgery unless such forgery should through observance of due diligence have been readily detected."

This clause, or one similar to it, immunizes the bank against a lawsuit if they mistakenly disburse funds you’ve not authorized. 

How might this occur?  One possibility would be if your bank statement is misdirected.  Several years ago, for instance, I received a statement from my offshore bank.  Only, it wasn’t my statement—it was someone else’s, with a much larger balance than my own.  It’s possible that with the name of the bank customer and his account number, I could have ordered a disbursement from that account to another account that I controlled. 

Most offshore banks have sophisticated systems in place to prevent this from occurring, and I don’t know of any cases where a depositor in an offshore bank has been defrauded this way.  But it’s certainly possible—otherwise, offshore banks wouldn’t include this type of disclaimer in their client agreement.

There are several precautions to consider to guard against this potential loss:

  • Establish a code word that must be provided to the bank before disbursing funds;
  • Have your bank hold bank statements, rather than mailing them to you;
  • Open a numbered account whereby you’re identified only by a number and code word, rather than by your own name.  (You must disclose your identity to set up the account, however).
  • Instruct the bank not disburse funds unless you personally appear at the bank to authorize the disbursement;
  • Instruct the bank not to disburse funds unless you send them written instructions with a signature guarantee from a notary. 

Whether your offshore bank is willing to accept any of these conditions will naturally depend on its particular policy.  The larger an account you have, the more willing the bank is likely to be to cooperate with you.

Forewarned is forearmed.

Copyright © 2007 by Mark Nestmann

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