What is the deal on Nauru?
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It's a tiny country in the middle of nowhere with around 10k inhabitants, no banking services, no digitalization whatsoever and I am unsure what the usecase would be for it.
Also: The Billion-Dollar Shack (Published 2000)
Also: The Billion-Dollar Shack (Published 2000)
It used to be a good place where to buy banking licenses 20+ years ago. Now it is a desperate country, completely devastated by phosphate mining, used as a jail by Australia and surviving only thanks to the rent paid by it.
Someone got very rich with Nauru, but the country now is dead, with no hope for recovery.
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Someone got very rich with Nauru, but the country now is dead, with no hope for recovery.
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That article does a very good of explaining Nauru. Since it was published, Nauru has lost all of its former shine and glory. The phosphate mines are empty.
IIRC, all the IBC and IBA laws were repealed in the 2000s.
Now it just makes money being an immigrant detention center for Australia.
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This is the probably the answer to your question.
IIRC, all the IBC and IBA laws were repealed in the 2000s.
Now it just makes money being an immigrant detention center for Australia.
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This is the probably the answer to your question.
How can $70 billion of Russian money go through a place with no banking?
Ok, ty, finally a real answer, if they repealed the ibc laws, then it is dead.
What are iba laws though?
This was back in the day when they still had easy offshore banking licenses and other banks still worked with those institutions...
There were hundreds of banks in Nauru at some point. This was pre-9/11 and before the great "derisking", back when correspondent accounts for such banks were very easy to open as the correspondent bank itself had almost no liability.
International Banking Act. They are for banking what IBC laws are for corporations: non-resident only banking, high secrecy, little oversight.
Very few such banks are left today. Mostly a handful strewn across the Caribbean and South Pacific. More and more shutting down, as they can't sustain anymore.
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This is the probably the answer to your question.
2 questions
1. Why did IBA go down?
2. What is the barrier to starting a correspondent bank to deal with these offshore firms, money aside? For instance, if I had the money, or fundraised it, what would stop me from getting $10 million and opening a correspondent bank to deal with such firms and servicing all these offshore banks and charging a nice sizeable fee?
Exchange of information shifted from corporations to bank accounts. It started with FATCA and then become global through CRS. This made the banks far less attractive for tax evaders and money launderers, so they started leaving. With those customers gone, there weren't many left.
Another massive move was when correspondent banks were also instructed by regulators to de-risk or face penalties, meaning every little dodgy offshore bank suddenly had to make a lot more financial sense to keep around. It used to be that correspondent bank could more or less turn a blind eye to what went on in correspondent accounts. When that changed and the correspondent banks were facing responsibility for what went on there, they started kicking out banks that weren't worth their while.
The barrier is finding a correspondent bank that wants to work with you. The major correspondent banks have terminated relationships with practically all such banks. In many cases, the correspondents aren't even banks but currency exchanges or payment processors, which in turn may have relations with banks.
If you get a banking license in Samoa or Dominica today and then go knocking on the door of major correspondent banks, they won't even listen to you. You would need to have an extremely attractive business case backed by large, safe clients and an experienced team (board of directors, executives).
That era of offshore banking is dead. If you can raise 10 million, start a bank in EU instead as this gives you access to SEPA and TARGET2. You'll also be far more likely to get correspondent relations for other currencies. Even doable with an EMI license in many cases.
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This is the probably the answer to your question.
So why not just open a correspondent bank in an OECD place to bank for the offshore places?
So if you raised the money, you could open a bank in a "safe" jurisidiction like US, EURO, Canada, etc. open a bank in a zero tax place like Samoa and that would basically allow you to work around much of these rules?
So we're creating two banks: one in EU and one in Samoa?
The EU bank won't get a license if all it's going to do is service the Samoa bank. Even if you get through the licensing process, the license risks being pulled if your regulator finds that all or the vast majority of what you do is provide correspondent banking for one or several IBA-type banks.
Why even bother with the Samoan bank in that case? Just service your customer under your EU bank license.
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This is the probably the answer to your question.
So is this possible, you can service IBA companies from EU or other OECD banks while those IBA firms are located abroad in "tax havens".
Don't OECD companies typically require the customer to have a resident visa in that country? Like I mean, say you open a bank in Portugal, doesn't portugal require Portuguese bank only can open bank account for portuguese residents?
This was why Samoa/2 banks was being looked at.
Portugal is very easy to open an account as a non-resident, so not a good example.
International standards on AML and KYC are that non-residents pose a slightly higher risk, especially if the applicant is remote (not face to face). And some banks, as a result, simply almost never work with non-residents.
But your (for example) EU + Samoa bank still wouldn't solve that even if it were the case. You'd first of all not even get a banking license if your operating model was just to provide correspondent banking to offshore, secretive banks in a tax haven. Even if you did manage to swindle your way to a license (a huge, costly, and time consuming project), the regulator would see what you're doing and risk pulling your license.
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This is the probably the answer to your question.
And also, the outside correspondent bank will be watching your activities (whichever bank you are using) very carefully. If it would be so easy the forum would be full of bank owners
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