Considering the news headlines over the past few days, notably the ones concerning the so called ‘Panama Papers’ and the leaked information about which influential figures have money in offshore savings accounts, a lot of people are probably asking that question.

The answer is, it’s not necessarily bad at all. Neither is it illegal.

Offshore banking can be a legitimate way to keep your money safe, and to stop some people from being over taxed. For some people, such as ex pats, it is a good way of having one centralised bank account that deals with various revenue streams from different countries.

However, the problem lies when those putting their money into offshore accounts have failed to declare it to the tax authority in the country that they are resident in. If that happens, and they simply take the money and put it offshore where it cannot be touched, then they are avoiding paying tax, which is an illegal act.

The law states that you must declare all of your income and pay the tax that is owed on it. Once that has happened, you can save it wherever you wish, and if that is in an offshore account then so be it. Although it is possible to use offshore accounts to reduce your tax liability in some circumstances.

Another illegal aspect of offshore banking is money laundering. Money laundering is how criminals make their illegally obtained money look totally legitimate. It can be complicated, with many different accounts, names, and places involved, and since offshore accounts are seen as being less intruded upon (or at least they were!) than other accounts, laundered money is often ‘washed’ through them, coming out clean and untraceable on the other side.

So, in essence, offshore banking isn’t immediately bad, illegal, or immoral. But they can be, which is why it is important to have proper records, all documents and receipts, and proper accounting files should you wish to go down that route just in case.