15th March, 2023
By Julius Masaba
The other Friday (3rd March), I had a meeting with some two gentlemen from a UAE and Indian-based wealth management firm. This was at the coveted Nsambya-based Mestil Hotel.
Apparently, they had come for private banking conference (they’re wealth managers) to meet potential clients — investors or High Net Worth Individuals (HNWIs) to invest for them their money outside Uganda in what can be called offshore investment management or commonly known as offshore banking.
This particular meeting was given to me courtesy of another Dubai/UAE-based banker who also runs a consulting firm in the Middle East; doing business/company incorporation, bank account opening, offshore wealth management for individuals and entities intending to operate in UAE.
His company is also into management consulting. He forwarded the contacts to me instructing me to meet the two gentlemen here in Uganda. Of course, I grabbed the opportunity. We talked, among other things, partnerships, business consulting and wealth management, and investing.
Actually, it was their second time in Uganda. The first time they came to Jinja/source of the Nile — and from the smile on their faces, they loved the visit. So all you tour company owners reading this, you know the first spot for your clients.
In 2020, upon having a virtual meeting with the Dubai consultant, I was slated to appear on a morning talk show on Fat Boy’s internet radio, Reckless Radio aka RX Radio with Crystal, courtesy of Nicholas Asingwire (formerly at Sauti Tech). Unfortunately, it never materialised, but there is always a ‘next time’.
I was to talk about offshore banking or investing in offshore bank accounts (for a Ugandan), what it is, what’s involved, and the general landscape. But I guess the Mestil meeting gave me something more I can talk home about, and probably aspire for a talk on a radio show — for real!
Offshore Banking; what it is and the landscape
Offshore banking is the economic act of having or opening up a personal bank account outside your country of citizenship or residence for the purpose of investing wealth or money or (legally, ‘hiding your wealth’ or diversifying your portfolio (list of investments).
This is common through international banks. Generally, having an offshore bank account is seen as illegal, globally. The softer term is private banking.
An example is; if a prominent businessman or investor — any, like uncle Patrick Bitature, Mbiire or any member of Kwagalana Group decided to approach a wealth manager outside Uganda, say in Switzerland or Mauritius to open an account in one of the banks there and transfers or keeps his money in it.
It’s a bit hard but in my perspective, ‘classifiedly’ simple or possible. The softer way (private banking), is where you have an exclusively personal bank account for your wealth or money (for investing or saving), with a lot of perks.
Offshore banking has viewed as being illegal since its seen as carrying money out of the country, investing it or keeping it in countries where there is low or no taxation; money laundering, etc.
The reason you have things like Panama Papers, WikiLeaks. Disclosing such information is termed as illegal since it exposes private financial information of prominent people in government, business, politics, celebrities, etc., and the world view them as people who evade tax, money launderers, etc.
The countries below are some of those prominent with offshore accounts or private banking and include;
i) Cayman Islands
ii) Seychelles Islands
x) Hong Kong
Panama was once in the limelight due to the Panama Papers saga that leaked in 2016 and a list of top global personalities were mentioned to have hidden money in accounts located in Panama — probably laundered money, money from corruption, fraud, illegal investments, tax free money, etc., were mentioned.
Panama is a tax haven — meaning your investments or money in those accounts are not taxed (or if taxed, it’s a very minute percentage). The money invested is also safe though. Another common Panama-like country is Switzerland (with terms like Swiss Banks, Swiss Accounts) and Cayman Islands (top of the list).
Talking of size, roughly in the whole world, about 10% — 20% of the population have offshore bank accounts or wealth piled up in tax havens outside their home countries.
But why do people have or keep money or wealth offshore?
There is a number of reason, and yes, you could be knowing some of them. But reasons vary from one person or investor to another. Some of the reasons that can be found are;
i) To enjoy low taxes compared to their home country’s; because in some countries having too much wealth causes the taxman to come knocking at your door. It may not be tax, but even for morality-related reasons.
Here in Uganda (even Kenya), some public servants, politicians or MPs are usually asked to declare the source of their bulging wealth by the state agencies, and this sometimes make some of them shift in their seats uncomfortably.
Few days back the Constitutional Court ruled that an order by the Uganda Revenue Authority to banks to disclose customers’ personal account details was illegal. So tell me, why wouldn’t such a person find ways of keeping his/her money out of Uganda?
ii) To avoid the public domain; same case as above. If it’s not state authorities, they are probably hiding the money or wealth from prying eyes of the public. Applies to very rich and wealth citizens. The wealth could be legal or illegal. An example of the later is the saga of Angola’s former president’s daughter.
iii) To keep their money or wealth safe; for example in case of currency devaluations due to political risk (after a civil war) and also avoid destruction of their money or being stolen amidst riots or during war situations, etc.
iv) To hide money/wealth from family members, spouses, etc; this is self-explanatory (done by either husbands, wives or both of them).
v) To keep wealth for their next of kin/children/spouses as an inheritance; common with generational wealth creators or investors. Talk of Western royal families, African First Families, wealth empire owners, etc.
vi) To diversify their investments/assets; e.g. not to put all money in real estate (bizimbe, malls, flats, apartments) alone — which can be destroyed in case of a war, not only money in savings accounts lone, etc. This also helps you to capitalise on global business opportunities.
Much as having money or wealth in offshore bank accounts could be seen as illegal, many could actually be doing it for legal or genuine reasons, like some of them above.
In Uganda, any person doing offshore banking is literally seen as a fraudster, corrupt, thief, etc. The softer way is through private banking.
Private banking is where an individual, usually called HNWI, opens up a VERY private bank account for financial or wealth investment reasons. You should be someone doing billions and not millions. A local international bank (even here in Uganda) opens for you the account that you can access yourself anytime.
Apart from that, the common things (features and perks) you enjoy with such a bank account are; 24/7 account access, high safety of money or wealth, high interest rates, dedicated relationship officer to cater for you, can get your money from anywhere, less bank charges, diversity in investment, etc.
In fact if one can not do mainstream offshore, private banking is the option; but remember even some of the banks make investments for you in an offshore investment vehicle. The bank becomes your investment broker or wealth manager.
So for decision making via investment or wealth management, I would like to make a few comparisons or contrast between offshore banking or account holding and private banking.
i) Offshore banking or account is the harder, harsher one. Private banking is the softer form.
ii) Offshore banking is seen as illegal. Private banking is seen as the most legal.
iii) Offshore banking has many prominent, big names and personalities involved. Private banking may not necessarily have them.
iv) Offshore banking may involve few intermediaries. Private banking involves quite a number.
In Uganda (or any other country), offshore banking or private banking takes the names or products like StanChart Private Banking, Equity’s Supreme Banking, Bank of Africa’s Elite Banking. DFCU’s Pinnacle Banking, Stanbic Affluent Banking, etc.
The product’s minimum amounts maybe low but that’s the only difference, overtime the small double digit millions build up to be nine zero amounts. There is also Citi Bank’s private banking that offers offshore accounts for wealth management.
Citi bank is arguably the world’s biggest offshore banker or broker to wealth families in the Western part of the world and top celebrities. The likes of Gupta Family of South Africa, the Tan Family known for Alliance Global, the Naughton Family of Ireland, Elton John Family, etc.
In offshore banking, such a broker or wealth management company does the investment for you but also gives you the features of private banking. Many politicians, government officials in Uganda maybe doing offshore banking or through our local private banking.
The later could be left to a few wealth Ugandans, prominent investors/business people, top/seniors bankers, expatriates, tourists, etc. Even if it’s offshore banking accounts, you will be referred to a country that has economic ties with Uganda (at least).
You can easily know, and they will tell you that they are promoting bilateral investments or economic relations with such a country. A common one is Mauritius.
Uganda has good bilateral economic relations with Mauritius (a tax haven) so it makes it easier for a Ugandan businessman, politician or government official to take his or her wealth or money there in the guise of investing and strengthening relationships, but in actual sense it could be money/wealth from fraud, corruption, or theft.
An ordinary Ugandan (muntu wa’wansi) could be scrutinised thoroughly if he tried to do that. Moreover just having UGX100 million in your personal savings account makes you be summoned by the bank manager for questioning. They will even freeze your account for some days, how about a billion!
A client’s company account was frozen by Equity Bank for receiving about UGX40 million yet the same bank had refused to give him money. He was summoned to explain the source. Top politicians and government officials are rumoured to be having Swiss bank accounts.
The minimum amount one needs to invest in offshore bank account is US $1,000,000; that’s about UGX1.8Bn. The alternative is to have a pool of US $250,000 by four (4) people to make the above amount.
If you count a few individuals in Kampala or in Uganda who are worth more than UGX2Bn, then you are good to go. In Uganda, it’s estimated that roughly between 2% — 3% is the size of the population involved in offshore or private banking and you can bet the percentage or market size is still growing, thanks to the new Gold Rush — oil & gas.
Many Ugandans could be worth more than UGX2Bn but their wealth could be stuck in land and real estate. Many local investors, businessmen and politicians, have their wealth in this form. They pump in a lot of money.
For example the case of land, a politician or big city investor will spot a small piece of land in Naguru, say 50ft x 100ft that could be priced at UGX500 million, and he takes it at UGX1Bn, causing the doubling of prices of neighbouring or surrounding pieces of land or houses.
You will not believe it one day when some one tells you that a house on a 100ft x 50ft plot of land in Beverly Hills costs less than the same here in Naguru, Kololo or Muyenga. Hidden wealth in immovable property!
Therefore, in your individual pursuit of offshore banking or private banking, there are some perks (thumbs up) and pangs (thumps down). Here we go;
The Thumbs Up
i) 24/7 access to your account or money, anywhere in the world, especially with internet/PC/online banking portals.
ii) Personalised customer service with a dedicated client relationship manager and other perks.
iii) Safety of your wealth or money is guaranteed, from political risk and economic risk mostly. You are far from protection that local banks or regulators can offer.
iv) Wealth owners enjoys very low to zero taxes on their money compared to the big tax bands in Uganda. There are also tax rebates.
v) Your wealth is away from the public domain and even state agencies.
vi) Very low account management fees/levies/charges; usually charged once a year but not so frequently.
vii) High interest rates on your funds; between 7% and 10% or higher.
viii) It has the potential of building bilateral relations for example between Mauritius investors and Uganda investors, U.A.E and Uganda (at individual and government level).
ix) Helps maintain, preserve generational wealth among families.
x) Possibility of owning a joint offshore account as a couple or family.
xi) You can receive salary from another country outside Uganda (if doing remote work).
The Thumbs Down
i) To the state authorities, be ready to be called a money launder, a tax evader — crimes.
ii) At individual level, be ready to be called corrupt, fraudster, mufele, etc., even when the source of your money is legit.
iii) It requires you to be tech savvy — know mobile, PC/online banking and also you need to be cyber security conscious.
iv) Funds can get frozen if there are succession discrepancies or illegalities. Some banks will not give you that money or allow your heir to inherit the wealth if several signatories from co-heirs are not got. So beware.
Researched Thinking Tips
As I conclude, if at all you are investing your wealth through a global or local bank or wealth manager or broker, you need to take note of the following;
i) Compare bank/wealth managers’ interest rates — Much as most banks offering offshore banking give good interest rates, you should do a comparison (or hire a financial advisor to do it) between and amongst all of them. After-all, all of them will invest it offshore. So pick the best. Same to offshore wealth managers/brokers.
ii) Fees charges — Also compare this among all the banks. Some charge you monthly, others once a year. Ensure all hidden charges are disclosed to you when interacting with the wealth managers, brokers or relationship officer form the bank.
iii) Option of online/internet/mobile/PC banking — Surely, you need to access your money on-the-go anywhere in the world, when you travel. Expats and tourists need these a lot as you will run out of cash at some point or need to check accounts often. But most banks have this am certain.
iv) Availability of several broker branches — What would happen if you went to Panama or Seychelles and there is no Citi Bank branch and yet you have a branch in Uganda that invested for you your wealth offshore? The issue here is it would be easier to access or use other services if a branch was present and they would attend to you well since you are a globe-trotting client.
v) Services offered — Offshore banking/private banking comes with other perks like free internet when at their premises, free coffee, sometimes free holiday trips, paid accommodation, etc. Consider if the bank or wealth manager offers such.
vi) Language of transaction — It would be hard for you to transact in a language you don’t understand. Ensure that when opening an offshore account via bank or wealth manager or broker, the language is known to you on paper, when speaking to the personnel and the language used in online/digital platforms.
You will face challenges if the online or digital platform is in Chinese and yet your physical account and paper work are in English. So, take note of that. Ensure their online platforms have a provision for language conversion or translation menu.
Otherwise, if you feel this article speaks to you, let us know by leaving a comment. If you also feel there is someone who might need this article, please feel free to share it with them. You could make a difference in their financial independence journey.
NB: This article also appeared on Medium by the same author, click here.
About the Writer
Julius Masaba is a private investment researcher and business consultant. He’s also the Co-founder and Business Development Lead at Ablestate, https://ablestate.co/ and a WordPress writer/blogger on startups, entrepreneurship, business and finance. He loves tech. Visit: https://consultmasaba.com/