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It cannot be denied that the increasing scrutiny and pressure on the offshore world by the international community in the last few years, particularly from the high tax nations of Europe and North America, has been responsible for taking some of the sheen from the benefits of banking offshore by placing heavy legal and regulatory requirements on certain jurisdictions. But before you cancel that appointment with the financial advisor or have second thoughts about opening an offshore account, note that banking privacy has been a tougher nut to crack than the onshore governments would have liked, and the offshore sector is likely to remain an important part of the global financial system for some time to come.

Traditionally, the attractions of offshore over the past fifty years or so have been secrecy, low taxes, asset protection and the ability to place assets at a safe distance from potential threats at home; and these remain perfectly legitimate activities as long as one's motives don't include evading tax or legal scrutiny. However, a number of factors have combined over the past five years which have threatened to blow a hole in this veil of financial privacy, most notably the recent policies of supra national institutions such as the OECD, the FATF and the EU. The US tax authorities have also had a hand in this process through the introduction of Qualified Intermediary status, forcing banking jurisdictions to apply tough 'Know Your Customer' rules and conform to high international standards. Then of course the terrible events of September 11 2001 forced governments to consider more comprehensive information sharing agreements and strengthened the crackdown on money laundering. However, initial fears that the disaster would lead to a more draconian approach to offshore banking regulation have proved to be largely unfounded, although the United Nations Convention For The Suppression Of The Financing Of Terrorism, the legislative response to '9/11', will in the long-term only tend to weaken banking secrecy.

The OECD's first shot across the bows of banking secrecy was fired in earnest with the release of a report in 2000 into improving access to bank information for tax purposes, endorsed by all 29 members of the organisation. Although the report was more a statement of intent rather than a detailed plan, it set the template upon which national tax authorities could obtain information about specific individuals or companies whom they have reason to suppose are engaged in tax evasion or criminal activity.

Although many offshore jurisdictions have responded to the pressure brought about as a result of their blacklisting by the OECD and the FATF by strengthening legislation against money-laundering and introducing better controls over financial institutions, the high tax countries have failed to really galvanise a move towards any comprehensive dilution of banking secrecy, and the international framework of mutual assistance treaties remains largely as it was.

It is unlikely that this situation will change in the short term at least. The OECD's rather uneventful Global Forum on Taxation in Berlin in June 2004 encouraged participants to continue to strive towards effective exchange of information and transparency by 2006, although it was also recognised that flexibility is required since many participants have not yet initiated negotiations towards the required signing of bilateral agreements. Furthermore, it seemed that countries may depart from the 2006 date where it is in their "mutual interest". Nonetheless, seemingly not content that progress is being made towards its goal of eliminating 'harmful tax competition', the OECD has seen fit to draw up a new jurisdictional 'blacklist' targeting the far eastern offshore territories of Hong Kong, Macao, Labuan and Singapore. In addition, Andorra, Barbados, Brunei, Costa Rica, Dubai, Guatemala, Liberia, Liechtenstein, Marshall Islands, Monaco, Philippines, and Uruguay have all gained new notoriety in the OECD's eyes.

Perhaps the more immediate legislative threat to offshore banking has come from the European Union's attempt to unlock the closed door of banking secrecy with its Savings Tax Directive. Many years in the making, this will be applied across all member states. Additionally, the EU has also fought hard to get 'equivalent measures' agreed in a number of other third countries including Switzerland, Andorra, Liechtenstein and Monaco, plus the offshore dependent territories of the United Kingdom and the Caribbean jurisdictions constitutionally linked to the UK and the Netherlands (such as the Cayman Islands, British Virgin Islands, Turks & Caicos and the Netherlands Antilles).

The Savings Tax Directive functions primarily as an anti-evasion and revenue-raising measure for EU member states by facilitating the transmission of information about interest income between the authorities of the jurisdiction where an individual has savings deposited and that of the member state where he or she is resident. For the offshore banker or investor, this will have the undesirable side effect of compromising banking secrecy, although as a concession financial jurisdictions have the option to apply a transitional withholding tax on interest for a period of seven years. This will be levied initially at a rate of 15% and will climb to 35% before the end of the seven year period.

The initialling of the 'Bilaterals II' accord between Switzerland and the EU in June signified that years of long and tortuous negotiations on the application of the Directive were nearing an end, although offshore accounts may yet be spared the new regulation as the Directive is by no means yet a done deal. EU ambassadors were recently forced to acknowledge that the January 1 2005 implementation date had become increasingly ambitious, especially after warnings from the Swiss government that far longer was needed for the agreement to be approved by the country's parliament. Perhaps even more crucial, Swiss participation in the directive is still not guaranteed if the law is put to the electorate in a referendum. A no vote would be a massive blow to the EU and may ultimately lead to an unravelling of the whole agreement as banking states including Luxembourg, Austria and Belgium have insisted the measures must be applied universally across a level playing field.

Despite the best attempts of the high tax world to neutralise the benefits of offshore banking through regulation, exchange of information agreements and tax measures, in reality it remains alive and kicking, fed by the demand from an increasingly wealthy and mobile global workforce and made all the more accessible by instant communication technology and the internet.

There is a vast range of financial institutions out there offering an equally vast range of banking services and financial advice, and with the right planning, the expat, retiree, temporary contract worker or high-net-worth individual can still achieve significant tax savings whilst benefiting from higher returns on investment. In certain circumstances, offshore accounts may also provide a higher degree of asset protection against attacks from family members or other litigants.

If a simple current account with checking and debit/credit card facilities is all you require, the majority of offshore banks will offer these facilities. These can be found through the offshore branches of onshore-based banks, and some of the larger more recognisable institutions will also sell a broad range of financial products such as mortgages, loans, investments, share dealing and other investments, with most providing online banking facilities. It is also worth considering setting up an account with one of the numerous smaller, more independent banks physically based in an offshore jurisdiction and which offer a greater degree of privacy than an offshore branch of a major High Street bank (although often at a cost). Other companies proffer more esoteric services and will assist in the setting up of more or less complex offshore financial arrangements such as an International Business Company or trust which can help add an extra layer of privacy onto one's offshore assets. These firms are often likely to specialise in the laws of one or more jurisdictions.

Just as important however, is the choice of jurisdiction in which to bank, as they tend to differ greatly in terms of governmental and legal systems and tax laws. Political stability is an important factor to consider and whilst most offshore jurisdictions are generally well governed, it's perhaps best to avoid those with reputations as rogue states, (although on closer inspection, one may find that these reputations are often ill founded). At the other end of the spectrum, there are offshore territories with strong links to former colonial powers which still subject them to a degree of control and influence, and these tend to be well regulated and stable.

Offshore financial centres are scattered around all corners of the globe and their location and geographical size to some extent dictates the level of infrastructure provision, particularly in respect to electronic communications and internet coverage. This may not be such an issue in jurisdictions that have set themselves up as e-commerce hubs, but the more remote locations may suffer from an unreliable telecommunications service.

Before opening an offshore account it is therefore sensible to conduct some research or enlist the services of a finance professional who should be aware of the risks and ongoing issues in the jurisdiction in which you choose to locate, and should also be aware of any suspect institutions.

Due diligence is not just a one way process however, and the checks that banks are required to conduct on potential customers increased greatly with the advent of 'Know Your Customer' legislation. Applying to open a bank account through an intermediary, or with an institution that has agreed to implement KYC, has become a very bureaucratic process, and the list of items proving an investors identity and suitability has grown long. Prospective customers may need to produce a notarised copy of a passport or birth certificate, a recent utility bill, a bank reference letter drawn on your domestic bank's letterhead declaring you to be a reliable and suitable client, a professional letter of reference from a doctor, lawyer, and accountant in your country of residence and a letter of intent on source of funds.

Predicting what will happen to the offshore world in the future is less than straightforward. Although the outlook for banking privacy would appear to remain secure at least in the near to medium term, the departure of the Bush administration in the United States in favour of a Democratic administration under John Kerry would put a different complexion on this. The Democratic Presidential nominee has made no secret of his hostility towards the offshore world, particularly on the issue of taxation, and is likely to attempt to put in place measures aimed at curbing the potential for US corporations and individuals to invest in tax havens. Nevertheless, election year rhetoric is one thing, putting these pledges into practice is another, particularly if Kerry does not have the support of Congress.

So, in short, whilst the pressures from the OECD, EU and onshore states have made achieving tax efficiency and asset protection an ever more complicated task, offshore banking and bank privacy are hardly likely to vanish overnight and the offshore finance industry is likely to remain an important cog in the global financial wheel.