International Business | Internet Assignments

International Business : The Challenge of Global Competition, 8/e

Donald Ball
Wendell H. McCulloch, California State University Long Beach
Paul L. Frantz, California State University Long Beach
Michael Geringer, California Polytechnic State University
Michael S. Minor, University of Texas Pan American

Internet Assignments

Students:

Included here are some internet/case assignments that you can use to review or that your instructor may give as assignments. Your instructors have been given the answers to these questions and may choose to give them out to you or not.

This case is designed to:

Expose you to some of the characteristics of offshore banking and offshore companies;
Provide you with insight into how international companies might utilize offshore banking and offshore companies; and
Allow you to explore the relationship between the establishment of offshore banks and offshore companies, and geographic location and characteristics.

DISCLAIMER: THIS CASE IN NO WAY SUPPORTS OR ENDORSES THE USE OF OFFSHORE BANKING OR OFFSHORE COMPANIES TO ENGAGE IN ANY ILLEGAL ACTIVITY.

The British Virgin Islands (BVI) is a group of islands located in the Caribbean Sea. They are sparsely populated with the total population under 20,000. With that small population, there are over 300,000 companies registered in BVI's jurisdiction. That's over 15 companies per resident! Much of the international interest in the BVI has to do with offshore banking and offshore companies.

When you hear the terms "offshore banking" and "offshore company" what to you think of? If your answer is money laundering, criminal activity, drug lords, illegal operations, etc., your view is shared by many others. While both offshore banking and offshore companies have been linked to numerous illegal underground activities, they potentially offer opportunities and advantages to bona fide businesses.

Offshore banking encompasses two distinct concepts, legal and mechanical. In the legal sense, offshore banking refers to a bank that is licensed to do business only outside of the jurisdiction in which it is chartered and licensed. What this means is that a bank holding an offshore banking license may engage in some, most or all activities normally carried on by any other bank, but cannot offer those same services to the residents of the jurisdiction in which the bank is chartered and licensed. For example, a licensed offshore bank in the BVI may offer its services to anyone who is not a resident of the BVI, but cannot offer those same services to residents of the BVI.

In the functional sense, an offshore bank is any bank that located outside of the country in which the depositor lives. That means that any bank outside of the United States is considered to be an offshore bank for those who are residents of the United States.

Regardless of how a bank is structured, where it is licensed and chartered, or where it does business, all banks use the same channels to facilitate the movement of funds domestically and internationally. Therefore, all banks in the world are indirectly connected through their correspondent and inter-bank relationships.

An offshore company, sometimes referred to as an international business company or IBC, is a legal entity whose beneficial ownership and business activities lie outside of the country of its registration. An offshore company generally does no business, pays no taxes and is for the most part free of trade and other restrictions such as exchange control, trade licensing and public requirements in the country in which it is incorporated and resident. Oftentimes, offshore businesses are used to minimize taxes, protect assets, bypass trade and other legal regulations, and/or maintain confidentiality about certain activities. For example, offshore companies can be used to: (1) conduct business without having to report to agencies of the domestic government; (2) bypass domestic restrictions on borrowing and lending; (3) preserve confidentiality of the affairs of the offshore company and its investors, shareholders, clients or associates; (4) make investments, shift them or sell or trade them without having to report to any governmental entity; (5) conduct foreign trade activities in any field including currencies, stocks, bonds, loans or merchandise; (6) purchase goods from one country and sell those goods to another country with profits held in a third country; and (7) maintain deposits in any bank in any country the company chooses.

A distinguishing feature of both an offshore bank and an offshore company, is the separation of their legal jurisdiction from the jurisdiction of their depositors or owners. This is significant because no country may impose its laws on another country without that country's consent and cooperation. In addition, no country may investigate an individual or a company located in another country without the consent and cooperation of the country in which the investigation is to be conducted.

Case Instructions:

Answer the following questions concerning offshore activities in the British Virgin Islands.

What are some of the benefits of establishing offshore operations in the British Virgin Islands. Go here http://www.bvi.org/incorp_services.html for the answer.
Describe the geographical characteristics of the British Virgin Islands. Go here http://www.cia.gov/cia/publications/factbook/geos/vi.html for the answer.
Explain how the geography of the British Virgin Islands makes it an ideal location for the establishment of offshore business activities.