First of all let us understwhat is mean by Offshore Banking

Meaning of Offshore Banking

An offshore bank is a bank located outside the country of residence of the depositor, typically in a low-tax jurisdiction (or tax haven) that provides financial and legal advantages. These advantages typically include:

• greater privacy (see also bank secrecy, a principle born with the 1934 Swiss Banking Act)
• little or no taxation (i.e. tax havens)
• easy access to deposits (at least in terms of regulation)
• protection against local, political, or financial instability

An offshore financial centre (OFC), though not precisely defined, is usually a small, low-tax jurisdiction specializing in providing corporate and commercial services to non-resident offshore companies, and for the investment of offshore funds. The term was coined in the 1980s. Academics Rose & Spiegel,[4] Société Générale,[5] and the International Monetary Fund (IMF) consider offshore centres to include all economies with financial sectors disproportionate to their resident population:

Historically, if one wanted to keep down the amount they may be subject to paying in taxes to the U.S. government, they might place that money in a bank overseas. For many years the U.S. government did little to regulate or enforce laws pertaining to offshore accounts. However, that policy is changing and new laws are coming into effect that will make regulations of offshore accounts even tougher.

Since 2009, the U.S. Department of Justice (DOJ) has started to crack down on foreign banks that were allowing U.S. citizens to deposit funds to avoid paying domestic taxes. The two most prominent banks targeted, UBS and Credit Suisse were among a number of other, smaller institutions that were charged with helping Americans evade taxes. UBS admitted its role in fostering tax evasion and entered into a deferred prosecution agreement under which it paid $780 million in fines,penalties, interest, and restitution and turned over information related to nearly 5,000 accounts to the Internal Revenue Service (IRS). This cascaded into several hundred grand jury investigations of Americans engaged in offshore banking with these institutions, dozens of charges and convictions for tax evasion, as well as hundreds of tax payers who voluntarily submitted to the IRS to pay delinquent taxes and penalties rather than face enforcement proceedings. A number of bankers, accountants, and even lawyers were also caught up in the prosecutorial maelstrom for their roles in facilitating the transactions or advising clients as to how they might use offshore bank accounts in order to avoid the IRS.

The federal government’s campaign to track down money held by U.S. taxpayers in foreign countries shifts into high gear July 1.

That is when the main provisions of the Foreign Account Tax Compliance Act, known as Fatca, come into force.

The law, which Congress passed in 2010, is pushing tens of thousands of foreign banks and other financial institutions to disclose information about U.S. customers. It will make life more complex and expensive for many U.S. taxpayers with financial ties abroad, affecting everything from retirement savings to investments to divorce settlements.

“Fatca is an ambitious effort to root out wealthy U.S. taxpayers hiding money offshore and put an end to tax evasion as a profitable line of business for banks,” says Michael Graetz, a Columbia University law professor and former top U.S. Treasury Department official. “But U.S. authorities need to make an effort to avoid catching innocent middle-class citizens in its net.”