Banks outside the reach of US laws? Do they exist?

I see that the British Bank Standard Charter had to shell out a billion in fines because of complicity in violating US sanctions laws. It go me wondering about banks in general. Only large international banks make the news when they get caught breaking sanctions laws. What about smaller banks chartered and operating in other countries?

I am aware that any time a bank deals in the international banking system it inevitably participates in US activities-most international trading at least passes through a US node somewhere. So no bank can conduct international business and stay aloof from US control. However, by number almost all financial transactions don’t involve international movements. So, could someone successfully run a bank, say in Costa Rica or Japan or Sweden, that is pick any country, and accept deposits from anyone without the US being able to stop/fine them? Obviously any bank in such a situation would have to be careful about currency exchanges, but lets assume the bank has a solution to that. Say they operate an exchange themselves where they buy and sell actual dollars on the local market and make exchanges from the proceeds. We further assume that the bank follows all local laws and that those laws don’t require local banks to follow US banking regulations. Can and do such banks exist?

Broadly speaking, the US has direct regulatory control over institutions which operate in the US, although given that many of these are multinationals that’s still a pretty wide scope. The US also has indirect regulatory control or influence over overseas banks to the extent they interact with US banks and other businesses. And of course the US can impose sanctions on foreign companies of any sort for all sorts of reasons.

That’s the simplified version; in practice it’s much more complex and legalistic. Note also that in the case of Standard Chartered, their latest fine is a joint US-UK penalty, with £102m going to the UK regulators and $1.1bn to the US ones.

It seems to me that almost all banks seem to have to interact with US banks and other businesses. Is that true? As I understand it, the US exercises control over foreign banks by virtue that the vast majority of foreign exchange payments go through a US controlled node. Usually a correspondent bank. So unless the local bank wishes to give up the business of foreign operations, they are subject to US banking regulations. Which are even tougher and quicker to implement than US laws. My question is: are there non-US banks that avoid worrying about what the US thinks by simply not having any relationship with a US controlled bank or business? The Standard Charter example is simply the latest such example. The US has sanctioned several Chinese banks recently because those banks assisted in trade with Iran and/or N. Korea.

Boogie on over to Wikipedia and search for “Offshore Bank.” These are what I would call “hanky-panky” banks, for as soon as a country such as the US or the UK try to tighten up the loopholes which make offshore banking so attractive, the banks hanky-panky some more.

Those who are better versed in financial stuff can be more detailed, but it is my understanding people who use these banks can move their bucks back in to the US with shell corporations.

Human nature being what it is, if there is an obstacle, someone will find a way around it.
~VOW

I lived 16 years in the Cayman Islands and the banks there were divided into two categories.

The first category was for banks that provided typical consumer banking services such as checking or savings accounts, mortgage or car loans, and such. There were only about 6 banks so licensed. All of these banks fell under US regulations due to international transactions and/or having US citizens as customers. They required proof of citizenship to open or maintain an account, and required a sworn statement that the customer did not hold any citizenship not disclosed.

The second category was for banks that only conducted international business by electronic means. Currently that means virtually all their transactions are routed through a US bank and thus they fall under US regulations. But theoretically a mechanism could be established to permit direct wiring of funds between two countries which are not the US using the Cayman bank as an intermediary. And so long as that Cayman bank did not have even a single US citizen (or US business) as a customer it would fall outside US regulations. As far as I know all the Cayman banks do have US customers and thus fall under US regulations.

The smaller banks and the informal banking sector get caught to the extent that people use them to send money to their relatives. In small third-world countries or places with sanctions, the banks are small and the informal sector may be big.

It’s an issue for people with relatives in Iran, or Syria, or…
On a related note: Cambodia’s NGO micro-finance schemes have morphed into a loan-shark and pay-day-lender sector. That sector doesn’t meet international banking regulations, but sanction-busting isn’t one of their big activities.

To be clear, while sanction-busting is an obvious reason to make use of such a bank, there are other more benign reasons. Just serving US citizens without the paperwork hassle would be one I believe.
As I understand it, foreign banks find it difficult to handle accounts opened by US citizens because the US has imposed significant reporting requirements on those banks in an effort to catch tax dodging americans. Some banks have solved the problem by closing the accounts of all US citizens. However a bank not subject to US rules would have no problem being available to US citizens. The US citizen has the problem of reporting to the US Gov’t but that has always been the case.