Previously it was possible to hide large amounts of money in an offshore bank account and the depositor could thereby avoid paying taxes on the interest in his home country. Instead, the depositor would pay taxes in the offshore bank's home country and the interest taxes in these countries were most often non existing or very low.

Offshore banking can still keep account information secret from the authorities, but this might change in the near future. As a consequence of the terrorist attacks on September 11, 2001 offshore banks have already started to work closer with authorities.

As long as offshore banks can keep account information secret, it might be possible to hide money in an offshore bank account and thereby attempt to avoid taxes. Hiding money in a offshore bank account is considered tax evasion or fraud and may carry heavy legal implications.

Today, offshore bank users are required to notify their local authorities about any offshore bank accounts they might have. Users of offshore banking in United States should fill out a Treasury Department Form 90-22.1 in order to inform IRS about their offshore banking accounts.

The possibility of using offshore banking to avoid taxes is one of the major factors behind most people's negative image of offshore banking.