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Offshore Financial Centres:
OFCs' Response
to recent International Initiatives
©
2002 Dr Jean-Philippe Chetcuti. All Rights Reserved.
The complaints of developed
countries about secrecy and discriminatory tax policies are more than
legitimate. By addressing the issue of lack of transparency, developed
jurisdictions would gain a better position in taxing the worldwide income of
their citizens. An interesting point is that many of the reforms being demanded
by FATF and the OECD were set in motion prior to OECD action. They were driven
by the global market comprising millions of investors.
The same investors who encouraged international investment in tax havens were
now pushing for change on those same regimes, whilst placing higher importance
on standard accounting and banking regulations than secrecy and nominal taxes.
Undoubtedly, these international
initiatives have given rise to some uncertainty about the future of some if not
all OFCs. Yet, the future of OFCs should not be seen as so bleak. There is
growing recognition that there are quality OFCs which are already complying with
internationally accepted standards and quality business is being allured to
these quality OFCs. Hence, the belief that such centres do have a future,
presumably, a bright one indeed.
Initiatives, to establish an
international framework within which countries can co-operate to address
transparency and information exchange, will not result in the ‘death ‘ of
offshore centres. Indeed, it is likely that the exact opposite will take place
as investors’ confidence in the offshore world will augment.
The offshore centre’s reputation is not merely a vital element in the case of
anonymity and lox taxes. The problem of money laundering could also tarnish the
reputation of an OFC. Indeed, the day that the FATF met to discuss money
laundering, Standard & Poor’s downgraded its rating for a top Liechtenstein
bank.
In fact, weaknesses in a
country’s financial system invite danger as they grant opportunities to
international criminals to manipulate the system of their own advantage.
This was acknowledged by many OFCs in the Thirty-Second Pacific Islands Forum,
where the need for ‘development of a cooperative framework within which
countries can work together to address transparency, capacity building and
appropriate information exchange in relation to tax matters,’ was highly
emphasised.
Hence, there will always be room
in the financial market for quality market operators. The continued advantages
of strong OFCs together with a continued growth in wealth worldwide and the
globalisation of the financial market place, suggests there is every reason to
expect both small and large OFCs, working to international standards, to
continue to find a place in the sun.
Upon comparing the importance of
legitimate investment with the limited pool of investors seeking high degrees of
secrecy and nominal tax rates, it is clear that the former is much more vital to
a sound economy than the latter as legitimate investors are the more numerous
group. This, coupled with the reputation factor, shows that OFCs should benefit
more from compliance with international standards of co-operation, than from
being left behind.
More international co-operation
in the field of information exchange will be called for in the pursuit of those
engaged in fiscal fraud and other criminal matters, in support of criminal
investigations and prosecutions. The work of the FATF on money laundering and of
the Basel Committee on Banking Supervision, on customer identification and on
customer due diligence also demonstrate the need for more transparency. However,
companies engaged in legitimate business should not be deprived of the
international tax-saving opportunities presented by OFCs; nor should legitimate
investors fear the loss of their rightful privacy of other their right to call
upon human rights legislation to uphold.
Ultimately, there
is no reason to be pessimistic about the future of OFCs, insofar as they service
corporate entities or individual investors, as long as they meet their
international commitments and observe all international standards. If this
process is to be fully effective in its application, it requires an
international level playing field. In the meantime, OFCs should be recognized
as partners in the application of international standards, rather than enemies.
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legal order: a comparative study
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