Global Financial Crime

Terrorism, Money Laundering and Offshore Centres

Donato Masciandaro

• Publisher: Taylor & Francis
• Year: 2017
• Print ISBN: 9780754637073
• eBook ISBN: 9781351933469
• Edition: 1
• Topic: Social Sciences
• Subtopic: Politics
• Index: Social Sciences

The scope for financial crime has widened with the expansion and increased integration of financial markets. Money laundering, terrorism financing and tax crime have all changed in both nature and dimension. As new technologies reduce the importance of physical proximity to major onshore financial centres so a new generation of Offshore Financial Centres (OFCs) have emerged. This accessible volume provides a deeper analysis of the economic, institutional and political features of the OFCs, in order to design the optimal international regulatory policy. Using a multidisciplinary approach with an international level of expertise, the book evaluates international policies regarding offshore countries on the basis of a systematic analysis of their characteristics.

Chapter 1
Overview: Markets, Offshore Sovereignty and Onshore Legitimacy

George Peter Gilligan

Introduction

The world economy and individual national economies are becoming increasingly internationalised and interdependent, and this impacts upon the capability of the vast majority of individual nation states to control how their national economies function within the world economy. This can happen in a number of ways. It may be a matter of a deliberate choice in policy, as in the case of those Member States of the European Union (EU) who adopted the euro as their common currency, thereby reducing their flexibility regarding national monetary policy. In addiction, there are significant effects that may be not a discrete policy initiative but are due rather to the growing influence of more internationalised markets in goods and services, whereby all manner of resources and trading relationships may be transferred in and around global, regional and national markets. Consequently, as economic and political ties between many jurisdictions are deepening, nation states are increasingly playing a mediating role regarding the interests of much business that may be conducted within their spheres of influence. These developments are affecting contemporary understandings of sovereignty, as national political priorities become more intertwined with international politics and the requirements of international business.¹ A major consequence of these developments is that regulatory structures and processes have become more internationalised and a variety of modes of governance are emerging that have a capacity for impacts of broad international scope. These shifts in regulatory power can be manifested in a global sense through bodies such as the Basle Committee on Banking Supervision (BCBS), the International Association of Insurance Supervisors (IAIS), the International Organisation of Securities Commissions (IOSCO), and the World Trade Organisation (WTO). The capacity for international regulation also can be facilitated through networks of specific agreements between professional bodies, between state-sanctioned self-regulatory organisations and between government departments of different jurisdictions. Consequently, agreements can be multilateral, through mechanisms such as international treaties and conventions, or bilateral, such as a memorandum of understanding (MOU) between the national securities regulators, or mutual agreements between the taxation authorities of different jurisdictions.² Significant motivations for many of these agreements are a desire for higher levels of stability and/or capability in the economic arena, and increased capacity to manage risk.

Inevitably, different national and cultural influences will impact upon both national systems of regulation and on emerging modes of global governance, and in a more international context some of these value systems may conflict. In some situations there can be disagreement about what should constitute prevailing standards of compliance and the repercussions of such disagreements can be substantial. For example, at the time of writing this chapter³ (February 2003), arguably the most important geopolitical issue is the US-led campaign regarding Iraq and its alleged failures to comply with numerous UN Security Council Resolutions concerning weapons of mass destruction.⁴ However, there has been disagreement between different countries not only about how best to evaluate Iraq's levels of compliance with a number of UN Security Council Resolutions but also to decide what recriminations Iraq should face for perceived non-compliance. At the heart of debates about Iraq and the actions of its President Saddam Hussein, are claims and counter-claims about notions and levels of legitimacy. Similar debates regarding interpretations of business norm and compliance standards have been ongoing within the financial services sector between a number of jurisdictions and various organisations, such as the Organisation for Economic Cooperation and Development (OECD),⁵ the Financial Action Task Force (FATF)⁶ and the Financial Stability Forum (FSF).⁷ In many ways this is not surprising and is indicative of the difficulties associated with developing an integrated international regulatory response to the phenomenon of the internationalisation of financial capital, much of which is highly liquid and some of which may be controlled by entities that may be incorporated or have some connection in offshore financial centres (OFCs).⁸ As we will stress in all the chapters of the book, there are numerous interpretations of what constitutes an OFC. One useful working definition is:

...a centre that hosts financial activities that are separated from major regulating units (states) by geography and/or by legislation. This may be a physical separation, as in an island territory, or within a city such as London, the New York International Banking Facilities (IBFs).⁹

The International Monetary Fund (IMF) provides an alternative working definition that focuses on the practices of OFCs:

a centre where the bulk of financial sector activity is offshore on both sides of the balance sheet (that is the counter parties of the majority of financial institutions' liabilities and assets are non-residents), where the transactions are initiated elsewhere, and where the majority of the institutions involved are controlled by non-residents.¹⁰

So it should be immediately clear that the generic term OFCs encompasses quite a diverse range of jurisdictions and financial centres with large variances in levels of available resources, and in levels of economic development. It is important to stress that OFCs are not a homogeneous grouping, as is discussed in some detail in this chapter and in Chapter 4.

It is imperative that regulatory initiatives regarding OFCs acknowledge the heterogeneity of OFCs in meaningful ways. Almost anywhere can fulfil the functions of an OFC and, in some ways, the label 'offshore' can be somewhat misleading. For example: OFCs can be small islands in the Caribbean, such as Barbados or St Lucia; small islands in the Pacific Ocean, such as the Cook Islands or Western Samoa; small islands in the Indian Ocean, such as Mauritius; small islands around the coast of the British Isles, such as Guernsey, Jersey or the Isle of Man; highly developed economies in Europe, such as the Principality of Liechtenstein or the Principality of Monaco; or specialist enclaves within financial centres, such as in Dublin, Ireland. OFCs that are quite small in physical terms may handle huge totals of financial capital. In 1999, for example, the combined total of funds managed by Jersey, Guernsey and the Isle of Man has been estimated to be more than US$ 600 billion, and the total has probably increased since then.¹¹ The IMF estimated that in mid-1999, on-balance sheet OFC cross-border assets comprised US$ 4.6 trillion, or 50 per cent of the w...

Table of contents

• Cover
• Half Title
• Title
• Copyright
• Contents
• List of Contributors
• Foreword
• Introduction
• 1. Overview: Markets, Offshore Sovereignty and Onshore Legitimacy
• 2. Law: The War on Terror and Crime and the Offshore Centres: The 'New' Perspective?
• 3. Macroeconomics: The Financial Flows of Islamic Terrorism
• 4. Financial Policy: Offshore Centres and Competition in Regulation: The Laxity Problem
• 5. Public Policy: Offshore Centres and Tax Competition: The Harmful Problem
• 6. Politics: Offshore Centres, Transparency and Integrity: The Case of the UK Territories
• Conclusions
• Index