Offshore Banking

10 Key excerpts on "Offshore Banking"

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  eBook - ePub

  The Routledge Companion to Banking Regulation and Reform

  • Ismail Ertürk, Daniela Gabor, Ismail Ertürk, Daniela Gabor(Authors)
  • 2016(Publication Date)
  • Routledge

    (Publisher)

  Secrecy jurisdictions usually cooperate with one another. According to Zucman (2014, p. 43), 60 per cent of the foreign assets invested in Switzerland come from tax havens using letterbox companies such as Panama or the British Virgin Islands. Thus, unlike what the common assumptions and several tax haven lists suggest, offshore economies are not only a matter of small islands or countries; rather, they are legal instruments that were introduced or tolerated by offshore and, apparently, onshore jurisdictions. Onshore and offshore finance economies are closely interconnected, especially when considering shadow banking and onshore banking (Palan, 2003; Errico and Musalem, 1999), the use of correspondent accounts (see techniques of avoidance), the fact that most states have tax legislation offering advantages to specific sectors (TJN, 2015; Palan, Murphy and Chavagneux, 2010, pp. 40–5. For Gemany see Meinzer 2015), the financial flows of foreign direct investment between offshore and onshore jurisdictions (Haberly and Wójcik, 2014), ‘real’ and financial economies (Coe, Lai and Wójcik, 2014; Palan and Nesvetailova, 2014; Hall and Leyshon, 2013), or in the taxation of TNCs in grey areas of legality (Troost, 2013b; Picciotto, 2012). Given the interconnectedness of offshore and onshore finance, it is not enough to simply look at jurisdictions; instead, it is important to take a closer look at actors, especially MNCs and TNCs, owners of capital, and the professional groups involved in offshore services.

  Actors

  According to the FSF (2000, p. 10), offshore jurisdictions are used by (1) international companies to maximize profits, protect assets and issue securitized products through special purpose vehicles (SPV); (2) individuals to protect assets from potential claimants; (3) financial institutions to minimize income and withhold tax to avoid regulatory requirements, and to assist customers in minimizing income and withholding tax; (4) insurance companies, to accumulate reserves and avoid regulatory requirements; and (5) criminals and others to launder proceeds from crimes through the banking system.

  Banks seem to use secrecy jurisdictions more extensively than non-financial companies. They have particularly large number of subsidiaries in secrecy jurisdictions (TJN, 2009) and they seem to primarily employ schemes for profit shifting for tax avoidance (Merz and Overesch, 2014). Based on the empirical analysis of subsidiary-level bank data from the international bank database, Bankscope, Julia Merz and Michael Overesch (2014) found that the ‘magnitude of the tax sensitivity of reported profits [of multinational bank subsidiaries] is almost twice compared with effects found in previous studies for MNEs [multinational enterprises] outside the financial sector’ (Merz and Overesch, 2014, p. 3). Offshore jurisdictions are further used by shadow banks (Rixen, 2013, p. 435). The shadow banking system is huge in size: the FSB estimates that in 2011, its assets made up about 67 trillion dollars, which accounted for 25 per cent of the global financial system (FSB, 2012, p. 3).

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  The Deepening Crisis

  Governance Challenges after Neoliberalism

  • Craig Calhoun, Georgi Derluguian, Craig Calhoun, Georgi Derluguian(Authors)
  • 2011(Publication Date)
  • NYU Press

    (Publisher)

  The development of offshore havens made the classic shadow economy look anachronistic. The offshore sector allows residents of one jurisdiction to conduct business operations behind the façade of foreign companies and to avoid being identified. As these companies are registered as subsidiaries of other companies registered in ostensibly respectable places, such as London or Amsterdam, parts of national economies are now safely placed outside national boundaries and protected by special jurisdictions, some of which are independent political units, and some, dependencies of other states. Now operations and incomes of the same business enterprise can be divided between different legal entities and between different jurisdictions for accounting purposes. In effect, the distribution of economic activities between different legal entities means deciding which parts of profits to show and which to hide, depending on the national tax regime. One problem of the classic shadow economy is that its scale is limited by the size of social networks, because participants cannot use formal laws and have to rely on informal contracting and personal relations. The invention of the offshore sector resolved this problem by supplying sophisticated legal environments compatible with legal systems of several countries. It is thus the large business that gets the biggest advantage from the offshore sector, as it can fully utilize the advantages of flexibility and scale of transactions. Unlike the shadow economy, which expands when taxes and restrictions intensify and shrinks when they decrease, the offshore sector does not react in the same way to global waves of regulation and liberalization. It tends to benefit from both, capitalizing on the growing demand for safe havens during welfare turns, as in the 1930s and ’70s, and increasing international financial mobility and investment during periods of conservative liberalizations, as from the 1980s on.

  The Size of the Offshore Economy

  Attempts to define and measure the offshore economy have been made since the 1970s. According to the IMF review that summarizes these attempts, the offshore financial centers (OFCs), as they are routinely called, share three key features: (1) a primary orientation of business toward nonresidents, (2) a favorable regulatory environment (low supervisory requirements and minimal information disclosure), and (3) the low-or zero-taxation schemes.10 The IMF operational definition that sets an OFC apart from other countries rests on the idea that their essential feature is the export of financial services.11 Therefore, the key indicator is the ratio of net exports of financial services to GDP, which, the IMF established, is extraordinarily high for twenty-three countries.12

  Besides numerous financial centers and corporate registers, there are other offshore varieties. They include flags of convenience that specialize in low-cost maritime registration, among which the leaders are Panama and Liberia; special export-processing zones with relaxed custom duties, such as Mexico, Puerto Rico, Taiwan, and Hong Kong; offshore insurance centers, such as Bahrain, the Isle of Man, and Bermuda; centers of e-commerce; offshore casinos; and even specialized telephone sex centers.13

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  Offshoring

  • John Urry(Author)
  • 2014(Publication Date)
  • Polity

    (Publisher)

  82

  It is further shown that offshore does not have to be literally offshore from centres of economic power. Offshore, we might say, is everywhere. One company's onshore is another's offshore. And this is a powerful world which is, in a way, located nowhere as such, its power stemming from its ethereal character. Murphy powerfully writes how ‘illicit financial flows … do not flow through locations as such, but do instead flow through the secrecy space that secrecy jurisdictions create … They float over and around the locations which are used to facilitate their existence as if in an unregulated ether.’83

  As a consequence, this overlapping ‘secrecy world’, this unregulated ether’, cannot be regulated by single national states and, indeed, may not be regulatable at all. A world of secrecy has developed on such a scale and taking the form of an ‘unregulated ether’ that it is almost impossible to nail down, let alone to tame, but where excesses do sometimes get to be made public and subject to dramatised shaming.

  This secret offshore world derives from the power of finance especially over states and industry. The dictatorship of financial markets means that money is thought of not as a public resource but as private and allowed to expand for profit. This ‘privatisation’ of money into finance occurs in various ways: through the competitive proliferation of new financial products and services; through how most finance (at least 95 per cent) is market speculation; through the ways in which finance searches out low or zero tax locations; and through competition between taxing authorities, so providing ever more attractive tax and related arrangements to potential ‘investors’. Large corporations and HNWIs have certainly prospered beyond their wildest dreams through the growth of a vast, unregulated offshored world of ‘privatised’ finance.

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  Money and the Global Economy

  • Alexander Reed(Author)
  • 1998(Publication Date)
  • Woodhead Publishing

    (Publisher)

  Offshore financial centres: a closer look Offshore financial centres, reviewed briefly earlier in this chapter, are a phenomenon of recent decades. They have grown rapidly in number and in the volumes of business handled and, with the increasing fluidity of international money movement in the growing global economy, this trend will surely continue. They are therefore now an important and integral part of the international financial community. The required infrastructure Just as no one person or institution invented money, banking or Eurocurrencies, since they are inevitable parts of the evolution of the world's economies, so the offshore financial centre was not born in a flash of someone's insight. However, offshore centres do not just happen. On the contrary, the world hosts over 50 such centres and each one and the country of its domicile require a combination of infrastructure factors to permit its presence in the highly competitive arena of the offshore markets. Legal, tax and regulatory atmosphere Some major centres like London, Zurich and Hong Kong have traditionally been oriented to international finance and therefore offshore business took root in those places without much fanfare although, as the potential for the business was appreci-ated, various laws were passed, regulations promulgated and tax code adjustments enacted to encourage the business further. But few other present offshore centre nations were in such privileged positions. Most of these countries have legislated or regulated themselves into offshore business by doing some or all of the following: 72 WHO MOVES THE WORLD'S MONEY: FINANCIAL CENTRES AND THEIR BANKS 1 Removed foreign exchange controls, if they existed, on non-resident transactions. 2 Eliminated or greatly reduced taxes (withholding, income, stamp) on non-resident business.

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  Offshore Financial Centres and the Law

  Suspect Wealth in British Overseas Territories

  • Dominic Thomas-James(Author)
  • 2021(Publication Date)
  • Routledge

    (Publisher)

  Offshore financial centres and the British Overseas Territories

  3.1 Introduction to ‘offshore’

  The concept of ‘offshore’ seems both indefensible and irresistible. The former manifests through the agendas of global tax justice organisations and international investigative reporters whose sole purpose appears to be aimed at engendering global tax harmony and the consequent eradication of offshore financial centres through increased pressure and externally dictated controls. This is based on long-held views as to their harmful role in the global economy through abuse of their offshore products and services to facilitate crime, conceal or launder its proceeds, or evade fiscal obligations in other jurisdictions. Their influence on policy and lawmaking is irrefutable and clearly evidenced in the passage of the public register amendment to the UK Sanctions and Anti–Money Laundering Act. The latter, the irresistibility, materialises through popular depiction of offshore centres, the types we see in Fleming’s James Bond stories, which frequently mention numbered bank accounts, Swiss vaults to conceal wealth, or fiscal paradise Caribbean tax havens. This book does not set out in defence of offshore, nor does it flailingly adopt those predictable sentiments which often lack substance in dissent of them. It proceeds on the unpopular basis that offshore financial centres are not going to go away because the lion’s share of the world’s economists suggest they serve no useful purpose. And, why should they? This book is not concerned with the morality of tax havens, but rather the extent to which their regulation and participation in global financial transacting is cooperative and compliant with international standards designed to suppress and obviate the risks posed to their financial centres, and others, by suspect wealth and its origins. The morality debate which tends to result in offshore centres being presented internationally as ‘pariah states’ often clouds sensible, practical solutions to achieving more meaningful cooperation with these jurisdictions.

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  The Imagined Economies of Globalization

  • Angus Cameron, Ronen Palan(Authors)
  • 2003(Publication Date)
  • SAGE Publications Ltd

    (Publisher)

  It maintains, however, its ‘offshore’ status due to a variety of provisions and legal arrangements that different states have put in place to distinguish it from ‘onshore’ spaces of regulation. In that sense, the Euromarket is only fic-tionally ‘offshore’, for it lives its life in the familiar financial centres of the world. In spite of the allusion to ‘shores’, of which more below, the bound-ary between offshore and onshore is more likely to be found running down the corridors of international banks than along the political boundaries of the state. Notwithstanding this, the Euromarket remains largely unregu-lated because of the fiction of its existence beyond the jurisdiction of any state. Because of that same fiction, the Euromarket is considered to be a global financial market. Offshore financial centres Whilst the offshore financial market is fully integrated, internally coherent and, therefore, apparently ‘global’, it is not located ‘offshore’ in any literal sense. Rather, it is situated in and between different types of financial centre all of which are located, physically and juridically, in major ‘onshore’ cities. In that sense, offshore finance is not at all external to the state, but the The Offshore Economy 93 ‘spaces of flow’, as Castells calls them, are materially located in the state. But as we will presently see, states have established a variety of unique juridical arrangements to sustain the fiction of the offshore financial market. The literature distinguishes three types of ‘offshore’ financial centres, or three different legal arrangements: the so-called ‘spontaneous’ offshore sites, such as London and Hong Kong; variations of International Banking Facilities (IBF) (or onshore–offshore centres) such as New York and Tokyo; and tax havens. These three categories should be considered ‘ideal types’, as each offshore financial centre and tax haven offers its own unique ‘bundle’ of financial regulations.

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  Offshore Financial Centers, Accounting Services and the Global Economy

  • Don E. Garner, David L. McKee, Yosra AbuAmara McKee(Authors)
  • 2000(Publication Date)
  • Praeger

    (Publisher)

  Page 33 national financial transactions. He quoted Walter Diamond to the effect that half of the world’s financial transactions take place offshore and stated that the number of offshore centers, worldwide, is approaching 60 (2). He observed that recent estimates of wealth held offshore are at the U.S.$5 trillion level. That wealth, he suggested, tends to gravitate to where it can maximize its return. Thus huge amounts of funds have legitimately been transferred to offshore locations over the last 30 years (2). Bendelow sees the greatest challenge facing offshore centers for the foreseeable future as being how to regulate their own internal operations so as to be able to continue their relationships to the onshore world in a mutually acceptable manner. In that context he sees the main areas of concern involving such things as the laundering of drug money and the gains from other crime, fraudulent and other wrongful but noncriminal transfers and tax evasion (2). For continuing and successful onshore/offshore relations those issues must be controlled, and Bendelow sees sovereignty as a serious issue (2). What may be the response of offshore centers to requests for information? Bendelow sees a continuum of likely responses ranging ‘‘from no assistance permitted to total and unconditional assistance in every shape or form’’ (3). In tax cases where one country attempts to assert its rules in the courts of another country, no assistance is probable on grounds of protecting sovereignty. At the other extreme most countries will cooperate ‘‘in such matters as the suppression of the drug trade’’ (5). Bendelow sees all other matters falling between those extremes. He sees good cooperation between onshore and offshore British jurisdictions with respect to all nontaxrelated inquires on serious matters. Similarly he sees good cooperation between most European tax havens and onshore authorities on anti–drug money laundering activity.

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  Global Financial Crime

  Terrorism, Money Laundering and Offshore Centres

  • Donato Masciandaro(Author)
  • 2017(Publication Date)
  • Taylor & Francis

    (Publisher)

  64 So it is not surprising that those smaller jurisdictions with a reputation for secrecy, which derive a significant portion of their GDP from the financial sector, would want to defend those interests. It is probable that the provision of financial products and services in an offshore context will remain a growth industry and that more and more jurisdictions will aggressively pursue market share. In the past, this pursuit of market share has resulted in some offshore jurisdictions being regulated in the loosest of fashions, and this is still the situation in certain cases. It is significant, however, that many jurisdictions are making strenuous efforts to rid themselves of the stigma of being labelled facilitators of money laundering or as tax havens.

  This can be seen in various ways, such as public statements by local politicians and regulators, the willingness of many jurisdictions to submit letters of commitment to the OECD regarding the elimination of harmful tax practices, and many OFCs agreeing to inspection visits by teams from the IMF.

  There is a growing awareness that any finance centre seeking long-term success should establish information sharing and other co-operative processes with other national regulators and with international organisations. The change in attitude in much of the offshore finance sector - which Chapter 6

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  The Routledge Handbook of Financial Geography

  • Janelle Knox-Hayes, Dariusz Wójcik, Janelle Knox-Hayes, Dariusz Wójcik(Authors)
  • 2020(Publication Date)
  • Routledge

    (Publisher)

  Meanwhile, the combination of Brexit and the deteriorating transatlantic alliance has jeopardized Britain’s financial relationships with its allies, with the United Kingdom simultaneously antagonizing the EU with its plans for reg-ulatory divergence (Fleming and Peel, 2020), and the United States with its planned tax assault on US technology companies (Elliott and Mason, 2020). Most problematically, the United Kingdom has arguably proven to be too large geographically to sustain its finance/London-centred development model from a regional distributional standpoint, threatening the domestic political stability on which the financial sector depends (Macleod and Jones, 2018; Rodríguez-Pose, 2017). Indeed, the United Kingdom’s relationship with the offshore world increasingly resembles a politically volatile emerging market; in the lead-up to the latest election, British utilities placed their assets under offshore holding companies to ensure that shareholders would receive a fair price if expropriated by the state (BBC, 2019). Offshore in Historical Perspective As Maurer (2008: 160) puts it, ‘Far from a marginal or exotic backwater of the global economy, offshore in many ways is the global economy.’ The Daniel Haberly 576 analysis in this chapter has pushed this line of argument one step further by demonstrating the need to conceptualize offshore and onshore as, in effect, the two faces of the state in capitalism. Notably, while the architecture of the offshore system, and the devices employed in it, have become increasingly sophisticated over time, the basic logic of the dialectical relationship between onshore and offshore has been remarkably stable over deep historical times-cales. In this respect, far from being an expression of some ‘new medievalism’, offshore is arguably part of an old medievalism that never actually went away, apart from in the imagination of political theory.

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  Offshore Financial Centers and Regulatory Competition

  • Andrew P. Morriss(Author)
  • 2010(Publication Date)
  • AEI Press

    (Publisher)

  49 and the modern OFC tends to offer not only low taxation rates and company registry services, but also regulatory advantages and financial products competition. As one observer wrote just five years ago,

  Offshore tax havens as we know them are heading the way of the dodo. Under intense pressure from global watchdogs, regional authorities and individual countries, notably the United States, they are falling into line with international standards of reporting and disclosure, hoping against the odds to refashion themselves as successful financial centers.50

  Successful OFCs are now complete alternative markets.51 Rose-Marie Belle Antoine describes the main offshore financial services as “international banking services; dynamic investment functions and funds; tax planning services and other financial services associated with transnational business; and employment savings to avoid costly employment protection, social security or pension requirements.”52 Related financial products usually include “succession and asset protection vehicles like offshore trusts, mere incorporation facilities or … ‘paper companies,’ active companies, captive insurance, offshore shipping registers, fund flotations, offshore pensions … investment bonds or unit trusts, and the international business company.”53 Modern OFCs also boast accounting, legal, and insurance services. Offshore insurers “paid more than 60% of the World Trade Center insurance claims and 50% of the claims from Katrina.”54 In particular, Bermuda is a major world player in insurance and reinsurance.55 Finally, OFCs are active in hedge fund offerings—as of 2005, 70 percent of the hedge fund market was offshore.56 In 2006, the British Virgin Islands were the second largest hedge fund domicile in the world, with 9 percent of the global market, nearly 2,500 funds, and funds larger than €100 billion.57 Bermuda ranked third, with 7 percent.58

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