Offshore Financial Centers

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Offshore Financial Centers

• Business 4039

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Key Questions You need to Be able to answer

• What is an offshore financial center?
• List some common offshore financial centers by
  region of the world
• What are some common reasons why countries seek
  to develop themselves as offshore financial
  centers
• Arguments Against offshore financial centers
• What reasons do clients have to become associated
  with an offshore financial center?
• Are bank secrecy laws absolute?
• What two major issues have forced offshore
  financial centers to moderate their strict bank
  secrecy laws?
• How do offshore financial centers maintain
  secrecy but take action to reduce or eliminate
  money laundering and the unsavory business
  elements?

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Key Chapter Concepts
What is an offshore financial center?
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Key Chapter Concepts
What is an offshore financial center?

• Offshore financial centers exist for the benefit
  of foreign customers
• Governments of offshore financial centers have
  decided strategically, that this is an industry
  that they want to attract and build within their
  borderspartly for the industry employment, but
  also because of the economic spin-offs, in
  particular, the tourist expenditures that can be
  attracted (especially in warm weather countries).

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Key Chapter Concepts
List some common offshore financial centers by
region of the world
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Key Chapter Concepts
List some common offshore financial centers by
region of the world

• Europe/ Middle East
• Bahrain
• Cyprus
• Gibraltar
• Guernsey
• Ireland (Dublin)
• Isle of Man
• Jersey
• Liechtenstein
• Luxembourg
• Monaco
• Switzerland

• North America
• Anguilla
• Aruba
• Bahamas
• Barbados
• Bermuda
• British Virgin Islands
• Cayman Islands
• Grenada
• Montserrat
• Netherlands Antilles
• Asia/Pacific

• Asia Pacific
• Cook Islands
• Hong Kong
• Lubuan Island
• Palau
• Nieu
• Singapore
• Vanuato

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Key Chapter Concepts

• What are some common reasons why countries seek
  to develop themselves as offshore financial
  centers?

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Key Chapter Concepts

• What are some common reasons why countries seek
  to develop themselves as offshore financial
  centers?

• The country may have little land base and few
• opportunities to develop other types of economic
  activity
• because of
• Limited energy supplies at high cost
• Limited raw materials and other natural resources
• Long distance from raw material and energy
  sources so secondary manufacturing options are
  few
• The country may possess natural characteristics
  that make it an ideal offshore financial center
• Political stability
• Close geographical proximity to wealthy countries
• Well educated workforce
• Some natural amenities that make to possible to
  develop its potential as a tourist attraction
• A political willingness to pass bank secrecy laws
  and at the same time be prepared to invest in
  policing and security infrastructure to assure
  personal safety and to address the potential to
  attract unsavory elements.

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Key Elements Shared By Offshore Financial Centers

• Low or no taxes
• Services are provided mainly, but not
  exclusively, for nonresident clients
• There are no or few foreign exchange controls
• Geographical proximity to a major economy and
  good communications infrastructure
• A legal regime that upholds bank secrecy
• A high degree of political stability is also
  important no one wants to put their money into
  a country that cannot guarantee personal safety
  or the ability to extract ones funds.

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Key Chapter Concepts

• What are the arguments often cited against
  offshore financial centers?

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Key Chapter Concepts

• What are the arguments often cited against
  offshore financial centers?
• They attract unsavory business elements including
  money launderers and terrorists and dictators and
  expatriates who have funneled ill-gotten gains to
  the offshore financial center for their own
  purposes
• They help people evade taxes in their own country
  which means that a disproportionate tax burden is
  shouldered by the middle-income tax payer
  effectively undermining sovereignty and tax
  fairness.

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Key Chapter Concepts

• What reasons do clients want to become associated
  with an offshore financial center?

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Key Chapter Concepts

• What reasons do clients want to become associated
  with an offshore financial center? What factors
  do they consider when choosing an offshore
  financial center?

• Do some research
• Anguilla as an offshore center.

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Key Chapter Concepts

• What reasons do clients have to become associated
  with an offshore financial center?

• Legitimate Reasons
• Privacy for personal, family, business or
  political reasons (purposes)
• Try to keep funds separate in case of inheritance
  battles, divorce or personal bankruptcy
• Keep funds in a secure bank in a secure country
• Illegitimate/Illegal Reasons
• Launder money from criminal activities
• Evade Taxes

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Key Chapter Concepts

• Are bank secrecy laws absolute?

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Key Chapter Concepts

• Are bank secrecy laws absolute?
• In practice nounder the laws in most offshore
  financial centers, they can be lifted to pursue
  and investigate criminal activities.

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Key Chapter Concepts

• What two major issues have forced offshore
  financial centers to moderate their strict bank
  secrecy laws?

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Key Chapter Concepts

• What two major issues have forced offshore
  financial centers to moderate their strict bank
  secrecy laws?

• Disclosure that wealth that was taken from Jews
  by the Germans during WW II was stored in banks
  in Switzerland
• After September 11, 2001, the U.S. realized that
  offshore financial centers may be involved in
  providing the secrecy necessary for terrorists to
  finance their plots world wide.

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Key Chapter Concepts

• How do offshore financial centers maintain
  secrecy but take action to reduce or eliminate
  money laundering and the unsavory business
  elements?

• Do some searching of offshore financial centers
• Switzerland
• Isle of Man Supervision Commission

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Key Chapter Concepts

• How do offshore financial centers maintain
  secrecy but take action to reduce or eliminate
  money laundering and the unsavory business
  elements?

• Each offshore financial center has its own set of
  laws and based on the countries culture, history
  and traditions, may hold different views of what
  is legal and what is illegal.
• For example, Switzerland does not view tax
  evasion as illegal and will not cooperate with
  foreign governments in those casesstrangely
  enough, the Swiss will cooperate in the case of
  Tax Fraud
• Bank secrecy is lifted in the case of serious
  crime like money laundering hence bank secrecy
  laws are not an impediment to controlling
  criminal activityhowever, the standards of proof
  a judge will require are high.
• Bank secrecy, in practice, is NOT lifted in
  private matters such as inheritance and divorce.

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Key Chapter Concepts

• How do offshore financial centers maintain
  secrecy but take action to reduce or eliminate
  money laundering and the unsavory business
  elements?

• Common controls in most jurisdictions focus on
  due diligence rules over bank personnel
  including
• Know your client rules (verifying the contracting
  partner, verifying the beneficial owner,
  clarification of the economic background of a
  transaction and retaining documents attesting to
  the verifications made.)
• Reporting of suspicious transactions obligation
  to inform
• Serious sanctions against bank personnel if they
  violate the rules

In addition, the lifting of bank secrecy can be
ordered by the countrys judges if there is proof
that the account is a criminal matter.
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Key Chapter Concepts

• How do offshore financial centers maintain
  secrecy but take action to reduce or eliminate
  money laundering and the unsavory business
  elements?

• Under the OECD, The Financial Action Task Force
  on Money Laundering (FATF) is an
  intergovernmental body that was set up in 1989 at
  the G7 economic summit in Paris and is open to
  most members of the OECD. Its purpose is to
  develop and promote strategies to combat
  laundering of the proceeds of criminal
  activities.
• In 1990 it implemented 40 recommendations that
  all countries are encouraged to adopt.

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Question 1

• What are the key elements that all offshore
  financial centers share?

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Question 1

• Key Elements Shared By Offshore Financial Centers
• Low or no taxes
• Services are provided mainly, but not
  exclusively, for nonresident clients
• There are no or few foreign exchange controls
• Geographical proximity to a major economy and
  good communications infrastructure
• A legal regime that upholds bank secrecy
• A high degree of political stability is also
  important no one wants to put their money into
  a country that cannot guarantee personal safety
  or the ability to extract ones funds.