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.[64] 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.[65]
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.[66] The offshore centres 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 & Poors downgraded its rating for a top Liechtenstein bank.[67]
In fact, weaknesses in a countrys financial system invite danger as they grant opportunities to international criminals to manipulate the system of their own advantage.[68] 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.[69]
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. [70]
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. [71]
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. [72] 
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