Offshore Finance

HALF-TITLE......Page 3
TITLE......Page 5
COPYRIGHT......Page 6
CONTENTS......Page 7
FIGURES......Page 9
TABLES......Page 10
PREFACE......Page 13
ABBREVIATIONS......Page 21
PART I The past......Page 25
1.2 What does ‘Offshore’ mean?......Page 27
1.4 Three fundamental criteria for ‘Offshore Finance Centres’......Page 28
1.6 ‘Offshore’ in context......Page 29
1.8 Problems associated with some financial environments......Page 30
1.10 An overview of some financial centres......Page 31
1.14 Assessment criteria......Page 32
1.15 Conclusion......Page 33
2.2 Geographical dispersion......Page 34
2.3 What does ‘Offshore’ mean?......Page 36
2.4 Some working definitions......Page 39
2.5 Examples of some other definitions......Page 40
2.6 The origins and development of ‘Offshore’......Page 42
2.7 Tax havens identified......Page 51
2.8 Quantification of the size of the market......Page 57
2.9 The IMF\'s Coordinated Portfolio Investment Survey (CPIS)......Page 59
2.10 The IMF\'s Information Framework......Page 60
3.2 Why should a jurisdiction want to be a marketplace?......Page 61
3.3 The creation of a market......Page 63
3.4 Legitimacy......Page 64
3.5 Tax, regulation and confidentiality......Page 65
3.6 Tax......Page 66
3.7 Regulation......Page 67
3.8 Voluntary compliance......Page 69
3.9 Confidentiality......Page 70
3.11 What else besides tax and confidentiality?......Page 72
3.12 Standards ‘Offshore’......Page 73
3.13.3......Page 74
3.13.5......Page 75
3.13.8......Page 76
3.13.13......Page 77
3.14 ‘Offshore’ versus Onshore......Page 78
3.15 Some characteristics of \'Onshore\' finance centres......Page 79
3.16 Capital flight......Page 80
4.2 The service providers......Page 82
4.4 Examples of services available ‘Offshore’......Page 83
4.5 ‘Offshore’ banking......Page 84
4.7 International Business Companies (IBCs)......Page 85
4.9 Collective Investment Schemes (CISs)......Page 88
4.9.3 Companies......Page 89
4.9.4 Hedge funds and ‘Offshore’......Page 90
4.10 Trusts......Page 92
4.10.1 The Hague Convention......Page 95
4.10.2 Forced heirship......Page 97
4.12 Shipping......Page 98
4.14 Foundations......Page 100
4.15 Other services......Page 101
4.17 What does the consumer expect from the market?......Page 102
4.19 ‘Offshoring’......Page 104
5.1 Introduction......Page 106
5.2 In general......Page 108
5.3 Tax avoidance......Page 109
5.5 Tax evasion......Page 113
5.6.1 Example 1......Page 114
5.7 Tax competition......Page 115
5.8 Tax harmonisation......Page 116
5.9 Tax and ‘Offshore’......Page 117
5.10 Tax and ‘Offshore’ and the OECD......Page 118
5.11 Specific committments......Page 120
5.13 The Code of Conduct......Page 121
5.14 The EU Savings Tax Directive: background......Page 122
5.16 Developments......Page 123
5.17 The USA and the EU Savings Tax Directive......Page 126
5.18 Switzerland and the EU Directive......Page 128
5.19 Agreement in the EU......Page 130
5.21 The response Offshore......Page 132
5.22 ‘Offshore’ and the zero tax option......Page 133
5.24 Tax amnesties......Page 135
5.25 Controlled foreign companies......Page 137
5.26 Double tax avoidance agreements......Page 138
5.28 Global forum on taxation......Page 139
6.1 Introduction......Page 140
6.2 The rationale for regulation......Page 141
6.2.2 Market misconduct......Page 143
6.2.3 Conduct of business......Page 144
6.2.4 Information asymmetry......Page 145
6.2.5 Systemic instability......Page 146
6.3 The cost/benefit analysis......Page 147
6.4 Core values......Page 148
6.5 A medical analogy......Page 149
6.6.2 Institutional supervision......Page 154
6.6.4 Prudential regulation and supervision......Page 155
6.7 Licensing......Page 157
6.8 The \'fit and proper\' criterion......Page 160
6.9 The \'Know Your Customer\' criterion......Page 162
6.10.1 Investment Services Directive......Page 163
6.10.2 Capital Requirements Directive......Page 165
6.10.3 Basel Capital Accord......Page 166
6.10.4 Basel II......Page 167
6.11 The single passport......Page 170
6.12 Conduct of business......Page 171
6.13 Regulation and crises......Page 172
6.14 Regulation in practice......Page 173
6.15 Self-regulation......Page 175
6.16 The Twin Peaks model......Page 177
6.17 Regulation Offshore......Page 178
6.17.1 Trust and company services providers......Page 179
6.18 Auditors and accountants......Page 181
6.18.1 Reporting accountants......Page 184
6.19 Supervision......Page 185
6.20 The UK model......Page 187
6.21 Consolidated supervision......Page 189
6.22 Compliance......Page 191
6.22.1 Risk-based supervision......Page 193
6.23 Memoranda of Understanding......Page 194
6.24 A critical success factor......Page 195
6.25 The European Central Bank......Page 196
6.27 Regulatory independence......Page 197
6.29 Summary......Page 199
7.1 Introduction......Page 201
7.2 Evolving financial services......Page 202
7.3 Regulatory structures in practice......Page 203
7.4 The single regulator......Page 204
7.6 Training and experience......Page 207
7.6.1 \'Onshore\'......Page 209
7.6.2 ‘Offshore’......Page 210
7.7 Operational implications......Page 211
7.8 Is there an answer?......Page 214
7.9 Boards......Page 215
7.10 Enforcement......Page 216
7.12.1 Phase 1: new......Page 218
7.12.2 Phase 2: young......Page 220
7.12.4 Phase 4: mature......Page 222
7.13 Regulatory immunity......Page 223
7.14 Conclusion......Page 224
8.1 Introduction......Page 226
8.2 Which jurisdictions are most at risk?......Page 227
8.3 United Nations initiatives......Page 228
8.3.1 Money laundering defined......Page 229
8.4 The criminalisation of money laundering......Page 230
8.5 A summary of some problems arising......Page 231
8.6 Money laundering and Offshore......Page 233
8.7 Action taken by OFCs to prevent money laundering......Page 234
8.8 The fight against money laundering......Page 235
8.9 Financial Intelligence Units......Page 238
8.10 The Egmont Group......Page 239
8.11 Alternative remittance systems......Page 241
8.13 \'Customer Due Diligence for Banks\': a Basel Committee paper......Page 242
8.14 Terrorist financing......Page 244
8.15 The EU and anti-money laundering......Page 246
8.16.2 Customer due diligence for banks......Page 248
8.17 Future action......Page 249
8.18 FATF and IMF/World Bank......Page 251
8.19 Assets recovery......Page 252
9.2 Bank for International Settlements......Page 254
9.3 Basel Committee on Banking Supervision......Page 255
9.3.2 The revised Concordat......Page 256
9.3.4 The Minimum Standards......Page 257
9.4 Overview of the work of the Basel Committee......Page 258
9.4.3 Capital adequacy......Page 259
9.5 Committee of European Securities Regulators......Page 260
9.6 The Enlarged Contact Group on the Supervision of Collective Investment Funds......Page 262
9.7 The European Union......Page 263
9.8 The Financial Action Task Force......Page 264
9.10 The Financial Stability Forum......Page 265
9.11 G7/G8/G10......Page 266
9.12 G20......Page 267
9.14 The International Association of Insurance Supervisors......Page 268
9.15.1 The context......Page 269
9.15.3 The Creation of the IMF......Page 270
9.16 International Organization of Securities Commissions......Page 271
9.18 The International Trade and Investment Organization......Page 274
9.21 The Offshore Group of Banking Supervisors......Page 275
9.22 The Offshore Group of Insurance Supervisors......Page 277
9.24 The Organization for Economic Cooperation and Development......Page 278
9.27 The World Bank......Page 279
9.27.4 The Multilateral Investment Guarantee Agency......Page 280
9.27.5 The International Centre for Settlement of Investment Disputes......Page 281
PART II The present......Page 283
10.2 The work of the Financial Stability Forum......Page 285
10.3 Some reactions to the FSF Report......Page 290
10.4 A comment......Page 292
10.5 The International Monetary Fund......Page 293
10.6 The International Monetary Fund and OFCs......Page 294
10.7 The IMF\'s OFC Assessment Program......Page 295
10.7.2 Module 2 assessments......Page 296
10.8 Financial System Stability Assessments......Page 297
10.9 Financial Sector Assessment Programs......Page 298
10.10 Standards......Page 301
10.10.1 Reports on the Observance of Standards and Codes (ROSCs)......Page 302
10.11 Anti-money laundering and combating the financing of terrorism......Page 303
10.12.1 2001......Page 304
10.12.2 2002......Page 305
10.12.3 2003......Page 306
10.12.4 2004......Page 307
10.12.5 2005......Page 309
10.13 The OFC programme: phase 2......Page 310
11.2 The work of the Financial Action Task Force......Page 311
11.3 Non-cooperative countries and territories......Page 313
11.4 Some negative comment......Page 318
11.5 Some positive comment......Page 319
11.7 11 September 2001......Page 320
11.8 The Forty Recommendations......Page 323
11.9 Joint working of the World Bank, the IMF and the FATF......Page 325
11.10 Membership......Page 326
11.11.2 Caribbean Financial Action Task Force......Page 327
11.11.4 Eastern and Southern Africa Anti-Money Laundering Group (ESAAMLG)......Page 328
11.11.7 Middle East and North Africa Financial Action Task Force (MENAFATF)......Page 329
11.12 Update......Page 330
12.1 Introduction......Page 331
12.2 OECD Report on Harmful Tax Competition......Page 332
12.3.2 April 1998......Page 333
12.3.3 1999......Page 335
12.4.1 June 2000......Page 336
12.6 Two approaches......Page 339
12.8 Exchange of information......Page 341
12.9 Even more commitments......Page 342
12.11 Some reactions to the OECD\'s 1998 Report......Page 343
12.12 The Center for Freedom and Prosperity......Page 347
12.13 Some clarifications by the OECD......Page 348
12.14 Behind the corporate veil: using corporate entities for illicit purposes......Page 349
12.14.1 Disclosure to the authorities ab initio......Page 350
12.14.3 Reliance on an investigative system......Page 351
12.16 OECD Global Forum on Taxation......Page 352
12.17 Behind the corporate veil......Page 353
PART III The future......Page 355
13.2 Background......Page 357
13.3 The extent of the problem......Page 358
13.4 Some underlying principles......Page 359
13.5 Are there any common features in frauds Offshore?......Page 360
13.6.1 BCCI......Page 361
13.6.2 Enron......Page 364
13.7 Some ‘Offshore Centres’ in particular......Page 365
13.7.1 Switzerland......Page 366
13.7.2 Seychelles......Page 367
13.8 A balanced perspective......Page 368
14.2 Some quotable quotes......Page 369
14.4 The Abacha affair......Page 370
14.5 Corporate governance......Page 371
14.5.2 USA......Page 374
14.5.3 Parmalat......Page 375
14.5.6 Banca Antonveneta......Page 379
14.6 A long list......Page 380
14.7 Bearer shares......Page 381
14.9 A closing comment......Page 382
15.2 Economic expedience......Page 383
15.3 The services of OFCs are in demand......Page 386
15.4 Small islands offer a conducive infrastructure......Page 387
15.5 There is a natural good fit......Page 389
15.6 The involvement of outsiders......Page 390
15.7 Apparent dominance of finance within the economy......Page 391
15.8 Lack of influence externally......Page 392
15.9 Currency of advantages......Page 393
15.11 Value of the business generated......Page 394
15.13 Conclusion......Page 395
15.14 Population Density Comparatives......Page 396
16.2 What is the problem?......Page 397
16.3 What do we know?......Page 398
16.4.2 Aruba......Page 400
16.4.5 Bermuda......Page 401
16.4.6 British Virgin Islands......Page 402
16.4.8 Cook Islands......Page 403
16.4.11 Guernsey......Page 404
16.4.13 Isle of Man......Page 405
16.4.15 Labuan......Page 406
16.4.18 Malta......Page 407
16.4.19 Mauritius......Page 408
16.4.23 Switzerland......Page 409
16.4.25 Turks and Caicos......Page 410
16.4.26 Vanuatu......Page 411
17.1 Introduction......Page 412
17.2 Is London an ‘Offshore Finance Centre’?......Page 413
17.3 The Edwards Report......Page 414
17.5 The UK\'s overseas territories......Page 415
17.6 The KPMG Report......Page 417
17.8 Anti-money laundering......Page 419
17.9 Problems in the UK......Page 422
17.10 Companies and trust service providers......Page 423
18.1 Introduction......Page 424
18.2 Is the USA an ‘Offshore Finance Centre’?......Page 426
18.4 The link to ‘Offshore’......Page 428
18.5 Money laundering and the USA......Page 429
18.8 \'Know your customer\'......Page 430
18.9.1 Nevada......Page 431
18.9.2 Delaware......Page 432
18.11 The US and the OECD\'s Harmful Tax Initiative......Page 434
18.12 The USA Patriot Act......Page 435
18.12.1 UN Convention for the Suppression of the financing of Terrorism......Page 437
18.14 Corporate inversion......Page 438
18.15.1 General......Page 439
18.15.2 Citigroup......Page 440
18.15.3 Xerox......Page 441
18.15.4 Mutual funds......Page 442
18.15.7 Riggs National Bank......Page 443
18.16 Sarbanes–Oxley Act......Page 444
19.2 What are the issues?......Page 446
19.3 Global financial stability......Page 447
19.4 The money laundering threat......Page 450
19.5 Tax evasion......Page 453
19.7 Summary......Page 455
20.2 A glimpse of the future......Page 457
20.3 Do observers believe that ‘Offshore’ will continue to exist?......Page 462
20.4 The influence of the work of the supranational autorities......Page 466
20.5 Is the focus appropriate?......Page 467
20.6 Regulation......Page 471
20.7 Aspiring OFCs......Page 472
20.8 A step in the right direction......Page 475
20.9 The future summarised......Page 477
20.10 What about products for the future?......Page 486
21.2 The significance of reputation......Page 489
21.3 What\'s in a name?......Page 491
21.4 Stability and credibility......Page 493
21.5 The components of a good reputation......Page 494
21.7 Three perspectives......Page 495
21.7.2 The service providers......Page 496
21.7.3 The consumer......Page 497
21.8.2 Economic stability......Page 498
21.8.4 Credibility......Page 499
21.9 In summary......Page 500
22.1 A thumbnail sketch......Page 503
22.2 Relative newness of regulation......Page 504
22.3 A middle course......Page 506
22.4 The ‘Offshore’ stigma......Page 508
22.5 Is the stigma warranted?......Page 509
22.6 The rationale for ‘Offshore’......Page 510
22.7 Concluding remarks......Page 512
Appendix 1 Tables......Page 515
Appendix 2 Some useful websites......Page 555
INDEX......Page 558