A lack of real transparency is the common criticism of offshore financial service centres (OFCs) in the submissions made to the UK Treasury Select Committee. The Cayman Islands, along with many other offshore jurisdictions, is criticised over the cloak of secrecy perceived to enable transnational corporations and high net worth individuals to evade their tax obligations, corrupt regimes to flourish and international financial crime to pay.
Some twenty-seven submissions have been made in response to the UK Treasury Select Committee’s request for written evidence for its report into the impact of OFCs on the international economy. While many of the submissions came from offshore governments such as the Cayman Islands and interested associations such as Society of Trust and Estate Practitioners (STEP), seven of the submissions came from academics and NGO’s which were critical of OFCs, citing them as a particular evil in the global economy.Professor E. FitzGerald from the University of Oxford said that international security is threatened by the routing of criminal funds through OFCs. “The key attraction of offshore financial centres is secrecy,” he added in the university’s submission, explaining that the school is currently involved in a major research programme with the European Community to establish empirically the extent to which OFCs provide an effective cover for criminal transactions.
According to a submission by the University of Birmingham: “The secrecy and opacity provided by the offshore financial centres, and most crucially, the manipulation of ownership which had developed due to non-existent, or in most cases, de facto loose regulation of new financial entities and their functions, facilitated the construction and maintenance of liquidity illusions in the markets.”Other critical submissions follow in a similar vein, with the most damning criticisms coming from NGOs and in particular the Tax Justice Network as reported on CNS.
The Cayman Islands Government, the Cayman Islands Financial Services Association and Maples and Calder submitted evidence in defence of Cayman and the principle of OFCs.“Rather than being a threat to the world’s financial stability the Cayman Islands provides the international business community with a stable and neutral jurisdiction through which to facilitate international and cross border business for the benefit of the global economy,” Maples said. The local law firm also explained the issue of secrecy and denied that this was a fundamental attraction for business. “Cayman Islands entities are used for a wide range of legitimate business purposes and for a variety of reasons, the respective weighting of which will depend on the circumstances.
Secrecy (in the sense of concealing information that would otherwise be available to appropriate parties, such as auditors, investors, lenders, counsel, counterparties and regulatory authorities) is not a driving motivator for reputable business coming to the Cayman Islands.”The CIFSA also noted that in comparison with international best practices the Cayman Islands is a highly transparent jurisdiction. “It has participated in international statistical initiatives such as its reporting of data to the BIS and the IMF for many years.
The Cayman Islands Monetary Authority (CIMA) also provides extensive data on its website on the financial services sector. Viewers can search for all licensed entities by name; can obtain information on the size, nature, geographical origins of the industry’s aggregated transactions and a host of other information from the website,” declared the CIFSA.The government too played its part in defending Cayman’s position on the world stage as a positive rather than negative force. “Centres such as the Cayman Islands have a high degree of visible, commercial integration with large OFCs which generates and supports employment, income and material and efficient global flows of investment,” the CI Government submission said. “There is no credible evidence that the use of financial centres by non-residents has created any disproportionate risk to financial stability. All countries whether OFCs or not have a responsibility to implement the prevailing international regulatory standards as they relate to the activity regulated by their respective domestic supervisors.
Far from being dysfunctional threats, small tax havens/OFCs score very well on measures of governance quality. As a corollary, one would reasonably expect such jurisdictions to be inherently pre-disposed to supporting global financial stability.”The idea that offshore jurisdictions fare no worse and in some cases fare better than onshore jurisdiction was also noted in the UK’s own Financial Services Authority report, which took the position that each jurisdiction should be measured on its own merits in relation to compliance rather than the idea of offshore versus onshore.
In a submission that is bound to carry significant weight, the FSA said it does not draw any distinction between OFCs and other foreign jurisdictions, but the level of cooperation received from OFC regulators has generally been good and has not typically been determined by factors that are unique to OFCs.“Increasingly, financial institutions in primary onshore centres demand high operational and regulatory standards in OFCs with which they are associated,” the FSA said. Moreover the regulatory body concluded that its main concern was the promotion of the implementation of international standards of regulation, transparency and cross-border cooperation. “The FSA does not see these issues as being specific to OFCs, however defined, and it will continue to advocate that the performance of individual jurisdictions should be judged on their own merits, rather than under some generic label.”