Given the high regulatory standards that now exist in recognized OFCs, why does the negative campaigning continue?

After several years of legislative changes to improve standards of transparency in the offshore financial centers–many of which have established regulatory frameworks that far exceed that applicable in most OECD jurisdictions –recognition of these improvements is long overdue.

No doubt should exist that these new standards have resulted from the highly successful OECD initiatives and in part from the pressure applied by the FATF with regard to money laundering. However, given that those standards have now been introduced, why is it the case that no one has yet turned off the spigot that controls the negative information used to shape public opinion prior to these initiatives?

Press releases that emanate from treasury departments in the G-7 countries still relentlessly press on the subject of the offshore money laundering scourge. If this were an even-handed and objective debate, the offshore jurisdictions should now be anticipating from the OECD a more mature recognition of that which has been achieved. Indeed, if there were any degree of probity in the debate, some pause for reflection of that sort would be appropriate to allow many of the onshore jurisdictions time for their legislation to catch up.

But it seems that the offshore financial centers are entitled to no such recognition from the G7 countries, nor their treasury departments. Perhaps there is doubt remaining within those treasury departments as to whether or not the OECD has successfully moved the goal posts to include tax offenses within the definition of money laundering.

The better and more compelling answer is that suggested by last year's report titled "Towards a Level Playing Field," prepared by the international law firm, Stikeman Elliott. The G7 nations' application of a double standard is primarily driven by the need to prevent an outflow of mobile capital from the high tax European Union jurisdictions, where the fear of budgetary deficits, unfounded pensions and uncompetitive levels of social security spending make increased levels of taxation a foregone conclusion.

To the treasury departments in these jurisdictions, globalization and mobile capital are the weapons of mass destruction; no wonder the events of September 11 have been so conveniently hijacked by those treasury departments keen to maintain political momentum against those offshore financial jurisdictions which, in their eyes, harbor the threat.


In light of the foregoing, it may be naïve to suppose that there is room for objective analysis on the part of the OECD or FATF countries. In a proper forum, however, the argument would be advanced that well regulated and transparent offshore financial centers have an important part to play in enabling onshore institutions to access the international capital markets, reducing reliance on bank and quasi-bank funding and therefore the cost of borrowing.

To make the point as was made by Alan Greenspan most recently, the reason why a current banking crisis may have been averted in the G7 countries has a great deal to do with the financial engineering and risk transference that is an essential part of the bankruptcy remote vehicle structured in the offshore financial center for the benefit of onshore financial institutions.

Unless and until there is a more realistic assessment by the G7 countries of the policies that drive mobile capital and of the realistic relationship of the offshore financial centers and the onshore markets, it is unlikely that the public relations machines that have been responsible for forming negative public opinion about the offshore financial centers will be reined in.

On any objective analysis, the debate and the public relations campaigns have become dangerously unbalanced. Clearly, if those responsible for forming public opinion on these matters are truly intent on cooperation and a globally transparent system, then the deliberate disinformation and disingenuity that underlies this negative campaigning does not form the basis on which to forge any meaningful relationship.

It is this relentless bias that poses a systemic risk. As it stands, there are hundreds of billions of dollars of well-structured financial transactions based in well regulated and transparent offshore financial centers with excellent professional infrastructure to support them, all of which are inextricably linked to the financial position of financial institutions in OECD countries. One possible outcome is the flow of these funds to infinitely less transparent centers where the writ of the OECD does not run, with costly dislocation to the current financial architecture.

If the financial condition of the G7 economies were robust, that would be a brave enough risk to take. In the current climate, it seems ill considered, but would have the ancillary benefit of establishing beyond reasonable doubt the existence of the law of unintended consequences.

At the least, those responsible for the negativity should realize that their position is becoming increasingly untenable. By acceding to the OECD and FATF initiatives, a number of offshore jurisdictions have changed the rules of the game objectively and transparently so. As a result, their standing has been necessarily enhanced in the eyes of the financial institutions who access the international capital markets. That should be regarded by all as a positive outcome and should be described as such.

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