Offshore Tax Havens and International Financial Centres
The Rise of International Finance Centres
The stereotype associated with the words ‘offshore tax haven’ is depicted with many negative connotations, many of which are often exaggerated depictions and plagued with erroneous associations. Accompanying imagery brings up tropical Caribbean destinations in which greased whiten linen suit wearing mafioso types hand over briefcases full of unmarked currency to a local attorney who launders the money through an intricate series of offshore transfers.
The exaggerations, largely conjured up through Hollywood blockbusters, fills the head with such conceptualizations by exploiting the publics craving for tabloid-like headlines. As if often the case, the reality is a far cry from the romanticized picture captured by the camera.
The offshore industry is largely a result of the increasingly globalized nature of the worlds financial and commercial systems that have all but demolished territorial boundaries. This opening gave way for the utilization of local resources for global demand opening up once localized areas of commerce to an international market. As a result, companies with business and financial transactions that were mostly trans-national, became aware of the purposelessness of paying taxes in high-tax jurisdiction. Like any self-fulfilling liberal economy, wherever there is a demand, a supplier is never far behind - and offshore tax-efficient structures filled the gap.
The inherent nature of a liberalizing global financial system is that it brings forth innovation by continuing to reinvent itself both from within and in response to the continually shifting global climatic forces. Far from how it is often characterized, the offshore industry grew as a natural and viable response to the changing global economic landscape.
It is not surprising therefore, that the offshore industry has had to re-brand itself, given the current stigmatization and in response to the tightening regulations executed by global financial authorities such as FATF and OECD. Hegemonic governments have co-opted many of the multilateral institutions and have made them their mouthpiece for disseminating their own political agenda. Consequently, smaller nation states, and targeted offshore jurisdictions, are forced to adopt such agreements due to economic and political pressure.
As a result, the term International Financial Centre (IFC) has increasingly been used as an alternative to the now tainted offshore tax haven, blurring any former distinction between former offshore tax havens and traditional international financial centres.