Hay, Richard: Offshore Financial Centres – The Supranational Initiatives

The world’s financial centres are undergoing rapid changes to accommodate the demands of an increasingly integrated global economy. The G7 countries are driving such changes through their continued support for the actions of several supranational agencies, particularly the Organisation for Economic Co-operation and Development, the Financial Action Task Force and the Financial Stability Forum.
Initiatives launched by these agencies foreshadow changes in the legislative and regulatory infrastructure of all international financial centres, particularly the so-called “tax haven” or “offshore” centres.

The success of the offshore world has led to scrutiny of such centres by onshore governments and their agencies. Explicit expressions of competitive concerns about “harmful tax” régimes have muted recently, but onshore governments remain apprehensive that the high levels of confidentiality traditionally available offshore invite illicit activity. The articulated rationales for change include the perceived needs to (i) counter money laundering, (ii) promote transparency to enhance onshore tax enforcement, and (iii) improve regulation in all international financial centres to limit global financial risks.

The debate over changing standards was conducted at the outset by lobbing bombs over the fence, particularly between the OECD Committee on Fiscal Affairs and the so-called “tax havens”. However face-to-face dialogue between parties has softened negotiating positions and promoted better understanding of mutual interests. Accordingly, while the offshore centres remain committed to a robust defence of legitimate national interests, the current tone of discussions is increasingly constructive. There is now an improved prospect that the debates will lead to a resolution that takes reasonable account of the interests of all parties.

This paper considers the current complex and overlapping supranational initiatives proposing changes in the regulation of offshore financial centres. The underlying rationales for change are considered, as are the likely and appropriate responses for the stakeholders in the offshore centres, including governments, financial institutions and clients.

The author has acted for the Government of The Bahamas in these matters so this paper makes particular note of their response in the detailed discussion of the supranational initiatives. Views expressed herein are personal and do not necessarily represent those of The Bahamas Government.